HSBC to face £1bn fines over money-laundering

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HSBC (LSE: HSBA.L - news) is set to face a final bill for fines as high as $1.5bn (£937m) for the “shameful and embarrassing” US money-laundering scandal that has engulfed Britain’s biggest bank.

The lender is tomorrow expected to spell out the full financial damage caused by the crisis, which erupted earlier this year. The bank stands accused of leaving America’s financial system exposed to Mexican drug cartels and rogue nations such as Iran and Sudan, by failing to enforce US anti money- laundering laws.

HSBC said at its half-year results in the summer that it had set aside $700m to cover the cost of the scandal . The bank said at the time that the huge sum was only its “best estimate” for the fines and penalties it would face from US authorities. But Stuart Gulliver, HSBC’s chief executive, admitted the actual total could be higher.

The final bill is now expected to have more than doubled to $1.5bn, forcing the bank to make a further provision of up to $800m in its third quarter results tomorrow, according to Sky News.

HSBC is understood to have held talks with US authorities over the past few months to settle the claims, which came to light following a year-long investigation by a powerful US senate committee.

The Senate Committee on Homeland Security (Other OTC: HSCC.PK - news) in July branded HSBC as having been “pervasively polluted for a long time” by allowing funds to be moved to and from its US branches to countries including Mexico, Syria, the Cayman Islands, Iran and Saudi Arabia.

The scandal forced David Bagley to step down as HSBC’s head of compliance, while the bank’s chief, Mr Gulliver, issued a humbling apology. “We have sometimes failed to meet the standards regulators and customers expect… we take responsibility for fixing what went wrong,” Mr Gulliver said in July.

The bank has since initiated an overhaul of its compliance operations and hired a number of big hitters to raise standards, including Preeta Bansal, a former senior official in the Obama administration, who has been appointed global general counsel for litigation and regulatory affairs at HSBC.

If the final penalties settlement does reach $1.5bn, it will be one of the biggest ever imposed on a UK bank and will cause further shame, following a string of controversies in Britain’s banking sector.

On Friday, Royal Bank of Scotland (LSE: RBS.L - news) signalled it could soon announce a multi-million pound settlement over allegations that its staff sought to manipulate Libor, the inter-bank lending rate.

Barclays (LSE: BARC.L - news) was fined £290m in June for attempting to rig Libor, while Standard Chartered is in negotiations with US authorities to settle allegations that it breached anti-money laundering sanctions against Iran. Standard Chartered (Other OTC: SCBFF.PK - news) has already paid $340m to the New York Department of Financial Services, which accused the bank of concealing billions of dollars worth of illegal transactions with Iran.

In addition to the increased money laundering bill, analysts at Nomura have warned that HSBC might have to make a new provision for the mis-selling of Payment Protection Insurance (PPI) of about £150m.

The bank is forecast to announce a fall in third quarter pre-tax profits to $5.3bn (£3.3bn), down about $2bn on the $7.2bn it made for the same period in 2011.

HSBC refused to comment.