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HSBC Fine for Money Laundering is Largest Bank Penalty in U.S. History

The HSBC fine for money laundering charges reached a record $1.92 billion as Europe's biggest bank settled charges in an agreement with the U.S. Justice Department.

The fine is the largest penalty ever imposed on a bank from the Justice Department.

The Justice Department had accused HSBC Holdings PLC of illegally laundering money for Mexican drug cartels and with violating sanctions by doing business with countries including Iran, Cuba, Libya, Sudan and Myanmar, according to Reuters.

In a statement, HSBC Chief Executive Stuart Gulliver said: "We accept responsibility for our past mistakes. We have said we are profoundly sorry for them, and we do so again. The HSBC of today is a fundamentally different organization from the one that made those mistakes."

Under new senior leadership over the past two years, Gulliver said, "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."

HSBC Fine Let Bank Avoid These Charges

By accepting the settlement, HSBC avoided criminal charges. The bank agreed to deferred prosecution with the Manhattan district attorney's office and the Justice Department.

According to The New York Times, officials briefed on the matter said the deferred prosecution agreement requires HSBC to forfeit more than $1.2 billion and to pay about $700 million in fines.

According to The Times, the settlement represents a major victory for the government but raises questions about whether some financial institutions are "too big to indict." The settlement comes four years after Lehman Brothers' failure nearly collapsed the financial system.

A money-laundering indictment or a guilty plea to money-laundering charges, The Times said, would "essentially be a death sentence" for HSBC. Either would cut the bank off from some investors such as pension funds and could cost HSBC its charter to operate in the United States, officials told the newspaper.

Although HSBC was repeatedly warned by U.S. officials about its relationship with Mexico, from 2000 to 2009, the bank considered Mexico to be a "low risk" for money laundering, a U.S. Senate investigative committee found. During that time, HSBC's Mexico operation is said to have transferred some $7 billion from Mexico to the United States, much of it thought to have been money from drug cartels.

HSBC also continued to do business with Saudi Al Rajhi Bank, a Saudi Arabian bank founded by an Al Qaeda supporter.

HSBC to Adopt Stricter Standards

After the congressional investigation resulted in several resignations among the bank's senior management, HSBC began to clean up its act.

In January, HSBC hired Stuart A. Levey, a former Treasury Department undersecretary who specialized in terrorism and financial intelligence, to be its chief legal officer charged with developing stricter standards to prevent illegal money transfers. The bank has also named a former Treasury Department money-laundering specialist to head an anti-money laundering group within the bank.

HSBC ADRs, which trade on the New York Stock Exchange, hit a 2012 high on Tuesday despite the news of the settlement. HSBC had already reserved $1.5 billion over the past two quarters for a possible settlement of money-laundering charges.

Today's settlement removes the uncertainty hanging over the shares. Analyst Jim Antos of Mizuho Securities told Reuters the settlement costs were "trivial" in terms of the company's book value.

"But in terms of real cash terms, that's a huge fine to pay," Antos said.

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  1. EOD7RET | December 12, 2012

    Apparently sending bankers to jail for U.S. and International crimes is unthinkable. It says everything that money will keep someone out of prison when regular people would be under the jail. But there is no double standard, nothing to see here, just move on!!

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