Standard Chartered
Standard Chartered may be suspended from doing business in New York Reuters

Standard Chartered shares fell the most in more than four years in early London trading after the New York State authorities accused the bank of acting as a "rogue institution" that hid $250bn worth of transactions tied to Iran and threatened to take away its US banking licence.

The UK-listed bank, which earns the bulk of its profits in emerging markets, vehemently denied the accusations made by the state Department of Financial Services (DFS) in a statement released Tuesday.

"The Group strongly rejects the position or the portrayal of facts as set out in the order issued by the DFS," said Standard Chartered's statement. "The Group had previously reported that it is conducting a review of its historical compliance and is discussing that review with US agencies, including the DFS, the Department of Justice, the Office of Foreign Assets Control, the Federal Reserve Group of New York and the District Attorney of New York. The disclosure appears in our Annual Results of 2010, 2011 and, again most recently, in the 2012 Interim Results in the Risk Review section at p.21 under Regulatory Changes and Compliance."

Standard Chartered shares plummeted by nearly 20 percent at one stage in the opening hour of London trading before settling in at 1,237.5, a 16 percent fall, by 0840 BST. It's Hong Kong-listed shares suffered the biggest intra-day fall on record at one stage during the session after a 20.7 percent plunge to HK$149.0.

The bank said that in January 2010 it had voluntarily approached all relevant US agencies, including the DFS, and informed them that we had initiated a review of historical US dollar transactions and their compliance with US sanctions.

"This review focused primarily on transactions relating to Iran in the period 2001-2007, and in particular, their compliance with the U-turn framework established by the US authorities to enable ongoing US dollar trade with Iran by other countries," said the bank.

It emphasised that the review was conducted by external counsel and external consultants and the firm waived its attorney-client and work product privileges to ensure that all the US agencies would receive all relevant information.

"The Group also gave regular updates and presentations to the DFS and the other agencies on the results of the Group's investigation. The materials included several thousands of pages of documents and interview notes, plus analysis of approximately 150 million payment messages," said Standard Chartered. "The Group does not believe the order issued by the DFS presents a full and accurate picture of the facts. The analysis, that the Group shared with all the US agencies, demonstrates that throughout the period the Group acted to comply, and overwhelmingly did comply, with US sanctions and the regulations relating to U-turn payments. As we have disclosed to the authorities, well over 99.9 percent of the transactions relating to Iran complied with the U-turn regulations. The total value of transactions which did not follow the U-turn was under $14m."

The DFS accused Standard Chartered that it had "schemed" with the Iranian government and hid from law-enforcement officials 60,000 secret transactions in order to generate hundreds of millions of dollars in fees.

The regulator said that the actions exposed the US banking system to terrorists, drug traffickers and corrupt states.

Standard Chartered said that it believes that the interpretation reflected in the DFS' order, of the U-Turn exemption - a federal regulation administered and enforced by federal authorities - is "incorrect as a matter of law."

"The Group's review of its Iranian payments also did not identify a single payment on behalf of any party that was designated at the time by the US Government as a terrorist entity or organization," said the group. "Standard Chartered ceased all new business with Iranian customers in any currency over five years ago. The Group has made presentations to the DFS and other US agencies concerning the strength of its global sanctions compliance programme during the period under review and through to the present day."

The case seems to echo the recent case of where HSBC was found guilty of having inadequate systems and controls in place that allowed money to be laundered through its US arm for drug cartels and terrorists.

In a similar move, regulators have also threatened to strip Standard Chartered of its US banking licence, which would therefore cut off direct access to the US bank market worth $190m worth of client money processing daily.

"Standard Chartered is engaged in ongoing discussions with the relevant US agencies. Resolution of such matters normally proceeds through a co-ordinated approach by such agencies," said the statement. "The Group was therefore surprised to receive the order from the DFS, given that discussions with the agencies were ongoing. We intend to discuss these matters with the DFS and to contest their position. The Group takes its responsibilities very seriously, and seeks to comply at all times with the relevant laws and regulations. It is in this spirit we initiated this review and have engaged with the US agencies."