Trying to downplay your culpability after a settlement with regulators is a very bad idea. Just ask Sir John Peace, chairman of Standard Chartered, the UK bank. His public shaming is a useful lesson for which financial firms everywhere should be grateful.
Peace was forced to retract a statement he made in a press conference in which he minimized the seriousness of the bank’s recent agreement over its violation of US sanctions on Iran.
From the start, Standard Chartered tried to take an aggressive stance with regulators on this issue. Last August, CEO Peter Sands called allegations that the bank had breached US sanctions against Iran ‘factually inaccurate’ and insisted the bank’s culture did not need to change. (Sands’ strategy is recounted in an earlier post, “How to Fight a Regulator,” here).
The bank’s offensive didn’t succeed, and weeks later it agreed to pay $667 million in fines as part of a deferred prosecution agreement with the US Department of Justice and state regulators.
It was speaking about that settlement that got Peace into trouble. In a press conference on March 5 he said:
“We had no willful act to avoid sanctions; you now, mistakes are made – clerical errors – and we talked about, last year, a number of transactions which clearly were clerical errors or mistakes that were made….”
Brushing off illegal conduct as administrative errors obviously didn’t sit well with the Justice Department, which threatened to prosecute the bank unless the statement was retracted. And so Peace did just that, in a brief statement, and it is now being reported that Peace will appear before a Congressional panel to discuss the matter. That won’t be any fun for him.
Because despite the retraction, Peace’s comments at the press conference reflected exactly what he and many other executives at the bank believe. To them, compliance is all busywork and box ticking, and sometimes ‘mistakes are made’ when running a big global bank. That thinking is what gets regulators – and Congress – so agitated.
If a culture of denial persists, it likely means Standard Chartered will not make the changes needed to prevent similar problems in the future. One need only look to HSBC for an example. It paid a record $1.9 billion fine in a money-laundering scandal that revealed the bank failed to strengthen its compliance systems over a 10-year period in which regulators repeatedly urged it to do so.
It is tempting to attack a regulator when a company is accused of wrongdoing but that almost never works, as Standard Chartered so vividly demonstrates. Every CEO, board director, general counsel and communications chief should clip Sir John’s statement and keep it in a nearby desk drawer. It will come in handy the next time anyone thinks about saying one thing in a settlement and something different in public.