Sunday, October 14, 2012

Why the Americans must prosecute HSBC if they are proved to have committed more offences of corruption and money laundering!

Today, the Sunday Times reports yet another shabby story dealing with allegations of financial wrong-doing by HSBC. In an article by David Leppard entitled '...Kickbacks to Saudi funnelled via HSBC...', the allegation is made that the bank was the conduit of nearly £14 million in alleged bribes paid by a British defence contracting firm to a Saudi Royal.

HSBC accounts in both London and Manhattan (even more proof if more proof were needed that these two cities are the world's leading money laundering centres), were used between 2007 and 2010, so it is alleged, to provide the avenues to launder vast sums of slush money to private company accounts in the Cayman Islands.

If this story were not so serious, one could be forgiven for marvelling at the sheer predictability of it all!

The Sunday Times reports that it has been shown documents which itemise '...28 separate payments made by GPT, a British subsidiary of EADS  the European aerospace company that were sent via HSBC in London and Manhattan to the Cayman Islands...'

Managers at GPT had raised concerns about these payments, concerned that they were illegal. These payments are now apparently the subject of an SFO investigation which began after another whistle-blower from GPT reported his concerns to the Sunday Times in 2011.

It is alleged that the huge contract to provide and supply equipment to modernise the Saudi satellite, radio and intranet systems of the Saudi royal palaces and national guard premises were part of a £2 billion, 10 year project, awarded to GPT by the Saudis. The whistle blowers allege that the bribes included cash, as well as gifts of luxury cars and jewellery.

Again, the sheer mundanity of the nature of the relationship and the goodies provided is so predictable. Money, fast cars and bling, no doubt what your average Saudi prince demands for his influence!

What is of much more interest however, is the fact that one of the venues reported for the continuation of this alleged wrongdoing, is the HSBC branch in Manhattan, because it will add further lines of enquiry to the existing investigations being mounted by US prosecutors into HSBC's admitted role in laundering vast amounts of drug money for Mexican drug barons.

HSBC has already been forced to apologise this year for what it has described as 'shameful' breakdowns in systems that should have prevented it from laundering this money for terrorists and drug lords, for which it is reported that the bank has set aside in excess of $700 million for potential fines.

I love these admissions, these corporate mea culpas, when confronted with wrong-doing. Forget the use of the word 'shameful' breakdowns, and substitute 'deliberate criminal complicity' instead and then we might be getting somewhat closer to the truth.

You don't launder this volume of money by accident, because somewhere along the line, your systems and controls for preventing money laundering just 'broke down'! You do it because you work in a bank which is willing to flout every rule in the book and engage in layer upon layer of criminal conduct if the money is right! You do it because your management structure is defined by a criminogenic determination to amplify the anomic environment within which you operate and in which you expect your staff to co-operate.

Are we seriously meant to be believe that during all this time no-one inside HSBC saw what was going on and thought, just for one minute, '...fuck me, that's an awful lot of money coming from a country where gang slayings to control the narcotics industry are a daily occurrence...I wonder if I should mention this to someone in charge..?'

Those of us who followed the case of Shah -v- HSBC here in the UK watched while the story of HSBC's wholesale failure to organise a proper set of structures and controls to maintain a 'fit for purpose' anti-money laundering reporting and disclosure structure in the UK was pulled apart and their dirty linen washed in public by a clever QC. HSBC may have come out of the case on the winning side, but nevertheless, the public shaming they received at the hands of the claimant's lawyers was always going to be hard to swallow.

When you set that knowledge against the stories of Mexican drug money laundering and other sanctions failings, you begin to realise that this state of affairs was the norm for HSBC. It was as if the bank had simply decided to ignore the rules and regulations and go for broke because they were safe in the knowledge that no-one, certainly in the UK, was going to investigate them!

This is the perennial problem with the state of British financial regulation! Oh the regulators like to talk a lot, and go to international regulator's conferences and conventions, and do a lot of liaising with their counterparts, but when it comes to taking down the gangsters and the banksters who control the British banking industry, they are pathetic.

I have never understood why this should be, but it is a standard which goes back for many years, and which the British financial regulators have routinely applied. I once interviewed a senior official of the earlier version of the FSA in 2000, as part of a project to write a report for H.M.Treasury on the risks to the London market from money laundering.

I asked him why they had not used their powers to regulate the anti-money laundering requirements in the UK markets in the past, and whether they would be more rigorous in using their new powers on the question of prosecution of regulated members under the new regime, for breach of the Money Laundering Regulations in the future.

He agreed that the FSA would become responsible for a far greater degree of responsibility for prosecution in a number of areas, including money laundering issues, but felt that this predicated the need for a further regulatory interface. He said;

“…There is an anxiety about the new criminal functions which we are being tasked to accept…various elements such as insider dealing, market manipulation, etc, all tend to colour our internal philosophy towards the question of conducting prosecutions…you really should understand, because of the difficulties associated with obtaining convictions in the criminal courts, there is no unswerving acceptance of the need for wholesale prosecution powers…”

This answer was given in such an open way, in contrast to so many other answers which he gave, that he was invited to state why he was so sure that this was the case. His answer was studiously revealing, and must be considered to contain a huge degree of truth. He said;

“…Because, frankly, Howard Davies (then head of the new FSA) has no intention of ending up with the sort of reputation which so bedevilled the SFO in its early days. He refuses to be tarred with the same brush as Barbara Mills or George Staple…” (Former heads of the SFO)

I cannot see any greater degree of likelihood of anything being done to HSBC in this country, if they are found to have committed further offences. I do not anticipate any new prosecutions being brought against the responsible members for overseeing these criminal actions. I would like to believe the SFO will do it, but theirs hasn't been an enviable track record in such cases in the past.

It will be up to the Americans to bring prosecutions for any offences which may have been committed in Manhattan, and to do so expeditiously, because this is the only way that this wholesale ignoring of and flouting of the law is going to be stopped and examples made of these criminals at the highest level. Prosecution is the only things these banksters fear, and we need to make them feel very afraid indeed!

When I finished the report I wrote for HM Treasury in early 2000, nearly 13 years ago. I was hugely concerned at the failure to regulate the London market then, and I remain of the same opinion today. I reported the summary as follows. Read these words and see if you can establish whether anything has really changed in the attitude of our regulatory agencies in the interim period.

"...In this report I have attempted to demonstrate that the problems associated with the...laundering of criminal money have a two-fold genesis; first, the personality of the industry sector practitioners in their willingness to take risks within a financial environment capable of easy destabilisation; and second, the attitude of the financial sector regulators towards their lack of willingness to enforce the provisions of the Money Laundering Regulations, thus facilitating an unregulated financial environment for the most criminogenic practitioners in the sector of greatest potential financial flexibility.

I have sought polarisation in both my questioning and in my report. I have not sought to be too willing to accept explanations, which my many years experience in this area of financial criminogenisis tell me are misleading, mistaken or plainly untrue...Frankly, I consider the potential dangers for unregulated money laundering in this area to be so severe that I am willing to risk criticism, if it means that others in positions of authority find they can share my sense of concern over what is, by any standards, a highly dangerous state of affairs.

I have been very critical of the attitudes of certain senior regulators. Again, I do not apologise for taking this stance. I have been continually amazed by the wholesale ‘retreat from reality’ demonstrated by some of the regulators and their apologists to whom I have spoken, in their continued belief that they can somehow regulate a financial market, with all the potential that such a market possesses for the egregious to take the line of least resistance, by adopting the stance they do towards demonstrating a complete lack of willingness to adopt a dynamic, hands-on regulatory stance in areas such as money laundering...'

When you read or hear the new policy statements of the new regulators, and what they intend for the future, remember these words, because they've said it all before, and it means nothing!

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