HSBC – could it be any worse?

If one needed a case study on how not to operate anti-money laundering controls in a major international banking group the US Senate Permanent Subcommittee on Investigations delivered it on 16 July in a thumping 340-page critique of disastrous failings at HSBC over many years. [1] The report catalogues business relations with drug traffickers, US-sanctioned entities and possibly terrorist financiers. HSBC CEO Stuart Gulliver’s apology and the resignation of David Bagley as head of group compliance may not be enough to placate shareholders, who are looking at a fine that could top $1 billion and even removal of the bank’s US licence.

Timon Molloy, Editor (timon.molloy@informa.com)

Not the first time

HSBC, with $2.5 trillion in assets serves 89 million customers across 80 countries through hundreds of affiliates via correspondent relationships with the group’s main US presence – HSBC Bank USA (HBUS). It is the ease with which these affiliates were able to abuse their access to the US financial system that forms the core of the Subcommittee’s findings. The report, however, is only the latest chapter in a troubled history with US regulators that saw the Office of the Comptroller of Currency (OCC), in October 2010, issue a Cease and Desist Order requiring the bank to tighten up its AML procedures on multiple fronts: it had, for example, to clear a backlog of 17,000 alerts; transaction monitoring was judged deficient and reports to law enforcement not timely; and $15 billion in bulk cash transactions for HSBC affiliates were not monitored for three years between mid-2006 and mid-2009. Perhaps worse still, staff were found to be “inadequate and unqualified”. As the Subcommittee observes, problems this severe, widespread and longstanding also demand answers of its regulators.