LONDON - (Mealey's) Financial giant HSBC has agreed to
pay $1.9 billion to the U.S. Department of Justice and other federal agencies
to settle claims that it instituted "inadequate compliance with anti-money
laundering [AML] and sanctions laws" in connection with its alleged laundering
of billions of dollars of Mexican drug cartel money from its Mexican affiliate
into the United States through its American affiliate, according to a Dec. 11 press
release issued by the bank.
According to the press release, HSBC will pay
$1,921,000,000 to settle claims that first appeared in a July 17 U.S. Senate
Subcommittee on Investigations report, "U.S. Vulnerabilities to Money
Laundering, Drugs, and Terrorist Financing: HSBC Case History," that
showed that "drug traffickers unable to deposit large amounts of cash in U.S.
banks due to AML controls, were transporting U.S. dollars to Mexico, arranging
for bulk deposits there, and then using Mexican financial institutions to
insert the cash back into the U.S. financial system."
HSBC reached the agreements with a number of U.S.
regulators, including the New York District Attorney's Office, the Board of
Governors of the U.S. Federal Reserve System, the U.S. Department of Treasury's
Office of Foreign Assets Control, the Office of the Comptroller of the Currency
and the Financial Crimes Enforcement Network of the Treasury Department.
HSBC has also agreed to "continue to cooperate fully with
regulatory and law enforcement authorities, and take further action to
strengthen its compliance policies and procedures," according to the press
According to the press release, "[o]ver the five-year
term of the agreement with the Department of Justice, an independent monitor
will evaluate HSBC's progress in fully implementing these and other measures it
recommends, and will produce regular assessments of the effectiveness of HSBC's
"The agreement notes that HSBC Bank USA and HSBC
Group have 'provided valuable assistance to law enforcement.' HSBC
conducted multiple extensive internal investigations, voluntarily made
employees available for interviews, and collected, analysed and organised
voluminous evidence and information."
In the July Senate report, the subcommittee found that,
among other things, "[i]n addition to its high risk location, clients, and
activities, HMBX [HSBC Mexico] had a history of severe AML deficiencies.
Its AML problems included a widespread lack of Know-Your Customer (KYC) information
in client files; a dysfunctional monitoring system; bankers who resisted
closing accounts despite evidence of suspicious activity; high profile clients
involved in drug trafficking; millions of dollars in suspicious bulk travelers
cheque transactions; inadequate staffing and resources; and a huge backlog of
accounts marked for closure due to suspicious activity, but whose closures were
delayed. For eight years, from 2002 to 2010, HSBC Group oversaw efforts
to correct HBMX's AML deficiencies, while those efforts fell short. At
the same time, HSBC Group watched HBMX utilize its U.S. correspondent account, without
alerting HBUS [HSBC USA N.A.] to the AML risks it was incurring."
HSBC also announced that it is in the process of
finalizing a similar "undertaking with the United Kingdom Financial Services
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