HSBC faces questions over disclosure of alleged money laundering
HSBC discovered a suspected money laundering network that received $4.2bn (£3bn) worth of payments, it has emerged, raising questions over whether it disclosed the information to US monitors who at the time were ensuring the bank cleaned up its act.
Insiders who spoke to journalists as part of a joint
investigation by the Guardian and the Bureau of Investigative Journalism, have
suggested that HSBC may not have appropriately shared the information with the
monitoring team installed by US regulators in 2012 after HSBC allowed drug
cartels in Latin America to launder hundreds of millions of dollars through its
accounts.
A redacted internal HSBC report, published last week by
authorities in South Africa, suggests the bank uncovered the previously
undisclosed multibillion-pound network as early as 2016, while it was trying to
assess its potential exposure to the controversial Gupta family, who were
embroiled in a national corruption scandal in South Africa. The Guptas have
denied any wrongdoing.
The report – which represents findings at the time –
identified three companies with accounts at its Hong Kong branch that media
reports had previously concluded were controlled by associates of the Gupta
family. While tracing funds flowing from these companies, bank investigators
uncovered what they suspected was a professional money laundering network
controlled by unrelated parties.
The network was identified as involving 92 HSBC Hong Kong
accounts that received $4.2bn worth of payments between 2014 and 2017, some of
which may have been used for legitimate purposes. When the report was
circulated in 2017, 60 of these accounts were still open.
Money flow from Gupta-linked companies into this network was
“contained and minimal”, the bank concluded, amounting to just £12m. The
majority of funds passing through the network appeared to be from multiple
users not connected to the Guptas.
The bank, which is headquartered in London, would have been
expected to disclose the information to an independent monitor brought in by
the US Department of Justice (DoJ) in 2012, when criminal proceedings were
deferred on condition the bank reform its anti-money laundering checks.
A number of former members of the DoJ monitoring team say
they were never made aware of the network, raising questions over whether HSBC
was fully transparent with the monitor, which was meant to keep tabs on the
bank as it tried to improve its anti-money laundering standards.
“HSBC never voluntarily disclosed money laundering to us.
They waited to be asked about it,” one ex-monitoring team member, who agreed to
speak on the condition of anonymity, said. “As far as I’m aware, this
particular report … was never disclosed to the monitor,” they said, adding that
this appeared to be a bigger money laundering network than any they had
identified at the bank.
HSBC said in a statement that it was illegal to disclose
information it had shared with government authorities, and said “specific
discussions with our former monitor remain confidential”.
“HSBC is committed to preventing criminals from accessing
the financial system,” the bank said. “We actively look for unusual activity
and when we become aware of customer accounts being used to facilitate
financial crime, we take appropriate action, including closing those accounts.”
The bank is now facing questions from politicians, who are
also taking aim at regulators over whether they can effectively hold executives
to account. US senator and former democratic presidential candidate Elizabeth
Warren said the report came shortly after HSBC received “mere slaps on the
wrist for previous violations. Instead of relying on toothless deferred
prosecution agreements like HSBC’s, the DoJ and Treasury must hold the
executives of these giant banks personally accountable for allowing money
laundering and other crimes [to take place].”
It is understood that HSBC was forced to release the report
after a legal summons from the Zondo commission inquiry in South Africa, which
is examining claims of high level corruption, including those against former
president Jacob Zuma and members of the wealthy Gupta family, who have been
accused of bribery, money laundering and political patronage, which they deny.
Zuma, who was jailed earlier this month for failing to give evidence to the
inquiry, has also denied any wrongdoing.
It is understood that the commission issued the summons
after receiving evidence from Shadow World Investigations (SWI), a group of
London-based non-profit researchers. “The vast flow of funds into and out of
South Africa, and through laundry vehicles abroad, raises profound questions
about the role of professional enablers in the process of state capture,” SWI
said in a written submission to the commission. “It is vital that the banking
sector in South Africa and abroad (and in the latter case, HSBC in particular),
as well as the auditing sector answer how such large quantities of criminal
funds could be transmitted around the world with seemingly little hindrance.”
The internal report, published on the Zondo commission
website last week, said HSBC had money laundering concerns relating to three
companies either controlled by or connected to an associate of the Gupta
family, and “identified by credible investigative media sources to be at the
centre of a large money laundering and bribery network linked to the family”.
It noted HSBC Hong Kong accounts held by those companies may have been used for
legitimate business purposes, but were also “allegedly used to receive bribery
money”.
The report said its internal compliance team could not find
any evidence of “an extended network of money laundering accounts controlled by
the Guptas operating in HSBC”. The bank was unable to identify who ultimately
benefited from funds passing through the network.
The report stated: “The Gupta funds could also not be
followed as there were no clear outward patterns, but rather a dilution of
funds into thousands of companies who pay funds onwards into thousands of
smaller companies. We assess that the Gupta family likely made use of an
established network, rather than set up accounts for the purpose of laundering
their funds”.
In a statement, the Gupta family said that “neither the
Gupta Brothers nor the Gupta Family or Gupta Entities have ever had any banking
relationship with the HSBC Bank”. They added that they are in no way connected
to the companies identified by HSBC.
“We reiterate that each of the three Gupta Brothers and each
of the Gupta Entities owned by Gupta Family members are neither part of any
money laundering network, nor have they promoted or supported any illegal or
corrupt activities, or been associated with any money laundering network.”
While a third of the 92 HSBC accounts linked to the suspected
professional laundering network had been closed over that period, 60 were still
operating by the time the investigation concluded in April 2017, and had made
onward payments worth $3.78bn to another 5,576 accounts, nearly half of which
were HSBC accounts.
However, a redacted note at the end of the report suggests
the 60 top-level accounts were not flagged for immediate closure. Instead, they
were referred to an undisclosed party “for live financial crime risk
mitigation” and follow-up analysis in March 2017. It understood that HSBC has
since revised some of the figures in the report.
“HSBC is committed to preventing criminals from accessing
the financial system. We actively look for unusual activity and when we become
aware of customer accounts being used to facilitate financial crime, we take
appropriate action, including closing those accounts,” the bank said in a
statement.
It is not clear whether the discoveries were shared with the
DoJ-installed monitoring team, who were getting ready to wind down a
four-and-a-half year global supervision programme launched in mid-2013. The
monitoring programme was part of a deferred prosecution agreement with US
regulators, which had also fined HSBC $1.9bn – a record at the time – for
breaching sanctions and allowing drug traffickers in Latin America to funnel at
least $881m through its accounts in one of the most high-profile money
laundering scandals in a decade.
The monitoring programme, run by the US risk and compliance
investigations company Exiger, sent supervisors to nearly a dozen countries and
territories a year, including Hong Kong, to get a sense of the controls that
HSBC had in place across its sprawling global business, which at the time
extended to 75 countries. It is understood that as part of each visit, a team
of 20-35 staff would request copies of the bank’s policies, procedures and
meeting minutes for the previous year and ask to review specific client
accounts that may have been problematic.
Another former member of the near 300-strong DoJ-ordered
monitoring team said that they felt in their opinion, some HSBC staff,
particularly senior employees, “were quite evasive”. “We had a sense that there
[were] a whole set of other stones that we hadn’t been able to lift,” they
added. “But I don’t think anybody [at HSBC] really wanted us to look that
hard.”
HSBC said: “Throughout the monitor’s tenure, HSBC took very
seriously its obligation to cooperate fully with the monitor and his team. The
monitor acknowledged this cooperation in his reports.”
The bank added: “HSBC is determined to prevent criminals
from accessing the financial system and, over several years, has overhauled its
capabilities aimed at doing just that. This has included putting in place
robust policies and procedures to detect, deter, and prevent financial crime
across all of our affiliates globally that often exceed what is required in the
local jurisdictions where we operate.”
Exiger and the US Department of Justice both declined to
comment.
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