Standard Chartered has reached a $300 million settlement with US authorities over defective anti-money laundering controls, the latest in a run of institutions to fall foul of the rules.

Standard Chartered has reached a $300 million settlement with US authorities over defective anti-money laundering controls, the latest in a run of institutions to fall foul of the rules. The bank also faces tighter controls on certain Hong Kong and United Arab Emirates clients.

The UK-listed bank said it had reached a final settlement with the New York State Department of Financial Services regarding deficiencies in the anti-money laundering transaction surveillance system at its New York branch. The DFS also confirmed the shape of the settlement and other provisions in a separate statement.

The bank's compliance remediation failures were uncovered by DFS' independent monitor, which the organisation installed at Standard Chartered as part of the 2012 agreement stemming from an earlier case, the DFS said yesterday.

"The DFS monitor's review of Standard Chartered's transaction monitoring systems found that the bank 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 has 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," it said.

"Under the order, SCB [Standard Chartered] will suspend dollar clearing through its New York Branch for high-risk retail business clients at its SCB Hong Kong subsidiary; exit high-risk client relationships within certain business lines at its branches in the United Arab Emirates; not accept new dollar-clearing clients or accounts across its operations without prior approval from DFS; pay a $300 million penalty; as well as take other remedial steps," the regulator said.

Earlier yesterday, there was widespread media speculation that a settlement of $300 million was on the cards.

Besides the monetary penalty, settlement provisions include enhancements to the transaction surveillance system in the New York branch of Standard Chartered; a two-year extension to the term of the DFS-appointed independent compliance monitor.

Standard Chartered’s New York branch will not, without prior approval of the DFS in consultation with the monitor, open a dollar demand deposit for “any client that does not already have such an account with the group’s New York branch”.

In another measure, the bank must within 30 days identify information for originators and beneficiaries of some affiliate and third-party payment messages cleared through the New York branch.

After 45 days, a there will be a restriction on dollar clearing services for certain Hong Kong retail business clients; within 30 days, there must be enhanced monitoring of certain small- and medium-sized enterprise clients in the United Arab Emirates. “The group is seeking to exit this business as part of its broader efforts to sharpen its strategic focus, withdrawing or re-aligning non-strategic businesses, including those where increased regulatory costs and risks undermine their economic viability. The exit will take place under the timeline set out in the order; if the exit is not achieved within this period, further restrictions will be required, unless an extension is granted by the DFS,” it said.

“As the group prepares for the implementation of these remediation measures, it will individually notify and work closely with the small proportion of clients in Hong Kong and the United Arab Emirates who will be affected to minimise disruption. The group remains fully committed to Hong Kong and the United Arab Emirates as key markets,” it said.

Standard Chartered said the “vast majority” of its clients and businesses are unaffected by the settlement as are its US licences.

“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,” it added.

The latest development came after the bank promised to tighten procedures after it was fined $340 million for violating US sanctions rules involving Sudan, Iran, Libya and Myanmar two years ago. The latest investigation was reportedly prompted by the monitor that the bank brought in to watch over its international transactions back then. 

The settlement announcement also comes a week or so after it was reported that the bank is to begin trawling through data to detect any signs of money laundering or other criminality, following faults found in the software that is vital for complying with controls.

The reports add to a run of stories about banks and potential anti-money laundering lapses. A few weeks ago, for example, France’s BNP Paribas was hit by the US with a record $8.97 billion fine for breaches of controls against blacklisted nations such as Iran and Sudan. In the past, HSBC, the UK/Hong Kong-listed bank, was punished over AML lapses in 2012, in a case where money flowed through jurisdictions.