HSBC Holdings plc is a major international banking group headquartered in London, with historical roots in Hong Kong and Shanghai. At the time of the 2012 enforcement action, HSBC Bank USA N.A. was its principal US banking subsidiary. The US Department of Justice described HSBC Holdings as a UK corporation headquartered in London and HSBC Bank USA as a federally chartered US bank.
Background
HSBC provides one of the strongest comparisons with BCCI because the case involved much more than regulatory criticism or unproven allegations.
In December 2012, the US Department of Justice filed a criminal information against HSBC Holdings plc and HSBC Bank USA concerning serious violations of US anti-money-laundering and sanctions laws. HSBC waived indictment, admitted the conduct set out in the agreement and entered into a five-year Deferred Prosecution Agreement (DPA).
The case involved violations of the Bank Secrecy Act, International Emergency Economic Powers Act and Trading with the Enemy Act. The Justice Department stated that HSBC Bank USA had failed to maintain an effective AML programme and had failed adequately to conduct due diligence on foreign correspondent banking customers.
Nature and Scale of the Failures
The failures were not confined to a single employee or isolated transaction.
The Department of Justice identified serious weaknesses in HSBC’s international correspondent-banking and AML controls. These weaknesses allowed very large volumes of transactions associated with high-risk customers and jurisdictions to pass through the US financial system without adequate scrutiny.
The case therefore concerned institutional systems, controls and compliance failures, rather than misconduct attributable solely to individual employees.
This distinction is important when considering BCCI.
Criminal Resolution and Financial Penalties
HSBC agreed to forfeit approximately US$1.256 billion under the agreement with the Department of Justice. Additional civil penalties of approximately US$665 million brought the total financial cost of the 2012 resolution to about US$1.92 billion.
The response included:
- criminal charges filed by information;
- admission of responsibility;
- a five-year Deferred Prosecution Agreement;
- forfeiture and substantial civil penalties;
- appointment of an independent compliance monitor;
- extensive enhancement of AML and sanctions controls; and
- continuing regulatory oversight.
Yet HSBC was not closed.
Its international banking operations continued.
Institutional Outcome
The regulatory and prosecutorial response was severe, but it distinguished between criminal and compliance failures within the institution and the continuing viability of the banking group.
HSBC was required to acknowledge wrongdoing, surrender substantial funds, reform its systems, accept independent monitoring and remain subject to regulatory supervision. The institution itself was nevertheless preserved.
That distinction is central to the comparison with BCCI.
Comparison with BCCI
BCCI was also accused of serious money-laundering and control failures. Such allegations required investigation, and individuals responsible for criminal conduct should have been prosecuted.
But BCCI was simultaneously undergoing an extensive restructuring programme supported financially by its Abu Dhabi majority shareholders. The programme was intended to address management weaknesses, impaired assets, organisational structure and regulatory concerns while preserving viable banking operations.
In HSBC’s case, regulators and prosecutors distinguished between:
serious wrongdoing and institutional compliance failures and the continuing viability of the banking institution.
The existence of criminal charges and admitted institutional failures did not lead automatically to the conclusion that the entire banking group should cease to exist.
Instead, the authorities pursued punishment, remediation, monitoring and reform.
The Double-Standards Question
If serious and sustained AML and sanctions failures at HSBC could be addressed through criminal proceedings, a Deferred Prosecution Agreement, approximately US$1.9 billion in financial penalties, independent monitoring and extensive compliance reform, why was comparable emphasis not placed on isolating wrongdoing and preserving viable operations in the case of BCCI?
A further question follows:
If HSBC was given the opportunity to demonstrate that serious institutional compliance failures could be corrected while its banking franchise continued, why was BCCI’s privately funded restructuring programme not given a comparable opportunity to demonstrate whether its deficiencies could also be remedied?
The comparison does not suggest that the circumstances of HSBC and BCCI were identical.
It raises a narrower but important question of regulatory principle:
Why was remediation and preservation considered an acceptable response to serious admitted institutional wrongdoing at HSBC, while BCCI was closed as an institution rather than being allowed to complete a financially supported restructuring?
Also read:
- US Department of Justice, “HSBC Holdings Plc and HSBC Bank USA N.A. Admit to Anti-Money Laundering and Sanctions Violations”, 11 December 2012. The principal official account of the criminal information, Deferred Prosecution Agreement and US$1.256 billion forfeiture.
- US Department of Justice, HSBC Court Documents and Resources. Includes the criminal information, Deferred Prosecution Agreement, Statement of Facts and corporate compliance-monitor provisions.
