Too Big to Fail – HSBC’S Enduring Effects



According to Rolling Stone’s article “Gangster Bankers,” HSBC got away with straight murder. The coverings of HSBC’s crimes which lasted over half a decade were revealed just before the holidays, shocking politicians, lawyers and investigators worldwide. A fine of $1.9 billion in other words, 5 weeks’ profit for HSBC for conducting the largest drug and terrorism money-laundering issue in history.

What’s flooring is the sentiment that not as little as one dollar or one day in jail from any individual has occurred for the enduring impact their criminal behavior has unleashed for the world. The British banking power laundering millions of dollars for drug lords and gangs including Mexico’s Sinoala drug cartel. A drug cartel suspected of killing at least 10,000 people within the past 10 years. With that, they washed money for terrorist organizations like Al Qaeda and Hezbollah, Russian mobs, assisted countries like Iran, Sudan and North Korea to avoid sanctions, and helping too many people hide their cash from taxes.

Attorney and former Senate investigator Jack Blu stated, “They violated every goddamn law in the book.” Who has contributed to a successful major bribery investigation against Lockheed in the 1970s leading to the of the Foreign Corrupt Practices Act. Further stating, “The took every imaginable form of illegal and illicit business.”

There is nothing new of these occurrences but what is new is the way our government responded with such leniency. What differs is the Supreme Justice department’s soft charges against the British bank.

Assistant Attorney General Lanny Breuer at a press conference to announce the settlement, “HSBC would almost certainly have lost its banking license in the U.S., the future of the institution would have been under threat and the entire banking system would have been destabilized.”

No jail time, no extracting money from influential individuals and no revoking of their license? Violating Trading with the Enemy Act and among many other international sanctions, HSBC along with every other bank has been giving the get out of jail free card. Total Immunity.

Source: Taibbi, Matt. “Gangster Bankers: Too Big to Jail.” Rolling Stone Politics, 14 Feb. 2013. Web. 25 Apr. 2013.

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Long-Term Effect

People walk past a HSBC bank branch in midtown Manhattan in New York City

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?”


Mustoe , Howard, and Gavin Finch. “HSBC Reports Declining Profit, Says Costs Are Increasing.” Bloomberg.  (2013): n. page. Web. 25 Apr. 2013. <>.

“Sustainability.” HSBC.  n. page. Web. 25 Apr. 2013. <>.

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Long Term Effect—by Yiyi

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.


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


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


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HSBC Laundring Scandal


Image source:

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.”



Ballvé, Teo. “Narco-Geographies, Part I: HSBC and Global Money Laundering.” Territorial Masquerades .  n. page. Web. 2 May. 2013. <>

Image. <>

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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.


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HSBC’s Response to their Scandal

It’s interesting to see how a company as colossal as HSBC reacts to their own scandal. You would assume most big corporations turn a cold shoulder to their own misbehavior. Looking through their 2012 Annual Report, I found that the bank surprisingly speaks out about their incident even establishing committees in attempts to regain their reputation. In the Group Chairman’s statement “A Challenging Year in Banking,” he begins by stating…

Chairman quote

Their efforts to restore their image mainly include establishing ‘transparency’ for society but most importantly for their stakeholders. During Chairman Douglas Flint’s section within the annual report under section “Enforcing Global Standards,” he begins by stating the Board’s approach in enforcing the highest behavioral and compliance standards.


Screen shot 2013-04-23 at 10.03.48 PM

With this they have established a new Board committee to foster a stronger governance over there banking ventures abroad. Titled the Financial System Vulnerabiltities Committee created on January 30 2013. This committee is responsible  for overseeing and governing all controls and activities identified areas where HSBC may be exposed to high risk financial crime or system abuse. Five subject matter experts retrieved from the highest levels of public service will support this committee in determining this behavior. Their speciality comes from background fighting organized crime, terrorist financing, narcotics trafficking, tax evasion and money laundering including knowledge in intelligence gathering as well as international payment systems. Their two primary goals are 1) Identify areas where HSBC may become exposed to financial crime or system abuse and 2) Ensure the continuing obligations to regulatory and law enforcement agencies are met.

The CEO Stuart Gulliver speaks of the company’s adoption of the highest Compliance standards and other functions which he plans to strengthen dramatically. The compliance function has more than 3,500 employees working globally doubling the cost of this function since 2010 to more than US $500 million.

Two new compliance executive roles have been determined, Global Head of Regulatory Compliance and Head of Group Financial Crime Compliance. A subsection of ‘Know Your Customer’ is in process of being passed acting as a global sanctions policy ensuring business with illicit customers is prohibited anywhere by anyone.  HSBC is further being protected from the risks associated with bearer shares by limiting the ability of customers using these share companies to start new accounts or transactions with HSBC. A bearer share is an equity security that is wholly owned by whoever holds the physical stock certificate. It will be interesting to see how visibly effective these initiatives are?


Source: HSBC Holding PLC Annual Review 2012 from the HSBC Website




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HSBC Scandal: Short Term Effects

HSBC’s lengthy scandal resulted in several short term effects. Although the regulators from the Office of the Comptroller of the Currency failed to take action upon discovering lax control over money wire transfers in 2007, little was done to penalize HSBC. Because of this slow start to the appropriate punishment, I think it is safe to say the crisis did not actually explode until 2010 when the United States Senate and media became most involved and exposing the banking giant’s money laundering scandal to its true audacity.

Net Income Increasing from 2010 to 2011

Net Income Increasing from 2010 to 2011

Share Price from July 2010 to 2011

Share Price from July 2010 to 2011

One of the most important stakeholders, the investors, were shaken by the onset of the media exposing HSBC’s money laundering. The share price steadily declined from July 2010 to July 2011, resulting in a dip of more than $20.


However, the income statement of HSBC says otherwise showing an increase of total revenue from 2010 to 2012. According to CNN Money, HSBC’s CEO made a whopping $11 million in the 2012. It seems the bank is doing quite well despite having paid “$1.9 billion last December [2012] to settle money laundering allegations with U.S. authorities”.  Yahoo Finance reports that a noticeable cost incurred by HSBC is for legal purposes amounting up to $1.15 billion. Overall, the company itself is performing up to par.

Thankfully, our last major player as a stakeholder, is beginning to take action. The U.S., regulators are starting to pay more attention to the financial side of the operation.  According to Forbes, “in total, HSBC is now subject to investigations from the U.S. Justice Department, the district attorney’s office in Manhattan, the U.S. Federal Reserve, and two separate departments of the U.S. Treasury”. I might add that the fines imposed as of now are solely for the inadequate checking system for wire transfers. Because of the corporate veil, HSBC officials are not being tried individually in criminal court for the wrongdoings of essentially funding institutions that undermine the American spirit such as corrupt drug cartels and terrorism.

All of these responses cast light in what is a very subtle and comparably low key reaction to the HSBC money laundering scandal. Many other corporations, enormous in size and power, undergo crises and must face the consequences. Apparently, HSBC is a company that has evaded such consequences, and getting away with a slap on the wrist. As part of the US Senate, I believe this is unacceptable and more should be done to the officials of HSBC that are responsible for such crimes. As a host country, we deserve the respect and due diligence of other companies headquartered elsewhere.


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HSBC laundering scandal

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.


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“Too Big, Too Jail OR Fail”

Cartoon by Keith Tucker

Cartoon by Keith Tucker


After HSBC admitted to breaking money laundering laws hiding $200 trillion worth of transactions involved with Mexican and Columbian drug cartels as well as groups potentially aligned with terrorists, among other sanctioned nations, all they were fined was a mere $1.9 billion. For London’s largest bank as well as the world’s third largest publicly held bank and sixth largest public company according to Forbes Fortune 500 2012 report, this is just a slap on the wrist.

In response to exposing the U.S. dollar and overall U.S. financial system to such extreme and dangerous funds, the U.S. Department of Justice argued they could only fine a penalty in the equivalent to one month’s profit was because charging them more would do more harm then good. Essentially, a greater penalty would cause detrimental repercussions for the U.S. financial system, potentially rippling into the global economy.

On March 6th, U.S. attorney general Eric Holder confirms the ideology “too big to fail,” by stating,

“I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy. And I think that is a function of the fact that some of these institutions have become too large.”

Many senators have come to terms with the notion that just some of these institutions have become too large. Specifically, Senator Warren wants to take action in combatting the bank’s immunity to jail or any actual detrimental penalties. Warren and other senators sent letters to the Federal Deposit Insurance Corp and the Maryland Attorney General requesting they terminate HSBC’s insurance and the company’s charter all together being that their American operations are based in Maryland. Their objectives with these letters is to eventually break up the banks. These letters are to push financial policy makers to challenge reality by using their own authority given the actualities of laws that have arised for exactly this issue such as the Dodd-Frank Wall Street Reform and Consumer Protection law.



Taylor, Bartlett. “Is HSBC Really ‘Too Big to Jail’?” Yahoo! Finance. Yahoo! Finance, 11 Mar. 2013. Web. 16 Apr. 2013.




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Which individuals or organizations responded? How did they respond?

Lord Green

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.



“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.

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