US$1.9-billion penalty
LONDON, England — HSBC avoided a legal battle that could further savage its reputation and undermine confidence in the global banking system by agreeing yesterday to pay US$1.9 billion to settle a US money-laundering probe.
Europe’s largest bank by market value will pay the biggest penalty ever imposed on a bank after facing accusations it transferred funds through the US from Mexican drug cartels and on behalf of nations such as Iran that are under international sanctions.
It’s the latest scandal to hit banks over recent years since the financial crisis started in 2008. Hours earlier, Standard Chartered PLC, another British bank, signed an agreement with New York regulators to settle a money laundering investigation involving Iran with a US$340-million payment.
“These banks are operating in an environment where you can’t afford to have uncertainty attached to your name, and they are dependent on confidence from their investors,” said Sabine Bauer, director of financial institutions at Fitch Ratings. “And that makes them keen to get past such events very quickly and settle.”
Despite the high price of the settlement, markets greeted the HSBC’s swift agreement. HSBC Holdings PLC’s share price in London was trading 0.3 per cent higher at 643 pence. Standard Chartered’s was barely lower at 1,493 pence.
Analysts said two British-based banks will be able to absorb the cost of the settlements.
According to Shore Capital analyst Gary Greenwood, the penalties are equivalent to around nine per cent of each company’s 2012 pre-tax profits.
“The certainty is clearly welcome and helps to draw a line under the situation,” said Greenwood. “In terms of knock-on effects, we think it is likely to lead to higher ongoing compliance costs and perhaps some minor loss of business in the US, but nothing that will be particularly material to either company.”
Banks are facing greater scrutiny since the financial crisis. A string of banking scandals have highlighted lax oversight and a culture of arrogance and entitlement.
Money laundering by banks has become a priority target for US law enforcement. Since 2009, Credit Suisse, Barclays, Lloyds, and ING have all paid big settlements related to allegations that they moved money for people or companies that were on the US sanctions list.
HSBC conceded that its anti-money-laundering measures were inadequate and that it has taken big steps in beefing up its controls. The bank also said it has reached agreements over investigations by other US government agencies and expects to sign an agreement with British regulators shortly.
“We accept responsibility for our past mistakes,” said HSBC Chief Executive Stuart Gulliver. “We have said we are profoundly sorry for them, and we do so again.”
Some legal experts slammed the deal for being too soft on the bank and the individuals responsible for the alleged money laundering.
Jimmy Gurule, a former assistant US Attorney General and currently a law professor at the University of Notre Dame, said the settlement made a “mockery” of the criminal justice system.
“The message sent by the US Department of Justice is that if you are going to engage in large-scale money laundering for Mexican drug cartels, make sure and do it within the scope of your employment working for a bank, because you won’t be prosecuted regardless of the egregious nature of your criminal conduct,” he said.
A US law enforcement official said the sum HSBC was paying would include US$1.25 billion in forfeiture — the largest ever in a case involving a bank — and US$655 million in civil penalties.
Under what is known as a deferred prosecution agreement, the financial institution will be accused of violating the Bank Secrecy Act and the Trading With the Enemy Act, the official said. The source spoke only on condition of anonymity because officials were not authorised to speak about the matter on the record.
—AP