High penalties due to significant deficiencies in anti-money laundering programmes
U.S. Bancorp, the parent company of U.S. Bank, has settled with the DOJ, the Department of Treasury Office of the Comptroller of the Currency (OCC), the Federal Reserve Board and the Financial Crimes Enforcement Network (FinCEN) for USD 613 million. According to authorities, U.S. Bancorp allegedly violated the Bank Secrecy Act, which requires financial institutions in the US to assist US authorities in preventing and detecting money laundering. The BSA requires financial institutions to submit five types of reports, including a suspicious activity report. This type of report must be filed if a customer’s actions, for example, give rise to suspicions of money laundering or other violations of federal criminal laws.
As part of the settlement, U.S. Bancorp entered into a Deferred Prosecution Agreement (DPA) with the DOJ for a period of two years. Under this two-year DPA, U.S. Bancorp accepted responsibility for its actions and agreed to pay USD 453 million to the DOJ and USD 75 million in civil penalties to the OCC, for a total amount of USD 528 million. In addition, U.S. Bancorp agreed to fully cooperate and take remedial measures to implement and maintain an adequate anti-money laundering programme in accordance with the BSA. Additionally, U.S. Bank agreed to provide the DOJ with information about the status of the implementation of these remedial measures to its BSA/AML compliance programmes over two years. The US courts are currently reviewing the DPA. If U.S. Bancorp meets the terms of the agreement, government will decide to dismiss the charges.
According to court documents, U.S. Bancorp wilfully failed to implement an adequate anti-money laundering programme and, between 2009 and 2014, failed to report suspicious activity through a cap on the number of alerts that were automatically generated in case of suspicious activity. Instead, only a predetermined number of transactions were flagged for further investigation, without regard for the number of lost alerts that would have been investigated if the cap was not present.
According to the DOJ, U.S. Bank deliberately concealed its wrongful approach from the OCC. U.S. Bancorp was well aware of the misconduct by its subsidiary and placed the U.S. Bank at risk of regulatory action. According to FinCEN director Kenneth A. Blanco, “U.S. Bank’s own anti-money laundering staff warned against the risk of this alerts-capping strategy, but these warnings were ignored by management. U.S. Bank failed in its duty to protect our financial system against money laundering and provide law enforcement with valuable information”.
Similar to the settlement of U.S. Bancorp, the US entity of Rabobank settled charges with the DOJ and the OCC, stemming from two violations of the BSA. Rabobank pleaded guilty to concealing deficiencies in its anti-money laundering programme and obstructing the OCC’s investigation, and agreed to pay a total amount of USD 368.7 million to the DOJ and the OCC. Included in this settlement is an USD 50 million civil penalty imposed by the OCC. In this case, several former executives in the US allegedly misled authorities by unlawfully obstructing the OCC’s investigation. As part of the plea agreement, Rabobank agreed to fully cooperate with the continuing investigation for four years. Rabobank made substantial efforts to remedy the misconduct in this US entity by implementing material improvements in its anti-money laundering programme; as a result, Rabobank is not required to take any other additional remedial measures.
HSBC resolves fraud charges in relation to front-running
HSBC has entered into a DPA and agreed to pay USD 63.1 million in criminal penalties and USD 38.4 million in disgorgement and restitution. HSBC admitted that on two separate occasions in 2010 and 2011, traders on its foreign exchange desk allegedly misused confidential information from clients to drive the exchange rate in a direction that benefited HSCB at the expense of the client. This is also known as front-running. According to the DOJ, HSBC traders caused large transactions to be executed in a manner designed to drive down the value of sterling, to the benefit of the company. In addition, HSBC also concealed the misconduct to one of the clients concerned, Cairn Energy. HSBC admitted to gaining USD 46.4 million in total from the two offences. As part of the DPA, HSBC agreed to cooperate with the DOJ and with foreign authorities in ongoing investigations and related prosecutions. Furthermore, the company guaranteed that it has implemented, and will continue to implement, an adequate compliance programme to prevent and detect violations of US federal law.
According to the DPA, HSBC received a total discount of 15% because of its cooperation and extensive remedial measures, after changing course and substantially improving its cooperation. However, HSBC did not receive credit for voluntary disclosure because, according to the authorities, it did not voluntarily and timely disclose the misconduct to the Fraud Section.
In relation to this matter, in August 2016, former HSBC executive Mark Johnson was found guilty of conspiracy to commit a multi-million front-running scheme. According to the DOJ, Johnson defrauded a client for more than USD 7 million. As part of the misconduct, Johnson and his co-conspirators made misrepresentations to the client by covering up the self-benefiting nature of their actions. The sentencing of Johnson was originally scheduled for 15 February 2018, but the outcome has not yet been made public.