HSBC being punished for ‘stunning failures’

NEW YORK - Agence France-Presse

REUTERS Photo

HSBC intentionally broke U.S. sanctions on Iran and other countries and laundered Mexican drug money to build its business, the U.S. said Dec. 11 as it socked the global banking giant with $1.92 billion in fines.

U.S. authorities blasted the British bank’s internal controls as “knowingly and willfully” lax, as they enabled forbidden financial transactions with Iran, Libya, Sudan, Cuba and Myanmar from the 1990s through 2006.

Its Mexico branch also freely allowed hundreds of millions of dollars to be laundered through HSBC by drug groups, the Justice Department said. The U.S. said the bank violated U.S. sanctions laws, the Cold War-era Trading with the Enemy Act aimed at Cuba, and numerous banking regulations as it exposed the U.S. financial system to militants and drug cartels.

HSBC avoided prosecution by agreeing to pay $1.92 billion to settle the allegations and to undertake sweeping reforms of its management and compliance systems in a deal with U.S. regulators and justice authorities.

“HSBC is 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,” said U.S. Assistant Attorney General Lanny Breuer.

“These settlements implicate willful and dangerous practices by one of the world’s biggest banks,” said Under Secretary for Terrorism and Financial Intelligence David Cohen in a statement.

“HSBC absolutely knew the risks of the business it pursued, yet it ignored specific, obvious warnings. Its failures allowed hundreds of millions of dollars in drug money to pass through its unattended gates.” Fourth among the world’s largest banks in The Banker magazine’s 2012 rankings, with the lion’s share of its business in Asia, HSBC admitted to having had “inadequate” controls in place.
“We accept responsibility for our past mistakes. We have said we are profoundly sorry for them, and we do so again,” said chief executive Stuart Gulliver.

HSBC said in November that it had set aside $1.5 billion to cover fines that would stem from the U.S. investigation.

New committee for anti-money laundering

In London, the Financial Services Authority ordered HSBC to set up a board-level committee and employ an independent monitor to oversee compliance with British banking regulations on anti-money laundering, sanctions, terrorist financing and proliferation financing.

“HSBC is anxious to draw a line under the affair. Emphasizing a transformation at the bank over the last two years, the bank has agreed to pay a record fine,” said analyst Keith Bowman at Hargreaves Lansdown Stockbrokers. The U.S. fine was only the most recent action taken against major international banks for violating U.S. sanctions on Iran and other countries and U.S. banking rules aimed at preventing money-laundering.

British-based emerging markets bank Standard Chartered has been fined $667 million over sanctions violations involving Iran, Myanmar, Libya and Sudan. In June, Dutch bank ING agreed to pay $619 million to settle accusations of sanctions violations.