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HSBC to pay $1.9 billion to settle US charges of anti-money laundering compliance breaches

HSBC has agreed to pay more than $1.9 billion to settle claims that the systems it had in place to prevent money laundering activity were insufficient. 11 Dec 2012

In July a US Senate committee said that HSBC, and its affiliate US firm, had "exposed the US financial system to a wide array of money laundering, drug trafficking, and terrorist financing risks due to poor anti-money laundering (AML) controls". The Senate committee said HSBC had played "fast and loose with US banking rules".

In a statement HSBC's chief executive Stuart Gulliver apologised for what he called the company's "past mistakes" and said that the business had acted to reform itself.

"We accept responsibility for our past mistakes," Gulliver said. "We have said we are profoundly sorry for them, and we do so again. The HSBC of today is a fundamentally different organisation from the one that made those mistakes. Over the last two years, under new senior leadership, we have been taking concrete steps to put right what went wrong and to participate actively with government authorities in bringing to light and addressing these matters."

"While we welcome the clarity that these agreements bring, ensuring the highest standards wherever we do business is an ongoing process. We are committed to protecting the integrity of the global financial system. To this end we will continue to work closely with governments and regulators around the world," he added.

HSBC said that the US Department of Justice (DoJ) had recognised that the company had taken steps to improve its standards in the text of a deferred prosecution agreement (DPA) the bank has formed with DoJ.

"Management has made significant strides in improving 'tone from the top' and ensuring that a culture of compliance permeates the institution," DoJ said in the DPA, the bank said. "The efforts of management have dramatically improved HSBC Bank USA's and HSBC Group's Bank Secrecy Act / Anti-Money Laundering and Office of Foreign Assets Control compliance programs."

It said that it would seek a "global resolution" with other US government agencies that had investigated the company's "past conduct" and that it also expects to agree on undertakings with the Financial Services Authority (FSA) in the UK soon.

"Under these agreements, HSBC will make payments totalling US$1.921bn, continue to cooperate fully with regulatory and law enforcement authorities, and take further action to strengthen its compliance policies and procedures," HSBC said.

HSBC said that the company had already voluntarily increased its expenditure on AML by a factor of nine between 2009 and 2011, and that it had also increased the number of staff engaged in AML "ten-fold between 2010 and 2012".

HSBC also said it had "undertaken a comprehensive overhaul of its structure, controls and procedures" in order to make it easier for the company to "manage risks worldwide more effectively", and that it had improved the oversight of staff specifically responsible for compliance, among the other action it said it had taken.

"Over the five-year term of the agreement with the Department of Justice, an independent monitor will evaluate HSBC's progress in fully implementing these and other measures it recommends, and will produce regular assessments of the effectiveness of HSBC's compliance function," HSBC said.

The company added that it is "firmly committed to putting in place robust standards that will help promote the integrity of the global financial system" and that it had been commended by the DoJ for its cooperation with law enforcement bodies.

The UK Government has announced plans to create a new framework through with companies can form DPAs.

Currently UK prosecutors can negotiate a form of plea agreement with organisations, but those companies still face criminal punishments that can harm their reputation and restrict their trade. Businesses that do make plea agreements also have no guarantees that courts will accept those agreements.

However, the Government has sought to improve the certainty for businesses that own up to their involvement in corporate crimes with proposals announced in October. The new DPAs will allow organisations to voluntarily admit to wrongdoing and resolve to make things right. Where a prosecutor, such as the Crown Prosecution Service (CPS) or Serious Fraud Office (SFO) agrees that a DPA is an appropriate course of action, it will be able to defer prosecution in exchange for a range of stringent conditions.

In other jurisdictions, such as the US, organisations can already negotiate settlements with prosecutors with a degree of certainty over the scope of their punishment.