HSBC in talks to settle US money-laundering probe

The bank is negotiating a deal over claims of money laundering but the StanChart row may be getting in the way, sources say

PUBLISHED : Saturday, 25 August, 2012, 12:00am
UPDATED : Saturday, 25 August, 2012, 4:23am

HSBC Holdings, which is under investigation by US regulators for allegedly laundering funds of sanctioned nations including Iran and Sudan, is in talks to settle the matter, sources say.

The bank, Europe's largest by market value, made a US$700 million provision last month for any United States fines after a US Senate committee found it had given terrorists and drug cartels access to the American financial system. That sum might increase, chief executive Stuart Gulliver has said.

An HSBC settlement that regulators and the Manhattan district attorney hoped to conclude as early as next month may have been slowed when New York's banking superintendent accused Standard Chartered of laundering US$250 billion for Iran.

Regulators had been talking with both banks about universal accords when Benjamin Lawsky, head of the financial services department in New York, threatened on August 6 to revoke Standard Chartered's licence.

Deals with the London-based banks next month were still possible, according to the sources.

"This is an epidemic of banks wilfully, consistently violating economic sanctions," Jimmy Gurule, a former undersecretary for enforcement at the US Treasury, said of sanctioned-nation money laundering.

"It calls for more serious sanctions than a monetary fine for an individual bank that does nothing more than harm shareholders."

The US$700 million set aside by HSBC would constitute the largest US settlement reached over such allegations, topping the US$619 million in penalties and forfeitures paid in June by ING, the biggest Dutch financial services company.

Standard Chartered agreed on August 14 to pay US$340 million to settle the New York State matter, an accord that broke a previous pattern of resolving all such US investigations at once in a unified agreement.

Standard & Poor's cut HSBC's credit-rating outlook yesterday as it questioned whether the lender was too big to be managed effectively after of money-laundering investigations. S&P reduced its outlook on the HSBC long-term rating to negative from stable.

HSBC, Standard Chartered and other European banks have been under investigation by US regulators that include the Treasury Department's office of foreign assets control, the Federal Reserve and Manhattan district attorney Cyrus Vance.

The multi-year investigation into money laundering has resulted in settlements with Lloyd's Banking Group, ABN Amro Bank, Barclays, Credit Suisse and ING.

The banks agreed to pay or forfeit money under so-called deferred prosecution agreements that mandate improved compliance systems. If the agreement is followed, the banks will avoid criminal prosecution.

Other European banks, including Deutsche Bank and Royal Bank of Scotland, are co-operating in similar investigations, other sources say.

Two French banks, Credit Agricole and BNP Paribas, are also working with US authorities in similar probes, according to their regulatory filings.

"Here we are at bank No7, with Standard Chartered, and no individual banker has been held criminally responsible, and that's a shame," Gurule, a professor at the University of Notre Dame, said.

"Checks and balances on banks weren't working. Bad conduct was going on for years undetected."