LONDON — The U.S. Justice Department has filed court papers alleging felony criminal offenses against one of the world's largest banks, HSBC, in a New York federal court. HSBC announced earlier in the day that it has agreed to pay a record $1.92 billion fine to settle charges connected to a money laundering scheme in the United States.
A U.S. Senate investigation published in July said HSBC had poor anti-money laundering controls in place and had shifted billions of dollars for Mexican drug lords, terrorists and governments under sanctions, including Iran and North Korea.
The fine is the largest penalty ever imposed on a bank, but analysts say the impact will be manageable.
Analyst Alastair McCaig, of IG Markets in London, says HSBC was prepared. "Well, it is certainly not good news, but having said that, in the second and third quarter, HSBC had made provisions of $700 and $800 million, so they had already allocated $1.5 billion towards this," said McCaig. "And at the beginning of November, they had made comments that they felt the fine could ultimately be significantly higher."
A larger concern for the bank, he says, will be regaining its reputation.
In a statement Tuesday, HSBC admitted to a breakdown in controls, and said it accepted responsibility for "past mistakes."
The bank said it had reached a deferred-prosecution agreement, which means no criminal charges will be brought against the bank, but it has had to agree to certain conditions, including the almost $2-billion fine.
The bank says it has also improved its systems to prevent money laundering in the future.
The documents filed by the U.S. Justice Department on Tuesday are expected to be a precursor to the agreement.
Some legal experts have been critical of the deal, saying it is too soft, and the individuals involved should face prosecution.
Lyncean Holdings Managing Director Francis Lun says reaching the settlement has removed uncertainty for the bank. "It will not bankrupt the bank. It means it is taking away one-quarter of HSBC's profit, so they will have to cut dividend and cut cost to get that back," explained Lun. "But it will not cripple the bank. That is the main point."
Banks have been under increased scrutiny since the global financial crisis began in 2008. A number of banks, including Credit Suisse, Lloyds and Barclays, have already been ordered to pay large settlements in connection with allegations that they shifted funds for those on U.S. sanctions lists.
On Tuesday, a second British bank, Standard Chartered, signed an agreement with U.S. regulators to pay a $340 million fine in connection with another money laundering investigation related to Iran.