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StanChart pays DPP Sh100m to avoid NYS fraud suit

StanChart CEO Kariuki Ngari
StanChart CEO Kariuki Ngari. FILE PHOTO | NMG  

Standard Chartered Bank Kenya #ticker:SCBK (StanChart) opted to pay the office of the Director of Public Prosecutions (DPP) to save its executives from criminal prosecution for failing to report suspicious transactions in connection with the theft of funds at the National Youth Service (NYS).

Details of the secret agreement with the State prosecutor were disclosed yesterday by its London-based parent company, Standard Chartered Plc, via the London Stock Exchange (LSE) where the multinational lender is listed.

The December deal with the DPP means StanChart’s total penalties in the wake of the NYS scandal have risen to Sh177.5 million after the Central Bank of Kenya (CBK) fined it Sh77.5 million for regulatory breaches.

CBK imposed penalties totalling Sh392.5 million on Standard Chartered Kenya, Equity #ticker:EQTY, Diamond Trust #ticker:DTK, Co-operative Bank #ticker:COOP and KCB Group #ticker:KCB.

The banking regulator said that the banks had failed to report large transactions and to undertake proper due diligence on customers. It also accused them of approving large transactions without proper documents.

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The five top commercial banks were to face criminal prosecution for facilitating the NYS scam where the lenders received about Sh3.5 billion believed to have been stolen from the State agency.

Standard Chartered Plc reckons that its local affiliate where it holds a 73.8 percent stake opted for a settlement over prosecution.

“In December 2019, Standard Chartered Bank Kenya (SCBK) agreed a settlement of this matter with the DPP,” the multinational said in disclosures to the London Stock Exchange.

“Under the terms of SCBK’s settlement, the DPP agreed to defer prosecution against both SCBK and any persons affiliated with SCBK and the DPP imposed a penalty of Sh100 million ($964,000) on SCBK.”

Standard Chartered Bank Kenya in December 2018 announced the exit of chief executive Lamin Manjang, who was at the helm when the bank received Sh1.6 billion from the NYS. He was replaced by Kariuki Ngari.

The other banks –KCB, Equity, DTB and Co-op Bank— have not announced the status of their co-operation with the DPP.

Plea bargain

The DPP, Noordin Haji, had earlier told the Business Daily that he was mulling negotiating a plea bargain with the five banks and their officials in connection with the theft of billions at the NYS.

This means officials of the five banks including chief executive officers implicated in failing to follow proper procedures that resulted in aiding the loss of the funds may not go to jail, after all.

KCB was fined Sh149.5 million for handling Sh639 million from the NYS suspects, with the fine amounting to 23.3 percent of the illicit cash.

Equity was ordered to pay Sh89.5 million for its role in aiding the transfer of Sh886 million, with the penalty representing 10.1 percent of the NYS inflows.

StanChart paid Sh77.5 million despite receiving the largest sum of Sh1.6 billion, indicating that the lender’s internal control processes and compliance standards may have been strong enough to warrant a lighter punishment.

DTB was fined Sh56 million or 34.5 percent of the Sh162 million it received, with the lender having the largest disgorgement rate among the five institutions.

Co-op Bank paid the smallest fine of Sh20 million, representing 7.6 percent of the Sh263 million NYS deposits it received. CBK says the institutions were penalised for breaking banking laws including failure to report large cash transactions, failure to undertake adequate customer due diligence, lack of supporting documentation for large transactions, and lapses in the reporting of suspicious transaction reports to the Financial Reporting Centre (FRC).

The regulator said the fines were imposed after the conclusion of the first phase of the investigation of banks that were used to move NYS funds, adding that more institutions would be identified and investigated in the near future. The banking sector regulator said it initially focused on the five banks because they handled the largest amounts in the NYS scam where individuals and companies were paid without delivering goods or services.

It said that it had discussed its findings with the boards and senior management of the banks, adding that each expressed their strong commitment to be fully compliant on all aspects of the law and to address the identified lapses through time-bound action plans.

The remedial action plans were to be submitted to CBK within a fortnight after the fines were announced.

CBK said it would work with all other banks to ensure that the findings are also applied to strengthen rules combating financing of terrorism and money laundering. Some of the banks last year announced they had tightened their controls to reduce the risks of such incidences recurring.

“As an outcome, we swiftly enhanced our controls around cash and payments from government and other government related bodies,” StanChart said in its annual report released last year.

KCB also said it continues to strengthen its ability to safeguard customers and itself against financial crime. “We have taken measures to reacquaint our staff on all the regulations and processes to be followed in the event of suspicious transactions,” the bank said in its report.

The bank disclosed that CBK undertook a targeted inspection in 2018 to assess its compliance with anti-money laundering and countering the financing of terrorism laws and regulations. It then gave the regulator a detailed response on issues that had been flagged.

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