The FCA has fined Standard Chartered Bank (Standard Chartered) £102,163,200 for anti-money laundering (AML) failings in two of its higher risk areas of business. Standard Chartered benefitted from a 30% discount to the fine owing to its agreement of key facts and matters with the FCA. Had it not been for this discount, the total penalty would have been £145,947,500.
Standard Chartered's misconduct was serious and spanned a period of time that began in 2009 and ended in 2014. Accordingly, the FCA's case was brought under the Money Laundering Regulations 2007 (MLRs), which were in force throughout the respective period.
The focus of the failings was in relation to the bank's branches in the UAE and also in respect of its correspondent banking relationships. The FCA adopted a rather unique approach to the penalty calculation, where the five step test in DEPP was applied in three separate computations: for failings related to Standard Chartered's UK wholesale correspondent banking business, for consumer bank failings relating to Standard Chartered's UAE branches, and lastly, for wholesale bank failings again related to the bank's UAE branches.
Regulation 15 of the MLRs requires banks with branches and subsidiaries in non-EEA jurisdictions to apply AML measures at least equivalent to that which is required by the MLRs themselves. This is of particular importance in respect of customer due diligence and record keeping.
Standard Chartered's UAE branches consistently failed to abide by the standards expected by the MLRs and the FCA's notice contained stark and concerning examples of non-compliance. Arguably the most egregious example was the case of a customer who arrived and deposited around £500k in cash, which had been brought into the UAE in a suitcase. The FCA's review of the relevant client files uncovered little evidence that the source of the funds had in fact been investigated.
The MLRs also prescribed requirements for banks that choose to enter into correspondent banking relationships. The MLRs require that correspondent banks undertake enhanced due diligence on the respondent banks it seeks to engage with in order to mitigate the innate AML risk associated with these kinds of relationship. This is again of heightened importance where the respondent bank is outside the EEA, which the MLRs and the JMLSG acknowledge represents a higher risk of money laundering.
The FCA concluded that Standard Chartered's UK correspondent banking business displayed "serious and systemic due diligence shortcomings". The FCA's file review discovered that in 88% of cases, there was insufficient evidence that Standard Chartered had adequately assessed the quality of the respondent's AML controls. Part of this issue had actually been communicated to the bank's Group Financial Crime Risk Committee in 2010, when a report explained that there was an "inadequate assessment of correspondent banking client AML procedures", and that there was "apparent 'cut and paste' descriptions of the correspondent's controls". This left Standard Chartered in a position where it was ultimately unable to determine and understand the risks posed by its respondent banks.
The penalty of £102,163,200 is the second largest AML fine to be issued by the FCA. The FCA's largest AML penalty was £163,076,224, which was issued to Deutsche Bank in 2017. It is arguable that but for the existence of that previous Deutsche Bank case, the penalty for Standard Chartered could have been higher. In representations annexed to the FCA's notice, the bank successfully argued for 'Step 2' reductions of £106m and £165m to bring the penalty more in line with what was levied against Deutsche Bank. The absence of a comparator could conceivably have made this argument more difficult to adduce.
In some respects, the FCA has exercised some leniency towards the bank, given its history of repeated AML failings over the last nine years. The FCA issued a Final Notice to Standard Chartered for AML failings in 2010, and also conducted a Systematic Anti Money Laundering Programme (SAMLP) at the bank in 2013, which disinterred a number of further weaknesses. The bank was therefore on notice of the failings which ultimately comprised the FCA's present case, arguably in a manner that Deutsche Bank was not.
However, since March 2017, the bank's Group Head of Financial Crime and Compliance has been Tracey McDermott, the former FCA director of Enforcement and one-time interim chief executive of the regulator. It is unclear whether she had a role in negotiating the resolution with the FCA, but she will no doubt be keen to ensure that no further egregious failings take place under her watch.
If you would like to discuss any of the issues raised in this case, please do not hesitate to contact one of our experts at Taylor Wessing.