Here’s Why Money Laundering Doesn’t Pay

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Dirty MoneySince January 2009, more than six foreign banks, including Credit Suisse (NYSE:CS) and Barclays (NYSE:BCS), have been charged by the Justice and Treasury Departments and Manhattan prosecutors for violating anti-money laundering regulations. Now, federal and state authorities are preparing to impose a $1.9 billion penalty on the London-based HSBC (NYSE:HBC) for allowing clients to shift billions of dollars worth of illicit funds from sanctioned countries like Iran and from Mexican drug cartels.

What Does HSBC’s Fine Mean?

As The New York Times reported on Monday, HSBC’s record fine is a “a major victory in the government’s broad crackdown on money laundering at banks.”  However, it was by no means their first crackdown. With a $619 million settlement, ING Bank (NYSE:ING) resolved claims in June that it had transferred billions of dollars in the United States for Cuba and Iran. On Monday, federal and state authorities imposed a $327 million settlement on Standard Charter (SCBFF.PK) after the bank admitted in August to processing transactions for Iranian and Sudanese clients. But in terms of size, HSBC’s fine far outweighs those penalties imposed by regulators on other banks.

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HSBC’s money-laundering infractions came to light after the Senate Permanent Subcommittee on Investigations released a report in July indicating that the bank had been used by Mexican cartels to transfer funds back into the United States, by Iranians to circumvent U.S. government sanctions, and by Saudi Arabian banks that had ties to terrorists.

As government officials told the Times, the $1.9 billion settlement with HSBC is expected to include a deal with the Manhattan district attorney’s office and a deferred prosecution agreement with the Justice Department.

CHEAT SHEET Analysis: Does “Honest Accounting Govern HSPC’s Books”?

One of the core components of our CHEAT SHEET Investing Framework requires companies to have zero evidence of accounting manipulation. In this case, federal and state prosecutors determined that HSBC violated United States sanctions to transfer funds on behalf of several rogue nations and organizations.

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