Global Financial Integrity

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Money Laundering and HSBC – How It Affects You

Heather Lowe

This article was originally published by the Thomson Reuters Foundation.

The details of the HSBC money laundering case are simultaneously enraging and sickening, as the comedian Jon Stewart reminded us all on The Daily Show this week.  HSBC agreed last month to pay the U.S. government $1.9 billion to settle a probe into widespread money laundering facilitation by the New York branch of Europe’s largest bank.  But, this is not mere money we are talking about; it is the daily gang violence on the streets of our cities and towns, it is the increased likelihood that your children will be offered drugs in their schools, it is the abduction of children and selling them into the sex trade.  Authorities estimate that the average annual income generated from a trafficked child is $200,000 per year. That money has to be laundered somewhere, by someone.

Money laundering is taking the proceeds of crime (“illegitimate” money) and bringing it into the legitimate financial system so that the criminals can use that money without being tied to those terrible crimes – crimes like manufacturing and distributing drugs, selling people into the sex trade, trafficking in illegal weapons, and selling knock-off, unsafe products like toys with high levels of lead paint into the marketplace.

Those are some of the many possible effects of HSBC’s years of permitting hundreds of trillions of dollars to flow through HSBC Bank U.S.A with no money laundering controls being applied.  This is not far-fetched.  According to legal documents for the case, HSBC admitted that it failed to apply legally required money laundering controls to $200 trillion in wire transfers alone, in only a three year period, $670 billion of which came from Mexico.  $200 trillion – that is approximately 3 times world GDP.  In addition to that, they failed to have legally required controls in place with respect to the purchase of $9.4 billion in cash, a high risk business, from the Mexican subsidiary, and other HSBC offices conspired to illegally clear $660 million in transactions from countries not permitted to access the U.S. financial system like Iran and Libya.  Financing of terrorism should spring to mind as a real concern.

HSBC further admitted that “at least $881 million in drug trafficking proceeds, including proceeds of drug trafficking by the Sinaloa Cartel in Mexico and the Norte del Valle Cartel in Columbia, were laundered through HSBC Bank U.S.A without being detected.”  The question everyone in the world should be asking right now is what other criminal money might have been among the $200 trillion that flowed through the bank, unchecked and unchallenged?

For this, HSBC was fined a mere $1.9 billion (remember, there is over $200 trillion being handled in ways that violate multiple U.S. laws here) and not one person is being prosecuted.

This is the lesson that our judicial system is teaching bankers over and over again.  HSBC Bank U.S.A was already under a written agreement from 2003-2006 with U.S. regulators to correct deficiencies in its anti-money laundering regime.  In a strikingly similar case, Wachovia was found to have allowed as much as $420 billion through its banks without money laundering controls.  $110 million of that was linked directly to Mexican drug cartels, just like the HSBC case.  Wachovia was fined $160 million, $110 million of which was just coughing up the ill-gotten gains and not an actual penalty.  Not one person was prosecuted.  Recently, Standard Chartered Bank was fined $667 million, and ING Bank was fined $619 million, for engaging in the same criminal activity HSBC was engaged in when it doctored wire transfer information in order to clear transactions from countries barred from accessing the U.S. financial system, like Iran.  Again, not a single person is being prosecuted in those cases.

The one beacon of light in this story is that our regulators have finally decided that they need to pay attention to the role that American banks are playing in making sure that the world’s criminal networks continue to thrive.  I am thankful for that, and for the vast amounts of effort, time and resources that many branches of our law enforcement system have collectively contributed to bringing these cases to light.  What I am gravely concerned about is that their efforts, and the taxpayers’ money, is being wasted because people who work in banks and make a lot of money appear to be above prosecution — sending the clear signal that there are no consequences for deliberate criminal activity in the banking world.  It is our families and our communities that suffer the consequences of this type of criminality on this kind of scale, without which the drug dealers, human traffickers, illegal arms dealers, etc., could not operate.

Heather A. Lowe is Legal Counsel and Director of Government Affairs at Global Financial Integrity, a Washington-based research and advocacy organization