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US defends $1.9B deal with British banking giant

Published on NewsOK Modified: December 11, 2012 at 6:33 pm •  Published: December 11, 2012

"I think it's a disservice to suggest that anyone's getting a pass here," Breuer said.

Asked repeatedly why no bank executives were being prosecuted, Breuer said, "I'm not here to defend HSBC." Yet, he added: "Our goal is not to bring HSBC down."

He said to do so would affect the economy and cost thousands of people their jobs. He said no criminal charges would be brought unless it could be proved that executives purposely tried to let criminal organizations launder money.

Other officials noted that some of what was going on may have violated U.S. laws but not the laws of Britain or other nations where HSBC employees were carrying out their work.

The bank's CEO, Stuart Gulliver, said that it accepted responsibility for its mistakes and was "profoundly sorry." He added: "The HSBC of today is a fundamentally different organization from the one that made those mistakes."

U.S. Attorney Loretta Lynch in Brooklyn said the bank's "blatant failure" to implement proper anti-money laundering controls permitted drug organizations in Mexico to launder at least $881 million in drug proceeds through the U.S. financial system. Court documents show that HSBC expanded its banking links with Mexico in 2002 when it acquired Mexico's fifth-largest bank with approximately 1,400 branches and 6 million customers. According to the documents, HSBC's head of compliance acknowledged at the time that what became HSBC Mexico had "no recognizable compliance or money laundering function ... at present."

Besides forfeiting $1.25 billion in its deal with the government, HSBC also agreed to pay $665 million in civil penalties, including $500 million to the Office of the Comptroller of the Currency and $165 million to the Federal Reserve. The U.S. said the United Kingdom's Financial Services Authority was pursuing a separate action.

It was not the first time that the bank has gotten in trouble with American authorities. In July, a Senate subcommittee on investigations criticized HSBC for lax controls that allowed money laundering.

Sen. Carl Levin, D-Mich., accused the bank of "playing fast and loose with U.S. banking rules."

In the middle of the hearing, HSBC's head of group compliance, David Bagley, acknowledged "some significant areas of failure" in the bank's compliance, then broke from his prepared testimony to resign.

At the same Senate hearing, the head of the Office of the Comptroller of the Currency, Thomas Curry, found fault with his own agency. It "could have and should have" addressed problems at the bank sooner, he said.

Money laundering by banks has become a target for U.S. law enforcement. Since 2009, Credit Suisse, Barclays, Lloyds and ING have all paid big settlements related to allegations that they moved money for people or companies under U.S. sanction.

The money-laundering affair is the latest scandal to strike the banks since the 2008 financial crisis.

Standard Chartered PLC, another British bank, signed an agreement with New York regulators on Monday to settle a money-laundering investigation involving Iran with a $340 million payment.

HSBC should easily be able to absorb the $1.9 billion penalty issued this week. It turned a profit of $17 billion last year alone.

John Martin, the director of U.S. Immigration and Customs Enforcement, said the settlement resulted from a five-year investigation that included the study of 9 million documents.

"Money is what makes the world of organized crime go around," he said. "HSBC got into a bad place."

Gulliver assumed the CEO job Jan. 1, 2011, but has been at the company since 1980. In late 2010, when Gulliver was preparing to take the CEO job, the bank shook up top management.

"After the financial crisis, I believe customers are thinking more carefully about who they trust with their wealth and savings," Gulliver said in a statement at the time.


Associated Press writers Pan Pylas in London and Pete Yost in Washington contributed to this report.