British targets can be tempting for American regulators, but in the US it’s often a case of ‘do as I say, not as I do’

On a day like this when another British bank faces accusations of serious wrongdoing by a regulator in the United States, it’s worth remembering that, for all its talk of level playing fields and open trading, the US has always practised a robust form of economic nationalism.

Foreigners are often expected to do as Uncle Sam says, not as Sam does. In the 19th and early 20th century Uncle Sam was and remains pretty good at the very economic protectionism it deplores in others. General Motors (GM) is in court in its home state of Michigan this week, accused of driving Saab into bankruptcy for competitive reasons by its former Swedish owners.

Let’s stick to banks.

Standard Chartered, the Asia-focused but London-based British bank, clearly has some serious questions to answer about its dealings with Iran, in which a little-known US regulator (there are so many) called the New York state department of financial services (NYDFS) alleges it hid £160bn worth of transactions over a decade when international sanctions against Tehran were being tightened.

The language deployed is hyperbolic – the US financial system has been left open to “terrorists, weapons dealers, drug kingpins and corrupt regimes”, says the report from the NYDFS. A new and little-known player in the forest of publicity-hungry American regulators, it was created by the New York governor, Andrew Cuomo, last year in what the FT calls “a land grab” from the state’s attorney general (as distinct from the much more famous federal US attorney’s office for the southern half of the empire state – the bit that covers Wall Street).

The bank denies the charges, which relate to transactions that were not all necessarily illegal as such but required time-consuming notification to US authorities. It is something said to have been managed by removing codes – “wire stripping”, in the jargon – that identified them as Iranian money passing, albeit briefly, through the American banking system.

It’s all part of a bigger picture. Four foreign banks – Barclays, ING, Credit Suisse and Lloyds TSB – have paid US state and federal fines for evading sanctions without the case going to court. That’s an American practice we don’t have to admire: plea bargaining. At levels both high and low it often provides pretty rough justice.

The context, of course, is the appalling recent record of London-based banks, banks often largely owned and run by Americans like Barclays’ Bob Diamond, I need hardly point out. Reckless lending practices and poor risk assessment pushed UK (and US) banking to the cliff’s edge in 2008-9 and we are all paying the price in the protracted recession which followed.

Last month Barclays was fingered for its role in rigging the London interbank rate (Libor) and HSBC was charged with systemic money laundering of Mexican drugs funds, both much more serious allegations. Other banks are likely to be affected. It’s all awful.

But London is a tempting target. As a global financial centre it and Tokyo are New York’s only serious rivals and – as we have learned to our cost – it is less effectively policed by British regulators, notably the Bank of England and the Financial Services Authority (FSA). JP Morgan traders and – in the 90s – those at Goldman Sachs got into trouble at the London end. So have French banks.

So we have brought a lot of the trouble on ourselves by not enforcing rules and regulations. But let’s not forget that American banks misbehaved on a heroic scale in the great disaster rooted in the sub-prime mortgage market (read Michael Lewis’s The Big Short for a lively account, a good book for the beach) and that it was the Bush administration’s failure to prevent the collapse of Lehman Brothers in 2008 that brought the crisis to a head.

US-based credit ratings agencies like Standard & Poor’s were asleep on the job – to put it kindly – during the boom and have been playing tough guy on the US and even German triple-A ratings ever since. Our time for a mauling will come, as Danny Alexander, the Lib Dem Treasury minister, appeared to admit this week.

More than that, the US regulatory system, admirably robust in so many ways, is also highly fragmented and competitive. The NYDFS is a new kid on the block, so it may be trying to get a reputation at StanChart’s expense. Congressional committees, industry regulators and even the Obama White House showed just how tempting a UK company can be when they lambasted BP – hey, let’s make that BRITISH Petroleum – for its role in the Gulf oil spin. Two major US suppliers, Haliburton and Deepwater, were also heavily implicated. The case is still in the courts.

We’ll see how things turn out this time. StanChart had a good reputation and kept it during the financial crisis – until now. It boasts of having a more solid corporate culture. It says what it did was not illegal. Meanwhile its share price tanks on world markets.

When dealing with sanctions against Iran, however, it’s worth remembering one covert bit of sanctions-busting which was undoubtedly illegal. Back in the mid-80s the US, still smarting from the humiliating siege of its embassy in Tehran, devised a scheme to break the arms embargo against Iran by shipping weapons via Israel in return for the release of some remaining hostages.

The Brits at the time were selling weapons to Iran’s enemy, Saddam Hussein’s Iraq: immoral but at least vaguely consistent, though Baghdad didn’t pay its bills and we ended up fighting them too.

Under President Ronald Reagan – literally so, since they worked in the White House basement – the likes of Colonel Oliver North, working in cahoots with Robert “Bud” MacFarlane, the national security adviser, evolved the Iran dodge into a money-raising scheme to fund the contra rebels against the leftwing Sandinista regime in Nicaragua. The Iran-Contra affair was secret too because Congress had explicitly banned such action.

When it all came out, Reagan said he knew nothing (strangely believable, too) and got away with it. North was briefly a hero and they later renamed Washington’s downtown airport after the president – who remains a much loved and iconic leader for the nostalgic American right. I hope the StanChart lawyers spare the time to refresh their memories.