|CEO Stuart Gulliver wanted to get HSBC out from under the DPA before he left|
Monday’s news that the US Department of Justice will file a motion with the District Court for the Eastern District of New York seeking the dismissal of the prosecution charges deferred by an agreement struck with HSBC in December 2012 will be cause for celebration in Canary Wharf.
For five years the threat of new misdemeanours emerging that might trigger the most severe penalties has hung over the British bank. HSBC has operated in a quiet state of near paranoia since it accepted responsibility for its criminal responsibility in wilfully failing to maintain effective anti-money laundering controls and to conduct due diligence on its foreign correspondent affiliates, specifically in Mexico.
In 2012, the shock of what had been uncovered in the bank’s handling of drug-dealers’ money and dealing with sanctioned countries was red raw.
Back then, assistant attorney general Lanny Breuer said: “HSBC is being held accountable for stunning failures of oversight – and worse – that led the bank to permit narcotics traffickers and others to launder hundreds of millions of dollars through HSBC subsidiaries, and to facilitate hundreds of millions more in transactions with sanctioned countries. The record of dysfunction that prevailed at HSBC for many years was astonishing.”
He warned that “under the terms of today’s agreement, if the bank fails to comply with the agreement in any way, we reserve the right to fully prosecute it”.
In July this year, chief executive Stuart Gulliver recalled to Euromoney the shame of it all.
“The deferred prosecution agreement hugely hurt the self-esteem of every single person at HSBC,” he said. “People became almost embarrassed to be associated with the bank, and our staff were ashamed, in particular when asked by their families about the organization they worked for.”
Gulliver and his senior management colleagues have been less than keen to talk about the imposition of a court-appointed monitor, Michael Cherkasky, to check on the bank’s undertakings to improve its controls. And Cherkasky’s own reports have not been made public, aside from the occasional leak of needs for continued improvement.
It’s a topic that has often cropped up in informal conversations with lower-level HSBC business heads who told Euromoney of their astonishment at the scale of resources at the monitor’s command.
Cherkasky would descend with no advance warning on locations in developed and emerging markets across HSBC, backed by dozens and dozens of assistants, demanding to run through records and review processes, requiring executives at any level of the bank to cease their day-to-day work and responds to his team’s requirement.
A growing resentment amid the anxiety and unease became evident among bankers who had had no connection to drug dealers or sanctions busting, especially at the realization that HSBC itself was paying for all the resources seemingly being devoted against the bank.
Euromoney has grown used to listening to these complaints in a state of quiet disbelief, occasionally finding it necessary to remind HSBC bankers that the institution had brought this on itself. If the monitor was excessively demanding, secretive on where he would pounce next and well-resourced, that was a good thing. It meant he was doing his job properly.
Perhaps HSBC bankers will finally come to their senses about this now.
On Monday, Gulliver was able to tell his troops: “HSBC is able to combat financial crime much more effectively today as the result of the significant reforms we have implemented over the last five years.
“We are committed to doing our part to protect the integrity of the global financial system, and further improvements to our own capability and contributions toward the partnerships we have established with governments in this area will remain a top priority for the bank into 2018 and beyond.”
Gulliver’s own career at HSBC will end in February. Insider John Flint will succeed him.
Gulliver wanted to get the bank – to which he has devoted his working life – out from under the DPA before he left HSBC. Sentiment plays little part in banking and the five-year anniversary of the DPA always loomed as the key moment to judge whether the bank had lived up to all its commitments.
Now it has the monitor’s approval, perhaps some at HSBC might find time to thank him for making their job so tough.