On August 6, the Superintendent of the New York State Department of Financial Services (NYDFS) published the outcome of an investigation into Global Investment Strategist Model Portfolio holding Standard Chartered Bank (London: STAN). The findings weren’t pretty and sent the stock into a tailspin.

Shares of Standard Chartered plunged nearly 20 percent Tuesday, a day after the scandal broke, erasing USD15 billion of the bank’s market capitalization

According to the NYDFS, Standard Chartered for nearly a decade “programmatically engaged in deceptive and fraudulent misconduct in order to move at least USD250 billion through its New York branch on behalf of client Iranian financial institutions that were subject to US economic sanctions, and then covered up its transgressions.”

NYDFS has told Standard Chartered to: (1) appear and explain apparent violations of law; (2) demonstrate why Standard Chartered’s license to operate in the State of New York should not be revoked; (3) demonstrate why Standard Chartered’s US dollar clearing operations should not be suspended pending a formal license revocation hearing; and (4) submit to and pay for an independent, on-premises monitor of the Department’s selection to ensure compliance with rules governing international fund transfers. The company is to appear before the Superintendent on the morning of August 15.

Standard Chartered countered that “well over 99.9 percent of the transactions relating to Iran complied with U-turn regulations. The total value of transactions which did not follow the U-turn was under USD14 million.”

It has long been our view that Standard Chartered is one of the best-run financial institutions in the world. Although nothing can be ruled out, it is difficult to believe that the bank has been committing such egregious acts for so long. Time will tell if Standard Chartered was responsible in leaving the US financial system open to “terrorists, weapons dealers, drug kingpins and corrupt regimes,” as the NYDFS report states.

Investors should remember that another UK-based bank, HSBC (NYSE: HBC), was also recently charged with systemic money laundering. HSBC set aside $700 million to cover fines and other costs after a US Senate report excoriated the bank in July for letting clients shift funds from dangerous countries that are rife with drug dealing, notably Mexico. After taking an initial hit, the bank’s shares appear to be recovering.

Politicians around the world will do anything for publicity—and that includes putting a bank in the public stockade. If this scandal proves temporary, then buying Standard Chartered at current levels would prove an extremely profitable trade.

That said, the stock has been hit hard and if the accusations stick, the repercussions for investors could be huge.
Investors who don’t own shares of the bank should view the recent sell-off as a buying opportunity. If you already own the stock, Standard Chartered is a hold.