Bank fines reached a new height yesterday. HSBC Holdings Plc is reportedly planning to settle money-laundering charges for $1.9 billion. Here’s are a few of the details from Bloomberg:
HSBC (HSBA) Holdings Plc will pay at least $1.9 billion in a deferred prosecution agreement that settles U.S. probes of money laundering tied to Europe’s largest bank, a person familiar with the matter said, making it the largest such accord ever.
HSBC, whose top executives were accused of lax oversight by a U.S. Senate subcommittee in July, will forfeit $1.25 billion, the biggest forfeiture ever by a bank, said another person familiar with the matter. It will also pay an addition $665 million in civil penalties, the person said.
In a deferred prosecution agreement, the government allows a target to avoid charges by meeting certain conditions — including the payment of fines or penalties — and by committing to specific reforms, either under the guidance of a monitor, or the creation of an internal compliance panel. The HSBC agreement is set to be announced today, said the people, both of whom asked not to be identified because the matter isn’t public.
Yesterday, Standard Chartered Plc (STAN), Britain’s second-largest bank by market value, agreed to pay $327 million in fines after regulators alleged it violated U.S. sanctions with Iran. The two banks have been the target of investigations by several U.S. regulators. The Department of Justice, the Treasury Department’s Office of Foreign Assets Control, the Federal Reserve, the Office of the Comptroller of the Currency, New York state regulators and the Manhattan District Attorney have all probed HSBC, Standard Chartered, or both.
Here’s the reason for the fines, according to the New York Times:
The settlement with HSBC stems from accusations that the British banking giant transferred billions of dollars on behalf of sanctioned nations like Iran and enabled Mexican drug cartels to launder money through the American financial system, according to officials briefed on the matter. The deal, which will force the bank to forfeit more than $1.2 billion and pay additional penalties, is the largest to emerge from an investigation that has spanned several years and involved multiple government agencies.
The settlement on Tuesday is expected to include a deal with the Manhattan district attorney’s office and a deferred prosecution agreement with the Justice Department, according the officials. The Treasury Department is also expected to join the settlement.
Since January 2009, the Justice and Treasury Departments and Manhattan prosecutors have charged six foreign banks, including Credit Suisse and Barclays. In June, ING Bank reached a $619 million settlement to resolve claims that it had transferred billions of dollars in the United States for Cuba and Iran.
HSBC has been working to offset some problems recently, the Wall Street Journal reported.
The bank, whose history dates to an era when the British empire was at its height, has spent the past two years selling off unprofitable businesses and centralizing its global structure stretched across 80 countries.
HSBC officials now blame that structure for much of their U.S. legal trouble, which began when Immigration and Customs Enforcement agents in 2007 looked at suspicious cash flows involving HSBC branches in Mexico and the U.S.
In the past year, the bank has hired several former U.S. government money-laundering experts to help improve its financial controls. It named Stuart Levey as its top legal officer. Mr. Levey formerly served as the Treasury Department’s top official tracking terrorism and illicit financing. His portfolio includes managing legal officers in HSBC operations around the world.
Many of the HSBC money-laundering problems centered on bulk-cash, U.S. dollar transactions between HSBC’s Mexico and U.S. units. The transactions were detailed in a U.S. Senate investigative report published this past summer.
The report by the Senate Permanent Subcommittee on Investigations detailed a regulatory culture at HSBC that shocked even its own employees, according to testimony provided to the committee and at a hearing.
Senate investigators concluded HSBC did little to clean up operations that should have raised concerns. HSBC’s Mexico bank had a branch in the Cayman Islands that had no offices or staff but held 50,000 client accounts and $2.1 billion in 2008, the report said.
I’m sure there are a many people who are happy to see a fine that’s in proportion to the bank’s revenues. It will be interesting to see if this is the new normal in fines or an outlier.
