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 The New York State Department of Financial Services said on Tuesday
that it had identified deficiencies in the surveillance system of
Standard Chartered's <STAN.L> New York branch that failed to flag
high-risk transactions relating to clients based in the UAE and Hong
Kong.
Standard Chartered has agreed to pay a $300 million penalty and will
suspend the processing of dollar-denominated payments for high-risk
business clients at its Hong Kong unit, the New York State
Department of Financial Services said.
The U.S. watchdog's allegations come at a critical time for Hong
Kong as authorities look to clean up the city's image and clamp down
on money laundering ahead of a make-or-break review by international
anti-money laundering regulators in six months.
In an unusually punchy statement, the Hong Kong Monetary Authority
said its anti-money laundering rules are in line with international
standards, and that it could not be responsible for enforcing such
rules in other jurisdictions. The U.S. anti-money laundering rules
are widely regarded as the toughest in the world.
"This is disappointing for the regulators, given it's such a
prominent bank in the territory," said Philippa Allen, chief
executive of Hong Kong consultancy ComplianceAsia. "The regulators
have been raising standards, they have introduced new powers to
rectify some of the problems...I think we will see prosecutions as a
result of this, they are going to be under pressure now."
The Hong Kong authorities have been working hard to restore the
city's reputation after a 2008 review by international anti-money
laundering watchdog Financial Action Task Force (FATF) found several
major weaknesses in the city's overall anti-money laundering
oversight.
The next FATF inspection, scheduled for March and April, is seen as
a crucial test for Hong Kong since a bad mark could undermine its
status as a financial center.
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"This doesn't look good for Hong Kong," said Keith Pogson, senior
partner, financial services, Asia Pacific at EY. "Anti-money
laundering is a very big focus of the government, and the regulators
and banks have done a huge amount of work on this."
The HKMA said it takes anti-money laundering and counter-terrorist
financing work "very seriously", and has doubled its supervisory
resources in this area in the last two years.
"The HKMA conducts frequent risk based examinations on banks to
ensure their compliance with these requirements," it added.
The Hong Kong government introduced new anti-money laundering
legislation in 2012. Since then, the HKMA and the Securities and
Futures Commission have stepped up scrutiny of banks' anti-money
laundering controls, according to bankers and regulatory experts.
The FATF noted these improvements, but regulatory experts said the
city still has some way to go.
"The last FATF review wasn't favorable for Hong Kong, and there are
other issues on the table this time, including issues around tax
information. Hong Kong has to make sure it is not on any blacklist,
as this could be an economic disaster," Pogson said.
(Reporting by Michelle Price; Editing by Denny Thomas and Ryan Woo)
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