HSBC Holdings plc.
) reached a settlement with the U.S. law enforcement authorities
in the money laundering case and agreed to pay a hefty amount for
it. The company would pay a penalty of $1.9 billion for its
misdeeds and take proper measures to avoid such issues going
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As a matter of fact, HSBC was blamed for substantial lapses in
its anti-money laundering compliance. The company was accused of
being involved in the displacement of funds through the U.S.
financial system for countries under the sanctioned list of the
Moreover, it was charged for controversial transactions
pertaining to the illegal narcotics trade in Mexico. No less than
$881 million of drug trafficking earnings are said to have been
laundered through HSBC Bank USA between 2006 and 2010.
The settlement includes a Deferred Prosecution Agreement with the
US Department of Justice. Over the five-year term of the
agreement, HSBC's progress in executing the measures would be
evaluated by an independent monitor. As per the type of
agreement, in case the company falters again, it may be sued by
the Justice Department.
Notably, HSBC, which admitted to its misdeeds, undertook measures
to increase its controls and compliances. In addition to
elevating its expenditures on anti-money laundering as well as
increasing the unit staff strength, the company has overhauled
its Know Your Customer program.
HSBC has already initiated a review of all Know Your Customer
files worldwide, which would cost the company an estimated $700
million over five years. Moreover, on grounds of risk, the
company exited 109 correspondent relationships while a number of
senior officers' bonus have been revoked. Also, a set of guiding
principles have been adopted for restricting business in
countries which pose a high financial crime risk.
HSBC reached an agreement with all other US government agencies
which have probed the former's prior activities associated with
these issues. Further, it expects to finalize an agreement with
the U.K. Financial Services Authority shortly.
The settlement with HSBC demonstrates the efforts of the U.S.
regulators to come down hard on the unjustifiable activities of
the banks and terminate the illegal cash flow through its
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.
Earlier this year, the U.S. government held Netherlands-based
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.
For HSBC, whose shares currently retain a Zacks #4 Rank (implying
a short-term Sell rating), though the settlement comes as a
relief as the burden of litigation overhangs would be lessened
and legal costs would be curtailed, it also exhausts the
company's financials. Moreover, we believe that negligence
relating to such critical rules is not acceptable since these
issues can subject the global economy to dire consequences.