May face criminal charges for Iran transactions: HSBC

Written by Reuters | Mumbai | Updated: Feb 29 2012, 09:05am hrs
HSBC Holdings said on Monday it may face criminal or civil charges from an expanding investigation into its ties to allegedly illegal money transactions, including some tied to Iran.

The disclosure in a regulatory filing shows the increasingly serious nature of inquiries into the London-based banks business.

HSBC is already the subject of multiple US law-enforcement probes for ties to illegal money transactions. Monday's filing was the first time the bank disclosed that Iranian transactions are under scrutiny and that it could face a criminal charge.

The banks HSBC USA unit said investigations are being conducted by the Justice Department, the district attorney in Manhattan, two Treasury department agencies and the Federal Reserve.

It said those inquiries were examining historical transactions involving Iranian parties and other parties subject to US economic sanctions. Financial institutions doing business in the US are prohibited from aiding sanctioned countries or banks.

In recent years, the Manhattan district attorney and Justice Department have settled with a number of European banks that operated transfer systems for Iranian clients. Banks aided clients trying to improperly move money by removing, or stripping out, references that could tip off a US bank system to a transaction tied to Iran or another sanctioned state.

HSBC disclosed the new details in a filing with the US Securities and Exchange Commission as part of the bank's 2011 annual results. HSBC USA provides commercial and consumer banking and operates 461 branches. The bank previously said in securities filings that it was facing inquiries and it had received grand jury subpoenas.

Last month, Reuters reported that HSBC was under investigation by a US Senate panel in a money-laundering inquiry. In January, HSBC named former top US Treasury Department official Stuart Levey as its chief legal officer. Levey had specialised in combating terrorism financing before leaving the Treasury Department last year.

In the filing on Monday, HSBC also highlighted the serious nature of the US investigations.

It disclosed that it is likely that there will be some form of formal enforcement action, which may be criminal or civil in nature.

In a statement, an HSBC spokesman said: The change in the disclosure reflects the fact that the investigations have developed over the course of the year and we can now say that some form of formal enforcement action is likely and that it may be criminal or civil in nature.

The bank suggested in the SEC filing that the US inquiries could result in a deferred prosecution. That type of agreement with prosecutors requires a bank to acknowledge criminal wrongdoing and leaves the door open for further prosecution if more violations occur.

In its filing, the HSBC unit said: Investigations of several other financial institutions in recent years ... have resulted in settlements. Some of those settlements involved the filing of criminal charges, in some cases including agreements to defer prosecution of these charges, and the imposition of fines and penalties. HSBC added that the fines and penalties paid by other institutions were significant. The bank said in the securities filing it is cooperating fully and engaging in efforts to resolve these matters.

R up on capital inflows

The rupee rose on Tuesday on capital flows into stocks and debt, with investors risk hunger improving as worries over Greece's debt crisis eased.

Foreign investors have poured in more than $11 billion into local equities and stocks so far in 2012, a prime reason for the rebound in rupee by around 8% after a 16% slide in 2011. Despite the volatility in equities, foreign investors have been net buyers. We could, therefore, see rupee move towards 48.70, said Ravi Kumar, manager foreign dealer, Canara Bank.

The rupee ended at 49.0750/0850 to the dollar, up from Monday's close of 49.2150/2250. It moved in a band of 49.0300 to 49.2125 during the session.

The risk-taking capacity got a boost on hopes that banks will secure one more round of cheap three-year funding through the European Central Bank's long-term refinancing operations on Wednesday.

A Reuters poll of economists last week shows banks will take 492 billion euros ($659.03 billion) from the ECB, close to the 489 billion borrowed in the first deal just before Christmas.

Bond yields end down

The government bond yields ended down on Tuesday ahead of the central bank's widely expected announcement to buy debt this week amid a liquidity squeeze in the banking system.

After markets closed, the Reserve Bank of India said it would buy R12,000 crore of bonds via open-market operations (OMO) on Friday.

Liquidity is very tight, and the RBI has limited resources to correct that situation. OMO is a distinct possibility, said Sandeep Bagla, senior vice-president, ICICI Securities Primary Dealership.