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HSBC will pay $1.9 billion for money laundering

8:50 AM, Dec 11, 2012   |    comments
Stuart Gulliver, Group Chief Executive of HSBC, released a statement Tuesday saying: "We accept responsibility for our past mistakes." (Photo: Vincent Yu, AP)
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Kevin McCoy, USA TODAY
WASHINGTON - British banking giant HSBC said Tuesday that it will pay a record $1.92 billion to settle a broad international money-laundering investigation by U.S. federal and state authorities.

The settlement, set to be announced later Tuesday by investigators, would end probes focused on evidence that HSBC's U.S. arm transferred billions of dollars through its U.S. arm for Mexican drug cartels, Iran, which is under international financial sanctions, and others.

The settlement, formally known as a deferred prosecution agreement, enables HSBC to avoid criminal money laundering and other charges - which could have been a financial death sentence for the bank.

A July report and hearing by the Senate Permanent Subcommittee showed evidence that foreign HSBC banks "actively circumvented" safeguards at the bank's U.S. arm designed to block transactions involving alleged terrorism, drug trafficking and rogue nations.

One example highlighted in the Senate report showed that two HSBC affiliates routed nearly 25,000 Iran-linked transactions involving $19.4 billion through the bank's U.S. arm over a seven-year period.

"We accept responsibility for our past mistakes. We have said we are profoundly sorry for them, and we do so again," said HSBC Group Chief Executive Stuart Gulliver in a statement released early Tuesday.

Adding that the bank had cooperated with U.S. investigators over the last two years, Gulliver said "we have been taking concrete steps to put right what went wrong."

He said the deferred prosecution agreement notes that in recent years the bank has increased spending and staffing on anti-money laundering procedures and beefed up its know-your-customer efforts.

HSBC has also ended 109 banking correspondent relationships for reasons of potential money laundering risk, clawed back bonuses previously issued to a number of senior bank officers and spent over $290 million on remedial measures, the statement said.

Under the deferred prosecution agreement, the bank said an independent monitor will evaluate HSBC's progress in fully implementing the money laundering crackdown.

The agreement covers an investigation that involved the U.S. Department of Justice, the Manhattan District Attorney in New York, the Federal Reserve System, the Treasury Department's Office of Foreign Assets Control, the Comptroller of the Currency and Treasury's Financial Crimes Enforcement Network.

A U.S. law enforcement official said Monday that HSBC will pay $1.25 billion in forfeiture and pay $655 million in civil penalties. The $1.25 billion figure is the largest forfeiture ever in a case involving a bank. Under the deferred prosecution agreement, HSBC will be accused of violating the Bank Secrecy Act and the Trading With the Enemy Act.

The official spoke on condition of anonymity because the source was not authorized to speak about the matter on the record.

The deferred prosecution agreement means the bank won't be prosecuted further if it meets certain conditions, such as strengthening its internal controls to prevent money laundering. The Justice Department has used such arrangements often in cases involving large corporations, notably in settlements of foreign bribery charges.

In regard to HSBC and Mexico, a U.S. Senate investigative committee reported that in 2007 and 2008 HSBC Mexico sent to the United States about $7 billion in cash. The committee report said that large an amount of cash indicated illegal drug proceeds.

Money laundering by banks has become a priority target for U.S. law enforcement.

In another case Monday, a British bank, Standard Chartered, which was accused of scheming with the Iranian government to launder billions of dollars, signed an agreement with New York regulators to settle their investigation with a $340 million payment.

Since 2009, Credit Suisse, Barclays and Lloyds all paid settlements related to allegations that they moved money for people or companies that were on the U.S. sanctions list.

Last summer, the Senate investigation concluded that HSBC's lax controls exposed it to money laundering and terrorist financing.

HSBC bank affiliates also skirted U.S. government bans against financial transactions with Iran and other countries, according to the report from the Senate Permanent Subcommittee on Investigations. And HSBC's U.S. division provided money and banking services to some banks in Saudi Arabia and Bangladesh thought to have helped fund al-Qaida and other terrorist groups, the report said.

The report also blamed U.S. regulators: It said they knew the bank had a poor system to detect problems but failed to take action.

Sen. Carl Levin, D-Mich., the committee chairman, cited instances in which HSBC had promised to fix deficiencies after being sanctioned by regulators but failed to carry through.

Levin also said the Office of the Comptroller of the Currency, the U.S. agency that oversees the biggest banks, tolerated HSBC's weak controls against money laundering for years and that agency examiners who had raised concerns were overruled by their superiors.

In his statement Tuesday, HSBC's Gulliver said: "The HSBC of today is a fundamentally different organization from the one that made those mistakes. Over the last two years, under new senior leadership, we have been taking concrete steps to put right what went wrong and to participate actively with government authorities in bringing to light and addressing these matters."

HSBC announced Monday that Robert Werner, a former head of the Treasury Department agencies responsible for sanctions against terrorist financing and money laundering, is taking a new position within HSBC as head of group financial crime compliance and group money-laundering reporting officer. Werner has been head of global standards assurance since August.

In January, HSBC hired Stuart Levey, a former Treasury undersecretary for terrorism and financial intelligence, as its chief legal officer. And a former policy adviser in the Obama administration, Preeta Bansal, in October became HSBC's global general counsel for litigation and regulatory affairs.

Contributing: Associated Press

USA TODAY

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