White Collar Criminal Defense Group

HSBC To Pay $1.256 Billion In Fines To Resolve Money Laundering Allegations

On December 11, 2012, HSBC Bank USA and HSBC Holdings plc agreed to pay $1.256 billion as part of a deferred prosecution agreement (DPA) with the U.S. Department of Justice (DOJ) to resolve alleged violations of the Bank Secrecy Act, International Emergency Economic Powers Act, and the Trading with the Enemy Act.  As part of the DPA, HSBC consented to the filing of a four-count felony criminal information in the Eastern District of New York alleging that HSBC Bank USA and HSBC Holdings plc willfully failed to maintain an effective anti-money laundering (AML) program and willfully failed to conduct due diligence on foreign affiliates.  The government also alleges that HSBC violated U.S. law by illegally conducting transactions on behalf of customers in Iran, Libya, Sudan, Burma, and Cuba, all of which are subject to sanctions enforced by the Office of Foreign Assets Control, a branch of the U.S. Department of the Treasury.  The criminal information can be found here.

The DPA, which can be found here, requires HSBC to pursue and enhance its AML obligations, as well as other compliance efforts, within its global operations to prevent future money laundering attempts.  The agreement establishes a five year period during which HSBC will be subject to the scrutiny of an independent corporate compliance monitor retained by HSBC and approved by DOJ.  HSBC has already made significant changes in its management structure and AML compliance functions to increase accountability of its senior executives for AML compliance failures.  Aside from the $1.256 billion fine mandated under the deferred prosecution agreement, HSBC has agreed to pay $500 million to the Office of the Comptroller of the Currency and $165 million to the Federal Reserve in civil forfeitures.

APTx Agrees To Guilty Plea And $1 Million Fine For Fraud In Iraq Reconstruction Contract

On December 10, 2012, DOJ announced that British contractor APTx Vehicle Systems Limited had entered into an agreement to plead guilty to conspiracy to defraud the United States, the Coalition Provisional Authority that governed Iraq from April 2003 to June 2004, the government of Iraq and JP Morgan Chase Bank.

The case centers on a fraudulent scheme involving an August 2004 contract valued at over $8.4 million for the procurement of 51 vehicles for the Iraqi Police Authority.  The criminal information, to which APTx agreed to plead guilty as part of the deal, further charges that in May and June of 2005, APTx submitted shipping documents to JP Morgan, who had issued letters of credit for payment under the contract, so that APTx could draw down on the letters of credit.  However, the shipping documents asserted that all 51 vehicles were produced and ready to ship to Iraq when, in fact, none of the vehicles had been built, none of the vehicles were legally owned or held by APTx and none of the vehicles were in the process of transport to Iraq.  The fraudulent shipping documents also listed a company as the freight carrier that APTx knew was not a shipping company and named a fictitious company as the freight forwarder. 

Benjamin Kafka, a representative for APTx in the United States, was charged in 2009, with one count of misprision of a felony in connection with his role in the conspiracy.  The government alleged that Kafka allowed APTx to use his corporate name and identity as the freight carrier and freight forwarder on the fraudulent shipping documents presented to JP Morgan.

As part of the plea agreement filed with the information, APTx agreed to pay a criminal fine of $1 million.  A civil settlement agreement resolving a related action filed under the False Claims Act was also announced.