HSBC Pays Record $1.2 Billion Fine Over Money Laundering

HSBC Pays Record $1.2 Billion Fine Over Money Laundering
By HSBC Holdings plc ( [Public domain], via Wikimedia Commons

HSBC Pays Record $1.2 Billion Fine Over Money Laundering

HSBC Holdings plc (LON:HSBA) (NYSE:HBC), Europe’s biggest bank, has settled on paying a record $1.92 billion penalty to settle a probe by U.S. prosecutors, who accused the bank of failing to impose the rules designed to safeguard against money laundering.

HSBC Holding Plc accepted that it had failed to prevent the act of money laundering and could not enforce the regulations needed for the prevention of crime. The bank announced that it has reached a deferred prosecution agreement with the U.S. department of Justice.

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“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 organization 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 senate panel said that HSBC Holdings plc (LON:HSBA) (NYSE:HBC) could not implement the rules and measures designed to prevent money laundering by drug cartels, terrorists and tax cheats while it was acting as a financier to client channeling funds from places, such as Mexico, Iran, and Syria. The report also mentioned that the bank was unable to keep an eye on $15 billion in bulk cash transactions between mid-2006 to mid-2009. It also lacked the adequate staffing and high turnover in its acquiescence unit.

However, in this multi-year probe no executive or officer has been probed, as the prosecutors have implemented deferred prosecution – under which, criminal charges against a firm are set aside if it agrees to conditions such as paying fines and changing behavior.

The settlement also includes consent orders with the Manhattan district attorney, the federal reserve, and the three U.S. treasury department units: the Office of Foreign Asset Control, the Comptroller of the currency, and the Financial crimes Enforcement network. The bank said that it will pay $1.92 billion and cooperate extensively with the authorities. It will also take further measures to reinforce its compliance policies and procedures.  HSBC Holdings plc (LON:HSBA) (NYSE:HBC) said that it is also in talks with the British Watchdog, the Financial Service Authority, over settlement. The FSA declined to make any statement.

It is the third time in the decade that HSBC is being booked for the non compliance of regulatory measures and penalized for loose control, and ordered by U.S. authorities to effectively monitor suspicious transactions.

“It has been damaging for the brand, albeit not as bad as it might have been,” said Ian Gordon, analyst at Investec Securities in London. He further states that  unlike the Barclays/LIBOR saga in the summer, in this case, he does not believe that the UK authorities have an agenda to pursue a vendetta against any member of HSBC’s executive team.

Notwithstanding the scale of misconduct, we expect this to be seen merely as the financial resolution of a legacy conduct issue. To put it into context, the amounts at issue are a fraction of the ongoing costs being suffered by the industry – primarily Lloyds – in relation to payment protection insurance and other misselling redress issues

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