Standard Chartered’s shares plunged by 8 billion pounds ($12.5 billion) this morning, after New York state regulators accused the U.K. bank of laundering money for Iran.
The charges against it were a shock for a bank, and its share price tanked 23% to 11.33 pounds by early afternoon trading on the London Stock Exchange.
Its falling shares affected the main FTSE 100 index in London, one of the only European leading indexes to trade lower; the bank makes up 1.5% of the index’s overall market value.
In Hong Kong—where the bank’s shares are also listed—they finished 14.9% lower.
New York State Department of Financial Services alleged on Monday that Standard Chartered schemed with the Iranian government to launder $250 billion from 2001 to 2007, leaving the U.S. financial system vulnerable to terrorists.
Standard Chartered says it strongly rejects the allegations. In a statement, the bank said well over 99.9% of the questioned transactions with Iran complied with all regulations, and the exceptions amounted to $14 million.
Last week, Standard Chartered’ chief executive, Peter Sands, boasted the bank’s racked up a 10-year string of record first-half profits “amidst all the turbulence in the global economy and the apparently never-ending turmoil in the world of banking.”
“It may seem boring in contrast to what is going on elsewhere, but we see some virtue in being boring,” Sands added.
The New York regulator ordered Standard Chartered reps to appear in New York City on Aug. 15 to explain these violations of law and to demonstrate why its license to operate in the State of New York should not be revoked.
Gary Greenwood, analyst at Shore Capital in London, says the possible revocation of the New York license was of far greater concern than any potential fine, which could run into hundreds of millions of dollars.
Standard Chartered’s U.S. operation facilitates trade for customers that have operations in both the U.S. and emerging markets.
“Indeed, this is an area of the business that has been highlighted by management for growth,” Greenwood says. “A loss of its U.S. banking license would not only jeopardize part of this profit stream, but also the associated reputational damage could also have a severely damaging impact to its operations within emerging markets.”
The New York agency alleged Standard Chartered conspired with Iranian clients to route nearly 60,000 different U.S. dollar payments through Standard Chartered’s New York branch, “after first stripping information from wire transfer messages used to identify sanctioned countries, individuals and entities.”
If proven, the scheme would violate state money-laundering laws. The order also accuses the bank of falsifying business records, obstructing governmental administration, failing to report misconduct to the state quickly, evading federal sanctions and other illegal acts.
Between 2004 and 2007, about half the period covered by the order, the department claims Standard Chartered hid from and lied about its Iranian transactions to the Federal Reserve.
Before 2008, banks were allowed to transact some business with Iran, but only with full reporting and disclosure, the order states.
In 2008, the U.S. Treasury Department stopped those transactions because it suspected they helped pay for Iran to develop nuclear weapons and finance terrorist groups, including Hamas and Hezbollah.
The bank now has to provide information and answer questions to determine if any of the funding aided the groups or Iran’s nuclear program.
The accusations deal a further blow to London’s reputation as a stable and reliable financial centre.
Not only was Diamond, the chief executive of Barclays, forced to step down recently after the bank manipulated a key interbank interest rate, HSBC was fined for failing to stop money laundering in Mexico. And U.S. bank JPMorgan suffered a huge trading loss in its London office, which caused a landslide of troubles.
Additionally, five of the U.K.’s biggest banks have set aside almost £9 billion to cover claims they allegedly sold unsuitable loan insurance to customers—one of the most costly consumer scandals on record, reports Financial Times.
This particular scandal, though, is helping rather than harming the economy; data suggests the refunds to clients may be boosting Britain’s economy more than government growth initiatives.