HSBC moved vast sums of dirty money after paying record laundering fine

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

by nkurz • 6 years ago

232 80 6 years ago

icij.org

diogenescynic3• 6 years ago

Then make the fines 50x more costly. Put them out of business. Anyone else would go to prison for life.

nothasan• 6 years ago

Fines like that would threaten economic stability. I don’t see them getting more than a slap on the wrist like before.

tareqak• 6 years ago

I think this is sort of punishment is like job security but at the level of governments and nation-states. If people in charge really want to shut something down, then it drops pretty fast.

Cynical-but-opportunitistic start-up idea: find the shortest path to becoming too big to fail.

engineer_22• 6 years ago

Fines are a cost of doing business. If you are serious about stopping crime, identify the ring of conspirators and bring them before the jury.

diogenescynic3• 6 years ago

Yes so you raise fines to the point where they outweigh the benefit of breaking the law. Right now, there is little incentive to actually follow the law when it is more profitable not to.

crispyambulance• 6 years ago

Then make the fines 50x more costly. Put them out of business.

If it were only so simple! But crime always finds a way.

Harsher penalties, three strike laws, and stop-and-frisk haven't stopped street-level crime, why should the white-collar equivalent do anything to stop finance opportunists from committing their crimes?

Also, it costs money to enforce. HSBC probably has an entire floor of well-compensated slimy lawyers ready to fight off enforcement.

Ever since the Panama papers story broke (https://en.wikipedia.org/wiki/Panama_Papers), it has seemed to me that the good-guys are profoundly out-matched when it comes to power and money.

SpicyLemonZest4• 6 years ago

I don't want to sound like I'm defending HSBC here, but it's important to acknowledge that the reason it's so hard to enforce these rules is that nobody else would go to prison at all. The obligation for banks to check whether their customers are running scams is quite unique; Microsoft for example isn't on the hook if a scammer makes their presentations in Powerpoint.

Galanwe• 6 years ago

Then make the fines 50x more costly. Put them out of business. Anyone else would go to prison for life.

That is over simplifying the situation.

First, you cannot just arbitrarily x50 the fines. That would put the bank out of business. You cannot jeopardize a whole business (and the customers savings) just for the behavior of some bad actors. The fine should be at an appropriate level to trigger strong incentives for the existence of a reasonable compliance layer.

Second, the relationship between the severity of the punishment and the crime rate is definitely non linear.

i.e. even at the highest possible severity (say, death penalty) there will be crimes committed. This has been demonstrated over and over again.

There is a number of reasons for this, but I think the most compelling is that crime is often not a well thought out plan, it's a slope.

Imagine the following situation:

You're walking in an empty street and spot a truck loading MacBooks from an Apple store. Truck looks legit, workers wear Apple uniforms. Upon looking at the guy filling the truck, he charmingly smiles back at you and explains that they are sending back last year models for refurbishing, and hands you one of the boxes saying "here mate, half of these will be recycled anyway".

That's what bribery in the real life look like. It happens in broad daylight, and with just enough credibility that your brain will try very hard to convince your rational self that the "good luck" is not illegal. It also places you in a situation where you have to give an answer quickly, during a potentially stressful or socially awkward situation.

If you read this from your office chair, it seems completely obvious that the guys are robbing an Apple store. And handing you a free MacBook in the process is really shady. After this gift accepted, it will be much harder for you to be 100% honest with a policeman asking questions on what happened.

But when placed in the real situation, your brain will try very hard to convince you that an abnormal situation is surely normal. The social anxiety of refusing the MacBook may also lead you to accept it without thinking, because you don't want the other person to think you believe they are robbers. You may also see some other people receiving the MacBooks too and that may reinforce the feeling that this is normal.

Bribery is all about the gentle slope of deviances. You will deal with people from respectable companies, with a good title. It will start with a lunch that they insist to pay, then it will be a good bottle of wine sent for christmas (how mindful), then a small irregularity in the account will be discussed over dinner in a fancy restaurant, you will be flattered to have such a good relationship with your client. You will feel like you're important and it's just the way business works in the high spheres. Next thing you know you will think you're some kind of entrepreneur doing business with them without necessarily really understanding what they are doing.

That slope is the very reason compliance rules often start at ridiculously low numbers. Most bankers with a reasonably actionable position will have a 6 figure salary. Yet the compliance rules will prevent any kind of gift higher than $50. You will definitely not bribe anyone with 50$, but it's enough to kickstart a slope of "I pay the restaurant bill, it's no big deal we don't count between us right?"

All in all, I'm not saying bribery is acceptable or anything like that. I just want to emphasize that when placed in certain situations of stress, social anxiety, etc, entering the "crime slope" may happen without the actor really having the time to make a rational, well thought out decision.

diogenescynic3• 6 years ago

Bad businesses need to fail. Especially the ones who break the law and an enable crime.

I’m simply suggesting making the fines more expensive than it’s worth to do the crime in the first place. Why should we let the banks profit off their crimes? Take the profit out and they would start following the law.

superkuh• 6 years ago

Most crime is done by large corporations and most money laundering is done by banks. KYC laws aren't about stopping money laundering, they're about preventing people from using alternatives to the crooked banks.

switch11• 6 years ago

agreed 100%

When something is postured to 'benefit the every day people' you can bet it does the exact opposite

merricksb• 6 years ago

Related threads:

https://news.ycombinator.com/item?id=24535241 (524 points/213 comments)

https://news.ycombinator.com/item?id=24535903 (129 points/16 comments)

https://news.ycombinator.com/item?id=24539132 (108 points/26 comments)

EugeneG4• 6 years ago

Society outsources all money laundering compliance to banks. It’s an impossible task to stop it such that you can’t find examples where banks messed up. If 100% of flows go through banks and banks stop 99.99% of money laundering, that 0.01% is still billions.

It’s not a matter of incompetence or lack of effort. As an analogy, in a big city with the best police force, you still have thousands of robberies and assaults and a few hundred murders. Not for lack of resources or trying.

The only way to eliminate money laundering completely is slow down the system so much that it’s literally unusable.

hogFeast• 6 years ago

I think stuff like the OP make this unclear to the layman. The reports that have been leaked are documents that banks are passing to law enforcement. They are evidence of banks attempting to stop crimes, not facilitating them.

The issue is that banks often have no idea themselves because they aren't actually law enforcement. I saw one SAR that actually referenced a random blogpost. And, as you say, it is a slippery slope. The only way to ensure that this never happens ever is to essentially bring the system to a standstill, and ask both law enforcement and regulators to approve every transaction (and even then, they probably won't get it right from the POV of the public all the time).

The example that I read was of a Ponzi scheme where HSBC moved money through accounts, they filed SARs...and yes, if you are a journalist it is easy to go back in time and say: "Oh, look...this ponzi scheme was so obvious, they must have known". Well no, they didn't know, they filed SARs, and waited until someone had actually been found guilty of a crime before acting as judge and jury themselves (which btw, was likely an investigation in which HSBC assisted).

The only foolproof way to launder money these days is to completely conceal your identity (not something a bank can do anything about) or corrupt someone at a financial institution (almost never happens, most large financial institutions have teams of people that track the movements and communications of people working in AML, both personal and business). The effectiveness of this system, given the amount of transactions, is astonishing.

rorykoehler• 6 years ago

Singapore has <15 murders per year. Their police force is a joke.

iratewizard• 6 years ago

Iceland is in a similar situation. You don't throw money into a social service that isn't needed.

jariel• 6 years ago

There are red flags at banks.

Offshore style banks like HSBC are more susceptible to this kind of stuff because they have less of a wider stake in the situation.

Also, with 'cross jurisdictional' stuff, then it gets easier to hider.

Another way of helping would be saying 'your business transactions in the US has to be transacted by a financial entity hosted in a regime with strong regulations and transparency with the US' kind of thing. As an example.

Also, consider that merely hosting the accounts for a company committing fraud is not fraud itself in much the same way that hosting a website or doing their cleaning, or leasing them a building isn't either.

EugeneG4• 6 years ago

Fwiw, HSBC is a pretty "onshore bank" whatever that means. HQ in London and $2.7 trillion in assets.

throwaway_pdp094• 6 years ago

This anti-AML post is silly - and aren't there suddenly a lot of them here?

If 100% of flows go through banks and banks stop 99.99% of money laundering, that 0.01% is still billions.

Maths: that would make 10,000 billion = 10 trillion of cash laundered per year.

EugeneG4• 6 years ago

Are you suggesting that my post is part of some sort of conspiracy of people pointing out the way AML regulations work?

awat• 6 years ago

Until risk exceeds reward to a degree where the reward is not worth the risk this will continue.

tarsinge• 6 years ago

This, the fine was not big enough to impact their business to a meaningful degree.

CryptoPunk3• 6 years ago

The only way to stop money laundering is to stop all money from flowing. The AML programs currently in place in banks already pose significant impediments for law-abiding people to do their banking.

This kind of guilty-until-proven-innocent lack of due process, and invasive questioning of one's personal financial activity, is creating a highly centralized banking system that obstructs the flow of capital and will undoubtedly concentrate power in the hands of a few, and it's all being done in the name of safety.

Creating a vast graph of the populace's significant private transactions, and giving a privileged elite working for a handful of government agencies exclusive access to it, while enabling the small subset of the population who work in the banking sector to extract intimate trade secrets from bank clients, in the name of KYC/AML compliance, will create information asymmetries that inevitably lead to wealth/power asymmetries, that in the long run, will negatively impact safety, by making the socio-economic structure less efficient and more fragile.

It's exactly the opposite direction that society should be going.

darkstar_16• 6 years ago

Don't they keep doing this ? I remember they paid a big fine just a few years back. And I'm sure there are smaller fines in other countries they keep paying for "local" frauds. At what point is it enough for the regulators to swoop down on them ?

_jal• 6 years ago

It is effectively a press-driven tax. TPTB feel obligated to pretend to care if it gets too much attention, so some fines get issued and life goes on.

You can tell the types of finance crime apart by looking for personal liability. If there isn't any, it is effectively a tax with a performative aspect.

adventured• 6 years ago

Mega banks are objects of the big state, without exception. They're used by the governments in the nations where they reside. That's true across Europe, it's true across Asia, and it's true in the US. The big banks, wherever you go, are extensions of power for the government in question. It's just as true in the UK as it is in Ukraine. They don't get swooped down on, for that very reason, the people in power have no interest in doing anything overly detrimental to their own arms of power. So usually at best what you'll get are some slaps on the wrist handed out, the powers that be don't particularly like slapping their own wrists.

JP Morgan, Wells Fargo, Bank of America, Citi, Goldman Sachs, Morgan Stanley, these are financial arms of the US Government. They help the government in countless ways, they do things the Fed or Treasury tells them to do, when they're told to. They assist the government with its funding processes, or with any agendas it might have (eg housing, or sanctions). And no doubt they occasionally do bad things at the behest of someone in government as well. They're amazing scapegoats too, everyone hates big banks, you can just point at them anytime you feel like it; no matter how dirty you are as a politician, you can always win some points by attacking big banks.

harry82• 6 years ago

I don't know if HSBC have done anything at all wrong here - I completely lack the relevant information to form any judgement on that.

Until senior executives and boards of directors have something personal very much at stake, like the prospect of a couple of weeks in prison and being banned from holding positions in financial institutions they will always have an incentive to organise their systems to maximise profitability treating fines as a business expense and doing the usual expected value tradeoffs of the outcomes.

The CEO has to have systems in place to make willful infringement for profit very difficult. The buck has to stop there. If the CEO has been lax in implementing and maintaining such systems they should not be able to plead ignorance and throw more junoir employees under a bus. It happened on your watch. We've established you didn't take a proper interest in ensuring such things don't happen. Guilty. Negligence, incompetence, inability to take an interest due to more pressing concerns, these should not be valid defences.

Now HSBC may have done the right thing, this time, after all that lawlessness they've demonstrated before. I don't know. But if they haven't, the CEO doesn't need to retire on his millions, he needs have a stretch in the big house. Probably doesn't even have to be very long but it has to be to concentrate minds that this is NOT a business expense, you have a personal stake in it.

As anything it could be done terribly but seems possible to me to be done well enough to have a good, fair and jusst outcome for all. Especially underlings being surreptitiously coerced into doing bad things.

hdjdbtbgwjsn2• 6 years ago

KYC compliance is already getting painful for ordinary bank customers. Please don't bring in more surveillance.

harry82• 6 years ago

Strawman argument. More surveillance is _not_ what I have proposed.

There is an argument that we could have signficantly /less/ regulation if regulation were taken seriously from the top down. This would encourage it to be taken seriously.

jbverschoor2• 6 years ago

For ordinary customers yes, for fraudulent customers, I think they have other ways.

In the end the KPIs are probably something like “number of accounts blocked”, which is easier with ordinary customers

swiley• 6 years ago

Could it be that the law here is just unreasonable and only the biggest players can afford to get away with breaking it? (likely for an additional premium)

rando444• 6 years ago

The law allows for jail time, it's just rarely pursued these days by the DoJ because Eric Holder changed their system to pursue 'wins' (fines) rather than criminal prosecution, because the bar for successful prosecution is so much higher to convict someone of a crime.

Can't lose a case if you never try and convict anyone.

bitcoinbutter3• 6 years ago

What you don't see in this article is that HSBC has tons of false positives and the scrutinization of transactions slows everyone down. The more strict they need to be with money flow, the more regular people suffer from crippling KYC and financial reporting.

Do we want every transaction we send out to require an accompanying invoice and paper trail? Payment reviews, account freezing, in-depth explanations for every transaction?

Moving money has become tedious and a bureaucratic nightmare. I doubt HSBC is doing this on purpose, they just have so many obligations already from their transaction volume that it's nearly impossible to comply with regulations.

jbverschoor2• 6 years ago

Oh the banks are 100% in the wrong as they are fully aware what’s happening.

scruffyherder• 6 years ago

HSBC was founded on the drug trade. Why should anybody be remotely surprised?

throwaway_pdp094• 6 years ago

I didn't know this. Could you clarify?

nkurz• 6 years ago

HSBC started as the Hong Kong and Shanghai Banking Corporation and its founders were intimately involved in the opium trade. This article seems reasonably neutral and historically accurate: https://mondediplo.com/2010/02/04hsbc.

glaucon• 6 years ago

Pretty dubious about those in this thread running the "Oh, goodness those poor banks having to enforce these laws ... how does anyone expect them to do that ?". A fundamental skill of banks is assessing risk and reacting to it, I would have thought reacting to money laundering falls within that.

The part of this story (scroll to "What was the Ponzi scheme") https://www.bbc.com/news/uk-54225572 that mentions a scam targetting US citizens which HSBC "sort of noticed" but didn't do anything about until it was too late is suggestive of priorities.

And yes, jail time, nothing else matters a dam.

dogma1138• 6 years ago

Again the issue here is that the SAR’s were disclosed to the regulators if the regulator isn’t following up on them it’s not clear where the fault lies.

If HSBC wasn’t following the guidelines and covering this up yes jail them all, but this seems to have been a major regulatory failure.

grapehut• 6 years ago

The more pressure banks are under to stop all money laundering, the worse banking will be. It'll only force them to be more invasive, and increase the false-positives for money laundering.

When transferring a large amount of money to Mexico as part of a business deal my bank flagged it as suspicious (fair enough!) and froze my entire account. But getting unfrozen wasn't a quick call, it was a painful 3 month process that cost me a both immense amount of stress and financial hardship.

I don't really understand why people would think banks should play the role of law-enforcement, when it's something they are so clearly not equipped to do (in resources, legal powers and incentives).

jondubois2• 6 years ago

If they're too big to prevent $2 trillion of laundered money, then they're too big to exist.

yalogin• 6 years ago

HSBC always comes out first when the topic of money laundering comes up. They seem to know where the money is and how to get the cut. It’s not going to stop as they paying fines is a no-brainer if that is the only side effect for illegal/criminal activity.

I dont know why Institutions get away with criminal activity with a slap on the wrist. Tells a lot about our society. Sometimes it feels like laws exist only to keep the poor guy without clout in check.

mrtksn• 6 years ago

They seem to know where the money is and how to get the cut.

How do you preserve such a knowledge in the institution through the years?

ficklepickle4• 6 years ago

Regular practice.

cm2187• 6 years ago

Probably has more to do with the fact that it is the only bank that operates pretty much everywhere on the planet. Even large international banks only have licenses in a handful of countries and post 2008 financial regulations have applied pressure to reduce that number.

jennyyang• 6 years ago

Is this not the case of banks finding money laundering and then collecting the transactions and sending it to the authorities?

ldng• 6 years ago

It is well known that HSBC pay its fine about every 10 years just to jeep laundering money as usual.

jondubois2• 6 years ago

It seems inevitable now that the system is going to collapse. There is no way that people will ignore all the things which happened over the past few months and move on... We're stuck in a media limbo. The public is not digesting the 'everything is good' rhetoric anymore; some people are pretending to believe it, but deep down, everyone knows what's really going on.

I can see occasional articles being published which try to normalize the situation to dig the corporate elites out of this hole but it's not working. There is no recovery from this. The system will stay stuck in limbo until it collapses; collapse is the only way out.

TechBro8615• 6 years ago

Could you be more specific? Are you talking about COVID, bailouts, HSBC, ...?

cannabis_sam• 6 years ago

Incredible economic power, apparently non-existent oversight, but of course they get saved by national governments when they fuck up and are about to wring severe harm on the whole world.

Banks are infrastructure and should obviously be regulated as such. But that will (literally) never happen, as long as the people in charge can get rich by wringing increasing misery on the rest of the population for a quick buck...

chrisbennet• 6 years ago

Look for a youtube "Dirty Money HSBC" for news stories about HSBC's money laundering.

Why no prosecution for HSBC money laundering? https://www.youtube.com/watch?v=4C05S0pVKQE

HSBC moved vast sums of dirty money after paying record laundering fine

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