Judge Lets Sun Shine on Secret HSBC Money Laundering Report

  • Foot-dragging, bullying of internal watchdogs marred cleanup
  • U.S. urged that report, `road map' for criminals, stay sealed

A report detailing HSBC Holdings Plc’s uneven efforts to fix faulty money-laundering controls will be made public, according to an order by a federal judge who criticized the government’s attempt to keep the document under seal.

U.S. District Judge John Gleeson in Brooklyn, New York, ruled late Thursday that the report, produced by a monitor installed to oversee the bank’s cleanup efforts, qualified as a “judicial record” that should be filed publicly.

“You put me in this position,” Gleeson told prosecutors and lawyers for the bank during a hearing on Jan. 15. “I can’t for the life of me figure out why the sun shouldn’t shine.”

HSBC had agreed to submit to the monitor’s oversight in late 2012, as part of a $1.9 billion pact with the U.S. Justice Department. The government required HSBC to improve its in-house controls after investigators found that it allowed billions of dollars to be transferred in violation of U.S. sanctions laws and anti-money-laundering statutes.

Foot-Dragging, Bullying

The monitor, Michael Cherkasky, submitted his 1,000-page review to the Justice Department a year ago, and a copy was filed with the court under seal. Bloomberg News spoke to people familiar with the report who said the reform efforts had met with resistance from leaders of HSBC’s U.S. investment banking unit, including foot-dragging, bullying and discrediting of in-house watchdogs.

The government had sought to keep the report under seal, arguing that it presented a “road map” for criminals who might want to exploit banking vulnerabilities, or that making it public could interfere with the monitor’s work.

HSBC, which also asked that the report be kept secret, is considering possible next steps in wake of the ruling, Rob Sherman, a spokesman for the bank, said in an e-mailed statement.

“I find that the government’s interest in prohibiting public access to the report for the sake of its future law enforcement efforts is minimal,” Gleeson said in his ruling. He said “targeted redactions” could address the government’s and bank’s concerns and asked them to submit proposed redacted versions of the report by Feb. 12 for his consideration.

Peter Carr, a Justice Department spokesman, declined to comment on Thursday’s order.

Gotti Prosecutor

Gleeson, a former federal prosecutor best known for winning the conviction of late mafia boss John Gotti, scrutinized the government’s arrangement with HSBC after concerns were raised in the press that prosecutors may have been too lenient. In 2013, the judge took the unusual step of exercising “supervisory” control over the government’s deferred-prosecution agreement, or DPA, with HSBC, which allowed the London-based bank to avoid criminal charges for its money-laundering control failures.

“A pending criminal case is not window dressing” Gleeson wrote in a July 2013 order. “By placing a criminal matter on the docket of a federal court, the parties have subjected their DPA to the legitimate exercise of the court’s authority.”

$1.25 Billion

Under the December 2012 settlement, the bank, Europe’s largest, agreed to pay a $1.25 billion forfeiture and $665 million in civil penalties. At a hearing the same month, Gleeson told prosecutors there had been “publicized criticism” of the agreement, which lets the bank avoid further criminal proceedings over the charges.

Lack of proper controls allowed the Sinaloa drug cartel in Mexico and the Norte del Valle cartel in Colombia to move more than $881 million through HSBC’s U.S. unit from 2006 to 2010, the government alleged in the case. The bank also reduced resources for its anti-money-laundering programs to “cut costs and increase profits,” the government said in court filings.

In November, a borrower in a dispute with HSBC over a mortgage loan modification, Hubert Dean Moore Jr., asked that Gleeson make the report public, saying in a letter to the judge that the information could be useful in his case. Moore said he found it "difficult to understand" how the report could remain under seal if it had already been reported by the press.

Gleeson said earlier this month he is planning to step down from his post in March to practice law.

The case is U.S. v. HSBC Bank USA NA, 12-cr-00763, U.S. District Court, Eastern District of New York (Brooklyn).

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