More banking goodness: US Senate accuses HSBC of allowing drug money laundering

[Syt]

http://www.bbc.co.uk/news/business-18866018

Senate report: HSBC 'allowed drug money laundering'

A US Senate probe has disclosed how lax controls at Europe's largest bank left it vulnerable to being used to launder dirty money from around the world.

The report into HSBC, released ahead of a Senate hearing on Tuesday, says huge sums of Mexican drug money almost certainly passed through the bank.

Suspicious funds from Syria, the Cayman Islands, Iran and Saudi Arabia also passed through the British bank.

HSBC said it expected to be held accountable for what went wrong.

The report into HSBC was issued by the Senate Permanent Subcommittee on Investigations, a Congressional watchdog that looks at financial improprieties.

It also concluded that the US bank regulator, the Office of the Comptroller of the Currency, failed to properly monitor HSBC.
Miami office

Many of HSBC's breaches of US anti-money laundering relate to its use of bearer share accounts. Under the rules for these accounts, ownership of shares and the income they incur can be passed from person to person in secrecy.

HSBC's US subsidiary HBUS had opened more than 2,550 accounts for bearer share corporations.

These businesses are commonly set up in tax havens such as the British Virgin Islands.

Most of the bearer share accounts - some 1,670 - were opened at the Miami office of HBUS.

At their peak, these Miami accounts held $2.6bn of assets and generated annual revenues of $26m.

The report highlights the case of Miami Beach hotel developers, Mauricio Cohen Assor and Leon Cohen Levy.

The father and son used HBUS accounts opened under the names Blue Ocean Finance Ltd. and Whitebury Shipping Time-Sharing Ltd. to help hide $150m in assets and $49m of income.

The pair were jailed for 10 years for criminal tax fraud and filing false tax returns in 2010.
'Held accountable'

The year-long inquiry, which included a review of 1.4 million documents and interviews with 75 HSBC officials and bank regulators, will be the focus of a hearing on Tuesday at which HSBC executives are scheduled to testify.

These will include HSBC's chief legal officer Stuart Levey, who joined the bank in January and was previously one of the top officials on terrorism and finance at the US Treasury Department.

In a memo released ahead of the hearing, HSBC chief executive Stuart Gulliver said: "It is right that we will be held accountable and that we take responsibility for fixing what went wrong.

"As well as answering the subcommittee's questions, we will explain the significant changes we have already made to strengthen our compliance and risk management infrastructure and culture," he said.

A separate HSBC statement said its executives will offer a formal apology at the hearing.

"We will apologise, acknowledge these mistakes, answer for our actions and give our absolute commitment to fixing what went wrong," the bank said.

Senator Carl Levin, chairman of the sub-committee, spoke of a "polluted" system that allowed black-market funds to move through the US banking system.

In 2010, Wachovia agreed to pay $160m as part of a Justice Department probe that examined Mexican transactions.

Last month, ING agreed to pay $619m to settle US government allegations that it violated US sanctions against Cuba and Iran.

[Iormlund]

Amateurs.

With the latest amnesty, in Spain you can arrive with a couple billions in cash at the bank and simply pay 10% to the IRS. No questions asked.

[Admiral Yi]

Amateurs.

With the latest amnesty, in Spain you can arrive with a couple billions in cash at the bank and simply pay 10% to the IRS. No questions asked.

Apples and oranges.  HSBUS was charging 1% just to launder.  Spain is charging 10% to launder *and* forgive back taxes.

[Sheilbh]

As London tries to shine, the City is under global regulatory attack
Tuesday 17 July 2012
8:58 pm
Faisal Islam
Economics Editor
 
Irony is a much misused word. But in this week, when the world arrives for a celebration of the capital of capital, where the fetishisation of London reaches its apotheosis, it is truly is ironic that the towering source of its influence and power appears to be self-immolating.

It was bad enough when half the British banking system went bust in 2008.

There were various disgraces in the way the banks treated consumer and businesses with contempt over purchase insurance and interest rate swaps. But the Libor scandal seemed to be a quite incredible.

Specifically, the revelation of systematic attempts to rig the key benchmark interest rate for "Big Boy" traders personal bonuses.

But today, I think we went a step further with HSBC. The world's local bank, failed utterly to control excesses and lax oversight in its subsidiaries around the world.

Instead of Britain's once mighty Big Four banks, we now have the full house of financial, moral and legal bankruptcy. RBS – state owned after going bust in the crisis. Lloyds – bailed out after taking over HBOS. Barclays caught rigging globally important interest rates.

And now HSBC accused of multiple money launndering failures by the US senate.

The bank had expanded fast into growth markets such as Mexico.

It bought Bital in 2002, which had a compliance and anti- money laundering function described by HSBC insiders as "virtually non-existent".

HSBC had been rather proud of its "subsidiarisation" model, that limited risks inside localities of this fast growing empire. In the details of a staggering 340 page report , HSBC is the case study for the Senate report into US vulnerabilities to money laundering, drug and terrorist financing.

HSBC admits to lax controls, but it is left to the Senate to connect the dots with Mexican drug traffickers. HSBC's own head of anti-money laundering in Mexico warned HQ in 2008 of allegations that HSBC was the conduit for up to 70% of Mexican money laundering.

The Senate pointed to Mexican/ US authorities who said that HSBC's channelling of a vastly disproportionate $7 billion in banknotes by armoured car from Mexico to the US could only be reached "if they included illegal drug proceeds". Soon HSBC would stop this flow of banknotes.

The Senate Committe chair said the bank's internal control culture had been"pervasively polluted for a long time" raising questions about the bank's future in the US.

The world & its regulators seem to have spotted a litany of scandals afflicting our financial system.

2008.  Mexico in the grip of an escalating drugs war.

At this time, HSBC Mexico was shipping seven billion dollars in cash in armoured cars to HSBC in the USA – a sum so vast that the authorities were convinced it must include illegal drug proceeds.

The Senate says drug traffickers were funnelling cash through the Mexican arm of HSBC to get it back into the US financial system.

HSBC HQ in London knew there were problems in Mexico but struggled to improve its money laundering controls. The report refers to internal allegations that 70 per cent of all the money laundered Mexico transited through the subsidiaries of this famous British bank.

Dealings with Iran showed not just ignorance but active and wilful concealment by HSBC of transactions that would fall foul of US limits on trading with Iran.

For years HSBC subsidiaries hid such trades. The practice continued even after staff inside the bank repeatedly complained about the deception.

For this the banks head of global compliance fell on his sword in front of the powerful committee of US senators. Questions in Britain will be asked about Stephen (now Lord) Green's tenure as executive chairman.

But there are also some questions about what appears a low-level war against British banking by US regulators.

US banking giants Wachovia and Wells Fargo were involved in much more suspicious activity with Mexico, $374 billion in wire transfers, and $20 billion in sequentially numbered travellers cheques. the fine: a $160m light slap versus the $1 billion that HSBC is facing.

Senior bankers believe that similar problems at American banks were glossed over by American regulators.

Certainly it is no coincidence that HSBC was chosen as the Senate "case study". The Libor scandal too has led to US politicians pointing fingers at London and at Barclays, as well as various scandals inthe London arms of US banks such as JP Morgan's London Whale.

In opposition David Cameron once gave a speech extolling the virtues of how the City traditionally benefits when America regulates Wall Street. The US seems to have learnt that lesson, and under the radar, is going for the City.  Either the City needs to clean up its act, or the chancellor needs to do it on Britain's own terms.

Or else the US will do it on their terms.

Good

[MadImmortalMan]

Between this, the fees issue and the Libor thing, The City is really making a target of itself. I'm already holding August puts on JPM, but I might add Barclays, HSBC and UBS to my short list too.

[CountDeMoney]

Hey, Shiv...he's on his way.  Be sure to say hi when the hat is passed.

Romney's London fundraisers will take him to heart of scandal-plagued banking industry

Mitt Romney's overseas trip next week will take him to the heart of London's scandal-ridden banking industry, as the presumptive Republican presidential nominee holds two campaign fundraisers hosted by lobbyists and executives from more than two dozen financial institutions.

The hosts of Romney's high-dollar reception and dinner on July 26 overwhelmingly represent banks, hedge funds and other financial institutions, some of which are embroiled in the Libor rate-fixing scandal.

By appearing at the fundraisers on the eve of the Olympics' Opening Ceremonies, Romney risks associating his campaign with the unfolding scandal, which focuses on banks that manipulated the London interbank offered rate, a benchmark for mortgages, auto loans and other financial contracts.

One of the event's co-chairs is Patrick Durkin, a Washington-based lobbyist for Barclays, which agreed last month to pay $450 million to settle allegations that it manipulated Libor before and after the financial crisis. Durkin has helped raise $1.1 million for the Romney campaign, according to U.S. disclosure records.

This month, the Boston Globe reported that Barclays' chief executive, Bob Diamond, withdrew as a co-host after the bank settled with British and U.S. authorities. He resigned July 3 from Barclays.

The Romney events have sparked anger among some members of the British Parliament, who have called on Barclays executives to halt political fundraising while the scandal plays out.

Executives of at least three other banks under investigation in the Libor scandal — Eric Varvel, chief executive of Credit Suisse; Raj Bhattacharyya, a managing director at Deutsche Bank; and Whitfield Hines, a managing director at HSBC — are co-chairs, according to copies of invitations obtained by The Washington Post.

At least 15 banks are under investigation by British regulators in connection with the Libor manipulations, according to regulatory filings and statements.

Romney is holding two London fundraisers: a $2,500-per-person reception and a dinner costing $25,000 to $75,000 per person.

A Romney campaign spokeswoman declined to comment.

Romney's is not the only campaign raising money from Barclays executives. Vice President Biden held a fundraiser this month in Park City, Utah, co-hosted by Mark Gilbert, a Barclays investment banker who is deputy finance director at the Democratic National Committee.

U.S. election law allows candidates to raise money from U.S. citizens overseas, and presidential hopefuls have long sought donations from them. A Post analysis of Federal Election Commission reports shows that President Obama has raised $3.1 million from expatriates, compared with $1.4 million for Romney. Obama's total includes at least $600,000 from addresses in Britain, $176,000 from Switzerland and $63,000 from China. Romney has drawn at least $311,000 from Britain and $140,000 from Hong Kong. The figures are imprecise because some Americans living overseas maintain U.S. addresses. Only U.S. citizens and legal residents may give to presidential campaigns.

Romney, a former private equity manager, has relied heavily on campaign donations from those in the finance and banking industries, including employees of the firm he co-founded, Bain Capital.

According to the invitations, the hosts of Romney's events overwhelmingly come from the finance industry, including such major firms as Goldman Sachs, Blackstone, Wells Fargo and Cerberus. There are co-hosts from Bain Capital and Ropes & Gray, the Boston law firm with close ties to Romney.

Also hosting are Woody Johnson, owner of the New York Jets; Dan Bricken, a managing director at Wells Fargo Securities; Gregg Lemkau, head of European mergers and acquisitions for Goldman Sachs; Dwight Poler, a managing director for Bain Capital Europe; Anthony Diamandakis, a managing director at Credit Suisse; and Calvin Tarlton, a director at Wells Fargo Securities.