HSBC'sSwiss private banking division is under investigation by law enforcement inSwitzerland and France over suspected money laundering activities, the Britishbanking giant disclosed Wednesday alongside its quarterly earnings that fellshort of analyst expectations.HSBC Swiss Unit FacesMoney Laundering Probe by Two CountriesThe probecenters on what HSBC describes as "two historical bankingrelationships" that caught the attention of authorities. While the banksaid the investigations remain in early stages, it cautioned that any eventualpenalties or sanctions could pack a serious financial punch.HSBC didn'tsugarcoat the potential consequences. The bank told investors it's "notpracticable" to predict how this will play out, but warned the impact"could be significant." That kind of language typically signalslawyers are preparing for substantial costs down the road.Q2 Results Miss as BuybackSoftens BlowThe moneylaundering disclosure came as HSBC delivered mixed second-quarter results thatfell short of analyst expectations. Europe's largest bank reported profitbefore tax of $6.3 billion for the three months ending June, down 29% from thesame period last year and missing the consensus estimate of $6.99 billion.Revenuealso disappointed, coming in at $16.5 billion against expectations of $16.67billion. The shortfall stemmed partly from impairment charges related to aChinese bank and lost income from businesses the lender sold off in the firsthalf of 2024.To cushionthe disappointment, HSBC announced a $3 billion share buyback program, thoughit wasn't enough to prevent Hong Kong-listed shares from sliding 3.82% at theclose. Operating expenses jumped 10% year-over-year, driven by restructuringcosts and increased technology investments.CEO GeorgesElhedery acknowledged the challenging environment, pointing to "structuralchallenges" facing the global economy. He specifically called outbroad-based tariffs and fiscal vulnerabilities as sources of uncertainty thatare complicating inflation and interest rate outlooks."Evenbefore tariffs take effect, trade disruptions are reshaping the economiclandscape," Elhedery said. The bank warned that while direct tariffimpacts on revenue should be modest, broader macroeconomic deterioration couldpush its return on tangible equity below its mid-teens target range.Regulatory Heat AlreadyBuildingThis isn'tHSBC's first rodeo with Swiss money laundering concerns. Last year,Switzerland's financial watchdog FINMA delivered a stinging rebuke of thebank's compliance practices.Theregulator found HSBC's private bank had botched basic due diligence onhigh-risk accounts belonging to politically exposed persons - essentiallypoliticians, government officials, and their associates who pose highercorruption risks. The violations involved more than $300 million intransactions spanning 2002 to 2015.FINMAdidn't pull punches in its assessment. The regulator said HSBC "failed tocarry out an adequate check of either the origins, purpose or background of theassets involved" and couldn't properly document transactions to prove theywere legitimate.The Swisspenalty came with strings attached. HSBC had to conduct a comprehensive reviewof its anti-money laundering systems and freeze new business with politicallyexposed clients until the cleanup was complete.Related: HSBC Australia Faces ASIC Lawsuit over Alleged $23 Million Scam LossesBroader Industry ScrutinyHSBC'stroubles reflect a wider crackdown on financial crime compliance across thebanking sector. UK regulators alone have imposed over £250 million inanti-money laundering fines since early 2024, with compliance experts expectingthe penalty parade to continue.Recentresearch suggests the problems run deep. A survey of UK bank complianceofficers found that 82% admit they don't always properly verify new individualcustomers, while only 6% run daily checks on existing clients.Theinvestigation puts fresh pressure on HSBC as it tries to rebuild its reputationfollowing years of regulatory troubles. The bank has faced repeated sanctionsand fines across multiple jurisdictions for compliance failures, making thislatest probe particularly unwelcome news for management and shareholders.This article was written by Damian Chmiel at www.financemagnates.com.