Banking Giant HSBC Will Pay $1.9 billion for Money Laundering

December 11, 2012

11 Dec (NEW YORK) — British banking giant HSBC agreed to pay a record $1.92 billion settlement Tuesday after a broad investigation by U.S. federal and state authorities found the bank violated federal laws by laundering money from Mexican drug trafficking and processing banned transactions on behalf of Iran, Libya, Sudan and Burma.


The settlement, a combination of forfeitures and civil penalties, shows the London-headquartered financial powerhouse for years deliberately channeled hundreds of millions of dollars of the prohibited transactions through its U.S. arm.

“HSBC is being held accountable for stunning failures of oversight — and worse — that led the bank to permit narcotics traffickers and others to launder millions of dollars through HSBC subsidiaries, and to facilitate hundreds of millions more in transactions with sanctioned countries,” said U.S. Assistant Attorney General Lanny Breuer in announcing the largest settlement of its kind.

“The record of dysfunction that prevailed at HSBC for many years was astonishing,” said Breuer.

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DETAILS: From the Deferred Prosecution Agreement

HSBC STATEMENT: On the settlement

The settlement, part of a deferred prosecution agreement filed in Brooklyn federal court, means HSBC avoids a criminal conviction on money laundering and other major charges — which could have amounted to a financial death sentence by blocking the bank’s access to the U.S. banking system.

The settlement is the latest and largest of several deals U.S. authorities have reached with other banks over similar allegations. Federal and state prosecutors retain legal power to prosecute HSBC if the bank fails to comply with banking and oversight reforms included in the agreement, including the appointment of an independent monitor.

“We accept responsibility for our past mistakes. We have said we are profoundly sorry for them, and we do so again,” HSBC Group Chief Executive Stuart Gulliver said in a statement earlier Tuesday.

Adding that the bank had cooperated with U.S. investigators, Gulliver said “we have been taking concrete steps to put right what went wrong.”

He said the deferred prosecution agreement notes that in recent years the bank has increased spending and staffing on money-laundering prevention and beefed up know-your-customer efforts.

HSBC spent more than $290 million to improve its money-laundering prevention policies, terminated 109 banking correspondent relationships considered potential money laundering risks and required a number of senior bank officers to return previously paid bonuses, Gulliver said.

The agreement covers an investigation that involved the Department of Justice, the Manhattan District Attorney in New York, the Federal Reserve, the Treasury Department’s Office of Foreign Assets Control and its financial crimes enforcement unit, and the Comptroller of the Currency.

HSBC shares were up 0.5% to $51.82 in afternoon trading Tuesday. The shares also traded higher in London.

“Obviously, $1.9 billion is a very large number, but it’s very manageable” without affecting HSBC’s bottom line, said Ian Gordon, head of bank research for Investec Securities in London. “It’s clearly within market expectations.”

Some legal analysts questioned U.S. authorities’ failure to force HSBC to plead guilty to criminal charges. Although federal officials said the settlement was based on the bank’s cooperation and renewed efforts to fight money laundering, the analysts said a criminal plea would have sent a powerful deterrence message to the banking industry.

“It’s fine that HSBC’s CEO talked about accepting responsibility, but when will he be held accountable for this tremendous breach of trust?” asked Mark Rifkin, a New York shareholder rights attorney and partner at the Wolf Haldenstein Adler Freeman & Herz law firm.

The federal court filings outlined the prohibited transgressions in dramatic detail.

Between 2006 and 2010, the Mexico’s Sinaloa Cartel, Colombia’s Norte del Valle Cartel and other alleged drug traffickers laundered at least $881 million in illegal proceeds through accounts in HSBC’s U.S. arm, the filings show.

“These traffickers didn’t have to try very hard,” said Breuer. “They would sometimes deposit hundreds of thousands of dollars in cash, in a single day, into a single account, using boxes designed to fit the precise dimensions of the teller windows in HSBC Mexico’s branches.”

Similarly, HSBC bankers as far back as 2001 cleared U.S. dollar transactions through the bank’s U.S. arm while hiding the fact that the money was linked to Iran’s Bank Melli. A June 2001 email from an HSBC relationship manager in Europe wrote that Bank Melli had been instructed not to input an “Iranian referenced customer name” with the transaction, thus avoiding any sign of a U.S. legal breach.

The details echoed findings of a July report by the Senate Permanent Subcommittee on Investigations.  The panel found evidence that two HSBC affiliates routed nearly 25,000 Iran-linked transactions involving $19.4 billion through the bank’s U.S. arm over a seven-year period. Those transactions violated U.S. and British law.

The panel’s report criticized U.S. regulators for failing to take action despite knowledge that HSBC’s money-laundering safeguards were inadequate. But the subcommittee’s chairman, Sen. Carl Levin, D-Mich., hailed Tuesday’s settlement, saying it “sends a powerful wakeup call to multinational banks about the consequences of disregarding their anti-money laundering obligations.”

Under the deferred prosecution agreement, HSBC won’t be prosecuted if it meets certain conditions, including stronger internal controls to prevent money laundering. Such agreements have been used often by the Department of Justice to settle allegations of foreign bribery charges against large corporations.

Money laundering by banks has become a priority target for U.S. law enforcement. In another case Monday, British bank Standard Chartered, accused of scheming with the Iranian government to launder billions of dollars, signed an agreement with New York regulators to pay $340 million to settle money laundering charges.

Since 2009, foreign banks with U.S. arms, including Credit Suisse, Barclays and Lloyds, have made payments to settle allegations they moved money for people or companies that were on a U.S. sanctions list. Because these banks had U.S. subsidiaries, they are subject to U.S. laws and regulations.

In his statement Tuesday, HSBC’s Gulliver said: “The HSBC of today is a fundamentally different organization from the one that made those mistakes. Over the last two years, under new senior leadership, we have been taking concrete steps to put right what went wrong and to participate actively with government authorities in bringing to light and addressing these matters.”

HSBC announced Monday that Robert Werner, a former head of the Treasury Department agencies responsible for sanctions against terrorist financing and money laundering, will begin a new role at HSBC as head of financial crime compliance and become the bank’s money-laundering reporting officer. Werner has been head of global standards assurance since August.

In January, HSBC hired Stuart Levey, a former Treasury undersecretary for terrorism and financial intelligence, as chief legal officer. And a former policy adviser in the Obama administration, Preeta Bansal, in October became HSBC’s global general counsel for litigation and regulatory affairs.

Contributing: Associated Press