HSBC is the world’s second largest banking and financial services group, with assets of $2.5 trillion, and has its headquarters in London. It is entirely likely that HSBC will be dragged into the Libor scandal, but it is currently in the news because a US Senate Committee has accused it of being a conduit for “drug kingpins and rogue nations”. The affair has already led to senior level resignations within the organisation. The Senate Committee will probably extend their enquiries to other banks in the future since they took HSBC as a “case study”, so like the Libor scandal, this affair is likely to run and run.
In 2002, HSBC purchased a bank in Mexico, now known as HSMX. This conduit was used to transfer very substantial sums of money to the USA which almost certainly included profits from the illicit drugs trade. Despite two warnings from Mexican authorities that drug money was probably being laundered, HSBC failed to put proper controls in place. Some $15 billion was accepted from clients in Mexico, Russia and other countries deemed to be at high risk of money laundering were received between 2006 and 2009 as bulk cash transactions, according to the Senate Committee report.
The bank also permitted the use of “bearer shares” which permit ownership of the shares to be passed from bearer to bearer and income generated can be passed on secretly. HSBC’s US subsidiary, HBUS, had opened more than 2550 such accounts. Something like 41% of HSBC’s accounts in the Cayman Islands had no customer information associated with them.
HBUS president and chief executive, Irene Dorner has apologised to the committee for the bank’s conduct "for the fact that HSBC did not live up to the expectations of our regulators, our customers, our employees, and the general public".
The report was also critical of the US bank regulator, the Office of the Comptroller of the Currency, for failures in properly monitoring HSBC. According to the US Department of Justice, a criminal investigation is being conducted into HSBC’s activities. This is likely to be the tip of the iceberg.