Dienstag, 11. Dezember 2012

HSBC will pay $1.9 billion for money laundering

December 11, 2012
By Kevin McCoy
British banking giant HSBC agreed to pay a record $1.92 billion settlement Tuesday after a broad investigation by U.S. federal and state authorities found the bank violated federal laws by laundering money from Mexican drug trafficking and processing banned transactions on behalf of Iran, Libya, Sudan and Burma.

The settlement, a combination of forfeitures and civil penalties, shows the London-headquartered financial powerhouse for years deliberately channeled hundreds of millions of dollars of the prohibited transactions through its U.S. arm.

"HSBC is being held accountable for stunning failures of oversight - and worse - that led the bank to permit narcotics traffickers and others to launder millions of dollars through HSBC subsidiaries, and to facilitate hundreds of millions more in transactions with sanctioned countries," said U.S. Assistant Attorney General Lanny Breuer in announcing the largest settlement of its kind.

"The record of dysfunction that prevailed at HSBC for many years was astonishing," said Breuer.

The settlement, part of a deferred prosecution agreement filed in Brooklyn federal court, means HSBC avoids a criminal conviction on money laundering and other major charges - which could have amounted to a financial death sentence by blocking the bank's access to the U.S. banking system.

The settlement is the latest and largest of several deals U.S. authorities have reached with other banks over similar allegations. Federal and state prosecutors retain legal power to prosecute HSBC if the bank fails to comply with banking and oversight reforms included in the agreement, including the appointment of an independent monitor.

"We accept responsibility for our past mistakes. We have said we are profoundly sorry for them, and we do so again," HSBC Group Chief Executive Stuart Gulliver said in a statement earlier Tuesday.

Adding that the bank had cooperated with U.S. investigators, Gulliver said "we have been taking concrete steps to put right what went wrong."

He said the deferred prosecution agreement notes that in recent years the bank has increased spending and staffing on money-laundering prevention and beefed up know-your-customer efforts.

HSBC spent more than $290 million to improve its money-laundering prevention policies, terminated 109 banking correspondent relationships considered potential money laundering risks and required a number of senior bank officers to return previously paid bonuses, Gulliver said.

The agreement covers an investigation that involved the Department of Justice, the Manhattan District Attorney in New York, the Federal Reserve, the Treasury Department's Office of Foreign Assets Control and its financial crimes enforcement unit, and the Comptroller of the Currency.

HSBC shares were up 0.5% to $51.82 in afternoon trading Tuesday. The shares also traded higher in London.

"Obviously, $1.9 billion is a very large number, but it's very manageable" without affecting HSBC's bottom line, said Ian Gordon, head of bank research for Investec Securities in London. "It's clearly within market expectations."

Some legal analysts questioned U.S. authorities' failure to force HSBC to plead guilty to criminal charges. Although federal officials said the settlement was based on the bank's cooperation and renewed efforts to fight money laundering, the analysts said a criminal plea would have sent a powerful deterrence message to the banking industry.

"It's fine that HSBC's CEO talked about accepting responsibility, but when will he be held accountable for this tremendous breach of trust?" asked Mark Rifkin, a New York shareholder rights attorney and partner at the Wolf Haldenstein Adler Freeman & Herz law firm.

The federal court filings outlined the prohibited transgressions in dramatic detail.

Between 2006 and 2010, the Mexico's Sinaloa Cartel, Colombia's Norte del Valle Cartel and other alleged drug traffickers laundered at least $881 million in illegal proceeds through accounts in HSBC's U.S. arm, the filings show.

"These traffickers didn't have to try very hard," said Breuer. "They would sometimes deposit hundreds of thousands of dollars in cash, in a single day, into a single account, using boxes designed to fit the precise dimensions of the teller windows in HSBC Mexico's branches."

Similarly, HSBC bankers as far back as 2001 cleared U.S. dollar transactions through the bank's U.S. arm while hiding the fact that the money was linked to Iran's Bank Melli. A June 2001 email from an HSBC relationship manager in Europe wrote that Bank Melli had been instructed not to input an "Iranian referenced customer name" with the transaction, thus avoiding any sign of a U.S. legal breach.

The details echoed findings of a July report by the Senate Permanent Subcommittee on Investigations. The panel found evidence that two HSBC affiliates routed nearly 25,000 Iran-linked transactions involving $19.4 billion through the bank's U.S. arm over a seven-year period. Those transactions violated U.S. and British law.

The panel's report criticized U.S. regulators for failing to take action despite knowledge that HSBC's money-laundering safeguards were inadequate. But the subcommittee's chairman, Sen. Carl Levin, D-Mich., hailed Tuesday's settlement, saying it "sends a powerful wakeup call to multinational banks about the consequences of disregarding their anti-money laundering obligations."

Under the deferred prosecution agreement, HSBC won't be prosecuted if it meets certain conditions, including stronger internal controls to prevent money laundering. Such agreements have been used often by the Department of Justice to settle allegations of foreign bribery charges against large corporations.

Money laundering by banks has become a priority target for U.S. law enforcement. In another case Monday, British bank Standard Chartered, accused of scheming with the Iranian government to launder billions of dollars, signed an agreement with New York regulators to pay $340 million to settle money laundering charges.

Since 2009, foreign banks with U.S. arms, including Credit Suisse, Barclays and Lloyds, have made payments to settle allegations they moved money for people or companies that were on a U.S. sanctions list. Because these banks had U.S. subsidiaries, they are subject to U.S. laws and regulations.

In his statement Tuesday, HSBC's Gulliver said: "The HSBC of today is a fundamentally different organization from the one that made those mistakes. Over the last two years, under new senior leadership, we have been taking concrete steps to put right what went wrong and to participate actively with government authorities in bringing to light and addressing these matters."

HSBC announced Monday that Robert Werner, a former head of the Treasury Department agencies responsible for sanctions against terrorist financing and money laundering, will begin a new role at HSBC as head of financial crime compliance and become the bank's money-laundering reporting officer. Werner has been head of global standards assurance since August.

In January, HSBC hired Stuart Levey, a former Treasury undersecretary for terrorism and financial intelligence, as chief legal officer. And a former policy adviser in the Obama administration, Preeta Bansal, in October became HSBC's global general counsel for litigation and regulatory affairs.

More Info: http://sivg.org/article/2012_HSBC_will_pay_billions_for_money_laundering.html

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Freitag, 7. Dezember 2012

Judge approves Stanford class action lawsuit

December 7, 2012
A civil suit by 86 defrauded investors was certified by a Baton Rouge judge Wednesday as a class action against Louisiana's regulator of financial institutions and a Pennsylvania company that compiled customer financial statements on behalf of convicted swindler Robert Allen Stanford.

The ruling by state District Judge R. Michael Caldwell could open the door for some 1,000 investors damaged by Stanford's fraudulent $7.2 billion scheme to join the suit. Those people now have the option to join the original plaintiffs in seeking judgments against the Louisiana Office of Financial Institutions, or OFI, and the financial services firm of SEI Investments Co.

If investors win that suit, OFI and SEI could share liability for as much as $1 billion in losses in Louisiana, according to estimates by their attorneys.

SEI took investment-performance information from Stanford, now serving a prison term of 110 years, and used it for financial statements that went to investors. But both the Pennsylvania firm and OFI deny failing any obligations to investors.

"I do certify this lawsuit as a class action," Caldwell told a courtroom populated by former Stanford investors and attorneys for all sides in the litigation.

The judge noted his decision merely opens the door for more defrauded investors to join the lawsuit against OFI and SEI. Additional litigation will be needed to determine whether those investors are entitled to recover any money from the two defendants for allegedly failing an obligation to warn them of indicators of fraud on Stanford's part.

Many people lost their money, Caldwell said, adding that there were more than 1,000 investor accounts at Stanford Trust Co. in Baton Rouge.

Additional investors' money was drawn into the scheme through Stanford Group Co.

"Some of them lost all of their money," Caldwell said of the victims. "Some of them lost hundreds of thousands of dollars, and some of them lost millions."

Phil Preis, lead attorney for the plaintiffs, said Caldwell's ruling "affords the people of Louisiana their day in court." Preis said his clients "are overjoyed."

Zachary resident and Stanford victim Kathy Mier said, "I am very, very, very excited, very happy. Someone has listened, and I'm ready to go on."

Mier and her husband, Louis Mier, lost $240,000 of their retirement nest egg to Stanford, 62.

"For the first time in a long time, I felt like someone really listened to us, and we're moving forward with our fight," Kathy Mier said.

Debbie and Ken Dougherty, of Central, recovered their principal investment in Stanford's certificates of deposit at his bank on the Caribbean island of Antigua before federal officials shut down his operations in February 2009. But they continue to face demands from a court-appointed receivership in Dallas for return of more than $100,000 in profits.

"I know this is just one hurdle, but it's huge," Debbie Dougherty said after Caldwell's certification of the class action lawsuit. "If we can get something for those folks who got nothing, then this (court fight) will be worth it."

Attorneys for OFI and SEI, however, said long before Caldwell's ruling that the government agency and financial services corporation did not violate any obligations to investors and will fight investor claims in court.

"The role of OFI is to regulate, not to ensure that those who invest in companies subject to OFI regulation will never lose money as a result of criminal actions," OFI attorney David Latham wrote in one court filing.

In May 2011, however, former Stanford employee-turned-whistleblower Charles W. Rawl testified in Washington, D.C., before the House Financial Services Subcommittee on Oversight and Investigations. Rawl told members of Congress that he advised OFI officials of corrupt Stanford practices in 2008.

In late summer 2008, Rawl testified, OFI officials blocked future sale of additional Stanford bank certificates of deposit into Individual Retirement Accounts at Stanford Trust Co.

Preis said after Caldwell's ruling: "The state examined the trust company. For a period of four years, we allege, they (OFI officials) knew of (Stanford's) Ponzi scheme."

A Ponzi is not a legitimate investment program. From beginning to end, it is intended to do nothing more than drain money from investors and transfer those assets to criminals. Early investors are paid dividends in order to attract new investors, whose money prolongs the scheme.

Both the Securities and Exchange Commission and the U.S. Attorney's Office in Houston alleged in 2009 that Stanford's operations were fraudulent from the beginning. Federal judges in Dallas and Houston have since agreed with that assessment.

But those court rulings have yet to benefit any defrauded investors. And they did not target any blame toward OFI and SEI.

SEI attorney J. Gordon Cooney Jr. told Caldwell two months ago that SEI did not falsify any information in investors' financial statements, which routinely showed healthy profits, even as Stanford's worldwide empire was collapsing.

All financial information used in those statements was provided by Stanford or his employees, Cooney added. He said SEI did not knowingly participate in the dissemination of false information to investors.

More Info: http://sivg.org/article/2012_Judge_approves_Stanford_class_action.html

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