By Lou Kilzer

Published: Monday, July 30, 2012, 1:10 p.m.
Updated: Wednesday, August 15, 2012

HSBC Holdings Plc, the London-based international bank accused of helping terrorists, drug lords and criminals launder money through secret bank accounts by engaging in lax compliance, on Monday set aside $2 billion toward anticipated fines and repayments.

The figure includes $700 million for expected U.S. fines from the Department of Justice. A Senate committee report alleged that HSBC's lax compliance helped make it possible for Mexican drug lords to launder $7 billion a year and for U.S. sanctions against Iran to be thwarted through the use of secret bank accounts.

“It is right that we be held accountable, and I apologize for our past shortcomings,” CEO Stuart Gulliver said in a prepared statement as part of the bank's 2012 interim financial results.

In a related financial report, HSBC said the $700 million figure for U.S. penalties is “a best estimate.”

“There is a high degree of uncertainty in making this estimate and it is possible that the amounts when finally determined would be higher, possibly significantly higher,” HSBC said.

The report, which indicated a decline of about 9 percent in profit for the first half of 2012, said the banking industry was “operating in a hostile climate” because of a series of scandals. It said HSBC's role “has added further to public concern.”

A Tribune-Review investigation found that secret bank accounts registered in about 70 international jurisdictions, such as the Cayman Islands, allow owners to hide stashes of money estimated to total at least $25 trillion.

The London-based Tax Justice Network issued a report last week that pegged the hidden stash at $21 trillion to $32 trillion.

Tax revenue lost from people hiding wealth in secret offshore accounts affects everyone because the money could help pay for police, fire, parks, health care, the military and other government services, said James Henry, a New York lawyer who wrote the report and serves as senior adviser to the network.

“Somebody's got to pay for that,” Henry told the Trib on July 22. “It's really not right that the world economy is moving toward a situation in which the wealthiest people of the world are citizens of nowhere for tax purposes.”

Shutting down illegal banking through such secret accounts would flush out tax cheats and break international crime and terrorist groups, said Heather Lowe, legal counsel at Global Financial Integrity, a Washington nonprofit that tracks hidden money.

HSBC set aside $1.3 billion to compensate British clients who were wrongly sold payment-protection insurance and derivatives, the bank said in its financial statement, which reported an 8.3 percent drop in net income. There is no indication American clients of HSBC were affected.

Lou Kilzer is a staff writer for Trib Total Media. He can be reached at 412-380-5628 or lkilzer@tribweb.com.

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