HSBC Holdings Plc will pay at least $1.9 billion in a deferred prosecution agreement that settles U.S. probes of money laundering tied to Europe’s largest bank, a person familiar with the matter said, making it the largest such accord ever.
HSBC, whose top executives were accused of lax oversight by a U.S. Senate subcommittee in July, will forfeit $1.25 billion, the biggest forfeiture ever by a bank, said another person familiar with the matter. It will also pay an additional $665 million in civil penalties, the person said.
In a deferred prosecution agreement, prosecutors allow a target to avoid prosecution by meeting certain conditions – including the payment of fines or penalties – and by committing to specific reforms, either under the guidance of a monitor or the creation of a new internal compliance panel. The HSBC agreement is set to be announced today, said the people. Both asked not to be identified because the matter isn’t public.
Earlier Monday, Standard Chartered Plc, Britain’s second-largest bank by market value, agreed to pay $327 million in fines after regulators alleged it violated U.S. sanctions with Iran. Standard Chartered and HSBC have been the target either together or individually of investigations by several U.S. regulators. These include the Department of Justice, the Treasury Department’s Office of Foreign Assets Control, the Federal Reserve, the Office of the Comptroller of the Currency, New York State regulators and the Manhattan District Attorney’s Office.
HSBC Chief Executive Officer Stuart Gulliver’s attempts to reduce costs and improve profitability at the bank have been hurt by the U.S. probes and compensation claims from U.K. clients. The Senate committee said that failures in HSBC’s money-laundering controls allowed terrorists and drug cartels access to the U.S. financial system.
Robert Sherman, a spokesman for London-based HSBC, declined to comment on the settlement. The bank had earlier said that it was cooperating with the various investigations.
HSBC made an additional $800 million provision in the third quarter to cover a potential settlement, adding to $700 million it had already earmarked. The bank said Nov. 5 it will probably face charges as part of U.S. anti-money-laundering probes, and the cost of a settlement may “significantly” exceed the $1.5 billion the bank has set aside.
Gulliver, who became CEO in January 2011, is seeking to cut costs by $2.5 billion to $3.5 billion and revive profits by selling assets to focus on those emerging economies in which the bank has a greater market share. Those cuts included selling its upstate New York branch network.
HSBC has been in talks with U.S. regulators over allegations it laundered funds of sanctioned nations, including Iran and Sudan. The probes prompted Standard & Poor’s to question whether the lender, Europe’s largest by market value, is too big to be managed effectively.