Standard Chartered, fined billions of dollars since 2012 for regulatory violations, has discovered that it cannot explain how some of its wealthiest clients acquired their fortunes and is reviewing thousands of customer accounts at its private bank.
A Dubai regulatory review two years ago, which hasn’t previously been reported, found that the private bank didn’t have documentation to show the sources of some clients’ wealth and in some cases lacked even basic data such as current addresses and phone numbers, according to people familiar with the situation. Similar failings have been identified at major hubs including Singapore, Hong Kong and London, the people said.
This isn’t the first failure of the bank’s anti-money-laundering efforts. In April, Britain’s financial watchdog fined the lender £102mn ($127mn) for “serious and sustained shortcomings” in its client due diligence and monitoring, including in the United Arab Emirates between 2009 and 2014. That was part of a $1.1bn settlement with US and UK regulators that also took Standard Chartered to task over its handling of transactions that violated sanctions against Iran and other countries.
“Standard Chartered’s private bank has made tremendous strides over the past few years, in terms of its business performance and equally in setting industry-leading standards for client due diligence,” the company said in an e-mailed statement.
Chief executive officer Bill Winters has had to address repeated regulatory missteps at the London-based bank, which gets more than 80% of its profit from Asia. When he took over in 2015, he pledged a root-and-branch review of the firm’s compliance protocols to bring to an end the run of fines the bank had incurred. In 2017, chief information officer Michael Gorriz said the bank was nearly “over the hump” on costly compliance upgrades required to cope with stricter regulations.
But the fines keep coming. Last year, two units of the bank were fined about $4.7mn by authorities in Singapore for anti-money-laundering failings over the transfer of client assets from Guernsey to a branch in the Asian city-state.
Standard Chartered’s private banking clients include so-called politically exposed persons - individuals with prominent political or public-sector functions - such as African and Asian politicians.
The private bank has some $65bn of assets and accounted for about 4% of the operating income of the firm in the first half. There is no evidence the bank was involved in wrongdoing. Following the 2017 review, the Dubai Financial Services Authority ordered the bank to bring in external consultants to act as an independent check on the clean-up, two of the people said.
The bank hired Deloitte and two years later is hoping to wrap up the process, which involved the remediation of an unidentified number of client accounts.
Senior managers, including Didier von Daeniken, global head of the private bank, were scheduled to meet with Dubai regulators this month, the people said.
Standard Chartered discovered closely related issues across the business, according to the people.
The private bank is currently conducting an internal review of all of its roughly 8,000 customer accounts to ensure that it is fully compliant with anti-money-laundering rules. A team of Deloitte consultants is helping with this work in Singapore and Hong Kong, which account for the largest share of the private bank’s business, the people said.
Regulators in many countries require private banks to verify how their wealthy clients acquired their fortunes to help guard against criminals and corrupt businessmen and politicians using the international financial system to launder ill-gotten gains.
When it fined the bank earlier this year, the UK’s Financial Conduct Authority spelled out the seriousness of the bank’s lapses: “The inadequate due diligence and ongoing monitoring not only exposed SCB to sanctions evasion but also increased the risk of SCB receiving and/or laundering the proceeds of crime.”
It specifically cited the bank’s failure to investigate the origin of funds for an account opened with a suitcase filled with 3mn dirhams ($820,000) in cash.
The task of bringing the accounts up to the standard required by regulators isn’t easy. As part of the work, relationship managers in the private bank are having to ask some long-standing clients to provide documentation – such as pay slips, details of family inheritances and company structures – going back decades. Many of them come from countries where that type of paperwork doesn’t exist, the people said.
Guernsey, one of the Channel Islands wedged between England and France, is a case in point. After identifying in 2016 what appeared to be an attempt to skirt client reporting obligations, the bank shuttered its business there and told clients it would take six months to transfer their accounts.
The bank subsequently discovered multiple source-of-wealth discrepancies in the accounts and three years later about half of the unit’s accounts still aren’t closed, leaving many clients without access to their money, the people said. Standard Chartered isn’t the only lender in regulators’ crosshairs.
Money-laundering scandals have engulfed some of Europe’s biggest banks and exposed the vulnerability of the financial system.
Authorities in Europe and the US are pursuing inquiries into Denmark’s Danske Bank, which said last year that it handled more than €200bn ($221bn) in potentially suspicious transactions largely originating with clients in Russia and former Soviet states.
The Netherlands’ ING Group NV paid €775mn last year to settle a money-laundering investigation by the country’s prosecutor. Both banks admitted to shortcomings in their anti-money-laundering controls and said they were cooperating with regulators to fix them.
Even relatively minor infractions can incur the wrath of regulators. This month, HSBC Holdings Plc’s private banking arm was publicly censured and fined $270,000 by the Hong Kong Securities and Futures Commission for failing to record about 6,000 client telephone calls. The bank said it had since fixed the problem and strengthened its processes.
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