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Record Fines against HSBC for Repeated Bank Secrecy Act and OFAC Violations

Posted in Financial Services Litigation and Enforcement, Regulatory and Compliance

Following on the heels of the $15 million settlement against First Bank of Delaware for significant Bank Secrecy Act/Anti-Money Laundering violations (as we reported on here), the Treasury Department and three federal regulators—the Financial Crimes Enforcement Network (FinCEN), Office of the Comptroller of the Currency (OCC), and Office of Foreign Assets Control (OFAC)—have announced a collective settlement agreement with HSBC arising from the bank’s failure to maintain anti-money laundering policies and practices dating back to 2005. The settlement calls for HSBC to pay $875 million in penalties, the largest such sum in the history of the Treasury Department’s oversight of financial services but far less than the $1.9 billion in penalties HSBC faced initially. According to a Department of Justice (DOJ) investigation, HSBC’s lapses allowed non-U.S. financial institutions and other customers to gain indirect access to the U.S. financial system without appropriate safeguards, including financial institution customers involved in the movement of illicit drug proceeds.

According to the federal agencies, HSBC’s transgressions fell into three main areas:

  • Product risk. HSBC failed to implement controls to safeguard a variety of services, including but not limited to correspondent accounts, embassy banking, wire transfers, automated clearinghouse (“ACH”) transfers, banknotes, lockboxes, clearing of bulk traveler’s checks, bearer share accounts, pre-paid cards, foreign exchange, cash letters, international pouch activity, and remote deposit capture.
  • Customer risk. HSBC’s non-U.S. affiliates systematically understated customer risk assessments, which policy had the effect of excepting $60 trillion in transactions annually from strict scrutiny. DOJ found that many of these customers were drug traffickers who engaged in obvious bulk deposit activity, and that the funds ultimately were laundered through U.S. accounts.
  • Unresponsiveness. HSBC failed to respond adequately to 83 anti-money laundering Matters Requiring Attention (MRAs) issued by OCC) to the Bank’s Board of Directors between 2005 and 2009.

The Treasury Department’s strongly worded press release and the consent agreement are available at the following links:

http://www.treasury.gov/press-center/press-releases/Pages/tg1799.aspx

http://www.fincen.gov/whatsnew/pdf/20121211.pdf