HSBC moved suspicious money after paying a record fine for money laundering

In March 2014, three men kidnapped Reynaldo Pacheco, stoned his head, and left him dead in a creek bed in Napa County, California. Local authorities determined that his murder was the result of a financial fraud targeting low-income Latino and Asian immigrants around the world. Like other victims of the World Capital Market, or WCM scam, Pacheco arduously expanded the business among his family and acquaintances. When the pyramid scam collapsed, an investor who lost his capital decided to kill him.

Four days before Pacheco was beaten to death, compliance employees at the global banking giant HSBC warned of millions of dollars entering an account in Hong Kong controlled by scammers. It was at least the third in a series of Suspicious Activity Reports (SARs) that internal bank watchers have filed about WCM over the course of several months. However, HSBC continued to manage the massive flow of black money from the Ponzi scheme to and from its bank accounts.

The British bank was profiting from an international criminal plot while on probation for having served drug cartels, assassins and other criminals. In 2012, HSBC had admitted to US prosecutors that it helped black money flow through its subsidiaries around the world, including at least $ 881 million controlled by the well-known Sinaloa cartel and other drug networks. Mexican drug trafficking.

In a controversial decision, prosecutors refused to press charges against the bank and instead allowed it to agree to pay a $ 1.92 billion fine and serve a five-year quarantine during which a watchdog appointed by the bank. court would oversee their efforts to prevent money laundering. The court appointed a former New York State financial crimes prosecutor: Michael Cherkasky.

A 16-month investigation by the International Consortium of Investigative Journalists (ICIJ), BuzzFeed News, and 108 other media outlets (El Confidencial and La Sexta in Spain) found that HSBC continued to provide banking services to suspected criminals, Ponzi schemes, companies ghost linked to looted government funds and financial intermediaries of drug traffickers. All of this even happened while the bank was on probation and under Cherkasky’s scrutiny.

The FinCEN Files investigation found that HSBC’s Hong Kong affiliate, known for its revenue-generating ability, played a key role in keeping the black money flowing. While offering only a partial view of HSBC’s suspicious activity reports, logs show that between 2013 and 2017, HSBC compliance staff in the United States, tasked with monitoring customer activity, submitted reports that lacked crucial information about clients of 16 shell companies that had processed nearly $ 1.5 billion in more than 6,800 transactions through the bank’s Hong Kong operations alone. More than $ 900 million of that total involved shell companies linked to alleged criminal networks, according to an analysis by the ICIJ and the media that worked on the investigation.

In a statement, HSBC did not address most of the questions on a detailed list sent by ICIJ, but defended the changes the bank made within the framework of internal supervision. “Starting in 2012, HSBC embarked on a multi-year project to reform its ability to combat financial crime,” said Heidi Ashley, a spokeswoman for the bank. “HSBC is a much more secure institution than it was in 2012.”

Second class personnel

The leaked documents show that HSBC processed at least $ 31 million between 2014 and 2015 for companies later learned to have transferred looted government funds from Brazil, and more than $ 292 million between 2010 and 2016 for a Panama-based organization. classified by the US authorities as a major money laundering agent for drug cartels. The organization, Vida Panamá, denies having committed the infractions and is fighting against the US claim. Records show HSBC worked with a bank within Moldova’s splinter territory, Transnistria, for four years, after the Treasury Department issued a warning in 2011 about the risks of doing business with the bank.

In interviews with ICIJ and BuzzFeed News, more than a dozen former HSBC compliance employees expressed deep concern about the bank’s anti-money laundering program, even during the five-year quarantine. Officials said the bank didn’t give them enough time to meaningfully investigate suspicious transactions and that offices outside the United States often ignored requests for crucial customer information. They said they were treated like second-class personnel within the bank, with little power to close problematic accounts.

The FinCEN Files raise new questions about the decision of the United States Department of Justice in 2012 to refrain from indicting HSBC or any bank executive in the case of the Sinaloa cartel. The decision was rejected by grassroots prosecutors, who had prepared a list of up to 175 criminal charges against the bank that the government eventually abandoned. No one was jailed for bank misconduct in the past. The findings also raise questions about the US department’s decision, five years later, to declare HSBC rehabilitated and end its probationary period.

The FinCEN Files show that HSBC knew that regulators were investigating its client, the Ponzi WCM scam, even while helping it move its money. A federal class action lawsuit filed by scammed investors alleged that HSBC Hong Kong was “instrumental in helping WCM777 continue its Ponzi scam.” A federal judge dismissed the lawsuit last month, arguing that it had been filed in a wrong jurisdiction.

In an exclusive interview with the ICIJ, the founder of the Ponzi scam, Ming Xu, said that HSBC did not contact him to ask about the massive flows of money that WCM was moving through bank accounts in Hong Kong.

“They never called again”

Banks ‘SAR reports (or tip communications, in Spanish regulation) form the backbone of US authorities’ attempts to combat money laundering, but the system fails to stop the copious flows of black money. Banks can block or freeze accounts suspected of being used for laundering, but they are not necessarily obliged to do so: their legal obligation is to report suspicious transactions to FinCEN. The entity received more than two million of those reports last year, far more than its agents could read.

The SARs reviewed by ICIJ and its collaborating media include 73 reports submitted between 2012 and 2017 by HSBC. The documents contain information on more than $ 4.4 billion in more than 10 years of reported suspicious transactions. That amounts to a tiny fraction of HSBC’s total bank movements, but it does reveal the ineffectiveness of the bank’s compliance efforts.

Secret documents and interviews with former employees reveal that SAR reports often lacked basic information about the owners of companies that bank with HSBC, the nature of their business and the origin of the money. Records show that branches sometimes ignored or rejected their requests for information.

“It was impossible to do our job without this information”, said Alexis Grullon, a former compliance employee who monitored international suspicious activity for HSBC’s New York offices from November 2012 to August 2014. Grullon said, for the most part of the cases, HSBC branches in other countries simply ignored their requests for information about the owners of the suspicious accounts. “They said, ‘Sure, we’ll call you.’ But they never called again”, he recalled.

Grullon said a key component of his job was submitting SAR reports to the federal government, but the reports did little to curb suspicious activity by his clients.