August 20, 2014 / 1:08 AM / in 5 years

StanChart's $300 million fine raises heat on board

NEW YORK/LONDON (Reuters) - A $300 million (180.23 million pounds) fine on Standard Chartered (STAN.L) for lapses in anti-money laundering controls has piled pressure on the bank’s board, coming after a series of transgressions and a drop in earnings that had prompted calls for change at the top.

Chief Executive Peter Sands has faced criticism following big losses in Korea, a slowdown in investment banking and the impact of tougher regulations. The bank warned in June that profit would fall in 2014 for a second straight year.

Some investors have already questioned the futures of Sands and Chairman John Peace, prompting the bank to reject reports in July that it was stepping up plans for their succession.

The civil settlement announced on Tuesday by Benjamin Lawsky, the New York State financial services superintendent, came two years after Standard Chartered agreed to pay $667 million to a variety of U.S. regulators to resolve similar charges, including $340 million to Lawsky’s office.

“The broader issue is that it creates a distraction for management. This is an unhelpful development,” said Jefferies analyst Joe Dickerson.

A monitor appointed in 2012 uncovered shortcomings in the bank’s surveillance systems that caused a “significant number of potentially high-risk transactions” to go undetected, according to a consent order signed by Sands.

“If a bank fails to live up to its commitments, there should be consequences,” Lawsky said in a statement. “That is particularly true in an area as serious as anti-money-laundering compliance, which is vital to helping prevent terrorism and vile human rights abuses.”

The latest settlement calls for Standard Chartered’s New York branch to suspend the processing of dollar-denominated payments, known as dollar clearing, for high-risk business clients at its Hong Kong unit.

A significant amount of the potentially high-risk transactions the system has failed to detect originated from its Hong Kong unit and branches in the United Arab Emirates, according to the statement.

Standard Chartered will also end high-risk small- and mid-sized business client relationships in the United Arab Emirates, and obtain approval from Lawsky’s office before opening U.S. dollar-clearing accounts for new clients. It will retain a monitor for another two years.

The decision will impact a few hundred of StanChart’s retail business clients in Hong Kong, which represent a small percentage of the bank’s client base in the city, an industry source with direct knowledge of the matter said.

Standard Chartered shares rose following news of the fine, which had been anticipated, and were up 0.3 percent at the close of trading in London on Wednesday.


Espirito Santo analyst Shailesh Raikundlia said he expected the settlement to have a small impact on Standard Chartered’s revenue but said the bank would be prepared to lose that income to mitigate future conduct risks.

Investec’s Ian Gordon said he believed the restrictions in Hong Kong related to a small subsection of Standard Chartered’s commercial clients business in Hong Kong, the entirety of which contributed $87 million to the bank’s first-half profit.

In a statement, Standard Chartered said it “accepts responsibility for and regrets the deficiencies” in its anti-money laundering surveillance system in New York, and is committed to fix the problems with “utmost urgency”.

It also said it “remains fully committed” to the Hong Kong and UAE markets, and that the vast majority of its clients and businesses, as well as its U.S. licenses, were unaffected.

The bank is based in London but makes most of its money in Asia, Africa and the Middle East.

Earlier in August, the bank’s head of Asia operations, Jaspal Bindra, said banks were being penalised too harshly for lapses in anti-money laundering efforts, although StanChart later distanced itself from his comments.

The Hong Kong Monetary Authority (HKMA), the city’s de facto central bank, said in a statement on Wednesday it had been closely monitoring Standard Chartered’s anti-money laundering and anti-terrorism financing controls.

“Although we have identified some areas for improvement, they are not issues that cause significant supervisory concerns,” the HKMA said in a statement.

StanChart’s monitor is Ellen Zimiles, a Navigant Consulting Inc NCL.N managing director and former federal prosecutor.

People queue up outside a Standard Chartered Bank branch before operation hours at the central business district in Singapore January 23, 2014. REUTERS/Edgar Su

The bank’s earlier settlement with Lawsky resolved charges that it concealed an estimated $250 billion of transactions linked to Iran, violating U.S. sanctions.

U.S. regulators have in recent years also punished other European banks including Barclays Plc (BARC.L), BNP Paribas SA (BNPP.PA), HSBC Holdings Plc (HSBA.L) and UBS AG UBSN.VX for running foul of laws against money laundering, or doing business with blacklisted countries.

BNP’s $8.83 billion settlement is the largest, but Standard Chartered’s is unusual by making the bank a repeat offender.

Additional reporting by Steve Slater in London, Karen Freifeld in New York and Saikat Chatterjee and Anne Marie Roantree in Hong Kong; Editing by Jeffrey Benkoe, Cynthia Osterman and David Clarke

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