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.”