Canada: Tax Traps & Tips: Beware Of Finance Bearing Gifts

Last Updated: February 18 2013
Article by Shane Onufrechuk

2012: record breaking year for US corporate settlements

In 2012, the Department of Justice ("DoJ") reached corporate settlements for a total amount of USD 9 billion, which was more than USD 3 billion higher than the previous high set in 2006. Important contributions to this record-breaking amount were made by GlaxoSmithKline, which paid a fine of USD 3 billion for drug misbranding, the British bank HSBC ("HSBC"), which paid  a fine of USD 1.9 billion for money laundering compliance failures, and UBS, which agreed on a settlement of USD 1.5 billion for fraud. See below for more information.

HSBC reaches settlement with US authorities over flaws in compliance

HSBC reached a settlement with US authorities for a total sum of USD 1.9 billion. This amount consisted of a forfeit of USD 1.25 billion in proceeds that HSBC gained by its illegal activities, while USD 655 million was added to this sum as a fine. HSBC failed to maintain adequate measures against money laundering, according to the US authorities. The DoJ announced that Mexican drug cartels conducted operations through HSBC for a total amount of USD 881 million. HSBC was also charged with violating US sanctions against Iran, Libya, Sudan, Burma and Cuba. In July 2012, a US Senate subcommittee concluded that HSBC provided an easy gateway into the US financial system for all kinds of illicit money.  

UBS pays hefty fine for Libor manipulation

UBS was the second international bank to be fined for activities that involved manipulating LIBOR, the inter-bank lending rate, according to international authorities. The Swiss bank reached an agreement with the US, the UK and Swiss regulators on a USD 1.4 billion fine. USD 1.2 billion will be allocated to the DoJ, while the British Financial Services Authority ("FSA")will receive USD 160 million and the Swiss Financial Market Supervisory Authority will receive USD 63 million. In June 2012, British bank Barclays was fined an amount of USD 450 million by US and UK regulators for its apparent participation in the manipulation of LIBOR. Other banks are still under investigation for similar conduct.  

Standard Chartered agrees to pay total of USD 667 million in settlement

The British bank Standard Chartered agreed to pay USD 327 million in a settlement with the U.S. Federal Reserve Board, the U.S. Treasury, the DoJ and the District Attorney for New York County. In August 2012, the bank accepted a USD 340 million fine imposed by the recently created New York Department of Financial Services. Standard Chartered was accused of violating US sanctions against Iran and conducting money laundering activities for residents of Iran. According to the Department of Financial Services, the violations of Standard Chartered involved more than 60,000 transactions which occurred from 2001 to 2008 and involved a total of USD 250 billion transferred into Iran.

RBS third large bank to reach settlement over Libor manipulation activities

The Royal Bank of Scotland ("RBS") has reached a settlement with the FSA, the American Commodity Futures Trading Commission and the DoJ over LIBOR manipulation that took place at the British banking giant. RBS will pay a total of USD 612 million in fines, of which the largest share will be appropriated by US authorities. Investigations have revealed that 21 RBS employees were involved in the manipulation of LIBOR by submitting incorrect lending rates. RBS, 81 per cent of which is owned by the British state, has announced that it will pay a large part of the fine (USD 470 million) by clawing back bonuses that have already been paid to employees that were involved in the illegal activities and cutting the bonus pool for the year 2012. The head of investment banking at RBS will step down as a result of the scandal.

Difference in LIBOR fines between US and UK sparks row

The large differences between the shares in LIBOR fines of UK and US regulators are under increasing scrutiny by UK politicians. They demand that the FSA receive a larger part of future fines levied on banks for LIBOR manipulation. Of the fines that Barclays and UBS were given, the UK authorities (only) received USD 253 million, while the US authorities pocketed more than USD 1.5 billion. UK politicians consider this split wholly inappropriate, especially when the banks concerned are British. The row seems to have had little effect if one looks at the settlement that the British RBS struck on 6 February 2013 with British and US authorities. Of the USD 612 million fine that RBS has agreed to pay in connection with LIBOR-rigging activities, (only) USD 137 million will be paid to British authorities while US authorities will receive USD 475 million.

US banks agree to settle mortgage-linked disputes with regulator and home-owners

Several large commercial US banks have settled legal disputes with homeowners over illegal foreclosure practices. The banks, which include Citigroup, Bank of America, JP Morgan and Wells Fargo, agreed to pay a total of USD 8 billion in compensation. At the same time Bank of America struck a deal with Fannie Mae regarding a conflict over mortgages that Countrywide Financial sold to Fannie Mae before the outbreak of the credit crisis. Countrywide Financial was subsequently acquired by Bank of America in 2008. Bank of America agreed to pay Fannie Mae USD 3.6 billion in compensation, while it would buy back a fraction of the disputed mortgages for USD 6.75 billion. Bank of America is said to regret the acquisition of Countrywide, as settlements and claims regarding this company have already cost the Bank of America USD 40 billion.

This article originally appeared in the February/March 2013 issue of Beyond Numbers, published by the Chartered Accountants of British Columbia.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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