Photographer: Simon Dawson/Bloomberg

HSBC Escapes Prosecution as U.S. Ends 5-Year Deferred Deal

Updated on
  • DOJ to seek dismissal of charges after compliance improvements
  • Firm fined $1.9 billion in 2012 for helping launder drug cash

HSBC Holdings Plc said its five-year-old deferred prosecution agreement with the Department of Justice has expired, signaling the U.S. is satisfied with the bank’s improvements to its compliance systems after it was ensnared in a money-laundering scandal in Mexico.

The Justice Department will file a motion with a court in the Eastern District of New York seeking the dismissal of charges after HSBC "lived up to all of its commitments" to improve its anti-money laundering and sanctions compliance capabilities, the London-based bank said in a statement Monday. Once dismissed, the bank can no longer be criminally prosecuted for the matter.

“HSBC is able to combat financial crime much more effectively today as the result of the significant reforms we have implemented over the last five years,” Chief Executive Officer Stuart Gulliver said in the statement. The bank is working on “further improvement” to its capabilities, he added.

HSBC paid a then-record $1.9 billion settlement in 2012 for helping Mexican drug cartels launder money and breaching international sanctions by doing business with Iran. The lender pledged to cooperate with Justice Department probes for five years and by doing so was spared the stigma of a criminal record in the U.S. -- and the threat that it might lose access to some of its most lucrative institutional banking activities in the world’s largest economy. The bank was also put under the supervision of an external monitor, Michael Cherkasky, who started in 2013.

Potential Challenges

No new documents had been filed in the deferred-prosecution matter as of midmorning in New York. The Justice Department in Washington, D.C., didn’t immediately respond to a request for comment. John Marzulli, a spokesman for acting Brooklyn U.S. Attorney Bridget Rohde, declined to comment.

The Justice Department has been considering a criminal charge against HSBC related to conduct on its foreign-exchange desk after two staff were accused of improper trading, Bloomberg News reported last year, raising questions about whether that investigation could imperil the deferred prosecution agreement. The bank said in a July 31 regulatory filing that it was in settlement talks over the currency matter with the Justice Department.

Still, the lender was fined $175 million by the Federal Reserve after the probe found that traders had been front-running client orders, sharing confidential customer details with dealers at other firms and attempting to rig currency benchmarks. Its former chief trader Mark Johnson was found guilty of fraud in Brooklyn, New York in October.

Gupta Family

HSBC has also been shuttering accounts associated with South Africa’s powerful Gupta family as it assesses its exposure to the scandal gripping the country. U.K. regulators have said they are looking into whether HSBC and Standard Chartered Plc facilitated money-laundering as a result of possible ties to the Guptas after a British politician warned illicit funds may have passed through the United Arab Emirates and Hong Kong, where the banks have had large footprints.

The recent scandals are a reminder of the potential challenges for new Chairman Mark Tucker, who started in October, and John Flint, who is preparing to take over from CEO Gulliver when he retires in February.

HSBC has spent billions of dollars on new technology and built up its compliance workforce to more than 6,000 people worldwide to comply with the demands of the monitor. The end of the DPA illustrates the progress made by the bank. In a report covering an earlier period of monitorship, Cherkasky said there had been resistance from senior managers at the U.S. investment bank, whom he accused of bullying, foot-dragging and the discrediting of his in-house watchdogs.

Standard Chartered Plc, which also signed a DPA with U.S. regulators in 2012, has had its own deal extended twice and now runs until the end of July. The rival emerging-markets focused lender has paid almost $1 billion in settlements for engaging in deals with Iran and for failing to improve anti-money laundering systems.

(An earlier version of the story corrected the year in fourth paragraph and reference to the monitor in the fifth paragraph.)

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE