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HSBC to spend $700m vetting clients

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Story highlights

  • HSBC is spending $700m on a global programme to target money-laundering
  • The bank has been accused of laundering $881m in drug-trafficking proceeds from Mexican and Colombian drug cartels
  • HSBC has agreed to pay $1.9bn to U.S. authorities following a 5-year investigation in which 9m documents were reviewed

HSBC will spend $700m on a global "know your customer" programme, as part of a 26-point plan agreed with US regulators to settle money laundering and sanctions breaches.

The UK bank, which signed up to the A-Z programme of management changes covering both its US and global operations, reiterated apologies for its failure to prevent Mexican money launderers and countries subject to sanctions, including Iran, from using its network.

"We accept responsibility for our past mistakes. We have said we are profoundly sorry for them, and we do so again," said Stuart Gulliver, chief executive, as he attempted to draw a line under what investors saw as the biggest threat to the bank and its share price.

HSBC on Tuesday signed a five-year deferred prosecution agreement to prevent a trial over the affair. It also agreed to pay a $1.256bn fine to the Department of Justice and a further $665m to US regulators following a five-year investigation in which agents reviewed 9m documents.

"The record of dysfunction that prevailed at HSBC for many years was simply astonishing," said Lanny Breuer, assistant attorney general, adding that there was now "a sword of Damocles" over HSBC. A monitor has been placed inside the bank, the first time the US has taken such a step at a foreign bank.

The justice department said at least $881m in drug-trafficking proceeds from Mexican and Colombian drug cartels were laundered through HSBC in the US. The bank was also accused of helping countries evade sanctions, with $660m from Iran, Cuba, Sudan, Libya and Myanmar sent to HSBC accounts in the US.

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    HSBC Group became aware in 2000 that the names of sanctioned countries were being stripped from payment transfers with notes such as "do not mention Iran", the DoJ said, echoing similar action taken against Standard Chartered. StanChart recently finalised a $667m settlement with regulators.

    HSBC became "the vehicle of choice for illegal money men", said John Morton, director of US Immigration and Customs Enforcement.

    The bank said it had increased its spending on US anti-money laundering ninefold to $244m between 2009 and 2011, boosting staff numbers from 117 to 1,147 over the period and ending 109 client relationships in the US.

    The bank will now roll out a similar programme globally. As part of the bank's changed management approach under Mr Gulliver, who took over as chief executive two years ago, HSBC has sold 42 businesses around the world that fell short of performance targets.

    Mr Gulliver has more recently targeted operations and client relationships that could cause regulatory headaches. The new pledge to spend $700m on a global "know your customer" programme is point "W" in the A-Z of remedies announced on Tuesday.

    "Know your customer" is shorthand for a range of anti-money-laundering safeguards enforced in markets around the world, although banks have some latitude in how principles are implemented.

    HSBC confirmed it had clawed back bonuses from a number of senior US managers from the 2002-10 period examined by lawmakers. Group management, however, escaped unscathed.

    UK opposition politicians stepped up their criticism of the role of Lord Green, HSBC's former chairman and chief executive who is now trade minister.

    "Lord Green is not only a senior minister in the government but an adviser to [Chancellor] George Osborne on banking and a member of the cabinet committee on banking reform," said Chris Leslie, shadow financial secretary to the Treasury. "He cannot continue to duck detailed questions about his time in charge of HSBC." Lord Green declined to comment.

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