HSBC has "much work" to do as part of a $1.9 billion agreement with the Justice Department to avoid prosecution for money laundering, the U.S. said in a status report on the U.K.-based bank's performance.
HSBC must reach an accord this month on a monitor's recommendations for improving its anti-money laundering and sanctions compliance programs, the government said in a filing today in federal court in Brooklyn, New York. The bank is handling the matter in "good faith," the U.S. said.
"The monitor believes that the leadership of HSBC Group is appropriately committed to addressing the bank's longstanding compliance deficiencies," prosecutors said in the filing. "HSBC Group has made significant progress under the current management team."
The accord, approved by a judge in July, resolved claims that London-based HSBC failed to monitor more than $670 billion in wire transfers and more than $9.4 billion in purchases of U.S. currency from HSBC Mexico, allowing for money laundering. The bank also violated U.S. economic sanctions against Iran, Libya, Sudan, Burma and Cuba, according to a criminal complaint.
An HSBC spokesman, Rob Sherman, declined to comment on the report when reached by phone today.
The report describes initial findings by the monitor, Michael Cherkasky, which were filed Jan. 20 with U.S. District Judge John Gleeson in the Brooklyn court. Cherkasky based his findings on information provided by the bank and didn't independently verify it because that will happen later, the U.S. said.
The monitor found that HSBC needs to improve the reliability of the data it gathers on its customers and improve methods of sharing the data with affiliates, the U.S. said.
Cherkasky, a former chief executive officer of the security and investigative company Altegrity Inc., also found that HSBC's information technology and transaction monitoring systems "lack integration, coordination and standardization," the U.S. said.
The bank, Europe's largest, agreed to pay a $1.25 billion forfeiture and $665 million in civil penalties under the settlement, prosecutors announced in December 2012. At a hearing the same month, Gleeson told prosecutors there had been "publicized criticism" of the agreement, which lets the bank and management avoid further criminal proceedings over the charges.
Gleeson said he would continue supervising implementation of the deal, under which the bank agreed not to contest criminal charges of failing to maintain an effective anti-money-laundering program, failing to conduct due diligence and violating the Trading With the Enemy Act and the International Emergency Economic Powers Act.
Lack of proper controls allowed the Sinaloa drug cartel in Mexico and the Norte del Valle cartel in Colombia to move more than $881 million through HSBC's U.S. unit from 2006 to 2010, the government alleged.
The bank also reduced resources for money-laundering prevention to "cut costs and increase profits," the government said in court filings.
The case is U.S. v. HSBC Bank USA NA, 12-cr-00763, U.S. District Court, Eastern District of New York (Brooklyn).