Benjamin Lawsky’s impertinent insistence that Standard Chartered Bank actually did something wrong when it facilitated $250 billion in money laundering has really scrambled the federal regulatory response to similar charges. Because the dirty secret is that practically EVERY big bank may have engaged in similar behavior. And now the regulators, embarrassed into action by Lawsky, have to do their job. The latest target is Deutsche Bank, but note the reference to “several other global banks” in the opening paragraph.

U.S. prosecutors are investigating Deutsche Bank and several other global banks over business linked to Iran, Sudan and other nations currently under international sanctions, the New York Times reported on Saturday.

The U.S. Justice Department and the Manhattan District Attorney’s office are investigating the banks for allegedly using U.S. branches to move billions of dollars in Iran-linked transactions, according to the report, citing unnamed law enforcement officials [...]

The report of the Deutsche Bank probe came days after a settlement for $340 million with New York’s banking regulator and Britain’s Standard Chartered Plc . The Manhattan District Attorney and federal authorities have not yet settled their probes of the bank.

Reuters has learned that Lawsky ignored the entreaties of federal regulators to drop his own action in favor of a single, global settlement. Although winning a larger settlement than many thought possible, others say Lawsky’s tactics have alienated federal officials and could make it tougher for him to partner with them on future cases.

That last bit is genius. Lawsky got $340 million from Standard Chartered; the initial offer was $5 million. But despite this success, the other regulators are mad and feel alienated. That’s because he put them to shame with his fealty to his actual job title. Implicit in this response is that federal regulators do not appreciate being forced into doing their jobs.

Sadly, we’ve known about money laundering by the big banks, in service to drug lords and terrorist financiers, for many years now. Only the federal regulators are playing catch-up at this point. As  Jonathan Weill points out at Bloombergs, this shows the importance of a cop on the beat, no matter what the level:

Perhaps it is accurate for Lawsky’s critics in the federal government to say he hijacked their investigation in an ambitious power grab. Even if true, the public seems better off for it. Lawsky’s counterparts will now feel pressure to seek larger penalties for their own money-laundering settlements with Standard Chartered. It is hard to see a downside in that [...]

If the federal government would do a better job of overseeing large banks, rather than protecting them, there would be no opportunity or reason for someone like Lawsky to step in. Having active, competent, functional state financial regulators can only be a good thing. The country needs more.

Indeed.