Standard Chartered fined big bucks for poor AML controls and breaches

Are big corporate thumbing their noses at authorities trying to combat financial crime and preventing the proliferation of terrorism? With the number of busts coming to light, perhaps the cost of money laundering is outweighed by their benefits.

Article in the Guardian:

Standard Chartered fined $1.1bn for money-laundering and sanctions breaches

Settlements with US and UK authorities force bank to take hit in first-quarter results

Kalyeena Makortoff Banking correspondent @kalyeenaTue 9 Apr 2019 16.29 BSTShare on FacebookShare on TwitterShare via Email 1 month old

Standard Chartered has been ordered to pay $1.1bn (£842m) by US and UK authorities to settle allegations of poor money-laundering controls and breaching sanctions against countries including Iran.

The British bank has agreed to pay $947m to American agencies, including the US Department of Justice, over allegations that it violated sanctions against a string of countries including Iran.

Separately, it was fined £102m by the Financial Conduct Authority for anti-money-laundering breaches that included “shortcomings” in its counter-terrorism finance controls in the Middle East. It is the second-largest fine ever imposed by the UK regulator for anti-money-laundering failures.

The US treasury department said the latest fines settled “apparent violations” of sanctions imposed against Burma, Zimbabwe, Cuba, Sudan, Syria, and Iran.

It said Standard Chartered processed transactions worth $438m between 2009 and 2014, the majority of which involved Iran-linked accounts from its Dubai branch routing payments through, or to, its New York office or other US-based banks.

The fines were widely expected after Standard Chartered said in February it had set aside $900m (£691m) to cover US and UK penalties. However, the final settlements will force the bank to take a further $190m hit in its first-quarter results, which it will report on 30 April.

Standard Chartered said on Tuesday it “accepts full responsibility for the violations and control deficiencies”, adding that the “vast majority” of the alleged incidents took place before 2012. None of the breaches occurred after 2014, it added.

But the bank, which is headquartered in London but focused on Asia, the Middle East and Africa, placed partial blame on two former junior employees, who were “aware of certain customers’ Iranian connections and conspired with them to break the law, deceive the group and violate its policies”. Standard Chartered said: “Such behaviour is wholly unacceptable to the group.”

Bill Winters, the chief executive, said: “We are pleased to have resolved these matters and to put these historical issues behind us. The circumstances that led to today’s resolutions are completely unacceptable and not representative of the Standard Chartered I am proud to lead today.”

The settlements announced on Tuesday are, together, the largest imposed on Standard Chartered since 2012, when it paid $667m to put to rest US allegations of sanctions breaches between 2001 and 2007.

US assistant attorney general, Brian Benczkowski, said: “Today’s resolution sends a clear message to financial institutions and their employees: if you circumvent US sanctions against rogue states like Iran – or assist those who do – you will pay a steep price.”

The Financial Conduct Authority had raised concerns about anti-money-laundering controls at Standard Chartered’s UK-based correspondent bank and its United Arab Emirates branches. It highlighted “serious shortcomings” in customer due diligence and said the bank also failed to ensure its UAE branches applied proper counter-terrorist financing controls.

The FCA gave examples where a customer was able to open an account by handing over around 3m UAE dirham (£500,000) in cash in a suitcase, with little evidence that the source of the cash was investigated. It also said Standard Chartered failed to collect sufficient information on a customer exporting goods that could have a “military application” to regions involved in armed conflict.

The prospect of major fines have hung over Standard Chartered since 2012, when it entered into a deferred prosecution agreement (DPA) with the US Department of Justice and the New York county district attorney’s office over Iranian sanctions breaches beyond 2007.

Other UK banks to have fallen foul of US authorities include RBS, which paid out more than $10bn in relation to the alleged mis-selling of mortgage-backed securities. In 2012, HSBC paid a fine of $1.9bn to settle US money-laundering allegations.

DPAs allow firms to settle charges with state authorities without facing criminal prosecution. The companies must agree to specified conditions, which can include a fine and their conduct being monitored for a set period.

The DPA was set to expire on Wednesday, but has now been extended until April 2021. Over the next two years Standard Chartered will effectively be on probation, giving US agencies the right to criminally prosecute the bank if it breaks the law.

Standard Chartered said it had “undergone a comprehensive and positive transformation since the conduct and control issues ... occurred”. The shares ended the day up 0.3% at 647p.