HSBC Agrees to $101M Penalty to Settle FX 'Front Running' Investigation

Mark Johnson HSBC's global head of foreign exchange cash trading in London exits the Brooklyn federal court in New York

HSBC Agrees to $101M Penalty to Settle FX 'Front Running' Investigation

The payment includes a US$63.1 million fine and US$38.4 million in restitution to a corporate client, Reuters reports, citing a deferred prosecution agreement (DPA) filed on Thursday in a NY court. "The Department of Justice takes these types of cases seriously and will hold to account financial institutions and individuals that circumvent the rule of law in favor of illicit profits".

In October, a federal jury in Brooklyn convicted Mark Johnson, the former head of HSBC's global foreign exchange cash trading desk, of trading ahead of a US$3.5 billion currency transaction by his client Cairn Energy.

"HSBC is committed to ensuring fair outcomes for its customers and protecting the orderly and transparent operation of the markets", the bank said.

Thursday's revelations show Johnson's actions connected directly to HSBC itself, while detailing another scheme that prosecutors said showed the bank profited handsomely from the front-running trading practice.

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It is not the first time HSBC has been in trouble with U.S. authorities.

According to HSBC's admissions, on two separate occasions in 2010 and 2011, traders on its foreign exchange desk misused confidential information provided to them by clients that hired HSBC to execute multi-billion dollar foreign exchange transactions involving the British Pound Sterling.

USA officials only identified one of the two clients - the British oil and gas explorer Cairn Energy.

Pursuant to its agreement with the Justice Department, HSBC agreed to pay a criminal penalty of $63.1 million. HSBC noted that the payment reflected a 15-percent reduction in the fine amount in recognition of the bank's cooperation during the investigation as well as its "extensive remediation".

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As part of the US deal, HSBC has entered into a three-year deferred prosecution agreement (DPA) with the US Department of Justice.

But that HSBC soon "changed course" after prodding from the government, earning "substantial cooperation credit".

Prosecutors charged the bank with two counts of wire fraud.

The banking giant was fined US$1.92 billion in that case.

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Thursday's settlement comes barely a month after the lapse of a landmark five-year, US$1.9-billion deal between USA authorities and HSBC in which the British lender avoided prosecution after admitting in 2012 to widespread money-laundering and sanctions violations. The U.S. Attorney's Office for the Eastern District of NY and the Criminal Division's Office of International Affairs provided significant support.

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