It has now been reported that Mervyn King, Boris Johnson and a collection of MPs have all made comments that would suggest the UK is uncomfortable with the New York Department of Financial Service's (DFS) attack on Standard Chartered: Boris Johnson has said that the DFS' investigation could serve as "an excuse for protectionism and a self-interested attack on London's status as the world's pre-eminent financial centre"; the Labour MP John Mann has been vocal in suggesting the DFS' actions represent "increasing anti-British bias by US regulators and politicians"; and the Governor of the Bank of England has advised regulatory bodies with open investigations to refrain from public statements. In addition, it was reported on Thursday by the Financial Times that the Chancellor, George Osborne, had himself called Tim Geithner, the US Treasury secretary "three times in two days" on account of the Standard Chartered debacle.
Conspiracy theories that this new action against a UK bank represents a growing US regulatory crack-down, aimed at weakening the City of London and the UK's national banking reputation, is at odds with alternative reports that speak of the anger of federal regulators in relation to the actions of the DFS. It has been reported that the Department of Justice, the Federal Bureau of Investigation, the Federal Reserve, the Treasury Department and the Manhattan district attorney's office have all been pursuing sanctions investigations against Standard Chartered for up to two years, and that Standard Chartered offered to pay a $5m settlement fee for the $14m of "U-turn" transactions that it agreed were prohibited by US law, a few months ago. This offer was rejected by the DFS. Some have questioned the vigilantism of the Head of the DFS, Benjamin Lawsky. Others have wondered whether the DFS' activism is the result of trying to "prove" itself after only existing for 10 months.
The row over Standard Chartered is compelling because of its marked change from the investigations involving HSBC and Barclays. Standard Chartered have come out fighting and have denied the scope of the accusations against them. This contrasts hugely with the self-effacement of the Barclays senior team in the wake of the Libor scandal. It is also a potential risk for the management at Standard Chartered: the longer the scandal goes on, the longer Standard Chartered's share price will suffer. And if Standard Chartered lose their defence, they risk being stripped of their New York banking license in addition to the further reputational damage of being found guilty.
The scandal at Standard Chartered again highlights the challenges of corporate governance for large, multinational institutions. In this case, on a par with Libor, the misdemeanours are alleged to have gone on for a long period of time. The argument goes that, accordingly, it is harder to point to individual malpractice or to say definitively which perpetrators were involved: they may have moved on from the bank, they may have been briefly involved before moving role, or they may even have been unaware of their own complicity. In Standard Chartered's case, the DFS has alleged that a senior executive from the London team told a New York colleague in 2006 that the Americans did not possess "the right" to dictate matters of international financial governance. This is a conversation, it is claimed by the bank, that no one remembers. This may well be true 6 years on. Or it may be the case that those involved - or innocent bystanders who overheard such an attitude expressed - would not risk current employment to turn informant. The benefits are not immediately compelling, not least if you do not possess an ardent desire to prevent Iranians from developing WMDs.
On Wednesday, the BBC published an interesting feature on American law and its relationship to non-US companies. The report detailed the increasingly defensive position of the US, show-casing the evolution of extraterritorial legal actions that have seen major companies pursued by US law and foreign nationals extradited to the US for fraud. This question of protectionism, and the increasing battle for finance and its governance, a result of the crisis of 2007-2008, adds more layers of intrigue to the Standard Chartered affair.
Some questions therefore:
Is Lawsky, the DFS Head, a lone vigilante acting outside of the usual parameters of the US regulatory community?
Is the case against Standard Chartered part of a larger conspiracy against UK banking?
Will any individuals be found responsible, or whole banking teams indicted?
Will the CEO and Chairman be implicated and forced to resign, like Diamond and Agius before them?
To answer these questions, everyone is hanging on Standard Chartered's testimony before the New York regulatory body on August 15.