The $1.9-billion agreement with the U.S. authorities, the biggest ever in such a case, comes after a U.S. Senate investigation said HSPC had been used by drug kingpins and rogue nations. In a statement today HSBC Group Chief Executive Stuart Gulliver said,
We accept responsibility for our past mistakes. We have said we are profoundly sorry for them, and we do so again. The HSBC of today is a fundamentally different organization from the one that made those mistakes.
The Senate report found HSBC in the U.S. had not run checks on billions of dollars transferred from its Mexican affiliates that are suspected to have come from drug trafficking. The bank also concealed links to Iran in thousands of its transactions and provided services to Saudi Arabian banks with links to terrorist financing. In its statement, the bank said that it spent 290 million dollars to improve its internal systems and clod back some bonuses paid to senior executives. An independent monitor will assess the bank’s performance over the next five years as part of an agreement with the U.S. Department of Justice. Tom Kirchmaier from the LSE’s Financial Markets Group says regulators are losing patience with banks.
The biggest issue is that a lot of people within the banks looked away. Everybody viewed it with suspect. But they turned a blind eye to it. We do have a cultural problem. Now we realize that this is probably not the best way to go. And you can see with defiance getting bigger and bigger that regulators are losing patience.
Kirchmaier says HSBC which made pre-tax profits of 12.7 billion dollars in the first 6 months of 2012 can absorb the fine and won’t see its reputation suffer.
Banks in generals, I think, have rather suffered. The general public viewed it with quite a lot of suspicion. I think the loss of reputation for HSBC is probably less than people imagine.
Peter Brown is a financial crime specialist with CCL Compliance. He says the FSA is much less willing than its American counterparts to dish out big fines to rogue banks. And he believes the regulators fear that giving banks the punishment they deserve could cause financial meltdown.
I’d personally suspect that HSBC are no worse, no better than any other big U.K. bank. I think one of the big worries for the FSA is that regulators would really hit big banks as hard as I suspect would be warranted. You saw the crisis of confidence when Northern Rock, as it then was, got into difficulties. Anything that had the same impact of confidence against any of the big four banks would be much more serious. I think at the moment whether it’s regarded right or wrong, there’s a serious question to be asked, “Should these institutions get away with not doing things properly, simply because impact of confidence in them could have even greater repercussions?”
The HSBC settlement follows the announcement of a similar, but much smaller settlement with U.K.-based Standard Charter Bank which will pay 300 million dollars in fines for violating U.S. sanction on Iran, Burma, Libya and Sudan.