HSBC in Money Laundering Scandal - Analyst Blog

By Zacks Equity Research,

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The top executives including the CEO of HSBC Holdings plc ( HBC ) are set to face a tough inquiry by the congressional committee for their alleged involvement in money laundering during the period 2004-2010.

Moreover, the representatives of the regulatory authority - Comptroller of the Currency - are also summoned for the judicial inquiry for their negligence. This reflects the U.S. government's constant efforts to restrain funding that were made available for anti-social activities.

After year-long investigation into bank's compliance with anti-money laundering rules, the subcommittee has accused the bank of failing to meet those rules. This could possibly result in hefty penalties, amounting around a billion, for HSBC. Apart from the senatorial committee, the Department of Justice and the Office of Foreign Asset Control are also investigating the bank regarding the same.

The investigation revealed substantial lapses in the bank's anti-money laundering compliance. This resulted into 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 have drawn maximum attention.

The U.S. and the European Union is seeking to curb Iran's various contentious projects. As a result, it has been trying to stop funding made available to the Iranian government by keeping a tab on the country's banking activities.

Moreover, the U.S. is trying to curb drugs trade in Mexico. Consequently, HSBC's carelessness regarding the money laundering rules has not gone down very well with the American government.

HSBC is already facing a probe related to rigging of the London Interbank Offered Rate, or the LIBOR.  Although the bank is not officially charged for any wrongdoing, such news and investigations will surely dent the goodwill of the company.

Other Banks Involved in the Scandal

Earlier this year, the U.S. government held Netherlands-based ING Groep NV ( ING ) 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, acquired by Wells Fargo & Company ( WFC ) in 2008, was accused of facilitating funds transfer related to Mexican Drug cartel. It ended up paying $160 million as compensation.


HSBC should be praised extending full-fledged support to the U.S. regulators and law enforcement bodies in conducting the investigation. However, it must be mentioned that negligence relating to such critical rules is not inevitable since it exposes the entire world to dangers with dire consequences.

Shares of HSBC currently retain a Zacks #2 Rank, which translates into a short-term Buy rating. Considering the fundamentals, we also maintain a long-term Neutral recommendation on the stock.

HSBC HOLDINGS (HBC): Free Stock Analysis Report
ING GROEP-ADR (ING): Free Stock Analysis Report
WELLS FARGO-NEW (WFC): Free Stock Analysis Report
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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: HBC , ING , WFC

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