Amidst a whirlwind of financial penalties being dished out by domestic regulators such as the U.S. Department of Justice, the Securities and Exchange Commission, and other top watchdogs over the past week alone, international attention has shifted to a familiar name found across the pond that is once again in hot water with respect to regulatory compliance shortcomings. HSBC Holdings plc, one of the largest financial services enterprises in the world and a firm once regarded as the “world’s best-run bank”, has come under fire from a major international regulator over failures to meet regulatory compliance standards in the customer vetting process.
In spite of their international prestige, HSBC has been no stranger to major money laundering scandals since the turn of 2010 alone. In 2012, the banking conglomerate was hit with a $1.9 billion penalty for violating the Bank Secrecy Act (BSA), the International Emergency Economic Powers Act (IEEPA), and the Trading with the Enemy Act (TWEA). In the DOJ’s investigation into their transgressions, HSBC was found to have been facilitating illicit transactions for customers found in the sanctioned countries of Cuba, Iran, Libya, Sudan and Burma. HSBC was also ultimately held accountable for repeated failures of oversight that led the bank to permit narcotics traffickers and others to launder hundreds of millions of dollars through HSBC subsidiaries, effectively facilitating hundreds of millions more in transactions with the aforementioned sanctioned countries. Assistant Attorney General Breuer described the record of dysfunction that prevailed at HSBC through the 2010’s as simply “astonishing.”
A fine of this stature should have seemingly served as a wakeup call for the banking giant, but this was not the case. In fact, after their deferred prosecution agreement with the DOJ expired in 2017, HSBC continued its trend of ignoring international regulations for years to follow. In spite of growing regulatory pressures and a reported increase in resources committed to shoring up their compliance protocols, HSBC’s money laundering safeguards were later found deficient in multiple areas. These included failures on the firm’s behalf in consistently updating their money laundering and terrorist financing risk indicators, as well as failures to carry out timely risk assessments, appropriately test and update the parameters within their systems that were used to determine whether a transaction was indicative of potentially suspicious activity, and check the accuracy and completeness of the data being fed into and maintained in their monitoring systems.1 These shortcomings ultimately led to another major financial penalty levied against them, this time issued by the UK’s Financial Conduct Authority (FCA) for nearly $81 million. The sad part is that this respective penalty was not even ultimately contested by HSBC leadership who were aware of their ongoing deficiencies but failed to act on them.
In spite of this growing track record of indifference-bordering-on-malpractice, many had begun to believe that HSBC’s AML troubles were behind them. That is until recent reports emerged once again linking the banking staple to wrongdoing. Fast forward to last week and more trouble has brewed for the once-proud firm. Reports have indicated that FINMA – Switzerland’s independent financial-markets regulator – found HSBC to have breached its obligations in the prevention of money laundering and associated financial crime in relation to two politically exposed customers. The Financial Times reports that FINMA imposed a range of penalties on HSBC’s Swiss subsidiary in relation to a case that involved several transactions between 2002 and 2015 in which more than $300m was transferred between Lebanon and the aforementioned HSBC branch.4 The origins of the funds were ultimately found to have come from an unnamed government institution which was then passed through Lebanon to its final destination in Switzerland. The bank also failed to notify the proper authorities of the transactions in a timely manner, this in spite of direct knowledge that the transfers had been completed over a multi-year period. Rather they chose to wait until nearly four years after the customer accounts in question were ultimately closed down to report the transgressions to FINMA.
Adding to the penalty, FINMA has also banned HSBC’s Swiss private banking arm from accepting new business relationships with any additional public figures and those with political ties until the firm conduct’s a formal review on all business relationships and clients it currently holds. While both FINMA and HSBC have thus far declined to name the two clients involved in the case, many have surmised that Lebanon’s central bank governor Riad Salameh and his brother – who were previously accused of embezzling over $300mn from that institution through transactions to a shrouded offshore company – are the perpatrators.4
In the face of these latest allegations, HSBC has chosen to be defiant and dismiss the findings, and will subsequently appeal FINMA’s decision. They released the following statement in response: “We acknowledge the matters raised by Finma, which are historic. HSBC takes its anti-money-laundering obligations very seriously including complying with all laws and regulations in every market we operate in. As we plan to appeal the decision it would be inappropriate to comment further.”2 No dollar figures with respect to the penalties facing HSBC have yet been announced.
Global RADAR will provide additional updates on these proceedings as they become available.
Citations
- “HSBC Switzerland Breached Money-Laundering Rules, Says Swiss Watchdog. Financial Conduct Authority Press Releases, 5 June 2022.
- “HSBC’s Swiss Branch Violates Money Laundering Regulations.” Yahoo! Finance, Yahoo!, 19 June 2024.
- Laudani, Paolo. “HSBC Switzerland Breached Money-Laundering Rules, Says Swiss Watchdog | Reuters.” Reuters, 18 June 2024.
- Walker, Owen. “Swiss Regulator Finds HSBC Violated Money Laundering Rules.” The Financial Times, 22 June 2024.
