HSBC braced for huge U.S. penalty

(Financial Times) -- HSBC is to apologise to US lawmakers for failing to have appropriate controls in place to ensure it did not facilitate the financing of terrorism and other criminal activities, transgressions that analysts estimate may cost it up to $1bn in fines.

In an internal memo to staff ahead of the British bank's scheduled appearance in front of the US Senate's investigative panel on July 17, Stuart -Gulliver, chief executive, wrote: "Between 2004 and 2010, our anti-money laundering controls should have been stronger and more effective, and we failed to spot and deal with unacceptable behaviour."

He said it was "right that we be held accountable and that we take responsibility for fixing what went wrong".

His comments came a week after Bob Diamond was forced to resign as chief executive of Barclays in the wake of the bank being hit with a record fine for rigging borrowing rates. Mr Diamond and Marcus Agius, the outgoing chairman, have both apologised for the behaviour of those involved.

Mr Gulliver warned that HSBC was likely to face further action from other US authorities in coming months.

SBC said in its 2011 annual report that fines relating to money laundering issues could be "significant". There has been speculation among analysts that the bank could be hit with a higher charge than the $619m ING, the Dutch bank, agreed to pay to settle accusations it violated US sanctions by helping Iranian and Cuban companies move billions of dollars through the US financial system. Some have suggested it could be as much as $1bn.
 

The hearing next week -- likely to be attended by Irene Dorner, chief executive of HSBC's North American business, and at least one other senior executive -- comes after the bank was ordered to overhaul its internal controls in the US.

In 2010 a probe by the Federal Reserve and the Office of the Comptroller of the Currency found there was "a significant potential for unreported money laundering or terrorist financing".

HSBC is expected to provide details of the changes it has made to strengthen its compliance and risk-management controls.

Mr Gulliver told staff in the memo that the bank has doubled the amount it spends on compliance from $200m in 2010 to $400m and restructured its global operations to make it easier to manage.

The money laundering investigation is one of a litany of legal and regulatory woes that have hit HSBC since the financial crisis.

It has suffered a particularly tumultuous period in the US following its rapid expansion there in the years leading up to the financial crisis.

HSBC faces inquiries relating to its ill-timed $14bn purchase of Household Finance, a US subprime lender, in 2003. The bank has been accused of breaching international sanctions. Meanwhile, some of HSBC's private banking customers have been targeted in a tax evasion probe by the US Internal Revenue Service.

A number of other banks including Credit Suisse, Lloyds and Barclays have also been fined over failures relating to US money laundering or sanctions breaches.