An exterior view of the Standard Chartered headquarters is seen in London August 7, 2012.

NEW YORK | Thu Aug 9, 2012 11:43pm EDT

NEW YORK (Reuters) - A New York state case against Standard Chartered Plc is more about whether the British bank carried out an old-fashioned cover-up using allegedly false records and less about the role the bank played in the alleged money-laundering of funds tied to Iran, according to people familiar with the situation and court documents.

The New York Department of Financial Services on Monday ordered the bank to send representatives to a meeting next Wednesday to explain why its alleged breaches of records laws should not mean the loss of its state banking license. A source close to the case said on Thursday it was possible the meeting will be postponed to allow time for discussions about the case between regulators - both state and federal - and the bank.

By using the run-of-the-mill laws, the New York regulator has been able to put more immediate pressure on Standard Chartered and given backbone to its threat to revoke the London-based bank's New York license - a potentially devastating blow to a global bank.

There are fewer gray areas in a records case than there would be in a case involving more complicated, and harder to prove, federal laws that have restricted or prohibited dollar transactions with sanctioned countries such as Iran.

Experts say they eventually expect a settlement to be agreed between federal and state authorities and Standard Chartered that would allow it to keep its license as that would avoid a protracted and potentially damaging legal battle for both sides and remove a cloud hanging over the bank.

The state inquiry is not only expected to increase scrutiny of records the bank gave to state examiners but also the work of top consulting firm Deloitte LLP, which analyzed Standard Chartered's transactions for the bank.

The New York regulator and the federal agencies concerned all declined to comment, as did Standard Chartered.

"ROGUE" ACCUSATION

The bank had been in discussions with federal authorities - the U.S. Department of Justice, the Federal Reserve Bank of New York and the Manhattan District Attorney - to settle the case until the New York regulator published its explosive order, which included the release of embarrassing communications and its description of Standard Chartered as a "rogue institution."

The head of the New York regulator, Benjamin Lawsky, alleged Standard Chartered hid from regulators some 60,000 "secret transactions, involving at least $250 billion" tied to Iran. A lot of attention has been focused on the gulf between that number and the $14 million of transactions that the bank says flouted U.S. regulations.

But a review of Lawsky's order shows that the state regulator is more intent on showing the bank violated the so-called "books and records" laws.

The order cites seven alleged violations of state law. Five of them effectively allege that Standard Chartered didn't maintain proper records, failed to alert examiners to false records, and provided false information. The first violation, for example, cites the bank for "failure to maintain accurate books and records."

Lawsky "is taking the path of least resistance," said John Coffee, a securities law professor at Columbia University, noting that a books and records allegation is an easier charge to bring and the tactics "may well produce a settlement."

LAPSES

Standard Chartered's problems date back to 2004, when New York regulators and the Federal Reserve Bank of New York issued an enforcement action against the bank because of anti-money laundering lapses.

Deloitte was hired to review transactions and report the findings to regulators. Standard Chartered (SCB) subsequently asked Deloitte to "delete references to certain kinds of payments that might reveal ties to Iranian dealings," the New York regulator alleged this week.

A Deloitte partner "agreed" to the request, saying in an email to a bank compliance official, "This is too much and too politically sensitive for both SCB and Deloitte. That is why I drafted the watered-down version." According to a person familiar with the report, the Deloitte partner was Michael Zeldin, a top anti-money laundering compliance consultant.

In a statement on Thursday, Deloitte said "contrary to the allegation in the Order," it "absolutely did not delete any reference to certain types of payments" from a final report. Deloitte said the report didn't include a recommendation that had been included in a prior draft.

Deloitte "did so in favor of in-person discussions" with regulators regarding the issue and it included the facts relating to this issue in the final written report.

It declined to say what the recommendation was.

Deloitte said that Zeldin was unavailable for comment.

In 2006, New York regulators asked Standard Chartered for data on Iranian transactions, including the number and dollar amount. An initial review conducted internally by the bank uncovered 2,626 transactions totaling $16 billion in 2005-06, according to the New York regulator's order this week.

As the internal report wound its way up Standard Chartered's executive ranks — from a CEO for the Americas to a group executive director in London - concern grew that the bank would become a major focus for a review of Iranian transactions by regulators.

The bank opted to turn over only four days of data, the New York bank regulator said in his order this week.

"This evidence shows that members of SCB's top management was involved in yet another staggering cover-up," the New York regulator alleged. The Deloitte report and "fraudulent data" helped the bank convince regulators to lift the enforcement action, Lawsky's order said.

(Reporting By Carrick Mollenkamp; Additional reporting by Jed Horowitz; Editing by Martin Howell and Ian Geoghegan)

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1 of 3. An exterior view of the Standard Chartered headquarters is seen in London August 7, 2012.

WASHINGTON/LONDON | Wed Aug 8, 2012 8:14pm EDT

WASHINGTON/LONDON (Reuters) - Cowboy local regulator or the exposer of lax federal bureaucrats?

That's the key question being asked about New York banking regulator Benjamin Lawsky after his explosive charge that London's Standard Chartered bank abetted $250 billion of money-laundering transactions with Iran.

Standard Chartered won help Wednesday from Britain's central bank governor, who portrayed Lawsky as marching to his own tune, and marching out of step with federal regulators in Washington. "One regulator, but not the others, has gone public while the investigation is still going on," the Bank of England's Mervyn King said at a news conference in London.

The U.S. Treasury Department, in a letter responding to a request for clarification from British authorities, said it takes sanctions violations seriously.

The British bank lost over a quarter of its market value in 24 hours after Lawsky, the head of New York State's Department of Financial Services, threatened Monday to cancel Standard Chartered's state banking license, which is critical for dealing in dollars. Lawsky called Standard Chartered a "rogue institution" for breaking U.S. sanctions against Iran.

Standard Chartered shares bounced 7.1 percent on Wednesday to close in London at 13.15 pounds, up from a three-year low of 10.92 hit on Tuesday. They were still down 18 percent since the regulator's threat, which Chief Executive Peters Sands said was "disproportionate" and came as a "complete surprise."

Meanwhile, Reuters Breakingviews reported that the U.S. Federal Reserve has asked Standard Chartered's New York office to report in every few hours on its liquidity position, according to people familiar with the situation. The concern is that the possibility of Standard Chartered losing its New York license could spook trading counterparties or depositors, although there is no suggestion that this is happening, Breakingviews said.

The bank's top executives, some like Sands scrambling back from summer vacations, worked on a defense strategy. So far, the executives have contested the regulator's figures and his interpretation of the law, but they have given little further detail. The bank says only a tiny proportion of its Iran-related deals - less than $14 million - was questionable under U.S. sanctions rules.

Sources told Reuters that federal banking regulators in Washington, who had been probing Standard Chartered's Iran-related deals for more than two years, were surprised by the timing of Lawsky's charges and the stridency of his language.

Lawsky's Department of Financial Services had come to the conclusion the case was getting old and that it wanted to move forward, a person with knowledge of the situation said. The department told other agencies at a meeting in April that it planned to move forward with the case, the person said.

Members of Lawsky's office met representatives of Standard Chartered around May but did not inform the bank it planned to issue an order against it, the person said.

"This is a case about Iran, money laundering, and national security," Lawsky said in a statement on Wednesday. "We will continue to work closely with our law enforcement partners, both federal and state, in this effort. No bank, big or small, foreign or domestic, is above the law."

In Washington, Adam Szubin, director of the Treasury Department's Office of Foreign Assets Control, said in a letter to British authorities that his office is investigating Standard Chartered for "potential Iran-related violations as well as a broader set of potential sanctions violations."

The letter, which was dated Wednesday and obtained by Reuters, came in response to a British request for clarification of U.S. sanctions laws. Although much of the letter focused on so-called U-turn transactions, which are at the center of New York's allegations, the letter said it was not a comment on Lawsky's action.

The alleged U-turn transactions refer to money moved for Iranian clients among banks in the United Kingdom and Middle East and cleared through Standard Chartered's New York branch, but which neither started nor ended in Iran.

In London, King drew unfavorable comparisons between the handling of this case and other U.S. actions against British banks, such as the investigation of interest rate manipulation at Barclays PLC.

In the Barclays case, he said, all regulators in Britain and the United States produced coordinated reports after the investigation was complete.

"I think all the UK authorities would ask is that the various regulatory bodies that are investigating the particular case try to work together and refrain from making too many public statements until the investigation is completed," King said.

Standard Chartered's Sands, in his first public comments since the crisis arose, offered no major new information on the allegations, which the bank has been reviewing with authorities for the past two years.

"(We) fundamentally reject the overall picture and believe there are no grounds for them to take this action," he told reporters. The threat to cancel the bank's license to operate in New York would be "wholly disproportionate," he said.

Although Standard Chartered's business is concentrated in emerging markets, which has helped insulate it from the global financial crisis, it needs to be able to operate in New York so it can offer dealings around the world in U.S. dollars.

Also on Wednesday, Deloitte LLP, which was accused in Lawsky's order of wrongdoing in its role as an outside consultant to Standard Chartered, denied any misconduct. Deloitte was hired by Standard Chartered after U.S. authorities reprimanded the bank for similar lapses on transactions in 2004.

"Deloitte had no knowledge of any alleged misconduct by any Standard Chartered Bank employees and categorically denies that it aided in any way any violation of law by the bank," the firm said in a statement.

Specifically, Deloitte said it "absolutely did not delete" references to transactions from a report, contrary to an allegation in Lawsky's order.

CURSING THE AMERICANS

On Monday, Lawsky had reproduced what he said were quotes from an unidentified Standard Chartered executive director in a conversation in 2006 that demonstrated the bank's "obvious contempt" for U.S. banking regulations.

"You f---ing Americans. Who are you to tell us, the rest of the world, that we're not going to deal with Iranians?" the quote was rendered in documents released by the regulators.

People familiar with the situation said the bank's group finance director, Richard Meddings, one of five executive directors at the time, was the unnamed man.

Ray Ferguson, a bank executive who attended that meeting, told Reuters that while Meddings had used the expletive in a heated exchange, he did not, to his recollection, say the second part of the quote attributed to him about U.S. sanctions.

Meddings did not respond to repeated requests for comment.

Asked for the bank's view on the quote, Sands said: "We don't believe it's accurate." He defended the ethics of the bank, which he has run for six years: "I don't think there is anything wrong with the culture at Standard Chartered,"

Calling the allegations "very damaging", he said he would address "mistakes" that had been "clearly wrong", but said: "There were no systematic attempts to circumvent sanctions."

The BoE's King said he did not share the view held by some that the move in New York was part of a concerted U.S. effort to undermine London as a financial center, following the Barclays probe and a U.S. Senate panel report that criticized HSBC Holding's efforts to police suspect transactions.

One British lawmaker, however, said the affair was part of a "political onslaught" in the United States against British banks.

"I think it's a concerted effort that's been organized at the top of the U.S. government. I think this is Washington trying to win a commercial battle to have trading from London shifted to New York," said John Mann, a member of parliament's finance committee, who also called for a parliamentary inquiry.

(Additional reporting by Nate Raymond, Patrick Temple-West, Sinead Cruise, Kelvin Soh, Anjuli Davies and Sarah White; Writing by Eddie Evans; Editing by Leslie Adler)

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