December 11, 2012

HSBC said it had increased spending on anti-money laundering systems by around nine times between 2009 and 2011, exited business relationships and clawed back bonuses for senior executives. It cited the hiring last January of Stuart Levey, a former top U.S. Treasury Department official, as chief legal officer, as evidence of its determination to change.

Under a five-year agreement with the Justice Department, HSBC agreed to have an independent monitor evaluate its progress in improving its compliance.

It also said that as part of the overhaul of its controls it has launched a global review of its "Know Your Customer" files, which will cost an estimated $700 million over five years. The files are designed to ensure that banks do not unwittingly act as conduits for criminal funds.

HSBC's settlement comes a day after rival British bank Standard Chartered Plc agreed to a $327 million settlement with U.S. law enforcement agencies for sanctions violations, a pact that follows a $340 million settlement the bank reached with the New York bank regulator in August.

Such settlements have become commonplace. In what had been the largest settlement until this week, ING Bank NV in June agreed to pay $619 million to settle U.S. government allegations it violated sanctions against countries including Cuba and Iran.

Other banks that have reached settlements over sanctions violations are Switzerland's Credit Suisse Group, Britain's Lloyds Banking Group and Barclays and ABN Amro Holding NV, a Dutch bank acquired by Royal Bank of Scotland Group Plc and a bank consortium in 2007.

In the United States, J.P. Morgan Chase, Wachovia Corp. and Citigroup Inc. have been cited for anti-money laundering lapses or sanctions violations.

HSBC's failings date to 2003, when the Federal Reserve Bank of New York and New York state regulators ordered it to better monitor suspicious money flows. In 2010, a consent order from the Comptroller of the Currency (OCC) ordered HSBC to review suspicious transactions. At the time, the OCC called HSBC's compliance program "ineffective".

In 2008, the U.S. Attorney in Wheeling, West Virginia, began investigating allegations that a local doctor used the bank to launder money from Medicare fraud.

Ultimately, that prosecutor's office came to believe the case was "the tip of the iceberg" in terms of suspicious transactions conducted through HSBC, according to documents reviewed by Reuters and reported earlier this year.

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