Exclusive: Consultancies on second tier as Justice Department seeks HSBC compliance monitor

By Guest Contributor
May 14, 2013

By Brett Wolf, Compliance Complete

May 14, (Thomson Reuters Accelus) - Although a federal judge in Brooklyn has not yet signed-off on a deal between HSBC and the Justice Department that would settle allegations that anti-money laundering failures at the bank allowed drug cartels to launder hundreds of millions of dollars, candidates for a lucrative job policing the bank’s compliance with the pact are scrambling to win the work.

Consulting firms are not being considered to lead the work, but may be hired to carry it out once a well-recognized anti-money laundering expert is hired as monitor, a source said.

“We’re talking about a five-year, ironclad, wealthy contract. This is not hustling for billable hours,” said a source familiar with the Justice Department’s search for a so-called independent monitor. “There is an extraordinary amount of political jockeying going on to secure this work.”

There is no reason for the Justice Department to rush its selection process. It cannot name a monitor – a key requirement of the deferred prosecution agreement (DPA) that Justice and HSBC inked in December – until District Judge John Gleeson approves the pact requiring one, sources said.

Many observers are surprised that Gleeson, who has been probing the appropriateness of the settlement agreement since shortly after it was finalized in December, is still pondering the deal and thereby delaying the work of the monitor who will have to get quickly up to speed on HSBC’s compliance remediation efforts.

A Justice Department spokesman told Compliance Complete that the independent monitor selection process is continuing and said Gleeson’s deliberations are not “holding up the selection.” He declined to comment further.

While interviewing and vetting candidates for the monitor job, the Justice Department has made it clear that it is uninterested in filling the high-profile post with a consulting firm, sources with first-hand knowledge of the search process said.

The source quoted above, who spoke on condition of anonymity, said the Justice Department wants to grant the position to an individual with a sterling reputation and anti-money laundering credentials. That person will in turn be allowed to hire a consulting firm to provide a staff that will manage the day-to-day oversight of the bank.

In January, HSBC passed a list of three preferred monitor candidates to the Justice Department, which can choose one of them or instruct HSBC to come up with a new list.

The identities of the parties being considered are not known. Both the Justice Department and HSBC declined comment.

As part of its vetting process, the Justice Department has required monitor candidates to disclose which consulting firms they would hire, sources said. It has also looked for potential conflicts of interest stemming from prior relationships with the bank, both those involving consulting firms that worked for it and those involving former law enforcement officials who pursued it.

“The Justice Department said ‘We want the monitor to be an individual that has a reputation to uphold and that person is going to be held severally responsible,’” the source who declined to be named said. “Before they award it, and formalize it, they want to know how everything is going to play out. Lots of things have to fall in place before they pull the trigger.”

The source added that consulting firms are “jockeying to supply the bodies” that will handle the day-to-day work and be managed by the monitor who will interact with bank executives and report findings to the Justice Department.

“That is a whole other hustle that is going on right now,” he said.

The monitor job is likely to go to a lawyer who is knowledgeable about both U.S. anti-money laundering requirements and international standards, said Dennis Lormel, who previously headed the Federal Bureau of Investigation’s Terrorist Financing Operations Section and now is a consultant.

“You’re looking at a very important settlement in this industry, so whoever is coming in is going to have to be very visible in the anti-money laundering space and able to command the respect of both the Justice Department and HSBC,” Lormel said.

He added that while the monitoring work will be extensive, the mission can be summarized in a single question.

“Is HSBC doing what it agreed to do and is it doing it effectively?” he said.

(This article was produced by the Compliance Complete service of Thomson Reuters Accelus. Compliance Complete provides a single source for regulatory news, analysis, rules and developments, with global coverage of more than 230 regulators and exchanges. Follow Accelus compliance news on Twitter: @GRC_Accelus)

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