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Banking and Finance

HSBC to Pay $1.9 Billion to Settle Money Laundering Claims

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.

Compliance Policies

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 release.

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 compliance function."

"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."

Subcommittee Findings

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 Authority shortly."

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