June 26th, 2013
John Lanchester has written yet another piece on the ongoing banking crisis, this time on The Biggest Scandal of All. The essay is mostly about the mis-selling of Payment Protection Insurance and what that scandal reveals about how the big banks think of their customers, but along the way Lanchester reminds us of just how badly the banking sector has behaved recently:
[…] The first of the big British banks to be publicly busted was Standard Chartered […] In August 2012, the New York State Department of Financial Services […] accused the bank of running a scheme to deal, illegally under US law, with the Iranian government. The regulator said that the bank had been operating the scheme/scam for a decade and had used it to hide more than $250 billion in deals. The bank's response was unequivocal: 'Standard Chartered strongly rejects the position and portrayal of facts made by the New York State Department of Financial Services.' It turned out that, once translated out of bank-speak, this meant 'we did it.' In September the bank paid $340 million to the DFS in settlement, then in December another $227 million to the DoJ and $100 million to the US Federal Reserve, and accepted a 'deferred prosecution arrangement' in which the authorities said they wouldn't prosecute the bank if it abided by the conditions made in the settlement agreements.
Standard Chartered had odd body language through all this. Rather than looking guilty, they behaved as if they were severely pissed off. 'The settlements,' they said, 'are the product of an extensive internal investigation that led the bank voluntarily to report its findings concerning past sanctions compliance to these US authorities, and nearly three years of intensive co-operation with regulators and prosecutors.' They also said that the US Treasury had found that only $133 million in deals between 2001 and 2007 were in violation of sanctions. But if they only did $133 million in deals, how come they were willing to pay $667 million, two-thirds of a billion dollars, in fines? Was there a subtext here, a notion that these were American laws, expressing an American preoccupation with the Axis of Evil, and that for a British bank to have violated them was, how to put it, not quite so serious as all that? On 5 March this year, the chairman of the bank, Sir John Peace, said the following clunky thing: 'We had no wilful act to avoid sanctions; you know, mistakes are made – clerical errors – and we talked about, last year, a number of transactions which clearly were clerical errors or mistakes that were made.' This made the regulators furious, and in Sir John's next statement on the subject, 16 days later, he said that he and the bank retracted 'the comment I made as both legally and factually incorrect. To be clear, Standard Chartered unequivocally acknowledges and accepts responsibility, on behalf of the bank and its employees, for past knowing and wilful criminal conduct in violating US economic sanctions, laws and regulations.' This was described in the FT as 'the most abject apology that City pundits can remember hearing from a banker in recent times', and their story reporting it contained a link to the Clash playing 'I fought the law.' The DoJ made it clear that without the retraction, the bank would have been prosecuted. Standard Chartered's behaviour reminded me of the defining moment from the great sitcom Arrested Development, where the family patriarch, played by Jeffrey Tambor, explains to his son why he is facing prison: 'There's a good chance that I may have committed some [pause] light [pause] treason.'
The entire essay is, as you may have gathered, well worth a read.
(A couple of generations from now historians are going to be writing books wondering why the streets of the western world weren't lined with the corpses of bank executives hanging from lamp posts. With any luck the answer will be that they were too busy serving long jail sentences. I'm not going to hold my breath.)