Money Laundering - The HSBC fine shames us all - The Government and the FSA are entirely to blame!

HSBC has confirmed it will pay $1.92bn (£1.2bn) to settle a money-laundering probe by US authorities - the largest penalty of its kind ever paid by a bank.

The investigation of Europe's largest bank has focused on the transfer of billions of dollars on behalf of nations such as Iran and the movement of money through the US financial system from Mexican drug cartels.

The bank is expected to pay $1.25bn (£778m) in forfeiture - the biggest such amount in any case involving a bank - on top of $655m (£408m) in civil penalties.

Under what is known as a deferred prosecution agreement, the bank will be accused of violating the Bank Secrecy Act and the Trading With The Enemy Act.

Yet no-one is going to be prosecuted for this catalogue of financial crimes which should bring true shame on what was once a great British bank. Not anymore however, it has lost any claim it may once have had to any integrity, it is now just another money launderer to the world's criminal cartels.

It is now very clear to anyone with the sense to see, that the anti money-laundering regime in the United Kingdom is broken beyond repair. Our biggest banks launder money wholesale for every organised criminal gang, money laundering cartel, rogue regime, dictator, and tax evader under the sun. They routinely break every criminal law, fraud, theft, market manipulation, tax evasion which is capable of generating criminal proceeds, and then they launder those proceeds to disguise their provenance and to hide their criminal ownership from the enforcement authorities.

And how has this entirely criminal state of affairs been allowed to proliferate?

Because successive Governments and the enforcement agencies charged with the control of the anti money-laundering environment have turned a blind eye to the repeated failings of these institutions and have allowed them to get away, time after time, with criminal conduct which identifies these institutions as being among the biggest organised criminal organisations operating in the world today!

They have done this in the mistaken belief that by promoting a policy of 'Light Touch Regulation', vast amounts of foreign capital will be attracted to invest in the United Kingdom, as foreign institutions seek to relocate to the City of London to take advantage of what the politicians think of as the 'climate of enterprise' they have created.

I say this is mistaken because by not prosecuting money launderers and Money Laundering Regulation evaders, what they have succeeded in creating instead is a financial centre which welcomes every criminal in the world, and which allows them to launder their money through compliant UK institutions who are scared to turn away such enormous sums of money.

But they don't have to worry about getting prosecuted, because the agency charged with their oversight, the FSA operates a 'hear no evil', 'see no evil' policy towards their actions. Oh, we might have a whole plethora of laws and regulations which are supposed to prevent and forestall money laundering, but they are routinely ignored by the lead regulator, which simply doesn't bother either to investigate or to enforce such laws as do exist. When asked, they routinely mislead their questioners and state insouciantly that they are not a prosecuting agency.

The Home Affairs Select Committee does not agree with the interpretation of the FSA. In their report, published this week, they state;

"...They (the FSA)  are responsible for enforcing and prosecuting breaches of the regulations. Under the regulations, any firm which is based in the UK must ensure that they apply their UK Anti-Money Laundering standards throughout their non-EEA operations..."

So it is quite clear that HSBC had the full responsibility to ensure that their foreign operations complied with all the laws, rules and regulations which applied at home in the UK.

And what did they do? They set up a bank in Mexico to carry out their dirty business there, a bank which carried out vast money laundering operations for the Mexican drug cartels.

Subsequently, Lord Sassoon, Commercial Secretary for H.M.Treasury, tried to help the FSA wriggle out of their responsibility for the supervision of HSBC Mexico, by saying;  "...The Financial Services Authority is the regulator for financial institutions in the UK. HSBC's operations in Mexico are not incorporated or authorised in the UK and are, therefore, not under the FSA's supervisory jurisdiction..."

Clever answer, but not entirely correct. As I pointed out in this blog earlier, "...HSBC México, S. A. (the Bank or HSBC) is a subsidiary of Grupo Financiero HSBC, S. A. de C. V. (the Group), who owns 99.99% of its capital stock.  HSBC Latin America Holdings (UK) Limited (HSBC LAH) currently owns 99.99% of the Group’s capital stock..." 

Ultimately, any money from Mexican Drug Cartel operations could and would find its way to and through London. Whoops!

The bank's chief executive Stuart Gulliver has now said the bank accepted responsibility for its past mistakes. "We have said we are profoundly sorry for them, and we do so again," he said in a statement.

Well, hang on, I don't think the word 'mistakes' hardly covers the entirety of what has been going on here. You don't just set up a dodgy bank in a criminal environment, hide it inside two separate controlling corporate entities, with separate directors, move vast sums of Mexican drug money around the world, and then try and fob this off as a 'mistake'.

There was a clever commercial mind behind these structures and their holdings, someone thought this through, and the intention was clear, there was a wholesale disregard for UK law, the Regulations or the respect for US laws, and HSBC have now paid a small price.

Gulliver continues to trot out the 'mistakes' line. "The HSBC of today is a fundamentally different organisation from the one that made those mistakes. Over the last two years, under new senior leadership, we have been taking concrete steps to put right what went wrong and to participate actively with government authorities in bringing to light and addressing these matters."

The bank added that it also expected to reach a settlement with the Financial Services Authority in the UK. Well, I don't recommend anyone holding their breath on this one, because it's a shoe-in. I doubt whether the FSA will announce criminal charges against anyone involved, I would be most surprised

A US Senate investigative committee reported earlier this year that in 2007 and 2008, HSBC Mexico sent about $7bn (£4.35bn) in cash to the US, and the committee said such an amount of cash was indicative of  illegal drug proceeds.

According to the chair of the Subcommittee, HSBC’s culture was ‘pervasively polluted’.  The number of drugs cartels in Mexico makes it a high risk for money laundering.  HSBC Mexico had high risk clients such as money remitters and offered high risk products such as dollar accounts in the Cayman Islands . Despite this, HSBC US treated its Mexican affiliate as low risk.  

Now, what is really interesting is that the current trade minister, Lord Green, was HSBC's chairman from 2006 to 2010, after serving as its chief executive between 2003 and 2006. He was fully in charge of this pervasively polluted bank therefore during this period of blatant criminality.

Has anyone asked him whether he knew or was aware of any of these goings-on? What due diligence did David Cameron do on him before he appointed him and then bunged him a peerage?

'Global Witness', an international organisation which works to prevent global corruption and financial crime is quoted as saying; “...We estimate that Lord Green pocketed more than £25 million in bonuses and shares during his time at HSBC, despite the fact that the bank’s own criteria for awarding bonuses is meant to take into account adherence to ethical standards; he should return this money...” 

And how does the City of London respond to the news of this institutionalised level of organised criminality? Do they ask searching questions about the culture inside their institutions? Do they call for urgent proposals to identify ways of improving compliance, so that such criminality can never happen in this way again?

No, true to form, when asked, City insiders could only opine that the greatest likelihood was that the financial penalty would result in lower bonus payments among top executives!

The HSBC agreement comes shortly after another London-based bank,  Standard Chartered , agreed to pay $340m (£203m) to settle federal charges that it laundered money on behalf of four countries, including Iran, that were subject to US economic sanctions. That deal covered currency transactions made at the bank's New York branch for Iranian, Sudanese, Libyan and Burmese entities from 2001 to 2007. This was the bank you may recall who whinged and bleated about being fined by the New York State Banking Regulator, and who should have had their banking licence revoked for their criminality!

The findings of the Home Affairs Select Committee make very interesting reading.

"...Like any business, the international drug trade thrives on profit. Identifying and seizing the profits of the drug trade, wherever they are in the world, must be a central part of the global fight against drugs. In that context, the UK's approach to money-laundering has been far too weak..."

"...Whilst we recognise that the financial crisis has occupied the attention of the FSA since 2008, there is little evidence that it treated the issue of money laundering sufficiently seriously prior to that time..."

"...Being fined by a regulatory body is an inadequate a sanction for complicity—however peripheral, and whether it is willful or negligent—in an international criminal network which causes many thousands of deaths each year. We recommend that the Government bring forward new legislation to extend the personal, criminal liability of those who hold the most senior posts in the banks involved where they are found to have been involved in money laundering..."

This last recommendation sounds remarkably like the proposals that have been made in this blog for some years now! Can we hope that finally, and after all the vociferous criticism and downright abuse my views attract from a select group of financial practitioners, we may at last begin to see the light of reason being shone into this Stygian murk?