Wednesday, December 12, 2012

How Too-Big-To-Jail HSBC wriggled out of money laundering indictments

From the Treasure Islands blog:

This is shocking, if not surprising. From the New York Times (via Naked Capitalism):
"State and federal authorities decided against indicting HSBC in a money-laundering case over concerns that criminal charges could jeopardize one of the world’s largest banks and ultimately destabilize the global financial system.
Instead, HSBC announced on Tuesday that it had agreed to a record $1.92 billion settlement with authorities. The bank, which is based in Britain, faces accusations that it transferred billions of dollars for nations like Iran and enabled Mexican drug cartels to move money illegally through its American subsidiaries."
The Times story spells it out:
"The case raises questions about whether certain financial institutions, having grown so large and interconnected, are too big to indict."
Stop for a moment to ponder the implications of that. It does not get uglier: the criminalisation of finance, from the top down. More from Global Witness:
Regulators should hold senior bankers legally responsible for their banks’ money laundering performance. . . . in the most serious cases, senior bankers should face jail.
Although these are U.S.focused stories, a U.K. angle is warranted too. Further commentary from Rowan Bosworth-Davies:
"The anti money-laundering regime in the United Kingdom is broken beyond repair. How has this entirely criminal state of affairs been allowed to proliferate?. . . .

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."
Exactly as explained in Treasure Islands. And who has responsiblity for regulation here? He cites the UK's Home Affairs Committee, which says:
The FSA undertake three main types of work in regards to anti-money laundering controls—checking the anti-money laundering systems of authorised firms subject to the Money Laundering Regulations, casework (where something appears to have gone wrong in a firm) and thematic reviews of the industry. They 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.
My emphasis added. The buck stops in Blighty, it seems. But that doesn't stop senior people in London trying to wriggle out of this. Lord Sassoon, commercial secretary of the Treasury, said:
The FSA 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.
Really? On the Home Affairs Committee's evidence, either Sassoon is ignorant or deliberately trying to mislead the public. Either way, he should resign or be summarily sacked. And Rowan's blog earlier unpacked Sassoon's nonsense further. Noting that the HSBC's head of compliance, David Bagley, resigned at the Senate committee hearing:
"Why is the Group Head of Group Compliance of the Holdings Company, based in the UK, falling on his sword? According to Lord Sassoon's statement, it was nothing to do with him."
Indeed. And it does not stop there. Rowan's blog continues:
What (Sassoon's) answer failed to identify and report was the small fact that HSBC Mexico, while it may not be incorporated in the UK, is a wholly-owned subsidiary of a UK registered HSBC entity. A quick study of HSBC Mexico's accounts reveals the following;
  • 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. [TJN: also see 'about us" here.]
Neat little trick that: set up some dodgy little Mexican operation, but then tie it back into Head Office through a series of reversed inter-related company holdings.
HSBC Latin America Holdings (UK) Ltd has its address at 8 Canada Square, London, E14 5HQ, and on 5th April 2012, a gentleman called Sandy Flockhart  retired as an Executive Director of HSBC Holdings plc, with effect from 30 April 2012, after a career spanning 37 years. He will be retained on the Board as a non-executive Director in order for the Board to retain access to his extensive international experience. Sandy will also retain his positions as Chairman of HSBC Bank plc, the Group's principal UK and European subsidiary, as Chairman of HSBC Latin America Holdings (UK) Limited and as a Director of HSBC Bank Middle East Ltd.

Now, call me old fashioned, but a UK registered company that has as its Chief Executive a man who is still chairman of HSBC Bank plc, and which has its address in Canada Square, and which owns a Mexican bank 99.99%, might just possibly be thought to be subject to FSA oversight, and moral suasion.

In any event, any British bank or British-owned bank which operates abroad, is subject, regulatorily, to both UK regulatory oversight as well as local supervision.
The blog then goes on to explain how UK laws on money laundering have major extra territorial application, and then cites HSBC chief executive Stuart Gulliver who has said the bank accepted responsibility for its past mistakes.
"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 . . .
In summary, Rowan concludes:
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.
In America they considered HSBC too big to jail because of fears of blowing up the financial system. In Tax Haven UK they considered HSBC too big to jail for simpler, more timeless reasons. Because, well, er . . . . we love the dirty money.


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