HSBC Bank USA, N.A. and HSBC Holdings entered a Deferred Prosecution Agreement with the DOJ in December 2012 and agreed to forfeit $1.256 billion while paying $665 million in civil penalties to the OCC and Federal Reserve, for laundering at least $881 million in drug trafficking proceeds for the Sinaloa Cartel and Norte del Valle Cartel by failing to monitor over $670 billion in wire transfers and $9.4 billion in physical dollar purchases from HSBC Mexico.

HSBC Bank USA, N.A. / HSBC Holdings — $1.9 Billion Drug Cartel Money Laundering DPA (2012)

Outcome: HSBC Bank USA, N.A. and HSBC Holdings plc entered a Deferred Prosecution Agreement with the DOJ in December 2012 and agreed to forfeit $1.256 billion and pay $665 million in OCC and Federal Reserve civil penalties — a combined $1.921 billion, the largest bank money laundering settlement in U.S. history at the time — for allowing at least $881 million in Sinaloa Cartel and Norte del Valle Cartel drug trafficking proceeds to be laundered through HSBC by failing to monitor over $670 billion in wire transfers and $9.4 billion in physical U.S. dollar purchases from HSBC Mexico.

HSBC Bank USA, N.A., the U.S. subsidiary of HSBC Holdings plc, maintained extensive correspondent banking relationships with HSBC Mexico and other high-risk counterparties in Mexico and Latin America. From at least 2006 through 2009, despite substantial evidence of serious money laundering risks associated with Mexican banking relationships — including the documented use of HSBC Mexico by drug cartels — HSBC Bank USA rated Mexico as "standard" risk, its lowest AML risk category. This deliberate misclassification meant that transactions from HSBC Mexico accounts processed through HSBC Bank USA were exempt from the enhanced due diligence and monitoring that the actual risk profile demanded.

The consequences were massive: HSBC Bank USA failed to monitor over $670 billion in wire transfers from HSBC Mexico, and failed to apply adequate scrutiny to over $9.4 billion in purchases of physical U.S. dollars by HSBC Mexico customers — including deposits made in specially designed cash boxes at HSBC Mexico branches that were sized precisely to fit through the teller windows. At least $881 million in proceeds of illegal drug trafficking, including from the Sinaloa Cartel in Mexico and the Norte del Valle Cartel in Colombia, moved through HSBC during this period. A significant portion involved the Black Market Peso Exchange, a complex money laundering mechanism moving drug sale proceeds from the United States to cartels in Colombia and Mexico.

The December 2012 combined resolution required HSBC to forfeit $1.256 billion (representing the proceeds of narcotics trafficking and sanctions violations laundered through the bank), pay $500 million to the OCC and $165 million to the Federal Reserve for BSA/AML violations, and accept a five-year compliance monitorship.

Primary Source: DOJ Press Release — HSBC Holdings and HSBC Bank USA Admit to AML and Sanctions Violations (December 2012)