(Bloomberg) -- India’s anti-money laundering agency fined Standard Chartered (OTC:SCBFF) Plc 1 billion rupees ($13.6 million) for breaking foreign exchange rules when it worked on the takeover of a local bank, marking one of the country’s biggest penalties imposed on an overseas lender.
An eight-year probe found that Standard Chartered violated the so-called foreign exchange management act -- which monitors offshore financial transactions -- when it worked with a group of investors to buy a stake in Tamilnad Mercantile Bank (NASDAQ:MBWM) Ltd. in 2007, according to an August order from India’s enforcement agency that was seen by Bloomberg.
“Senior officials at Standard Chartered saw an investment in TMB shares as an opportunity that might ripen into an eventually larger ownership for the bank,” Sushil Kumar, the enforcement agency’s special director, said in the order.
A representative for the British lender confirmed receipt of the order, adding that the bank was evaluating it and so unable to comment further.
Escrow Accounts
Standard Chartered -- India’s largest foreign bank by branches -- also acted as a custodian for shares on the deal, according to the order. Tamilnad Mercantile was fined almost 170 million rupees for similar charges, the order said.
A spokesman at Tamilnad Mercantile declined to comment, while the Enforcement Directorate didn’t immediately respond to an email seeking comment.
The case dates back to about 13 years ago when Tamilnad Mercantile transferred 46,862 shares to overseas investors, including GHI Ltd., Swiss Re (OTC:SSREY) Investors, FI Investments and Cuna Group, without seeking permission from India’s central bank, according to the order. Some of those shares were then transferred to Sub-Continental Equities Ltd., an affiliate of Standard Chartered in April 2008, without the Reserve Bank of India’s permission, it said.
The transfers were done through escrow accounts with Standard Chartered, which acted as a transaction agent and a lender to one of the investors on the deal, the order said.
“Standard Chartered through its affiliate Subcontinental was a proposed and eventually an actual investor in TMB shares to be purchased through the escrow agreement arrangements,” Kumar said.
©2020 Bloomberg L.P.
