More than £8bn ($12.5bn) has wiped off the stock market value of the banking group since Monday, when a New York regulator issued a damning report alleging the bank had flouted US laws in its dealings with Iran. The bank's shares lost another 16% of their value Tuesday.
A source with direct knowledge of the investigation said the report was now being considered by the justice department, which could pursue a criminal case against the bank and its executives. The justice department works in conjunction with the Office of Foreign Assets Control (OFAC), which monitors and enforces US trade sanctions against countries including Iran.
In its report the New York State Department of Financial Services (NYSDFS) said it had evidence of similar breaches by the bank in Libya, Myanmar (also known as Burma) and Sudan, all countries under US sanctions. Both the justice department and NYSDFS declined to comment on the next stage of the investigation.
The bank has denied wrongdoing and said the regulator had not provided 'a full and accurate picture of the facts'. The bank said "99.9%" of the disputed Iranian transactions had complied with US law.
In May Standard Chartered announced it was ending its business in Iran after decades of international pressure.
John Coffee, a law professor at Columbia University in New York, said even a single illegal transaction would be enough to spark a justice department investigation. 'There are 20-year sentences for money laundering in the US', he said.
The move is another blow for the UK's financial services industry, which has been rounded on in Washington following Barclays' alleged fixing of Libor interest rates, JP Morgan's huge London losses and a devastating US government report that concluded HSBC had acted as banker to criminals and terrorists around the world.
The report is also damaging to the bank's top management, who only last week boasted the bank was too 'boring' to be afflicted by the scandals sweeping the UK financial services industry. Peter Sands, Standard Chartered's chief executive, was recently tipped as a potential governor of the Bank of England and finance chief Richard Meddings had been linked to the top job at Barclays vacated by Bob Diamond, forced out following the Libor scandal.
Peter Henning, professor of law at Wayne State University, said: 'Standard Chartered's head is on the chopping block'. He said Iran was an oil-rich country that no international bank would chose to ignore. 'But the US and Iran have been at each others throats for 40 years. You have to make a choice', he said.
Henning said the dramatic share sell-off may yet prove overblown. 'In the end this may not be HSBC but the question remains about how many heads will roll and how high up. Diamond has set the benchmark pretty high', he said.
James Cox, law professor at Duke University, said: 'Frankly it looks like the bank turned more than a blind eye in its quest for profits. Once again we see a bank putting personal gain ahead of public interest'.
In the UK the Financial Services Authority is keeping a close watch on the situation, as it always does when share prices move so violently.
Sands and Meddings have been forced to cut short their holidays and return to London to deal with the crisis. Meddings and Sands both joined Standard Chartered in 2002 – the alleged violations ran between 2001 and 2007. An emergency board meeting is expected to be called shortly.
Only a week ago the bank reported its 10th successive year of record profits.
While it is not a household name in the UK, its blue and green logo is familiar site on high streets across Asia and Africa and the bank sponsors Liverpool football club. It employs 90,000 people, some 2,700 of whom are in the UK head office.
The timing of the allegations by NYSDFS – which claimed that the bank's actions had left the US 'vulnerable to terrorists, weapon dealers, drug kings and corrupt regimes' – has stunned the bank, which insists it is going to defend itself against the claims.
Even as it admitted that it had moved 'under $14m' for Iranian clients – albeit considerably less than the $250bn outlined in the regulatory order – the bank was unrepentant as it made it clear it would refute the allegations at an appearance before the regulator on 15 August.
While it had breached so-called U-turns, which were transactions that US authorities allowed to take place as long as the money did not end up in Iranian banks, it said 'well over 99.9% of the transactions relating to Iran complied with the U-turn regulations'.
The US regulator's 30-page report reproduces emails and conversations between Standard Chartered staff, including a remark from a London-based director when warned by a US colleague of potential problems in dealing with Iran. 'You fucking Americans. Who are you to tell us, the rest of the world, that we're not going to deal with Iranians', the director said.
The director is not named but the exchange is said to have taken place when the bank's chief executive for America warned, among others, the head group executive director for risk. At the time, October 2006, this title was held by Meddings, who was promoted to finance director the following month. The director for the US at the time was Ray Ferguson, currently running the Singapore business. The bank would not comment on individuals.
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