--Financial watchdog will inspect HSBC, StanChart Korea internal procedures for reporting suspicious transactions

--StanChard pledges full cooperation

--Checks will start at the end of the month and should be quickly wrapped up

--Probe comes amid allegations by U.S. authorities that two U.K. banks were involved in wrongdoing

(Adds Standard Chartered response and FSS comments)

 
  By Kanga Kong

SEOUL--South Korea's financial watchdog will investigate whether the local units of HSBC Holdings PLC (HBC) and Standard Chartered (SCZ.ZM) were involved in money laundering, the Financial Supervisory Service said Thursday.

"We will probe the Seoul branch of HSBC and Standard Chartered Bank Korea in relation to (alleged) money laundering at their U.S. and Mexico units," the FSS said in a statement. "We will look into various issues related to (potential) money laundering, including whether they reported suspicious transactions (to the authorities) and verified their customers (before carrying out transactions) as they're supposed to."

An FSS official, who declined to be named, told Dow Jones he expects the investigation to start at the end of the month and that it will be swift. "It's more like an inspection to check if there have been suspicious transactions, if the banks have the right internal systems to report such transactions and if they follow the rules," rather than an investigation into specific allegations, the official said.

Standard Chartered responded Thursday with a pledge to fully cooperate with the FSS inspection, adding that the bank is "in regular dialogue with our local regulators on all relevant matters."

"Standard Chartered Group, including Standard Chartered Bank in Korea, takes its responsibilities very seriously and seeks to comply at all times with relevant laws and regulations," bank spokesman Park Chong-hoon said in a statement.

The bank reiterated its strenuous denial of allegations made in the U.S. that it helped Iranian banks violate U.S. sanctions and misled regulators.

HSBC's Seoul branch declined to comment.

South Korea limits financial transactions of locally based companies with six nations--including North Korea and Iran.

HSBC was accused by a U.S. Senate investigation of failing to prevent money laundering at its Mexican subsidiary.

HSBC has accepted some wrongdoing took place. HSBC Chief Executive Stuart Gulliver said last month the bank is working hard to improve compliance.

Write to Kanga Kong at kanga.kong@dowjones.com

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