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HSBC to Pay $1.9 Billion Fine for Money Laundering

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It seems the Federal Government has finally woken up and is making a show of being serious about one type of bank misbehavior, that of money laundering. The striking element about the agreement with various Federal agencies and the Department of Justice is that nearly $1.3 billion of the $1.9 billion fine comes in the form of a deferred prosecution agreement. This is the criminal analogy to injunctive relief, in which a miscreant is granted amnesty in return for committing to change its behavior in specific ways. The charges are then dismissed if the subject follows through. On paper, this is a much tougher regime than the frequently violated injunctive relief, since the charges remain over the head of the miscreant until they are dismissed. The open question in these cases is whether the monitoring of compliance is serious or pro-forma, and that’s impossible to know from the outside.

The grounds for the criminal part appear to be money laundering for Iran. So why did HSBC get the book thrown at them when Standard Chartered was laundering the Iranian government’s biggest source of foreign exchange, its oil revenues, on behalf of the central bank, and Treasury and other Federal regulators, was a mere $330 million when New York State got $340 million? Admittedly, there is one difference: here, US regulators had already told the bank to shape up and it failed to do so.

From the Wall Street Journal:

U.S. authorities are preparing to announce as early as Tuesday a record $1.9 billion settlement with HSBC Holdings HSBA.LN -0.37% PLC to settle allegations the bank for years ignored red flags about money laundering….

HSBC’s troubles with lax financial controls first surfaced publicly in 2010 when the Office of the Comptroller of the Currency issued a cease-and-desist order citing “deficiencies with respect to suspicious activity reporting, monitoring of bulk cash purchases and international funds transfers, customer due diligence concerning its foreign affiliates, and risk assessment with respect to politically-exposed persons and their associates.”

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38 comments

  1. Paul Walker

    Given the minimalist nature of regulatory toll collection the sums involved in the instant offenses must be stupendous since regulators naturally expect to their sternly worded letters

  2. EconCCX

    striking element about the agreement of the agreement…
    nearly $1.3 billion of the $1.9 million fine
    @Yves

    The perils of speed blogging…

    1. Yves Smith Post author

      Sorry, I’m actually sick (swollen glands and mono-like fatigue) and probably should not be blogging at all, except I’ve been sick like this for weeks, although worse today.

      1. Bhikshuni

        So sorry to hear it!

        Sometimes propolis tincture is good for the throat, if you don’t have allergies to bee products.

        Sounds like an immune boost could be in order!

      2. psychohistorian

        Please make your health a higher priority and insure healing happens.

        Not to put too fine a point on it but from a selfish point of view, you are not worth much dead to us hangers on to the reality you proffer.

        I am sending as much healing energy as I have your way.

  3. sk

    It is just for show. I don’t thinks it says much about the seriousness of U.S regulators. Remember, HSBC is a foreign bank and, presumably, its origin is based in helping opium related drug trades in the orient. HSBC = Hong-Kong Shanghai Bank of Commerce

    You cannot trust U.S. bank regulators to do an honest enforcement work until we see the poster, go-go, boy of banking corruption, Jamie Damon, getting whipped butt naked in public,

  4. jsmith

    From the NYT article:

    “Prosecutors found that the bank had facilitated money laundering by Mexican drug cartels and had moved tainted money for Saudi Arabian banks tied to terrorist organizations.”

    So, crimes that would have gotten ordinary human beings either tossed in the can for life or dusted by a drone are politely settled by opening the old checkbook.

    Nice.

      1. Fíréan

        The Saudi Al Rajhi bank is named directly in another part of same NYT article :

        Quote ” For example, an HSBC executive at one point argued that the bank should continue working with the Saudi Al Rajhi bank, which has supported Al Qaeda, according to the Congressional report.”

        Reminds me of the The Bank of Credit and Commerce International (BCCI). Who is on each end of these transactions, or in the middle, of these narcotics related or terroist related financial transactions ?

        How are monies raised and moved around the globe for covert activities ? Where and who is the ultimate source of control ? We’ve had all this before and the show goes on. Military and security forces manouvering narcotics and arms (even people) around the globe using the stealth afford them.
        Wasnt it stated by some one that drug related monies kept the system going at tiem of potential world collapse back in 2008 ?

        Join up the dots. In such an intricate system how much if any is acting or performing totally isolated from the rest ? And for the small amount of which we are aware what else is going on surreptitiously ?
        And what you can do about it all anyway ?

  5. Ms G

    Money Laundering and Federal Corrupt Practices Act cases have been brought all along by DOJ. This is not news. The ML cases are revenue raisers for DOJ and result in zero indictments of high-level bank people — just standard “Consent Agreements” whereby the banks (repeatedly, over decades) agree to “strengthen” controls.

    FCPA is a ridiculous statute — it declares to be illegal conduct abroad (corporate bribes to foreign governments to facilitate doing business in foreign countries) the same conduct that is carried out every minute in the US under the guys of Corporate/Banking Buying of Government (a constitutionally recognized form of “Free Speech,” no less!) As well, FCPA is used very, ahem, strategically, and never against violators that happen to be in the “in circle” in D.C.

    Short version: this money laundering case is in no way a sign of any sort of “waking up” at DOJ, let alone, a sign that banksters are suddenly being subjected to the same laws as common thieves.

    1. psychohistorian

      I see this as a propaganda ploy.

      1.9 Billion minus 1.3 Billion (at risk) leaves only a penalty of .6 Billion and a puff piece for the MSM to explain to the brainwashed public how tough the US is on “crimes of finance”.

      I believe that if they put enough lipstick on it the story could fly.

  6. tech98

    A foreign bank, money laundering for an “Axis of Evil” bogeyman country — politically easy pickings.
    I’ll take them seriously when they take on one of the crony-insider big US banks.

  7. JOHN C

    SEEMS TO ME I HAVE READ –HERE OR ELSEWHERE–THAT JUSCTICE/SEC/OTHER REGULATORS HAVE BEEN IMPOSING THESE EQUIREMENTS TO ‘INSTALL CONTROLS/DO NO MORE HARM’ FOR YEARS AND YEARS…AND THE SAME INSITUTIONS ARE REPEATEDLY ‘BROUGHT UP ON NEW CHARGES’ AND ARE NEVER HELD ACCOUNTABLE FOR THE VIOLATIONS OF THE CONDITIION TO DO NO MORE HARM. CLEARLY IT IS MEANINGLESS.

    QUESTION–IF THE REGULATORS CAN’T BRING CRIMINAL CAHRGES, WHY CAN’T THEY FORCE OUT THE TOP MANAGEERS–NO PARACHUTES, NO OPTIONS, CLAW BACK ALL SALARY, BONUSES EARNED DURING THE PREIOD OF CRIMINAL ACTIVITY, AND BAR THEM FROM EVER WORKING ANYWHERE IN THE FINANCIAL SYSTEM?

    THE DRUG LORDS GO TO JAIL BUT THEIR BANKERS REMAIN IN PLACE??!!!THIS IS UTTERLY F++++D UP.

    1. LucyLulu

      Yes. HSBC has been sanctioned for similar charges in 2003 and 2010. But THIS time they are REALLY going to try to be good.

  8. Phil

    Given all the death and destruction HSBC’s activities on behalf of the Mexican drug cartels facilitated, a “serious” result would have been the guilty pleas and incarceration of top executives along with a fine of at least $10 billion. DOJ could get that if there was a credible threat that the bank in the U.S. would otherwise be seized and liquidated with the proceeds going to the Federal Treasury as contraband — separate prosecutions for all executives involved to follow. This is all a show, and not a very convincing one at that. How many more people have to die before we start punishing the scum who make it all possible?

    1. Andrew not the Saint

      A $10B fine would be appropriate if laundering money for the drug cartels was actually prosecuted. Nowadays it’s only illegal if you’re:
      A) Not a US-bank
      B) You’re laundering money for one of the “rogue” nations

  9. Phichibe

    What is most disquieting about this is that now we can add the TBTF banks to the Big 4 accounting firms in the category of “can’t indict/put out of business” because of the impact on the market and/or the concentration of market share. Richard Posner has recently recanted his wholesale adoption of the University of Chicago (Stigler/Friedman/et al) laissez-faire “law and economics” model of jurisprudence but it seems the damage that has been done will be with us for decades.

    Given the absolutely pernicious conflation of money with free speech that the Supreme Court has inflicted on the country (starting, for what it is worth, not with Citizens United but with Buckley v. Valleo, a decision of the Burger court in 1977) I don’t know how we are going to get the government to put a stake through the hearts of these vampires but until we do we have unleashed on ourselves a new species of predators, the corporation that can’t be brought to justice. Unbelievable.

    P

    PS: Yves, please get well soon! We need you on the ramparts lobbing grenades at full strength ;-)

  10. American Slave

    Somehow I knew when i saw the title that it had something to do with Iran. It seems like thats the only way a bank can get in trouble, imagine if they had done business with North Korea. I swear our politics has gotten so cheasy its not even funny anymore.

  11. Perry

    I’m not sure it matters a bit. The bank writes a check to the courts, money disappears, problem remains. Nothing changes until some new whistle blower opens their stupid mouth and a new press release comes out anouncing the same business as usual problem. Wash, Rinse, Repeat. I wonder who’s more sick and tired of this routine – Banking elite; legal bungieboys; or general public.

  12. Expat

    I certainly hope that when I get arrested for smuggling cocaine, murder, and rape, I merely pay a fine while neither denying nor admitting to any charges. I love to see democracy in action.

  13. LeeAnne

    “HSBC to Pay $1.9 Billion Fine for Money Laundering …”

    the headline should have continued: ‘… and found it so profitable all around that HSBC money laundering goes uninterrupted while cautioning discretion to its employees.

    1. sierra7

      Our political/economic system is rotten to the core.
      TBTF=TBTI (Too big to indict)is par for the course.
      It’s all donwhill here….into the abyss!

  14. dolleymadison

    This is the same low-life bank, who is posing as “Trustee” of an empty, defunct MBS “trust” in order to foreclose on my home — when I never missed a payment. The state AG, Banking Commissioner, FDIC, et al simply yawned and told me to “get a lawyer.” Got another nice note from Joseph Smith yesterday “thanking” me for my complaint but they are “not able to intervene.” I guess HSBC has to liquidate U.S. real estate to pay the fine.

    1. Ms G

      If you have time, why not write back to Mr. Smith and ask him why he is unable to intervene and whether it is precisely because Smith wants HSBC to collect and foreclose illegally from you so it can pay it’s new fine. Seriously. Then you can publish the letter and any response you get from Mr. Smith’s office. Exposing the specifics of what “consumer protection” really looks like if you’re the, er, consumer, is extremely worthwhile.

      Good luck, in any event. Very sorry to hear that you are having to deal with this awful abuse of power (by HSBC and “our” regulators.)

    2. LucyLulu

      Have you tried the CFPB? They are supposed to be regulating the mortgage industry now. Though I would get your hopes up too high, it can’t hurt and even if they can’t help, perhaps they will have a helpful avenue to pursue. Richard Cordray is the director and a few years ago successfully prosecuted Ameriquest for fraud and predatory lending jointly with the IA AG.

      When you mention the MBS is defunct, does that mean the trust has been settled with the assets of the trust disbursed? If so, concentrate on finding any documents to prove the trust has been terminated. Is there a procedure, filing, or court hearing required for termination of trusts in the state where the MBS is domiciled (usu. NY, but also Delaware, and D.C. for Fannie????). It seems it would be pretty hard for HSBC to claim to be the trustee on a loan pool in a trust if you can demonstrate the trust is empty…. though such obvious logistic problems aren’t necessarily considered relevant by judges in foreclosure suits. I’ve seen attorneys post, including here, that judges will confine the issues to, “did you take out a loan, are you behind on the payments, and how much in arrears?” and then set the sale date and amount to settle.

      My sister is a highly regarded attorney (translation: rich, unlike me) who does large scale financing between lenders and large corporations or public entities. She spent several several years doing Wall Street deals in Boston before deciding her clients and the business was slimey (like Yves I believe), said GS was the worst, and moved down south 1999 or so. Bored one day at her house, waiting for her to return home, I began reading a loan agreement she had brought home to review and was struck by how biased the terms were in favor of the lender, and how limited recourse the borrower had. For example, I recall both parties had business sites in several jurisdictions. The lender could sue for relief in any jurisdiction it chose. The borrower could only seek relief in Birmingham. I commented on the lopsided nature of the contract. She responded all loan contracts are written for the benefit of lenders. (So, when she is representing the borrowers, how does she justify her high fees?)

      Laws afford debtors very few rights. I hope I don’t sound too discouraging. There are a few honorable and enlightened judges and sometimes justice does prevail. I hope you will find yourself in front of one of them. And if you can’t afford an attorney, check out legal aid. Many states have expanded their legal aid staff with the funds from the 49 state settlement.

      1. dolleymadison

        Thanks Mrs. G and Lucy – I have been tireless in writing to CFPB and and every other regulatory body/elected official I can think of. The common theme is that they are only “collecting information” about “trends” and are powerless to intervene in any actual malfeasance. Or they refer me to agencies to help “struggling homeowners.” I never missed a payment – my only struggle is being defrauded by these assholes. Having worked in, ironcially, COMPLIANCE for many years this experience has been a real eye opener…especially the aiding and abetting of fraud by the courts. Most attornies – if you can find one not terrified of the banks- cannot even comprehend the intracacies of Securitization – and forget about trying to demonstrate that none of the orignial CUSIPS issued by the trust are active…their eyes just glaze over. One of the “allonges” was allegedly signed by a the Attorney in fact five years for the lender five years after lender went out of business – my attonrey actually said the Lender and Trust Bankruptcy docs and an affadvit by the BK Trustee attesting to the impossibility of this allonge was “hearsay.” Scary, and infuriating. Thanks for the support!

  15. Observer

    Apparently, indictment would cause systemic failure in the global money-laundering system.

    From the NYT article:

    “On Monday, the bank said it was promoting Robert W. Werner, who oversaw the group at the Treasury Department that enforces sanctions, to run a specially created division focused on anti-money laundering efforts.”

    Because he did such a good job in the first place.

    “Regulators have also vowed to improve.”

    Stop it! You’re making me laugh!

    “During the hearings this summer, lawmakers assailed the regulator. At one point, Senator Tom Coburn, Republican of Oklahoma, called the comptroller “a lap dog, not a watchdog.”

    He forgot to add, “And I will continue to do nothing about it.”

  16. LucyLulu

    “Despite the known risks of doing business in Mexico, the bank put the country in its lowest risk category, which excluded $670 billion in transactions from the monitoring systems, according to the documents.”

    $1.9B at most for $670B of transactions. The cost of doing business…… maybe.

    “No bank or bank executives have been indicted. Instead, prosecutors have used deferred prosecutions, under which criminal charges against a firm are set aside if it agrees to conditions such as paying fines and changing its behavior.

    “In trying to reach a result that’s fair and just and powerful, you also have to look at the collateral consequences,” DOJ criminal chief Lanny Breuer said at the Brooklyn press conference.”

    Translation: If we prosecute, the global banking system will collapse.

    http://www.reuters.com/article/2012/12/11/us-hsbc-probe-idUSBRE8BA05M20121211

    1. LucyLulu

      I should add that a tv news piece reported $790B in Russian traveler’s cheques were involved. I don’t know if they are related to the Mexican drug laundering or not.

        1. LucyLulu

          Thanks, Ms. G.
          And are the Russians then linked to Iran? So many different players, it gets so hard to keep track of. A lot like daytime soap operas. Whose brother’s former girlfriend is sleeping with the star’s cousin’s step-daughter by the missionary?

  17. dolleymadison

    Too big to fail? Why? Pension funds? Really? We are willing to aid and abett the corruption of our land records, the stealing of our nieghbors homes, the killing of innocents, the ownership of our courts and elected officials and ultimate loss of our own soveriegnty for our stinking pensions? PATHETIC.

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