MUMBAI • India's anti-money laundering agency fined Standard Chartered one billion rupees (S$18.5 million) for breaking foreign exchange rules when it worked on the takeover of a local bank, marking one of the country's biggest penalties imposed on an overseas lender.

An eight-year probe found that Standard Chartered violated the so-called Foreign Exchange Management Act - which monitors offshore financial transactions - when it worked with a group of investors to buy a stake in Tamilnad Mercantile Bank (TMB) in 2007, according to an August order from India's enforcement agency that was seen by Bloomberg.

"Senior officials at Standard Chartered saw an investment in TMB shares as an opportunity that might ripen into an eventually larger ownership for the bank," the enforcement agency's special director, Mr Sushil Kumar, said in the order.

A representative for the British lender confirmed receipt of the order, adding that the bank was evaluating it and so was unable to comment further.

Standard Chartered - India's largest foreign bank by branches - has been operating in the country for more than 160 years and has about 100 outlets. The bank also acted as a custodian for shares on the deal, according to the order. Tamilnad Mercantile was fined almost 170 million rupees for similar charges, the order said.

A spokesman for Tamilnad Mercantile declined to comment, while the Enforcement Directorate did not immediately respond to an e-mail seeking comment.

The case dates back to about 13 years ago when Tamilnad Mercantile transferred 46,862 shares to overseas investors, including GHI, Swiss Re Investors, FI Investments and Cuna Group, without seeking permission from India's central bank, according to the order.

Some of those shares were then transferred to Subcontinental Equities, an affiliate of Standard Chartered, in April 2008 without the Reserve Bank of India's permission, it said. The transfers were done through escrow accounts with Standard Chartered, which acted as a transaction agent and a lender to one of the investors on the deal, the order said.

"Standard Chartered through its affiliate Subcontinental was a proposed and eventually an actual investor in TMB shares to be purchased through the escrow agreement arrangements," Mr Kumar said.

BLOOMBERG