Hong Kong - HSBC has agreed to pay $1.92bn to settle a
multi-year US criminal probe into money-laundering lapses at the British
lender, the largest penalty ever paid by a bank.
HSBC admitted to a breakdown of controls and apologised in a
statement announcing it had reached a deferred-prosecution agreement with the
US Department of Justice, as was first reported by Reuters last week.
"We accept responsibility for our 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," Said Chief Executive Stuart Gulliver.
"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."
The bank said it expected to also reach a settlement with
British watchdog the Financial Services Authority.
US and European banks have now agreed to settlements with US
regulators totalling some $5bn in recent years on charges they violated US
sanctions and failed to police illicit transactions.
No bank or bank executives, however, have been indicted as
prosecutors have instead utilised deferred prosecutions.
HSBC said it would pay $1.921bn, continue to cooperate fully
with regulatory and law enforcement authorities and take further action to
strengthen its compliance policies and procedures. US prosecutors have agreed
to defer or forgo prosecution.
Last month, HSBC told investors it had set aside $1.5bn to
cover fines or penalties stemming from the inquiry and warned costs could be
Analyst Jim Antos of Mizuho Securities said the statement on
Tuesday indicates an extra $420m for the settlement costs, calling it a
"trivial" figure in terms of the company's book value. "But in
terms of real cash terms, that's a huge fine to pay," said Antos, who
rates HSBC a "buy."
Hong Kong listed shares of HSBC nudged up slightly on
Tuesday, adding 25 cents to HK$79.75.
US justice department officials are expected to detail the
settlement later on Tuesday.
HSBC's settlement is the latest chapter in an embarrassing
period for the bank, the result of a lengthy probe into Europe's biggest bank
by US law enforcement agencies as well as a US Senate panel that in July issued
a scathing review of HSBC.
Anti- money laundering controls
In its statement, HSBC said it had increased spending on
anti-money laundering systems, exited business relationships, and clawed back
bonuses for senior executives. It also cited the hiring last January of Stuart
Levey, a former top US Treasury Department official, as chief legal officer.
Under a five-year agreement with the Justice Department,
HSBC agreed to have an independent monitor evaluate its progress in improving
HSBC's settlement comes a day after rival British bank
Standard Chartered agreed to a $327m settlement with US law enforcement
agencies for sanctions violations, a pact that follows a $340m settlement the
bank reached with the New York bank regulator in August.
Such settlements have become commonplace. In what had been
the largest settlement until this week, ING Bank NV in June agreed to pay $619m
to settle US government allegations it violated sanctions against countries
including Cuba and Iran.
Other banks that have reached settlements over sanctions
violations are Credit Suisse Group of Switzerland, Lloyds Banking Group and
Barclays in Britain and ABN Amro Holdings, a Dutch bank acquired by Royal Bank
of Scotland Group and a bank consortium in 2007. In the United States, J.P.
Morgan Chase & Co, Wachovia Corp and Citigroup have been cited for
anti-money laundering lapses or sanctions violations.
HSBC's failings date to 2003, when the Federal Reserve Bank
of New York and New York state regulators ordered the bank to better monitor
suspicious money flows.
In 2010, a consent order from the Comptroller of the
Currency (OCC) ordered HSBC to review suspicious transactions moving through
the bank. At the time, the OCC called HSBC's compliance programme
In 2008, the US Attorney in Wheeling, West Virginia, began
investigating HSBC and how a local pain doctor allegedly used the bank to
launder Medicare fraud.
Ultimately, that prosecutor's office came to believe the
case was "the tip of the iceberg" in terms of the suspicious
transactions conducted through HSBC, according to documents reviewed by Reuters
and reported earlier this year.