Record $1.92 Billion in Fines and Penalties Levied against HSBC

by Ballard Spahr LLP
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HSBC Holdings, London, and two of its U.S. subsidiaries have been ordered to pay a record $1.92 billion in fines and penalties for anti-money laundering (AML) and Office of Foreign Assets Control (OFAC) violations. This settles charges that HSBC transferred billions of dollars for sanctioned countries and enabled Mexican drug cartels to launder drug proceeds in violation of the Bank Secrecy Act, and engaged in transactions with certain Middle Eastern countries that are prohibited under the International Emergency Economic Powers Act, and the Trading with the Enemy Act. Ballard Spahr will host a webinar on AML and OFAC compliance on Tuesday, December 18, 2012.

The HSBC settlement is the result of coordinated action among various U.S. state and federal agencies and regulators as well as international authorities. U.S. agencies involved in this action include the Federal Reserve, the Department of Justice, the New York District Attorney for New York County, the Office of the Comptroller of the Currency, OFAC, and the Financial Crimes Enforcement Network (FinCEN). In addition, the U.K. Financial Services Authority (FSA), HSBC's home country supervisor, has agreed to assist the Fed in supervising compliance with its order. The FSA also will be pursuing its own, separate action against HSBC, according to the Justice Department.

The settlement includes a deferred prosecution agreement for HSBC, which will extensively overhaul its anti-money laundering operations in the next five years. Law enforcement authorities declined to indict HSBC for criminal violations because of concerns that an indictment could jeopardize one of the world's largest banks and ultimately destabilize the global financial system. Such concerns would not exist for financial institutions that are not systemically important financial institutions (SIFIs). Instead of an indictment, the Justice Department filed a criminal information against HSBC.

This announcement comes only a day after an announcement of a $327 million settlement against Standard Chartered Bank with OFAC, the Federal Reserve, the Department of Justice, and the New York District Attorney's Office. That settlement is in addition to the $340 million paid to the State of New York in September in settlement of an action brought by the N.Y. Superintendent of Financial Services against Standard Chartered.

The HSBC fines and penalties are the largest amount ever paid for AML and OFAC violations and may well be a harbinger of stricter AML/OFAC enforcement and higher penalties for institutions that violate these laws and regulations. The actions against HSBC and Standard Chartered send a very strong message to banks and nonbank financial institutions that they must take the necessary steps to ensure their continued AML and OFAC compliance.

Ballard Spahr's Bank Regulation and Supervision Group and Consumer Financial Services Group regularly counsel bank and nonbank clients on AML and OFAC compliance and represent them in connection with enforcement actions. In addition, the Bank Regulation and Supervision Group, Consumer Financial Services Group, and White Collar/Investigations Group include experienced lawyers who regularly assist clients in corporate investigations, responses to subpoenas, and civil investigative demands. For more information, contact Consumer Financial Services Group Practice Leader Alan S. Kaplinsky at 215.864.8544 or kaplinsky@ballardspahr.com, Beth Moskow-Schnoll in the Consumer Financial Services Group at 302.252.4447 or moskowb@ballardspahr.com, or Keith R. Fisher in the Bank Regulation and Supervision Group at 202.661.2284 or fisherk@ballardspahr.com.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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