BRITISH bank HSBC Holdings acknowledged this week that its exposure to an industry-wide money laundering investigation had swelled as it disclosed that it could face criminal charges in the US.
With its legal liabilities rising, HSBC set aside an additional $US800 million to cover potential fines stemming from the case, bringing its total to $US1.5 billion. The bank, negotiating a settlement with US authorities, is expected to pay the largest fine on record for money laundering and related actions.
The trouble at HSBC comes amid a widespread crackdown by federal and state authorities into the illegal movement of money. Officials are moving to choke off the supply of US dollars to drug cartels and terrorist organisations.
Regulators and prosecutors are looking into whether foreign banks failed to monitor cash transactions at American subsidiaries, allowing drug dealers and terrorists to move tainted money. As well as scrutinising money laundering activities, they are also investigating whether institutions skirted rules by transferring money for nations subject to sanctions.
Over the past few years, the bulk of cases have focused on those sanction violations. The US Treasury Department reached a $US619 million settlement with ING Group in June over such accusations. A couple months later, the British bank Standard Chartered agreed to pay $US340 million to New York's top banking regulator, which claimed the bank laundered hundreds of billions of dollars for Iran for nearly a decade.
HSBC faces harsher scrutiny. Besides sanction violations, prosecutors are considering criminal charges related to money laundering, according to several law enforcement officials. It would be the first such case stemming from the broad investigation.
''A lot of banks will likely have to respond if US authorities impose criminal sanctions on HSBC,'' said Jimmy Gurule, an anti-money laundering expert at the University of Notre Dame. ''It could send shock waves through the financial services industry.''
This year, HSBC was thrust into the spotlight when the US Senate permanent subcommittee on investigations accused the bank of exposing the US ''financial system to money laundering and terrorist financing risks''.
The subcommittee claimed some bank executives were complicit in the activity, ignoring warning signs and allowing illegal behaviour to continue unchecked from 2001 to 2010.
The Senate report found that HSBC's US operations provided at least $US1 billion in financing to Al Rajhi. Senate investigators said HSBC also failed to effectively monitor the bulk-cash businesses in Mexico.
NEW YORK TIMES