HSBC prohibited to participate is State Deposit Program

California’s Treasurer has banned HSBC Holdings HSBA.LN +0.31% PLC’s U.S. bank from a state program because of the allegations of misconduct the London-based bank has faced in recent years.

Treasurer John Chiang in a Thursday letter told the bank it can no longer participate in a state deposit program because his office is concerned about allegations that the parent company has been involved in money laundering, sanctions violations and tax evasion.

“We are committed to the highest ethical standards, and will not partner with any firm that has and may continue to wantonly disregard the rule of law,” Mr. Chiang wrote in the letter.

The decision is another piece of the continued fallout from allegations of compliance failures that HSBC has been trying to leave behind.

“We are committed to complying with the letter and spirit of all applicable laws, and to putting in place a robust [anti-money laundering] and sanctions compliance program. We are making steady progress toward that objective,” an HSBC spokesman said.

The bank faces probes in the U.S. and France over allegations it facilitated tax evasion. It continues to face scrutiny about anti-money laundering controls from an independent monitor that was installed in a 2012 settlement with the U.S. government where the bank admitted that it failed to catch dirty money and violated U.S. sanctions.

The California program in question is known as the time-deposit program and is a part of the state’s pooled money investment account, which in April contained $68 billion of state and local money. A number of states maintain similar programs that pool money from local governments and then invest it.

That pooled account is largely invested in Treasurys, certificates of deposit and bank notes, but about 8% of it is placed at banks operating in California at favorable rates through the time-deposit program. Most of the banks that participate are smaller institutions, though a few larger banks take advantage of the program, said a spokesman for Mr. Chiang.

Last November HSBC Bank USA received $25 million from the account at a 0.11% annual rate for a roughly six-month period that elapsed last Wednesday. The bank had participated in the program since 2009, the spokesman said. Banks often use such funds to make loans.

Mr. Chiang took office at the beginning of 2015. The decision to bar HSBC from the program came after his office reviewed the past behavior of the bank, the spokesman said. The spokesman wouldn’t say whether other banks that have faced government investigations would be banned from the program in the future.

In the past, such a ban from the California treasurer was rare and generally imposed over potential credit risks, he said.

http://blogs.wsj.com/moneybeat/2015/05/20/california-drops-hsbc-from-deposit-program/