HSBC became bank to drug cartels, pays big for lapses

Tue Dec 11, 2012 10:24pm EST
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By Carrick Mollenkamp

(Reuters) - In February 2008, Mexican authorities told the CEO of HSBC Holdings Plc's Mexico unit that a local drug lord referred to the bank as the "place to launder money," U.S. prosecutors said on Tuesday, as they announced a record $1.92 billion settlement with the British bank.

Lax money laundering controls at HSBC allowed two cartels - one each in Mexico and Colombia - to move $881 million in drug proceeds through the bank over the second half of the last decade, according to prosecutors and federal court documents.

So rampant was the practice, prosecutors said, that on some days drug traffickers deposited hundreds of thousands of dollars at HSBC Mexico accounts. To speed things along, the criminals even designed "specially shaped boxes" that fit the size of teller windows at HSBC branches, according to the documents.

Prosecutors said a multi-year, multi-agency probe into such transactions revealed how HSBC had degenerated into the "preferred financial institution" for drug traffickers and money launderers. And on Tuesday, that culminated in a far-reaching deferred prosecution agreement with HSBC.

An HSBC spokesman declined to discuss specific transactions or clients. But as part of the agreement, the bank acknowledged major lapses in compliance and ignoring red flags. It also acknowledged enabling clients to avoid U.S. sanctions that prohibit dealings with countries such as Iran, Libya, Sudan, Myanmar and Cuba.

The bank agreed to take steps to fix problems, forfeit $1.256 billion, and retain a compliance monitor. It also agreed to pay $665 million in civil penalties to resolve regulatory actions by the U.S. Office of the Comptroller of the Currency, the Federal Reserve, the Treasury Department and others.

"We accept responsibility for our past mistakes. We have said we are profoundly sorry for them, and we do so again. The HSBC of today is a fundamentally different organization from the one that made those mistakes," HSBC Chief Executive Stuart Gulliver said.

The settlement, the largest penalty ever paid by a bank, had been expected.   Continued...

People walk past a HSBC bank branch in midtown Manhattan in New York City, December 11, 2012. REUTERS/Mike Segar