HSBC Bank busted on laundering money for US enemies & drug cartels

Dec 11, 2012

It’s being described as the largest cartel money-laundering scheme in history, and today, HSBC Bank headquartered in London, with offices in the U.S. will forfeit $1.256 billion and enter into a deferred prosecution agreement with the Department of Justice (DOJ). HSBC Bank USA violated the BSA by failing to maintain an effective anti-money laundering program and failed to conduct appropriate due diligence on its foreign correspondent account holders, DOJ said.

Despite past warnings, HSBC employees conducted money laundering on behalf of customers in Cuba, Iran, Libya, Sudan, and Burma- all countries that were subject to sanctions enforced by the Office of Foreign Assets Control (OFAC) at the time of the transactions. The bank also worked closely with a number of questionable organizations in Mexico and South America.

A four-count felony criminal charges sheet was filed today in federal court, charges HSBC for willfully failing to maintain an effective anti-money laundering (AML) program, willfully failing to conduct due diligence on its foreign correspondent affiliates, violating International Emergency Economic Powers Act (IEEPA) and violating Trading with the Enemy Act (TWEA). HSBC has waived federal indictment, agreed to the filing of the information, and has accepted responsibility for its criminal conduct and that of its employees.

“HSBC is being held accountable for stunning failures of oversight – and worse – that led the bank to permit narcotics traffickers and others to launder hundreds of millions of dollars through HSBC subsidiaries, and to facilitate hundreds of millions more in transactions with sanctioned countries,” said Assistant Attorney General Lanny A. Breuer. “The record of dysfunction that prevailed at HSBC for many years was astonishing. Today, HSBC is paying a heavy price for its conduct, and, under the terms of today’s agreement, if the bank fails to comply with the agreement in any way, we reserve the right to fully prosecute it.”

HSBC is one of the world’s largest banks and their actions highlight the expansiveness of the drug cartels reach into the world financial markets.

“HSBC’s blatant failure to implement proper anti-money laundering controls facilitated the laundering of at least $881 million in drug proceeds through the U.S. financial system. HSBC’s willful flouting of U.S. sanctions laws and regulations resulted in the processing of hundreds of millions of dollars in OFAC-prohibited transactions. Today’s historic agreement, which imposes the largest penalty in any BSA prosecution to date, makes it clear that all corporate citizens, no matter how large, must be held accountable for their actions,” said U.S. Attorney Loretta Lynch.

In addition to forfeiting $1.256 billion, HSBC agreed to pay $665 million in civil penalties. The United Kingdom’s Financial Services Authority (FSA) is pursuing a separate action.

Main Justice said they will monitor HSBC moving forward and will impose enhanced measures to ensure the bank meets federal government money laundering disclosure obligations.

In return, the bank has fired most of its senior management and said they will “claw back” deferred compensation bonuses for executives involved in the five-year illegal money laundering scheme.

Immigration and Customs Enforcement (ICE), who continues to battle the drug cartels inside and along the U.S. borders on a daily basis, lauded the efforts by Main Justice.

“Cartels and criminal organization are fueled by money and profits,” said ICE Director John Morton. “Without their illicit proceeds used to fund criminal activities, the lifeblood of their operations is disrupted. HSI will continue to aggressively target financial institutions whose inactions are contributing in no small way to the devastation wrought by the international drug trade. There will be also a high price to pay for enabling dangerous criminal enterprises.”

However, today’s actions did not include any jail time for senior banking executives. Assistant AG Breuer said his office was not ruling out any individual prosecutions, but emphasized the most notorious money laundering institution would remain under significant U.S. scrutiny moving forward.

According to court documents, “from 2006 to 2010, HSBC Bank USA severely understaffed its AML compliance function and failed to implement an anti-money laundering program capable of adequately monitoring suspicious transactions and activities from HSBC Group Affiliates, particularly HSBC Mexico, one of HSBC Bank USA’s largest Mexican customers. This included a failure to monitor billions of dollars in purchases of physical U.S. dollars, or “banknotes,” from these affiliates. Despite evidence of serious money laundering risks associated with doing business in Mexico, from at least 2006 to 2009, HSBC Bank USA rated Mexico as “standard” risk, its lowest AML risk category. As a result, HSBC Bank USA failed to monitor over $670 billion in wire transfers and over $9.4 billion in purchases of physical U.S. dollars from HSBC Mexico during this period, when HSBC Mexico’s own lax AML controls caused it to be the preferred financial institution for drug cartels and money launderers.”

A significant portion of the laundered drug trafficking proceeds were involved in the Black Market Peso Exchange (BMPE), a complex money laundering system that is designed to move the proceeds from the sale of illegal drugs in the United States to drug cartels outside of the United States, often in Colombia into HSBC Mexico accounts. Since 2009, the investigation has resulted in the arrest, extradition, and conviction of numerous individuals illegally using HSBC Mexico accounts in furtherance of BMPE activity.

As a result of HSBC Bank USA’s AML failures, 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 Colombia – were laundered through HSBC Bank USA. HSBC Group admitted it did not inform HSBC Bank USA of significant AML deficiencies at HSBC Mexico, despite knowing of these problems and their effect on the potential flow of illicit funds through HSBC Bank USA.

“Banks are the first layer of defense against money launderers and other criminal enterprises who choose to utilize our nation’s financial institutions to further their criminal activity,” said Richard Weber, Chief, and Internal Revenue Service-Criminal Investigation (IRS-CI). “When a bank disregards the Bank Secrecy Act’s reporting requirements, it compromises that layer of defense, making it more difficult to identify, detect and deter criminal activity. In this case, HSBC became a conduit to money laundering. The IRS is proud to partner with the other law enforcement agencies and share its world-renowned financial investigative expertise in this and other complex financial investigations.”

DOJ contends that HSBC become the bank of choice by Mexican drug cartels because they could count on Mexican branches to not follow international money laundering standards. While this practice allowed cartels to launder billions of dollars, there is no indication that the U.S. government will try to hold local Mexican branches accountable.

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© Copyright 2012 Kimberly Dvorak All Rights Reserved.

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