HSBC Holdings plc
) is likely to settle money laundering charges with the U.S. law
enforcement authorities next week, according to a Reuters report.
HSBC will shell out an estimated $1.8 billion in penalties.
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The settlement is anticipated to involve a deferred prosecution
agreement between HSBC and the regulators. Deferred prosecution
agreements are deals whereby, the regulators delay or may even
discontinue the prosecution if the company admits its mistake, is
ready to pay penalty and cleanout its compliance systems.
However, in case the company falters again, it may be sued by the
The expected settlement for money laundering charges has been
held up for months now. In its latest regulatory filings, the
company stated that it was anticipating nearly $1.5 billion in
fines to resolve the claims. In July this year, the company faced
a tough inquiry by a congressional committee for its alleged
involvement in money laundering during the period 2004-2010.
The investigation revealed substantial lapses in the bank's
anti-money laundering compliance. This resulted in a worldwide
displacement of funds from riskier nations through the bank.
Controversial transactions pertaining to its Iranian clientele
and the illegal narcotics trade in Mexico drew maximum attention.
The settlement with HSBC reflects the efforts of the U.S.
regulators to come down hard on unwarranted activities of the
banks and discontinue the illegal cash flow through its financial
system. In August this year, the New York State Department of
Financial Services (DFS) reached a $340 million settlement with
Standard Chartered PLC
) for its involvement in money laundering in Iran. The agreement
came after the London-based bank was accused by New York's top
regulating authority of concealing transactions worth $250
billion (£160 billion) relating to Iran.
Earlier this year, the U.S. government had also held
ING Groep NV
) responsible for transferring billions of dollars through the
American financial system to nations that were economically
restricted by the U.S. As a result, ING bank ended up paying $619
million in penalties.
Moreover, Wachovia bank, which was acquired by
Wells Fargo & Company
) in 2008, was accused of transferring funds related to Mexican
Drug cartel. It shelled out $160 million as compensation.
Most definitely, this settlement will result in huge expenditure
for HSBC. However, the bank anticipates sale of non-core assets
to absorb the losses. In addition, HSBC must be credited for
fully supporting the U.S. regulators and law enforcement bodies
while these were conducting the investigations. However, it must
be mentioned that negligence relating to such critical rules is
not acceptable since these issues expose the entire world to
dangers with dire consequences.
Shares of HSBC currently retain a Zacks #3 Rank, which translates
into a short-term Hold rating. Moreover, considering the
fundamentals, we maintain a long-term Neutral recommendation on