ED imposes Rs. 100-Crore Fine on Standard Chartered for Forex Violations

The Enforcement Directorate (ED) has imposed a penalty of Rs.100 crore on Standard Chartered Plc. for flouting the foreign exchange rules when it worked with a group of investors to buy a stake in Tamilnad Mercantile Bank Ltd. (TMB) in 2007.

The fine imposed on Standard Chartered is one of the country's biggest penalties on an overseas lender. After an eight-year probe, the ED found Standard Chartered guilty of violating the provisions of the Foreign Exchange Management Act (FEMA) – which monitors offshore financial transactions.

According to the ED order, "Senior officials at Standard Chartered saw an investment in TMB shares as an opportunity that might ripen into eventually larger ownership for the bank."

The ED also noted that Standard Chartered facilitated the transfer of shares without seeking approval from the Reserve Bank of India (RBI).

In 2007, Tamilnad Mercantile Bank transferred 46,862 shares to overseas investors, including GHI Ltd., Swiss Re Investors, FI Investments, and Cuna Group without seeking approval from RBI. Some of those shares were then transferred to Sub-Continental Equities Ltd., an affiliate of Standard Chartered in April 2008, without RBI's approval. The transfers were carried out through escrow accounts with Standard Chartered. The bank acted as a transaction agent and a lender to one of the investors. Standard Chartered is India's largest international bank with 100 branches in 43 cities. It is pertinent to note that Tamilnad Mercantile Bank was fined around Rs.170 million for similar charges previously.