Fordham Law


Standard Chartered Fine Spotlights New Regulator on the Block

Annemarie McAvoy in Law.com, August 16, 2012

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The New York Department of Financial Services’ $340 million settlement with Standard Chartered Bank over money-laundering allegations made history Tuesday: its was the largest fine over money laundering collected by a single U.S. regulator. And for financial institutions operating in the Empire State’s banking hub, the settlement—overseen by an agency that’s only nine months old—also marks a new chapter in an era of increased scrutiny over money laundering.

Now banks operating in the U.S. have to seriously reckon with one more regulatory authority.

“New York has a lot of power, and can exert a lot of control, but it hasn’t historically,” says Fordham University School of Law professor Annemarie McAvoy, a former federal prosecutor and a former in-house counsel at Citigroup and Morgan Stanley.

The Standard Chartered settlement changes that. The Department of Financial Services, McAvoy continues, “wanted to make a statement here. They’re now a player.”

Last year, New York Governor Andrew Cuomo created the NYDFS by merging the state’s Banking Department (which had been in existence since 1851) and its Insurance Department, championing the move as one that would “better regulate modern financial services organizations.”

Just last week, the department, headed by Superintendent Benjamin Lawsky, stunned regulators in the U.S. and the U.K. alike—not to mention the U.K.-listed Standard Chartered plc—with a 27-page complaint [PDF], alleging that the bank violated U.S. sanctions against Iran and schemed with the Iranian government to hide $250 billion in transactions from U.S. regulators (complete with help from its in-house lawyers).

The U.S. Department of Justice and the Manhattan District Attorney’s office had already been probing activities at the bank, as well. Nevertheless, Lawsky went ahead and threatened to revoke the bank’s New York operating license at a public hearing scheduled for this week.

Compared to negotiations with federal regulators that can take years to sort out, the superintendent’s quick decision represented a stark departure from that approach. “These folks put them right to the test,” says McAvoy. “Here they said, ‘Tell us why we shouldn’t take your license.’ It’s a very different negotiating tack.”

This aggressive approach seems to have paid off. Standard Chartered’s chief executive Peter Sands hopped a flight to New York over the weekend to negotiate with the regulator. And while the bank continues to balk at the extent of the money laundering alleged, it agreed to not only to the monetary settlement, but also to the adoption of outside compliance monitoring in its New York branch.

The case goes to show that the interests of multiple regulators operating in the same space are not identical, says Richard Scheff, firm chairman at Montgomery, McCracken, Walker & Rhodes, and former assistant secretary for law enforcement at the U.S. Treasury Department. Adding to an already “complicated enforcement landscape,” this newest New York regulator is “another force to be reckoned with,” he says.

For in-house counsel at financial institutions, McAvoy says it’s worthwhile to keep an eye on all the regulators on the horizon. “You have to be cognizant that there are a lot regulators, and you have to keep them all happy,” she says. “Try to keep open lines of communication with them. Try to be forthcoming. Try to work with them if there’s any inkling at all that they’re unhappy with you. Try to find out what’s going on. Try to get ahead of it.”