11 December 2012
Last updated at 13:36 GMT
HSBC has admitted its money laundering controls have been too lax
HSBC
has confirmed it is to pay US authorities $1.9bn (£1.2bn) in a
settlement over money laundering, the largest paid in such a case.
A US
Senate investigation said the UK-based bank had been a conduit for "drug kingpins and rogue nations".
Money laundering is the process of disguising the proceeds of crime so that the money cannot be linked to the wrongdoing.
HSBC admitted having poor money laundering controls and apologised.
"We accept responsibility for our past mistakes," said HSBC group chief executive Stuart Gulliver
in a statement.
"We have said we are profoundly sorry for them, and we do so again."
The bank said it had spent $290m on improving its systems to
prevent money laundering and clawed back some bonuses paid to senior
executives in the past.
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If HSBC had been indicted for these
offences, that would have meant that the US government and others could
no longer have conducted business with it, which would have been
humiliating and highly damaging.”
It also said it expected to reach an agreement with the UK's Financial Services Authority shortly.
Last month it announced it had set aside $1.5bn to cover the costs of any settlement or fines.
The news followed the announcement of a similar but much
smaller settlement with UK-based Standard Chartered bank, which will pay
$300m in fines for violating US sanctions.
The cases are seen as part of a crackdown on money laundering
and sanctions violations being led by federal government agencies and
New York state authorities.
Senate criticism
The settlement had been widely expected following a report by
the US Senate, published earlier this year, that was heavily critical of
HSBC's money laundering controls.
The report alleged that:
- HSBC in the US had not treated its Mexican affiliate as high
risk, despite the country's money laundering and drug trafficking
challenges
- The Mexican bank had transported $7bn in US bank notes to HSBC
in the US, more than any other Mexican bank, but had not considered that
to be suspicious
- It had circumvented US safeguards designed to block
transactions involving terrorists drug lords and rogue states, including
allowing 25,000 transactions over seven years without disclosing their
links to Iran
- Providing US dollars and banking services to some banks in Saudi Arabia despite their links to terrorist financing
- In less than four years it had cleared $290m in "obviously
suspicious" US travellers' cheques for a Japanese bank, benefiting
Russians who claimed to be in the used car business
Speaking in July, Trade Minister and former HSBC boss Lord Green said he knew about wrongdoing
The report suggested HSBC accounts in Mexico and the US were being used by drug barons to launder money.
"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,"
Sir John Gieve, former deputy governor of the Bank of England told the
BBC.
The Senate report also said HSBC regularly circumvented
restrictions on dealings with Iran, North Korea, and other states
subject to US sanctions.
BBC business editor Robert Peston said that as big as the $1.9bn penalty looks, it could have been much worse.
"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.
"But if HSBC had been indicted for these offences, that would
have meant that the US government and others could no longer have
conducted business with it, which would have been humiliating and highly
damaging."
'Failures'
The bank stressed that it had taken on new senior management since the time the problems happened.
Lord Green was chairman of HSBC from 2006 until late 2010 and is now Minister of State for Trade and Investment.
In a statement, his department said: "The report by the US
Senate Sub-Committee sets out in detail the evidence submitted to it,
and the action taken by HSBC to ensure compliance with US regulations at
the time that Lord Green was group chairman. It is for HSBC to respond
to this report.
"At the time of the report's publication HSBC expressed its
regret that there were failures of implementation and Lord Green has
said that he shares that regret."
HSBC has announced it has appointed a former US official to
work as its head of financial crime compliance, which is a new position.
Bob Werner was previously the head of the US Treasury's
Office of Foreign Assets Control (OFAC) - the agency responsible for
enforcing the US sanctions on countries including Iran.
He will be responsible for beefing up HSBC's anti-money laundering and sanctions compliance systems.
It is unclear what impact the case will have on HSBC's
business. The bank is the biggest in Europe by market capitalisation,
and made pre-tax profits of $12.7bn for the first six months of 2012.
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