StanChart row may hit Indian back-office firms

Outsourcing of sensitive jobs like oversight to India by global banks has come under the scanner for the second time in less than a month after the US banking regulator's accusation that Standard Chartered Plc hid $250 billion in transactions tied to Iran.

Coming soon after a probe by the US Senate's permanent committee on investigations pointing out major lapses in the work of HSBC's India staff, Standard Chartered's outsourcing of key jobs to India has raised fears of exposing the US financial system to money laundering risks from terrorists, drugs and arms dealers, and corrupt regimes.

The findings in these two separate probes have come at an awkward time for India, with the US Presidential elections coming up in November, and contestants – particularly President Barak Obama's Republican Party – raising the pitch against outsourcing of jobs abroad.

The New York State Department of Financial Services (DFS) on Monday threatened to cancel the British bank's state banking licence (See: NY's regulator calls StanChart "rogue institution", threatens to revoke licence).

The DFS probe found that StanChart had assured the New York state in May 2010 that it would take immediate steps to comply with the US Office of Foreign Assets Control (OFAC) sanctions.

However, another regulatory examination in 2011 found continuing and significant anti-money laundering failures. Among these, the bank was outsourcing its "entire OFAC compliance process for the New York branch to Chennai, India, with no evidence of any oversight or communication between the Chennai and the New York offices."