HSBC Fined $1.92B - Money laundering; Iran - The Jewish Voice
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HSBC Fined $1.92B – Money laundering; Iran

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HSBC Holdings Plc, also known as “the world’s local bank” has agreed to pay a record $1.92 billion in punitive fines to US authorities for its role in the laundering of a river of drug money emanating from various South American drug cartels. According to Reuters, the international bank is also being penalized for the violation of sanctions laws by conducting business with customers in Iran, Libya, Sudan, Burma and Cuba.

The US Justice Department said on Tuesday, December 11th, that $881 million was laundered through HSBC through Mexico’s Sinaloa cartel and Colombia’s Norte del Valle cartel. In an agreement made with the Justice Department to defer prosecution, HSBC acknowledged its failure to maintain an effective program that would impede money laundering and for their failure to conduct basic due diligence on some of its account holders.

As was reported by Reuters last week, under the agreement, the bank agreed to rectify the problems, forfeit $1.256 billion, and retain a compliance monitor. They also agreed to pay $665 million in civil penalties to regulators including to the Office of the Comptroller of the Currency, the Federal Reserve, and the Treasury Department. “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,” HSBC Chief Executive Stuart Gulliver said.

Earlier this year, an extensive Senate report revealed HSBC’s money laundering lapses in Mexico and elsewhere, but the documents filed in court on Tuesday shed light on new details. In spite of the fact that there were known financial risks in conducting business in Mexico, HSBC placed the country in it lowest risk category, and according to the court documents, it excluded $670 billion in transactions from the monitoring systems.

The Justice Department maintains that bank officials repeatedly ignored internal warnings that HSBC’s monitoring systems were inadequate. In 2008, for example, the CEO of HSBC Mexico was told that Mexican law enforcement had a recording of a Mexican drug lord saying that HSBC Mexico was “the place to launder money.” Quickly learning the tricks of the trade, Mexican drug traffickers used boxes specifically designed to the dimensions of an HSBC Mexico teller’s window to deposit cash on a daily basis.

Describing a vastly understaffed compliance department at HSBC, the agreement said that at times, only one to four employees were responsible for reviewing alerts identifying suspicious wire transactions. When HSBC processed bulk cash, a business it calls Banknotes, only one or two compliance officials oversaw transactions for 500 to 600 customers, the Justice Department said. Compliance was “woefully inadequate,” Loretta Lynch, the U.S. Attorney in Brooklyn, said at a press conference.

On an entirely different issue dealing with impropriety, according to documents filed in federal court in Brooklyn, the Justice Department also charged the bank with violating sanctions laws by doing business with customers in Iran, Libya, Sudan, Burma and Cuba. HSBC has separately reached a settlement with a British watchdog called the Financial Services Authority. Senator Carl Levin (D) of Michigan, who headed the Senate inquiry said, “The HSBC settlement sends a powerful wakeup call to multinational banks about the consequences of disregarding their anti-money laundering obligations.”

European banks and the United States have now agreed to settlements with US regulators totaling some $5 billion in recent years on charges they violated US sanctions and failed to monitor potentially illegal transactions. Prosecutors have used deferred prosecutions, under which criminal charges against a firm are set aside if it agrees to conditions such as paying fines and changing its behavior, resulting in no indictments issued against banks or their executives.

At the Brooklyn press conference, Department of Justice criminal chief Lanny Breuer said, “In trying to reach a result that’s fair and just and powerful, you also have to look at the collateral consequences.” The settlement marks the third time in a decade that HSBC has been penalized for slovenly controls and ordered by US authorities to improve its policing of suspicious transactions. In 2003 and again in 2010, directives were made by regulators to improve oversight compliance.

Telling investors last month that it had set aside $1.5 billion to cover various fines or penalties stemming from the inquiry, HSBC warned that costs could possibly be significantly higher. Industry analyst Jim Antos of Mizuho Securities said that while the fine was considered enormous in terms of cash, the costs of settlement were “trivial” as it pertained to the company’s book value. HSBC shares closed up 0.56 percent at 644.8 pence in London.

HSBC said that between 2009 and 2011, it had increased appropriations for anti-money laundering systems by around nine times, jettisoned certain business relationships and withheld bonuses for senior executives. Offering evidence of its determination to change its ways, HSBC cited the hiring of Stuart Levey last January as chief legal officer. Levey is a former top US Treasury Department official.

Under a five year agreement with the Justice Department, HSBC also agreed to have an independent monitor evaluate its progress in improving its compliance. As part of the major revamping of its controls, HSBC has said that it has launched a global review of its “Know Your Customer” files, which will cost them an estimated $700 million over a five year period. The files are designed to ensure that banks do not unwittingly act as conduits for criminal funds.

Just a day before HSBC’s settlement, a rival British bank, Standard Chartered Plc, agreed to a $327 million settlement with US law enforcement agencies for sanctions violations, a pact that follows a $340 million settlement the bank reached with the New York bank regulator in August.

Bank settlements such as these have become fairly regular occurrences. Until this week, what had been the largest settlement happened in June of this year when ING Bank NV agreed to pay $619 million to settle US government allegations that it violated sanctions against countries including Cuba and Iran.

Such US financial institutions as J.P. Morgan Chase & Co, Wachovia Corp and Citigroup Inc have also been cited for anti-money laundering improprieties or violation of sanctions.

HSBC’s internal problems date back to 2003, when the Federal Reserve Bank of New York and New York state regulators ordered them to scrupulously monitor money flows that appeared suspicious. In 2010, a consent order from the Comptroller of the Currency (OCC) ordered HSBC to review suspicious transactions. At the time, the OCC called HSBC’s compliance program “ineffective.”

In 2008, the federal prosecutor in Wheeling, West Virginia, began investigating allegations that a local doctor used the bank to launder money from Medicare fraud. Ultimately, the prosecutor’s office came to believe the case was “the tip of the iceberg” in terms of suspicious transactions conducted through HSBC, according to documents reviewed by Reuters and reported earlier this year.

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