OFSI imposes £20.4 million fine on Standard Chartered Bank for breaching financial sanctions.

The Treasury has imposed its first multimillion-pound monetary penalties for a breach of financial sanctions regulations.

The Office of Financial Sanctions Implementation (OFSI), part of HM Treasury, has imposed two monetary penalties totalling £20.4 million on Standard Chartered Bank for breaching financial sanctions.

1. The first penalty amount is £7,693,233.50 (£7.6 million GBP);
2. The second penalty amount is £12,778,576.33 (£12.7 million GBP), for
3. A total penalty value of £20,471,809.83 (£20.47 million GBP)

The imposition of these penalties follows an investigation undertaken by OFSI and the conclusion of the relevant process, in line with OFSI’s published guidance.

These penalties are the highest OFSI has imposed to date.

THE FACTS

1. In July 2014, the European Union (including the UK) imposed restrictive measures against those responsible for actions which undermine or threaten the territorial integrity, sovereignty and independence of Ukraine.

2. The restrictive measures set out in the EU Regulation are intended to prevent certain Russian banks, companies, and their subsidiaries from accessing EU primary and secondary capital markets (including access to loans).

3. Specifically, Article 5(3) of the EU Regulation, which came into force in September 2014, prohibits any EU person from making loans or credit or being part of an arrangement to make loans or credit, available to sanctioned entities, where those loans or credit have a maturity of over 30 days.

172 loans to Denizbank A.Ş

4. Standard Chartered Bank made a series of 102 loans to Denizbank A.Ş. between 8 April 2015 and 26 January 2018.

5. At the time the loans were made, Denizbank A.Ş. was almost wholly owned by Sberbank of Russia.

6. Sberbank was at the relevant time subject to restrictive measures under the EU Ukraine (Sovereignty and Territorial Integrity) regime. As Sberbank’s majority-held subsidiary, the restrictions also applied to Denizbank A.Ş.

• Article 5(3)(a) of the EU Regulation creates an EXEMPTION from the Article 5(3) prohibition which
  • permits loans or credit which 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.
• Accordingly, the exemption requires that the financed trades concern goods coming in or out of the EU (the EU nexus).

7. OFSI assessed that: 

• 102 loans were permitted under the EU Regulation exemption,
• 70 loans, with an estimated transaction value of over £266 million GBP, did not have an EU nexus and thus did not qualify for the Article 5(3)(a) exemption. They were therefore in breach of the EU Regulation.
  • 21 of these loans with an estimated transaction value of £97,484,808.71 (£97.4 million GBP) were issued between 7 April 2017 and 26 January 2018.
• Breaches occurring after 1 April 2017 may be penalised under powers given to HM Treasury under section 146 of PACA 2017.

8. It is these 21 loans for which OFSI has issued these penalties. OFSI determined that this case should be considered ‘most serious’.

9. OFSI assessed that Standard Chartered Bank was aware of the sanctions regime and the need to take compliance steps and had initially ceased all trade finance business with Denizbank A.Ş. when Denizbank A.Ş. became a sanctioned entity.

10. However, Standard Chartered Bank had then sought to introduce dispensations enabling such loans to be made where they considered an exemption was applicable. 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.

11. The failings persisted over an extended period of time, leading to Standard Chartered Bank repeatedly making new loans to Denizbank A.Ş.

To read the full penalty report  click here https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/876971/200331_-_SCB_Penalty_Report.pdf