IE Insights: Case Study – 2019 Standard Chartered Enforcement Action

Standard Chartered Bank (“Standard Chartered”), a UK-based international banking and financial services company, was subjected to an enforcement action in 2019 by the U.S. and UK regulators for its insufficient controls related to sanctions and anti-money laundering (AML) compliance. This case study explores the circumstances surrounding the action and the bank’s response to it.

Background:

Standard Chartered Bank operates in numerous jurisdictions around the world, including those with high-risk exposure. In these markets, banks are required to adhere to local laws and regulations as well as international ones, such as U.S. sanctions laws and global anti-money laundering standards.

The Event:

In April 2019, Standard Chartered agreed to pay a total of $1.1 billion in settlement to various U.S. and UK agencies for violating sanctions against Iran and other countries. It was found that between 2007 and 2011, the bank processed transactions through the U.S. financial system for the benefit of Iranian entities in violation of sanctions.

In addition to this, the Financial Conduct Authority (FCA) in the UK fined the bank £102 million for poor money-laundering controls in two higher-risk areas of its business. This marked the second-largest financial penalty for AML controls failings ever imposed by the FCA.

The Investigation:

Regulatory authorities found that the bank failed to establish and maintain risk-based AML controls, which led to alleged breaches of sanctions law. The bank’s Dubai branch was especially highlighted for sending instructions to Standard Chartered’s branch in New York to process dollar transactions through the U.S. financial system on behalf of Iranian entities.

Response by Standard Chartered:

Upon the regulators’ findings, Standard Chartered took immediate action to address the concerns raised by improving its compliance programs, revising its sanctions and AML policies, and investing significantly in better controls.

The bank conducted a comprehensive review of its historical compliance and undertook a significant remediation effort, which included enhancing its customer due diligence and improving its transaction monitoring systems. It also committed to ongoing cooperation with the regulators.

Lessons Learned:

The Standard Chartered case was a significant lesson for banks and financial institutions globally. The enforcement action demonstrated that institutions need to have robust, risk-based compliance programs, especially when dealing with high-risk jurisdictions.

It also stressed the importance of maintaining good communication with regulators and responding promptly to any issues they raise. The proactive steps Standard Chartered took in response to the regulatory action served as an example of how institutions can address compliance failings.

In essence, this case underscored the high financial and reputational risks for banks associated with failures in sanctions and AML controls. It reinforced the importance of having strong systems, procedures, and cultures in place to manage these risks.

Conclusion:

The 2019 Standard Chartered enforcement action was a stark reminder to the banking industry about the severity of non-compliance with sanctions and AML laws. The substantial fines paid by the bank highlighted the critical need for robust and efficient compliance frameworks that are commensurate with the risks associated with different markets and jurisdictions.

By acknowledging its shortcomings and actively enhancing its compliance framework, Standard Chartered has since worked to demonstrate its commitment to upholding high standards of conduct and to regaining the trust of its stakeholders.