11th December 2012
HSBC has been hit with a record $1.9bn fine for lax money laundering controls in its US and Mexican businesses as the BBC reports today.
The fine comes as the US Senate's Permanent Sub Committee on Investigations finds HSBC in breach of at least two significant pieces of legislation – the US Bank Secrecy Act and the Trading with the Enemy Act. The biggest breaches concern the transfer of $7bn in cash from HSBC Mexico to the US in 2007 and 2008 with the committee saying that such a large transfer should have indicated illegal drug proceeds and set alarm bells ringing at the bank.
HSBC group chief executive Stuart Gulliver said in a statement: “We accept responsibility for our past mistakes. We have said we are profoundly sorry for them, and we do so again."
But how has the market and the media around the world reacted?
As Yahoo Finance shows shares were just a little bit up at 642.5p at time of writing. The bank had already set aside a large amount and though it expected to pay $1.5bn or less, much of the financial hit will have been priced in. In addition investors often see such fines as offering closure allowing the firm concerned to move on. This may be the case with HSBC though it must also now settle with the regulatory authorities in the UK.
The BBC business editor Robert Peston noted in his blog that HSBC has accepted deferred prosecution agreements for breaches of the two acts as well as money laundering offences.
He: writes: “Odd as it may seem, [things] could have been significantly worse. HSBC has signed a Deferred Prosecution Agreement for breaches of the US Bank Secrecy Act, the Trading with the Enemy Act and assorted money laundering offences. This is in effect putting the bank on probation.
“But if HSBC had been indicted for these offences, that would have meant that the US government and others could no longer have conducted business with it – which would have been humiliating and highly damaging.”
The Wall Street Journal's Word on the Street concentrates on future business prospects. It writes: “The jury is out on how its reputation fares. The big test now is how the bank delivers on Chief Executive Officer Stuart Gulliver's ambitious plan to lift return on equity to 12 per cent and reduce the cost-income ratio to 52 per cent from 57.5 per cent, both by the end of next year.”
Just before the fine, Fox Business reported on the Bank’s moves to beef up its ‘financial crime fighting’ with what is surely the shrewd hire of Bob Werner, a former director of the Office of Foreign Assets Control, the US Treasury department’s sanctions-watchdog unit. He becomes head of group financial crime and compliance and group money laundering reporting officer. That all indicates that HSBC and its contrite chief executive is determined to change things.
But this hasn’t satisfied all commentators. The New York Times' dealbook reports that some officials in the US Department of Justice wanted to prosecute.
Reuters Breaking Views (behind paywall) believes the failure to prosecute shows some banks are still too big to fail.
It writes: “HSBC’s $1.9 bn fine may look big, but for the bank it’s small beer. Regulators reportedly wanted to go the whole hog and indict the UK lender, but backed down on systemic risk fears.”
That view is echoed in today’s Guardian by Nils Pratley.
He writes: “A hefty fine can always make the problem go away. Is that really a sensible message for regulators to send? Is their hand really so weak? The DoJ should clear up this sub-plot speedily. If money laundering on the scale admitted by HSBC doesn't provoke a prosecution, what would?”