The internationally renowned British bank, Standard Chartered Bank (SCBFF), is currently facing legal action from U.S. authorities for failing to detect a large number of “potentially high-risk transactions” that originated in Hong Kong and the United Arab Emirates (UAE). The failure to identify such critical money laundering transactions has led to the bank being fined around $300 million by the New York Department of Financial Services after a flaw in the bank’s transaction monitoring system got identified that flouted the terms agreed upon in 2012 when the bank had violated sanctions with countries including Iran.
Against this backdrop, Standard Chartered is interested in selling its UAE accounts and is out in search for bidders from the country. Let’s dig deeper and find out its strategic moves and what the Gulf central bank is saying.
What is the Central bank saying?
The UAE has been the sixth largest market for the bank, so it’s well understood that closing shop permanently for the heavy penalties it’s paying for the money laundering episode would not be that easy.
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Besides the Central Bank has warned the London-based bank that, if it sells off its stake to any other bank operating in the region, it could be liable to legal action by the accountholders as at least 1,400 accounts to a maximum of 8,000 accounts would be affected as a result. In the words of the Central Bank, it would cause “material and moral damage” to the UAE small business clients.
What is expected by U.S. authorities?
In the current case, the U.S. state authority has outlined the details of the order, stating that SCB would require suspending dollar-clearing through its New York branch for the high-risk retail business clients at its Hong Kong subsidiary. The order also demands the exit from high-risk client relationships within certain business lines at its branches in the UAE. In addition, the bank has been instructed to not accept new dollar-clearing clients or accounts across its operations without prior approval from the U.S. authorities that have slapped the bank with this huge penalty.
What is StanChart’s next move?
The ligitation against the bank could taint its reputation in the emerging markets such as Asia and the current restriction imposed by the U.S. could easily affect the bank’s domestic client base.
SCB has issued a corporate statement through its website which states –
“The Group accepts responsibility for and regrets the deficiencies in the anti-money laundering transaction surveillance system at its New York branch. The Group has already begun extensive remediation efforts and is committed to completing these with utmost urgency. More broadly, the Group is committed to enhancing its effectiveness in the fight against financial crime, and in this context, has committed substantial resources to a multi-year Financial Crime Risk Mitigation Programme.”
Soon after the U.S. settlement was announced last week, SCB said that it was interested in exiting the SME business in the UAE as part of a broader effort to solidify its strategic focus. Recently in April, Barclays, its competitor, has sold its retail banking operations in the UAE to the Abu Dhabi Islamic Bank (ADIB), a deal by which the UAE bank acquired 11,000 customers.
The recent U.S. settlement offers a 90-day grace period to the bank to exit SME accounts in the UAE. If the bank fails to exit within the stipulated time period, the bank would need to close all the accounts unless it gets an extension from the regulators at New York.
To exit the business within the period allocated by the U.S., StanChart has started conversations with local banks in the UAE for selling its portfolio of SME clients and expects to draw a shortlist of bidders over the coming week.
The UAE serves as home to over 600,000 people of Iranian origin, with significant business dealings between the two countries, in spite of Iran being under sanctions. The latest mishap by SCB has added to the negative sentiment among worldwide investors with the banking and financial markets structure. Banking transparency in transactions is likely to be questioned after this episode. Meanwhile, Standard Chartered Bank is trying to set itself free from the reins in the UAE hoping to see brighter days in the coming future by concentrating in the emerging and developed markets.