By Colin Barr
October 7, 2010

Federal regulators sanctioned HSBC, the giant U.K.-based bank, for breaking federal money-laundering laws.

The Federal Reserve and the Office of the Comptroller of the Currency issued cease-and-desist orders to two U.S.-based HSBC

units for infractions including violations of rules that oblige bankers to scrutinize cross-border fund transfers.  

“The Bank’s compliance program and its implementation are ineffective, and accompanied by aggravating factors, such as highly suspicious activity,” the OCC said of HSBC Bank USA of McLean, Va. The violations were widespread and created “a significant potential for unreported money laundering or terrorist financing.”

HSBC, which operates the nation’s 10th biggest bank holding company, agreed to adopt policies that will put it in compliance with the Bank Secrecy Act and Anti-Money Laundering laws. It neither admitted nor denied the regulators’ findings.

Regulators didn’t announce any fines, but the OCC said Thursday’s agreement “does not preclude the OCC from assessing a civil money penalty against the bank.”

HSBC said it “is committed to prompt resolution of these compliance matters and the maintenance of sustainably compliant and effective BSA/AML policies and procedures.”

The OCC, the Treasury unit that oversees national banks, sanctioned HSBC Bank USA for failing to comply with regulations that dictate how banks monitor customers wiring large sums of money from overseas.

The OCC found that the bank’s BSA compliance program had deficiencies with respect to suspicious activity reporting, monitoring of bulk cash purchases and international funds transfers, customer due diligence concerning its foreign affiliates, and risk assessment with respect to politically-exposed persons and their associates. These findings resulted in violations by the bank of statutory and regulatory requirements to maintain an adequate BSA compliance program, file suspicious activity reports, and conduct appropriate due diligence on foreign correspondent accounts.

HSBC USA warned in a regulatory filing in August that it was under investigation by the government bodies including the Fed, the OCC, the Justice Department and the U.S. attorney’s office. It said the probes covered matters including the bank’s foreign correspondent banking business and its Global Banknotes operation — also known as “international bulk cash,” according to the OCC.

The bank told investors it “is likely we will be subject to some form of formal enforcement action,” and that “relevant authorities have the power to impose civil money penalties, fines and other financial penalties.”

Money laundering controls may not be HSBC’s only legal headache. Bloomberg reported in July that Justice was investigating HSBC clients who may have put money in India and Singapore without telling the IRS. Swiss bank UBS last year paid $780 million to settle charges it helped clients evade taxes.

A spokeswoman said HSBC is conducting “ongoing discussions” on the Justice probes but added it would be “premature to speculate” about any possible outcomes.

The order against HSBC is the second black eye in recent months for the giant global U.K. banks operating here. Barclays

in August agreed to pay $298 million to settle criminal probes of its dealings with clients based in companies facing U.S. trade sanctions, such as Iran and Libya.

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