HSBC to pay $1.92 billion to settle money-laundering probes

Settlement Provisions

Standard Chartered Plc, which like HSBC generates most of its earnings in Asia, said yesterday it will pay a further $327 million to settle regulators’ allegations that transactions with Iranian clients violated U.S. sanctions. It agreed to pay $340 million to the New York Department of Financial Services on Aug. 14.

HSBC made an $800 million provision in the third quarter to cover a potential settlement, adding to $700 million it had already earmarked. The bank said on Nov. 5 it will probably face criminal charges from U.S. anti-money-laundering probes and the cost of a settlement may “significantly” exceed the $1.5 billion it has set aside.

Gulliver, who became CEO in January 2011, is seeking to cut costs by $2.5 billion to $3.5 billion and revive profit by selling assets to focus on emerging economies in which the bank has a greater market share. Savings will probably exceed that range and be achieved by the end of 2013, HSBC said last month.

Standard Chartered

The bank said Dec. 5 it will sell its stake in China’s Ping An Insurance (Group) Co. to Thai billionaire Dhanin Chearavanont for $9.4 billion, giving it a $2.6 billion profit.

The bank generated 64 percent of its first-half pretax income in the Asia Pacific region, up from 47 percent five years ago, according to data compiled by Bloomberg. At Standard Chartered, it slipped to 63 percent from 65 percent.

Standard Chartered in August was accused by Benjamin Lawsky, head of the New York Department of Financial Services, of helping Iran launder about $250 billion in violation of federal laws, keeping false records and handling lucrative wire transfers for Iranian clients. The settlement was the largest paid to an individual regulator as part of a money-laundering accord.

The bank will pay $100 million to the Federal Reserve and $227 million to the Department of Justice and the Manhattan District Attorney. The settlement includes a $132 million fine to the Treasury Department’s Office of Foreign Assets Control.

Deferred Bonuses

Standard Chartered entered into a deferred prosecution agreement with the Justice Department whereby it will forfeit $227 million of funds tied to the illegal transactions, according to court records filed in Washington.

As part of that agreement, the U.S. charged the bank with one count of conspiring to violate the International Emergency Economic Powers Act. That charge will be dismissed after two years if Standard Chartered abides by the terms of the agreement, according to court papers.

HSBC agreed an independent monitor will evaluate progress in fulfilling its promises as part of the five-year agreement. During that period, bonuses based on compliance will be deferred, according to a person familiar with the situation who declined to be identified because the information is private.

HSBC executives including Gulliver did not receive the maximum discretionary bonus available to them for 2011 for reasons including the bank’s improper sale of payment protection insurance in the U.K. and the advice given to elderly customers on products to fund nursing-home costs.

Half of Gulliver’s bonus for the year was tied to non-financial performance, including 15 percent for compliance and reputation.

Bloomberg News

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