https://www.investopedia.com/stock-analysis/2013/investing-news-for-jan-29-hsbcs-money-laundering-scandal-hbc-scbff-ing-cs-rbs0129.aspx * Education + General o Dictionary o Economics o Corporate Finance o Roth IRA o Stocks o Mutual Funds o ETFs o 401(k) + Investing/Trading o Investing Essentials o Fundamental Analysis o Portfolio Management o Trading Essentials o Technical Analysis o Risk Management * News + o Company News o Markets News o Cryptocurrency News o Personal Finance News o Economic News o Government News * Simulator * Your Money + Personal Finance o Wealth Management o Budgeting/Saving o Banking o Credit Cards o Home Ownership o Retirement Planning o Taxes o Insurance + Reviews & Ratings o Best Online Brokers o Best Savings Accounts o Best Home Warranties o Best Credit Cards o Best Personal Loans o Best Student Loans o Best Life Insurance o Best Auto Insurance * Advisors + Your Practice o Practice Management o Financial Advisor Careers o Investopedia 100 + Wealth Management o Portfolio Construction o Financial Planning * Academy + Popular Courses o Investing for Beginners o Become a Day Trader o Trading for Beginners o Technical Analysis + Courses by Topic o All Courses o Trading Courses o Investing Courses o Financial Professional Courses [ ] Submit * Investing * Stocks HSBC's Money Laundering Scandal By Marc L. Ross Full Bio Marc Ross has 20+ years in financial services industry. He is formerly a senior compliance consultant at John Hancock. Learn about our editorial policies Updated July 12, 2022 Reviewed by JeFreda R. Brown Dr. Brown Reviewed by JeFreda R. Brown Full Bio * LinkedIn * Twitter Dr. JeFreda R. Brown is a financial consultant, Certified Financial Education Instructor, and researcher who has assisted thousands of clients over a more than two-decade career. She is the CEO of Xaris Financial Enterprises and a course facilitator for Cornell University. Learn about our Financial Review Board HSBC's Money Laundering 2012 Charge HSBC Holdings' (HSBC) agreement to pay a $1.9 billion fine to regulators for serving as a middleman for Mexican drug cartels and enter into a deferred prosecution agreement points to a lack of adequate control processes in compliance and anti-money laundering. Given the bank's size, it appears that it and some of its peers are too big to jail because they are too big to fail. The agreement in 2012 constitutes a warning to the bank to clean up its act and avoids revocation of its charter to operate in the United States. The action was taken by regulators in the belief that a failure of a large financial institution could imperil the world's financial system. Key Takeaways * In 2012, HSBC Holdings' agreement to pay a $1.9 billion fine points to a lack of adequate control processes in compliance and anti-money laundering. * HSBC provided money-laundering services of more than $881 million to various drug cartels including Mexico's Sinaloa cartel and Colombia's Norte del Valle cartel. * HBUS provides correspondent banking services, such as fund transfers and currency exchanges, which were the source of illicit flows in the face of weak AML controls. * They are not the only ones: banks including ING, Barclays, and Credit Suisse have in the past have all paid fines for facilitating transactions with rogue nations such as Iran, Libya, Sudan, and Myanmar in violation of sanctions. * Enabling the business of drug running and state-sponsored terrorism in the pursuit of profit leads to dire societal consequences. Blame may be placed at the foot of the banks and regulators alike. 1:30 Money Laundering Definition Why Did These Transgressions Come About? In the case of HSBC, cost-cutting as part of a wide-ranging restructuring of the bank - through selling unprofitable businesses and centralizing its global structure - took a toll on the bank's compliance department. HSBC is not alone in its indiscretion. Standard Chartered (SCBFF), ING (ING), Credit Suisse (CS), Royal Bank of Scotland (RBS), Lloyds Banking Group (LYG), and Barclays (BCS), over the past several years, have had to stump up fines for facilitating transactions with rogue nations such as Iran, Libya, Sudan, and Myanmar in violation of the Office of Foreign Asset Control (OFAC) sanctions. In this case, HSBC provided money-laundering services of more than $881 million to various drug cartels including Mexico's Sinaloa cartel and Colombia's Norte del Valle cartel. This included bulk movements of cash from the bank's Mexican unit to the U.S., with little or no oversight of the transactions. It also conducted transactions with Iran, removing references to the country in an effort to conceal them. Lacking in these instances is a corporate culture that prizes integrity. Enabling the business of drug running and state-sponsored terrorism in the pursuit of profit leads to dire societal consequences. Blame may be placed at the foot of the banks and regulators alike. In the former instance, inadequate anti-money laundering (AML) controls were principally at fault. In the latter, the Office of the Comptroller of the Currency (OCC) failed to crack down on HSBC's deficient implementation of controls. Indeed, prior to 2010 when the OCC cited the bank for many AML deficiencies--including a huge backlog of unreviewed accounts and failure to file Suspicious Activity Reports (SARs)--for the previous six years the agency failed to take any enforcement action against the bank. Suspect Money Trails Revealed Immigration and Customs Enforcement agents revealed suspect money trails between HSBC's Mexican and United States operations. In a report pursuant to a year-long investigation into the doings at the bank by a Senate Permanent Subcommittee on Investigations, committee chair Senator Carl Levin (D-Michigan) proclaimed: "HSBC used its U.S. bank as a gateway into the U.S. financial system for some HSBC affiliates around the world to provide U.S. dollar services to clients while playing fast and loose with U.S. banking rules. Due to poor AML controls, HBUS (HSBC's U.S. affiliate) exposed the United States to Mexican drug money, suspicious traveler's cheques, bearer share corporations, and rogue jurisdictions." HBUS provides correspondent banking services, such as fund transfers and currency exchanges, which were the source of illicit flows in the face of weak AML controls. These resulted in violations of the Bank Secrecy Act, Trading with the Enemy Act, and other AML statutes. In addition to paying fines, the bank has hired Stuart A. Levey as its chief legal officer to strengthen internal controls including know-your-customer procedures. HSBC has also clawed back bonuses of certain executives involved in its compliance deficiencies. While a good start, such actions must be underpinned by a culture of transparency. The Bottom Line HSBC has been cited in the past and yet committed violations anew. If positive change is to be lasting, also must the culture that fosters it be ingrained throughout the bank. Speaking of his own bank's need to rectify past misdeeds, UBS chief Sergio Ermotti likened the cultural change to a journey. Just as every journey may have unexpected twists and turns, HSBC's case has illustrated the consequences of a detour. Article Sources Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy. 1. Reuters. "HSBC to pay $1.9 billion U.S. fine in money-laundering case." 2. U.S. Department of Justice. "HSBC Holdings Plc. and HSBC Bank USA N.A. Admit to Anti-Money Laundering and Sanctions Violations, Forfeit $1.256 Billion in Deferred Prosecution Agreement." 3. Securities and Exchange Commission. "Consent Order For the Assessment of a Civil Money Penalty." 4. Homeland Security and Governmental Affairs. "HSBC Exposed U.S. Financial System to Money Laundering, Drug, Terrorist Financing Risks." 5. Securities and Exchange Commission. "Deferred Prosecution Agreement." Take the Next Step to Invest Advertiser Disclosure x The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace. Service Name Description Related Articles [shutterstock_253136563-5bfc2b98c9e77c00519aa7a8] Financial Crime & Fraud How Does Money Laundering Impact a Business? 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