HSBC’s $1.9 Billion Settlement and the Men on the Hill

By Pam Martens: December 11, 2012 

Christopher Lok, Former HSBC Head of Global Banknotes, Testifying Before Senate on July 17, 2012

On July 17 of this year, the Senate Permanent Subcommittee on Investigations released a 330-page report on banking giant HSBC, together with 100 documents and internal emails, evincing a culture of hubris and potentially criminal actions when it came to U.S. banking laws.  

Today, the U.S. Department of Justice and multiple other U.S. regulators will tie all that up with a tidy red bow for a settlement of $1.921 billion; a small nick in HSBC’s profits of $22 billion last year. HSBC released a statement saying it was “profoundly sorry.” 

During the July 17 Senate hearing on HSBC, Subcommittee Chairman, Carl Levin, questioned Chistopher Lok, the former head of global banknotes at HSBC Bank USA, about internal emails from HSBC that the Senate had in its possession. 

In the first email, a subordinate tells Lok that a proposed bank customer has a “know your customer” profile that “documents various allegations of fraud, internal control weaknesses, and the FBI investigation into terrorist financing…” The colleague was inquiring if a special security status should be placed on this account.  Lok responds in an email: “…this is such a large bank hence malfeasance is expected” and recommends no special security status.  In a separate email exchange, Lok appears to base his recommendations on the amount of money HSBC might make from the account. Senator Levin inquires of Lok what kind of message this sends to his subordinates at the bank. Lok is humble in his response. 

Later in the hearing, ranking minority member, Senator Tom Coburn, sends an equally conflicted message to the American people watching this hearing.  Coburn asks the chief legal officer for HSBC, Stuart Levey, the following: 

Coburn: “Do you have a recommendation for Senator Levin and I in terms of what we could do to make us both more effective, less burdensome, and more efficient…” 

Levey: “I have to say that sounds like a dangerous question. I didn’t come here today to give you recommendations.” 

Coburn: “I have the reputation of being a straight shooter. I’m asking that because I really want to know.  I actually like to try to fix what’s wrong with government rather than pile on another program that supposed to do the same thing that’s gonna fail again.”

Senator Coburn had transmuted serial, systemic corruption at a global banking giant into a failure of government. And that is the insanity we tolerate from the right-wing of today’s Republican party as we slosh through never-ending banking corruption built upon their platform that markets will regulate themselves. 

The following are findings from the Senate report:

  • HSBC Bank USA, N.A., known as HBUS [pronounced H-Bus] functions as the U.S. nexus for HSBC’s worldwide network. HSBC has 7,200 offices in more than 80 countries and 2011 profits of $22 billion; HBUS has 470 branches across the United States with 4 million customers. HBUS provides accounts to 1,200 other banks including more than 80 HSBC affiliates.
  • In 2010, HSBC was cited by its federal regulator, the Office of the Comptroller of the Currency (OCC), for multiple severe anti-money laundering deficiencies, including a failure to monitor $60 trillion in wire transfer and account activity; a backlog of 17,000 unreviewed account alerts regarding potentially suspicious activity.
  • HBUS offered correspondent banking services to HSBC Bank Mexico, and treated it as a low risk client, despite its location in a country facing money laundering and drug trafficking challenges. The Mexican affiliate transported $7 billion in physical U.S. dollars to HBUS from 2007 to 2008, outstripping other Mexican banks, even one twice its size, raising red flags that the volume of dollars included proceeds from illegal drug sales in the United States.
  • Foreign HSBC banks actively circumvented U.S. safeguards at HUBS designed to block transactions involving terrorists, drug lords, and rogue regimes. In one case examined by the Subcommittee, two HSBC affiliates sent nearly 25,000 transactions involving $19.4 billion through their HBUS accounts over seven years without disclosing the transactions’ links to Iran.
  • HBUS provided U.S. dollars and banking services to some banks in Saudi Arabia and Bangladesh despite links to terrorist financing.
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