HSBC, Europe's biggest bank by market value, is to make a record US$1.9 billion (Dh6.97bn) payment to settle allegations by authorities in the United States that it allowed itself to be used by clients with links to terrorists in the Middle East and drug traffickers in Mexico.
The settlement, announced by the bank yesterday, includes a deferred prosecution settlement with the US justice department.
The deal came a day after Standard Chartered, the UK's second- biggest bank by market value, agreed to pay $327 million to US regulators in response to accusations that it broke sanctions against Iran, Libya, Sudan and Myanmar. In August, the lender agreed to pay New York state financial regulators $340m.
The action against both banks follows investigations by US authorities into money laundering by terrorists and drug cartels.
"We accept responsibility for our past mistakes. We have said we are profoundly sorry for them and we do so again," said Stuart Gulliver, the HSBC group chief executive. "Over the past two years, under new senior leadership, we have been taking concrete steps to put right what went wrong and to participate actively with government authorities in bringing to light and addressing these matters."
Under the agreement, HSBC said it would make payments totalling $1.92bn and continue to cooperate with regulatory and law enforcement authorities. It would also take further action to strengthen its compliance policies and procedures.
The bank's shares were up 0.33 per cent at 643.30 pence during afternoon trading in London yesterday.
"The fine has to be put into context as it's only 1 per cent of HSBC's market capitalisation," said Gary Greenwood, a banking analyst at Shore Capital in the UK. "There will be higher compliance costs and HSBC might lose some US clients, but in the grand scheme of things it's not going to have a significant impact on its business."
The details of the allegations against HSBC were laid bare in July in a US Senate investigation. The bank was accused of removing details from transactions that would have identified Iranian entities, putting it in violation of sanctions against Iran.
The report indicated that the Middle Eastern unit was "at the centre of efforts to pressure" HSBC's US subsidiary into conducting Iranian transactions that did not alert the filters of American authorities.
HSBC Middle East was linked via its affiliates to banks in Saudi Arabia, that the US government alleged had links to organisations involved in the financing of terrorism.
The bank was also accused of moving billions of dollars from its affiliate in Mexico to the US, even though US regulators told HSBC that such large sums would include proceeds from illegal drug deals.
In anticipation of a settlement, HSBC put aside a further $800m in provisions in the third quarter, adding to $700m it had already allocated.
Standard Chartered said on Monday that it had paid a further $327m to settle regulators' allegations that deals with clients violated a number of US sanctions.
Between 2001 and 2007, Standard Chartered's London office and its Dubai branch engaged in millions of dollars of payment deals that broke the enforcement of sanctions by financial institutions in the US, according to a statement from the Treasury on Monday. In Dubai, the practices allegedly included sending payment messages to or through the US without references to sanctioned locations or entities.
"Today's settlement is the result of an exhaustive inter-agency investigation into Standard Chartered Bank's attempts to violate US sanctions programmes through the 'stripping' from payment messages of critical information," said Adam Szubin, the director of the Treasury's office of foreign assets control.
Shares in the bank were up 0.07 per cent at 1,498 pence during trading yesterday afternoon.