Systemic failure to stop money laundering or comply with US laws shows need for sanctions for senior executives at big banks



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The HSBC tax scandal shows that UK law needs to be changed so that senior bankers are held criminally responsible when they oversee their institutions repeatedly breaking the law, said Global Witness today.

In addition to recently leaked documents said to reveal how HSBC’s Swiss arm helped clients hide accounts and evade taxes from 2005-2007, the UK’s biggest bank was fined a record £1.2 billion by the US authorities in 2012 after admitting allowing money laundering by drugs cartels and dealing with pariah states, in violation of US law. It was also accused by a US Senate subcommittee of ignoring terrorist financing concerns. Both cases were presided over by Lord Stephen Green, who served as HSBC CEO from 2003 – 2006 and then Chairman until December 2010, when he left to become UK Minister of State for Trade and Investment.

“HSBC Switzerland’s efforts to help clients hide money and dodge taxes have shocked us all – but they only scratch the surface of the wrongdoing at the bank on Lord Green’s watch. Amongst other failings, HSBC allowed one of Mexico’s biggest drug cartels to launder cash at a time when 35,000 people were killed in Mexico’s drug wars. Lord Green was ultimately responsible for the bank’s compliance, yet he made £20million in performance bonuses during that time, with no public record of any being paid back,” said Stuart McWilliam of Global Witness.

“Sadly Lord Green is not just a “bad apple” – he is the most visible symptom of a much wider malaise, which is born of consistently weak regulation and lack of accountability for senior executives. This has dire consequences for society as a whole – crimes like drug dealing, money laundering and corruption are not possible without a supposedly reputable bank account to hide the money in and provide a smokescreen from the authorities. If we want to clean up the system we need much tougher penalties for those making decisions at big banks when things go this badly wrong – that’s how lessons get learned,” he added.

Lord Green specifically changed his mandate as Chairman to include responsibility for compliance and auditing during this time, ensuring that the buck stopped with him. In addition to the tax allegation, other areas of concern include:

Drug Cartels: In December 2012, HSBC was fined a record £1.2 billion by the US authorities after a deferred prosecution agreement in which it admitting allowing money laundering by drugs cartels and pariah states, in violation of US law. (1) In 2012 a US Senate Committee investigation declared the bank guilty of “severe, widespread and longstanding” deficiencies in its anti-money laundering systems (2), and describing the bank’s culture as “pervasively polluted”.(3) As early as 2005, Green was copied into emails warning about problems with the compliance controls at the Mexican branch of HSBC, including the falsifying of key documents.

Sanctions busting: According to its deferred prosecution agreement with the US Department of Justice HSBC broke US law by permitting $660 million from sanctioned countries (such as Iran, Libya, Burma, and Sudan) to be moved through the American financial system in violation of economic sanctions. (4)

Terror financing risks: The US Senate subcommittee, referred to reports suggesting that a Saudi bank, may have had links to financial organisations associated with terror groups including Al Qaeda. The bank later categorically denied any such links. HSBC reversed a 2005 internal policy to stop doing business with the bank, leaving HSBC Middle East and others to continue to do so, with HSBC US providing physical dollars totalling over $1bn between 2008 and 2010. (5)

Full details of the allegations are available in a new Global Witness briefing, “It’s Not Just Tax”.

/ENDS

Contact: Oliver Courtney +44 (0) 7912 5171147 [email protected]; Stuart McWilliam +44 (0)7711007199 [email protected]

Notes:

1) See the US Department of Justice press release, 11 December 2012

2) See United States Senate Permanent Sub-Committee on Investigations July 2011 report: U.S. Vulnerabilities to Money Laundering, Drugs, and Terrorist Financing: HSBC Case History, p3

3) See US Senate Permanent Subcommittee on Investigation press release “HSBC Exposed U.S. Financial System to Money Laundering, Drug, Terrorist Financing Risks” 16 July 2012

4) See the US Department of Justice Deferred Prosecution Agreement document notes 63 to 67

5) US Senate Permanent Sub-Committee on Investigations report pp6 and 221