Standard Chartered, one of the UK’s largest banks and the sponsor of Liverpool FC, has been accused of helping to fund terrorist activities.
Whistleblowers first raised the alarm in 2012, filing a lawsuit in Manhattan that was ultimately overturned. Now, they have filed new documents that claim to show thousands of illegal transactions worth more than $100 billion.
The transactions were carried out between 2008 and 2013 in breach of sanctions against Iran, the BBC reports.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Get 6 issues free
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
It adds: “An independent expert has identified $9.6bn of foreign exchange transactions with individuals and companies designated by the US government as funding ‘terror groups’, including Hezbollah, Hamas, al-Qaeda and the Taliban.”
We look at the history of these claims, and what the latest controversy could mean for customers and investors.
Background to this controversy
The history of these claims dates back several years. Two whistleblowers including Julian Knight, a former Standard Chartered executive, first made allegations against the bank in 2012.
We asked Standard Chartered to comment on the latest accusations. It said: “This filing is another attempt to use fabricated claims against the bank, following previous unsuccessful attempts.
“The false allegations underpinning it have been thoroughly discredited by the US authorities who undertook a comprehensive investigation into the claims and said they were ‘meritless’ and did not show any violations of US sanctions.”
“We are confident the courts will reject these claims, as they have already done repeatedly.”
This is not the first time Standard Chartered has been in the headlines for potential failings in these areas. The bank has previously accepted fines worth more than $1.7 billion after breaching sanctions against Iran, and for poor anti-money laundering (AML) controls.
Historic fines include a £102 million fine from the FCA in 2019. At the time, this was the second largest penalty the UK regulator had ever imposed for a failure of AML controls.
Standard Chartered denies carrying out transactions for terrorist organisations.
How do anti-money laundering rules work?
All banks and financial institutions are required to comply with the laws and regulations of the countries in which they operate. These will vary slightly from country to country, but most have strict rules in place to reduce the risk of money laundering and terrorist financing.
Let’s take the UK as an example. The FCA has identified certain “high-risk factors”. This includes a list of high-risk countries, where criminal activity is deemed more common. It has also compiled a list of high-risk transactions, including those related to oil, arms, precious metals, and more.
Further precautions should also be taken when dealing with high-risk customers. For example, a political figure is deemed more risky because they could be a target for bribery or corruption.
The regulator takes these precautions very seriously and fines are doled out to firms that fail to take the necessary steps.
HSBC has been in the news in recent years over “potentially corrupt transactions”. The US Department of Justice fined the banking giant nearly $2 billion in 2012 for “providing banking services to drug cartels and other criminals”.
Banks sometimes introduce new measures in an attempt to stay one step ahead. To cite one recent example, Barclays has now capped in-branch cash deposits at £20,000 for personal banking customers in a bid to fight financial crime.
What does this mean for customers?
Currently, we are not aware of any implications for customers. It is also worth mentioning that Standard Chartered does not have any direct retail banking clients in the UK.
Despite being a UK bank, the company carries out most of its retail banking operations overseas. A large portion of its business is conducted in Asia, Africa and the Middle East.
The only retail offering available to UK clients is via the sustainable savings platform Shoal. This was launched by SC Ventures, the innovation arm of Standard Chartered bank, in 2021.
Shoal allows savers to choose between a series of “savings pots”. These function like fixed-rate savings accounts.
Funds held in savings pots are protected under the Financial Services Compensation Scheme (FSCS). However, customers should be aware of a couple of points.
Firstly, their money only enjoys FSCS protection once it is invested in a savings pot. It is not covered when it is just sitting in the Shoal account waiting to be invested.
Secondly, the FSCS protection is not applied to Shoal in its own right. Each time you create a savings pot, your money is sent to Standard Chartered bank to manage. It is through this partnership that your money is protected.
The FSCS protects savings up to the value of £85,000 with any given institution. If you have more than £85,000 with a bank, it’s advised to split it up and keep it below this level.
What do the accusations against Standard Chartered mean for investors?
So far, the implications of these accusations are unclear. We will have to wait and see how the investigation plays out in the US, where the whistleblowers have filed new evidence.
As we have established, previous anti-money laundering failures and sanctions breaches have resulted in fines for Standard Chartered in the past.
What we do know is that the FTSE 100 bank’s share price has dipped today in response to the latest headlines. At the time of writing, its stock is down almost 3.5% compared to market open.
Fines and controversy are rarely good news for a company’s share price – particularly given the importance banking clients place on trust. When Standard Chartered was embroiled in sanctions breaches in 2012, billions were wiped off the bank’s stock market value.
Commenting on the latest headlines and what they mean for investors, Russ Mould, investment director at AJ Bell, said: “In an era when much of the near-term trading is conducted by algorithm-driven funds, [the fall in Standard Charter’s share price today] may not be as informative a signal as it would have once been, but it does emphasise how markets will shy away from the uncertainty this will cause.”
“Patient shareholders may be particularly frustrated that these allegations are surfacing now – even though the bank’s management team dismisses them as baseless – as Standard Chartered has paid out far less on conduct fines and regulatory penalties than the other four FTSE 100 banks.”
“While Standard Chartered’s tally since 2011 of £1.5 billion is nothing of which the bank will be proud, it pales next to the £73 billion paid out to regulators by HSBC, Barclays, Lloyds and NatWest,” he adds.
Going forward, Mould believes investors will want to see whether the US Federal authorities choose to follow up on the latest allegations, and how long any potential proceedings take. If the authorities do decide to act, he thinks that a deferred prosecution agreement and a fine could be a possible outcome.
Despite this, he believes shareholders can draw comfort from two key facts. “First, the bank is well capitalised, on the basis of regulatory ratios and requirements. Second, the shares already trade on just 0.7 times book, or net asset, value per share,” he explains. “That discount prices in a lot of bad news already and may provide some downside protection.”
Nevertheless, Standard Chartered investors will be keeping a close eye on how the situation plays out in the weeks and months to come.
How does the Lifetime ISA work? Key LISA rules
AJ Bell: a fine British fintech going cheap
