HSBC Cleans Up Its Act


Image source: Steve Heap /

What's going on?

HSBC – the global bank worth almost $200 billion – announced on Monday that it has finally seen the back of the US money laundering scandal that’s cast a shadow over the bank for five years (tweet this).

What does this mean?

In 2012, HSBC was punished by the US Department of Justice (DoJ) for having weak anti-money laundering (AML) systems which allegedly let cartels from Mexico and Colombia move nearly $1 billion of illegal drug proceeds through the bank. Aside from paying almost $2 billion in fines, HSBC also entered into an agreement with the DoJ whereby it agreed to improve both its internal sanction controls and anti-money laundering systems within five years, in exchange for no criminal charges being filed. With no further wrongdoing on HSBC’s part and upgraded AML systems, the DoJ confirmed it would dismiss the charges against the company.

Why should I care?

For the stock: Markets expressed relief with HSBC poised to turn a new leaf.

HSBC shares were up about 2% following the news, likely reflecting some relief from investors who may have braced for further fines or charges. The company spent close to $1 billion a year on improving its internal compliance systems to come in line with US standards. Optimistic investors may believe HSBC is now poised to turn over a new leaf and focus on growth initiatives such as expanding its operations in China.

The bigger picture: Banks are still at the center of the world – and it’s expensive!

Following the global financial crisis, and despite efforts from several governments to decentralize the influence and risk of financial services institutions, banks remain at the very core of society and the economy. Doing so responsibly comes at an onerous and ongoing cost. Anti-money laundering is just one expense banks must incur or face multi-billion dollar fines. Going forward, the cost of compliance is expected to continue to rise, as heightened global security concerns result in a more complex risk ecosystem.

Originally posted as part of the Finimize daily email.

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