Korea to investigate StanChart and HSBC

A man uses an automated teller machine of SC First Bank at a subway station near the bank's headquarters in Seoul on June 27, 2011.

Story highlights

  • South Korean financial regulators will investigate local branches of Standard Chartered and HSBC
  • Comes after money laundering allegations against both banks by regulators in the U.S.

South Korean financial regulators will investigate the Seoul branches of Standard Chartered and HSBC in light of money laundering allegations against both banks by regulators in the US.

A spokeswoman for South Korea's Financial Supervisory Service on Thursday said the regulator would review the banks' responses to preliminary written inquiries before visiting their offices around the end of this month.

She added the investigation was prompted entirely by developments in the US, and that the regulator had no specific grounds to suspect wrongdoing by the banks' Korean branches.

New York state regulators this week accused StanChart of breaching sanctions against Iran through illicit transactions -- which the bank denies -- while HSBC took a $700m charge last month to cover US fines over its Mexican division's failure to prevent money laundering.

"We will look into their businesses related to money laundering comprehensively to see if they reported suspicious transactions, including those with the countries with which financial transactions are restricted, and if they verified their customers [before such transactions]," the FSS said.

HSBC said: "We will provide all the information FSS is requesting on a timely basis and we will give any other support they need."

StanChart said: "We can say that we are in regular dialogue with our local regulators on all relevant matters, and we will cooperate fully with the FSS.

We would also like to note that the Group strongly rejects the position or portrayal of facts as set out in the order issued by the New York State Department of Financial Services."

Shares in StanChart on Monday suffered their heaviest one-day fall in decades after New York state's Department of Financial Services branded it a "rogue institution" and accused it of having breached US sanctions by carrying out $250bn worth of transactions with the Iranian government.

StanChart has angrily denied the allegations, saying it had identified only $14m worth of non-compliant transactions, which it attributes clerical errors. It is now considering a countersuit against the DFS.

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One former senior regulator said that financial watchdogs in South Korea -- which has long seen the US as its most important ally -- would be particularly concerned by any suggestion of illicit dealings with Iran.

"The Korean financial regulators have always been quite mindful of the US sanctions and the regulations related to Iranian counterparties," he said. "It's always been a serious issue for the government and the regulators, and I think this is part of that."

The investigation comes less than a month after South Korean competition authorities launched an investigation into nine commercial banks, including StanChart's local operation, over suspicions that they may have colluded to manipulate the country's benchmark lending rate.

Both banks have had a mixed experience in South Korea. HSBC has attained a foothold in wholesale banking, but has struggled to make an impact in the retail banking market. It reached a preliminary agreement in April to sell its Korean retail business to Korea Development Bank, but talks broke down last month.

StanChart, which acquired Korea First Bank in 2005, was badly affected last year by strikes caused by its attempt to introduce performance-related pay.