HSBC- The Drug Dealer's local bank?

Role of HSBC in the grand scheme:

Mexico was infested with a drug cartel to fulfil the insatiable American drug demand. And
the exchange of drugs happened through the border, and still, the dollar bills from the U.S.
needed a way to reach the Mexican cartels. HSBC, looking to set foot in Mexico, acquired
Bital, which already had many high-risk accounts. HSBC fully didn't integrate itself, helped
the latter bank continue its current customs, and gave the risk as lowest(Standard). And as
money was credited in the U.S. branches linked to the suspicious account, the bank ignored
the alerts; thus, aiding the conversion of drug money pumped into the financial system,
which becomes difficult to track and prove its illegitimacy. So we can see HSBC helped in the
placement stage of money laundering by depositing into account, and layering was done by
enabling a series of the transaction from different account

As per the court, below are the roles of HSBC:

1. HSBC neglected to do due diligence on HSBC Group Affiliates and failed to

keep track of it.
2. Between 2006 and 2009, HSBC failed to appropriately monitor over $200
trillion in wire transfers from customers in "standard" or "medium" risk
countries ($670 billion in wire transfers specifically from HSBC Mexico).
3. HSBC Bank U.S.A. failed to properly supervise billions of dollars in banknote
acquisitions in the United States.

4. HSBC Bank U.S.A. failed to establish an effective anti-money laundering

programme by failing to provide adequate employees and resources.

HSBC Bank U.S.A. acknowledged severe violations of the Bank Secrecy Act,
including failing to build and maintain an effective anti-money laundering
programme, failure to undertake due diligence, and complicity in the laundering
of over $881 million as part of the Deferred Prosecution Agreement.

Vulnerability of U.S. banks:

Banks are an ever-evolving service of new or evolving delivery channels to

increase convenience and financial access for everyone. Still, banks must be
beware of the chances of exploitation by a few entities to keep updating their
Bank Secrecy Act(B.S.A.) compliance. Many banks have trouble verifying loan
applications, creating and distributing disclosures, and underwriting and closing
loans that rely on software, automated tools, disclosure forms, and third-party
connections. Maintaining processes and systems that are sufficient to identify
insured borrowers and loan products, making accurate computations and
mandatory disclosures, and implementing additional essential protections are
all Sound risk management strategies. Legally both B.S.A. and A.M.L. cannot
keep pace with the complexity and speed at which the current financial system is
evolving, so it's on the banks to be accountable and keep their activities in check.

Despite all the risks, The number of formal and informal enforcement actions
("E.A.s") initiated by the O.C.C. against banks to address claimed shortcomings
bad governance, oversight, and risk management systems and controls "has
consistently fallen since peaking in 2009[.]." This decrease "reflect[s] broad
improvement in banks' financial health and risk management measures,"
according to the Report. The following graph depicts E.A. patterns since 2006,
according to the Report:

Legal issues challenged:

In 2010-2012, HSBC's inadequate anti-money laundering rules allowed Mexican

drug money, Iranian terrorism money, and even questionable Russian money to
enter the United States and access U.S. dollar liquidity.

As per senator Carl Levon "HSBC used its U.S. bank as a gateway into the U.S.
financial system for some HSBC affiliates worldwide to provide U.S. dollar
services to clients while playing fast and loose with U.S. banking rules."
Generally, banks should keenly monitor the accounts marked as high risk. Still,
HSBC scored BITAL bank's account, which had the sinhola cartel account as
standard risk, thereby escaping the need to keep track carefully. A Zhenli Ye
Gon, United pharma C.E.O. who has been accused of procuring precursor
material for the cartel, had numerous accounts in HSBC Mexico. Despite HSBC
headquarters being ordered to close his account in 2006 till 2012, no action was
taken by the Mexican branch and was not followed by the H.Q. Two HSBC
affiliates sent over 25,000 transactions totaling $19.4 billion through their HBUS
[HSBC's US subsidiary] accounts without disclosing the transactions' Iranian links
over a seven-year period.

There are the list of accounts that are linked to terrorist, drug cartel and other
illegal entities which are blocklisted by O.C.C. for which no transaction will pass
through, but HSBC found a backdoor by adding dashes and dots to approve the
transaction, e.g., instead of djino they used dj.ino

HSBC structural gaps

As a rapid, short-term response to increased regulatory pressure, HBSCs

worldwide installed their present A.M.L. systems. As a result, most financial
institutions have sought to repurpose retail bank anti-money laundering (A.M.L.)
or market-abuse system models from a previous age that aren't sophisticated
enough for today's needs. These models have limited knowledge of bank A.M.L.
systems' risks. They cannot detect and respond to suspicious behaviour, making
laundered money increasingly undetectable. In addition to HBSC has neglected
around 75000 AML requests generated by the system

HBSCMX(Mexico branches), when it acquired BITAL, wanted to have the profit

from big accounts even though they had doubts regarding the sources and
entity linked to the report. HBSC failed to observe fully BITAL instead chose to
look the other way to BITAL to continue its corruption practices and dealing with
illegitimate money.

The societal impact of this lapse by HSBC

HSBC agreed to pay the U.S. government $1.9 billion to resolve a probe into the
New York branch of Europe's largest bank's pervasive money laundering
facilitation. But this isn't just about money; it's about daily gang violence on our
cities' and towns' streets, the increasing probability that your children will be
sold drugs in their schools, and the kidnapping and sale of youngsters into the
sex trade. According to authorities, the average annual money made by a
trafficked child is estimated to be $200,000 per year. Someone, somehow, needs
to launder that money. HSBC acted as a haven for these entities to wire the
funds throughout the financial systems.

Years of HSBC Bank U.S.A. allowing hundreds of trillions of dollars to pass

through the bank with no money laundering measures in place. According to
court records, HSBC admits failing to implement legally mandated money
laundering controls to $200 trillion in wire transfers in just three years, with $670
billion coming from Mexico. $200 trillion is almost three times the global G.D.P.
They didn't have the legally required controls in place when they bought $9.4
billion in cash from the Mexican subsidiary, a high-risk business, and other HSBC
offices conspired to illegally clear $660 million in transactions from countries
that aren't allowed to access the U.S. financial system, such as Iran and Libya.
Thus by also has the possibility of sponsoring terrorism

"At least $881 million in drug trafficking proceeds, including earnings of drug
trafficking by the Sinaloa Cartel in Mexico and the Norte del Valle Cartel in
Columbia, were laundered through HSBC Bank U.S.A. without being identified,"
HSBC further confessed. Everyone in the world should be wondering right now
whether there was any additional illicit money within the $200 trillion that
passed through the bank unnoticed and unchallenged.

Why was HSBC was chosen for this scheme ?

Years after its competitors had stopped doing business with "casas de cambio" –
money-changing firms – HSBC's Mexican branch continued to do so, despite
worries that they were fronts for drug-cartel money laundering. In 2008,
Mexico's firm established a branch in the Cayman Islands that handled 50,000
client accounts and $2.1 billion in assets, but it lacked people and offices. It also
sent bank notes to HSBC in the United States via car or plane. According to the
study, the bank moved $7 billion to the US from Mexico in 2007 and 2008. This
allowed the bank to avoid US sanctions on nations such as Cuba and Iran. Two
HSBC affiliates handled 25,000 transactions totaling $19.4 billion over seven
years without reporting the transactions' ties to Iran, according to one case
studied by the committee. In addition to this, the HSBC credentials outside
Mexica were also not that great.

Despite links to terrorist financing, the bank provided US dollars and banking
services to banks in Saudi Arabia and Bangladesh. According to the article, HSBC
approved $290 million in suspicious US travellers checks for a Japanese bank
over four years, benefiting Russians claiming to be in the used vehicle business.
"Stopping illicit money flows that enable such crimes is a national security
necessity in an age of international terrorism, drug violence in our streets and
on our borders, and organised crime," said senator Carl Levin, chairman of the
subcommittee.

Reference:
1.Sevenpillarsinstitute.org. (2020). [online] Available at: https://sevenpillarsinstitute.org/hsbc-money-laundering-case-too-

big-to-fail-does-not-mean-too-big-to-jail/.

‌2. Franz Wild and Stockton, B. (2021). Money-laundering ring pushed $4billion through HSBC. [online] The Bureau of

Investigative Journalism (en-GB). Available at: https://www.thebureauinvestigates.com/stories/2021-07-28/money-

laundering-ring-pushed-4.2bn-through-hsbc.

3.Woodman, S. (2020).  HSBC Moved Vast Sums of Dirty Money after Paying Record Laundering Fine. [online] ICIJ. Available

at: https://www.icij.org/investigations/fincen-files/hsbc-moved-vast-sums-of-dirty-money-after-paying-record-laundering-

fine/.

4.UKEssays.com. (n.d.).  The Ethical Analysis and Evaluation of: HSBC Money Laundering Scandal. [online] Available at:

https://www.ukessays.com/essays/banking/the-ethical-analysis-and-evaluation-of-hsbc-money-laundering-scandal.php.

5.Money Laundering Watch. (2018). O.C.C. Report: Cybersecurity and Money Laundering Threats are the Key Risks Facing

Banks. [online] Available at: https://www.moneylaunderingnews.com/2018/01/occ-report-cybersecurity-and-money-

laundering-threats-are-the-key-risks-facing-banks/ [Accessed 4 Jan. 2022].

6. https://www.forbes.com/sites/afontevecchia/2012/07/16/hsbc-helped-
terrorists-iran-mexican-drug-cartels-launder-money-senate-report-says/?
sh=698854f35712