Corporation allowed drug traffickers to pass money through US banking accounts
New York (CNNMoney) — Global banking giant HSBC will pay $1.92 billion in a record settlement with U.S. regulators to resolve money-laundering allegations.
The U.S. Treasury said Tuesday that HSBC allowed hundreds of millions of dollars from Mexican drug trafficking organizations to flow through accounts in the United States by leaving dangerous gaps that international drug dealers and other criminals readily abused.
The settlement also resolves federal investigations against HSBC for violating U.S. sanctions against Iran, Burma, Sudan and Libya by processing transactions that involved these countries for a number of years through 2007. Treasury said that HSBC's London and Dubai branches routed $430 million in payments for or on behalf of the countries against which the U.S. had trade sanctions.
"The settlements implicate willful and dangerous practices by one of the world's biggest banks," said David Cohen, Treasury undersecretary for terrorism and financial intelligence.
HSBC CEO Stuart Gulliver accepted responsibility for the banks' mistakes. "We have said we are profoundly sorry for them, and we do so again," Gulliver said in a statement.
The settlement follows a Senate subcommittee report released in July that accused HSBC of failing to prevent money transfers by Mexican drug cartels and banks linked to terrorism financing.
Among other things, the report claimed that in 2007 and 2008, HSBC's Mexico unit shipped $7 billion in cash to the bank's U.S. affiliate, a volume of shipments that law enforcement officials said could reach that size "only if they included illegal drug proceeds."
The Department of Justice is expected to release further details at a news conference Tuesday.
The deal includes a deferred prosecution agreement with the Department of Justice. No charges will be brought against the bank provided certain conditions are met.
As part of the settlement, HSBC is required to take further actions to strengthen its compliance policies and procedures. HSBC expects to reach an agreement shortly with the United Kingdom Financial Services Authority (FSA).
The FSA agreement, due later Tuesday, will not include a financial penalty, but will focus on monitoring the bank's behavior in the future, an HSBC spokesman said.
In a filing with the Securities and Exchange Commission last month, HSBC said it had set aside $1.5 billion to cover potential penalties from the U.S. money laundering investigation, but warned the final cost could be significantly higher.
HSBC announced a number of measures aimed at improving its internal controls, including the appointment of former Treasury Department official Bob Werner to a new role as Head of Group Financial Crime Compliance and Group Money Laundering Reporting Officer.
"The announcement of Bob's new role underscores our determination to address the shortfalls highlighted by recent investigations," HSBC spokesman Rob Sherman said. "We have made good progress to date, but have much more to do."
The London-based bank joins a long list of financial institutions that have faced scrutiny from U.S. regulators over allegedly illicit money transfers, but the size of its combined settlement with eight different U.S. authorities is unprecedented.
U.K. bank Standard Chartered agreed Monday to pay $327 million to settle charges that it violated international sanctions on transactions with Iran, Burma, Libya and Sudan.
In June, Dutch bank ING agreed to pay a $619 million penalty for moving billions of dollars through the U.S. financial system at the behest of Cuban and Iranian clients.
Back in 2010, Wachovia Bank paid $160 million to resolve allegations that its weak internal controls allowed Mexican cartels to launder millions of dollars worth of drug proceeds. Wells Fargo bought Wachovia in 2008.
And Swiss bank Credit Suisse paid $536 million in 2009 to settle U.S. claims concerning business with Iran and other countries.
While HSBC's penalty dwarfs these other settlements, it's still just a fraction of the $16.8 billion in profits the bank recorded globally last year.