That's the key question being asked about New York banking regulator Benjamin Lawsky after his explosive charge that London's Standard Chartered bank abetted $250 billion of money-laundering transactions with Iran.

Standard Chartered won help Wednesday from Britain's central bank governor, who portrayed Lawsky as marching to his own tune, and marching out of step with federal regulators in Washington. "One regulator, but not the others, has gone public while the investigation is still going on," the Bank of England's Mervyn King said at a news conference in London.

The U.S. Treasury Department, in a letter responding to a request for clarification from British authorities, said it takes sanctions violations seriously.

The British bank lost over a quarter of its market value in 24 hours after Lawsky, the head of New York State's Department of Financial Services, threatened Monday to cancel Standard Chartered's state banking license, which is critical for dealing in dollars. Lawsky called Standard Chartered a "rogue institution" for breaking U.S. sanctions against Iran.

Standard Chartered shares bounced 7.1 percent on Wednesday to close in London at 13.15 pounds, up from a three-year low of 10.92 hit on Tuesday. They were still down 18 percent since the regulator's threat, which Chief Executive Peters Sands said was "disproportionate" and came as a "complete surprise."

Meanwhile, Reuters Breakingviews reported that the U.S. Federal Reserve has asked Standard Chartered's New York office to report in every few hours on its liquidity position, according to people familiar with the situation. The concern is that the possibility of Standard Chartered losing its New York license could spook trading counterparties or depositors, although there is no suggestion that this is happening, Breakingviews said.

The bank's top executives, some like Sands scrambling back from summer vacations, worked on a defense strategy. So far, the executives have contested the regulator's figures and his interpretation of the law, but they have given little further detail. The bank says only a tiny proportion of its Iran-related deals - less than $14 million - was questionable under U.S. sanctions rules.

Sources told Reuters that federal banking regulators in Washington, who had been probing Standard Chartered's Iran-related deals for more than two years, were surprised by the timing of Lawsky's charges and the stridency of his language.

Lawsky's Department of Financial Services had come to the conclusion the case was getting old and that it wanted to move forward, a person with knowledge of the situation said. The department told other agencies at a meeting in April that it planned to move forward with the case, the person said.

Members of Lawsky's office met representatives of Standard Chartered around May but did not inform the bank it planned to issue an order against it, the person said.

"This is a case about Iran, money laundering, and national security," Lawsky said in a statement on Wednesday. "We will continue to work closely with our law enforcement partners, both federal and state, in this effort. No bank, big or small, foreign or domestic, is above the law."

In Washington, Adam Szubin, director of the Treasury Department's Office of Foreign Assets Control, said in a letter to British authorities that his office is investigating Standard Chartered for "potential Iran-related violations as well as a broader set of potential sanctions violations."

The letter, which was dated Wednesday and obtained by Reuters, came in response to a British request for clarification of U.S. sanctions laws. Although much of the letter focused on so-called U-turn transactions, which are at the center of New York's allegations, the letter said it was not a comment on Lawsky's action.

The alleged U-turn transactions refer to money moved for Iranian clients among banks in the United Kingdom and Middle East and cleared through Standard Chartered's New York branch, but which neither started nor ended in Iran.

In London, King drew unfavorable comparisons between the handling of this case and other U.S. actions against British banks, such as the investigation of interest rate manipulation at Barclays PLC.

In the Barclays case, he said, all regulators in Britain and the United States produced coordinated reports after the investigation was complete.

"I think all the UK authorities would ask is that the various regulatory bodies that are investigating the particular case try to work together and refrain from making too many public statements until the investigation is completed," King said.

Standard Chartered's Sands, in his first public comments since the crisis arose, offered no major new information on the allegations, which the bank has been reviewing with authorities for the past two years.

"(We) fundamentally reject the overall picture and believe there are no grounds for them to take this action," he told reporters. The threat to cancel the bank's license to operate in New York would be "wholly disproportionate," he said.

Although Standard Chartered's business is concentrated in emerging markets, which has helped insulate it from the global financial crisis, it needs to be able to operate in New York so it can offer dealings around the world in U.S. dollars.

Also on Wednesday, Deloitte LLP, which was accused in Lawsky's order of wrongdoing in its role as an outside consultant to Standard Chartered, denied any misconduct. Deloitte was hired by Standard Chartered after U.S. authorities reprimanded the bank for similar lapses on transactions in 2004.

"Deloitte had no knowledge of any alleged misconduct by any Standard Chartered Bank employees and categorically denies that it aided in any way any violation of law by the bank," the firm said in a statement.

Specifically, Deloitte said it "absolutely did not delete" references to transactions from a report, contrary to an allegation in Lawsky's order.

CURSING THE AMERICANS

On Monday, Lawsky had reproduced what he said were quotes from an unidentified Standard Chartered executive director in a conversation in 2006 that demonstrated the bank's "obvious contempt" for U.S. banking regulations.

"You f---ing Americans. Who are you to tell us, the rest of the world, that we're not going to deal with Iranians?" the quote was rendered in documents released by the regulators.

People familiar with the situation said the bank's group finance director, Richard Meddings, one of five executive directors at the time, was the unnamed man.

Ray Ferguson, a bank executive who attended that meeting, told Reuters that while Meddings had used the expletive in a heated exchange, he did not, to his recollection, say the second part of the quote attributed to him about U.S. sanctions.

Meddings did not respond to repeated requests for comment.

Asked for the bank's view on the quote, Sands said: "We don't believe it's accurate." He defended the ethics of the bank, which he has run for six years: "I don't think there is anything wrong with the culture at Standard Chartered,"

Calling the allegations "very damaging", he said he would address "mistakes" that had been "clearly wrong", but said: "There were no systematic attempts to circumvent sanctions."

The BoE's King said he did not share the view held by some that the move in New York was part of a concerted U.S. effort to undermine London as a financial center, following the Barclays probe and a U.S. Senate panel report that criticized HSBC Holding's efforts to police suspect transactions.

One British lawmaker, however, said the affair was part of a "political onslaught" in the United States against British banks.

"I think it's a concerted effort that's been organized at the top of the U.S. government. I think this is Washington trying to win a commercial battle to have trading from London shifted to New York," said John Mann, a member of parliament's finance committee, who also called for a parliamentary inquiry.

(Additional reporting by Nate Raymond, Patrick Temple-West, Sinead Cruise, Kelvin Soh, Anjuli Davies and Sarah White; Writing by Eddie Evans; Editing by Leslie Adler)

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