HSBC LAUNDERING SCANDAL

HSBC’s website emphasizes their long-term strategy is sustainability and “HSBC believes long-term success and good corporate behaviour are linked.” In fact, HSBC really failed the stakeholders and governments’ expectations according to the laundering scandal. HSBC violated their promises on “achieving long-term profit growth, building enduring customer relationships and making a positive contribution to the environment and the communities in which they operate.” After the scandal, HSBC broke the chain of trust with stakeholders and their customers will run off.  Based on the Bloomberg’s website, HSBC reports declining profit. The chief executive officer has closed or sold 47 businesses, sacrificing revenue and targeting 30,000 job cuts. In addition, the company has billion loss in Europe. By losing the chain of trust, how customers can still rely on “the world’s local bank?”

Citations:

Mustoe , Howard, and Gavin Finch. “HSBC Reports Declining Profit, Says Costs Are Increasing.” Bloomberg.  (2013): n. page. Web. 25 Apr. 2013. <http://www.bloomberg.com/news/2013-03-04/hsbc-full-year-profit-declines-on-debt-revaluation-record-fine.html>.

“Sustainability.” HSBC.  n. page. Web. 25 Apr. 2013. <http://www.hsbc.com.au/1/2/about/sustainability>.

Since the laundering scandal has been discovered, HSBC cuts 47000 jobs in Europe. Around 35000 employees are layoff in global and try to cut its expenses. Moreover, HSBC tries to cut more employees about 1149 in the wealth management division in U.K. As well as, the shareholders have affected by the laundering scandal since the corporation has to pay the huge penalty to settle the money-laundering case.

Money laundering helps criminals evade justice, fuels the forces of crime and affects the social order seriously. Typically the so-called organized crimes always relate to certain transactions and funds. Gangsters are bound to raise the gang, then how can they raise it? No doubt money is indispensable, where is the money comes from? There might be a variety of illegal income such as drug trade, smuggling, kidnapping and so on. Moreover, the combination of money laundering and terrorist activities will cause huge losses on social stability, national security and people’s lives and property safety.

The scandal undoubtedly caused considerable reputation damage to HSBC. A report from the U.S. Senate has criticized HSBC to help customers transfer money illegally from Mexico, Iran, the Cayman Islands, Saudi Arabia and Syria and other countries. HSBC was warned that the bank might face criminal or civil charges related to the investigation earlier in 2012. The report criticized that the corporate culture of HSBC was “contaminated”, pointing out that $ 7 billion was transferred to U.S. from Mexico illegally from 2007 to 2008. HSBC subsequently responded that the relevant question was “shameful and embarrassing”. HSBC CEO Stuart Gulliver said, “the report has no doubt caused serious reputation damage to HSBC, The extent to which that has resulted in loss of business is hard to measure, but it has undoubtedly damaged our brand.” He said that as the investigation continued, a number of employees have left HSBC, some employees were ordered to pay the salary as well.  HSBC banking group saw its net profits drop nearly 17 percent in 2012, as it counted the cost of a hefty U.S.fine it paid to settle money-laundering claims. Additionally, the customers of HSBC may lose their trust on HSBC which is extremely derogatory to the reputation as well as the business of HSBC. The loss of customers that resulted from damaged reputation might bring negative impact on the annual revenue in the long term.

Enjoy the video:

HSBC prepared for fine but its reputation has been damaged

Work Cited

“HSBC Holding plc(HBC) Dividend History.” Dividata. Web. March 2013. 25 Apr. 2013.

<http://dividata.com/stock/HBC/dividend>

Mustoe, Howard.”HSBC Reputation’Crushed’by Mexican Money Laundering.” Bloomberg, 2013.Web. 25 APR. 2013.

<http://www.bloomberg.com/news/2013-02-06/hsbc-reputation-crushed-by-mexican-money-laundering-ceo-says.html>

“HSBC prepared for fine but its reputation has been damaged.” The Telegraph. Web. 2012. 25 Apr. 2013

<http://www.telegraph.co.uk/finance/9736798/HSBC-prepared-for-fine-but-its-reputation-has-been-damaged.html>

Image source:http://blog.optionsclick.com/2012/07/17/weak-sales-data-adds-pressure-on-fed-reserve/

HSBC agreed to a record $1.92 billion settlement with U.S authorities over charges that it laundered billions of dollars tied to Latin American drug cartel, so called “rogue states,” and foreign terrorist organizations. The U.S Department of Justice wanted to make a show of the massive money-laundering settlements, in order to warn other banks not to make the same mistake as HSBC. As shown in the chart,  there are several major settlements with money-laundering banks.

However, U.S authorities have cowered from actually prosecuting these massive crimes shows how illicit financial flows remain a strutural pillar of the global capitalist system. Moreover, they feared “criminal prosecution would topple the bank and, in the process, endanger the financial system” according to the New York Times. These might ripple across the world financial system.

HSBC had “failed to monitor over $670 billion in wire transfers from HSBC Mexico between 2006 and 2009, and failed to monitor over $9.4 billion in purchases of physical U.S. dollars from HSBC Mexico over that same period.” In Newspeak, “failed to monitor” stands in for “complicity.”

Sources:

Ballvé, Teo. “Narco-Geographies, Part I: HSBC and Global Money Laundering.” Territorial Masquerades .  n. page. Web. 2 May. 2013. <http://territorialmasquerades.net/narco-geographies-part-i-hsbc-and-global-money-laundering/>

Image. <http://blog.optionsclick.com/2012/07/17/weak-sales-data-adds-pressure-on-fed-reserve/>

HSBC was found guilty of engaging in illegal money laundering last year. Concisely conclude, they helped clients bringing funds generated from drug trafficking and suspicious terrorists into the US economy. The aftermath of the scandal has been a painful experience not only to the directors or executives, but also to the stockholders as well as the general public.

In case to prevent the scandal could lose the bank business in the long-term, the ratings agency Standard and Poor’s has downgraded the outlook of HSBC from Stable to negative. As S&P said, “In recent months, the HSBC group has been censured by its regulators and other authorities for alleged control failing, notably with regard to US anti-money laundering standards”

Even though HSBC agreed to pay a billion dollar lawsuit, there is still a loophole. The ones who genuinely participated in the money laundering are not made personally liable for their own commitment of crimes. Also, there are no clear legal consequences to the senior management who have the responsibility of making sure the bank’s transactions are legal and ethical. The government should not overlook the importance of legality of transactions between financial institutions. It can be understood that in capitalist economies the governments prone to give a certain degree of freedom over the flows of funds. Meanwhile, great care should be taken over legality of transactions. The government is also responsible for striving a better balance between economic freedom and legality of transactions.

Business ethics can be considered in the dimension of social responsiveness, that is the organization must respond to the needs of community, therefore the management of HSBC could have adopted a process that is meant to define the actual tactics to be utilized in achieving its goals.

HSBC moved huge sum from Mexico into the U.S. between 2007 and 2008 and provided services for Saudi Arabia’s Al Rajhi Bank linked to financing terrorism. Senate investigation suggests that they also moved money tied to Iran. This is another hammer blow to the credibility of British banking system after Barclays was fined for allegedly rigging LIBOR interest rate. The July 2012 report and investigations by US authorities led to the UK-based bank being fined 1.9 billion for failing to stop criminals using its banking systems to launder money. Despite HSBC Mexico (HSMX) operating in a country “under siege from drug crime, violence and money laundering” it had inadequate money laundering controls. Between the 2007and 2008, for example, HBMX shipped $7bn to HSBC’s US operation, more than any other HSBC affiliate. Mexican and US authorities expressed concern that drug traffickers were able to circumvent the anti-money laundering controls at US banks by transporting US dollars to Mexico, and then using HBMX to transfer it to the US.HSBC US (HBUS) nevertheless classed Mexico as a low-risk country and as a result, failed to properly monitor its transfers and other dealings with it.

London-based banker David Bagley, head of HSBC’s compliance division, which is meant to prevent breaches of the law, quit in front of the Senate committee. He had been with the bank for 20 years. HSBC avoided a legal battle that could further savage its reputation and undermine confidence in the global banking system by agreeing Tuesday to pay $1.9 billion to settle a U.S. money-laundering probe.

Europe’s biggest bank by assets, HSBC, posted on Monday a drop in half-year profits after taking a $2.0 billion-hit to cover costs from a US money-laundering scandal and mis-selling claims in Britain. Net profit dropped 8.0 percent to $8.44 billion (6.88 billion euros) in the six months to June compared with the first half of 2011, the British lender said in a results statement. The Asia-focused bank’s pre-tax profit rose 11 percent to $12.7 billion, boosted by asset sales, particularly in the United States.HSBC shares closed up 0.79 percent to 535.30 pence on London’s benchmark FTSE 100 index, which ended with a gain of 1.18 percent at 5,693.63 points.

For the long-term effects, HSBC’s managers admit this episode has damaged the bank’s reputation. “People don’t take those offers,” he says. “They just don’t trust them.”Even if most customers won’t up and march out the door over an ethics issue, getting skewered in public can hurt business, just in less dramatic ways, according to Columbia Business School professor Olivier Toubia. He says research he’s currently conducting hints that, while existing customers may shrug off tales of misdeeds, prospective ones who don’t face the hassle factor might not. He found would-be customers tend to be far less responsive to pitches for products like credit cards and mortgages when they harbor doubts about an institution’s integrity – even when they see attractive terms.

There are several individuals or organizations responded to the scandal. First of all, it’s the bank itself. HSBC started to response to the scandal by themselves before everyone else. According to “Insight: Brand Health Check-HSBC cleans up after money laundering,” “HSBC began phasing out ‘The world’s local bank’ tagline in 2011; it called a global creative review in October; the bank has been accused of laundering money for organized criminals and terrorists.” Since the laundering scandal affected the satisfaction and expectation of HSBC’s customers and the banking industry, HSBC need to enforce their responsibility in order to “win over skeptics”. Also, the government showed a strong attitude in responding to the laundering scandal that HSBC have to face the money laundering problem. According to the news, “the Government has rejected calls from Labour for former HSBC chief executive Lord Green to be called to answer questions in the House of Lords on the issue of money laundering by the bank”. Later on, HSBC’s head of compliance David Bagley resigned.

Referrences:

“Insight: Brand Health Check – HSBC Cleans Up After Money Laundering.” Campaign Asia-Pacific (2012): 23. Business Source Complete. Web. 13 Apr. 2013

Tolley, Steve. “Govt Rebuffs Call For Lord Green To Face Questions Over HSBC Money Laundering.” Money Marketing (Online Edition) (2012): 1. Business Source Complete. Web. 13 Apr. 2013.