In the U.S. alone, little was learned from the savings and loan crisis in the 1990s or the dotcom crash in 2000. Not until the 2008 global financial crisis did regulators appear to take seriously the need to hold the banks accountable, largely due to public pressure. Meanwhile, the nation has spent the last decade preoccupied with national security, and yet the attention warranted by the security risks of the financial system has instead been almost entirely directed at deposing dictators and rooting out suspected terrorists in far-off countries.
National security was, and is, deeply threatened by banking malpractice. However, the threat extends beyond sub-prime lending, credit default swaps and selling off rotten stock. Is it, in fact, possible that these institutions could be colluding with the very countries and organizations considered a threat to the United States? The unfortunate answer is yes.
London-based bank Standard Chartered has come under fire this week for allegedly conducting secret financial transactions linked to Iran that were worth an estimated $250 billion over the last decade. Economic sanctions imposed on Iran by the United States in 1979 forbid banks that operate within the U.S. from dealing directly with any institutions in that country. The allegations, brought by the New York State Department of Financial Services, suggest that as many as 60,000 transactions were doctored to conceal information linking them to Iran. The deals are thought to have been worth hundreds of millions of dollars in transaction fees to the bank.
Although denying the accusation, Standard Chartered took a big hit on the stock market this week as its shares tumbled to their lowest in three years, the equivalent of a $17 billion loss to the bank’s value. It also faces the risk of losing its New York banking license, a move that would all but destroy the institution.
It may seem justified that a bank pays dearly for circumventing the rules. In a world where delinquent bankers see little accountability for egregious behavior, a dose of public humiliation might at the very least send a message to other banks that the regulators can and will do their jobs. But while it may seem justified, it should not come as a surprise. In fact, Standard Chartered is only the latest in a long list of banks that have assisted rogue countries and organizations.
In fact, since 2008 alone a dozen other banks have been reprimanded for similar behavior. A report issued last month alleged that HSBC had laundered money for banks helping to fund al-Qaida and even moved up to $7 billion associated with Mexican drug cartels between 2005 and 2008.
In similar scandals, ING recently agreed to pay $619 million in response to allegations that it had conducted transactions for Cuban and Iranian banks. In 2010, U.S. bank Wachovia paid $160 million in a settlement related to dealings with Mexico, during which it was thought to have moved as much as $370 billion. Federal investigations have also been directed at Barclays, Lloyds, Credit Suisse and a host of others. The reports suggest that substantial quantities were moved to benefit groups such as Hamas and Hezbollah, and regimes such as North Korea, Sudan and Gadhafi’s Libya.
It was sheer greed that caused the financial collapse in 2008, and the same behavior poses a major security risk to this country now. Trillions have been spent in recent years to protect the U.S. borders from al-Qaida and other perceived threats, yet the actions of our very own banks have not only supported those we claim to oppose, but have left the back door open and made vulnerable the financial system that lies at the very core of our stability.
Payouts by banks will not clean up the vile culture that has infiltrated Western banks over the years, and unless serious criminal charges become the norm, rather than the exception, such behavior will continue to threaten the stability of the entire world order.