HSBC has avoided the threat of prosecution in the US over allegations that its lax controls allowed Mexican drug traffickers to launder cash through the bank.

 

The risk of a prosecution has been hanging over the Britain bank for the past five years after it was forced to pay $1.9bn (£1.4bn) to the US authorities to settle claims it allowed “narcotics traffickers and others to launder hundreds of millions of dollars through HSBC subsidiaries and to facilitate hundreds of millions more in transactions with sanctioned countries”.

 

Five years to the day that the settlement was announced, HSBC said the US Department of Justice would file a motion in the district court in the eastern district of New York to dismiss the deferred prosecution agreement (DPA) that had been imposed on the bank at the time.

 

The bank said it had “lived up to all of its commitments”under the DPA and was pleased that the DoJ had recognised its progress in strengthening its compliance with anti-money laundering rules and sanctions rules.

 

The lifting of the DPA is a relief for the bank, its former chairman Douglas Flint and its outgoing chief executive, Stuart Gulliver. Under Gulliver HSBC has spent $1bn on efforts to clean up its business and bolster its compliance operations. Its shares rose almost 2% to 746p.

 

Under the DPA, the DoJ installed a monitor, American lawyer Michael Cherkasky, in the bank’s operations and he will remain in place until July 2018, exactly five years after he began his oversight of the bank’s operations.

 

At the same time the UK’s Financial Conduct Authority appointed Cherkasky in a similar role on its behalf and HSBC said he would “continue in that capacity for a period of time at the FCA’s discretion”.

 

When the DPA was announced, the US had described it as “sword of Damocles” hanging over HSBC. According to a report by the US Congress, the bank avoided criminal charges at the time because the then chancellor, George Osborne, had warned it could lead to a financial disaster if the bank lost its licence to operate in the US.

 

Gulliver – who is leaving HSBC in February after nearly four decades – said the bank was now able to combat financial crime more effectively than five years ago. 

 

“We are committed to doing our part to protect the integrity of the global financial system, and further improvements to our own capability and contributions toward the partnerships we have established with governments in this area will remain a top priority for the Bank into 2018 and beyond,” said Gulliver, who is being replaced by insider John Flint.

 

The monitor’s role has been mentioned in HSBC’s annual reports – which spell out any risks facing the bank – and in February it admitted he had raised concerns that had sparked an FCA investigation into to potential breaches of money laundering rules.

 

In recent months, the Guardian reported that the monitor had also been informed about alleged ties between the wealthy Gupta family and the South African president, Jacob Zuma. Concerns were raised by former Labour cabinet minister Peter Hain, and HSBC said it had closed bank accounts held by “front companies” associated with the Guptas.

 

HSBC was subject to further scrutiny of its activities after the Guardian and other publications revealed in 2015 that the bank’s Swiss operations had helped wealthy customers dodge taxes and conceal millions of dollars of assets. This followed the leak of documents of 30,000 accounts that covering the period 2005-07.

 

Rival bank Standard Chartered was subject to a DPA at the same time as HSBC and last month admitted it was being extended for a second time to July 2018.

 

Ian Gordon, an analyst at financial firm Investec, said: “It is clearly a relief that the DPA has not been extended in contrast to Standard Chartered. It will also potentially lead to an annual monitor-related cost saving of £200m but not yet as the D0J monitor remains in place until July 2018 … and this could be extended by the FCA.”