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Wednesday
Feb072018

Tillipman and Block: Have $4.8 billion in penalties deterred HSBC?

According to Good Jobs First’s “Violation Tracker," since 2000, HSBC has accrued $4.8 billion in penalties in 23 criminal and civil enforcement actions.

This figure does not include violations committed by the company’s subsidiaries.

HSBC’s top offenses include banking violations, anti-money-laundering deficiencies, fraud, toxic security abuses, and mortgage abuses.

While this total accounts for violations that occurred over nearly two decades, HSBC’s chronic recidivism appears to have gained momentum in recent years.

In 2012, the DOJ accused HSBC of assisting organizations linked to Al Qaeda and Hezbollah by moving money and implementing inadequate safeguards to protect against money laundering, resulting in at least $881 million of drug trafficking proceeds entering the U.S. economy.

The DOJ was not alone in its investigation of HSBC’s internal controls; the Federal Reserve, the Office of the Comptroller of the Currency, the Manhattan district attorney, the Office of Foreign Assets Control, and the Senate Permanente Subcommittee on Investigations also conducted investigations into HSBC’s policies.

The DOJ reached a settlement with HSBC and explained that criminal charges were not pursued because “HSBC would almost certainly have lost its banking license in the U.S., the future of the institution would have been under threat and the entire banking system would have been destabilized."

Soon thereafter, in 2013, HSBC agreed to a new $249 million settlement with the Federal Reserve and the Office of the Comptroller of the Currency for alleged foreclosure abuses, including charging excessive fees and using improper documents. Months later, HSBC settled additional criminal charges in the United States by entering a $1.92 billion settlement for money laundering.

Here are other HSBC charges that have settled in recent years:

  • 2014: HSBC agrees to a $10 million settlement with the U.S. government its failure to properly handle foreclosure-related fees.
  • 2014: HSBC enters a $550 million settlement with the Federal Housing Finance Agency to resolve allegations that the bank made false representations when selling mortgage-backed securities to Fannie Mae and Freddie Mac.
  • 2015: HSBC’s  $40 million settlement for Telephone Consumer Protection Act (TCPA) violations—the third largest TCPA settlement—is approved by an Illinois district court judge.
  • 2016: HSBC agrees to a $434,500 settlement with the DOJ for repossessing cars of military service members without proper court orders.
  • 2017: HSBC’s U.S. subsidiary agrees to pay more than $2 million to settle a whistleblower’s claim that HSBC defrauded the Small Business Administration’s SBA Express Loan Program by seeking reimbursement from the SBA for loans HSBC had previously determined were fraudulent.
  • 2017: HSBC agrees to a $352 million settlement with the French government to settle an investigation that it assisted clients evade taxes.

HSBC has not only repeatedly reached settlements that involved alleged violations of U.S. law, but those of other countries as well. In 2015, HSBC avoided criminal charges by agreeing to pay a $43 million settlement for allowing money laundering to take place in its Swiss subsidiary.

HSBC also faced criminal charges in Belgium for its subsidiary’s actions. These actions included allegedly facilitating tax fraud and money laundering. In 2016, the Belgium government confirmed that it would be recovering $600 million from its “black money” probe into 829 of HSBC’s accounts.

In 2017, HSBC again found itself in the middle of a money laundering scandal. A member of parliament, Lord Peter Hain, urged the UK House of Lords to investigate HSBC’s transactions out of South Africa. Hain, who grew up in South Africa, accused the British bank of ignoring transactions that had been internally flagged as suspicious. 

State governments have also joined in the investigations of HSBC. In 2016, California joined the DOJ, Housing & Urban Development (HUD), and 48 other states in a $470 million settlement with HSBC, ending charges that the bank participated in faulty mortgage origination and servicing practices.

Although settlement agreements have their benefits, one need only look at the many HSBC settlements to ask whether the fundamental underpinnings of the criminal justice system, such as deterrence, punishment, and rehabilitation, have been met by the continued use of settlement agreements with recidivists.

____

Jessica Tillipman is a Senior Editor of the FCPA Blog and Assistant Dean at The George Washington University Law School. You can follow her on Twitter at @jtillipman.

Samantha Block is a 3L at The George Washington University Law School.

Reader Comments (8)

The overall figure $4.8 billion makes s person wonder how many and what types of monthly fees HSBC is charging on a monthly basis to be able to afford to stay in business.
February 7, 2018 | Unregistered CommenterK. May-Hernandez
WOW!!!, they still are still operating as a business.
February 7, 2018 | Unregistered CommenterWill
The fines are clearly not considered penalties, but instead, part of the cost of doing business. Per the DOJ itself, the company faces little additional enforcement risk. As written above, "The DOJ reached a settlement with HSBC and explained that criminal charges were not pursued because 'HSBC would almost certainly have lost its banking license in the U.S., the future of the institution would have been under threat and the entire banking system would have been destabilized.'" With support like that, where's the motivation to change?
February 7, 2018 | Unregistered CommenterS. Hochstetler
With respect, the problem isn't settlements. The problem is who the settlements are with. I am sure the executives of HSBC will be happy to continue drawing large salaries funded by the kinds of activities described while paying out shareholder money in settlement when caught. How about a settlement involving prison time for those in senior management or on the board responsible for violations? See Professor Alschuler's piece here: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1491263
February 7, 2018 | Unregistered CommenterRick Messick
Imagine how happy bank management becomes when they are informed, by the USDOJ, they are too big to prosecute. This information, from the USDOJ, *creates* the future malfeasance at the banks.

But the USDOJ doesn't care. They go on to big salaries at private law firms, which defend the banks.

Protect yourself from this government in any way you can! There are steps you can take.
February 7, 2018 | Unregistered CommenterTerry
Penalties imposed may be just a small percentage of the profits made from the 'illegal' activities.

Further when penalties are imposed on and paid by the entity the victims are shareholders as they are ones who pay the cost of penalties whereas those responsible for the 'crimes' continue to enjoy the rewards of their decisions for the 'criminally' based decisions which achieve high profits and thus their own high rewards leading to the comparatively small financial penalties.
BEING WHITE COLLAR CRIMINALS they should be imprisoned but this may not be possible

The Regulators may also prefer NEGOTIATED PLEA BARGAINED PENALTIES as they may also be PERCEIVED TO ENJOY THE FINANCIAL REWARDS OF THE 'CRIMINAL' activities as the funds of the REGULATORY AUTHORITIES WHICH FINANCE THEIR OPERATIONS.

Under the plea bargain system system the 'criminals' may be allowed continue to hold their high remuneration packages positions as the 'crime' may not be recorded allowing them to continue as usual and the Regulatory Authorities may also have financially benefited.
MAY BE THIS COULD BE DUE TO THE OLD SCHOOL NETWORK AS BOTH SIDES MAY GENERALLY BE FROM THE SAME PROFESSIONS.

The main VICTIMS MAY MAINLY BE THOSE WHO INVESTED THEIR FUNDS IN THESE INSTITUTIONS but RARELY MAY BE ABLE TO GET ANY COMPENSATIONS!!!!
February 7, 2018 | Unregistered CommenterGursharan Singh
Perhaps it might be helpful to remember how the U.S. Government dealt with the misconduct of Standard Oil in the 1930's. Back to the future?
February 8, 2018 | Unregistered Commenterlameslave 13
It’s clear HSBC is immersed in a culture of non-compliance and corrupt conduct, and accepts the payments of fine and penalties as the cost of conducting business as usual. There is only one remedy for such blatant disregard for the rule of law. Start charging, prosecuting, and jailing responsible natural persons, because the penalties against the legal entity alone has failed to change culture and/or conduct.
February 8, 2018 | Unregistered CommenterRobin Gaxawi
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