Outsourcing of key oversight jobs by global banks to India has come under the scanner for the second time in less than a month for allegedly exposing the US financial system to terrorists and money laundering risk. After the US Senate’s Permanent Committee on Investigations pointed out major lapses in the work of HSBC’s India staff, another UK-based banking giant Standard Chartered’s (SCB) outsourcing of key banking jobs to Indian shores is now being probed by the US.
The New York State Department of Financial Services (DFS) said on Monday SCB was a “rogue institution” that “schemed” with the Iranian government, which is subject to US sanctions over its nuclear programme, and hid 60,000 secret transactions amounting to $250 billion to generate hundreds of millions of dollars in fees over nearly 10 years.
In a statement sent to the Bombay Stock Exchange, SCB rejected the position and portrayal of facts by DFS. “The order of DFS does not present a full and accurate picture of the facts. Over 99.9 per cent of transactions relating to Iran complied with the U-turn regulations. The total value of transactions that did not follow the U-turn regulations was under $14 million,” the statement said.
The DFS probe found that SCB had assured New York state in May 2010 of immediate steps to comply with the US Office of Foreign Assets Control (OFAC) sanctions. However, another regulatory examination in 2011 found continuing and significant Anti Money Laundering failures. Among these, the bank was outsourcing its “entire OFAC compliance process for the New York branch to Chennai, India, with no evidence of any oversight or communication between the Chennai and the New York offices.” In London, SCB shares fell the most in almost 24 years, wiping out $15 billion of their value in early trade. Even its Indian Depository Receipts (IDRs) slumped nearly 20 per cent. The IDR closed at Rs 83.15.
“Some people were walking around under the illusion that SCB was the world’s first riskless bank, and it’s not. We’ve discovered that Standard Chartered is a mortal bank — as they all are,” Gareth Hunt, financial analyst at Canaccord Genuity, who rates the stock a “sell”, told Reuters. Standard Chartered processes $190 billion every day for global clients, the New York bank regulator has said. The bank has to appear before the DFS on August 15.