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Will Any Executives at Standard Chartered Be Punished?

David Callahan

Well, that was quick.

One day Standard Chartered bank and its powerful allies are complaining that New York's bank regulator, Benjamin Lawsky, has overreached and saying that, at most, they had laundered only $14 million for Iran. The next day -- as in today -- Standard Chartered is agreeing to pay a $340 million civil penalty to settle Lawsky's suit and agreeing, explicitly, that Lawsky's original figure of laundered funds -- a whopping $250 billion -- was correct. 

So far, we only have the barest details about the settlement. Here they are, from Lawsky's press release:

  • The Bank shall pay a civil penalty of $340 million to the New York State Department of Financial Services.
  • The Bank shall install a monitor for a term of at least two years who will report directly to DFS and who will evaluate the money-laundering risk controls in the New York branch and implementation of appropriate corrective measures. In addition, DFS examiners shall be placed on site at the Bank.
  • The Bank shall permanently install personnel within its New York branch to oversee and audit any offshore money-laundering due diligence and monitoring undertaken by the Bank.

As usual with these settlements there is a big focus here on changing future behavior so that illegal activity of this kind doesn't happen again. That's good.

What's bad is that, as usual, no specific individuals are being held responsible for breaking the law. We've said it before and we'll say it again: Deterring crime is difficult if no actual people are ever punished. In this case, the financial penalty by Standard Chartered will almost certainly end up being picked up by shareholders.

In effect, shareholders suffer twice in these scandals: first, when their shares lose value when a scandal is made public; and second, when the company has to pay out fines. In theory, the executives responsible will feel some pain because they also have shares or stock options that will be worth less. In practice, that pain is typically pretty mild and fat compensation packages don't change much in the wake of most scandals.

What's wrong with this picture?

The FBI has opened up a money laundering investigation of Standard Chartered, so there is a still a chance that somebody -- a real live person -- might be held responsible for the  bank's illegal actions. But I wouldn't count on that outcome. Numerous banks have been investigated in recent years for money laundering and ties to criminals and rogue states. Nobody ever seems to be charged with anything.