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New York (AFP) Dec 11, 2012
HSBC intentionally broke US sanctions on Iran and other countries and laundered Mexican drug money to build its business, the US said Tuesday as it socked the global banking giant with $1.92 billion in fines.
US authorities blasted the British bank's internal controls as "knowingly and willfully" lax as it enabled forbidden financial transactions with Iran, Libya, Sudan, Cuba and Myanmar from the 1990s through 2006.
Its Mexico branch also freely allowed hundreds of millions of dollars to be laundered through HSBC by drug groups, the Justice Department said.
The US said the bank violated US sanctions laws, the Cold War-era Trading with the Enemy Act aimed at Cuba, and numerous banking regulations as it exposed the US financial system to terrorists and drug cartels.
HSBC avoided prosecution in agreeing to pay $1.92 billion to settle the allegations and to undertake sweeping reforms of its management and compliance systems in a deal with US regulators and justice authorities.
That included $1.26 billion in a deferred prosecution agreement, $500 million to the US Office of the Comptroller of the Currency, and a record $165 million to the Federal Reserve.
"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 US Assistant Attorney General Lanny Breuer.
"These settlements implicate willful and dangerous practices by one of the world's biggest banks," said Under Secretary for Terrorism and Financial Intelligence David Cohen.
"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," Cohen said in a statement.
Fourth among the world's largest banks in The Banker magazine's 2012 rankings, with the lion's share of its business in Asia, HSBC admitted to having had "inadequate" controls in place.
"We accept responsibility for our past mistakes. We have said we are profoundly sorry for them, and we do so again," said chief executive Stuart Gulliver.
"The HSBC of today is a fundamentally different organization from the one that made those mistakes.
"We are committed to protecting the integrity of the global financial system. To this end we will continue to work closely with governments and regulators around the world."
HSBC said in November that it had set aside $1.5 billion to cover fines that would stem from the US investigation.
In London HSBC's share price slid in early trade but ended the session up 0.56 percent at 644.80 pence ($10.37). Earlier the Hong Kong-listed shares rose 0.31 percent to end at HK$79.70 ($10.28).
The bank was ordered in the settlements with US authorities Tuesday to undertake extensive reforms to internal controls.
In London, the Financial Services Authority ordered HSBC to set up a board-level committee and employ an independent monitor to oversee compliance with British banking regulations on anti-money laundering, sanctions, terrorist financing and proliferation financing.
"HSBC is anxious to draw a line under the affair. Emphasizing a transformation at the bank over the last two years, the bank has agreed to pay a record fine," said analyst Keith Bowman at Hargreaves Lansdown Stockbrokers.
"Positively for shareholders, the fine has already been largely accounted for, with the figure seen as more than bearable given the bank's size and strength."
The US fine was only the most recent action taken against major international banks for violating US sanctions on Iran and other countries and US banking rules aimed at preventing money-laundering.
British-based emerging markets bank Standard Chartered has been fined $667 million over sanctions violations involving Iran, Myanmar, Libya and Sudan.
In June Dutch bank ING agreed to pay $619 million to settle accusations of sanctions violations.
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