Tag Archives: HSBC

Money Laundering: the HSBC case

HSBC avoided a legal battle by agreeing Tuesday (Dec. 11, 2012) to pay $1.9 billion to settle a U.S. money-laundering probe.  Europe’s largest bank by market value will pay the biggest penalty ever imposed on a bank after facing accusations it transferred funds through the U.S. from Mexican drug cartels and on behalf of nations such as Iran that are under international sanctions…It’s the latest scandal to hit banks since the financial crisis started in 2008. Hours earlier, Standard Chartered PLC, another British bank, signed an agreement with New York regulators to settle a money laundering investigation involving Iran with a $340 million payment…

Money laundering by banks has become a priority target for U.S. law enforcement. Since 2009, Credit Suisse, Barclays, Lloyds, and ING have all paid big settlements related to allegations that they moved money for people or companies that were on the U.S. sanctions list.  HSBC conceded that its anti-money laundering measures were inadequate and that it has taken big steps in beefing up its controls. Among other measures, it has hired a former Treasury undersecretary for terrorism and financial intelligence as its chief legal officer….

Jimmy Gurule, a former assistant U.S. Attorney General and currently a law professor at the University of Notre Dame, said the settlement made a “mockery” of the criminal justice system.  “The message sent by the U.S. Department of Justice is that if you are going to engage in large-scale money laundering for Mexican drug cartels, make sure and do it within the scope of your employment working for a bank because you won’t be prosecuted regardless of the egregious nature of your criminal conduct,” he said.

A U.S. law enforcement official said the sum HSBC was paying would include $1.25 billion in forfeiture — the largest ever in a case involving a bank — and $655 million in civil penalties….Under what is known as a deferred prosecution agreement, the financial institution will be accused of violating the Bank Secrecy Act and the Trading With the Enemy Act, the official said. The source spoke only on condition of anonymity because officials were not authorized to speak about the matter on the record.

Last summer, a Senate investigation concluded that HSBC’s lax controls exposed it to money laundering and terrorist financing.  In regard to HSBC and Mexico, the Senate investigative committee reported that in 2007 and 2008 HSBC Mexico sent about $7 billion in cash to the United States. It said such a large amount indicated illegal drug proceeds.  HSBC affiliates also skirted U.S. government bans on financial transactions with Iran and other countries, according to the report from the Senate Permanent Subcommittee on Investigations. And HSBC’s U.S. division provided money and banking services to some banks in Saudi Arabia and Bangladesh thought to have helped fund al-Qaida and other terrorist groups, the report said.

The report also blamed U.S. regulators, claiming they knew the bank had a poor system to detect problems but failed to take action.  Sen. Carl Levin, D-Mich., the committee chairman, cited instances in which HSBC had promised to fix deficiencies after being sanctioned by regulators but failed to follow through.  Levin also said the Office of the Comptroller of the Currency, the U.S. agency that oversees the biggest banks, tolerated HSBC’s weak controls against money laundering for years and said agency examiners who had raised concerns were overruled by their superiors.

HSBC, which in 2011 had net income of $16.8 billion and operates in about 80 countries, has grown quickly in recent years by acquiring banks around the world that became its affiliates. Its far-flung subsidiaries operated with a degree of autonomy that left top bank officials with less than full authority and control, experts say. Each affiliate had its own officer to oversee compliance with laws to prevent money laundering.

HSBC to pay $1.9B to settle money-laundering case, Associated Press, Dec. 11, 2012

Bankers with Chainsaws; how logging corporations cheat through the HSBC

Some big banks do little more than pay lip service to environmental issues. HSBC likes to think of itself as different. It has signed up to many initiatives, including the Equator Principles, a set of social and environmental standards launched in 2003 for project financiers….

Sarawak (Malaysia) has lost more than 90% of its “primary” forests to logging and has the fastest rate of deforestation in Asia. Sarawak has only 0.5% of the world’s tropical forest but accounted for 25% of tropical-log exports in 2010. As timber stocks have become depleted, the loggers have moved into the palm-oil business, clearing peat-swamp forests to make way for plantations. The deforestation has been accompanied by abuses against indigenous groups, including harassment and illegal evictions. Allegations of corruption and abuse of public office dog Abdul Taib Mahmud, Sarawak’s chief minister, finance minister and planning-and-resources minister, who is believed to have firm control over the granting of logging licences. Mr Taib has long denied being corrupt.

Global Witness, a campaigning group, has analysed the publicly available financial records of seven of Sarawak’s largest logging and plantation companies.  [Report in PDF] It identified loans and other financial services from HSBC that it estimates have generated at least $116m in interest payments and $13.6m in fees for the bank since 1977. Although lending has declined over the past decade, HSBC continues to list Sarawak loggers among its clients, in apparent violation of its own Forest Land and Forest Products Sector Policy.

On paper HSBC’s forest policy gets high marks, including from BankTrack, a network of NGOs that monitors lenders. When it was drawn up in 2004, the policy required clients to have 70% of their activities certified by the Forest Stewardship Council (FSC), or equivalent, by 2009, with evidence that the remainder was legal. (The FSC is a global non-profit body that sets standards and does independent certification for logging and forest products.)

Not only did the seven firms analysed fail to meet that deadline, but none has any FSC-certified operations today. Ta Ann Holdings, for example, listed HSBC as a “principal banker” in its 2011 annual report. Ta Ann does not have FSC certification, and has failed to obtain full verification of the legality of its Sarawak concession under the independent “Verified Legal Origin” scheme. The firm has been accused of clear-felling rainforest that is home to endangered orangutan and of cutting down conservation forest for plantations. Ta Ann told Global Witness it is “collaborating closely with HSBC towards achieving full compliance” with its forest policy.

Another forestry conglomerate that is still banking with HSBC, according to its annual report, is WTK Holdings, whose intensive logging is widely believed by pressure groups to have caused landslides that ended up blocking a 50km (31-mile) stretch of river in 2010. None of WTK’s operations is FSC-certified.

In all, Global Witness identified six loans, totalling $25m, made by HSBC to non-compliant Sarawak loggers since the bank introduced its forest policy. HSBC said in 2004 that it would stop doing business with clients that failed to make a reasonable effort to comply by 2009.  The Economist asked HSBC to comment. The bank declined to discuss its clients because of confidentiality, but said it is “not accurate” to state that its clients are in violation of its forestland and forest-products policy. It said current data show that 99% of its forest-sector clients worldwide (by size of lending) are “compliant” or “near-compliant” with its policy. What precisely it means by “near-compliant” is unclear…..HSBC’s  continued involvement, however modest, allows logging firms to claim credentials they don’t deserve. Ta Ann, for instance, has run adverts saying it holds forest-policy certification from HSBC. That looks like a figleaf.

Deforestation in Sarawak: Log tale, Economist, Nov. 3, 2012, at 75