British bank HSBC agreed to pay $1.9 billion in fines to the U.S. Treasury for conducting transactions on behalf of international criminal organizations and sanctioned countries such as Iran. After a five-year investigation, HSBC was accused of violating America’s Bank Secrecy Act and Trading with the Enemy Act. “The HSBC settlement sends a powerful wakeup call to multinational banks about the consequences of disregarding their anti-money laundering obligations,” said Senator Carl Levin, a member of the Senate Permanent Subcommittee on Investigations.
In July the subcommittee released a report and held hearings into HSBC’s relations with rogue nations and cartels. The report details how HSBC would conduct “u-turn” transactions in which, for example, Iranian money in a foreign bank would pass through a U.S. bank, be converted into dollars, and then transferred abroad. In practice, HSBC affiliates in Europe and the Middle East wired money to HSBC U.S. operations (known as HBUS) without properly identifying the source of the money. HBUS was supposed to flag these transactions with missing information for further review, but processed them anyways. As early as 2001, the compliance division at HSBC knew these transactions could be violating U.S. law, but failed to stop them until at least 2007. An external audit found that over 25,000 transactions like these worth $19.4 billion involved Iran.
Posters showing how money has been laundered from Mexico through HSBC. (Photo: AP)
Other banks have been targeted in recent years for compliance failures in connection to money laundering. The Federal Reserve and the Department of Justice also announced on Monday a settlement with Standard Charter Bank for $327 million. Between 2001 and 2007 Standard Charter conducted $24 million worth of transactions with Iran and $109 million with other U.S. sanctioned countries. Since 2005, the Department of Justice collected more than $2 billion in fines from banks including Lloyds, Credit Suisse, Barclays, and most recently more than $600 million from ING for violating U.S. sanctions.
Washington has restricted financial transactions with Iran for decades. As long as it allows U.S. regulators to use all weapons at its disposal to crack-down on banks that do business with forbidden parties, banks will become more cautious, leaving states such as Iran with ever decreasing avenues to secure funding for their operations.