British bank HSBC will pay $1.26 billion to settle U.S. charges of laundering Mexican drug money and another $665 million for violating sanctions on Cuba, Iran, Libya, Sudan and Burma, U.S. authorities announced Tuesday.
The Cuba violations appear to stem mostly from the HSBC Mexico subsidiary's handling of U.S. dollar transactions to and from the island and agreement to hold dollar accounts for Cuban clients.
Documents in the case filed Tuesday in U.S. court in Brooklyn showed the bulk of the settlement, $1.2 billion, was to avoid four felony counts of willfully failing to maintain an effective anti-money-laundering program in its Mexico operations.
HSBC officials in Mexico facilitated the laundering of at least $881 million in drug profits and "failed to adequately monitor" more than $9.4 billion in transfers from 2006 to 2010, according to announcements by the U.S. Justice and Treasury departments.
"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 ... and to facilitate hundreds of millions more in transactions with sanctioned countries," said Assistant Attorney General Lanny Breuer.
The bank willfully allowed $660 million in forbidden transactions involving Cuba and the other countries to pass through U.S. financial institutions from the mid-1990s to 2006, the court documents noted. HSBC "followed instructions from sanctioned entities such as Iran, Cuba, Sudan, Libya and Burma, to omit their names from U.S. dollar payment messages sent to HSBC Bank USA and other financial institutions located in the United States," the documents added.
Those payments violated U.S. sanctions under the International Emergency Economic Powers Act, the Trading with the Enemy Act and the U.S. embargo. Cuba, Iran, Syria and Sudan also are on the sanctions list of countries that support international terrorism.
The $665 million that HSBC agreed to pay separately for breaking the sanctions brought to more than $1.9 billion the total assessed for such violations in a decade. The Netherlands' ING bank was hit with $619 million this year; Credit Suisse, with $539 million in 2009; and the Swiss UBS bank, with $100 million in 2004.
Court documents provided no further details on the sanctions violations, but an independent report on the HSBC case issued in July by the Senate Committee on Homeland Security and Government Affairs revealed additional details.
Iran accounted for the vast majority of questionable transactions from 2001 to 2007, totaling $19.4 billion out of $19.7 billion, according to the report. Cuba followed in second place, and the other sanctioned countries were far behind.
The Cuba section of the Senate report noted HSBC processed "potentially prohibited U.S. dollar transactions involving Cuba from at least 2002 through 2007."
"HSBC affiliates in Latin America, in particular, had many Cuban clients and sought to execute transactions on their behalf in U.S. dollars, despite the longstanding, comprehensive U.S. sanctions program," the report added.
It listed the HSBC branches in Mexico, Colombia, Costa Rica, El Salvador, Honduras and Panama.
Internal bank documents showed that in 2005 bank auditors warned that the U.S. list of forbidden Cuba entities had not been fully integrated into the Mexican branch's automated monitoring system, according to the Senate report.
Two years later, another bank document noted the Mexico branch "continues to process USD payments involving Cuba. It is very important that is stopped immediately as the regulators are getting very tough and the cost ... could be considerable ... in terms of the fine and the rectification work likely to be a prerequisite to any settlement."
Another 2007 document indicated the Mexico branch had 23 Cuban customers with dollar accounts containing more than $348,000 and 61 Cuban customers holding U.S. dollar and Mexican peso accounts totaling over $966,000.
In a statement Tuesday, HSBC acknowledged problems in its system for alerting to possible money laundering and said it expected to sign settlements with British regulators soon. "We accept responsibility for our past mistakes. We have said we are profoundly sorry for them, and we do so again," said CEO Stuart Gulliver. "The HSBC of today is a fundamentally different organization from the one that made those mistakes."
Rep. Ileana Ros-Lehtinen, a Miami Republican who was active in the UBS case, praised the Treasury Department for "a great achievement in our quest to hold financial institutions accountable for facilitating illicit activities," adding, "It is my hope that punishing HSBC's violations will have a deterrent effect on those entities that would seek to defy U.S. sanctions and other guidelines put in place to dismantle transnational criminal networks and curb violent extremist activity." Editor Note: The headline in an earlier version of this story incorrectly stated the settlement amount. HSBC agreed to a $1.26 billion settlement. -HispanicBusiness.com
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