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HSBC Agrees to Pay U.S.$1.9 Billion to Resolve Money Laundering Case

December 19, 2012 in BNA's Banking Report · Leave a Comment 

By John Herzfeld

NEW YORK—The London-based HSBC Group and HSBC Bank USA have agreed to pay $1.9 billion and enter into a deferred prosecution agreement (DPA) to resolve charges of money laundering and doing business with countries subject to U.S. sanctions, the Justice Department and banking regulators announced Dec. 11 (United States v. HSBC, E.D.N.Y., No. 12-cr-763, deferred prosecution agreement 12/11/12).

Charged in the U.S. District Court for the Eastern District of New York with helping narcotics traffickers and others to launder their criminal proceeds and illegally handling transactions for customers in Cuba, Iran, Libya, Sudan, and Burma, HSBC has agreed to forfeit $1.256 billion and pay $665 million in civil penalties—including $500 million to the Office of the Comptroller of the Currency and $165 million to the Federal Reserve.

The U.K. Financial Services Authority is pursuing a separate action, DOJ said.

The U.S. case charged violations of the Bank Secrecy Act (BSA), the International Emergency Economic Powers Act (IEEPA), and the Trading With the Enemy Act (TWEA).

In the five-year corporate monitoring agreement, HSBC consented to submit to an enhanced compliance regimen and oversight by an independent monitor.

HSBC Bank USA, based in McLean, Va., was charged with violating the BSA by failing to maintain an effective anti-money laundering program and to conduct appropriate due diligence on its foreign correspondent account holders. The HSBC Group violated IEEPA and TWEA by illegally conducting transactions barred by sanctions enforced by the Office of Foreign Assets Control (OFAC) at the time of the transactions, DOJ said.

HSBC has waived federal indictment, agreed to the filing of a criminal information containing the charges, and has accepted responsibility for its criminal conduct and that of its employees, DOJ said.

Breuer: ‘Stunning’ Oversight Failures

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

Calling HSBC “one of the largest financial institutions in the world,” U.S. Attorney Loretta Lynch said that the bank’s “blatant failure to implement proper anti-money laundering controls” aided in the laundering of at least $881 million in drug proceeds through the U.S. financial system and that its “willful flouting of U.S. sanctions laws and regulations” allowed “hundreds of millions of dollars in OFAC-prohibited transactions” to be processed.

She added, “Today’s historic agreement, which imposes the largest penalty in any BSA prosecution to date, makes it clear that all corporate citizens, no matter how large, must be held accountable for their actions.”

HSBC has replaced almost all of its senior management, clawed back deferred compensation bonuses given to its most senior anti-money laundering and compliance officers, and has agreed to partially defer bonus compensation for its most senior executives during the five-year DPA, prosecutors said.

New York prosecutors also joined in the HSBC probes and settlements. Manhattan District Attorney Cyrus R. Vance Jr. noted that his office had entered into DPAs with six banks over the past four years…


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