Banks, Financial

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Categorized | Banks, Financial

StanChart faces US probe into bribery

Posted on September 27, 2016

General Views Of Standard Chartered Plc Headquarters As Banks Announces Plans To Cut 15,000 Jobs...A sign hangs above the entrance to the headquarters of Standard Chartered Plc in London, U.K. on Tuesday, Nov. 3, 2015. Standard Chartered Plc dropped the most in more than three years after the lender said it plans to eliminate 17 percent of its workforce, scrap the dividend and tap investors for $5.1 billion as Chief Executive Officer Bill Winters seeks to restore profit growth. Photographer: Chris Ratcliffe/Bloomberg©Bloomberg

Standard Chartered is back in the crosshairs of the US Department of Justice, this time facing an investigation into allegations of bribery at an Indonesian power station company that is controlled by the UK-listed bank.

Because the DoJ is investigating bribes allegedly paid by Maxpower Group between 2012 and 2015 it risks reopening the deferred prosecution agreement (DPA) signed by StanChart four years ago that averted US criminal charges for sanction breaches.

    If the bank is found to have broken US law in the period since signing the 2012 deal with the DoJ, it could face a range of extra punishments, including having the length of its DPA extended from the end of 2017 or even a criminal prosecution for the sanction breaches.

    The bank said in a statement that it “takes very seriously allegations of impropriety in any of our private equity investments,” adding that it had “proactively referred this matter to the appropriate authorities and have conducted our own review”.

    The DoJ is investigating whether the US Foreign Corrupt Practices Act was breached when Maxpower executives allegedly organised for bribes to be paid to Indonesian government officials, which were first reported by the MLex news service in May. The DoJ declined to comment.

    StanChart, which focuses on Asia, the Middle East and Africa, first invested in Maxpower via the bank’s principal finance business in 2012 and it took majority control after investing more last year.

    A key question is whether StanChart executives on the Maxpower board knew of the alleged bribes that were designed to win tenders for new power stations and to speed up payment for earlier contracts, and whether the bank’s controls were adequate.

    The bank’s case may be helped by the fact that it self-reported the alleged bribes to regulators in the US, UK and Singapore, according to people briefed on the DoJ probe.

    Maxpower conducted an internal audit last year, which found that more than $750,000 in cash advances in 2014 and early 2015 needed examining as potential bribes, according to a report by the Wall Street Journal on Tuesday.

    The company hired lawyers at Sidley Austin to review the internal audit and they apparently found strong indications of bribes having been paid from 2012 to late 2015. StanChart shares fell 2.5 per cent after the report on Tuesday.

    The company takes any allegations of improper behaviour very seriously

    – Maxpower statement

    After the discovery of the alleged bribery last year, StanChart removed Maxpower’s founders from its board and installed members of its own private equity team as directors. Greg Karpinski, a former Standard Chartered Private Equity executive, was appointed chief executive and executive chairman of Maxpower in mid-2015.

    At a meeting of some Maxpower board directors — including Mr Karpinski — in a Jakarta wine bar last year, one participant joked about handing out footballs stuffed with cash to government officials, according to a recording of the meeting obtained by the company’s internal review and reported by the Wall Street Journal.

    “I kind of feel like extensions are really critical stuff, we use an adviser. But for like getting paid on a regular basis, f — it. Enough is enough,” another participant reportedly said. “We’ll find some other way. I mean, take them to karaoke, take them golfing, take them to Singapore, I don’t care.”

    Mr Karpinski could not be reached for comment. Maxpower said in a statement: “The company believes the allegations and attributions provide a one-sided and partial view of the operations and events at Maxpower and as such do not give a full, or true view.

    “The company takes any allegations of improper behaviour very seriously,” it said, adding that its three founders were removed from day-to-day management in mid-2015 and left the group in December 2015.

    The Jakarta-based company said it had “implemented robust remedial actions including enhanced internal controls” since its management and shareholding structure were overhauled last year.

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    It added: “The company has made every effort to ensure that key stakeholders have been kept abreast throughout this process, and we appreciate the continued support of those stakeholders. We have engaged and continue to work with professional advisory firms to fully investigate issues and questions that have been raised.”

    Since becoming StanChart’s chief executive last June, Bill Winters has launched a clean-up of its balance sheet and promised to tighten its compliance and controls. The bank has since started talks to sell its principal finance business to its own staff.

    Maxpower made a $75.9m loss in 2014 and is looking to restructure a $222m loan from a consortium of lenders including StanChart.

    StanChart said: “When we receive allegations of improper behaviour in an investee company, we pursue those allegations vigorously and act appropriately, including sharing information and co-operating fully with government authorities and addressing any issues of internal conduct and accountability.”

    Additional reporting by Ben Bland in Hong Kong and David Lynch in Washington