International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Thursday, August 21, 2014

Standard Chartered Bank Pays $300 Million Penalty For Newest AML Failures, Suspends Dollar Clearing For Hong Kong 'High Risk' Clients

NY DFSBenjamin M. Lawsky, Superintendent of Financial Services, announced an order [August 19] regarding Standard Chartered Bank's ("SCB") failures to remediate anti-money laundering compliance problems as required in the Bank's 2012 settlement with the New York State Department of Financial Services (NYDFS). (See previous story here).

Under the order, SCB will suspend dollar clearing through its New York Branch for high-risk retail business clients at its SCB Hong Kong subsidiary; exit high-risk client relationships within certain business lines at its branches in the United Arab Emirates; not accept new dollar-clearing clients or accounts across its operations without prior approval from DFS; pay a $300 million penalty; as well as take other remedial steps. 

SCB's compliance remediation failures were uncovered by DFS' independent monitor, which the Department installed at Standard Chartered as part of the 2012 agreement. The DFS monitor's review of Standard Chartered's transaction monitoring systems found that the Bank failed to detect a large number of potentially high-risk transactions for further review. A significant amount of the potentially high-risk transactions the system has failed to detect originated from its Hong Kong subsidiary ("SCB Hong Kong") and SCB's branches in the United Arab Emirates ("SCB UAE"), among others.

In connection with the implementation of its transaction monitoring system, SCB NY had created a rulebook ("SCB Rulebook") with procedures to aid it in detecting high-risk transactions. The SCB Monitor gathered information and attempted to test the SCB Rulebook. After that review, the Monitor determined that the SCB Rulebook contained numerous errors and other problems, resulting in SCB's failure to identify high-risk transactions for further review. SCB failed to detect these problems because of a lack of adequate testing both before and after implementation of the transaction monitoring system, and failed to adequately audit the transaction monitoring system.

Standard Chartered will take a number of steps, including the following: 

  • SCB NY will suspend its dollar clearing operations for high-risk retail business clients of SCB Hong Kong. Additionally, SCB has commenced a process of exiting high-risk small and medium business clients ("SME") at SCB UAE. If exiting of the SME clients at SCB UAE is not completed within 90 days, SCB will suspend U.S. Dollar clearing through SCB NY for those clients.
  • SCB NY will not, without the prior approval of DFS – in consultation with the monitor – open a U.S. Dollar demand deposit account for any customer who does not already have such an account with SCB NY.
  • SCB will pay a $300 million penalty;
  • SCB will provide a comprehensive remediation action plan with appropriate deadlines and benchmarks;
  • SCB will appoint a competent and responsible SCB executive who will report directly to the SCB CEO to oversee the remediation;
  • SCB will extend the engagement of the Monitor for two additional years;
  • SCB will implement a series of enhanced due diligence and know-your-customer requirements – such as demanding greater information regarding the originators and beneficiaries of transactions – for its dollar clearing operations.

To view a copy of the NYDFS order signed today, please visit, link.

https://lawprofessors.typepad.com/intfinlaw/2014/08/standard-chartered-bank-pays-300-million-penalty-for-newest-aml-failures-suspends-dollar-clearing-fo.html

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