A 1,000-page report by the US Department of Justice to force HSBC to operate to higher standards says bank is not improving the way it does business fast enough

HSBC is expected to be told this week that its attempts to clean up the way it does business are falling short of the standards required by the US authorities.

A 1,000-page report by a monitor installed by the US Department of Justice to force HSBC to operate to higher standards shows that Britain’s biggest bank is not improving the way it does business fast enough. The monitor was appointed following the bank’s record-breaking $1.9bn (£1.2bn) fine in 2012 for laundering money for Mexican drug cartels, terrorists and pariah states.

According to Bloomberg, the new report says the bank created key documents to resolve a problem after the event, but pretended they were produced earlier. It also reports an executive shouting at an auditor and said that its controls in somehigh risk countries, such as Oman and the Philippines, were inadequate.

The monitor – Michael Cherkasky, a top US lawyer – was appointed for five years as part of a deal that enabled HSBC to avoid prosecution. But two years into his work he is reported to have found a wide range of problems. An outline of his report is expected to be made public in the coming days.

Cherkasky’s work is unrelated to the recent revelations about the way HSBC’s Swiss private banking arm helped clients avoid and evade tax, in some instances by moving bricks of cash around the financial system. Those revelations, reported in the Guardian and other publications, have provoked a political backlash in a number of countries and put HSBC’s business activities under fresh scrutiny.

Stuart Gulliver, HSBC’s chief executive, has appeared before MPs twice since the details of the Swiss bank accounts were published in February. He insisted that he has reformed the bank. Before Margaret Hodge’s public accounts committee earlier this month, Gulliver admitted that details of his own bank account – at one point routed through a Panamanian company – had also damaged the reputation of the bank.

He said: “I have carried out widespread root and branch reform to HSBC since becoming chief executive five years ago.”

The report by Cherkasky is the second since he was appointed in the wake of the Mexican scandal which was exposed in 2012. The US authorities said the bank had flouted anti-money laundering rules (AML) and broken sanctions. The bank had allowed narcotics traffickers and others to launder hundreds of millions of dollars through HSBC subsidiaries. Its Mexican operations had moved $7bn into its US operations, which was linked to drug money, US senators said at the time. In some cases Mexican branches had widened the teller’s windows to allow big boxes of cash to be pushed across the counters.

Cherkasky, who yesterday refused to comment, was appointed as part of a deferred prosecution agreement with the Department of Justice to run for five years from the 2012 fine. He is making annual reports to the US courts about how HSBC is reforming its internal controls.

Ahead of Cherkasky’s update, a spokesman in the US said: “HSBC is now just two years into a five-year effort to transform its approach to financial crime compliance. We are continuing to meet all of our obligations under our deferred prosecution agreement and are making steady progress toward putting in place a robust, sustainable AML and sanctions compliance program. The Monitor’s independent assessment and recommendations have been valuable as we refine our program and drive forward reforms”.

A year ago, Cherkasky’s reportsaid that the bank’s IT systems still needed better coordination and that there remained “much work to be done”. But he said the bank was acting in good faith. He pointed out, though, that HSBC had not begun to take the overhaul seriously until early 2013.

Stuart Levey, chief executive legal officer at HSBC, told the Wall Street Journal earlier this year: “It’s hard to imagine that we would have a monitorship where, after two years, they’re not saying, ‘You have more work to do’”.

At the time he said HSBC was “on track” to meet the terms of the five-year monitorship and deferred-prosecution agreement and is making “excellent progress” with its anti-money laundering efforts.



“The Justice Department recognised in its letter that HSBC has made material progress toward meeting the most stringent compliance standards imposed to date upon a global financial institution,” said Stuart Levey, chief legal officer at HSBC.

He said the bank met all the obligations under its five year deferred prosecution agreement put in place at the time of the 2012 fine.

“We are making steady progress toward that objective and appreciate the monitor’s ongoing work,” Levey said.