Outsourcing of key oversight jobs by global banks to India has come under the scanner for the second time in less than a month for exposing the US financial system to terrorists and money laundering risks.

On the heels of a probe by the US Senate’s Permanent Committee on Investigations pointing out major lapses in the work of HSBC’s India staff, another UK-based banking giant Standard Chartered’s outsourcing of key banking jobs to Indian shores have come under the scanner in the US.

A probe by the New York State’s key banking regulator, the Department of Financial Services (DFS), has found deficient money laundering controls in outsourcing of work by StanChart to India, thus exposing the US financial system to terror financing and other risks.

The findings in these two separate probes have come at a time when the voices against outsourcing of jobs to India and other locations are gaining momentum in the US, ahead of the Presidential elections in November.

In an order last night, the DFS accused StanChart of hiding secret transactions involving $250 billion with Iran — leaving the US financial system vulnerable to terrorists, weapons dealers, drug kingpins and corrupt regimes.

The DFS probe found that Standard Chartered Bank 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.”

The OFAC is the designated US government agency for preparing the list of entities with whom US citizens and entities are barred from doing any business.

(This article was published on August 7, 2012)
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