Non-Compliance to Banking Regulations by HSBC Bank - Essay Example

Non-Compliance to Banking Regulations by HSBC Bank Introduction HSBC is a multinational financial and banking institution whose head offices are based in London, the United Kingdom. The home markets of the bank are both in Hong Kong where it originated and the United Kingdom where the headquarters are found. The issue of money laundering has been of major concern in United Kingdom, United States, India and Argentina. After a thorough investigation through search warrants and invasions that started in January 2013 to the mid-month of March, the tax authority of Argentina made allegations against HSBC of applying forged receipts and pseudo accounts to ease money laundering as well as evasion of tax (Hong Kong Institute of Bankers, 2013; p. 81). How it Happened Earlier on in July 2012, India had made a promise to investigate the infringement of compliance to safety standards where the employees of HSBC were assumed to be partisan. In November the same year, an Indian politician and activist made allegations that he possessed evidence of 700 Indian bank accounts concealing laundered money worth US$ 980 million in Geneva through HSBC (Levi, 2010; p. 651). In June 2013, a media group in India also uncovered an incident where HSBC administrators were videotaped making agreements to conduct transactions using laundered money. The employees were placed on leave awaiting their own internal probe. In February 2013, the CEO of HSBC Stuart Gulliver who made appearance in front of the Parliamentary Banking Standards Commission of the United Kingdom made acknowledgement that the system of the banking institution had so far failed in its fitness for the purpose. He admitted that the issues that should have been given to the public and distributed were not. The commission also accused the banking institution of a massive terrorist group funding through laundering of money. In addition, an independent Compliance watch had given a warning to the banking institution that it was critically required to enhance its systems on anti-money laundering in accordance with the records by the department justice of the United States. The independent watch group’ mixed evaluations came barely two years after the banking institutions had made an agreement on deferred prosecution as part of a deal to settle the US$ 1.9 billion over the claims that it went against the anti-money laundering regulations (Hong Kong Institute of Bankers, 2013; p. 81). The agreement on deferred prosecution in 2012 required that the independent watch group should make records of usual reports on the progress of the bank in improving the systems of anti-money laundering. Notably, a four-tally scandalous data was put to record in the federal courts charging the banking institution in the Eastern District of New York City. The charges included; breaking the laws on TWEA, going against the IEEPA, deliberately refusing to carry out due care on its alien correspondent associates and deliberately refusing to sustain an efficient program for anti-money laundering structure. Apparently the gigantic banking and financial institution approved to the claims of the information and agreed to take accountability for its unlawful conduct and those of its staffs (Levi, 2010; p. 651). According to the statement of the assistant Attorney General of New York HSBC is currently being held accountable for the extra-ordinary ignorance of regulatory compliance and worst still, the conduct that resulted to the bank allowing the traffickers of drugs and others to trade illegally millions of money through their divisions and subsidiaries and supported more millions of dollars worth of transactions to be conducted through the bank. It was surprising to reveal such immense records of dysfunction prevailing at HSBC for many years. Currently, the Bank is paying huge amount of fines for its practices and through the present terms of contract, the bank is likely to be prosecuted if it does comply with the contract in any specific manner. Mr. Lynch the United States Attorney made a confirmation that the U.S was going to file criminal case against one of the biggest financial and banking firm on the planet. Clearly according to him, the banking and financial institution has openly failed to execute a good system against money-laundering as well as controls that enhanced approximately $US881 million in proceeds from drugs via the financial structure of the United States (Levi and Gilmore, 2002; p. 341). From this analysis, it is apparent that various compliances were highly violated in many different ways. By deliberately, going against the regulation and laws of the United States, the company allowed millions of dollars in transactions prohibited by OFAC. It is evident that the penalty imposed on the banking institution is very huge which is a clear indication that in spite of the size of the company or rather being a corporate citizen, the firm’s actions must be held responsible. It is disappoint to find that criminal groups as well as cartels are being supported by profits and black money. In the event their illegal trades and funds are not available then their criminal acts and long life activities would be thwarted. Through the efforts of El Dorado Task Unit and the Homeland Security probes the gigantic financial company’s dirty activities have been brought to light hence the institution will be held responsible. The Homeland Security Investigations intends to energetically focus on the financial company’s illegal acts, to thwart the global drug trafficking. It is evident that the price to pay when involved in funding criminal gangs or terrorist groups is heavy to discourage the vice. Other fines and costs that have been imposed on the institution include an extra US$ 1.256 billion as a proportion of its DPA (Deferred Prosecution Agreement) with the United States Department of Justice (Levi and Gilmore, 2002; p. 341). In terms of civil penalties the company paid US$ 665 million with US$ 165 million being given to the Federal Reserve for its program on AML breaches as well as US$ 500 to the OCC Office (Office of the Controller of the Currency). According to the penalty given to OCC, the civil fine of FCEN (Financial Crimes Enforcement Network) is satisfied. And on forfeiture to the Justice Department the settlement of US$ 375 million is also satisfied. It is also alleged that the Financial Services Authority of the United Kingdom is also taking a distinct action on the same issue (Ellinger et al., 2009; p. 73). The systems of Anti-Money Laundering at HSBC were noted to be insufficient in the sense that the court established that from the year 2006 to the year 2010, the bank in United States was critically less staffed in the department of Anti-Money Laundering compliance department. Besides the department had not implemented all the provisions required by the program which were enough to effectively monitor any apprehensive transactions as well as actions from the associates of the banking and finance institution. In particular, the division in Mexico, this was one of the biggest United States’ Mexican clients. This entailed the inadequacy of the banking institution to assess and control the plenty of transactions worthy of billion of dollars in terms of purchases of bank notes or U.S dollars from the associates. In spite of the proof of critical risks related to money laundering and linked with business operations in Mexico, stretching from 2006 - 2009 the HSBC subsidiary in Mexico was categorized as an average risk which was the least in the category of Anti-Money Laundering class. Accordingly, the U.S.A’s HSBC had eventually failed to see the wire transfers of about US$ 670 billion and approximately US$ 9.4 billion in procurements of substantial U.S dollars from the branch in Mexico in the same period (Ellinger et al., 2009; p. 73). This occurred when the individual lax on the controls of Anti-money laundry had been weakened to enhance the chosen financial and banking institution to allow the drug groups and money launderers carry out the transactions. In 2012 November, it was also alleged that the banking institution had created offshore accounts located in jersey specifically for the drug lords and other felonies and the customs on Human Resource Revenue had initiated the probe after a whistleblower had deliberately let out the facts of the claimed 700 million pounds which were held by the banking institution in the Crown dependency. A considerable fraction of the proceeds from the laundered drugs trade were part of the Black Peso Exchange commonly known as BMPE. This is a complicated system of money laundering that was formulated to shift the sales returns from the purchase and sale of unlawful drugs in the U.S to the cartels dealing in drug trafficking located outside the United States such as Columbia. In line with the court files, the start of 2008, a probe had been carried out by the Homeland Security Investigations of ICE under the El Dorado Task Force in partnership with the Attorney General’s Office of the United States in New York’s Eastern District; which recognized that numerous Mexican accounts in HSBC were linked to the BMPE transactions and exposed that traffickers of illegal drugs had been depositing billions of dollars in huge amount into the branch in U.S currencies. Afterwards, the probe also led to the apprehension, banishment and charge of many people who were unlawfully making use of the accounts in the Mexican division to enhance their transactions in BMPE (Fahim & Porzio, 2010; p. 44). Due to the failures by the Unites States HSBC to control the anti-money laundering system, it was noted that US$ 881 million in proceeds from drug peddling inclusive of a notorious Mexican Sinaloa group and the Columbian Norte del Valle group, which had used the bank to transact their illegal trade. The banking institution acknowledged that it had failed to inform the relevant authorities of the considerable flaws in the anti-money laundering systems at Mexican HSBC, in spite of being aware of the challenges and their impact on the possible flow of illegal proceeds through the United States’ HSBC. In line with the investigations on sanction laws, the court files from mid 1990s all the way through September in 2006 the group had estimated US$ 660 million in transaction forbidden by OFAC to be conducted via the United States’ financial institution inclusive of the HSBC banking institution in the United States. The group abided by the procedures from the sanctioned businesses in Cuba, Libya, Iran, Burma and Sudan to remove their names from the dollar payments of the United States being sent to the HSBC subsidiary or any other financial and banking institution (Great Britain & Financial Services Authority, 2007; p. 121). The bank had also omitted facts which linked the nations the payment messages of dollar payments; intentionally applied less open payment systems referred to as a cover payments and had collaborated with no less than one entity that was sanctioned to restructure the payment transaction which barred the filters of the bank from preventing the payments that were banned. The documents from court revealed that beginning the onset of July 2001 the chief compliance official of the HSBC in United States had earlier on had a clash with the head compliance officer of the bank on the concerns relating to the amendment of payment and given the assurance it would not encourage open efforts to prevent the sanctions which would otherwise put compromises to the law. In the same year the subsidiary of the bank in United States officer in charge of compliance had informed the counterpart at the headquarters that the bank was more worried of the application of cover payments that barred the subsidiary from affirming if the transactions in questions fulfilled the requirements of OFAC (Booth, 2011; p. 59). Extending to the year 2006 since 2001 the top compliance at the head offices were not in a position to tell or adequately screen the sanctioned payments from the sanctioned entity in case the payments were being remitted using the cover technique even though the protests were completely overlooked. Consequences and prevention Currently due to the actions of HSBC, the institution is being responsible for the unlawful activities that were transacted through the subsidiary in the United States on behalf of the entities that were sanctioned. The FBI is working in association with associated partner law enforcement group as well as the financial regulators of the federal state to provide assurance that the compliance will all federal financial and banking laws to enhance a state of integrity globally in financial entities. It was noted that all banks must be careful given the fact that they are the first line of defense over launderers of money and criminal entities who opt to make use of the states’ financial and banking institution to support their felony transactions. Notably whenever the requirements of the Bank secrecy Acts are disregarded, it does comprise with the stream of defense which makes it hard to recognize, acknowledge and prevent the activities of felony (Stoner & Wankel, 2012; p. 95). In this scenario, the banking institution became a pathway for laundering money. The enforcement of the sanctions is critical to the significance of the national safety standards and the integrity of the financial and banking structure. The war on laundering of money and financing of terror groups calls for a worldwide collaboration and united probes in these issues and other connected cases that highlights the significance in the implementation of the sanctions. There is no business entity that must never have the perception that it is too big to navigate through the repercussions of helping to finance terrorist groups and global drug syndicates. Especially, the banking institutions have a huge duty to apply relevant due care in control and monitoring of cash activities that go through their systems and recognize the source of the money with the objective of not helping the criminal transactions. By permitting these forms of illegal activities to take place, the HSBC had failed in its huge worldwide duty to other financial institutions. The fines that were charged of HSBC would maybe serve as a warning sign to the rest of the financial and banking systems that have such activities within their operation or intend to conduct such transactions through their financial system. There are already strong practices that are being put into place to harden further the financial and banking structures to fight illegal money laundering risks by probing and bringing to hook the financial entities and experienced launders of money fro infringement of the statutes of money laundering. This also entails the Bank Secrecy Act and other associated laws (ODonovan, 2005; p. 21). Focusing on HSBC, it would be advisable for the institutions to establish an IT and transaction evaluation structure which is full of integrity and has an effective system of integration, harmonization and regularity. The bank has a duty to upgrade the dependability of information it keeps on its customers. Besides, the institution can also create a worldwide plan and implementation strategy which has timelines and responsibility requirements. The remuneration committee of the banking and financial institution must have the authority to imprison the top executives in case they failed to create an efficient program for anti-money laundering (Chatain, 2009; p. 39). The company has also obligations to comply with all the regulations in all countries of operation and implement all the necessary structural changes in the general global transactions that can ensure there is no repeat of such conduct leading to their trial and court fine. Considerable changes in the Anti-Money laundering system compliance must ensure increased responsibility for most section of the top executives to ensure compliance. Bibliography Booth, R. (2011). Money laundering law and regulation: A practical guide. Oxford: Oxford University Press. Chatain, P.-L. (2009). Preventing money laundering and terrorist financing: A practical guide for bank supervisors. Washington (DC: World Bank. Ellinger, E. P., Lomnicka, E. Z., Hare, C., & Ellinger, E. P. (2009). Ellingers modern banking law. Oxford: Oxford University Press. Fahim, K. M., & Porzio, M. (2010). Islamic banking and finance in the European Union: A challenge. Cheltenham, U.K: Edward Elgar. Great Britain., & Financial Services Authority (Great Britain). (2007). A review under section 12 of the Financial Services and Markets Act 2000. London: The Stationery Office. Hong Kong Institute of Bankers. (2013). Operational risk management. Singapore: Wiley. Levi, Michael (May 2010). "Combating the Financing of Terrorism: A History and Assessment of the Control of Threat Finance". British Journal of Criminology 50 (4): 650–669. Levi, Michael and William Gilmore (2002). "Terrorist Finance, Money Laundering and the Rise of Mutual Evaluation: A New Paradigm for Crime Control?". European Journal of Law Reform 4 (2): 337–364. ODonovan, J. (2005). Lender liability. London: Sweet & Maxwell. Stoner, J. A. F. A. F., & Wankel, C. (2012). Managing Climate Change Business Risks and Consequences: Leadership for Global Sustainability. Basingstoke: Palgrave Macmillan. Read More