StanChart execs taking kickbacks?

Standard Chartered Bank has carried out an investigation into allegations that some of its employees in India, including a few senior officials, had received bribes from corporate clients.

ET NOW has learnt that David Howes, a former Scotland Yard official and a senior executive in the financial crimes risk management cell of the bank in London, was in India last week to question some employees suspected of irregularities. In all, seven separate transactions have been investigated by Mr Howes. Prior to Mr Howes’ arrival, an officer form Singapore had also examined the allegations.

According to two sources familiar with the development, some corporate borrowers and insiders had complained to the bank’s top brass that a number of employees in its wholesale banking and global markets divisions in India had taken what the complainants alleged were ‘kickbacks’ for promising to waive-off losses on derivatives products sold by the bank and for giving loans to clients with a poor credit history.

When contacted by ET NOW, the StanChart spokesperson said in an e-mailed response: “We take any allegations of non-compliance very seriously and investigate all such allegations. We do not comment on personnel matters, but we can say that we have investigated and have found no evidence of bribery. “

We take very seriously the integrity of our procedures and our position as a long-term partner of our customers. We will vigorously defend our reputation.” The spokesperson said the investigation had been concluded. “We can confirm that no employee has been terminated as a fallout of the investigation,” the spokesperson said. It’s, however, possible, says a person close to the bank, who requested annonymity, that resignations linked to the allegations could take place in the near future.

The transactions investigated included one involving an upmarket Delhi school which bought financial derivatives. The school’s management alleged that an official of the bank took what they claimed was a ‘bribe’ from the institution for promising to waive-off the mark-to-market loss on the derivatives deal and later failed to keep his word. Interestingly, this may be a rare instance where a product like a financial derivative, that has baffled many a large corporate, was sold to a school — a rather less-sophisticated borrower. The same person mentioned above said the bribery allegation had been investigated, and was found to be false. He added that StanChart was in discussions with the school to resolve the issue.

In another case, the bank investigated one of its officials for disbursing loans to a chronic defaulter, a mid-sized firm which supplies cables to BSNL. The company in question was already blacklisted by another foreign bank.
Similar allegations have been reported with respect to the bank’s middle markets division in north India, which deals with 400 companies, having revenues in the range of Rs 50-500 crore.

The allegations largely concern officials working for the wholesale bank, which caters to corporate customers, providing a range of services such as working capital loans, trade finance, cash management services, treasury activities and investment banking. ET NOW has learnt that three senior executives of the bank in the north were interviewed by Mr Howes in connection with the above cases, but the outcome of the investigation is not known. A bank executive, speaking on condition of anonymity, said Mr Howes collected statements from nearly 10 officials. In the statement issued to ET, the bank said: “Standard Chartered Bank has a stringent Code of Conduct, which requires all employees to comply with laws and regulations, respect customer confidentiality and reject bribery and corruption. Failure to follow the Code of Conduct results in a rigorous process of investigation and disciplinary action, if warranted.” Among foreign banks, StanChart has the biggest presence in India, and has been involved with big-ticket transactions by Indian corporates. In fact, the bank is the sole financial advisor to Bharti on the proposed $23-billion deal to acquire African telecom giant MTN. The British bank posted a record pre-tax profit of $943 million in its Indian operations for 2008, making India the second-largest contributor to the group’s profit after Hong Kong.