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HSBC to implement new global ‘know your customer’ programme after money-laundering settlement

HSBC banks around the world are expected to be part of a new “know your customer” programme following HSBC Holdings’ agreement to pay a record $1.92 billion fine to settle a multiyear probe by US prosecutors who accused Europe’s biggest bank of failing to enforce rules designed to prevent laundering of criminal cash.

HSBC will spend $700m on the global “know your customer” programme, as part of a 26-point plan agreed with US regulators to settle money laundering and sanctions breaches, the Financial Times reported yesterday, noting that a monitor has been placed inside the bank, “the first time the US has taken such a step at a foreign bank”.

The new pledge to spend $700 million on a global “know your customer” programme is point “W” in the A-Z of remedies announced yesterday.

“Know your customer” is shorthand for a range of anti-money-laundering safeguards enforced in markets around the world, although banks have some latitude in how principles are implemented, the FT reported.

An HSBC Bermuda spokesperson stated: "HSBC takes compliance with relevant laws and regulations very seriously. There is a 'Know Your Customer' process in place in Bermuda."

HSBC Holdings admitted to a breakdown of controls and apologised in a statement yesterday, announcing it had reached a deferred-prosecution agreement with the US Department of Justice.

The UK bank, which signed up to the A-Z programme of management changes covering both its US and global operations, reiterated apologies for its failure to prevent Mexican money launderers and countries subject to sanctions, including Iran, from using its network.

“We accept responsibility for our past mistakes. We have said we are profoundly sorry for them, and we do so again,” said chief executive Stuart Gulliver.

The US Justice Department said at least $881 million in drug-trafficking proceeds from Mexican and Colombian drug cartels were laundered through HSBC in the US, the FT reported.

The bank was also accused of helping countries evade sanctions, with $660m from Iran, Cuba, Sudan, Libya and Myanmar sent to HSBC accounts in the US.

HSBC became “the vehicle of choice for illegal money men”, John Morton, director of US Immigration and Customs Enforcement, said in the FT article.

The bank said it had increased its spending on US anti-money laundering ninefold to $244 million between 2009 and 2011, boosting staff numbers from 117 to 1,147 over the period and ending 109 client relationships in the US.

The bank will now roll out a similar programme globally, the FT said.

“As part of the bank’s changed management approach under Mr Gulliver, who took over as chief executive two years ago, HSBC has sold 42 businesses around the world that fell short of performance targets,” FT said. “Mr Gulliver has more recently targeted operations and client relationships that could cause regulatory headaches.”

HSBC also confirmed it had clawed back bonuses from a number of senior US managers from the 2002-10 period examined by lawmakers. Group management, however, escaped unscathed, FT said.

Meanwhile, FT said UK opposition politicians stepped up their criticism of the role of Lord Green, HSBC’s former chairman and chief executive who is now trade minister.

“Lord Green is not only a senior minister in the government but an adviser to [Chancellor] George Osborne on banking and a member of the cabinet committee on banking reform,” said Chris Leslie, shadow financial secretary to the Treasury. “He cannot continue to duck detailed questions about his time in charge of HSBC.” Lord Green declined to comment.

HSBC: New know your customer programme is part of money-laundering settlement

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Published December 12, 2012 at 8:00 am (Updated December 11, 2012 at 7:56 pm)

HSBC to implement new global ‘know your customer’ programme after money-laundering settlement

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