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What can be learnt from the latest fine on Standard Chartered over money laundering failures?

On 19th August 2014, Standard Chartered Bank was fined $300m (£181m) and agreed to cut off dealings with certain customers for failings that could have seen the bank process illegal transactions from sanctioned states.

Notably, the New York State Department of Financial Services (NYDFS) in carrying out its supervisory role through its independent monitor, which the Department installed at Standard Chartered as part of the 2012 agreement, found that SCB 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 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.

As a consequence, could SCB have prevented such failures?

It is hard to say, as it seems that SCB had already taken a few steps to amend shortcomings followed by the previous fine in 2012. However, it may be possible to argue that wrong decisions were taken at the top in relation to SCB AML policies and procedures for identifying high-risk transactions. In particular, SCB did not adequately test and audit the transactions monitoring system. Therefore, it can be definitely learnt that banks and financial services providers must take appropriate and adequate measures able to test and audit their internal transactions monitoring systems. I would recognise that in such activities banks and financial services could ask the supervisory support of law enforcement agencies. Whilst this could mean being under authorities lenses, potential benefits medium/long-term would be numerous including the opportunity to amend its own system before it is too late.


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