HSBC, Europe’s largest bank, has been fined $27.5m in Mexico for lax controls in its anti-money laundering systems, a week after a scathing US Senate report slammed the bank for letting clients shift funds from dangerous and secretive countries.
It is the biggest fine ever charged against a bank by the Mexico’s National Banking and Securities Commission (CNBV), the Mexican regulator said on Thursday.
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CNBV levied the fine against the British banking giant due to its “non-compliance with anti-money laundering systems and controls” as well as its late reporting of 1,729 unusual transactions, failing to report 39 unusual transactions, and 21 administrative failures.
The Mexican fine is separate from any settlement the bank might reach with the US department of justice. That could run to as much as $1bn, analysts have estimated, based on a record $619m fine that ING bank agreed in June to pay to settle similar claims.
Last week, a US Senate panel alleged that HSBC acted as a financier to clients routing funds from the world’s most dangerous places, including Mexico, Iran and Syria, doing regular business in areas tied to drug cartels, terrorist funding and tax cheats.
The report slammed a “pervasively polluted” culture at the bank and said between 2007 and 2008, HSBC’s Mexican operations moved $7bn into the bank’s US operations.
HSBC ignored risks in doing business in countries like Mexico, where drug trafficking is rife, the report said.
‘Failed to meet standards’
In a statement, the bank said, “HSBC Mexico apologises for its failure strictly to comply with banking regulations, and acknowledges that in the past, it has sometimes failed to meet the standards that regulators and customers expect.”
It said it had taken action to address the failures and noted that Mexico remained a priority market.
HSBC is one of Mexico’s top five banks, with more than 1,400 branches and 6 million customers. It has operated there since the 1970s. In 2000, HSBC bulked up after buying Republic National Bank and did so again in 2002 with a controlling stake in Grupo Financiero Bital.
The problems at Europe’s biggest bank have been known for nearly a decade, but the Senate probe detailed just how sweeping the problems have been.
The fine comes at a troubled time for Britain’s banks, after rival Barclays was fined $453m by US and UK regulators last month for manipulating interest rates. More banks around the world are expected to be fined as part of the probe into Libor.
US Treasury Secretary Timothy Geithner on Wednesday deflected criticism of his handling of the Libor banking scandal, directing US lawmakers’ scorn toward London regulators.
“I believe we did the necessary appropriate things,” said Geithner, who was at the time the president of the New York branch of the Federal Reserve.
The Treasury chief said he sent a detailed list of recommendations on reforming the rate – which underpins rates on everything from mortgages to credit cards – to Bank of England governor Mervyn King.
“We brought those concerns to their attention, and we thought, and I still believe, that it was really going to be on them to take responsibility for fixing this.”
Emails, phone transcripts and internal reports recently released showed the New York Fed under Geithner was explicitly told that banks were misstating their input to the Libor in June 2008.
In response Geithner suggested the Bank of England expand the number of banks that are on the Libor-setting panel and make the process less opaque.
It is believed that many other banks could be involved in the scandal, which has led to a volley of calls for reform.
The European Commission on Wednesday called for member states to criminalise the rigging of interest rates.
So far legal actions have focused on the impact that fixing had on Libor-linked derivatives products.
According to lawyers at Sedgwick, at least 21 class-action suits have been filed, while the US Securities and Exchange Commission, the US separtment of justice, Japan’s financial supervisory agency, Canada’s competition bureau, the European Commission, Germany’s BaFin and the Swiss competition commission, are among the public bodies investigating.