Tuesday, July 31, 2012

HSBC to pay $2 billion for laundering Mexican drug profits

Dirty Cayman cash sent north to U.S. bank accounts, while HSBC execs looked away

*Updated Mar. 18, 2013*
British multinational banking and financial services giant HSBC expects to pay up to $2 billion in fines and costs for failing to maintain adequate internal controls to prevent wide-scale money laundering, its president has announced.

Earlier this month, a U.S. Senate report condemned the "pervasively contaminated culture" at the bank. The report said that in one year, between 2007 and 2008, HSBC Mexico moved $7 billion to U.S. financial institutions.

During a hearing before a Senate panel two weeks ago, HSBC officials were contrite and promised to do more to prevent international money laundering. "What happened in Mexico and in the United States is shameful, it's unfortunate, it's very painful for all of us," HSBC president Stuart Gulliver said.

Much of the money transferred, presumed to be the profits of drug trafficking and related criminal enterprises, passed from Mexico to the Cayman Islands (or the reverse), and then on to the U.S. HSBC acquired a Cayman banking operation in 2002 and renamed it HSBC Mexico. The Mexican branch of the huge bank never had a physical office in the Caymans, just a virtual presence. There appeared to be no legitimate purpose, apart from the depositing and electronic transfer of cash.

The Cayman Islands, a British Overseas Territory about 225 miles south of Cuba, is a major offshore banking center. Because of its stringent financial transaction confidentiality laws, experts claim it's an international haven for those seeking to park or wash dirty money.

In 2009 HSBC Mexico closed 3,600 accounts which had been opened through its Cayman affiliate. Bank officials have said they suspect at least 675 of those accounts were used to launder illegal proceeds. The transfer of such money to the United States violates American currency transaction laws.

HSBC has already set aside $700 million to cover estimated legal fines and regulatory fees in the United States. But the worldwide costs to the corporation will be "significantly higher," said Gulliver.

HSBC was founded as a financial holding company by the Hong Kong and Shanghai Banking Corp. in 1991. According to filings with the U.S. Securities and Exchange Commission, it had total assets of $2.637 trillion as of March 31. Half of those were in Europe, a quarter in the Americas and a quarter in Asia. The $2 billion cost of HSBC money laundering operations is a fraction of the monolith's wealth.

Dec. 10 - That $2 billion dollar estimate may prove to be low. HSBC today agreed to pay fines and forfeitures of $1.9 billion to the United States alone. When other countries present their own tabs for currency transaction violations, the total cost for years of laundering money for Latin American drug cartels is sure to rise.

Dec. 11 - The U.S. Drug Enforcement Administration has reported that between 2006 and 2010, HSBC-USA washed at least $881 million dollars for the Mexican Sinaloa Cartel and the Colombian Cártel del Valle del Norte. Because of its lax accounting controls HSBC was a favorite with the cartels, according to DEA. The U.S. Treasury Dept. noted in a separate report that during the same period, HSBC-USA branches accepted cash deposits of $15 billion on American soil. While Treasury did not allege that all those funds were from narcotics trafficking, the implication was that many were.

Jan. 31, 2013 - HSBC hires ex-U.S. federal prosecutor to oversee anti-money laundering committee

Mar. 18 - Now HSBC has problems in Argentina. The government has had the British financial giant under criminal investigation for six months, it announced today, and has already uncovered evidence of customer money laundering or tax evasion activities to the tune of at least $77 million USD.

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