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HSBC Controversy Continues

HSBC Controversy Continues

HSBC remains in the headlines and not in a good way. After the announcement this week that it would be paying a record $1.9 billion fine to settle an investigation by U.S. authorities, new details continue to emerge about its true involvement in the money laundering scandal with Mexican drug cartels and there are even more coming out with questions as to why criminal charges weren’t part of the deal.

There were many charges it faced, most seriously the money laundering for Mexican drug cartels and facilitating transactions with countries like Cuba and Iran. Now, though, along with those new questions are new details – and if they weren’t disturbing enough before, they are now. Many are saying not only is this proof that “too big to fail” banks are still possible, despite the new laws, it looks now as though it’s also too big to jail.

Prideful Announcement

For whatever reason, federal officials were quite proud of their announcement that they’d settled for $1.9 billion with HSBC for its role in money-laundering with Mexican drug cartels. No sooner had the spokesperson told the media, “no more questions”, an entirely new set of questions were making the rounds. The media, the financial sector as a whole and the general public want to know why criminal charges aren’t coming forth. But almost as soon as the news broke Tuesday, critics repeated the questions familiar in cases involving big banks: Why wasn’t HSBC indicted, and why aren’t any individuals being held responsible?

On our sister site yesterday, we told readers about an interview Jimmy Gurul, a Notre Dame University law school professor, gave NPR on Wednesday. He said then,

The bank has an obligation to monitor financial transactions through the bank to determine whether or not they’re suspicious of criminal activity, including money laundering and terrorist financing. And if the bank determines that the transaction is suspicious, then they have a legal obligation to report that transaction to the Treasury Department.

Turns out, Gurul isn’t the only one who’s found frustration in this settlement.

Others are now wondering why prosecution was deferred, even as HSBC admitted that it executives had ignored clear warning signs that drug cartels were using its branches to launder money – hundreds of millions is what we’re being told – through the United States. Worse, the bank admitted it even stripped certain information on transactions before they were channeled through U.S. channels.

Millions Flowed

It did this in a surprisingly simple manner, too. The records show how millions of dollars of drug money flowed through HSBC using the Black Market Peso Exchange to convert U.S. dollars to Colombian pesos. Peso brokers, using American dollars from drug cartels, would buy goods such as washing machines. They would then export them to Columbia, where they were sold for pesos, according to court documents. The proceeds, after certain cuts were made, would be sent back to the drug cartels.

The bank said on multiple occasions it was never suspicious of any kind of criminal activity. Now, though, it’s owned up to the fact it indeed know, at least partly, of what was really going on. The bank now acknowledges it failed to notice compliance lapses and that it had ignored various ‘red flags’. Particularly difficult to understand is that it allowed clients to bypass American sanctions prohibiting dealings with certain countries, including Libya, Cuba, Iran and Myanmar.

Gurul said he feels as though the bank would prefer to do business with those who ask few questions. HSBC received multiple warnings ahead of time. U.S. regulators ordered the bank in 2003 to strengthen its anti-money laundering controls, and did so again in 2010 after finding it had continued to ignore suspicious transactions.

The record of dysfunction that prevailed at HSBC for many years was astonishing,

said Assistant Attorney General Lanny Breuer.

Today, HSBC is paying a heavy price for its conduct.

Some doubt that.

There appears to be an exception for employees of large banks that have engaged in particularly serious and egregious violations of the law,

Gurul said. “That’s an insane policy.”

Breuer said HSBC compliance officials have had their bonuses clawed back, and most of HSBC’s senior management has been replaced. It should be noted, though, those replacements were made years ago in the course of retirements and other changes; the illegal conduct has stretched back to at least the mid -1990s.

Bypassing Prosecution

Breuer also suggested that one reason the U.S. might bypass criminal prosecution efforts of HSBC is due to concerns that it could prompt the loss of the bank’s U.S. charter and the shuttering of operations. It could result in a huge job loss here in the states. Breuer said,

Our goal here is not to bring HSBC down, it’s not to cause a systemic effect on the economy, it’s not for people to lose thousands of jobs. The innocent people who would suffer don’t deserve that.

So now, the only way HSBC will face criminal prosecution – or any of its officers, specifically – is if it breaks the agreement with the government here. Breuer continues to insist that this was not the goal intended by HSBC and its people; “this conduct was not a case where (HSBC) intended to create money laundering.

Some doubt that, however.

And as for questions about why it took so long to discover and investigate, Gurul said his belief is that it all comes down to differential treatment to the bank. The bank was given countless warnings that it continued to ignore. At some point, the feds could no longer ignore that,

I think what forced the Department of Justice’s hand here was the report that was released by the Senate’s permanent subcommittee on investigations that the disclosed and very aggravating detail, the scope and the breadth of the money laundering and the criminal activity conducted by HSBC.

What are your thoughts? Did HSBC get away with it? Do the justifications put forth by the government make sense to you and were the fines enough of a punishment? Share your thoughts with our readers.

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