WASHINGTON – HSBC Bank USA agreed Tuesday to pay a record-shattering $1.92 billion settlement to avoid federal and state money laundering charges stemming from its dealings with drug cartels and rogue states.
Federal prosecutors said the bank’s anti-money laundering unit failed to stop cartels in Mexico and Colombia from laundering at least $881 million in drug profits through the bank. That unit continues to have some operations in Buffalo, but an HSBC spokesman defended the current and former local employees, saying the bank takes responsibility for the problems.
The Manhattan District Attorney’s Office said other HSBC employees, who were not based in Buffalo, intentionally allowed the bank to process approximately $660 million in transactions from Iran, Burma, Sudan, Cuba and Libya in violation of U.S. sanctions against those countries. In other words, prosecutors made it clear that HSBC had come a long way – the wrong way – from the days of its predecessor here, Marine Midland Bank, a consumer-friendly outfit known three decades ago for offering free checking accounts for upstate college students.
“HSBC is being held accountable for stunning failures of oversight – and worse – that led the bank to permit narcotics traffickers and others to launder hundreds of millions of dollars through HSBC subsidiaries, and to facilitate hundreds of millions more in transactions with sanctioned countries,” said Assistant Attorney General Lanny Breuer.
The $1.92 billion settlement dwarfed the previous record money laundering settlement, a $619 million penalty that Netherlands’ ING Groep NV agreed to in June. Law enforcement officials said HSBC was getting just what it deserved – and that they reserved the right to prosecute if the bank does not live up to the terms of the “deferred prosecution agreement” it accepted. The record of dysfunction that prevailed at HSBC for many years was astonishing,” Breuer said.
David S. Cohen, undersecretary for terrorism and financial intelligence at the U.S. Department of the Treasury, agreed, saying: “These settlements implicate willful and dangerous practices by one of the world’s biggest banks. HSBC absolutely knew the risks of the business it pursued, yet it ignored specific, obvious warnings. Its failures allowed hundreds of millions of dollars in drug money to pass through its unattended gates.”
The bank employed 77 in a Buffalo anti-money laundering monitoring unit until this fall, when those jobs were moved to be closer to HSBC’s U.S. headquarters in New York. About 70 percent of those employees were able to get other jobs at HSBC, including some in the bank’s remaining anti-money laundering compliance unit in Buffalo, said Robert A. Sherman, a bank spokesman. “The agreements announced today are not about any one individual or any one team. HSBC is accountable for what went wrong and for remedying it,” Sherman said.
In a detailed statement of facts about HSBC’s money laundering procedures, federal prosecutors did not mention a Buffalo-based problem cited in a report by U.S. Senate investigators in June. That report said that mysterious Russian businessmen may have relied on an HSBC Bank check-processing operation in Buffalo to launder up to $290 million in suspicious funds.
Prosecutors provided plenty of details, though, about how drug cartels used HSBC to clean up dirty money. Even though federal law requires banks to do due diligence on foreign financial institutions with which they have correspondent accounts, HSBC did not do that – not even with its own Mexican affiliate. Worse yet, HSBC not only violated the law; it codified its violation.
“The decision not to conduct due diligence was guided by a formal policy memorialized in HSBC Bank USA’s AML [anti-money laundering] Procedures Manuals,” federal prosecutors noted in their statement of facts.
The beneficiaries of that HSBC policy were the Sinaloa Cartel in Mexico and the Norte del Valle Cartel in Colombia, prosecutors added. “This financial institution is being held accountable for turning a blind eye to money laundering that was occurring right before their very eyes,” said John Morton, director of Immigration and Customs Enforcement.
Other HSBC employees were deliberately turning a blind eye in order to permit transactions from countries from which such deals are supposed to be prohibited under U.S. government sanctions. Some $250 million of those transactions involved Burma, until recently a rogue state run by a military junta, while about $183 million involved Iran, which remains under sanction because of its apparent pursuit of nuclear weapons.
Starting in the 1990s, HSBC transactions from sanctioned countries that were processed in Europe bore messages such as “do not mention our name in NY,” or “do not mention Iran.” Prosecutors said transactions bearing such messages went into a “repair queue” where HSBC Europe employees sanitized them, removing all references to the sanctioned countries before they were sent on to HSBC Bank USA.
The deferred prosecution agreement – essentially a plea deal – is all part of a continuing comedown for HSBC, which bought Marine Midland in the 1980s and recently sold its upstate branches to other banks.
The bank has changed leadership and instituted a series of improvements to its anti-money laundering effort in recent years, and agreed to a tough series of preventive measures in its deal with prosecutors, said Stuart Gulliver, group chief executive at HSBC. “We accept responsibility for our past mistakes,” Gulliver said. “We have said we are profoundly sorry for them, and we do so again.”