In court papers filed in federal court in the New York City borough of Brooklyn, the federal government said the case against HSBC is related to the laundering of proceeds from narcotics trafficking via the Black Market Peso Exchange — a method by which money launderers convert cash narcotics dollars into Colombian pesos by buying and re-selling wholesale consumer goods.
"The lack of an effective anti-money laundering program at HSBC Mexico and HSBC Bank USA, N.A. contributed to the conduct charged" in the money-laundering case against narcotics traffickers, Justice Department prosecutors said in court papers.
The government alleges that HSBC intentionally allowed prohibited transactions with Iran, Libya, Sudan and Burma. The federal government also said the bank facilitated transactions with Cuba in violation of the Trading With the Enemy Act.
The documents say the prohibited transactions with Iran, Libya, Sudan and Burma took place from 2001 through 2006.
In regard to the Mexican drug traffickers, the bank HSBC USA failed to adequately monitor over $9.4 billion from HSBC Mexico.
In a statement of facts, the Justice Department said that "HSBC Bank USA admits" that it violated the Bank Secrecy Act. The law makes it a crime to wilfully fail to establish and maintain an effective anti-money laundering program.
The bank "ignored the money laundering risks associated with doing business with certain Mexican customers and failed to implement" an anti-money laundering program "that was adequate to monitor suspicious transactions from Mexico" from 2006 through 2010, the government's statement of facts said.
The government's allegations come as HSBC says it has agreed to pay $1.9 billion to settle the U.S. money-laundering probe. The move avoids a legal battle that could further savage the bank's reputation and undermine confidence in the global banking system.