In reporting its third quarter financial results, HSBC Holdings plc (NYSE:HBC) (ADR) announced that it was reserving an additional $800 million in relation to ongoing U.S. anti‐money laundering, Bank Secrecy Act and Office of Foreign Assets Control investigations. The Office of Foreign Assets Control (OFAC) investigation relates to transactions involving Iranian and other parties subject to OFAC economic sanctions.
This brings the total amount reserved to $1.5 billion, and it is feared actual financial losses could be significantly higher and also that criminal charges could be filed.
In a message from Group Chief Executive Stuart Gulliver and a related Interim Management Statement for the third quarter, management noted that they were “actively engaged in discussions with the relevant authorities regarding steps to achieve a resolution, including potential fines, penalties and forfeitures, although no agreement has yet been reached.” The wide discretion U.S. authorities have in resolving such issues, along with other factors discussed below, make it difficult to estimate what the final losses will be.
Another complicating factor is the sheer number of government agencies involved in the investigations. In addition to the OFAC, the U.S. Department of Justice, the Federal Reserve, the Office of the Comptroller of the Currency, the US Department of Treasury’s Financial Crimes Enforcement Network and the New York County District Attorney’s Office are involved. Each assesses its own penalties and “amounts paid to one agency may or may not be offset against or otherwise taken into account in determining amounts payable to other agencies.”
All these factors introduce a high degree of uncertainty to any attempts to estimate the final costs for HSBC.