Standard Chartered Bank is to pay $1.1bn (£840m) to settle long running claims by both US and UK regulators relating to sanctions busting activities in Iran and breaches of anti-money laundering (AML) rules
The Financial Conduct Authority (FCA) has fined Standard Chartered £102.1m for AML breaches in two higher risk areas of its business, the second largest financial penalty for AML controls’ failings the regulator has ever imposed.
The FCA said it found ‘serious and sustained’ shortcomings in Standard Chartered’s AML controls relating to customer due diligence and ongoing monitoring in both its UK wholesale bank correspondent banking business from November 2010 to July 2013, and its branches in the United Arab Emirates (UAE) during the period from November 2009 to December 2014.
Standard Chartered failed to establish and maintain risk-sensitive policies and procedures, and failed to ensure its UAE branches applied UK equivalent AML and counter-terrorist financing controls.
The FCA found significant shortcomings in Standard Chartered’s own internal assessments of the adequacy of its AML controls, its approach towards identifying and mitigating material money laundering risks and its escalation of money laundering risks.
Examples include opening an account with three million UAE Dirham in cash in a suitcase (just over £500,000) with little evidence that the origin of the funds had been investigated, and not reviewing due diligence on a customer despite repeated red flags such as a blocked transaction from another bank indicating a link to a sanctioned entity.
Standard Chartered also failed to collect sufficient information on a customer exporting a commercial product which could, potentially, have a military application. This product was exported to over 75 countries, including two jurisdictions where armed conflict was taking place or was likely to be taking place.
Mark Steward, director of enforcement and market oversight at the FCA, said: ‘Standard Chartered’s oversight of its financial crime controls was narrow, slow and reactive. These breaches are especially serious because they occurred against a backdrop of heightened awareness within the broader, global community, as well as within the bank, and after receiving specific attention from the FCA, US agencies and other global bodies about these risks.
'Standard Chartered is working to improve its AML controls to ensure all issues are fully addressed on a global basis. The FCA has taken into account Standard Chartered’s remediation work and its cooperation in assisting the FCA investigation, without which today’s financial penalty would have been even higher.'
Standard Chartered’s agreement to accept the FCA’s findings meant it qualified for a 30% discount on the penalty which was originally assessed as £146m.
The US Department of the Treasury’s Office of Foreign Assets Control (OFAC) has announced a $639m agreement with Standard Chartered Bank to settle its potential civil liability for apparent violations of US economic sanctions relating to Burma, Cuba, Iran, Sudan, and Syria. OFAC is also settling a separate case involving apparent violations of sanctions related to Zimbabwe.
From June 2009 until May 2014, the bank processed 9,335 transactions totaling $437.5m that were processed to or through the US. All of these transactions involved persons or countries subject to comprehensive sanctions programs administered by OFAC.
The majority of the conduct concerns Iran-related accounts maintained by Standard Chartered’s Dubai, UAE branches on behalf of customers that sent payment instructions to the Dubai branch while physically located or ordinarily resident in Iran. the bank also processed online banking instructions for residents of comprehensively sanctioned countries.
Under the settlement agreement, Standard Chartered has agreed to implement robust compliance procedures, including regular risk assessments, improvements to internal controls and auditing, and ongoing sanctions compliance.
Separately, between May 2009 and July 2013, Standard Chartered Bank in Zimbabwe processed transactions to or through the US involving Zimbabwe-related specially designated nationals (SDNs) or entities owned 50% or more, individually or in the aggregate, by one or more Zimbabwe-related SDNs, in violation of sanctions regulations. The bank is to pay $18m to OFAC to settle civil liability relating to these apparent violations.
Standard Chartered confirmed it will pay a total of $947m in monetary penalties to the US agencies and £102m to the FCA.
In a statement, Standard Chartered said: ‘The group took a $900m provision which included these matters in the fourth quarter of 2018 and will take a further and final charge of $190m in the first quarter of 2019.
‘The group accepts full responsibility for the violations and control deficiencies outlined in the resolution documents, the vast majority of which predated 2012 and none of which occurred after 2014. These violations include the actions of 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. Such behaviour is wholly unacceptable to the group.’
Bill Winters, group chief executive, said: ‘The circumstances that led to today's resolutions are completely unacceptable and not representative of the Standard Chartered I am proud to lead today. Fighting financial crime is central to what we do and who we are; we do not tolerate misconduct or lax controls and we will continue to root out any issues that threaten the trust we have built over more than 160 years.’
Report by Pat Sweet