Standard Chartered is big target for new agency
Benjamin Lawsky, the New York regulator who took action against British bank Standard Chartered Plc on Monday, heads an agency created only 10 months ago to crack down on financial malfeasance.
The state's Department of Financial Services, which combined its banking and insurance departments, was formed in October. Lawsky, New York Governor Andrew Cuomo's chief of staff, was nominated by his boss to run the agency.
Since then, Lawsky has targeted predatory foreclosure practices and probed lenders on whether they overcharged homeowners for insurance.
On Monday, he scored his biggest headlines yet, accusing Standard Chartered of flouting U.S. sanctions and hiding $250 billion in Iranian transactions from U.S. authorities.
Lawsky, a former federal prosecutor, ordered Standard Chartered to demonstrate why its license to do business in New York should not be revoked, a drastic measure that would cripple its ability to take part in the U.S. banking market.
Standard Chartered said it acted to comply with U.S. sanctions on Iran and would contest the New York regulator's position.
But Lawsky's order also put banks on notice that, in addition to federal bank regulators, they now have a powerful state regulator to deal with.
"Ben Lawsky didn't take this job to be a quiet, unnoticed back-office regulator," said Steve Cohen, a partner at the law firm Zuckerman Spaeder who was chief of staff for Cuomo when Cuomo was state attorney general. "And Gov. Cuomo didn't give him the job so that he could have a quiet, unnoticed existence."
When the financial services department was first created, some analysts worried that its mandate might come into conflict with federal authorities or with the state attorney general's office.
Cuomo had also sought to give the new department the authority to investigate violations under the Martin Act, a powerful state securities law used to combat financial fraud, in addition to its regulatory powers. But that proposal was abandoned after opposition from some legal experts and Attorney General Eric Schneiderman.
In the past, investigations of foreign banks have been led by the Manhattan district attorney's office and the federal Justice Department.
"What's unique here is you've got the New York state bank regulators acting unilaterally," said Jimmy Gurule, a law professor at Notre Dame University and an expert in international money laundering and terrorism financing.
Standard Chartered said in a statement it was in ongoing with U.S. agencies and it was surprised that the Department of Financial Services had acted alone.
"Resolution of such matters normally proceeds through a coordinated approach by such agencies," it said. "The Group was therefore surprised to receive the order from the DFS, given that discussions with the agencies were ongoing."
On Monday, a spokeswoman for the Justice Department declined to comment on whether it was probing Standard Chartered. A spokeswoman for the Manhattan district attorney's office, which took part in prosecutions of other banks, declined to comment on whether Standard Chartered is under investigation.
Lawsky was unavailable Monday, and his office declined to comment.
Michael Smith, the president of the New York Bankers Association, which does not include Standard Chartered as a member, said the financial crisis and its aftermath had increased the state's focus on regulation enforcement.
"You have to take it in that context," he said. "We understand that this goes with the environment that we're operating in."
Lawsky served as chief counsel to U.S. Senator Chuck Schumer on the Senate Judiciary Committee and worked for more than five years as a federal prosecutor in New York. He joined the New York attorney general's office under Cuomo and played a key role in its probe of the $85 billion student loan industry, which revealed kickbacks and deceptive marketing practices.
In recent months, he has worked behind the scenes to encourage settlements in a case 18 banks brought against bond insurer MBIA and former New York insurance superintendent Eric Dinallo over the state's approval of MBIA's split during the financial crisis.
Speaking at a public forum last month, Lawsky said that regulators do too much in secret.
"We should be more willing to be more public," he said.
[Source: By Joseph Ax and Noeleen and Walder, Reuters, New York, 07Aug12]
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