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Amidst Standard Chartered Scandal, Banks Grapple With Offshore Oversight

Global banks that ship increasingly sensitive and sophisticated work overseas to save costs will be forced to step up oversight of back office operations after industry scandals point to lapses involving offshore units in India.

Global banks that ship increasingly sensitive and sophisticated work overseas to save costs will be forced to step up oversight of back office operations after industry scandals point to lapses involving offshore units in India.

What started a decade ago as call centers staffed by young Indians faking Western accents to sell credit cards and field routine queries has grown into a core function for banks, handling work from risk and fraud management to finance and accounting.

The New York state banking regulator's accusation this week that London-based Standard Chartered hid $250 billion in transactions with Iran and did not give proper oversight to its back office operation in Chennai, India, underscores the perils of shipping sensitive work to far-flung locations.

"When you offshore, the biggest challenge is not at the offshore end but it's on the onshore end and the management of the offshore operations. And these companies are underinvested in that," said Bundeep Singh Rangar, chairman of London-based IndusView Advisors.

"If they don't put (in) enough oversight, governance procedures and practices, then you will have a problem with the satellite center, whether that is located onshore or offshore," said Rangar, whose firm advises foreign companies, including technology firms, on doing business in India.

Drawn by an English-speaking population and wages that can be one-fifth those in the West, more than three-quarters of global banks have a direct or third-party offshore presence in India.

Bank of America Merrill Lynch, Barclays, Goldman Sachs, HSBC, JPMorgan and RBS are among financial giants employing thousands in India. These wholly owned offshore operations, running around the clock, are known as "captive" centers.

Financial firms such as Citigroup, Credit Suisse and Aviva are among the biggest clients of Indian IT giants such as Infosys, Tata Consultancy Services and Wipro.

The New York regulator rapped Standard Chartered for "outsourcing of the 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."

OFAC is the U.S. Office of Foreign Assets Control.

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