April 1, 2015 / 9:04 PM / in 3 years

U.S. says HSBC must do more to improve compliance

NEW YORK (Reuters) - HSBC Holdings Plc is making progress toward cleaning up its operations, after reaching a $1.92 billion settlement of charges related to money laundering, but has not done enough, the U.S. Department of Justice said on Wednesday.

People are seen inside a HSBC Swiss branch of the bank in Geneva February 18, 2015. REUTERS/Pierre Albouy

The government made its criticisms after reviewing findings of an independent monitor, Michael Cherkasky, who was appointed in connection with HSBC’s so-called deferred prosecution agreement with U.S. authorities.

That accord let HSBC avoid criminal charges for having, as federal prosecutors put it, devolved into a “preferred financial institution” for money launderers and Mexican and Colombian drug cartels, and handled transactions for customers in Burma, Cuba, Iran, Libya and Sudan, which were all subject to U.S. sanctions.

According to a letter from U.S. Attorney Loretta Lynch in Brooklyn, New York, the government agreed with Cherkasky that HSBC has acted in “good faith” and “made material progress toward meeting the most stringent compliance standards imposed to date upon a global financial institution.”

But Lynch, who is President Barack Obama’s nominee to become U.S. Attorney General, also said Cherkasky had found progress in some areas “too slow,” especially in improving HSBC’s corporate culture and compliance technology.

Lynch pointed to instances where senior bankers interfered with compliance reviews, reflecting a “combativeness” and “basic lack of cooperativeness,” while compliance technology systems suffered from “fragmentation and a lack of connectivity.”

Stuart Levey, HSBC’s chief legal officer, in a statement said the British bank is continuing to meet all its obligations under the deferred prosecution agreement, and that its leaders “are making steady progress toward that objective and appreciate the monitor’s ongoing work.”

Cherkasky is a former Manhattan prosecutor who has led several companies, and chaired the New York State Commission on Public Integrity.

Lynch submitted her letter to U.S. District Judge John Gleeson in Brooklyn, who approved HSBC’s settlement in 2013.

HSBC’s deferred prosecution agreement lasts for five years, and prosecutors may indict the bank if it violates the terms.

That prospect surfaced in February, as prosecutors in Switzerland opened a criminal probe into allegations that HSBC’s Swiss unit may have helped thousands of customers evade taxes and launder money.

In her letter, Lynch said the government “stands ready to pursue all available remedies” if HSBC does not adhere to the deferred prosecution agreement.

The case is U.S. v. HSBC Bank USA NA et al, U.S. District Court, Eastern District of New York, No. 12-cr-00763.

Reporting by Karen Freifeld and Jonathan Stempel in New York; Editing by Chris Reese

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