HSBC agrees to pay record US$1.9b over US money laundering probe

HSBC, Europe’s largest bank, agreed to pay US$1.92 billion to settle US probes of money laundering in the largest such accord ever.

The settlement includes a deferred prosecution agreement with the US Department of Justice, the London-based bank said on Tuesday in a statement. HSBC expects to complete an undertaking with the British Financial Services Authority soon, it said, without providing specifics.

Chief executive Stuart Gulliver’s attempts to reduce costs and improve profitability have been hurt by the US probes and by compensation claims from British clients. A Senate committee said in July that lax oversight by top HSBC executives gave terrorists and drug cartels access to the US financial system.

“This has removed an uncertainty, though it doesn’t clear the path completely for HSBC,” Lewis Wan, Hong Kong-based chief investment officer at Pride Investments, said by telephone on Tuesday, adding that his company doesn’t hold HSBC shares. “Regulators have been tightening oversight of banks. Lenders like HSBC will have to continue to strengthen their compliance.”

In a deferred prosecution agreement, the government allows a target to avoid charges by meeting certain conditions – including the payment of fines or penalties – and by committing to specific reforms, either under the guidance of a monitor, or the creation of an internal compliance panel.

The settlement is the biggest reached in the US over such allegations, topping the US$619 million in penalties paid in June by ING Groep NV, the biggest Dutch financial-services company.

“We accept responsibility for our past mistakes,” Gulliver said in the statement. “We have said we are profoundly sorry for them, and we do so again. The HSBC of today is a fundamentally different organisation from the one that made those mistakes.”