New York: British bank HSBC intentionally broke American sanctions on Iran and other countries while also laundering Mexican drug money, the US on Wednesday said, as the banking major was to pay USD 1.92 billion to settle the allegations.
A four-count felony criminal information was filed today in federal court in the Eastern District of New York, charging HSBC with willfully failing to maintain an effective anti-money laundering programme and failing to conduct due diligence on its foreign affiliates.
The bank's breakdowns in anti-money laundering (AML) compliance were particularly egregious because these failures allowed hundreds of millions of dollars from Mexican drug trafficking organisations to flow through accounts in the US, the Treasury Department said in a statement.
HSBC has waived the federal indictment and has accepted responsibility for its criminal conduct and that of its employees.
The Justice Department said HSBC violated federal laws by illegally conducting transactions on behalf of customers in Cuba, Iran, Libya, Sudan and Burma --all countries that were subject to sanctions.
"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," Assistant Attorney General of the Justice Department's Criminal Division Lanny Breuer said.
"The record of dysfunction that prevailed at HSBC for many years was astonishing. HSBC is paying a heavy price for its conduct, and under the terms of today's agreement, if the bank fails to comply with the agreement in any way, we reserve the right to fully prosecute it," Breuer said.
HSBC said under these agreements, it would pay a total of USD 1.921 billion and continue to cooperate fully with regulatory and law enforcement authorities and take further action to strengthen its compliance policies and procedures.
In addition to forfeiting USD 1.2 billion as part of its deferred prosecution agreement, HSBC has also agreed to pay USD 665 million in civil penalties, including USD 500 million to the Office of the Comptroller of the Currency and USD 165 million to the Federal Reserve.
"These settlements implicate willful and dangerous practices by one of the world's biggest banks," Under Secretary for Terrorism and Financial Intelligence, David S Cohen, said.
"HSBC absolutely knew the risks of the business it pursued, yet it ignored specific, obvious warnings. Its failures allowed hundreds of millions of dollars in drug money to pass through its unattended gates," Cohen said.
According to court documents, from 2006 to 2010, HSBC failed to implement an anti-money laundering programme capable of adequately monitoring suspicious transactions and activities from HSBC group affiliates, particularly HSBC Mexico.
This included a failure to monitor billions of dollars in purchases of physical US dollars, or "banknotes", from these affiliates.
Despite evidence of serious money laundering risks associated with doing business in Mexico, HSBC rated Mexico as "standard" risk, its lowest AML risk category.
As a result, HSBC failed to monitor over USD 670 billion in wire transfers and over USD 9.4 billion in purchases of physical US dollars from HSBC Mexico.
As a result of HSBC's anti-money laundering failures, at least USD 881 million dollars in drug trafficking proceeds, including proceeds of drug trafficking by the Sinaloa Cartel in Mexico and the Norte del Valle Cartel in Colombia, were laundered through HSBC Bank, USA.
HSBC Group admitted it did not inform HSBC Bank USA of significant anti-money laundering deficiencies at HSBC Mexico, despite knowing of these problems and their effect on the potential flow of illicit funds through HSBC Bank USA.
Further, according to court documents, from the mid-1990s through September 2006, HSBC allowed approximately USD 660 million dollars in prohibited transactions to be processed through US financial institutions, including HSBC Bank USA.
HSBC Group followed instructions from sanctioned entities such as Iran, Cuba, Sudan, Libya and Burma, to omit their names from US dollar payment messages sent to HSBC Bank USA and other financial institutions located in the United States.
The bank also removed information identifying the countries from US dollar payment messages; deliberately used less-transparent payment messages, known as cover payments; and worked with at least one sanctioned entity to format payment messages, which prevented the bank's filters from blocking prohibited payments.
HSBC Group Chief Executive Stuart Gulliver said in a statement that the bank accepts responsibility for its past mistakes.
"We have said we are profoundly sorry for them, and we do so again. The HSBC of today is a fundamentally different organisation from the one that made those mistakes," he said.
"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," he added.
First Published: Wednesday, December 12, 2012, 09:23