A four-count criminal information filed in federal court in Brooklyn charged HSBC with failing to run an effective anti-money laundering program, failing to check the foreign banks it served, and breaking sanctions law and the Trading With the Enemy Act. The bank did not fight it. On December 11, 2012, it agreed to pay a record $1.92 billion.
The New York Times reported that the settlement closed a multiagency investigation that ran for years and drew in the Justice Department, the Manhattan district attorney’s office, bank regulators and the Treasury Department. Prosecutors said HSBC had agreed to a deferred prosecution agreement and to forfeit $1.25 billion. The Office of the Comptroller of the Currency took a further $500 million as a civil penalty, and the Federal Reserve was paid $165 million. The agreement runs five years, and a breach would let prosecutors move to indict the bank at once.
What prosecutors said the bank did
The charges covered three areas: transfers for countries under US sanctions, money laundering for Mexican drug cartels, and close dealings with Saudi Arabian banks linked to terrorist organizations. Investopedia, summarizing the case, put the cartel laundering through HSBC Bank USA at $881 million, tied to the Sinaloa cartel in Mexico and the Norte del Valle cartel in Colombia. The bank also admitted violating US sanctions against Iran, in some cases stripping any mention of the country from transactions to hide them.
Lanny Breuer, head of the Justice Department’s criminal division, called it “stunning failures of oversight – and worse.” He said the lapses let narcotics traffickers launder hundreds of millions of dollars through HSBC subsidiaries. Asked at a Brooklyn news conference why prosecutors settled rather than seeking an indictment of the bank, he called the outcome “a very just, very real and very powerful result.”
Manhattan District Attorney Cyrus Vance Jr. announced a separate deferred prosecution agreement, in which HSBC admitted violating New York State law. “New York is a center of international finance,” Vance said, “and those who use our banks as a vehicle for international crime will not be tolerated.”
The warnings that went unheeded
The trail began when Immigration and Customs Enforcement agents spotted questionable flows of money between HSBC’s Mexican and US operations. In July 2012, the Senate Permanent Subcommittee on Investigations accused the bank of exposing the US financial system to laundering and terrorist-financing risks. Its report found that HSBC left its controls weak despite repeated warnings from federal banking regulators. One Cayman Islands branch held roughly 50,000 client accounts in 2008 with virtually no oversight.
Investopedia’s account adds details from the record. Mexican authorities told the CEO of HSBC Mexico in 2008 that they held an audio recording of a drug kingpin saying the bank was the place to launder cash. Cartel members reportedly used boxes built to fit HSBC Mexico’s teller windows. Back at HSBC Bank USA, the unit that reviewed alerts on suspect wire transfers had between one and four staff. The bank had also classified Mexico in its minimal-risk category. The 2012 settlement was the third time in a decade, after 2003 and 2010, that US regulators had punished HSBC and ordered it to improve its systems.
The OCC had known of the weaknesses for years. It began citing the bank for a backlog of unexamined accounts and missed Suspicious Activity Reports only in 2010.
Chief executive Stuart Gulliver said in a statement: “We accept responsibility for our past mistakes.” He added that the HSBC of today was “a fundamentally different organization.” Afterward the bank hired Stuart A. Levey as chief legal officer to tighten internal controls, particularly customer identification, and clawed back bonuses from executives involved in the compliance failures.
Sources
- HSBC Money Laundering Scandal: A Case Study in Compliance Failures (Investopedia)
- HSBC to Pay Record Fine to Settle Money-Laundering Charges (The New York Times)
Sources
- HSBC Holdings Plc. and HSBC Bank USA N.A. Admit to Anti-Money …
- HSBC to pay $1.9bn in US money laundering penalties – BBC News
