PPI Claims, Drug Lords and Russian Used Car Dealers – It’s banking, the HSBC way

Have banks always been naughty or is it just that they’re not getting away with it these days? It seems every time you pick up a newspaper or watch the news a global financial institution has messed up again. Whether it’s useless mis sold PPI, over-priced mortgages, libor fixing or pressure selling; banks have spent the last 20 years putting profit-at-any-cost waaaaay before customer needs.

The latest cornerstone of society to flout legal and moral codes is HSBC, but it’s not been mis-selling financial products or fixing interest rates – the UK-based bank has been penalised for disguising the proceeds of crime so that the money cannot be linked to the wrongdoing, also known as ‘money laundering’.

Drug Kingpins and Rogue Nations

A US Senate investigation described HSBC as a conduit for “drug kingpins and rogue nations”, forcing the bank to admit to poor money laundering controls and hand over a settlement of $1.9bn.

We were going to put an image of a drug lord here, but drug lords don’t tend to like you using their photo, so here’s a kitten and a monkey instead!

Speaking about the laundering in a statement, HSBC group chief executive Stuart Gulliver said: “We accept responsibility for our past mistakes, we have said we are profoundly sorry for them, and we do so again.”

Following the investigation the bank has spent $290m on improving its systems to prevent money laundering and taken back bonuses paid to senior executives throughout the time of the lax regulations.

hsbc money laundering

The world’s local bank and the bank of choice for drug lords, it seems.

It could have been a lot worse for HSBC, if it had been indicted for these offences, the US government and others wouldn’t be able to do business with it, leading to large losses and damaging publicity. Not only have they avoided that, but with pre-tax profits of $12.7bn for the first six months of 2012, the $1.9bn settlement will be easily swallowed.

Used Car Dealers

The settlement had been expected by many industry analysts after the release of a report earlier this year by the US Senate. The report was severely critical of HSBC’s money laundering controls and alleged that:

  • HSBC in the US had not treated its Mexican affiliate as high risk, despite the country’s money laundering and drug trafficking challenges
  • The Mexican bank had transported $7bn in US bank notes to HSBC in the US, more than any other Mexican bank, but had not considered that to be suspicious
  • It had circumvented US safeguards designed to block transactions involving terrorists drug lords and rogue states, including allowing 25,000 transactions over seven years without disclosing their links to Iran
  • Providing US dollars and banking services to some banks in Saudi Arabia despite their links to terrorist financing
  • In less than four years it had cleared $290m in “obviously suspicious” US travellers’ cheques for a Japanese bank, benefiting Russians who claimed to be in the used car business
hsbc money laundering

“At that price, it’s a steal!” – “That’s what worries me Arthur” Russian used car dealers have benefited from HSBC’s lax laundering controls, Mr Daley was more of a cash under the mattress kind of guy

The report also suggested that HSBC accounts in Mexico and the US were being used by drug barons to launder money. As well as paying a settlement HSBC has been put on probation after it signed a Deferred Prosecution Agreement for breaches of the Trading with the Enemy Act. It’s not just HSBC that have been laundering money for the criminal underworld, Standard Chartered agreed to pay $327m for past violations of US sanctions laws.

A new week, a new scandal, if bankers were celebrities there’d be enough material to fill a years worth of weekly gossip mags. In fact, maybe we should start an alternative ‘Eastenders’ all about the City, there are so many storylines!

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