Exclusive: HSBC might pay $1.8 billion money laundering fine - sources

NEW YORK/WASHINGTON Wed Dec 5, 2012 11:29pm EST

HSBC logos are displayed inside an office tower in Hong Kong in this February 27, 2012 file photo. HSBC Holdings Plc might pay a fine of $1.8 billion as part of a settlement with U.S. law-enforcement agencies over money-laundering lapses, according to several people familiar with the matter. REUTERS/Bobby Yip/Files

HSBC logos are displayed inside an office tower in Hong Kong in this February 27, 2012 file photo. HSBC Holdings Plc might pay a fine of $1.8 billion as part of a settlement with U.S. law-enforcement agencies over money-laundering lapses, according to several people familiar with the matter.

Credit: Reuters/Bobby Yip/Files

NEW YORK/WASHINGTON (Reuters) - HSBC Holdings Plc (HSBA.L) might pay a fine of $1.8 billion as part of a settlement with U.S. law-enforcement agencies over money-laundering lapses, according to several people familiar with the matter.

The settlement with Europe's biggest bank - which could be announced as soon as next week - will likely involve HSBC entering into a deferred prosecution agreement with federal prosecutors, said the sources, who spoke on condition of anonymity.

The potential settlement, which has been in the works for months, is emerging as a test case for just how big a signal U.S. prosecutors want to send to try to halt illicit flows of money moving through U.S. banks.

An HSBC spokesman said: "We are cooperating with authorities in ongoing investigations. The nature of discussions is confidential."

HSBC said on November 5 that it set aside $1.5 billion to cover a potential fine for breaching anti-money laundering controls in Mexico and other violations, although Chief Executive Stuart Gulliver said the cost could be "significantly higher.

In regulatory filings, HSBC has said it could face criminal charges. But similar U.S. investigations have culminated in deferred prosecution deals, where law-enforcement agencies delay or forgo prosecuting a company if it admits wrongdoing, pays a fine and agrees to clean up its compliance systems. If the company missteps again, the Justice Department could prosecute.

A deferred prosecution agreement could raise questions over whether HSBC is simply paying a big fine and nothing more, said Jimmy Gurule, a former enforcement official at the U.S. Treasury.

It would make a "mockery of the criminal justice system," said Gurule, who is now a University of Notre Dame law-school professor.

In his view, the only way to really catch the attention of banks is to indict individuals.

"That would send a shockwave through the international finance services community," Gurule said. "It would put the fear of God in bank officials that knowingly disregard the law."

An HSBC settlement, long rumored, has been slow in coming. Inside the Justice Department, prosecutors in Washington, D.C. and West Virginia argued over how to best investigate HSBC. According to documents reviewed by Reuters, the U.S. Attorney's office in Wheeling, West Virginia, was prepared as far back as 2010 to indict HSBC and include more than 170 money laundering counts.

Prosecutors in Washington ultimately took charge.

In July, the U.S. Senate Permanent Subcommittee on Investigations released a report saying HSBC allowed clients to move shadowy funds from Mexico, Iran, the Cayman Islands, Saudi Arabia and Syria.

The use of deferred prosecution agreements has surged in recent years because Justice Department officials believe they give prosecutors an option aside from indicting a company or dropping a case.

According to a report in May by the Manhattan Institute for Policy Research, a conservative-leaning think tank, there have been 207 deferred or non-prosecution agreements since 2004.

The agreements "have become a mainstay of white collar criminal law enforcement," U.S. Assistant Attorney General Lanny Breuer said in September during an appearance at the New York City Bar Association.

"I've heard people criticize them and I've heard people praise them. DPAs have had a truly transformative effect on particular companies and, more generally, on corporate culture across the globe."

If U.S. prosecutors agree to a deferred agreement, they still could wield a powerful legal tool by accusing the bank of laundering money.

That would be a much more serious charge than if prosecutors, in a deferred agreement, charged HSBC with criminal violations of the Bank Secrecy Act, a law that requires banks to maintain programs that root out suspicious transactions.

In March 2010, for example, Wells Fargo & Co's (WFC.N) Wachovia entered into a deferred prosecution agreement to pay $160 million as part of a Justice Department probe that examined how drug traffickers moved money through the bank. Wachovia was accused of violating the Bank Secrecy Act, a decision that prompted criticism from some observers who thought a money laundering charge should have been employed and individual bankers prosecuted.

A charge of money laundering would be a rare move by the Justice Department and would send a signal to other big banks that the agency is intent on cracking down on dirty money moving through the U.S. financial system.

(This story corrects month the Senate report was published to July in paragraph 13)

(Reporting by Carrick Mollenkamp and Brett Wolf; Additional reporting by Emily Flitter and Aruna Viswanatha)

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Comments (7)
ConstFundie wrote:
Get time for being caught on the corner with drugs but launder millions in drug money and the company gets a fine? Guess we know who makes up the rules to this game.

Dec 05, 2012 10:25pm EST  --  Report as abuse
GeorgeBrown wrote:
HSBC got its start in 1865 laundering drug money from the Chinese and Indian opium trade; why would the bank change a very successful business model? Just pay the fine and keep on doing business…

Dec 06, 2012 5:19am EST  --  Report as abuse
stambo2001 wrote:
People used to laugh and laugh and laugh when I told them years ago that some of the largest banks and governments on the planet launder drug money. ‘Yer nuts’ they said, ‘put on the tinfoil hat’ they said. When you mentioned the British opium traders and the Chinese Opium War(s) history their eyes would glaze over and they’d go back to the ‘yer crazy’ response. Fact is that Britain and the Royal family have been drug barons for centuries. Today we know that you have to be a complete and utter moron to deny that the intelligence agencies in the usa import and sell the hardest drugs on the streets; it’s become one of those not-so-secret secrets. The government arrests and imprisons the street level dealer and importer for the simple reason that they don’t like the competition. Rotten to the core.

Dec 06, 2012 6:54am EST  --  Report as abuse
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