By Greg Farrell
Source: Bloomberg (Markets)
➤ Bank had monitor overseeing its systems after 2012 settlement
➤ Canada arrested Huawei’s CFO on Saturday in U.S. investigation
A monitor assigned to HSBC Holdings Plc told federal prosecutors about suspicious transactions linking Huawei Technologies Co. with Iran, adding evidence to a U.S. investigation that led to the arrest of the Chinese company’s finance chief, according to a person familiar with the matter.
The monitor, Exiger, was enlisted by the Justice Department to oversee HSBC’s compliance efforts in 2013 following a $1.9 billion deferred-prosecution agreement with the bank that exposed a range of weaknesses in its internal controls. The London-based lender isn’t under investigation in this matter, another person said.
It’s unclear when Exiger flagged the Huawei transactions. The Justice Department’s deferred-prosecution deal was dismissed in December 2017, and Exiger’s five-year appointment expired a half-year later. But the U.K.’s Financial Conduct Authority and the Federal Reserve each kept the New York-based advisory firm in place.
Spokesmen for the prosecutors office in Brooklyn and Exiger declined to comment. Reuters reported earlier Thursday that the U.S. probe is examining Huawei’s suspected use of HSBC to make transactions linked to Iran. And the Wall Street Journal said that transactions were flagged by the monitor.
Prosecutors in the Brooklyn office reached the then-record settlement with HSBC in 2012, allowing the bank to avoid criminal prosecution after it admitted helping Latin American drug cartels launder billions of dollars and violating sanctions laws against countries including Iran.
At the time, prosecutors said the bank stripped information from transactions, and in some cases used cryptic messages for payments, while handling money tied to Iran, Cuba, Sudan, Libya and Burma. Starting around the mid-1990s, the bank’s staff allegedly told others to write cautionary notes when arranging transfers, such as “do not mention Iran.”
By 2006, the firm allowed about $660 million in transactions prohibited by the Office of Foreign Assets Control to be processed through U.S. financial institutions, prosecutors said.
As part of the settlement, HSBC was placed under the supervision of an external monitor, Michael Cherkasky, who is Exiger’s executive chairman. But there were soon frictions. In a report covering an early portion of his time overseeing the investment bank’s operations, Cherkasky described resistance from senior U.S. managers, whom he accused of bullying, foot-dragging and seeking to discredit his in-house watchdogs.
HSBC’s five-year deferred-prosecution agreement expired in late 2017 as the Justice Department signaled satisfaction with the bank’s improvements to compliance systems.
“The United States has determined that the HSBC parties have complied with their obligations,” prosecutors told the court in a filing last December.
— With assistance by Hannah Levitt