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HSBC Admits of Possible Anti-Money Laundering Law Breaches

Zacks Equity Research

HSBC Holdings plc HSBC has owned up to the financial regulator in Australia for potential anti-money laundering law breaches by its Australian subsidiary. Notably, in its 2019 annual report, the subsidiary had highlighted the possible breaches to the Australian Transaction Reports and Analysis Centre (“AUSTRAC”).

AUSTRAC is a government agency, handling money laundering and financial crimes. It works with reporting entities to help them improve compliance.

Reporting itself, HSBC said that there were small amounts of cross-border foreign currency transactions, which involved non-banking financial institutions, which the bank failed to report properly for technical reasons.

The bank stated, “…regulators and other bodies may make findings that the bank has engaged in misconduct, including breaches of law or conduct that falls below community standards and expectations.”

While HSBC did not reveal the number of potential breaches, banks that breach anti-money laundering rules in Australia have to face fines of up to $21 million for individual offense.

Notably, in 2012, the bank paid out a fine of $1.9 billion and entered into a five-year deferred prosecution agreement with the authorities in the United States because it had failed to prevent Mexican drug cartels from laundering hundreds of millions of dollars.

Thus, since then, HSBC has been engaged in improving its systems to prevent more breaches. The bank has been investing billions of dollars into its internal controls and has also hired thousands of compliance staff.

While the company’s initiatives to strengthen digital capabilities globally and improve operating efficiency through restructuring efforts are expected to support profitability in the long run, its continued involvement in legal issues is expected to lead to a rise in litigation expenses. Thus, an increase in the cost base will likely hurt its bottom line to an extent.

Over the past year, shares of HSBC have lost 38.9% compared with a 39.4% decline of the industry.






Currently, the company carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Like HSBC, other companies have been engaged in wrongdoings over the past several years. To name a few, UBS Group AG’s UBS European subsidiary was recently accused of money laundering and helping Sofia Sgr, an asset-management firm, to deceive clients by charging higher fees.

Also, Deutsche Bank DB had been investigated for its involvement in the €200-billion ($220 billion) Danske Bank money-laundering scandal.

In 2018, ING Groep NV ING was fined $900 million by the Dutch authorities for violating laws related to preventing money laundering and financing terrorism. While admitting the allegations, the company stated, “The shortcomings identified resulted in clients having been able to use their bank accounts for money laundering practices for years.”

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