HSBC said to pay at least $1.9 billion in laundering probe

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HSBC Holdings Plc will pay at least $1.9 billion in a deferred prosecution agreement that settles U.S. probes of money laundering tied to Europe's largest bank, a person familiar with the matter said, making it the largest such accord ever.

HSBC, whose top executives were accused of lax oversight by a US Senate subcommittee in July, will forfeit $1.25 billion, the biggest forfeiture ever by a bank, said another person familiar with the matter. It will also pay an addition $665 million in civil penalties, the person said.

In a deferred prosecution agreement, the government allows a target to avoid charges by meeting certain conditions -- including the payment of fines or penalties -- and by committing to specific reforms, either under the guidance of a monitor, or the creation of an internal compliance panel. The HSBC agreement is set to be announced today, said the people, both of whom asked not to be identified because the matter isn't public.

Yesterday, Standard Chartered Plc, Britain's second-largest bank by market value, agreed to pay $327 million in fines after regulators alleged it violated US sanctions with Iran. The two banks have been the target of investigations by several US regulators. The Department of Justice, the Treasury Department's Office of Foreign Assets Control, the Federal Reserve, the Office of the Comptroller of the Currency, New York state regulators and the Manhattan District Attorney have all probed HSBC, Standard Chartered, or both.

Standard Chartered shares gained 0.8 percent to HK$185.8 at 9:39 a.m. in Hong Kong, while HSBC was unchanged. The benchmark Hang Seng Index decreased less than 0.1 percent.

Stuart Gulliver

HSBC Chief Executive Officer Stuart Gulliver's attempts to reduce costs and improve profitability at his bank have been hurt by the US probes and compensation claims from UK clients. The Senate committee said that failures in HSBC's money-laundering controls allowed terrorists and drug cartels access to the US financial system.

Treasury spokesman John Sullivan declined to comment on the agreement, as did Barbara Hagenbaugh, spokeswoman for the Federal Reserve. Diem Tran, a spokeswoman for the New York District Attorney, declined to comment, as did Bryan Hubbard, spokesman for the OCC. Wyn Hornbuckle, a Justice Department spokesman, also declined to comment.

Robert Sherman, a spokesman for London-based HSBC, declined to comment on the settlement. The bank had earlier said that it was cooperating with the various investigations.

Adding provisions

HSBC made an additional $800 million provision in the third quarter to cover a potential accord, adding to $700 million it had already earmarked. The bank said on Nov. 5 it will probably face charges as part of US anti-money-laundering probes and the cost of a settlement may "significantly" exceed the $1.5 billion the bank has set aside.

Gulliver, who became CEO in January 2011, is seeking to cut costs by $2.5 billion to $3.5 billion and revive profit by selling assets to focus on those emerging economies in which the bank has a greater market share. The savings may exceed that range and be met by the end of 2013, HSBC said last month.

London-based Standard Chartered, after agreeing in August to a $340 million settlement with New York's Department of Financial Services, or DFS, told investors on Dec. 6 it expected to pay about $330 million to resolve other investigations.

Iran, Sudan

The bank will pay $100 million to the Federal Reserve and $227 million to the Department of Justice and the Manhattan District Attorney. The settlement includes a $132 million fine to the Treasury Department's Office of Foreign Assets Control, according to a statement from the Federal Reserve yesterday.

HSBC has been in talks with US regulators over allegations it laundered funds of sanctioned nations including Iran and Sudan. The probes prompted Standard & Poor's to question whether the lender is too big to be managed effectively.

The settlement would also surpass the $619 million in penalties paid in June by ING Groep NV, the biggest Dutch financial-services company.

In a statement announcing the Standard Chartered accord, the Fed said that "The orders address unsafe and unsound practices related to inadequate and incomplete responses to examiner inquiries as well as insufficient oversight of its compliance program for U.S. economic sanctions, Bank Secrecy Act, and anti-money-laundering requirements."

False records

Standard Chartered in August was accused by Benjamin Lawsky, head of New York's DFS, of helping Iran conceal the provenance of about $250 billion in violation of federal laws, keeping false records and handling lucrative wire transfers for Iranian clients. The bank sent them through its New York unit in so-called U-turn transactions with client names omitted to hide their origin, Lawsky said. The bank settled the probe on Aug. 14, a day before it was due to defend itself to the regulator.

Yesterday's announcement "draws a line under the situation," said Gary Greenwood, a banking analyst at Shore Capital Ltd. with a buy rating on the stock. "The company has continued to perform over the period."

Standard Chartered rose 12 pence, or 0.8 percent, to 1,497.5 pence in London trading yesterday, valuing the lender at 36.1 billion pounds ($58 billion). The bank has risen 6.3 percent in London this year.

The company will pay the sum in the second half of this year, it said yesterday in a statement.

"In the more than five years since the events giving rise to today's settlements, the bank has completed a comprehensive review and upgrade of its compliance systems and procedures," it said.

Deferred prosecution

Standard Chartered entered into a deferred prosecution agreement with the Justice Department whereby it will forfeit $227 million of funds tied to the illegal transactions, according to court records filed in the Washington federal court.

As part of that agreement, the US charged the bank with one count of conspiring to violate the International Emergency Economic Powers Act. That charge will be dismissed after two years if Standard Chartered abides by the terms of the agreement, according to court papers.

"When banks dodge US sanctions laws, they imperil our financial system and our national security," Washington US Attorney Ronald Machen said in an e-mailed statement. "Today's agreement holds Standard Chartered Bank accountable for intentionally manipulating transactions to remove references to Iran, Sudan, and other sanctioned entities, and then further concealing these transactions through misrepresentations to US regulators."

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