News of
bank's agreement comes hours after Standard Chartered admitted settlement with
US regulator over Iran
The Guardian, Jill Treanor and Dominic Rushe, Tuesday 11 December 2012
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| HSBC expected to admit it has settled allegations of running money for Mexican drug barons. Photograph: Andrew Burton/Getty Images |
HSBC is
expected to admit on Tuesday it has settled allegations of running money for
Mexican drug barons for a larger than expected $1.9bn (£1.2bn), barely 24 hours
after close rival Standard Chartered admitted paying $670m (£415m) in penalties
to US regulators to settle allegations it broke sanctions on Iran.
The $1.9bn
that HSBC will pay to the US authorities exceeds the $1.5bn it had warned it
could cost to settle the allegations raised in a damning US Senate report in
the summer which came amid a wave of scandals to hit the banking sector.
HSBC is
expected to confirm it has struck the agreement which has already led to the departure
of compliance head David Bagley and put pressure on former chairman Lord Green,
now a trade minister.
The bank is
expected to admit violating US laws meant to prohibit money laundering
including the Bank Secrecy Act and the Trading with the Enemy Act. The deal is
expected to include a settlement with the powerful Manhattan district
attorney's office and a deferred prosecution agreement with both the Justice
department and Treasury department.
Ahead of
the settlement, HSBC on Monday named a former US official as head of group
financial crime compliance, a newly created role, as the bank prepared for the
fine related to drug allegations. Bob Werner, who used to work for the US
treasury, will create a global financial intelligence unit to conduct internal
investigations at HSBC.
Peter
Henning, a professor of law at Wayne State University, said: "If the
numbers are right, this is going to get everybody's attention. The worst
situation would be if the charges were for money laundering but it looks like
this is a deferred prosecution relating to books and record controls, that
gives the bank some wiggle room in terms of its explanations. But the size of
the fine means the bottom line is this is very significant."
Henning
said the fine would have a significant "reputational impact" and HSBC
would have to be very careful in future. "You get one black mark. If
something like this comes up again in the US, the authorities are not going to
be very forgiving."
European
banks seemed to have under estimated the prosecutorial zeal of the US
authorities, he said. "We have had Standard Chartered and now this and we
still have more Libor cases to come." US authorities are investigating
banks involved in the alleged manipulation of London's Libor, the key measure
for setting loan rates around the world.
Britain's
banks are braced for fines following the £290m penalty slapped on Barclays –
now vastly exceeded by the amounts levied by US regulators for breaching
sanctions and laundering money.
The fines
on Standard Chartered follow accusations that lax systems left the US financial
system vulnerable to "drug kingpins" and terrorists.
Standard
Chartered is paying $327m to the US Federal Reserve, the US justice department
and the New York district attorney, it was announced yesterday, following a
settlement of $340m in August with the New York department of financial
services.
The
bruising episode for Standard Chartered, which until the summer was regarded to
have preserved its reputation through the banking crisis, also includes the
bank being forced set up "acceptable" compliance programmes. Cyrus
Vance, the Manhattan district attorney, said: "Banks occupy positions of
trust. It is a bedrock principle that they must deal honestly with their
regulators.
My office
will accept nothing less – too much is at stake for the people of this
country." The Fed, which is receiving $100m of the Standard Chartered
fines, said it was imposing "one of the largest penalties" it had
ever announced for "alleged unsafe and unsound practices" adopted by
the bank.
"Under
the cease and desist order Standard Chartered must improve its programme for
compliance with US economic sanctions, the Bank Secrecy Act and
anti-money-laundering requirements," the Fed said. The Financial Services
Authority, the UK watchdog, has agreed to assist in the supervision of the
order.
The
department of justice and the district attorney for New York County have
entered into "deferred prosecution agreements" for which the bank
which will pay $227m. The bank has also settled with the Office of Foreign
Assets Control (Ofac) but the settlement of $132m is offset against other
penalties.
Standard
Chartered said that Ofac had concluded the "vast majority" of
transactions were not in violation of sanctions. The bank said that $24m of
transactions for Iranian counterparties and $109m from other countries facing
sanctions – such as Burma, Sudan and Libya – had breached sanctions.
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