Wall Street Is Gunning For The City Of London. But The Eventual Winner Will Be China

Martin McCauley writes from the City of London: This is election year in America, in case you’ve forgotten about it.

The Obama Administration is in deep trouble as voters realise that it has no policies to alleviate the economic gloom. So what do you do when you haven’t a clue how to resolve a crisis? Blame it on someone else, of course. It is not coincidental that three big banking scandals have erupted in the last three months: the LIBOR scandal involving fixing bank lending rates; the laundering of Mexican drug cartel billions by HSBC; and now the accusation that Standard Chartered helped to move $250 billion of Iranian assets around the world. (Standard Chartered says that 99.9 per cent of its activities complied with US law. The problem it seems is the remaining 0.1 per cent.)

What do these ‘scandalous’ developments all have in common? They involve three big British banks and pillars of the City of London. New York would like to usurp London’s leading position in world financial markets. What better way than to undermine the credibility of bankers in the City? Barclays took a hit over the LIBOR scandal. It was hung out to dry to protect other banks involved in the fiddling of interest rates. About 20 banks face potential class action in US courts. Most of them are US financial institutions.

Mexican drug money did run through HSBC accounts but it probably also ran through accounts of many American banks as well. Standard Chartered did dabble in handling Iranian assets but so have many other banks. The New York state department of financial services says it has perused over 60,000 Standard Chartered documents and emails over the last two and a half years. It believes it has a strong case against the bank that is supposedly guilty of sanction busting. Standard Chartered is accused of engaging in U turn transactions. These involve moving Iranian assets from non-Iranian foreign banks via the US to other non-Iranian foreign banks. This method of transfer was legal until it was outlawed in 2008.

Standard Chartered maintains that it did not engage in any such transactions after that date. It cooperated with the regulators. But instead of a negotiated settlement, the Americans decided to undermine the reputation of the bank and go public, insisting that the bank’s execs appear before the regulators to explain their activities. If found guilty, Standard Chartered can have its licence in New York revoked. To add to its misery, its transactions in Libya, Myanmar and Sudan are being looked at. The bank is incorporated in the EU and the UK and breaches of regulations can mean bankers can be sent to prison for up to seven years. Regulators forbid any UK bank from engaging in business with any bank incorporated in Iran, and all its branches and subsidiaries. This is a mirror image of US legislation.

British regulators are ineffective as is senior bank management. They must also share the blame and loss of reputation of the City of London. However, interest rate manipulation, money laundering and sanction busting are not exclusively British crimes. Are all American banks clean? Of course not. However, Wall Street has decided to protect its own. The regulators only target countries that are regarded as hostile to US foreign policy interests. Indonesia is regarded as friendly so banks there are left untouched. India trades openly with Iran but no Indian bank has been targeted. The mistake which Standard Chartered must now rue is that it moved US dollars through US banks en route to another destination. Had it traded in another currency and avoided the US it would have been outside American jurisdiction.

The lesson is quite clear. Trade in other currencies and avoid US banks in America and abroad. The Chinese have been quick to suggest that the yuan may become convertible in the not too distant future. All Iranian assets can then be channelled through banks in China in yuan. New York may have shot itself in the foot here. The dollar is the world’s reserve currency but for how long? –End–