HSBC Deferred Prosecution Agreement: Not HSBC's First Run-In With the Law

flickr / Scott*

HSBC Bank USA N.A. and HSBC Bank Holdings plc, its parent company, agreed to forfeiture and penalties of a little more than $1.9 billion dollars for systemic and willful violations of U.S. anti-money laundering and foreign sanctions laws. $1.9 billion may sounds like a lot, but does the penalty fit the crime?

This is part 2 of a series of excerpts from the Statement of Facts, which constitutes Attachment A to the Deferred Prosecution Agreement entered into between U.S. regulators and the HSBC banks, and let you decide for yourself. These are excerpts detailing events that HSBC has explicitly admitted to.

Excerpts 2 and 3: This isn’t HSBC’s first run-in with the law

Before the gross violations of U.S. anti-money laundering and foreign asset control regulations that lead to the $1.9 billion fine, HSBC Bank USA was already fingered for substantial problems with its anti-money laundering regime:

Paragraph 8

From 2003 to 2006, HSBC Bank USA operated under a written agreement issued by its regulators. A written agreement is a formal supervisory action that requires a financial institution to correct operational deficiencies. The written agreement in this instance required HSBC Bank USA to enhance its AML compliance with the BSA, and specifically required HSBC Bank USA to enhance its customer due diligence or “know your customer” (“KYC”) profiles and the monitoring of funds transfers for suspicious or unusual activity.

Paragraph 25

In the face of known AML deficiencies and high risk lines of business, HSBC Bank USA further reduced the resources available to its AML program in order to cut costs and increase its profits. By 2007, only a year after the written agreement had been lifted, HSBC Bank USA had fewer AML employees than required by its own internal plans. Moreover, beginning in 2007, senior business executives instructed the AML department to “freeze” staffing levels as part of a bank-wide initiative to cut costs and increase the bank’s return on equity. This goal was accomplished by not replacing departing employees, combining the functions of multiple positions into one, and not creating new positions.

You can read the whole Statement of Facts here. Part 1 of the series here.