Federal and state authorities announced on Tuesday that they had secured a record $1.92 billion payment from HSBC to settle charges that the British banking giant transferred billions of dollars for sanctioned nations, facilitated Mexican drug cartels to launder tainted money and worked with Saudi Arabian banks with ties to terrorist organizations.
The case, a major victory for the government, represents the conclusion of a multi-agency investigation. It convened the Justice Department, the Manhattan district attorney’s office, bank regulators and the Treasury Department.
In a filing in Federal District Court in Brooklyn, federal prosecutors said the bank had agreed to enter into a deferred prosecution agreement and to forfeit $1.26 billion. The four-count criminal information filed in the court charged HSBC with failure to maintain an effective anti-money laundering program, failure to conduct due diligence on its foreign correspondent affiliates and violating sanctions and the Trading With the Enemy Act.
“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, ” Lanny A. Breuer, the head of the Justice Department’s criminal division, said in a statement.
At a news conference in Brooklyn, Mr. Breuer defended the decision to not indict the bank, calling the action “a very just, very real and very powerful result.”
The deal, which required the bank to admit to the accusations, lasts for five years. If the bank violates the terms of the agreement, prosecutors can move to indict the bank.
In addition to forfeiting the $1.26 billion, HSBC agreed to pay the Office of the Comptroller of the Currency announced $500 million as part of a civil penalty against the bank, while the Federal Reserve assessed a $165 million civil penalty.
HSBC also entered in a deferred prosecution agreement with the Manhattan district attorney’s office, admitting that it violated New York State law by falsifying the records of New York financial institutions.
The Manhattan district attorney, Cyrus R. Vance Jr., said in a statement: “New York is a center of international finance, and those who use our banks as a vehicle for international crime will not be tolerated.”
In a statement, Stuart Gulliver, the chief executive of HSBC, said: “We accept responsibility for our past mistakes. We have said we are profoundly sorry for them, and we do so again. The HSBC of today is a fundamentally different organization from the one that made those mistakes.”
The turmoil at HSBC is playing out amid a broad crackdown on foreign by federal and state authorities to stanch the flow of illegal money across the world. The officials have been working to clamp down the financing pipeline to cartels and terrorist organizations.
For the most part, though, the investigations have centered on so-called sanctions violations. In June, the ING Group reached a $619 million settlement with government authorities to resolve accusations that it had moved billions of dollars through its United States subsidiaries for rogue nations like Iran.
In the latest action, federal and state authorities reached a $327 million agreement with another British bank, Standard Chartered, on Monday. The bank admitted to processing thousands of transactions worth hundreds of millions of dollars for Iranian and Sudanese clients.
Beyond the sanctions violations at HSBC, prosecutors unearthed evidence that the bank enabled Mexican drug cartels to launder money into the American financial system.
Problems for HSBC mounted in July when the Senate Permanent Subcommittee on Investigations accused the bank of exposing the United States “financial system to money laundering and terrorist financing risks.”
At the upper echelons of the organization, the Senate report found, some bank executives had ignored warning signs and permitted the illegal behavior to continue unabated from 2001 to 2010.
The original problems began when agents with Immigration and Customs Enforcement spotted questionable trails of money between HSBC’s Mexican and United States operations.
Despite a chorus of warnings from federal banking regulators about the vulnerability of HSBC’s operations throughout the world, the bank didn’t fortify its controls, the Senate report found.
One of HSBC’s branches in the Cayman Islands, the Senate report said, had virtually no oversight despite holding roughly 50,000 client accounts.
Alarmed, a compliance officer complained, Senate investigators found, and asked whether practices at the bank were part of “the School of Low Expectations Banking.”
Particularly concerning to prosecutors was the seeming complicity of senior bank executives, according to law enforcement officials briefed on the matter.
For example, an HSBC executive rallied for the firm to continue dealings with Al Rajhi Bank of Saudi Arabia, even though some of the owners of the firm had substantive links to the financing of terrorism, according to the report.
HSBC’s Mexican operations moved at least $7 billion from 2007 to 2009 into the United States. Such a large volume of money, law enforcement authorities warned, had to include “drug proceeds.”
In July at the Congressional hearings, HSBC executives vowed to reform. As part of that, David Bagley, who served as head of compliance at the British bank since 2002, announced his resignation during the hearings.
HSBC has since on a hiring spree, fortifying its ranks with seasoned executives. On Tuesday, prosecutors praised those efforts, noting that the bank cooperated with the investigation
HSBC brought in Stuart A. Levey as chief legal officer in January. Mr. Levey, a former under secretary at the Treasury Department who focused on terrorism and financial intelligence, has been working out new internal standards that span the company for monitoring and policing the movement of money. In August, the bank hired Robert Werner, who formerly oversaw the group at the Treasury Department that enforces sanctions. In its latest move to improve controls, HSBC promoted Mr. Warner on Tuesday to oversee a special unit dedicated to anti-money laundering.
William Alden and Ben Protess contributed reporting.
DealBook: HSBC to Pay $1.92 Billion to Settle Money Laundering Charges
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DealBook: HSBC to Pay $1.92 Billion to Settle Money Laundering Charges
