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.