Counterparties: White collar crime
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HSBC is now almost certain to face the largest anti-money laundering fine in history. The only question is how large it will be.
The bank is negotiating a civil settlement in the US for executing thousands of transactions for drug cartels and organizations with terrorist connections between 2001 and 2010 (full 334-page Senate report here). Among HSBCâs actions: providing at least $1 billion in financing to Al Rajhi Bank of Saudi Arabia, even though some of the owners of the firm were linked to the financing of terrorism; and funnelling at least $7 billion from Mexico to the US, despite being warned that such sums had to include drug proceeds.
After setting aside $700 million in July to cover the damages, the bank is adding another $800 million to its settlement reserves. But, as CEO Stuart Gulliver told reporters, the final payout âcould be significantly higherâ than $1.5 billion. (The FT cites analyst estimates ranging from $2 to $3 billion.) Whatâs more, any settlement is likely to be followed by criminal charges from the US Justice Department.
After the Senate released its scathing report, HSBC made a college try at crisis management: its head of compliance announced his resignation (in Senate testimony no less), an apology was made, and then, in one of the great moments in the annals of revolving-door employment, they hired the former chief US sanctions regulator to oversee their own sanctions compliance.
But when the bureacratic infighting that occurs when you are under investigation by 11 separate federal agencies seems to be your best bet at containing a scandal, things arenât good. — Ben Walsh
On to todayâs links:
Banks are firing their million-dollar derivatives traders and replacing them with algorithms – Bloomberg
S&P gets in trouble for giving AAA rating to obviously terrible thing – Matt Levine
Buy and hold still pretty much works – WSJ