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HSBC to Resolve Belgium Money Laundering Lawsuit for $336M

Zacks Equity Research

HSBC Holdings’ HSBC Swiss banking division has agreed to pay €300 million ($336 million) for resolving tax fraud and money-laundering case in Belgium. The lawsuit was filed in 2014.

As part of the settlement, HSBC will be paying €294.4 million to the Belgian state for losses in tax revenues owing to the alleged illegal business activities done by the bank. The remaining amount will be paid as civil damages. Notably, the settlement is yet to be approved by Belgian judges.

In a statement, the Belgian prosecutors said that HSBC was “charged by a prosecutor in 2014 for serious and organised tax fraud, forgery and falsification of records, money-laundering and illegal use of financial intermediaries.”

In 2014, the Belgian investigating judge, Michel Claise, had accused HSBC unit of assisting more than 1,000 wealthy clients (including diamond merchants) in moving their money to off-shore tax havens since 2003. These rich Belgian clients are actually subject to 35% tax of interest earned on the money kept in the Swiss branches of HSBC.

However, in order to avoid paying such taxes, Swiss HSBC employees advised the clients to transfer the money to off-shore companies. These companies, based in Panama and the British Virgin Islands, exist solely for tax-evasion purpose. Hence, this led to a loss of hundreds of millions of euros in tax revenues.

Nonetheless, since then, the bank has undertaken several reforms to counter financial crimes.

For HSBC, which is already facing revenue pressure, and had its CEO step down suddenly, the resolution of the case is a move in the right direction. The bank is planning to lower costs and hence, is expected to lay off nearly 2% of its workforce. (Read more: HSBC Plans to Lay Off 4,000 Employees Globally to Cut Costs)

Shares of this Zacks Rank #3 (Hold) company have lost 6.8% so far this year compared with a 1.5% decline of the industry.

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

Over the past years, several global banks including JPMorgan JPM, UBS Group AG UBS, Citigroup C and Barclays have been accused of rigging currencies, rates and prices of commodities, among others. The banks have been fined billions of dollars as part of probes and lawsuits.

Earlier in February, UBS and its French unit were found guilty by the French trial court of tax fraud and money laundering allegations. The court imposed a penalty on the bank of €4.5 billion ($5.1 billion). (Read more: UBS Group AG Slapped With $5.1B Fine for Tax Evasion in France)

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