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Standard Chartered to pay $300M for not flagging suspicious deals

Standard Chartered Plc agreed to pay $300 million for failing to flag suspicious transactions after promising to do so as part of a 2012 settlement with New York’s banking regulator.

Faulty anti-money laundering controls, required under the earlier accord, meant the London-based bank didn’t spot potentially high-risk transactions, many of which originated in its Hong Kong subsidiary and branches in the United Arab Emirates, according to a statement from the New York Department of Financial Services on Tuesday.

“If a bank fails to live up to its commitments, there should be consequences,” Superintendent Benjamin Lawsky said in the 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.”

Chief Executive Officer Peter Sands has toiled to revive Standard Chartered amid pressure from disgruntled investors. The bank has been under the scrutiny of an independent monitor imposed to ensure compliance with sanctions and money-laundering rules by Lawsky’s office two years ago, part of a wider $667 million settlement over breaches of U.S. bans concerning Iran.

Standard Chartered “accepts responsibility for and regrets the deficiencies in the anti-money laundering transaction surveillance system at its New York branch,” the bank said in a statement. It has “begun extensive remediation efforts and is committed to completing these with utmost urgency.”

“The concept of restricting dollar-clearing transactions in settlements with international financial institutions may become the new normal,” said Jacob Frenkel, a former federal prosecutor who is now a lawyer with Shulman Rogers Gandal Pordy & Ecker PA in Potomac.

As part of the agreement with Lawsky, Standard Chartered will suspend dollar clearing work for high-risk clients in Hong Kong, and stop some services for high-risk customers through its U.A.E. branches. It will also need to get approval from Lawsky’s office before undertaking new dollar-clearing clients or accounts, the New York Department of Financial Services said.

The bank “will individually notify and work closely with the small proportion of clients in Hong Kong and the United Arab Emirates who will be affected to minimize disruption,” the company said. Standard Chartered, which generates about three- quarters of its earnings in Asia, “remains fully committed to Hong Kong and the United Arab Emirates as key markets.”

The compliance failures were spotted by the independent monitor Lawsky installed as part of the 2012 settlement the bank reached with U.S. authorities. A rulebook listing how to spot high-risk transactions created in the wake of that accord had many errors and other problems due to inadequate testing before and after the monitoring system was implemented, the agency said. The monitor’s contract will be extended for another two years as part of Tuesday’s agreement.

Lawsky secured $340 million in August 2012 in a deal reached the day before the bank was due to defend itself to the regulator. The rest went to authorities including the Federal Reserve, the Manhattan District Attorney and the U.S. Department of Justice in a deal concluded in December of that year.

Standard Chartered had argued the latest lapse was down to a technical failure, and wasn’t a deliberate move to conceal problematic transactions, a person familiar with the matter said Aug. 6.

The Hong Kong Monetary Authority said in a statement it has been monitoring Standard Charter’s anti-money laundering and terrorism financing controls.

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

With assistance from Keri Geiger in New York. 

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