Last week’s U.S Department of Justice deferred prosecution agreement with U.K. banking giant HSBC made headlines for its eye-popping $1.9B penalty and five-year monitorship, both punishments for its “blatant failure” to maintain an effective anti-money-laundering (AML) program. According to prosecutors, years of lax oversight and a “pervasively polluted” culture led to serial U.S. trade sanctions violations that likely funneled billions into the coffers of terrorists and drug dealers. But what is most notable about the HSBC DPA, perhaps obscured by the record-breaking fine: a mandate for unprecedented and sweeping reforms to the firm’s compliance function.
Under the DPA, HSBC’s remedial actions include separating its compliance and legal functions, a structural change already common to settlements in the health care industry. The DPA also cites enhancements to the seniority and positioning of the firm’s chief compliance officer, who has now been “elevated” into the ranks of the top 50 most senior managers globally. HSBC has also increased its AML budget nine fold to $244M, and reformed reporting relationships to give the CCO a line of sight to all compliance personnel.
