Does HSBC’s Punishment Fit the Crime?

December 12, 2012 — Leave a comment


You do the crime, you pay the fine.

And in this case, the fine is no joke: British banking giant HSBC, Europe’s biggest bank, is set to pay $1.9 billion to settle accusations that it didn’t do enough to stop money laundering in its branches. The U.S. government announced the settlement yesterday, Dec. 11, 2012.

HSBC’s fine shatters records for criminal and civil penalties paid by a bank, according to the WSJ. The bank on November 5 said it was setting aside $1.5 billion to cover potential penalties and warned it might have to pay a “significantly higher” amount, which at $1.9 billion is certainly the case.

Investors may well cheer the actual number. HSBC stock, which fell slightly on Monday in London trading, has gained 4 percent since the bank’s November 5 warning.

What’s more, HSBC will enter a deferred-prosecution agreement, which is essentially probation after arranging for a plea bargain: The company will admit to violating the Bank Secrecy Act and the Trading with the Enemy Act. Its punishment will only be the fine, a stern warning and a promise to clean up its act.

Such a deal would make a “mockery of the criminal justice system,” former Treasury Department official Jimmy Gurule, now a University of Notre Dame law-school professor, told Reuters last week.

As for the penalty, it will amount to a little more than half of the $3.5 billion in pre-tax profits the bank earned in the third quarter of 2012. The bank’s net income in 2011 was $16.8 billion.

In July, bank officials apologized to the U.S. Senate for their lax money-laundering controls, which allowed Mexican drug cartels to launder billions of dollars over a period of seven years, and the bank may also have been used to send money to Iran and to terrorist groups, according to a senate committee report.

And of course, HSBC is not alone: British bank Standard Chartered on Monday was slapped with a $327 million fine in its own deferred-prosecution deal over its laundering practices. U.S. banks such as JPMorgan Chase and Bank of America are also under scrutiny for their laundering-prevention practices.

This is not the end of HSBC’s troubles in the U.S. The bank is also reportedly one of more than a dozen banks being investigated on charges that they manipulated the London interbank offered rate, or Libor, an interest rate that affects borrowing costs throughout the economy.

JDKatz, P.C. is a full-service law firm focused on tax law and estate planning. We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys.

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