MAHATMA EDUCATION SOCIETY

PILLAI COLLEGE OF ARTS, COMMERCE AND SCIENCE

[AUTONOMOUS]
NEW PANVEL

A PROJECT REPORT ON
“A STUDY ON HSBC’S MONEY LAUNDERING SCANDAL
BY
SUSHMEET RAJENDRA BHOIR
ROLLNO. 4018
SYBAF A

UNDER THE GUIDANCE OF ASST. PROF. THEJUS JACKSON

FOR THE PARTIAL COMPLETION OF THE DEGREE OF
B.COM [ACCOUNTING AND FINANCE]
 INTRODUCTION

HSBC Holdings plc is one of the world’s largest banking and financial services organizations.
Founded in 1865 in Hong Kong, it originally served as a bank for international trade between
Europe and Asia. Today, HSBC operates in over 60 countries, offering a wide range of services
including retail banking, wealth management, commercial banking, and investment banking.
HSBC is known for its global reach, with a strong presence in Asia, Europe, the Americas, the
Middle East, and Africa. The bank is committed to sustainability and responsible banking,
focusing on supporting economic growth while addressing climate change and social issues.
With a diverse customer base, HSBC aims to provide tailored financial solutions to individuals,
businesses, and institutions worldwide. Its robust digital banking platform and commitment to
innovation reflect the bank’s adaptability in a rapidly changing financial landscape.
 History
HSBC (Hongkong and Shanghai Banking Corporation) was founded in 1865 in Hong Kong by Thomas
Sutherland, primarily to facilitate trade between Europe and Asia. The bank quickly expanded its presence
in Asia, opening branches in Shanghai, Japan, India, and the Middle East, becoming a key player in
financing international trade during the colonial era. Despite facing challenges during World War II,
including the Japanese occupation of Hong Kong, HSBC managed to recover and resume its expansion. In
the post-war period, the bank grew significantly, establishing a strong presence in Europe and North
America, particularly after acquiring Marine Midland Bank in the U.S. in 1980 and Midland Bank in the
UK in 1992. This acquisition marked a pivotal point in HSBC’s transformation into a global financial
institution.

In 1991, HSBC Holdings plc was established in London as the group's parent company, reflecting its
growing global ambitions. The bank continued expanding through strategic acquisitions, including
Republic National Bank of New York in 1999 and Household International in the early 2000s. Despite
being impacted by the 2008 global financial crisis, HSBC fared better than many of its competitors due to its
diversified international operations. In recent years, the bank has focused on restructuring and streamlining
its operations, placing greater emphasis on its core markets in Asia, particularly China. Today, HSBC
operates in over 60 countries and territories, offering a wide range of financial services, and remains one of
the largest banking institutions in the world.
 OBJECTIVE OF STUDY
The objective of research on money laundering is to understand the methods and techniques used to disguise
the origins of illegally obtained money, examine the impacts of money laundering on financial systems and
economies, and evaluate the effectiveness of anti-money laundering (AML) regulations and enforcement
measures. This includes:

1. To Investigating various methods used to launder money, including financial transactions, shell companies,
and real estate investments.

2. To Analyzing the economic and social consequences of money laundering, such as financial instability,
corruption, and crime.

3. To Reviewing the effectiveness of AML policies and practices, including the roles of regulatory bodies and
financial institutions in detecting and preventing money laundering.

4. To Recommending enhancements to AML frameworks and practices to better combat money laundering
and its associated risks.
 LITERATURE REVIEW
ML is a global critical operational risk for banks (Edwards et al., 2018;Yeoh, 2020). Moreover, ML is a risk faced by all FIs
(Naheem, 2016). Therefore, protecting the financial sector from ML/TF helps improve market confidence, bank knowledge
about its customers and customer service (Graham, 2003;Webb, 2004;Meagher, 2019). ...

Money laundering is a risk faced by all banks (Naheem, 2016). This is because the perpetrators of acts of money laundering
often utilize the facilities of the banking sector to move, swap, or disguise the illegal funds. ...

While banks that do not offer such products are losing consumers at an increasing rate (Ekwueme & Egbunike, 2012).
According to Ahmad (2016), for enhanced banking results, technology is the backbone and having advanced technology will
have a huge benefit for all banking sectors. The banking situation today requires continuous creativity to encounter the desires
and wishes of often difficult clients.

While banks that do not offer such products are losing consumers at an increasing rate (Ekwueme & Egbunike, 2012).
According to Ahmad (2016), for enhanced banking results, technology is the backbone and having advanced technology will
have a huge benefit for all banking sectors. The banking situation today requires continuous creativity to encounter the desires
and wishes of often difficult clients.
Scholars like Nicholas Dorn (2013) argue that the HSBC scandal revealed critical weaknesses in global regulatory frameworks. Dorn suggested that regulators were either
too lax or too reliant on the goodwill of large banks to self-regulate. The Deferred Prosecution Agreement (DPA) allowed HSBC to avoid criminal prosecution, which
scholars often see as a lenient response that reflects the too-big-to-fail dilemma in banking.

Ethical discussions have been prevalent in scholarly reviews of this case. Albrecht and Albrecht (2014), in their analysis of corporate governance failures, discussed how
HSBC's leadership lacked sufficient oversight and accountability measures. The culture within the bank allegedly prioritized profits over compliance with anti-money
laundering (AML) laws, demonstrating a misalignment of corporate and social responsibility.

Scholars such as John Walker (2016) have examined the HSBC case within the broader context of international financial crime. Walker noted that the global financial
system’s vulnerabilities, particularly in relation to AML enforcement, were exploited by HSBC, which failed to implement adequate internal controls. His analysis calls for
stronger international coordination and enforcement mechanisms to prevent similar lapses.

Economists and scholars have written extensively on how this scandal damaged HSBC's reputation, leading to increased skepticism toward multinational banks.
According to a 2013 article by Sharman and Mistry, HSBC's role in the scandal led to a significant decline in public trust in global financial institutions, emphasizing how
financial misconduct can have long-lasting reputational impacts.

Scholars have analyzed the financial and legal penalties faced by HSBC, including the $1.9 billion fine. While some see this as a landmark penalty, others, like Lawrence
Baxter (2015), argue that the punishment was insufficient given the scale of the offenses. Baxter's critique highlights the need for more stringent criminal enforcement
measures against corporate wrongdoers.
 DATA AND INTERPRETATION

Interpretation: Among 50 responses, 56% were somewhat familiar , 18% were very
familiar , 6% heard of it ,but didn't know details and 20% were not familiar at all with
the HDFC money laundering scandal .

Interpretation: Among 51 responses, 47.1% of respondents were unsure, 35.3% of

respondents knew about it and 17.6% were unaware about the HSBC scandal .
 DATA AND INTERPRETATION

Interpretation: Among 51 respondents, 47.1% of respondents think HSBC Management

was responsible, 31.4% think HSBC Employees ,7.5% think financial regulators, 5.7% think
government officials, 5.7% & 3.8% respondents think there are other reasons responsible for
the scandal.

Interpretation: Among 51 respondents, 24.5% respondent think large banks are involved in
illegal activities, 56.6% are somewhat involved ,15.1% are rarely involved and 3.8% are not
at all involved.
 CONCLUSION

The HSBC money laundering scandal, revealed in 2012, exposed severe compliance failures
within one of the world’s largest financial institutions. HSBC was found to have facilitated
transactions linked to drug cartels, terrorist organisations, and sanctioned regimes, primarily
due to inadequate internal controls and a lax attitude toward anti-money laundering (AML)
regulations. This scandal significantly damaged HSBC's reputation, led to a $1.9 billion
settlement with U.S. authorities, and highlighted broader systemic issues within the banking
industry concerning the enforcement of AML and Know Your Customer (KYC) policies.
The scandal illustrated how large global banks, by prioritising profits over regulatory
compliance, can unwittingly become enablers of criminal activity. It also showcased the
importance of strong internal governance, as HSBC’s own internal investigations identified
weaknesses that were not adequately addressed until after the scandal broke.
 SUGGESTIONS
1. Embrace Technology: Utilise advanced technology, such as artificial intelligence (AI)
and machine learning, to detect suspicious transactions and behaviour patterns more
effectively. These tools can significantly enhance the bank's ability to monitor large
volumes of transactions in real time.
2.Regulatory Cooperation and Transparency: Financial institutions should foster closer
cooperation with regulatory authorities, ensuring timely reporting of suspicious activity.
Additionally, transparency with the public about internal reforms can help restore trust.
3.Cultural Shift Towards Ethics: There needs to be a cultural shift in how banks approach
ethics and regulatory compliance. Ethics should be embedded in every decision-making
process, from the top leadership down to frontline employees, to ensure long-term
sustainability.
4. Independent Audits and Oversight: Regular independent audits and external oversight
should be mandatory for large banks to ensure that AML and KYC controls are being
enforced effectively.
5. Accountability: Banks must establish clear accountability for executives responsible for
compliance. Holding individuals accountable for failures in regulatory adherence ensures a
stronger deterrent for future misconduct.
 BIBLIOGRAPHY

www.hsbc.com
www.hsbcwiki.com
www.quora.com
Google form:
https://docs.google.com/forms/d/1hF9ALwmzSgtURldsLwOlDiZD
RDdNaAgzM5zxGLIoQhs/edit#responses