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WHY HAS HSBC, ONE OF THE WORLD’S LARGEST AND MOST PROFITABLE BANKS, AVOIDED PRISON AND LOSS OF ITS CHARTERS?

February 3, 2013

BY IRWIN BECKER

THIS IS ABOUT A BANK THAT OPERATES IN 80 COUNTRIES, INCLUDING THE USA ,  HAS BEEN FINED FOR MOST OF THIS CENTURY FOR BREAKING LAWS CONCERNING DRUG CARTELS, MONEY LAUNDERING AND DEALING WITH OTHERS WHO FINANCE TERRORISM, YET HAS AVOIDED THE FATE OF MANY BANK ROBBERS WHO FACE FBI INVESTIGATIONS AND PRISON.

HSBC STARTED IN 1865 AS THE HONG KONG AND SHANGHAI BANKING CORPORATION, FOUNDED BY SIR THOMAS SUTHERLAND IN THE THEN BRITISH COLONY OF HONG KONG.

IN ITS LATEST FILINGS, THE BANK HAS $2.5 TRILLION IN ASSETS, PROFITS OF NEARLY $22 BILLION IN 2011, 89 MILLION CUSTOMERS AND SOME 300,000 WORKERS. THOSE NUMBERS MAKE THE BANK IN THE TOP THREE IN THE WORLD BY ANY FINANCIAL MEASUREMENT.

FEDERAL REGULATORS AND CONGRESS HAVE BEEN INVOLVED IN REVIEWING AND CHARGING THE BANK WITH WORLD CLASS LAW-BREAKING FOR MORE THAN A GENERATION. jUST THIS PAST SUMMER, THE US SENATE SUBCOMMITTEE ON INVESTIGATIONS ISSUED A BLISTERING 333-PAGE INDICTMENT OF THE BANK,S LONG-TERM ILLEGAL ACTIVITIES AND THE ABSENCE OF STRICTER OVERSIGHT AND PUNISHMENT BY THE GOVERNMENT.

AFTER REVIEWING THE EXTENSIVE RECORDS AND UP TO DATE DATA OF THE MALFEASANCE OF THE BANK, THE SENATE COMMITTEE WAS SO FRUSTRATED THAT THE FIRST OF ITS 10 RECOMMENDATIONS FOR IMPROVEMENT WAS “ESSENTIALLY” TO TELL HSBC TO “STOP DOING WHAT YOU ARE DOING, ILLEGALLY OR DANGEROUSLY.”

WHAT FOLLOWS ARE HIGHLIGHTS OF A DECADE OF FLAGRANT MISCONDUCT WHICH THE BANK APPARENTLY KNEW ABOUT BUT WAS EITHER INCOMPETENT OR UNWILLING TO DEAL WITH THE CONSEQUENCES.

BREAKING THE LAWS

1/19/13–ORDERED TO PAY $249 MILLION FOR HOME FORECLOSURE ILLEGALITIES IN THE U.S.

12/12/12–FINED $1.9 BILLION FOR MONEY LAUNDERING IN MEXICO.

7/25/12–FINED $27.5 MILLION FOR MONEY LAUNDERING BY MEXICO!

2010–U.S.OFFICE OF THE COMPTROLLER OF THE CURRENCY (0CC), PART OF THE TREASURY DEPARTMENT, FOUND THE BANK DEFICIENT IN ANTI-MONEY LAUNDERING CONTROLS INVOLVING $60  BILLION IN WIRE TRANSACTIONS WITH 17,000 ACCOUNTS FLAGGED AS POTENTIALLY SUSPICIOUS ACTIONS. THE BANK IS ORDERED STRICTER ANTI-MONEY LAUNDERING PROCEDURES WHICH LED TO “MORE THAN 100,000 TRANSACTIONS NEEDING FURTHER REVIEW. ALTHOUGH THE OCC ORDER COVERED 31 PAGES, NO FINES WERE INCLUDED.

2007-08–THE BANK’S MAJOR AFFILIATE IN MEXICO, HSMX, WAS THE LARGEST SINGLE EXPORTER OF U.S. DOLLARS TO HSBC–$7 BILLION IN  CASH OVER TWO YEARS– AN AMOUNT ACCORDING TO REGULATORS THAT COULD ONLY INCLUDE “ILLEGAL DRUG PROCEEDS (AND) HIGH PROFILE CLIENTS INCLUDED IN DRUG TRAFFICKING.”

2001-2007–BANK AFFILIATES IN EUROPE AND MIDDLE EAST HAD OUTLAWED BUSINESS LINKED TO iRAN, WHOSE NAME HAD BEEN STRIPPED FROM THE PAPERWORK. THOSE TRANSACTIONS VIOLATE THE FOREIGN ASSETS CONTROL ACT ADMINISTERED BY THE TREASURY’S OFFICE OF FOREIGN ASSETS CONTROL (0FAC). THAT LAW PREVENTS BANKS AND OTHERS WITH DEALING WITH TERRORISTS, THOSE INVOLVED WITH WEAPONS OF MASS DESTRUCTION, DRUG TRAFFICKING AND ROGUE JURISDICTIONS, I.E., IRAN, NORTH KOREA AND SUDAN.

LAW-BREAKING WITH MEXICO, JAPAN, SAUDI ARABIA AND SOMETHING

CALLED BEARER SHARE ACCOUNTS !

MEXICO

THERE’S SOMETHING ABOUT MEXICO THAT ENTHRALLS HSBC. ITS AFFILIATE HAS 1,100 BRANCHES, $2-BILLION IN ASSETS, 19,000 WORKERS AND 8 MILLION CLIENTS. THE TWO BANKS SOMEHOW GAVE MEXICO ITS LOWEST RATING UNDER THE MONEY LAUNDERING LAW “DESPITE OVERWHELMING INFORMATION THAT MEXICO WAS A HIGH RISK JURISDICTION FOR DRUG TRAFFICKING AND MONEY LAUNDERING,” ACCORDING TO THE SENATE REPORT. THE REPORT CONTINUED:

“IN MAY, 2009, HBUS SUDDENLY INCREASED ITS RISK FACTOR FOR MEXICO BY THREE NOTCHES, FROM ITS LOWEST TO HIGHEST LEVEL. STILL, IN EFFECT, THE INTERNATIONAL HSBC DID NOT FOLLOW SUIT UNTIL 2012, WHEN IT RAISED ITS RISK RATING FROM CAUTIONARY TO HIGH RISK.”

WHAT MAKES THE LAX ATTITUDE BY THE BANKS DEALING WITH MEXICO SO AMAZING IS CLEARLY AND DEPRESSINGLY OBVIOUS IN A SPECTACULAR COLUMN PRINTED JANUARY 3 IN THE NEW YORK TIMES.

THE COLUMN WAS WRITTEN BY ROBERT MAZUR, A FORMER FEDERAL AGENT WHO ACTED FOR YEARS AS AN UNDERCOVER MONEY LAUNDERER IN MEXICO AND OTHER HEMISPHERIC COUNTRIES. HE WROTE:

“LAST MONTH, HSBC ADMITTED IN COURT PLEADINGS THAT IT HAD ALLOWED BIG MEXICAN AND COLUMBIAN DRUG CARTELS TO LAUNDER $881 MILLION. THE BANK ALSO ADMITTED TO USING VARIOUS SCHEMES TO MOVE HUNDREDS OF MILLION DOLLARS TO NATIONS SUBJECT TO TRADE SANCTIONS INCLUDINGIiRAN, CUBA AND SUDAN IN VIOLATION OF THE TRADING WITH THE ENEMY ACT.”

HSBC ADMITTED TO THE CRIMINAL CONDUCT AND PAID   $1.9 BILLION IN FINES AND FORFEITURES WHICH OCCURED OVER A FIVE-YEAR PERIOD. THE PAYMENT, MAZUR ESTIMATED, WAS “ROUGHLY 10 PERCENT OF THE PRE-TAX PROFITS (THE BANK) EARNED) JUST IN 2010,” WHICH WAS “ONE OF THE MORE THAN FIVE YEARS  DURING WHICH (THE BANK) ADMITTED TO CRIMINAL CONDUCT.”

IN AN EDITORIAL ON  12/12/12, WHEN THE HSBC SETTLEMENT WAS ANNOUNCED, THE TIMES, WITH THE HEADLINE “TOO BIG TO INDICT” SAID “CLEARLY THE GOVERNMENT HAS BOUGHT INTO THE NOTION OF TOO BIG TO FAIL IS TOO BIG TO JAIL.” THE EDITORIAL CONTINUED:

“BUT EVEN LARGE FINANCIAL SETTLEMENTS ARE SMALL COMPARED WITH THE SIZE OF INTERNATIONAL MAJOR BANKS. MORE IMPORTANT, ONCE CRIMINAL SANCTIONS ARE CONSIDERED OFF LIMITS, PENALTIES AND FORFEITURES BECOME JUST ANOTHER COST OF DOING BUSINESS, A RISK FACTOR TO CONSIDER ON THE ROAD TO PROFITS. THE SOLUTION IS TO REDUCE THE (BANKS ) SIZE BY BREAKING THEM UP AND RESTRICTING THEIR ACTIVITIES, NOT SHIELD THEM AND THEIR LEADERS FROM PROSECUTION FOR ILEGAL ACTIVITIES.”

JAPAN

THE CASE OF THE SUSPICIOUS TRAVELER’S CHEQUES. FROM 2005-2008, HOKURIKO, A REGIONAL JAPANESE BANK, SENT $290 MILLION TO HBUS IN THE FORM OF TRAVELER’S CHEQUES, SOMETIMES $500,000 IN U.S. MONEY PER DAY. THE DENOMINATIONS WERE USUALLY $500 TO$1,000 IN LARGE BLOCKS ,SEQUENTIALLY NUMBERED “AND SIGNED AND COUNTER SIGNED WITH THE SAME ILLEGIBLE SIGNATURE,” ACCORDING TO THE SENATE REPORT.

THE BANK REFUSED TO GIVE ANY INFORMATION ON THE SOURCES AND NAMES OF THE ENDORSERS. THE AMERICAN BANK EVENTUALLY LEARNED THE CHEQUES WERE PURCHASED BY RUSSIANS FROM A RUSSIAN BANK IN A COUNTRY THAT UNITED STATES CONSIDERS AT HIGH RISK FOR MONEY LAUNDERING.

THE JAPANESE BANK HAD NO IDEA WHY UP TO $500,000 IN RUSSIAN CHEQUES WERE DEPOSITED DAILY INTO ONE OF THIRTY DIFFERENT ACCOUNTS OF PERSONS AND CORPORATIONS SUPPOSEDLY IN THE USED CAR BUSINESS. (HEY, THIS STUFF COULD HAVE BEEN SOLVED BY A SLEEP-DEPRIVED TEEN WITH A COMPUTER.) THE SENATE INVESTIGATION CONCLUDED THAT THIS TYPE OF MONEY LAUNDERING IS STANDARD OPERATING PROCEDURE FOR DRUG TRAFFICKERS AND OTHER CRIMINALS. NO CONCLUSIVE ANSWER WAS REACHED ABOUT WHICH ORGANIZED CRIMINAL GROUP USED THIS DIRTY -TO- CLEAN MONEY SCHEME.

BUT OUR GOVERNMENT REGULATORS SAID OUR FAVORITE BANK WAS AGAIN CITED REGULARLY FOR NOT HAVING SUFFICIENT STAFF TRAINED TO LOOK FOR OBVIOUS “SUSPICIOUS” TRADES. (SEE HSUS AND AFFILIATES IN MEXICO)  AND THE HIGH NUMBER OF SERIOUS INFRACTIONS ALMOST “NEVER” RESULTED IN FINES, THE SENATE REPORT SAID, ADDING:

“CRITICISMS WERE SEVERE, WIDE SPREAD AND LONG STANDING WITH ANTI-MONEY LAUNDERING DEFICIENCIES. WHY WERE PROBLEMS ALLOWED TO ACCMULATE AND WHY THE OCC HAD NOT COMPELLED CORRECTIVE ACTION EARLIER ?”

BEARER SHARE ACCOUNTS–FLORIDA CASE

THESE ODD-SOUNDING AND RARELY USED FINANCIAL DOCUMENTS, SOME 2,000 IN A DECADE INVOLVING THE BANK, ARE “A NOTORIOUS TYPE OF CORPORATION THAT INVITES SECRECY AND WRONG-DOING BY ASSIGNING OWNERSHIP TO WHOMEVER HAS PHYSICAL POSSESSION OF THE SHARES,” THE SENATE STUDY SAID. THIS IS WHAT HSBC DID WITH SUCH ACCOUNTS WITH A MIAMI-BASED OPERATION.

THE CLIENTS SHOWED $2.6 BILLION IN ASSETS WHICH, OVER A PERIOD OF TIME, LED TO $26 MILLION IN BANK FEES.  AFTER AUDITORS LOOKED MORE CLOSELY AT THE BOOKS, THEY SAID THERE WERE HIGH RISKS AND TOLD THE BANK EITHER TAKE PHYSICAL CUSTODY OF THE SHARES OR REQUIRE THE RELATED CORPORATIONS TO REGISTER NAMES OF SHAREHOLDERS.

THE BANK RESISTED THE POSSIBLITY OF STANDARD ENFORCEMENT ACTION, ACCORDING TO THE SUMMARY IN THE sENATE REPORT.

AS A RESULT, TWO MIAMI HOTEL DEVELOPERS–FATHER AND SON–USED THE QUESTIONABLE ACCOUNTS TO OPEN A FINANCE COMPANY AND A TIME-SHARING SHIPPING COMPANY TO HIDE $150 MILLION IN ASSETS AND $49 MILLION IN INCOME.

IN 2010, THE OWNERS WERE CONVICTED OF TAX FRAUD AND FILING FALSE RETURNS. THEY WERE EACH GIVEN 10 YEARS IN PRISON AND ORDERED TO PAY BACK TAXES, INTEREST AND PENALTIES OF $17 MILLION. IT WAS NOT CLEAR WHETHER THE FINES WERE EVER PAID.

DID THE LARGEST PRIVATE SAUDI BANK FINANCE AL QAEDA?

HSBC HAS BEEN REPEATEDLY WARNED BY FEDERAL REGULATORS OF THE HIGH RISKS OF FINANCING TERRORISM WHEN DEALING WITH CERTAIN FINANCIAL INSTITUTIONS IN THE MIDDLE EAST, ASIA AND AFRICA.

SUSPICIANS WERE RAISED ABOUT AL RAJHI BANK, THE LARGEST BANK IN SAUDI ARABIA WHICH IS CONTROLLED BY ONE FAMILY WHOSE LEADING FOUNDER IS SULAIMAN BIN ADDULAZIZ AL RAJHI. AFTER 9/11, ACCORDING TO THE SENATE REPORT, HIS NAME WAS LINKED TO WHAT OSAMA BIN LADEN CALLED HIS “GOLDEN CHAIN.” A LIST OF FINANCIAL SUPPORTERS WHOSE NAMES WERE OBTAINED IN MARCH 2002 WHEN THE BOSNIAN OFFICES OF THE BENEVOENCE INTERNATIONAL FOUNDATION , A SAUDI NON-PROFIT DESIGNATED AS A TERRORIST GROUP, WAS BROKEN INTO AND HUNDREDS OF COMPUTER FILES WERE TAKEN.

ONE FILE’S DOCUMENTS INCLUDED A WRITTEN LIST OF 20 INDIVIDUALS IDENTIFIED AS FINANCIAL CONTRIBUTORS TO BIN LADEN WHO REPLACED EARLIER FINANCING THAT WAS LOST AFTER THE AL-QAEDA’S LEADER’S  “ABRUPT DEPARTURE FROM SUDAN IN 1996” AND THE ESTABLISHMENT OF A NEW BASE IN AFGHANISTAN, THE REPORT SAID.

ONE OF THE HAND-WRITTEN NAMES ON THE LIST WAS THE AFORE MENTIONED  SULAIMAN. THE SENATE REPORT SAID THE BOSNIAN FILE INDICATED THAT THE SAUDI BANK HAD SENT FUNDS TO SOME OF THE 9/11 HIJACKERS STATIONED IN GERMANY.

IN 2005, HSBC INTERNALLY TOLD “ITS AFFILIATES SHOULD SEVER TIES WITH THE RAJHI BANK BUT THEN REVERSED ITSELF FOUR MONTHS LATER, LEAVING THAT DECISION UP TO AFFILIATED BANKS DOING BUSINESS IN THE MIDDLE EAST”, THE REPORT SAID. THE AFFILIATES CONTINUED DOING BUSINESS AS BEFORE.

HBUS CLOSED ITS CORRESPONDENT BANKING AND BANK NOTES ACCOUNT WITH THE SAUDI BANK FOR TWO YEARS. BUT IN 2006, THE SAUDI BANK THREATENED TO PULL ALL ITS BUSINESS UNLESS IT REGAINED ACCESS TO THE HBUS NOTES PROGRAM. AS A RESULT, THE AMERICAN-BASED BANK PROVIDED NEARLY $1BILLION IN NOTES TO THE SAUDI BANK. FINALLY, IN 2010, THE BUSINESS CONNECTION ENDED ON A GLOBAL BASIS WHEN HSBC ENDED THE U.S. BANKS NOTE ACTIVITY.

P.S.: DESPITE YEARS OF SUSPICION THROUGH 2010, NEITHER THE AL RAJHI BANK NOR ITS OWNERS HAVE EVER BEEN CHARGED WITH FINANCING TERRORISM OR PROVIDING OTHER MATERIAL SUPPORT.

-30-

P.P.S–I can be reached at ibecker@Cox.Net

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