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HSBC faces questions over disclosure of alleged money laundering to monitors | HSBC

HSBC found a suspected money laundering community that acquired $4.2bn (£3bn) value of funds, it has emerged, elevating questions over whether or not it disclosed the data to US monitors who on the time have been making certain the financial institution cleaned up its act.

Insiders who spoke to journalists as half of a joint investigation by the Guardian and the Bureau of Investigative Journalism, have prompt that HSBC could not have appropriately shared the data with the monitoring workforce put in by US regulators in 2012 after HSBC allowed drug cartels in Latin America to launder tons of of tens of millions of {dollars} by its accounts.

A redacted inside HSBC report, revealed final week by authorities in South Africa, suggests the financial institution uncovered the beforehand undisclosed multibillion-pound community as early as 2016, whereas it was making an attempt to assess its potential publicity to the controversial Gupta household, who have been embroiled in a nationwide corruption scandal in South Africa. The Guptas have denied any wrongdoing.

The report – which represents findings on the time – recognized three corporations with accounts at its Hong Kong department that media studies had beforehand concluded have been managed by associates of the Gupta household. While tracing funds flowing from these corporations, financial institution investigators uncovered what they suspected was knowledgeable money laundering community managed by unrelated events.

The community was recognized as involving 92 HSBC Hong Kong accounts that acquired $4.2bn value of funds between 2014 and 2017, some of which can have been used for professional functions. When the report was circulated in 2017, 60 of these accounts have been nonetheless open.

Money circulation from Gupta-linked corporations into this community was “contained and minimal”, the financial institution concluded, amounting to simply £12m. The majority of funds passing by the community appeared to be from a number of customers not related to the Guptas.

The financial institution, which is headquartered in London, would have been anticipated to disclose the data to an unbiased monitor introduced in by the US Department of Justice (DoJ) in 2012, when prison proceedings have been deferred on situation the financial institution reform its anti-money laundering checks.

A quantity of former members of the DoJ monitoring workforce say they have been by no means made conscious of the community, elevating questions over whether or not HSBC was totally clear with the monitor, which was meant to maintain tabs on the financial institution because it tried to enhance its anti-money laundering requirements.

“HSBC never voluntarily disclosed money laundering to us. They waited to be asked about it,” one ex-monitoring workforce member, who agreed to converse on the situation of anonymity, mentioned. “As far as I’m aware, this particular report … was never disclosed to the monitor,” they mentioned, including that this appeared to be an even bigger money laundering community than any that they had recognized on the financial institution.

HSBC mentioned in a press release that it was unlawful to disclose data it had shared with authorities authorities, and mentioned “specific discussions with our former monitor remain confidential”.

“HSBC is committed to preventing criminals from accessing the financial system,” the financial institution mentioned. “We actively look for unusual activity and when we become aware of customer accounts being used to facilitate financial crime, we take appropriate action, including closing those accounts.”

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HSBC: regulatory penalties and money laundering dangers found since 2012

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August 2012
Argentina’s monetary crimes unit fines HSBC 64m Argentinian pesos for failing to report suspicious transactions at its native financial institution. 

December 2012
HSBC pays $1.9bn (£1.3bn) and indicators a deferred prosecution settlement with the US Department of Justice after it was discovered to have violated US sanctions and admitted its accounts have been used to launder money for prison networks, together with $881m for Mexican drug cartels. It agrees to an unbiased monitoring programme lasting practically 5 years. 

June 2015
Swiss authorities order HSBC to pay 40m Swiss francs for “organisational deficiencies” that allowed money laundering to happen on the financial institution’s Swiss subsidiary. It was the most important monetary penalty ever imposed by the Geneva authorities on the time, and adopted journalistic investigations by publications together with the Guardian. 

February 2017
The UK’s Financial Conduct Authority launches an investigation into HSBC over potential breaches of money laundering guidelines over considerations have been raised by monitor put in by the US Department of Justice in 2012. The FCA has not disclosed the character of these considerations. 

November 2018
South Africa’s central financial institution fines HSBC 15m rand for failures in its techniques ” that inhibited HSBC from proactively detecting potential money laundering and the financing of terrorism”.

December 2019
HSBC tells Australia’s financial crime agency that it may have broken anti money-laundering and counter-terrorism financing laws, after failing to report what allegedly amounted to thousands of transactions to the regulator.

September 2020
The FinCEN Files investigation reveals HSBC identified £1.5bn worth of suspicious transactions moving through accounts in Hong Kong between 2011 and 2017, including $900m linked to criminal activity. 

July 2021
An internal HSBC report is released by the Zondo Commission inquiry in South Africa, suggesting the bank was aware of a money-laundering network operating through its Hong Kong bank. It is understood that some of the $4.2bn worth of payments routed through its accounts may have been legitimate. 

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The bank is now facing questions from politicians, who are also taking aim at regulators over whether they can effectively hold executives to account. US senator and former democratic presidential candidate Elizabeth Warren said the report came shortly after HSBC received “mere slaps on the wrist for previous violations. Instead of relying on toothless deferred prosecution agreements like HSBC’s, the DoJ and Treasury must hold the executives of these giant banks personally accountable for allowing money laundering and other crimes [to take place].”

It is understood that HSBC was forced to release the report after a legal summons from the Zondo commission inquiry in South Africa, which is examining claims of high level corruption, including those against former president Jacob Zuma and members of the wealthy Gupta family, who have been accused of bribery, money laundering and political patronage, which they deny. Zuma, who was jailed earlier this month for failing to give evidence to the inquiry, has also denied any wrongdoing.

It is understood that the commission issued the summons after receiving evidence from Shadow World Investigations (SWI), a group of London-based non-profit researchers. “The vast flow of funds into and out of South Africa, and through laundry vehicles abroad, raises profound questions about the role of professional enablers in the process of state capture,” SWI said in a written submission to the commission. “It is vital that the banking sector in South Africa and abroad (and in the latter case, HSBC in particular), as well as the auditing sector answer how such large quantities of criminal funds could be transmitted around the world with seemingly little hindrance.”

The internal report, published on the Zondo commission website last week, said HSBC had money laundering concerns relating to three companies either controlled by or connected to an associate of the Gupta family, and “identified by credible investigative media sources to be at the centre of a large money laundering and bribery network linked to the family”. It noted HSBC Hong Kong accounts held by those companies may have been used for legitimate business purposes, but were also “allegedly used to receive bribery money”.

The report said its internal compliance team could not find any evidence of “an extended network of money laundering accounts controlled by the Guptas operating in HSBC”. The bank was unable to identify who ultimately benefited from funds passing through the network.

The report stated: “The Gupta funds could also not be followed as there were no clear outward patterns, but rather a dilution of funds into thousands of companies who pay funds onwards into thousands of smaller companies. We assess that the Gupta family likely made use of an established network, rather than set up accounts for the purpose of laundering their funds”.

In a statement, the Gupta family said that “neither the Gupta Brothers nor the Gupta Family or Gupta Entities have ever had any banking relationship with the HSBC Bank”. They added that they are in no way connected to the companies identified by HSBC.

“We reiterate that each of the three Gupta Brothers and each of the Gupta Entities owned by Gupta Family members are neither part of any money laundering network, nor have they promoted or supported any illegal or corrupt activities, or been associated with any money laundering network.”

Atul Gupta (pictured) is a member of the Gupta family, which has been accused of corrupt links with former South African president Jacob Zuma. They have denied any wrongdoing. Photograph: AP

While a third of the 92 HSBC accounts linked to the suspected professional laundering network had been closed over that period, 60 were still operating by the time the investigation concluded in April 2017, and had made onward payments worth $3.78bn to another 5,576 accounts, nearly half of which were HSBC accounts.

However, a redacted note at the end of the report suggests the 60 top-level accounts were not flagged for immediate closure. Instead, they were referred to an undisclosed party “for live financial crime risk mitigation” and follow-up analysis in March 2017. It understood that HSBC has since revised some of the figures in the report.

“HSBC is committed to preventing criminals from accessing the financial system. We actively look for unusual activity and when we become aware of customer accounts being used to facilitate financial crime, we take appropriate action, including closing those accounts,” the bank said in a statement.

It is not clear whether the discoveries were shared with the DoJ-installed monitoring team, who were getting ready to wind down a four-and-a-half year global supervision programme launched in mid-2013. The monitoring programme was part of a deferred prosecution agreement with US regulators, which had also fined HSBC $1.9bn – a record at the time – for breaching sanctions and allowing drug traffickers in Latin America to funnel at least $881m through its accounts in one of the most high-profile money laundering scandals in a decade.

The monitoring programme, run by the US risk and compliance investigations company Exiger, sent supervisors to nearly a dozen countries and territories a year, including Hong Kong, to get a sense of the controls that HSBC had in place across its sprawling global business, which at the time extended to 75 countries. It is understood that as part of each visit, a team of 20-35 staff would request copies of the bank’s policies, procedures and meeting minutes for the previous year and ask to review specific client accounts that may have been problematic.

Another former member of the near 300-strong DoJ-ordered monitoring team said that they felt in their opinion, some HSBC staff, particularly senior employees, “were quite evasive”. “We had a sense that there [were] a whole set of other stones that we hadn’t been able to lift,” they added. “But I don’t think anybody [at HSBC] really wanted us to look that hard.”

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HSBC said: “Throughout the monitor’s tenure, HSBC took very seriously its obligation to cooperate fully with the monitor and his team. The monitor acknowledged this cooperation in his reports.”

The bank added: “HSBC is determined to prevent criminals from accessing the financial system and, over several years, has overhauled its capabilities aimed at doing just that. This has included putting in place robust policies and procedures to detect, deter, and prevent financial crime across all of our affiliates globally that often exceed what is required in the local jurisdictions where we operate.”

Exiger and the US Department of Justice each declined to remark.

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