StanChart penalty a blow for Hong Kong as city looks to clean up image

Wed Aug 20, 2014 6:20am EDT
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By Michelle Price

HONG KONG (Reuters) - Hong Kong's de facto central bank moved to defend itself on Wednesday after a New York regulator penalized Standard Chartered Plc for what it described as anti-money laundering failings in its United Arabs Emirates and Hong Kong businesses.

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: Quote) 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.   Continued...

People queue up outside a Standard Chartered Bank branch before operation hours at the central business district in Singapore January 23, 2014.  REUTERS/Edgar Su