HSBC Has a Long Way to Go to Meet Terms of 2012 Agreement With the Feds

Jan. 29, 2015

HSBC Has a Long Way to Go to Meet Terms of 2012 Agreement With the Feds

Public Citizen Analysis Raises Questions of Whether Bank Has Made Adequate Reforms Since Signing Deferred Prosecution Agreement Over Money Laundering Charges

WASHINGTON, D.C. – HSBC Holdings Plc has a long way to go to live up to the standard of conduct called for in a deferred prosecution agreement the bank signed with the federal government in 2012, Public Citizen said today.

HSBC, one of the world’s largest banks, agreed in 2012 to pay $1.9 billion in fines and restitution for claims of violating federal anti-money-laundering laws, among other charges, in order to avoid criminal prosecution. The agreement said that the criminal investigation into HSBC could be reopened if the bank fails to fully comply with the agreement, which called for system-wide reforms. The agreement was signed by Loretta Lynch, U.S. attorney in Brooklyn, who is now seeking Senate confirmation to become the next U.S. attorney general.

But a Public Citizen analysis released today, “Continued Concerns at HSBC,” calls into question whether the promise of reform is being realized. An annual review filed by a compliance monitor appointed to oversee the deferred prosecution agreement was submitted to the Justice Department earlier this month. A synopsis of the report is scheduled to be released in April. The Wall Street Journal reported in advance of its submission that the report would “criticize the bank and lay out ways it needs to improve.”

Public Citizen’s report highlights a number of recent investigations involving HSBC that show cause for concern:

  • The Justice Department announced in December 2014 that the government is investigating U.S. taxpayers who may have used the services of Sovereign Management & Legal, Ltd. to avoid paying taxes. HSBC operated “correspondent bank accounts” with Sovereign’s banks in Panama and Hong Kong, the Justice Department said. On its website, Sovereign describes its services as enabling customers to store funds offshore anonymously.Brian Mahany, a specialist in offshore tax issues, told Public Citizen that Sovereign’s description of its practices raises “not just one red flag but dozens of red flags,” and that HSBC anti-money laundering officials should have advised the company to stay away from Sovereign.
  • In a separate matter, in November 2014, Belgian prosecutors charged HSBC’s private banking unit in Switzerland with “serious and organized tax fraud, money laundering and unlawful exercise of the profession of financial intermediary” from 2003 to the present.A statement by the prosecutors accused HSBC of “making offshore companies available to certain privileged clients … particularly in Panama and the Virgin Islands” and said that these companies’ “sole purpose is to hide the assets of clients.”
  • In another matter, on Tuesday, the British Financial Conduct Authority listed HSBC among 11 banks and credit card issuers that would pay compensation to customers to whom they sold credit card insurance that the conduct authority deemed unnecessary because customers generally are not liable for fraudulent credit card purchases.“This sounds like fraud. If this was any other walk of life they’d all be heading straight to prison,” British Member of Parliament John Mann told the Daily Mail.

“The supposed redeeming aspect of the deferred prosecution agreement that HSBC received was that it would force the bank to clean up its act,” said Public Citizen researcher Andrew Perez. “The revelations of the past few months do not provide much reason to have confidence.”

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