The HSBC case is best known for the money-laundering failures that ran through the same day’s announcements. The sanctions part is separate, and it is mostly not about Iran.
Two matters, one day
On 11 December 2012 Treasury announced $875 million in settlements with HSBC through FinCEN, the OCC and OFAC, part of a wider action that assessed more than $1.9 billion in total. Most of the announcement concerned Bank Secrecy Act failures at HSBC Bank USA, including its treatment of Mexico. OFAC’s $375 million is a different matter, covering sanctions, and its enforcement notice does not mention the Mexico conduct.
What OFAC counted
HSBC Group processed 2,335 wire transfers worth about $430 million across five programmes. The base penalty, set at the statutory maximum of $1.16 billion because the violations were egregious and not self-disclosed, divides like this:
| Programme | Transfers | Approximate value | Base penalty |
|---|---|---|---|
| Burma | 1,031 | $136.7m | $416.3m |
| Sudan | 1,036 | $109.0m | $378.6m |
| Iran | 203 | $164.3m | $355.4m |
| Libya | 25 | $1.2m | $7.0m |
| Cuba | 40 | $18.8m | $2.6m |
Iran was the largest by value and third by penalty. Burma carries the biggest share, 36 per cent, because penalties run per violation against a statutory maximum: a thousand small transfers cost more than two hundred large ones.
How, according to Treasury
Treasury’s press release says HSBC’s London head office and Dubai branch “engaged in payment practices that interfered with the implementation of U.S. economic sanctions by financial institutions in the United States.” They included SWIFT messages “in a manner that obscured references implicating U.S. sanctions,” removal of information from SWIFT messages, and forwarding payment messages to US banks that “falsely referenced an HSBC affiliate as the ordering institution.” See correspondent banking abuse and the UAE page.
The separate gold matter
OFAC also settled a smaller, non-egregious matter. Between May 2006 and October 2008, HSBC Bank USA failed to block or reject a book-entry transfer of 32,000 ounces of gold bullion for the ultimate benefit of a bank owned or controlled by the Government of Iran, and processed nine electronic funds transfers worth $21.8 million in apparent violation of several regulations, including a Zimbabwe order. Its base penalty was $467,000.
The penalty
OFAC cited failure to exercise a minimal degree of caution, awareness among employees including senior management, significant harm to the programmes, and inadequate policies. It mitigated because some transactions might have been licensable, for a clean five-year record, substantial cooperation, remediation and the global settlement. The $375 million was deemed satisfied by payment to the Justice Department and the New York County District Attorney.
What the record shows
- The biggest programme was Burma. The settlement is often remembered as an Iran case. See the stripping-era note for how the same is true of other banks.
- The method came from the head office. Treasury places the practices at the London head office and Dubai branch, not at a remote affiliate.