HSBC Slammed with $1.9 Billion Penalty for Money Laundering

By AVRIL REGIS & CONOR FEBO

Europe’s largest bank, HSBC Holdings Plc, agreed to a record $1.92 billion settlement with Federal and State authorities Tuesday to settle U.S. probes of money laundering charges that connected the banking titan with terrorist organizations.

The bank also was linked to charges that included the transferring of billions of dollars for nations under United States sanctions, enabling Mexican drug cartels to launder tainted money through the American financial system, and working alongside Saudi Arabian banks associated with terrorists.

“HSBC is being held accountable for stunning failures of oversight,” said head of the Justice Department’s criminal division Lanny Breur at a news conference in Brooklyn. “Today’s historic agreement which imposes the largest penalty in any Bank Secrecy Act prosecution to date, makes it clear that all corporate citizens no matter how large, must be held accountable for their actions.”

The outcome represents the conclusion of a multifaceted investigation that spanned years. Included in the settlement is a deferred prosecution agreement with the U.S. Department of Justice and the forfeiting of $1.25 billion, according to the London-based bank.

HSBC faced four-count criminal information that was filed in a Federal District Court in Brooklyn. The filings in the court charged the bank with failure to maintain an effective money-laundering program, violating sanctions and the Trade With the Enemy Act, and ordered HSBC to more closely monitor its foreign correspondent affiliates.

“Cartels and criminal organization are fueled by money and profits,” said John Morton, Immigration and Customs Enforcement Director.  “Without their illicit proceeds used to fund criminal activities, the lifeblood of their operations is disrupted.”

The settlement, which required HSBC to admit the accusations charged against them by government agencies, extends for five years. If it violates any part of the agreement, prosecutors are encouraged to immediately indict the bank.

HSBC also agreed to pay the Office of the Comptroller of the Currency, one of the bank’s close regulators, an additional $500 million as part of the civil penalty.

The Federal Reserve will receive a $165 million civil penalty fee.

“We accept responsibility for our past mistakes,” said Stuart Gulliver, the chief executive of HSBC in a statement. “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.”

By agreeing to the deferred prosecution agreement, HSBC must make structural changes within it entire operation around the world to prevent this from happening again.

During the years of 2006-2010, the bank’s anti-money laundering compliance function was understaffed, according to reports. They also had an anti-money laundering program that would be able to properly monitor suspicious transactions and activities from HSBC customers, further rendering their acts shameful.

And despite evidence that Mexico was associated with significant money-laundering risks from 2006-2009, HSBC Bank USA rated Mexico lowest in its anti-money laundering risk category. The oversight that the bank failed to monitor led to over $670 billion in wire transfers and over $9.4 billion in purchases of U.S. dollars from HSBC Mexico.

HSBC Mexico’s loose anti-money laundering control made it the hot spot for drug cartel money launderers. Some of the laundered drug trafficking proceeds were involved in the Black Market Peso Exchange. The exchange would move the proceeds made from illegal drugs sales in the United States to drug cartels outside the U.S., mostly to Colombia. At least $881 million in drug trafficking proceeds made by both Mexican and Colombian drug cartels were laundered through HSBC Bank USA.

“No corporate entity should ever think itself too large to escape the consequences of assisting international drug cartels,” said Queens DA Richard Brown.

All of the bank’s senior management was replaced.

Photo: Officials at Brooklyn news conference.