* Identifies problems in computer surveillance system
* Expects fine, extension of 2-year monitoring period
* Fine likely to be more than $100 million -source
* H1 pretax profit down 20 pct, in line with guidance
* Takes $175 mln hit for commodities fraud at China port
(Changes dateline from London, adds details)
By Karen Freifeld and Steve Slater
NEW YORK/LONDON, Aug 6 Standard Chartered Plc
has warned it faces another fine from New York's
financial regulator for problems in its anti-money laundering
controls, piling more pressure on the Asia-focused bank and its
The London-based bank said on Wednesday problems in its
surveillance system - part of its anti-money laundering systems
and controls - were likely to result in a fine, remedial action
and an extension of a two-year monitoring period.
The monitoring was imposed in 2012 after StanChart was fined
$667 million by U.S. regulators for breaking U.S. sanctions by
hiding transactions linked to Iran so they would not be
detected, which rocked the bank and heralded a series of
problems in the last two years.
Chief Executive Peter Sands said the latest issues, which
were spotted by the New York regulator's monitor Ellen Zimiles,
were related to computer surveillance faults and were less
serious than those it previously had to contend with.
"We do not believe the impact to be of the same scale as the
very different issues the group faced two years ago," Sands told
reporters on a conference call.
He said the financial penalty should be less than the $340
million the bank paid to the New York regulator in 2012. It is
likely to be more than $100 million, a person familiar with the
matter told Reuters before the bank announced the problem.
StanChart is not alone in feeling the heat from U.S.
authorities for breaking sanctions and for broader conduct
mis-steps. European rivals HSBC, Barclays and
UBS have all been hit and BNP Paribas was
fined a record $9 billion last month for breaching sanctions
related to Sudan and Iran.
But the latest revelation still comes at a bad time for
StanChart, two years to the day since New York regulator
Benjamin Lawsky called it a "rogue institution" for the extent
of its sanction busting.
Big losses in Korea, a slowdown in investment banking and
the impact of tougher regulations have halted its run of 10
years of record earnings and some investors have called for
change at the top.
The bank last month rejected reports it had stepped up
succession plans for its Chairman John Peace and for Sands, who
has been CEO for 7-1/2 years. It said its board was united
behind the two in restoring the bank to profitable growth.
Sands said he had no plans to step down. "I have a job. I
don't have other plans and I have a very full agenda of things
on my plate," he said.
The computer problems relate to a failure to flag potential
illegal activity. Banks' systems should spot possible problems
and generate a suspicious activity report for the regulator. But
Sands said a systems upgrade in 2007 did not strengthen the
surveillance process as well as it should have done.
The transactions should have been flagged by the bank's
computers because of concern that sanctioned parties could
re-route transactions through high-risk countries or entities
not subject to sanctions before entering the U.S. financial
system, the person familiar with the matter said.
StanChart disclosed the investigation as it reported a 20
percent fall in pretax profit in the six months to the end of
June to $3.3 billion.
The bank had warned in June that profits would be down by
about a fifth as its investment bank revenue was hit by weak
trading activity, and Sands said on Wednesday many of the
difficult conditions that hurt the financial markets unit in the
first half had continued in July.
The bank also took a $175 million provision to cover
commodities fraud in China related to problems at Qingdao port,
which has been at the centre of an investigation into fraud at
metals warehouses. Sands said he did not think it was part of a
wider problem with commodities in China.
Shares in StanChart were down 1.7 percent at 11.96 pounds by
1135 GMT, in line with a weak European bank index. The
stock is down 10 percent this year, compared with a flat bank
index, and last month fell to a two-year low.
Analysts said the weak results had been well flagged but the
outlook remained challenging. StanChart makes most of its
earnings in Asia, Africa and the Middle East and said it expects
profits in 2014 to fall for a second straight year.
Its financial markets business and operations in Korea were
the main trouble spots in the first half.
The bank made a $127 million loss in Korea and has sold
parts of the business, cut staff, shut branches and refocused on
international clients to try to turn around the business.
Financial markets revenue fell 20 percent, mainly due to
sharp falls in foreign exchange trading and interest-rate
"We are taking action to get us back on the track of
sustainable growth," Sands said, noting the bank had sold
non-core assets, cut costs, made changes in senior management
and changed its structure in an attempt to sharpen its focus.
(Additional reporting by Matt Scuffham; Editing by Carmel
Crimmins and David Holmes)