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HSBC Admits Massive Fraud and Moneylaundering for NarcoTerrorists and Rogue Politicians--Pays Record $1.9 Billion Penalty--Execs Avoid Jail

December 11th 2012

HSBC

British banking giant HSBC has agreed to pay more than $1.9 billion to U.S. authorities -- the largest penalty ever paid by a bank -- after failing to abide by anti-money laundering and sanctions laws, it said on Tuesday. The agreement helps HSBC avoid a legal battle that could tarnish its reputation further and undermine confidence in the global banking system. It was the latest in a string of scandals by major banks since the financial crisis began in 2008.

The global banking giant admitted that lax vigilance made it vulnerable to money laundering by Mexican drug cartels, as well as transactions involving Iran that are banned under U.S. law. HSBC managers pledged to do better in testimony before a Senate investigative committee. U.S. law seeks to disrupt the cash flow of criminal organizations, from drug traffickers to terrorist groups. But for years, London-based HSBC seemingly turned a blind eye to illegal transactions originating in Mexico and elsewhere that used the bank’s U.S. affiliates as a gateway to America’s financial system. Senator Carl Levin of Michigan said HSBC is a prime example of a widespread problem in international banking.

The bank said in a statement that it had also “clawed back” bonuses from a number of senior staff, spent more than $290 million on “remedial measures” and taken steps to limit business in “countries that pose a high financial crime risk.” The statement added that the bank was also expected to finalize an agreement with the U.K. Financial Services Authority “shortly.” Stuart Gulliver, chief executive of HSBC Group, said in the statement that the bank was a “fundamentally different organization” now. "We accept responsibility for our past mistakes. We have said we are profoundly sorry for them, and we do so again,” he said.

The Chicago Tribune reported: The bank was unable to properly monitor $15 billion in bulk cash transactions between mid-2006 and mid-2009, and had inadequate staffing and high turnover in its compliance units. HSBC on Tuesday said it expected to also reach a settlement with British watchdog the Financial Services Authority. The FSA declined to comment. U.S. and European banks have now agreed to settlements with U.S. regulators totalling some $5 billion in recent years on charges they violated U.S. sanctions and failed to police potentially illicit transactions. No bank or bank executives, however, have been indicted, as prosecutors have instead used deferred prosecutions - under which criminal charges against a firm are set aside if it agrees to conditions such as paying fines and changing behaviour.

HSBC's settlement also includes agreements or consent orders with the Manhattan district attorney, the Federal Reserve and three U.S. Treasury Department units: the Office of Foreign Assets Control, the Comptroller of the Currency and the Financial Crimes Enforcement Network. HSBC said it would pay $1.921 billion, continue to cooperate fully with regulatory and law enforcement authorities and take further action to strengthen its compliance policies and procedures. U.S. prosecutors have agreed to defer or forego prosecution. The settlement is the third time in a decade that HSBC has been penalized for lax controls and ordered by U.S. authorities to better monitor suspicious transactions. Directives by regulators to improve oversight came in 2003 and again in 2010. Last month, HSBC told investors it had set aside $1.5 billion to cover fines or penalties stemming from the inquiry and warned costs could be significantly higher.


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