What’s Wrong Today?
HSBC, the largest financial institution in Europe, has revealed major money laundering problems. A 335-page report released Monday by a Senate sub-committee also says that executives at 
HSBC and regulators at the Office of the Comptroller of the Currency ignored warning signs and failed to stop illegal behavior at many points between 2001 and 2010.
The money laundering, which the subcommittee indicates was linked to terrorism and drug deals, could result in HSBC paying fines of up to $1 billion, according to analysts.
In one case, an HSBC executive successfully argued that the bank should resume business with a Saudi Arabian bank, Al Rajhi Bank, despite the fact that Al Rajhi’s founder had been an early benefactor of Al Qaeda. HSBC’s American branch ended up transferring a billion dollars to the bank.
HSBC, originally the Hong Kong Shanghai Banking Corporation, is one of the largest financial institutions in the world, with over $2.5 trillion in assets, 89 million customers, 300,000 employees, and 2011 profits of nearly $22 billion. It has operations in over 80 countries, its key U.S. affiliate, HBUS, operates more than 470 bank branches throughout the United States. HBUS manages assets totaling about $200 billion, and serves around 3.8 million customers. Its primary US regulator is the Comptroller of the Currency (OCC), which is part of the U.S. Treasury Department.
- The Senate Report shows a 3-year failure by HBUS from mid-2006 to mid-2009, to conduct ANY Anti Money Laundering (AML) monitoring of $15 billion in bulk cash transactions with HSBC affiliates, despite the risks associated with large cash transactions; poor procedures for assigning country and client risk ratings; and a failure to monitor $60 trillion in annual wire transfer activity by customers.
- The Report indicates that an outside auditor hired by HBUS identified from 2001 to 2007, more than 28,000 undisclosed, Office of Foreign Assets Control (OFAC) transactions that were sent through HBUS involving $19.7 billion. Of those 28,000 transactions, nearly 25,000 involved Iran, while 3,000 involved other prohibited countries or persons.
“Banks that ignore money laundering rules are a big problem for our country,” said Senator Carl Levin, a Michigan Democrat who leads the subcommittee. “Also troubling is a bank regulator that does not adequately do its job.” He called HSBC’s compliance culture “pervasively polluted for a long time.”
So, What’s Wrong?
The report on HSBC is the latest scandal to rock global banks. It highlights the inability of regulators to catch what is claimed to be widespread wrongdoing in the financial industry. You know about Barclays bank. You may remember that JPMorgan Chase disclosed that its employees tried to hide trades that cost the bank billions of dollars.
The Treasury Department announced last month that ING Bank had agreed to pay $619 million to settle charges that it moved money into the United States from Cuba and Iran for nearly two decades, despite sanctions against those countries.
Since 2009, there have been five similar settlements between American regulators and other banks, including Barclays and Credit Suisse, over illicit transactions.
Catching HSBC with their hand in the cookie jar is nothing new. In 2003, HSBC entered into an agreement with the State of New York Banking Department and The Federal Reserve Bank of New York to improve its counter-money laundering systems. Even with the likely increased scrutiny following this agreement, HSBC still gamed the system.
A possible billion dollar fine is simply a cost of doing business for HSBC. It may sound large, but in context of the bank’s money laundering profit, it is chump change.
So, What Should We Do?
1) Fine them an amount equal to a recapture of all profits made from these illegal acts.
2) Prohibit HSBC or any of their subsidiaries from doing business with the US government for ten years.
3) Bar any individual HSBC officer (Lok, Bagley and others) who facilitated these violations from serving as an officer of any publicly traded company in the US.
4) Remove FDIC deposit guarantees from their US subsidiaries for a 10 year period.
These penalties should ensure compliance with our laws in the future.
Enough is enough. Our legislators and thereby, our regulators, have been captured by the financial industry. Electing new representatives will not be enough, in their never ending search for re-election funds they will be captured by pay-to-play too. We need to end the financing of political campaigns by Corporations, industry associations and PACs.
Republicans say they are uncompromising on National Security. They also argue that deregulation and a business tolerant atmosphere will trickle prosperity down to the rest of us.
Will they now join in the call for more banking deregulation?
- After the Subprime Market Collapse?
- After the Libor Manipulation?
- After money laundering for terrorist organizations?
Banks are absolutely and shamelessly out of control. They appear to think (perhaps correctly) that they can operate outside the law with impunity.
If corporations are people in the eyes of the law, then it is time to deal with them as such. Give them equivalent of prison time. And if their bankers have been laundering money for al Qaeda or the Iranian mullahs, charge them with treason.
House, Senate, Mr. President, its time to do the right thing!
