15th August 2012
When Benjamin Lawsky, head of the recently established New York State Department of Financial Services, announced that he was bringing charges against the firm last Monday there was a palpable sense of shock (not least from the US Treasury Department). Both the scale of the trades involved and the language used by the regulator – Lawsky dubbed Standard Chartered a "rogue institution" – prompted a frantic scramble for information.
In response the bank issued its own statement in which the firm made clear that "it strongly rejects the position and portrayal of facts". They claimed that the total value of trades that had fallen foul of US sanctions were not $250 billion, as asserted by Lawsky, but only $14 million and stressed that discussions with regulators over the issue were already underway.
Less widely reported, however, was the fact that last week Standard Chartered appointed PR company Maitland to help in "building a stronger and consistent corporate narrative". If the timing of the move appears coincidental then the fact that Maitland were also brought in to advise former Barclay's chief executive Bob Diamond following his resignation should raise eyebrows.
To what extent the PR firm has been able to influence the discussion is difficult to quantify. However, the approach to building a positive narrative around the bank suggests a deft hand at work behind the scenes.
The denial and the media follow-ups, including a front page story in the Financial Times where the trades were put down to a "small clerical error", fuelled a narrative of American hostility to the City of London. Indeed in a rare moment of national unity newspapers from all points on the political spectrum (see here and here) rose to the defence of an institution that had already acknowledged that it had breached sanctions.
Yet only a week later the "small clerical error" has morphed into a $340 million fine. Moreover, in his statement announcing the settlement Lawsky said that both parties had "agreed that the conduct at issue involved transactions of at least $250 billion".
As far as the market is concerned this is good news. The matter appears to have been brought back under control, or at least moved back behind closed doors. In a firm's dealings with regulators it seems transparency isn't always what investors are looking for.
But why settle?
Sometimes in a criminal case it is deemed advisable for a defendant to plead guilty to a lesser crime than the one they have been charged with in order to get a reduced sentence – even if they maintain their innocence. Perhaps this is what we are dealing with here.
If so, Standard Chartered does not appear to have got a very good deal. Although the $350 million fine is lower than those handed out to Lloyds Banking Group, ING and Credit Suisse Group for similar infringements, it is in the same ballpark. It is also significantly higher than the $298 million taken from Barclays in 2010 for helping an array of banks based in Cuba, Iran, Libya, Myanmar and Sudan evade US regulations.
While there is an understandable sense of relief, it should be remembered that in accepting Lawsky's charges the bank is going back on its initial statement that the regulator had mischaracterised the situation. Reuters quote a spokesman for the firm calling this "a pragmatic decision" but it could equally be described as a full retreat.
Nevertheless, the tone of coverage today suggests that they have managed simultaneously to accept culpability to regulators while maintaining their innocence to the wider public. Guilt has been repackaged as pragmatism and presumably business will quickly return to normal. This should be seen as a huge victory for the PR team.
For investors, however, questions remain. If it is a more cost effective policy for an innocent party to accept guilt rather than fight its case, are the penalties for breaching regulations failing to provide a genuine threat?
Just as importantly, if admitting guilt comes with no social consequences is there any incentive for firms to remain innocent?
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