HSBC Set to Get Slammed With Largest-Ever Anti-Money Laundering Fine

HSBC, one of the largest financial institutions in the Western world–and one that stands at the forefront of the financial jihad, is set to be fined millions of dollars for lax compliance with regulations to combat money laundering.

The article below comes from an email bulletin sent out by the good folks at

Expected HSBC AML Fine Could Be Largest Ever: Sources

By Brian Monroe

The U.S. Justice Department is seeking to fine HSBC USA as much as $500 million for anti-money laundering compliance problems, an amount that would be the largest-ever penalty for such violations, say individuals familiar with the investigation.

Department officials have floated the dollar amount, in part, because they believe HSBC’s violations outstrip those of Wachovia Bank, which paid $160 million in March for its risky ties to Mexican foreign currency exchange houses, according to a person familiar with the matter who has read documents tied to the case.

The potential Justice Department fine, first disclosed by HSBC in an August 2 quarterly report, could be as long as 18-months off and the final dollar amount may be lowered due to bank cooperation, the person said.

The $500 million figure reflects the wide-ranging nature of problems at HSBC, said a person with government experience who has knowledge of the investigation. The bank’s officials were aware of “serious” AML problems, which dated back four years, but didn’t quickly act to correct them, the person said.

Like the Wachovia case, HSBC’s alleged violations involve correspondent relationships in Mexico and other high-risk countries in Latin America, multiple individuals with knowledge of the investigation said. The violations also involve understaffing, poor transaction monitoring and problems with attrition among senior compliance officials, they said.

Investigators are additionally looking into potential risks tied to HSBC premier accounts, which allow the bank’s clients with more than $100,000 to transfer funds online between their HSBC accounts anywhere in the world, according to the person who has seen case documentation.

In the August regulatory filing, HSBC said it would “likely” be the subject of a formal enforcement action and could pay a monetary penalty for problems with its banknote business and its correspondent relationships. In addition to its anti-money laundering (AML) troubles, the bank is the subject of a separate probe by the U.S. Treasury Department’s Office of Foreign Assets Control over possible economic sanctions violations.

In a response to queries about the timing of a possible penalty, an HSBC spokesman said that the bank could not provide details beyond what was included in its regulatory filing.

“We take regulatory matters very seriously, and we are working closely with our regulators and actively resolving these issues,” he said, in an e-mail. “HSBC is committed to a strong compliance capability.”

The U.S. Treasury Department could levy an enforcement action against the company as soon as next month while the Justice Department separately negotiates a deferred prosecution agreement to be issued later, according to the individuals.

The bank’s troubles could be exacerbated by recent comments by at least three federal judges-most vocally by the judge overseeing a $298 million penalty against Barclays-that the penalties against banks were too small or not in line with the conduct that prompted them, according to a third individual, who described HSBC’s violations as “systemic and multijurisdictional.”

Regulatory trouble began for the bank when federal prosecutors brought a seemingly unrelated case against Barton Adams, a doctor who ran a pain management office in Vienna, WV. The Justice Department accused Adams in November 2008 of using his HSBC account to transfer the profits from a Medicare fraud scheme.

Adams typically transferred as much as $90,000 in illicit proceeds at a time and, in two cases, wired more than $272,000 and $200,000 from his HSBC Internet account to an HSBC account in Canada in the name of a nominee, according to prosecutors. The case has yet to go to trial.

The investigation became the Justice Department’s “toe in the door” toward a broader look at HSBC’s compliance program, said the individual who has read case documents. The Adams prosecution eventually led to a joint investigation by the U.S. Justice and Treasury Departments, the Federal Reserve Bank of Chicago and the U.S. Attorney’s Office.

The investigation has already resulted in a shakeup among HSBC staff. In an internal e-mail, HSBC USA’s Head of Group Compliance David Bagley said that the bank’s AML and Bank Secrecy Act director Wyndham Clark was stepping down to “pursue other interests” after less than a year in the position.

In 2003, HSBC entered into a written agreement with the Federal Reserve Bank of New York and New York State Banking Department to improve its AML compliance, including suspicious activity reporting and transaction monitoring.


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