The figure still stands as a record. In December 2012, HSBC confirmed it would pay US authorities $1.9bn (at the time about £1.2bn) to settle money-laundering charges, the largest penalty ever handed down in such a case. Behind it sat a US Senate investigation that described the UK-based bank as a conduit for “drug kingpins and rogue nations”, and an admission from the bank itself that its controls had been far too lax.
The apology came from the top. “We accept responsibility for our past mistakes,” group chief executive Stuart Gulliver said in a statement, adding: “We have said we are profoundly sorry for them, and we do so again.” The bank said it had spent $290m strengthening its anti-money-laundering systems and had clawed back bonuses from some senior executives, and it expected to settle with the UK’s Financial Services Authority shortly. It had already set aside $1.5bn the previous month to cover fines.
The Senate report, published earlier that year, laid out the pattern. HSBC’s US arm had not treated its own affiliate in Mexico as high risk, despite the country’s drug-trafficking economy, and that affiliate had shipped $7bn in US bank notes across to HSBC in the United States, more than any other Mexican bank, without anyone treating the flow as suspicious. The bank had also routed around safeguards meant to block transactions touching terrorists and sanctioned states, including 25,000 transactions over seven years that concealed their links to Iran, and had kept supplying dollars and services to certain Saudi banks despite their terrorist-financing connections. In under four years it cleared $290m in “obviously suspicious” travellers’ cheques denominated in US dollars for a Japanese bank, to the benefit of Russians who said they sold used cars.
Sir John Gieve, once the Bank of England’s deputy governor, read the failure as part of a wider overreach. “The banks became very overextended, not just in lending on property, which we all know about, but in this case, for example, buying businesses in Mexico about which, it turned out, they knew too little,” he told the BBC. BBC business editor Robert Peston put the legal mechanics plainly: “HSBC has signed a Deferred Prosecution Agreement for breaches of the US Bank Secrecy Act, the Trading with the Enemy Act and assorted money laundering offences. This is in effect putting the bank on probation,” he said, noting that an outright indictment would have barred the US government and others from doing business with HSBC at all.
The case did not stand alone. Weeks earlier, Standard Chartered had agreed to pay $300m over violations of US sanctions, and both cases were read as part of a crackdown run by federal agencies alongside New York state authorities.
On the personnel side, the bank pointed to new senior management since the misconduct years. Lord Green, chairman from 2006 until late 2010 and now a UK trade minister, shared the regret over what his department called failures of implementation, while HSBC hired Bob Werner, formerly of the US Treasury’s sanctions-enforcement office (OFAC), as its first head of financial crime compliance, charged with rebuilding sanctions and laundering controls.
The institution could absorb the hit: HSBC was Europe’s biggest bank by market value, having earned $12.7bn in pre-tax profit in the first six months of 2012. What the settlement would do to its business, the bank itself could not yet say.
Sources
- HSBC to pay $1.9bn in US money laundering penalties – BBC News
- The HSBC Deferred Prosecution Agreement: Just how much money are we really talking about? – Financial Transparency Coalition
