ED imposes a heavy penalty on Standard Chartered for breaching FEMA rules

The Indian Enforcement Directorate (ED) has fined Standard Chartered Plc 1 billion (Rs. 100 crores) for violating the foreign exchange rules when the bank planned the takeover of a local Indian bank, Tamilnad Mercantile Bank Ltd. This fine imposed on Standard Chartered is one of the country’s biggest penalties on an overseas lender. An eight-year probe found Standard Chartered guilty of violating the provisions of the Foreign Exchange Management Act (FEMA) which monitors offshore financial transactions. It worked with a group of investors to buy a stake in Tamilnad Mercantile Bank Ltd. in 2007. According to an August order from ED. “Senior officials at Standard Chartered saw an investment in TMB shares as an opportunity that might ripen into eventually larger ownership for the bank,” Sushil Kumar, the ED’s special director states in the order.

Standard Chartered facilitated the transfer of shares without seeking RBI approval

This case dates back to 2007. Tamilnad Mercantile Bank transferred 46,862 shares to overseas investors, including GHI Ltd., Swiss Re Investors, FI Investments, and Cuna Group without seeking permission 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 has been India’s largest foreign bank in terms of the number of branches. It has also acted as a custodian for shares on many deals. 

It is pertinent to note that Tamilnad Mercantile Bank was fined around Rs.170 million for similar charges previously.