Standard Chartered's future at stake over $250bn Iran deals claim

160-year-old financial institution denies any wrongdoing as legal order filed in New York.

WASHINGTON // More than Standard Chartered Bank's share value is at stake as the 160-year-old financial institution faces investigation for breaking US-imposed sanctions on Iran.

Share prices tumbled almost 25 per cent as the UK-based bank denied allegations yesterday that it concealed US$250 billion (Dh918bn) of financial transactions over the past decade as it tried to circumvent ever-tightening US sanctions against Tehran.

Washington has been using sanctions in an attempt to pressure Iran into opening up its nuclear programme to international inspection.

The bank could lose its licence to operate in New York, should it be found guilty of the allegations.

The case could also prove a crucial bellwether for the US administration's sanctions policy.

Under Barack Obama, the US president, the sanctions have become the fulcrum of US policy toward Iran and its nuclear ambitions.

There is neither a diplomatic breakthrough in sight, which Mr Obama said he was looking for during the early days of his presidency, nor the public appetite for any more military interventions overseas.

However, the sanctions policy has its critics on all sides of the political spectrum, said Alex Vatanka, an Iran scholar with the Middle East Institute, a Washington-based think tank.

Sanctions that could be "seen to move Tehran from its current trajectory" are the only way to answer those who argue that only diplomacy or force can make an impression in Tehran.

"This administration has been doing absolutely everything to try to make sanctions be as credible, as tough and as effective as possible," added Mr Vatanka.

Sanctions against Iraq in the 1990s were widely seen as a failure that harmed the general population and only strengthened Saddam Hussein's grip on power.

The architects of the present-day sanctions on Iran are wary of making the same mistakes, hence the focus on the international banking sector in an attempt to isolate Tehran's ability to trade with the rest of the world.

Former US officials have said that targeting the banking sector has proven effective in the past.

The "one time" that North Korea took US sanctions seriously, said Christian Whiton, a senior adviser at the state department at the time, was in 2006 when they targeted Banco Delta Asia, a Macau-based financial institution that the US had identified as the primary conduit for funds flowing into Pyongyang.

And the threat of losing its US financial licence should give Standard Chartered cause for concern, said Mr Whiton.

"By preventing a bank from conducting transactions in US dollars, a power given to the administration under the Patriot Act, you can almost kill a bank," he said.

Standard Chartered has strongly denied the accusations that it conspired with Iran's government and acted like a "rogue institution", as was alleged in a legal order filed on Monday by the New York state department of financial services (DFS).

The bank released a statement at midnight UK time yesterday, rejecting the "portrayal of facts as set out in the order".

As far back as 2010, it said, Standard Chartered had "voluntarily" approached all relevant US institutions, including the DFS, to inform them that that it had begun a review of its dollar transactions and their compliance with the US sanctions scheme.

The DFS has accused the bank of "conspiring" with Iran to manipulate tens of thousands of secret transactions in an attempt to hide any Iranian involvement.

The legal order also accused Standard Chartered of being "motivated by greed", and said its actions had left the US financial system "vulnerable to terrorists, weapons dealers, drug kingpins and corrupt regimes".

The New York regulator ordered Standard Chartered representatives to appear in New York City on August 15 "to explain these apparent violations of law" and to demonstrate why its licence to operate in the state of New York "should not be revoked".

* With additional reporting by Associated Press