Standard Chartered's troubles with US regulators carry a potentially heavy blow, and highlight the increasing challenges for firms doing business in the Middle East even if they do not directly deal with sanctioned countries.
Standard Chartered case highlights Middle East's challenges
What a difference a month makes.
When Peter Sands, the group chief executive of Standard Chartered, was awarded Euromoney's Banker of the Year award last month, he admonished rival lenders over their ethical lapses.
"Good banking is never needed more than now," Mr Sands said at the time.
But that was before US regulators claimed yesterday the British bank illegally "schemed" with Iran to launder as much as US$250 billion (Dh 918.23) for nearly a decade.
When Mr Sands spoke up for good practice, Barclays Bank had just announced the departure of its chairman, and chief executive, in the wake of the rate-fixing scandal. Within days, the US senate had released a report into decades of lax anti-money laundering controls at HSBC.
Now Standard Chartered is facing allegations of facilitating prohibited transactions with Iran on a huge scale, something it vehemently denies. It risks a potentially more serious threat to its reputation and the possible loss of its US banking licence, which some analysts are treating as a material threat to the bank's business.
But it is far from the only lender with operations in the Middle East facing substantial penalties as a result of transactions with Iran.
Since 2009, US authorities have brought fines against international banks worth US$2.1bn for sanctions violations, according to a US senate report into HSBC's recently revealed transgressions.
Among the banks fined are Barclays, Credit Suisse and ABN Amro, now part of Royal Bank of Scotland. ING, ANZ Banking Group and Lloyds have also been fined.
Noor Islamic Bank, owned by Dubai Group, also cut off dealings with Bank Melli Iran and Bank Saderat Iran in December after the US tightened restrictions against banks dealing with Iranian lenders. Noor Islamic Bank has not been implicated in any wrongdoing.
Iran could be a potentially lucrative market for banks. It is the third-most populous country in the Middle East after Egypt and Turkey and is the third-biggest producer in Opec. Unfortunately for banks, it also happens to be under some of the most onerous sanctions ever imposed by the United States in an effort to prevent it building nuclear weapons.
The UAE's Central Bank must abide by United Nations sanctions, which do not prohibit dealings with Iran except for trade linked to the acquisition of atomic weapons.
The US has dangled a threat over banks that deal with the Iranian financial system that they may themselves face sanctions. That has effectively blocked all Iranian trade from the US dollar-denominated financial system. It is also creating an additional burden on financial firms to ensure they do not fall foul of US sanctions, said Lisa Kelaart-Courtney, the head of compliance advisory services at the law firm Clyde & Co. "Firms and regulators over here have to watch enforcement notices very carefully. Enforcement is getting tough and getting taken seriously."
But given the size of the fines and negative publicity, Standard Chartered and other banks that dealt with Iran have now probably got the message, said Ian Gordonat Investec Securities.
"This is a review of legacy transactions for an activity which has now ceased ... I'd like to think that a lot of that work has already been done over the course of the last two or three years," he said, adding allegations of misconduct and fines should become less common.
"I do think we're nearer to the end than the beginning."
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