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British Bank HSBC Makes $2 Billion Settlement on Money Laundering Charges

December 11, 2012 at 12:00 AM EDT
British bank HSBC is expected to pay $2 billion in a settlement over charges of laundering money on behalf of sanctioned nations such as Iran, Sudan and Cuba, and Mexican criminal cartels. Judy Woodruff talks to Wall Street Journal's Devlin Barrett on whether this $2 billion settlement will prove a valuable lesson to HSBC.
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JUDY WOODRUFF: Now: The U.S. government brings its highest profile case yet of international money laundering against one of the world’s biggest banks.

For years, American officials have sought and sometimes struggled to crack down on the practices. Today, the Departments of Justice and Treasury announced a settlement with HSBC.

The bank agreed to pay almost $2 billion in fines and penalties. It was charged with violating sanctions laws by conducting business with customers in Iran, Sudan, and Cuba. It was also party to helping them launder almost $900 million for Mexican drug cartels.

At a news conference in New York City, U.S. Attorney Loretta Lynch described some of the practices at one of the bank’s Mexican units.

LORETTA LYNCH, U.S. attorney: The investigation revealed that staggering amounts of cash, hundreds of thousands of U.S. dollars daily, were being deposited into HSBC Mexico using boxes especially made to fit through their tellers’ windows to speed the transactions.

Indeed, it was reported to one HSBC official that HSBC Mexico had received the ring endorsement of money launderers as the place to launder money.

JUDY WOODRUFF: Devlin Barrett is covering this story for The Wall Street Journal, and he has more details for us now.

So, thank you for joining us.

How much money was involved, and what are some other examples of what was going on, beside this box that fit through the tellers’ window?

  DEVLIN BARRETT, The Wall Street Journal: Well, the $800 million or so you mentioned is what they know was essentially laundered drug proceeds.

But there’s actually vast pools of billion of dollars of money where the bank just wasn’t paying attention and wasn’t checking sort of the basic principle of know your customer.

And, personally, one of my favorite little tidbits in this whole case is, there was a sequence of transactions in a bank in Japan in which they brought sequentially numbered traveler’s checks into this one little bank in Japan totaling $290 million.

And no one seemed to have any idea where it was coming from. It all traced back to a guy in Russia who claimed to be a used car salesman. And no one asked any questions.

JUDY WOODRUFF: A used car salesman?

DEVLIN BARRETT: A used car salesman with $290 million in sequentially numbered traveler’s checks.

JUDY WOODRUFF: But isn’t there supposed to be internal monitoring going on inside a bank?

DEVLIN BARRETT: Right.

The basic principle is called know your customer. And since 9/11 and since a whole bunch of other money laundering issues have surfaced, the U.S. government has really tried to make the banks tighter and more careful in terms of who they’re doing business with, who they’re moving money for.

And what seems to have happened repeatedly, according to the investigators in the HSBC case, is no one was asking questions.

JUDY WOODRUFF: Now, it was clear that the investigation on the part of the government has been going on for several years. What brought all this to light? How did it surface?

DEVLIN BARRETT: It actually started in 2007 with an operation called El Dorado in New York that was looking at suspiciously large movements of money between New York and Mexico.

And as they moved through that, they kept looking and kept opening doors and, frankly, and finding new problems.

For example, at one point, they realized that the bank branch in Mexico had a location in the Cayman Islands where there on paper $2.1 billion worth of accounts for tens of thousands of customers. That branch had no staff and had no office. And no one knew really who that money belonged to.

JUDY WOODRUFF: And the culpability inside HSBC, Devlin Barrett, is there — is it known who knew and how high it went?

DEVLIN BARRETT: Part of why the settlement was so large is because there was an electronic trail of all the internal warnings that went on.

At one point, one compliance officer claimed, what is this, the school of low expectations banking? We know how this movie ends, and it ends badly. And those warnings kept going up. And they kept getting ignored. That’s what the electronic records show. And since this whole thing has come to light, a lot of the senior leadership has changed out.

And there are new people in place. And they have hired some pretty senior former U.S. anti-money laundering officials to try and get their systems correct.

JUDY WOODRUFF: The penalty sounds big, almost $2 billion. But I listened to some of the news conference today. Reporters were asking, wait a minute. Is this really a painful penalty for a bank that deals in so much money?

DEVLIN BARRETT: Right. And that’s a recurring question in all these cases.

On the one hand, they have hit this bank harder than they have ever hit any bank for this type of violation.

On the other hand, the bank is making, I believe, north of $10 billion according to — in the last year. And so $2 billion is not going to cripple them, by any means, but I do think that this is a hit for them.

JUDY WOODRUFF: And what about — you and I were just talking about, this is a criminal investigation. No one is going to jail.

DEVLIN BARRETT: Right. And this is the other issue that comes up in the public mind, because since the financial meltdown, the constant complaint you hear is no one important has paid for doing anything truly criminal.

And that issue has been raised again in this case. And, essentially, the problem with making this a criminal case is, one, you lose the certainty of the decision. If you take it to a judge and a jury, there’s always uncertainty in that. And you may not get $1.9 billion. You may have some strange things happen to you.

The other issue becomes, the government has made settlements with a bunch of other banks for this type of conduct. You would have to be able to make a coherent and fair argument that, even though HSBC has cooperated for years at this point with this investigation, that they still deserve to be indicted. And I think that’s a tougher argument to make, given their track record with these other banks.

JUDY WOODRUFF: And, finally, a sense that this is the tip of the iceberg, that they have gotten to the bottom of this as a practice?

DEVLIN BARRETT: I think the draw — there’s so much money that wants to move either illegally or illicitly in the financial system that there’s always going to be, if not a temptation, then the ability to help this money move.

But I do think that, with HSBC, you see a really big chunk of the iceberg and maybe the last big chunk for a while.

JUDY WOODRUFF: Devlin Barrett with The Wall Street Journal, thank you very much.

DEVLIN BARRETT: Thanks, Judy.