Money laundering by HSBC: US docs

Specifics on the investigations have until now been cloaked in secrecy.

Written by Agencies | New York | Published: May 4, 2012 2:00:35 am

In April 2003,the Federal Reserve Bank of New York and New York state bank regulators cracked the whip on HSBC Bank USA,ordering it to do a better job of policing itself for suspicious money flows. Staff in the bank’s anti-money laundering division,according to a person who worked there at the time,flew into a panic. The U.S. unit of London-based HSBC Holdings Plc quickly rallied. It hired a tough federal prosecutor to oversee anti-money laundering efforts. It installed monitoring systems for operations that had grown unwieldy during the bank’s U.S. expansion. The aim,as HSBC said in an agreement with regulators at the time,was to ensure that the bank fully addresses all deficiencies in the bank’s anti-money laundering policies and procedures. Nearly a decade later,the effort has failed to satisfy law-enforcement officials. The extent of that failure is laid out in confidential documents reviewed by Reuters that originate from investigations of HSBC’s U.S. operations by two U.S. Attorneys’ offices.

These documents allege that from 2005,the bank violated the Bank Secrecy Act and other anti-money laundering laws on a massive scale. HSBC did so,they say,by not adequately reviewing hundreds of billions of dollars in transactions for any that might have links to drug trafficking,terrorist financing and other criminal activity. In some of the documents,prosecutors allege that HSBC intentionally flouted the law. The bank created an operation that was a systemically flawed sham paper-product designed solely to make it appear that the Bank has complied with the Bank Secrecy Act and is able to detect money laundering,wrote William J. Ihlenfeld II,U.S. Attorney for the Northern District of West Virginia,in a draft of a 2010 letter addressed to Justice Department officials. In that letter,Ihlenfeld compared HSBC unfavorably to Riggs Bank. In 2004 and 2005,that scandal-plagued Washington bank was fined a total of $41 million after it was found to have violated anti-money laundering laws,and it was acquired by PNC Financial Services.

HSBC is to Riggs,as a nuclear waste dump is to a municipal land fill,Ihlenfeld wrote. The allegations laid out in the Ihlenfeld letter and other documents couldn’t be confirmed. It is possible that subsequent inquiries have led investigators to alter their views of what went on inside HSBC’s compliance operation.

As they are,the documents reviewed by Reuters,combined with regulatory filings,court documents and interviews with current and former HSBC employees,paint a damning portrait of a bank allegedly unable,and unwilling,to police itself or its clients. HSBC’s U.S. anti-money laundering division – the people charged with ensuring that the bank toes the line of regulators and law enforcement – has experienced high turnover among executives. Since 2005,at least half a dozen overseers have come and gone. Compliance staff also encountered pushback from bankers eager to maintain relationships with lucrative clients whose dealings raised red flags. In the Miami office – an important center for HSBC’s private-banking and retail operations – a longtime private banker was fired for alleged sexual harassment after he warned compliance officers that clients were engaged in shady dealings. In one email exchange submitted as evidence in that case,employees debated whether the bank should help a Miami client get around U.S. sanctions by moving the client’s business to HSBC’s Hong Kong office. I believe that the best outcome would be for the customer to open a relationship with Hong Kong just for leters (sic) of credit purposes. He travels there all the time,private banker Antonio Suarez wrote in a 2008 email. Suarez has since left the bank and couldn’t be reached for comment.


The revelations come as HSBC confronts multiple investigations into its internal policing abilities. The Justice Department,the Federal Reserve,the Office of the Comptroller of the Currency,the Manhattan district attorney,the Office of Foreign Assets Control and the Senate Permanent Subcommittee on Investigations are scrutinizing client activities such as cross-border movements of bulk cash,and transactions linked to Iran and other parties under U.S. economic sanctions,the bank said in a February regulatory filing. We continue to cooperate with officials in a number of ongoing investigations,HSBC spokesman Robert Sherman said. The details of those investigations are confidential,and therefore we will not comment on specific allegations. HSBC said in its February filing that it was likely to face criminal or civil charges related to the probes.

A successful case against HSBC could result in an onerous fine and represent one of the most significant money laundering cases ever brought against an international bank. It also would draw unaccustomed attention to the challenges governments — and financial institutions — face in monitoring the trillions of dollars flowing through banks’ back-office operations,flows essential to the daily functioning of the global financial system. Disguised in the trillions of dollars that is transferred between banks each day,banks in the U.S. are used to funnel massive amounts of illicit funds,Jennifer Shasky Calvery,head of the Justice Department’s Asset Forfeiture and Money Laundering Section,said in congressional testimony on organized crime in February. In response to Reuters inquiries about the investigations,Gary Peterson,chief compliance officer of HSBC’s U.S. bank operations,said: Since joining HSBC in 2010,I’ve been proud to lead an AML (anti-money laundering) team that has vastly increased investments in people,systems and expertise. We are continuously seeking to strengthen our core AML mission: to detect and deter money laundering and terrorist financing – and our efforts are showing results.

To date,the only enforcement action detailing any anti-money laundering shortcomings at HSBC was a 2010 consent order from the Office of the Comptroller of the Currency,the Treasury agency that is HSBC’s chief regulator. The OCC,calling HSBC’s compliance program ineffective,told the bank to conduct a review to identify suspicious activity. This look-back was expected to yield a report to HSBC and regulators. The status of the report isn’t known. A spokesman for the OCC declined to comment. The West Virginia U.S. Attorney’s probe of HSBC,which ran from 2008 until at least 2010,originated in a case against a local pain doctor who allegedly used HSBC accounts to launder ill-gotten gains from Medicare fraud. Over time,the U.S. Attorney’s office began to discern that,as Ihlenfeld wrote in his letter,the doctor’s case was just the tip of the iceberg in terms of the volume of suspicious money sluicing through HSBC.

The U.S. attorney for the Eastern District of New York in Brooklyn – one of the most powerful prosecutors outside of Justice Department headquarters in Washington – has conducted a parallel investigation,in collaboration with the Justice Department’s money laundering section. Specifics on the investigations have until now been cloaked in secrecy. The documents reviewed by Reuters for the first time fill in some of the details. Taken together,they depict apparent anti-money laundering lapses of extraordinary breadth.

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