CB slaps Rs. 27b fine on SCB

Violation of exchange control regulations over $ 121 m capital account transactions; notice served ahead of London High Court

proceedings on case filed by SCB against CPC on hedging deal fiasco

The Central Bank has imposed what is described as the biggest ever fine of Rs. 27 billion on Standard Chartered Bank (SCB) for alleged violation of exchange control laws.

Sources said that SCB had been served notice of the fine recently and that the alleged act was capital transactions to the tune of US$ 121 million, or Rs. 13 billion, without the approval of the Central Bank.

It was alleged that SCB had violated the country’s Exchange Control Act No. 24 of 1953 where all forms of bulk money transfers known as capital transactions need to obtain prior approval from the Central Bank.

However, these transactions are connected to the oil hedging contract with Ceylon Petroleum Corporation (CPC) that turned sour a few years ago.

The issuance of notice incidentally was ahead of the London High Court taking up proceedings of a case filed by SCB against the CPC on outstanding dues on the hedging deal

The proceedings began this week in London as exclusively reported by the Daily FT last week.

Following the issuance of notice by CB, the SCB has a 26-day period to appeal to the Minister of Finance who is President Mahinda Rajapaksa.

According to sources, the transactions had taken place from 2007 onwards and it was alleged that at one point the Monetary Board had officially informed the SCB to follow laid-out procedures with regard to capital account transactions.

Apart from SCB, Deutsche Bank and Citi were the other foreign banks that were involved in the hedging deal but the latter had followed the proper procedure in capital transactions.

The notice of the fine had been communicated after Central Bank had completed a thorough nine-month investigation.

The fine of Rs. 27 billion had been determined on the basis that law permits slapping a fine 200% above the concerned amount.

“We will vigorously defend our position” – SCB Sri Lanka CEO

Standard Chartered Bank Sri Lanka CEO Anirvan Ghosh Dastidar, when asked about the notice of Central Bank fine, made the following statement:

As a leading international bank, Standard Chartered seeks to follow the highest standards of governance in all markets it operates in. SCB is recognised globally for a high level of governance, in line with local laws and regulations.

We will vigorously defend our position in this matter.

As it is a matter between the bank and the regulator, it would be inappropriate for us to comment further.