US regulators – with long arms

Listen to this article

00:00
00:00

Miscreants in far-flung corners of the globe dread the US military’s unmanned drones. European banks with US links, meanwhile, live in dread of Uncle Sam’s regulators. They are not an homogeneous bunch, and can strike where and when they want, as Standard Chartered found to its cost after the New York state Department of Financial Services pursued it for Iranian sanctions breaches. It had been negotiating with the Federal Reserve, the Office of Foreign Assets Control, the Department of Justice and the New York district attorney’s office (that together fined it $330m) but suddenly had to pay $340m to the DFS after it unexpectedly intervened.

There is nothing wrong with catching rulebreakers. The difficulty comes from the way that it takes only a business connection with the US for banks to be exposed to a host of legal risks. The DoJ, for example, is probing whether Barclays made improper payments to obtain a bank licence in Saudi Arabia. The US Foreign Corrupt Practices Act gives the department power to prosecute bribery anywhere if it is on behalf of a company with US links. Separately, Barclays is contesting energy market manipulation allegations. And last month it emerged that HSBC would have to pay more than $1.9bn to settle allegations of drug money laundering and sanctions breaches.

It is not only UK banks that have been in trouble. Four years ago UBS paid US tax authorities $780m to avoid being prosecuted for helping wealthy US clients to evade taxes. But just before Christmas it agreed to pay $1.5bn, mostly to US agencies, to settle Libor-rigging allegations.

European banks with a culture of compliance have little to fear from US legislative creep. But it can be a big drain on management. And if foreign regulators can find fault, there is no excuse for banks or home regulators not spotting it first. Uncle Sam has a point.

Email the Lex team in confidence at lex@ft.com

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from FT.com and redistribute by email or post to the web.