HSBC’s procedures to prevent money laundering, sanction-breaking and criminal activity still have deficiencies so serious that to publicly disclose them would risk serious crime, the US Department of Justice has said.
The embarrassing disclosure of continuing issues with HSBC’s processes is contained in a 16-page motion filed to a US court this week by the DoJ, which is seeking to keep confidential a report on the bank that is more than 1,000 pages long.
It comes after HSBC Suisse was fined £27.8m ($30.9m) by Swiss authorities on Thursday, the largest fine in the country’s history, for “organisational deficiencies” that had enabled money laundering by its clients.
The private bank is subject to regular audits and reports by an external monitor under the terms of a deferred prosecution agreement with US authorities, signed in 2012, which also imposed a record $1.9bn fine on HSBC for its role in aiding money laundering by Mexican drug cartels.
The DoJ filing lists a number of reasons why the agency supports keeping the full report from public view, including ensuring that bank staff continue to cooperate with the monitor, and allowing the oversight to continue effectively.
The filing goes far further than previous public reports in listing inadequacies in the ability of HSBC, the world’s second-largest bank, to prevent criminal activity by its clients.
“As general examples,” the motion states, “the monitor identifies certain areas within HSBC Group where the understanding of money laundering and financial crime red flags continues to lag.
“The monitor also identifies areas where new compliance policies have not yet been implemented, including areas where the lack of due diligence currently exposes HSBC to serious money laundering and sanctions risks.”
The DoJ then goes on to state that it does not believe the failings represented “intentional misconduct” or “bad faith” on the part of HSBC’s management, but rather that fixing the bank’s broken processes was slow work.
“[I]f made public, these deficiencies could be exploited by those who would promote criminal activity, transfer the proceeds of crime, or evade US sanctions,” the filing says.
The section concludes that if the monitor’s discoveries of where HSBC struggled to track its clients were made public, the information could be “used as a road map by criminal actors to exploit compliance weaknesses at HSBC and other banks”.
The official summary report made public as a letter in April used much milder language to express concerns about HSBC’s processes, stating “in certain instances the monitor believes that HSBC Group’s progress has been too slow”, adding that in some areas the bank’s “historical cultural deficiencies continue to pervade its operations today”.
In April the Guardian published excerpts of a leaked transcript of a meeting between HSBC and the monitor in which a senior compliance officer warned the bank was “cast-iron certain” to have another major regulatory breach at some point in the future.
In a statement, an HSBC spokesman said the monitor had recognised the bank had made significant progress and was in compliance with its agreement.
“The Justice Department recognised in its letter that HSBC has made material progress toward meeting the most stringent compliance standards imposed to date upon a global financial institution,” he said.
“We continue to meet all of our obligations under the DPA [deferred prosecution agreement], and remain firmly committed to putting in place a robust AML [anti-money laundering] and sanctions compliance programme. We are making steady progress toward that objective and appreciate the monitor’s ongoing work.”
HSBC separately confirmed it had launched an internal review after being named in separate US court documents in connection with allegations of corruption among senior Fifa officials.
HSBC accounts had been involved, the filings stated, in a $500,000 (£328,000) transfer from a sports marketing company connected with Fifa to a luxury yacht manufacturer, as well as a number of wire transfers connected to alleged payment of bribes or kickbacks.
A US attorney said the banks named in the filings might be investigated for their role in the alleged misconduct.
“Part of our investigation will look at the conduct of the financial institutions to see whether they were cognisant of the fact they were helping launder these bribe payments,” the acting US attorney for the eastern district of New York, Kelly Currie, told a press conference last week.
“It’s too early to say if there is any problematic behaviour, but it will be part of our investigation.”
An HSBC spokesman told the Guardian: “We are continuing to review the allegations in the indictments against certain Fifa executives and others, to ensure that our services are not being misused for financial crime.”
Thursday’s fine came in the wake of the publication of the HSBC Files by numerous news outlets across the globe, including the Guardian, Le Monde, BBC, Süddeutsche Zeitung and others, led by the International Consortium of Investigative Journalism.
This article was written by James Ball and Harry Davies, for theguardian.com on Friday 5th June 2015 15.10 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010