By Neil Ainger
Benjamin Lawsky. The name has a certain ring to it doesn’t it? Even the surname hints at his profession as a lawyer and evokes images of other great Gotham-based crime fighters of the past such as Rudy Giuliani, the untouchables’ Eliot Ness or even that other Eliot who didn’t end up so well, Eliot Spitzer, who famously prosecuted AIG and white collar financial crime before falling ignominiously after being caught up in a vice ring.
Why is this latest New York-based crime fighter a person of interest? Well, last week Benjamin Lawsky, acting as head of New York’s crusading Department of Financial Services (DFS), fined the London headquartered Standard Chartered bank US$340m for violating sanctions by facilitating trading with Iran. His controversial move, coming hot on the heels of the Libor manipulation scandal and the investigation into HSBC over its dealings with Mexican drug money, which caused its head of group compliance, David Bagley to resign, has led some in the big smoke – as the UK capital is also known – to question if Gotham is gunning for it? Does New York want its international banking business back after losing so much of it in the 1990s to London after the big multinational US banks like JP Morgan set up offices in the big smoke? And is Gotham’s new head of the emergent DFS regulatory body the instrument to prosecute this trans-Atlantic war?
Lawsky’s accusation that Standard Chartered, the UK’s fifth largest bank and a long established name in the City of London with considerable business dealings in emerging African and Asian markets, was a “rogue” bank and that its laundering “indisputably helped sustain a global threat to peace and stability” drew a rebuke from the governor of the Bank of England, Mervyn King, and from the mayor of London, Boris Johnson, who said that: “You can’t help thinking it might actually be at least partly motivated by jealousy of London’s financial sector – a simple desire to knock a rival centre.”
All this was before Standard Chartered agreed to pay the US$340m fine at the last minute ahead of a hearing scheduled for 15 August in New York, at which the bank had been called to demonstrate why its license to transact business in ‘Gotham city’ should not be revoked over allegations that it had broken US sanctions on Iran by concealing transactions worth US$250bn from regulators.
Standard Chartered said in a prepared statement that, "it was a pragmatic decision in the best interest of shareholders and customers", and also agreed to an outside monitor being appointed for at least two years to check on its money laundering controls at its New York City branch.
The whole furore has caused some in London to wonder if this trend if going to continue? In 2010, Barclays – even before the damaging Libor manipulation case erupted – paid US$298m to settle a joint money laundering probe with federal and New York authorities. Another big London bank, Lloyds, paid US$350m after failings in its sanctions screening procedures. The latest moves against London-based banks this year has caused some speculation about a war on the big smoke from the Gothamites, but how justified is this opinion really?
Credit Suisse Group, for instance, was fined US$536m at the same time as Lloyds and ING was fined US$619m for poor sanctions screening – neither are august London-based banks even though they have some operations there. Indeed the US could claim that London is in fact damaging the standing and the bottom lines of its own banks and financial sector – just look at the damaging activities of the so-called London whale trader, Bruno Iksil, who cost JP Morgan at least US$4.4bn in bad derivatives trades and sharp practices causing himself and Ina Drew, the ex-head of the chief investment office, to depart the bank. Who is really damaging who, it might justifiably be asked?
Lawsky's very aggressive stance heightened his public profile just months after the Department of Financial Services was created out of the state's banking and insurance regulators. Shortly after the Standard Chartered deal was announced, New York Governor Andrew Cuomo praised the "effectiveness and leadership" of the new agency. "New York needed a tough and fair regulator for the banking and insurance industries to protect consumers and investors," he said.
They’ve certainly got a tough new advocate for financial fair play now, but not necessarily a collegiate one and some have questioned if Lawsky’s stance was intended to justify the new department. Standard Chartered, for instance, still faces a two-year probe into its Iran-linked transactions by the US Treasury, the Federal Reserve and the Justice Department, all of whom Lawsky acted independently of. "It's very unfortunate this wasn't done as a global state and federal settlement," said Ed Wilson, a former senior attorney at the US Treasury Department, referring to the US$340m fine.
It will also be very unfortunate if Lawsky’s actions do lead to a trans-Atlantic argument between the big smoke and Gotham, both of whose financial services sectors have boomed over the past few decades in cooperation and because of deregulation. An argument serves no ones’ purposes and London doesn’t have too much to complain about in my opinion – just as New York City’s banks are no angel in this regard either: Abacus anyone?
Perhaps the deregulation has gone too far on both sides of the ‘the pond’ and we need a new crime-buster to clean up the whole shebang? Let’s hope this particular Eliot Ness-type figure doesn’t have such a spectacular fall from grace as the other Eliot who was last crusading against white collar crime from New York City. Watch this space, though, as Lawsky is bound to make many more headlines yet.