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Standard Chartered Reaches £217m Settlement

(c) Sky News 2012

Standard Chartered (Xetra: 859123 - news) has agreed a £217m ($340m) settlement with US regulators over allegations the UK-based bank covered up thousands of illegal money transfers for the Iranian government.

Under the deal with New York State Department of Financial Services (DFS), the bank will install a monitor for at least two years who will report directly to the regulator, and evaluate the money-laundering risk controls in its New York (Frankfurt: A0DKRK - news) branch.

The DFS surprised Standard Chartered last week when it accused the bank of being a "rogue institution" that "schemed" with the Iranian government and "left the US financial system vulnerable to terrorists, weapons dealers, drug kingpins and corrupt regimes".

The regulator said the bank had facilitated $250bn of illegal wire transfers in a bid to make millions of dollars in fees "at any cost".

News of the settlement came after Standard Chartered's chief executive Peter Sands, who strongly denied the allegations last week, flew to New York to take personal control of the bank's attempts to reach a settlement.

If no deal had been reached, bank representatives were due to appear before the department on Wednesday in a bid to convince it that the bank should keep its license to do business in New York.

Sky sources said Standard Chartered agreed to a settlement because it had taken a "pragmatic decision in the best interests of shareholders and clients".

But a person close to the negotiations said the bank still stood by its argument that 99.9% of its transactions fully complied with US law, and those that did not came to less than £9m ($14m).

The threat to revoke Standard Chartered’s New York license posed too much of a risk to business, and so there was little choice but to come to agreement, said the source.

Even though most of the bank’s business is done in Asia and the Middle East, losing access to the American banking market would have been a significant blow.

Shares in Standard Chartered have fallen around 15% since the DFS released the allegations early last week.

The bank is still in discussions with other US regulators about its business with Iran.

It is unclear how this settlement will affect those discussions and investigations, or whether the agreement will grant Standard Chartered and its employees immunity from future criminal prosecution.

In a statement a Standard Chartered spokeswoman said: "The Group continues to engage constructively with the other relevant US authorities. The timing of any resolution will be communicated in due course."

New York Governor Andrew Cuomo said: "We created the Department of Financial Services because we believed that New York needed a tough and fair regulator for the banking and insurance industries to protect consumers and investors.

"This state and nation are still paying the price for a failed regulatory system and that must not happen again.

"This result demonstrates the effectiveness and leadership of the new Department of Financial Services, and I commend the state legislature for creating a modern regulator for today's financial marketplace."

Last week Chancellor George Osborne called US treasury secretary Timothy Geithner to express his concern at the way details of the case came out.

According to Treasury sources, Mr Osborne was engaging in "quiet diplomacy" to ensure the UK-based bank got a fair hearing.