Last week Monitor suggested that the business model of banks serving clients in multiple emerging markets is under threat. The problem, the column argued, is that it is becoming impossible for international banks to meet the compliance demands of the US authorities, who automatically suspect any institution operating in Asia, the Middle East, Africa or Latin America of laundering money for tax evaders, drug barons and other evildoers.
This week we got a dramatic demonstration of the threat. Shares in Standard Chartered plunged 25 per cent after regulators in New York accused the bank of illegally processing US$250 billion in payments for Iranian financial institutions subject to US sanctions (see the first chart).
By yesterday lunchtime in London, the drop had wiped some HK$112 billion off StanChart's market value as investors dumped the stock, afraid regulators could strip it of its New York licence. To put that fall into perspective, it is 40 times the interim profit the bank announced last week.
In a statement yesterday, StanChart rejected the regulators' accusations, insisting that 99.9 per cent of its transactions related to Iran were fully compliant with US rules. It claimed that between 2001 and 2007 payments worth only US$14 million were suspect; a negligible amount for a bank that clears US dollar transactions worth US$190 billion each day.
That won't satisfy the US regulators. After all, no one who is prepared to press charges based on such a questionable premise is likely to be put off by a mere denial.
The US Treasury prohibits financial institutions with US operations from transacting business with a clutch of Iranian state banks because it believes Tehran to be developing nuclear weapons in defiance of the Non-Proliferation Treaty.
However, if Washington were to be consistent in its approach, it should also slap sanctions on Israel, India and Pakistan, all of which have developed nuclear arsenals without ever signing the treaty. Instead, Israel and Pakistan rank among the top four recipients of US military aid, while the US signed a nuclear co-operation deal with India in 2008.
