December 11, 2012

British bank to pay record $1.9B fine in US case

The probe of Europe's largest bank focused on the transfer of funds through the U.S. financial system from Mexican drug cartels and on behalf of nations such as Iran.

Pete Yost / The Associated Press

(Continued from page 1)

— Lloyds, another major British bank, agreed to forfeit $350 million for allegedly helping customers skirt U.S. sanctions on business transactions with Sudan, Iran and Libya.

— Big Dutch bank ING paid $619 million to settle charges that it secretly moved billions of dollars through the U.S. financial system on behalf of Cuban and Iranian customers.

Last summer, the Senate investigation concluded that HSBC's lax controls exposed it to money laundering and terrorist financing.

In regard to HSBC and Mexico, the Senate investigative committee reported that in 2007 and 2008 HSBC Mexico sent about $7 billion in cash to the United States. The committee report said that large an amount of cash indicated illegal drug proceeds.

HSBC affiliates also skirted U.S. government bans on financial transactions with Iran and other countries, according to the report from the Senate Permanent Subcommittee on Investigations. And HSBC's U.S. division provided money and banking services to some banks in Saudi Arabia and Bangladesh thought to have helped fund al-Qaida and other terrorist groups, the report said.

The report also blamed U.S. regulators, claiming they knew the bank had a poor system to detect problems but failed to take action.

Sen. Carl Levin, D-Mich., the committee chairman, cited instances in which HSBC had promised to fix deficiencies after being sanctioned by regulators but failed to follow through.

Levin also said the Office of the Comptroller of the Currency, the U.S. agency that oversees the biggest banks, tolerated HSBC's weak controls against money laundering for years and said agency examiners who had raised concerns were overruled by their superiors.

HSBC had a 2011 net income of $16.8 billion and operates in about 80 countries around the world. It grew quickly in recent years by acquiring banks around the world that became its affiliates. Its far-flung affiliates operated with a degree of autonomy that left top bank officials with less than full authority and control, experts say. Each affiliate had its own officer to oversee compliance with laws to prevent money laundering.

Nigel Morris-Cotterill, head of the Anti Money Laundering Network, a consultancy, said international banks face conflicts between laws and regulations in different countries. "There are times when the lines are blurred, when you're not clear exactly where the edge is," he said. "If you step over the edge you get slapped, but often you don't know where the edge is."

HSBC, which changed its senior management last year, said it has taken actions to strengthen and centralize compliance with anti-money-laundering laws.

"The HSBC of today is a fundamentally different organization from the one that made those mistakes," said Gulliver, the bank's CEO. "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."

On Monday, HSBC announced that Robert Werner, a former head of the Treasury Department agencies responsible for sanctions against terrorist financing and money laundering, is taking a new position in HSBC as head of group financial crime compliance and group money-laundering reporting officer. Werner has been head of global standards assurance since August.

In January, HSBC hired Stuart Levey, a former Treasury undersecretary for terrorism and financial intelligence, as its chief legal officer. And a former policy adviser in the Obama administration, Preeta Bansal, in October became HSBC's global general counsel for litigation and regulatory affairs.

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