British-owned bank HSBC is paying $1.9B to settle a US money-laundering probe. The bank was investigated for involvement in the transfer of funds from Mexican drug cartels and sanctioned nations like Iran. (Dec. 11)
HSBC has agreed to pay a record $1.92 billion fine to settle a multi-year probe by U.S. prosecutors, who accused Europe's biggest bank of failing to enforce rules designed to prevent the laundering of criminal cash.
The U.S. Justice Department on Tuesday charged the bank with failing to maintain an effective program against money laundering and conduct due diligence on certain accounts.
In documents filed in federal court in Brooklyn, it also charged the bank with violating sanctions laws by doing business with Iran, Libya, Sudan, Burma and Cuba.
HSBC Holdings Plc admitted to a breakdown of controls and apologised for its conduct.
"We accept responsibility for our past mistakes. We have said we are profoundly sorry for them, and we do so again. The HSBC of today is a fundamentally different organisation from the one that made those mistakes," said Chief Executive Stuart Gulliver.
"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."
The bank agreed to forfeit $1.256 billion and retain a compliance monitor to resolve the charges through a deferred-prosecution agreement.
The settlement offers new information about failures at HSBC to police transactions linked to Mexico, details of which were reported this summer in a sweeping U.S. Senate probe.
The Senate panel alleged that HSBC failed to maintain controls designed to prevent money laundering by drug cartels, terrorists and tax cheats, when acting as a financier to clients routing funds from places including Mexico, Iran and Syria.
The bank was unable to properly monitor $15 billion in bulk cash transactions between mid-2006 and mid-2009, and had inadequate staffing and high turnover in its compliance units, the Senate panel's July report said.
HSBC on Tuesday said it expected to also reach a settlement with British watchdog the Financial Services Authority. The FSA declined to comment.
U.S. and European banks have now agreed to settlements with U.S. regulators totalling some $5 billion in recent years on charges they violated U.S. sanctions and failed to police potentially illicit transactions.
No bank or bank executives, however, have been indicted, as prosecutors have instead used deferred prosecutions - under which criminal charges against a firm are set aside if it agrees to conditions such as paying fines and changing behaviour.
HSBC's settlement also includes agreements or consent orders with the Manhattan district attorney, the Federal Reserve and three U.S. Treasury Department units: the Office of Foreign Assets Control, the Comptroller of the Currency and the Financial Crimes Enforcement Network.
HSBC said it would pay $1.921 billion, continue to cooperate fully with regulatory and law enforcement authorities, and take further action to strengthen its compliance policies and procedures. U.S. prosecutors have agreed to defer or forego prosecution.
The settlement is the third time in a decade that HSBC has been penalized for lax controls and ordered by U.S. authorities to better monitor suspicious transactions. Directives by regulators to improve oversight came in 2003 and again in 2010.
Last month, HSBC told investors it had set aside $1.5 billion to cover fines or penalties stemming from the inquiry and warned that costs could be significantly higher.
Analyst Jim Antos of Mizuho Securities said the settlement costs were "trivial" in terms of the company's book value.
"But in terms of real cash terms, that's a huge fine to pay," said Antos, who rates HSBC a "buy".
