JAKARTA (TheInsiderStories) Standard Chartered has told “appropriate authorities” about alleged corruption at an Indonesian power plant company majority-owned by its private equity arm, the bank said.
The lender’s comment came in response to a Wall Street Journal report that the US Department of Justice is investigating whether Standard Chartered failed to stop possible bribery and other misconduct at MAXpower Group Pte Ltd, which builds and operates gas-fired power plants in Southeast Asia, Reuters reported.
The allegations compound the legal woes of the bank, which is subject to a deferred-prosecution agreement with the Justice Department over alleged Iranian sanctions breaches and faces possible prosecution if found to have committed another federal crime.
“Standard Chartered takes very seriously allegations of impropriety in any of our private equity investments. We proactively referred this matter to the appropriate authorities and have conducted our own review,” a spokesman for the bank said.
Two people familiar with the matter said that the “appropriate authorities” included the US Department of Justice. A Justice Department spokesman declined to comment.
The Indonesian company allegedly paid bribes to win contracts and smooth relations with Indonesian energy officials, the Wall Street Journal said, citing sources and legal reports it has reviewed.
An internal audit at MAXpower found evidence of bribery and other misconduct, the Journal said, saying those findings were echoed in a report from a law firm hired by MAXpower.
In response, MAXpower said the newspaper report gave a “one-sided and partial view of the operations and events at MAXpower and as such do not give a full, or true view.” “Since the restructuring of the company’s shareholding and management in mid-2015 the company has implemented robust remedial actions including enhanced internal controls.
“We have engaged and continue to work with professional advisory firms to fully investigate issues and questions that have been raised. Accordingly, it would be inappropriate for the company to comment further at this stage,” it said.Standard Chartered’s private equity arm first invested in MAXpower in 2012 and last year pumped in an additional $60mn to become the majority owner.
The bank has been reducing the size of its private equity business in recent years, axing jobs and selling investments as part of a wider restructuring of the bank. Bloomberg reported earlier this month that Standard Chartered was considering spinning out its entire private equity business to its managers.
Two separate sources with knowledge of Standard Chartered’s operations said that Benjamin Soemartopo, managing director and head of its Indonesia private equity business, is leaving the bank. Soemartopo is also listed as a director on the board of MAXpower.
One of the two sources said that Soemartopo’s move to leave Standard Chartered was a result of restructuring of the lender’s private equity business.
Standard Chartered declined to comment on the banker’s move, and Soemartopo could not be reached for a comment. The sources did not want to be named because the information is not public.
Previously Bloomberg reported, Standard Chartered Plc informed the U.S. Department of Justice about allegations of bribery involving MAXpower Group Pte, an Indonesian power company in which its private-equity division is a minority shareholder, according to a person familiar with the matter.
The London-based bank passed on the information after MAXpower’s auditors uncovered what may be inappropriate payments totaling $750,000, said the person, who asked not to be identified as the matter is not public. Further details aren’t available, the person said.
MAXpower declined to comment on the alleged bribery, according to Alastair Hetherington of Finsbury, the Indonesian company’s external public relations firm. Peter Carr, a Justice Department spokesman, declined to comment. Piers Townsend, a Standard Chartered spokesman in Singapore, declined to comment.
Standard Chartered has been operating under deferred prosecution agreements with the Justice Department and the New York District Attorney’s Office since 2012, when it settled cases related to money-laundering failures and breaches of U.S. sanctions against Iran. The bank has been enhancing its controls on money-laundering, bribery and other offenses since then.
Original Investment
The bank first got involved with MAXpower through the Standard Chartered IL&FS Asia Infrastructure Growth Fund, which invested $58 million in the Jakarta-based power developer in 2012.
After the discovery of the alleged bribery last year, Standard Chartered removed the founding board members at MAXpower and installed its own directors with the intention of turning the company around, said the person. Greg Karpinski, a former Standard Chartered Private Equity executive, was appointed chief executive officer and executive chairman in September, according to his LinkedIn profile.
Debt Restructuring
MAXpower, which develops, owns and operates gas-fired power plants in Indonesia recently appointed the lawyers Clifford Chance LLP to advise on restructuring a $222 million five-year loan it received last year from a consortium of banks led by Standard Chartered and Singapore-based Oversea-Chinese Bank Corp.
Standard Chartered Private Equity holds a direct equity stake in MAXpower of about 5 percent, as well as other interests through a fund and structured equity financing, the person said.
MAXpower reported losses of $75.9 million in 2014, with negative operating cash flow of $13.3 million, according to the company’s latest annual report. (*)