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Business Crimes Hotline
HSBC Resolves Wire Fraud Charges
On Jan. 18, 2018 HSBC Holdings plc (HSBC) entered into a deferred prosecution agreement (DPA) and agreed to pay $101.5 million in criminal penalties and disgorgement to resolve two counts of wire fraud under 18 U.S.C. §1343.
In 2010 and 2011, HSBC was hired by two clients to execute multi-billion dollar foreign exchange transactions. After completing confidentiality agreements for the planned transactions, HSBC's former Head of Foreign Exchange, Mark Johnson, and his team first purchased British Pound Sterling (GBP) for HSBC proprietary accounts. The “front-running” scheme sought to use the future client transactions to drive the price of GBP in a direction that would benefit the bank's account. HSBC traders then executed the clients' transactions, the second of which was for the exchange of $3.5 billion. Johnson and his team structured the clients' trades to maximize the price increase of GBP, which ultimately benefitted Johnson and his co-conspirators at the expense of the client.
Further, HSBC made misrepresentations to Carin Energy, the victim of the 2011 trade, to conceal the nature of their transactions. HSBC later admitted to the Department of Justice (DOJ) that they made approximately $38.4 million from the first transaction in March 2010, and approximately $8 million from the transaction in December 2011. The bank settled with Carin for approximately $8 million, which the DOJ credited as full restitution.
Mr. Johnson was charged and convicted of one count of conspiracy to commit wire fraud and eight counts of wire fraud for his role in the transactions. HSBC entered into a three-year DPA and agreed to pay $38.4 million in disgorgement and a $63.1 million criminal penalty. The DOJ gave HSBC substantial cooperation credit for their assistance in the investigation. The DOJ also considered the bank's remedial measures, including the dedication of significant resources to improving the bank's systems and controls, in addition to the termination of employees involved in the wrongdoing. The bank also committed to continuing to enhance its compliance program and internal controls. HSBC recently completed its December 2012 DPA with the DOJ relating to its $1.9 billion fine for helping launder drug money from Mexico, during which HSBC worked to strengthen its anti-money laundering and sanctions compliance capabilities.
Likewise, in September 2017, the US Federal Reserve (“Fed”) also fined HSBC $175 million for “unsafe and unsound practices” in its foreign exchange trading business. The Fed claimed that HSBC failed to monitor chat rooms where traders swapped information regarding investment positions, and imposed a fine for oversight and control deficiencies over foreign exchange traders. In 2014, the bank paid US, UK, and Swiss regulators $618 million for its involvement in rigging foreign exchange rates. HSBC, along with five other banks, shared information about their firm's activities and colluded to manipulate exchange rates. Additionally, a UK based currency firm, ECU, commenced an investigation into its own past foreign exchange trades with HSBC. ECU claims that it complained to HSBC at the time of the trades and that HSBC exonerated itself from any wrong doing. In light of the recent news, ECU has asked London's commercial court that HSBC turn over records relating to the three large orders it placed in 2006.
– Colleen Snow, Mayer Brown
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