HSBC's Money Laundering Lapses

Minyanville.com

By ProPublica.org Jul 20, 2012 5:10 pm

This week a Senate investigation detailed that HSBC (HBC) had lax controls against money-laundering and often ignored warnings about clients with ties to drug cartels and terrorists.

The bank is also reportedly nearing a settlement with the Justice Department, which has two criminal investigations into whether HSBC was complicit in money-laundering and tax evasion.The federal regulator that should have been keeping tabs on all this, the Office of the Comptroller of the Currency, also came under fire for “systemic weaknesses” in its oversight of banks’ anti-money laundering procedures.

The report reaches back more than a decade, and in testimony in front of the Senate this week, the bank apologized and vowed it has recently overhauled its anti-money-laundering efforts. The bank’s head of compliance stepped down this week. But the Senate report notes that HBSC made similar promises of reform back in 2003 when it was cited by regulators for poor oversight of suspicious transactions. HSBC declined to comment further on the report or on the DOJ’s ongoing investigation.

There are lot of blunders and blind spots detailed in the Senate’s 335-page takedown. Here’s a rundown—in each instance, we’ve linked to the relevant page in the report.

17,000: The backlog of unreviewed, potentially suspicious activity alerts at HSBC’s U.S. arm as uncovered by government regulators in 2010.

200: Number of compliance staff in bank’s U.S. branch between 2006 and 2009, of which a smaller group was charged with making sure the bank was following anti-money-laundering rules. HBUS had millions of accounts, and more than 16,000 employees overall, and according to the report, kept compliance staff small as a cost-cutting measure.Members of the anti-money-laundering group told investigators that understaffing was a key problem.

85: Number of problems with the anti-money-laundering efforts at bank’s U.S. arm red-flagged by the OCC between 2005 and 2010. That was a third more than the next-closest major bank.

0: number of enforcement actions the OCC took in that time period.

3: number of years, from 2006 to 2009, for which HSBC’s U.S. branch didn’t do anymoney-laundering monitoring for transactions with HSBC banks in other countries.

15 billion: Total value of U.S. dollar bills (as in paper money) the bank accepted as part of bulk-cash transactions from foreign HSBC banks during that period, with no anti money-laundering controls.

Concerns About HBMX, the Bank’s Mexican Arm

7 Billion: U.S. dollars exported from 2007-2008 from HBMX accounts to HSBC’s U.S. accounts. At the time, both American and Mexican officials raised concerns that such a volume was only possible if it included illegal drug money.

1: Rank of HBMX in repatriation of U.S. dollars from Mexico for those years. HBMX is only the 5th largest bank in Mexico.

50,000: Number of clients in 2008 with U.S. dollar accounts at an HBMX shell operation in the Cayman Islands.

75: Estimated percentage of those accounts for which HBMX had incomplete information on the account holder.

15: Estimated percentage of such accounts for which the bank had no account holder information. (In 2009, HBMX closed 9,000 Cayman U.S. dollar accounts, but continues to allow new ones to be opened there).

Potentially Violating Sanctions

28,000: Number of transactions by HSBC’s U.S. arm between 2001 and 2007 involving countries, groups, or individuals that the U.S. Treasury has sanctions against.

25,000: number of those transactions that involved Iran. The vast majority, auditors found, were sent through the U.S. without disclosing Iranian ties. In many cases, foreign HSBC banks substituted their own names for clients’ with Iranian ties to avoid triggering red flags.

300,000: dollar amount of a wire transfer that went through HBUS because a compliance officer didn’t realize “Persia” meant Iran.

2: transactions with Myanmar that slipped through filters because they didn’t recognize “Burmese” or “Mynmar.” [sic]

2: Number of U.S. dollar accounts established by HBSC’s European operation in the U.K. for the “Taliban.” HSBC’s U.S. operation was unable to tell Senate investigators whether they ever processed transactions for the account.

Other Shady Ties

1 billion: U.S. dollars bought from HSBC between 2006 and 2010 by Al Rajhi, a Saudi Arabian bank previously cut off because of ties to terrorism. An HSBC official foughtagainst concerns from compliance employees, because of the revenue they brought to the bank.(He apologized in front of the Senate committee Tuesday).

290 million: Amount in U.S. dollar travelers’ checks cleared by HSBC’s U.S. operation for a Japanese bank over four years. The checks originated at a Russian bank and were brought in by 30 clients who all claimed to be in the used car business. Compliance officers raised concerns in 2005, but HSBC didn’t stop processing the checks until October 2008. (When questioned by the Senate committee, the Japanese bank could offer no explanation for why “the parties were using U.S. dollars to purchase used cars located in Japan or why [the bank] had so little information about the 30 clients carrying in U.S. dollars travelers checks totaling about $500,000-$600,000 each day.”)

2,000: number of U.S.-based HSBC accounts opened by “bearer-share” corporations—where whoever physically holds the stock owns the corporation, so there’s virtually no record of who owns them.

1,670: number of those accounts in the bank’s Miami branch, holding $2.6 billion in assets. One such account was linked to a Miami real estate family convicted of tax fraud for hiding nearly $200 million through bearer-share accounts. Another account, for a Peruvian family, was opened without the normal controls on bearer-shares. One HSBC executive wrote in an email in support of waiving the requirements, “this is too important a family in Peru for us not to want to do business with.”

Editor's Note: This article by Cora Currier was originally published on ProPublica.org.

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