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HSBC Agrees With U.S. to Boost Anti-Money Laundering

Oct. 7 (Bloomberg) -- A U.S. unit of HSBC Holdings Plc agreed today to strengthen a compliance program that federal bank regulators said was ineffective and created “significant potential” for money laundering and terrorist financing.

HSBC Bank USA received a cease-and-desist order from the Office of the Comptroller of the Currency. The OCC said the bank has “critical deficiencies” in reporting suspicious activities, monitoring bulk cash purchases and international funds transfers, and examining the background of customers.

“The bank’s compliance program and its implementation are ineffective, and accompanied by aggravating factors, such as highly suspicious activity creating a significant potential for unreported money laundering or terrorist financing,” according to the OCC’s findings.

The Federal Reserve also imposed a cease-and-desist order on HSBC North America Holdings Inc., which oversees units including HSBC Bank USA. Both companies agreed to the orders and pledged to make reforms to comply with the Bank Secrecy Act, a U.S. law that combats money laundering.

HSBC Bank USA agreed to adopt a new compliance program, hire more workers to carry it out, train employees, and improve the reporting of suspicious activities to U.S. authorities. HSBC Bank USA disclosed in an Aug. 2 regulatory filing that U.S. prosecutors had issued grand jury subpoenas as they probed its Global Banknotes business and foreign correspondent banking business.

‘Prompt Resolution’

“We’re working with regulators to ensure a prompt resolution of these matters and sustained compliance with the spirit and letter of U.S. laws and regulations,” Robert Sherman, a spokesman for London-based HSBC, said in a phone interview. HSBC is Europe’s largest bank by market value.

HSBC Bank USA is exiting the Global Banknotes business for non-domestic customers, according to the bank and OCC. The OCC didn’t give specific instances of wrongdoing in its 21-page report on the McLean, Virginia-based unit.

From mid-2006 through mid-2009, the bank didn’t monitor bulk cash transfers, and failed to conduct enough due diligence on who moved money through bulk cash or wire transfers, the OCC found. During its 2009-10 examination, the OCC cited HSBC for a backlog of alerts of possible suspicious activities. As a result, the bank filed a “substantial number” of late Suspicious Activities Reports with law enforcement authorities.

The bank also failed to appropriately designate customers as “high risk,” the OCC found, “even where a customer’s association with politically-exposed persons (PEPs) could harm the bank’s reputation.”

‘Serious Issue’

“When regulators make an enforcement action public, it indicates a serious issue,” Kevin Mukri, spokesman for the Washington-based OCC, said in an interview.

On March 17, Wells Fargo & Co.’s Wachovia Bank agreed to pay $160 million to resolve a criminal investigation into drug cartels’ use of the bank to launder money through Mexican exchange houses.

The government agreed to defer prosecution on a criminal charge that Wachovia, once the fourth-largest U.S. bank, didn’t set up an effective anti-money laundering program from 2003 to 2008. Wachovia admitted failing to monitor $420 billion in transactions through exchange houses.

Wachovia admitted to “serious and systemic” violations of the Bank Secrecy Act that let drug cartels launder at least $110 million through exchange houses. Drug dealers used Wachovia accounts to buy airplanes, and U.S. authorities seized “at least four” of those aircraft with more than 20,000 kilograms (22 tons) of cocaine, Wachovia said in U.S. District Court in Miami.

To contact the reporters on this story: David Voreacos in Newark, New Jersey at; Jon Menon in London at

To contact the editors responsible for this story: David E. Rovella at; Edward Evans at

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