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Wednesday, December 12, 2012

HSBC to pay $1.9 b to settle money laundering case in US

HSBC will pay out a total of $1.92 billion to US authorities to settle long-running investigations into breaches of US anti money-laundering rules. The figure is slightly higher than the $1.5 billion that HSBC had flagged up, though this settlement is expected to be a final amount, bringing to an end a period of uncertainty with US authorities.

The bank also soon hopes to reach an agreement with Britain’s Financial Services Authority. This agreement is expected to focus on the bank’s compliance procedures and monitoring systems, rather than involving a fine.

The bank reiterated its apology, pledging to continue to work with regulators across the world and to strengthen its procedures. “We accept responsibility for our past mistakes,’ said CEO Stuart Gulliver on Tuesday. “Over the last two years, under new 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.”

The settlement covers agreements with eight different bodies in the US, including a deferred prosecution agreement with the US Department of Justice, avoiding any prosecution so long as certain conditions are met. Under that agreement, over a five-year period an independent body will monitor some of the changes already brought in by the bank, and any further ones recommended.

The bank has undergone a major restructuring of its procedures, including enhancing the position of Group compliance, and its ability to monitor national compliance divisions, bringing in guidelines to limit its involvement in high-risk countries, and conducting a $700 million review of its “know your customer” files. The payment to regulators is expected to fall within the current financial year.

HSBC is the latest foreign bank to reach a settlement with US authorities over breach of regulations. On Monday, Standard Chartered said it would pay a total of $327 million to US regulators, after agreeing earlier this year to pay New York’s state regulator $340 million over claims it had schemed to hide up to $250 billion of transactions with Iran.

Others to have faced fines include ING, which paid out $619 million, and Barclays, which two years ago paid out $298 million. In a 330-page report published in July, the US Senate Permanent sub-committee on investigations accused HSBC of “playing fast and loose with US banking rules,” and having a “pervasively polluted,” banking culture, alleging that it had acted as a means for Mexican drug cartels to send illicit funds to the US, and breached sanctions relating to Iran.

While the agreements announced on Tuesday may end the uncertainty over the US investigations, analysts at Bank of America Merrill Lynch pointed to a number of “significant litigation issues” that remained for the bank, including a $3.5-billion claim relating to Household International (now HSBC Finance), the US division that made billions of dollars of losses during the sub-prime crisis, as well as other actions related to Bernie Madoff, and the Libor-fixing scandal.


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