Standard Chartered Hit With $300M Fine Over Failed Money-Laundering Controls

Standard Chartered Bank will stop processing payments in dollars from 300 Hong Kong clients at its New York branch, after the bank failed to flag millions of cross-border payments coming from areas prone to money laundering.

The U.K. bank, which earns most of its profit in Asia, will also stop opening dollar-denominated accounts for new customers, implement a new transaction monitoring system and pay a $300 million fine, New York State’s financial regulator announced on Tuesday (Aug. 19).

Standard Chartered was not accused of any criminal wrongdoing in the fine and settlement and federal and state prosecutors were not involved.

The questionable transactions were spotted by an independent monitor, who was hired as part of a 2012 $667 million settlement of previous problems at Standard Chartered. The monitor found that the bank’s computer systems failed to flag wire transfers flowing from areas of the world considered vulnerable to money-laundering. The New York Department of Financial Services (DFS) traced a large part of the problem to the bank’s Hong Kong subsidiary and its branches in the United Arab Emirates.

Standard Chartered is in the process of shutting down most of its small- and medium-size business-client accounts in the U.A.E.

According to the New York Times, the breadth of the failure to catch questionable transactions, along with the repeat nature of the case, prompted DFS head Benjamin M. Lawsky to take aim at both of the Hong Kong and U.A.E. business units.

Under the settlement, Standard Chartered’s New York branch will indefinitely suspend processing of payments in dollars — “dollar clearing” — for high-risk retail business clients in Hong Kong. That’s expected to affect about 300 clients, the Times reported, and the bank privately assured investors that the dollar-clearing suspension won’t materially affect its financial performance.

But it’s up to the bank’s independent monitor to decide what constitutes “high risk.” The monitor—currently former Manhattan federal prosecutor Ellen Zimiles—will now continue to check on Standard Chartered’s transactions until 2017, a two-year extension, under the settlement.

And if the monitor detects another breach, the settlement allows for another round of fines, which now total just short of $1 billion.

The settlement also requires Standard Chartered to appoint a high-level executive specifically to oversee remediation of the transaction-related problems. That executive will report directly to the bank’s chief executive, Peter Sands.

The Hong Kong Monetary Authority, which oversees the banking industry there, issued a statement on Tuesday that suggested it wasn’t concerned about Hong Kong-related money-laundering controls. “Although we have identified some areas for improvement, they are not issues that cause significant supervisory concerns,” the statement said.

But sources told the Times that New York’s DFS is in the process of expanding its anti-money-laundering efforts, especially in the cases of banks that have already failed to meet regulatory requirements. DFS head Lawsky is reportedly considering routine double-checks of banks’ transactions for signs of money-laundering. That could hint at similar actions against other Wall Street banks.