A US Senate committee investigating money laundering this week claimed that HSBC provided a conduit for 'drug kingpins and rogue nations'. Its report said that suspicious funds from countries including Mexico, Iran and Syria had passed through the bank. HSBC's head of compliance, David Bagley, resigned at the hearing and the president and chief executive of HSBC Bank USA, Irene Dorne, publically apologised 'for the fact that HSBC did not live up to the expectations of our regulators, our customers, our employees, and the general public'. I’ve been convinced for some time that money laundering would be the next big financial scandal.
Money laundering is one of the most serious crimes a bank can commit, because without it drug dealers and terrorists struggle to survive and, unfortunately, this is not the fist time British banks have been involved.
Four months ago Coutts was fined £8.75m for failing to take reasonable care to establish and maintain effective anti-money laundering systems and controls relating to high risk customers. The failings at Coutts were 'serious, systemic and were allowed to persist for almost three years'.
In my view, the main problem is that banks don’t take this crime seriously enough. I clearly recall the on-line money laundering exam that I used to have to take every year when I was an equity analyst. Well, what I actually remember most about it is that most of us used to get a graduate trainee to sit at our computers and do it for us. In fact, whole analyst teams used to persuade the same poor bloke to sit at their desks and get the requisite 25 out of 30 score! What this meant was that virtually no-one understood anything about ‘layering’ or ‘Smurfs’ … although the upside is that if any corrupt rogue out there happens to chose my former bank to launder his cash there’s a small chance they might come up against the best informed graduate trainee in town!
The City’s reputation has already taken a battering recently as a result of the financial crisis, Muppet-gate, Libor fixing, financial product mis-selling and so forth. After these HSBC revelations I’m worried that some of our other banks are going to come a cropper if they’re shown to be taking care of money from blood-thirsty tyrants, Russian gangsters and Colombian drug cartels.
Senior bank executives need to take a long hard look at their compliance procedures before yet another nail is hammered into the already besmirched reputation of the Square Mile.
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Geraint Anderson’s novel Payback Time is now out in paperback.