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HSBC Monitor Says Money Laundering Controls Inadequate

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HSBC Holdings plc’s (HSBC - Free Report) irregular efforts to comply with anti-money laundering requirements were highlighted in a Justice Department summary of the latest annual review compiled by Michael Cherkasky, filed in a federal court on Friday.

According to the filing, HSBC has made significant progress in improving its anti-money laundering and sanctions violations controls since the $1.9 billion settlement of U.S. Department of Justice charges and the subsequent oversight. However, “HSBC Group’s progress has been too slow,” the filing stated.

The monitor "remains unable to certify that the bank's compliance program is reasonably designed and implemented to detect and prevent violations of AML and sanctions laws," U.S. Attorney Robert Capers in Brooklyn said in the filing.

"Although HSBC made significant progress last year, the monitor believes that the bank continues to face significant challenges," Capers added. HSBC’s corporate culture and below par technology systems are slowing down the implementation of compliance standards.

HSBC has been under the regulatory radar for its failure to prevent hundreds of millions of dollars in drug money flowing through the bank from Mexico. The investigation had revealed substantial lapses in the bank's anti-money laundering compliance, which resulted in worldwide displacement of funds from riskier nations through the bank.

Along with the settlement, HSBC agreed to a five-year deferred prosecution agreement and monitoring by court-appointed monitor Cherkasky. Cherkasky’s report, which was filed with the Justice Department in January, is the second full-year review of HSBC’s efforts to upgrade its in-house controls in a five-year period.

Notably, the Justice Department could prosecute HSBC or extend the monitoring, if the bank falls short of its commitments.

"HSBC remains focused on fulfilling its obligations under the DPA and implementing the most effective standards globally to combat financial crime," a spokesman for the bank said.

In 2015 report, Cherkasky had acknowledged HSBC’s "commendable progress" toward improving oversight and the compliance efforts of top leaders. However, he also noted that "one of the most significant impediments" was HSBC’s compliance technology, which required a "great deal of work." These concerns were raised in the latest report as well.

According to the summary, the bank’s compliance technology remains “an area of material weakness,” which leads to deficiencies in data needed to help detect high-risk transactions.

Cherkasky’ reports have been filed under seal with the Brooklyn court. HSBC and the Justice Department appealed an order by U.S. District Judge John Gleeson, who was previously overseeing the case, to make his work public.

Other global banks like JPMorgan Chase & Co. (JPM - Free Report) , Barclays PLC (BCS - Free Report) and Deutsche Bank AG (DB - Free Report) have also been under the regulatory radar over money laundering charges.

Currently, HSBC holds a Zacks Rank #5 (Strong Sell).

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