Counterparties: White collar crime

November 6, 2012

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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 HSBC’s 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 “could be significantly higher” than $1.5 billion. (The FT cites analyst estimates ranging from $2 to $3 billion.) What’s 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 aren’t good. — Ben Walsh

On to today’s links:

The FT is reportedly for sale (if you’ve got up to $1.6 billion lying around) – Bloomberg

Has Wall Street already given up on Romney? – John Carney

It’s time for performance-based pay in DC – Sheila Bair
60% of Wall St doesn’t understand their own pay – Huffington Post

New Normal
“Time to move on”: Election Day has been replaced by Election Month – WaPo

Big Problems
We’re making too many “efficiency” innovations and not enough “empowering” innovations – Clayton Christensen
Why we can’t seem to solve big problems – MIT Technology Review

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

“Dead money”: what’s behind the massive global rise in corporate cash stockpiles? – Economist

Today In Rationing
One problem with rebuilding beaches: we are running out of sand – NYT

An Economist Said This
Enough with “one man, one vote”, what about Pareto efficiency? – Steven Levitt

Sherrod Brown, US Senator from Ohio, member of Senate Banking Committee, enjoying Hova – YouTube

Right On
Kickstarter CEO: “We don’t ever want to sell this company, we don’t ever want to IPO” – All Things D

The FBI is probing Rochdale Securities – NY Post

Possibly Useless Data
Turnout plummets and the presidential race tied! (sample size: 10 people in New Hampshire) – Huffington Post
Obama wins Guam! – UPI


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