As published on gtreview.com, Tuesday 31 March, 2020.
UK sanctions regulators have issued a record £20.47mn fine to Standard Chartered for allegedly breaching restrictions on loans to Russian financial institutions.
The Office of Financial Sanctions Implementation (OFSI) says the decision was taken after dozens of loans made by Standard Chartered to Denizbank – at the time almost wholly owned by Russia’s Sberbank – were deemed to be in breach of EU-wide restrictions in place since 2014.
Those restrictions, introduced in response to Russia’s military intervention in Ukraine, contain an exemption for trade-related loans. OFSI explains that under EU law, transactions are permitted if they “have the specific and documented objective of financing the import or export of non-prohibited goods between the European Union and any third country, to ensure that legitimate EU trade is not harmed”.
However, having examined 102 loans made by Standard Chartered between April 2015 and January 2018, the regulator has concluded that 70 – with a combined transaction value of over £266mn – were not facilitating trade with the EU.
“They were therefore in breach of the EU regulation,” it says.
In OFSI’s view, Standard Chartered “was aware of the sanctions regime and the need to take compliance steps and had initially ceased all trade finance business with Denizbank when Denizbank became a sanctioned entity”.
“However, Standard Chartered Bank had then sought to introduce dispensations enabling such loans to be made where they considered an exemption was applicable,” it says.
“OFSI assessed that these dispensations were not appropriately put in place, and the subsequent operation of the dispensations enabled loans to be made which were not within any exemption and therefore were in breach of the EU regulation. The failings persisted over an extended period of time, leading to Standard Chartered Bank repeatedly making new loans to Denizbank.”
Standard Chartered says OFSI’s findings “are based on information that we self-identified and self-reported”.
“As the penalty notice states, Standard Chartered did not wilfully breach the sanctions regime, acted in good faith, intended to comply with the relevant restrictions, fully co-operated with OFSI, and took remedial steps following the breach,” a spokesperson tells GTR.
“Standard Chartered has already fully provided for this penalty, so there will be no impact on our financial results. We remain unwaveringly committed to complying with all applicable financial sanctions’ regulations.”
Although 70 loans were found to be in breach of the EU’s sanction regime, the UK authority was only granted the power to issue fines from April 2017 onwards. As a result, OFSI is only able to penalise 21 of those 70 loans that took place after that date, which carried a total value of around £97.4mn.
Standard Chartered’s fine was also reduced by 30%, or £11mn, in response to the bank’s co-operation with the investigation. That included voluntary disclosure of the breaches as well as detailed reports on the relevant transactions, the regulator says.
Standard Chartered also requested that the transaction be reviewed by a UK minister. Though the minister upheld OFSI’s decision, they reduced the fine from around £31.5mn.
Despite that, it is by far the largest fine imposed by OFSI since its establishment in 2016, and the authority says the case “should be considered ‘most serious’”.