In this paper, the authors examine the corporate governance and business drivers responsible for the HSBC money laundering scandal that broke in 2020. The examination of the abuse is particularly relevant because the HSBC group was already involved in a money laundering scandal in the US in 2010, which was investigated by the regulator who, in addition to a substantial fine, imposed several years of prosecutorial supervision on the company to restore and maintain prudent banking operations. The authors examine how, despite the above sanctions in 2012, another subsidiary, Hong Kong, could have developed a practice that almost replicates the previous one in the US. In examining the reasons for the emergence and persistence of each of the relevant business practices, the authors find that the HSBC group, while formally compliant with supervisory requirements, was far from fully compliant in substance, for reasons of corporate governance and business ethics.
In September 2020, the ICIJ (International Consortium of Investigative Journalists)[1] released a new and significant amount of data - more than 2657 FinCEN[2] documents[3] - to the public. Most of the documents contained key details of the anti-money laundering activities of individual financial service providers, the suspicious activity reports (SARs). The leaked information has once again highlighted the fact that the world's leading financial services providers have recently failed to adequately identify and prevent suspicious money flows of significant magnitude (US$2 trillion). The report includes more than 2,121 Suspicious Activity Reports (SARs) from 2009 to 2017 involving banking transactions by high-risk individuals, many of which were previously subject to criminal sanctions by the US government during and prior to that period.[4] Prominent among these financial institutions is HSBC Bank Group, one of the five most affected financial services providers, which as a result of its "tainted compliance culture"[5] paid a total of $1.92 billion in fines to the US Department of Justice and two federal financial regulators in 2012.[6]
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In the present paper, the authors examine the reasons why, despite a previous fine that appeared to be significant but amounted to only one month's profit at the level of the banking group, and the presence of the Supervising Commissioner[7] , the HSBC group failed to identify, timely analyse and appropriately address (suspend if necessary) suspicious financial flows in a number of well-documented cases of its Hong Kong subsidiary after 1010. The authors examine these failures from the perspective of business ethics and corporate governance.
The Hong Kong and Shanghai Banking Corporation was established in 1865. In 1941, the banking group's headquarters moved to London. After Britain reached an agreement with China to hand over Hong Kong to Chinese control in 1997, a new parent company was set up in London in 1991 with its headquarters in the UK under the name HSBC Holdings PLC. The British character of the group was further strengthened by the acquisition of Midland Bank in 1992.[8]
Several banks in the US have been acquired by the HSBC group.
The first suspicion of money laundering arose in 1003 in relation to HSBC. The US authorities challenged the bank's operations and best practices and agreed that the bank would continue to improve its anti-money laundering processes to better comply with the US Bank Secrecy Act[9] .
By the 2000s, the HBSC Group was present in more than 70 countries and, with thousands of branches, had "positioned" itself as the world's local bank.[10] But this was more than a marketing slogan. It was also the way the group operated globally, with banks in each country enjoying considerable autonomy within the group's community.
In order to provide a sufficiently detailed description of the seriousness and quality of the abuses, the authors consider it necessary to describe the scope of the activities that are mandatory for financial institutions and that can be sanctioned by the criminal law for the employees concerned, and their main characteristics.
Money laundering prevention activities start with the opening of the account at the customer service branch, when a part of the suspicious customers can be identified by a full identification and knowledge of the customer (know your customer - KYI)[11].
In this case, it is important to clarify in advance the type and extent of account use, which will help to identify the economic activity of the client who has placed the account management
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order, the services he/she is likely to use and the relationship (domestic, international). It is also important to obtain appropriate information from the branch in advance as to who is expected to hold the account (personally or by proxy). Subsequently, a systematic examination of suspicious conduct and transactions[12] at the customer level, i.e. activities other than the previously indicated expected business activities and the banking services supporting them, is the main anti-money laundering arena. In international banking, correspondent banking[13] plays a very important role, with money flows between countries using different currencies using the accounts of intermediary banks. However, due to their large number and the complexity of controlling transactions, the latter can be particularly risky if the financial institution does not exercise the same level of diligence as the account opening of the account-holding customer in the design and operation of each correspondent banking service.[14]
In 2012, the US Senate Standing Subcommittee on Money Laundering published a 300-page report summarising the weaknesses in the HSBC banking group's anti-money laundering activities over that period.[15] The aim of the report was to analyse why the anti-money laundering activities of the US subsidiary were ineffective between 2005 and 2010. The low level of antimoney laundering activity at this subsidiary of HSBC is illustrated by the fact that in October 2010 there were 17,000 unprocessed SAR reports and that between 2006 and 2009, USD 15 billion of cash movements were not controlled by the anti-money laundering activity.[16] The Senate report summarised the main findings in seven points.[17]
The main finding was that there was significant dysfunctionality in the management of correspondent banking accounts. This included an unacceptably high backlog of 17,000 unprocessed suspicious transaction reports due to inadequate staffing levels to perform the task and the inadequacy of the country and customer risk management system to perform its functions at the Group's US bank (HBUS) during this period.
HBUS did not manage or take into account money laundering risks in its business relationship with certain high-risk HSBC subsidiary banks as correspondent banks. The high risk bank subsidiaries were not identified and in particular the Mexican subsidiary (HBMX) was not properly risk rated, despite its high risk.
The Office of the Controller of the Currency (OCC)[18] , one of the HBUS's supervisory bodies, has treated the fight against money laundering as a consumer protection issue, not a risk issue, during the period under review. Compounding the problem, in its supervisory role, it failed to act as an effective enforcer by not exercising its right to enforce a comprehensive reform of anti-money laundering activities at the financial institutions it supervised
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based on the deficiencies identified and by not treating the deficiencies identified as a comprehensive, organisation-wide problem.[19]
Among the abuses, the facilitation of money laundering activities by the Mexican drug cartel with the active involvement of the banking group's subsidiaries concerned deserves special mention.
In the case of the Mexican subsidiary HBSC (HBMX), there were particularly flagrant irregularities between 2002 and 2009. This allegation is illustrated by the fact that in 2007-2008 alone, USD 8 billion in cash was transferred through the subsidiary bank to HBSC's US subsidiary (HBUS).[20] This was achieved despite the fact that Mexican and US authorities had alerted HSBC to the volume and cause of the out-sized cash movements, which raised suspicions that they might be used to launder funds from drug trafficking). HBUS achieved this by classifying and treating Mexico as a low risk country until 2009.[21] The low-risk designation allowed for a procedure that did not require the investigation of financial flows from the Mexican subsidiary.[22]
As a "result," the HBUS subsidiary bank initiated more than USD 200 trillion worth of electronic transfers through its branches at the initiative of customers whose origin and purity of the money was more than questionable. Among the customers involved were the "Norte de Valle" and "Sinaoa" drug cartels.
During the investigation, HSBC Bank USA (HBUS) admitted its wrongdoing and cooperated with the US Department of Justice (DOJ), which led the investigation. As a result, the bank obtained a Deferred Prosecution Agreement (DPA), which meant that HSBC paid a fine of USD 1.92 billion to keep its operations running and agreed to have an independent auditor oversee its financial transactions for 5 years. It has also pledged to fully modernise its compliance programme to ensure that any future money laundering activity can be detected and dismantled in a timely manner.
The report led to action being taken, not only against the HSBC group but also against its supervisor, on the basis of the deficiencies identified.
For the banking group, the first and overarching measure is to establish appropriate risk management in each subsidiary bank. In this case, the supervisory action could even have considered the closure of the Mexican subsidiary bank. In addition, the supervisory package required a review of the anti-money laundering toolbox and the closure of excessively high-risk accounts for each high-risk subsidiary.[23]
The measures included the implementation of audit investigations at the level of each subsidiary.[24]
In the case of the banking group, it also considered it necessary to increase resources to fight money laundering by creating a separate director role and by increasing staff and equipment resources to enable timely processing of suspicious transactions. HBSC has, among other things, increased its budget for anti-money laundering activities by a factor of 9 between 2009 and 2011, and increased the number of anti-mon-
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ey laundering specialists by a factor of 10 between 2010 and 2012. In addition, it has extended its full due diligence process to its non-US subsidiaries, terminated cooperation with 109 clients to mitigate risk, and spent a total of more than USD 290 million on compensation measures[25] .
It seemed that the bank had a difficult past and was operating in accordance with the strictest rules. Against this background, in September 2020, the news exploded in the media that BuzzFeed and the international network of investigative journalists (ICIJ[26]) had identified more than 2,000 suspected money laundering transactions by customers of several banks, according to a report by FinCEN (the US financial watchdog). The detailed investigation has only just begun, but the suspicious transactions listed include several very serious and not unprecedented cases.
FinCEN reports show that during the DPA period, HSBC reported 70 suspicious transactions to FinCEN and the Treasury Department, which did not result in any investigation. At the end of the DPA investigation, the bank itself admitted to its shareholders that it had not yet fully managed its financial risks, but the authorities did not impose any penalties on the bank[27] .
While the 2002-2010 investigation examined above focused primarily on the activities of the US subsidiary, as of the same day in 2012 (20 June) that lawyers representing the HSBC Group attended a hearing before the US Senate Committee, the company's Hong Kong subsidiary received its first engagement from Trade Leader Group Corp Ltd.[28] By 2014, the group had generated US$584 million in account turnover, both debits and credits, contributing to a significant performance that resulted in the Hong Kong subsidiary generating 50% of the HBSC group's profit by 2015. When the parent company enquired about the actual ownership of Trade Leader Group, the Hong Kong subsidiary bank was unable to provide an answer, and the 2014 company register listed a non-operating company, INHK Ltd, as the sole owner of the company. In fact, the ultimate beneficial owner was a Russian money laundering group, as indicated by the Novosibirsk address of one of the company's registrants.[29] The money laundering was an attempt to launder money from car thefts and other criminal offences. According to ICIJ's research, nearly US$1.5 billion worth of accounts were involved in 680 transactions by 16 shell companies in accounts held with a Hong Kong subsidiary, which were included in suspicious transaction reports, of which US$900 million was identified as money laundering activity, but no meaningful action was taken by the company during the mandatory investigation.
HSBC's Hong Kong subsidiary seems to have been untouched by the winds of major sanctions in the US between 2002 and 2010. Even after repeated warnings, there has been no in-
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terference with the movement of funds from the proceeds of a Ponzi scheme through HSBC. The Ponzi scheme was carried out under the guise of a faith-based activity by[30] Ming XU, owner of the investment bank World Capital Markets, who promised[31] 100% profit in 100 days to low-savings Californians of Asian and Latin American origin who transferred US$80 million in a fundraising operation known as the WMC777 Ponzi scheme between 2012 and 214. In the course of conducting the Ponzi scheme, XU was repeatedly identified as a suspected Ponzi scheme operator by HSBC as a Hong Kong customer, but nevertheless continued to conduct such activities in his HBSC accounts even after HBUS, HSBC's US subsidiary, was approached by three different federal states in connection with the WMC777 case. The first inquiry was received in 2013 from the State of California, to which HSBC's legal department responded that it could not identify any account activity related to the inquiry.[32] Subsequently, it took only four weeks to complete the first suspicious transaction report on the World Cloud Media client within HBSC. The suspected pyramid scheme firm made large, round-trip transactions with HSBC involving 799 pieces of wire transfer transactions totalling US$6 million. In November 2013, Massachusetts and in January 2014, the state of Colorado joined California in reporting suspected money laundering to HSBC. Despite this, in February 2014, HSBC was found to have received $15.4 million in customer-related funds, but even then the transactions were not suspended. Following the freezing of the company's accounts and suspension of the company's operations by the US Securities and Exchange Commission (SEC) in March 2014, HSBC Hong Kong was still allowed to withdraw the entire account balance of US$7 million in cash from World Media Group.[33]
Based on the above, the authors have sought to answer the question of what kind of corporate culture has made this hardly prudent banking possible. The corporate culture, however, was quite different from what would have been expected from a financial institution that claimed to be prudent and had been under direct supervision for 5 years in the US during this period. Instead, in the case of the Hong Kong subsidiary, there were reports of expensive drug parties and superficial formal investigations by employees.[34] This superficial approach was also clearly identified in the case of the anti-money laundering activity, where there was neither the time nor the management-level support to conduct thorough investigations, which could not be meaningfully supported or operated by a globally dysfunctional, fragmented computer network.
In addition to the above, it is worth mentioning that in 2018 HSBC again paid USD 101.4 million to the DOJ under a new DPA procedure to be exempted from the charge of front-running in two of its clients.[35]
On the one hand, the authors examine to what extent and how the company has deviated from the formulated and expected principles of corporate governance. They also examine how the unregulated, so-called grey areas of financial regulation have provided the
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bank and other decision-makers with the opportunity to engage in, or not engage in, transactions that are not illegal but highly questionable in moral terms.
The analysis examines the decisions and the situation through several ethical perspectives. The authors use the available information to analyse the responsibility of the bank's management, the responsibility of the supervisory authorities and the responsibility of the regulatory and legislative authorities.
The ethical analysis part of the case study focuses on those moments where the specific act does not openly violate any law, but is still questionable on moral grounds.
In the ethical analysis, the authors look at specific events from several angles. First, they analyse who the stakeholders in the specific case[36] were and what their interests were. They also examine which stakeholder groups whose legitimate interests and concerns were ignored by the decision-makers.
In the next part of the ethical analysis, the authors examine the considerations that may have been behind the decisions. They look at whether the decision can be explained by the outcome of weighing up the consequences (ethics of consequences). They analyse the extent to which the decision-makers have taken responsibility and the extent to which they have fulfilled their obligations. They also examine the extent to which the principles reflected in the decisions can be considered moral, and what legislative, law enforcement, corporate and human failings are seen as the causes of the events described.
Due to the nature of the context, the different aspects are explored alternately and complementarily.[37]
In considering the composition of the board from an ethical point of view, the degree of representativeness of the representatives of the significant stakeholder groups identified by the company and the level of insight that the elected officers have into the bank's operations can be a guide. Based on the composition of the Board of Directors, the following facts are of interest from an ethical perspective: Mark E Tucker Group Chairman 15 years in Asia, 15 members of the Board, of which 11 members (73%) are independent non-executive directors with extensive experience, most of their careers have been spent in the countries where the above mentioned cases have been reported (Hong Kong, Mexico, UK)
The most important stake of the Board members is to safeguard the Group and their individual reputations, and to represent the interests of shareholders at a high level, ensuring the long-term growth of the Group.
Operational top management aims to ensure the long-term success of the company from a financial, social and
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environmental perspective[38]. The 2020 Financial Report provides a detailed discussion of the broad stakeholder management, the identification and assessment of the various risks associated with the Bank's activities and the corporate governance tools developed to mitigate them.
From an ethical point of view, the other stakeholder groups expect the operational top management to be professionally prepared, to operate transparently, to ensure accountability, to have a prudent and well-intentioned attitude and to build and maintain a corporate culture based on these principles.
The employees of a company or bank are important stakeholders in almost all types of ethical and business issues. They are the immediate victims of a serious business, ethical mistake. If the goals are too high and unrealistic, they are under great pressure to achieve them by breaking the rules.
One of the most important stakeholder groups for the operation of the banking group is the shareholder group.
From an ethical perspective, it is worth examining how much pressure this stakeholder group or a group of stakeholders (activist investors)[39] exerts on top management for short-term profitability, how much it supports or opposes risk-taking beyond unavoidable risks, and how much it is willing to forego immediate, short-term gains for longer-term, lower-risk operations.
The Bank's customers are private individuals, companies and public institutions who manage their financial transactions through the Bank.
For HSBC, a significant proportion of customers (44%)[40] are in the bank's wealth management division (Wealth and Personal Banking).
Building, retaining and managing a customer base is a critical point in the life of a bank. A significant proportion of abuses are motivated by satisfying customers' needs, even at the cost of not complying with the relevant legislation and moral principles.
Careful customer profiling greatly reduces the risk of transactions through the bank that are suspected of money laundering or that are derived from income obtained by breaking other laws and conflict of interest rules. However, overly strict client profiling can significantly narrow the actual client base and thus make it more difficult for the bank to achieve its financial objectives.
From an ethical point of view, two main trends can be discerned in this stakeholder group: some clients are interested in strict, transparent regulation to keep their assets, investments and business safe, while others are interested in a looser framework that allows them to carry out transactions that are not legal but are beneficial to them.
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FINCen, the OCC, or SEC[41] ) are responsible for monitoring compliance with the legislation in force.
For HSBC, supervisors are important stakeholders, as irregularities detected through ongoing inspections can result in significant penalties and also have a negative impact on the bank's reputation.
From an ethical point of view, it is worth examining the extent to which supervisory bodies are considered competent in terms of their professionalism, the resources they provide to carry out their tasks, the diligence with which they conduct investigations, the extent to which they are accountable, what they do with reported cases, and how they deal with situations where their own operational shortcomings contribute to the realisation and maintenance of illegal transactions.
The role and importance of law enforcement institutions cannot be overlooked when investigating fraud in the financial sector and in careful stakeholder analysis[42] .
In global financial markets, it is a challenge for banks to comply with different systems and rules together.
The stakes for the legislature include providing a stable, clear framework and taking political responsibility for failing to do so.
When examining the ethical aspects of the financial sector's activities, it is important to address and analyse its direct and indirect impact on society.
From an ethical perspective, it is important to highlight the negative impact of financial transactions linked to illegal economic activities on society. No legal loopholes, bad law enforcement practices, profit maximisation can relieve those responsible from the fact that terrorist financing and money laundering are a breeding ground for widespread social and political instability, corruption and impoverishment[43] .
If we look at the question of whose interests were the primary concern, in the specific cases, it appears that business practice was to serve the interests of dubious clients, which resulted in high profits for the banking group. Whether this was done knowingly or as a result of some deficiency requires further investigation. It is already known that the documents discovered and the SAR reports indicate that HSBC bank employees detected the irregularities and a report was made and forwarded to the supervisory body (FinCEN). However, the reports were not investigated at the level of HSBC or the supervisory bodies and no consequences were drawn. This raises the responsibility of both senior management and the supervisory authority.
From an ethical point of view, the correctness of a decision can be assessed on the basis of several criteria,
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including its consequences (ethics of consequences) and its compliance with the responsibilities and obligations of the decision-makers.
From a consequentialist point of view, a decision can be judged ethically right or wrong on the basis of the usefulness or harmfulness of the consequences. For HSBC bank, as a decision-maker, effectiveness is measured by the retention of customers and the financial results achieved through this, and the satisfaction of the ownership. Any business activity that contributes to this can support decisions from an ethical perspective. In the Vida Panama case, money laundering has bleached revenues and created a financial backdrop for further illegal activity. In the WCM777 case, he enriched the client by creating the space for the client to abuse the trust of his own clients and defraud them. In all the cases listed, it can be seen that these transactions brought short-term profits to the bank's ownership and management, but had an extremely detrimental effect on the social and political stability of the countries concerned, ensured the whitewashing of the black economy and contributed to the continuation of a wide range of illegal activities. The resulting indirect damage was wider and greater than the gains to the narrow but more influential direct stakeholders.
The behaviour of US regulators is also contradictory. The supervisory bodies have a duty to enforce the law and to thoroughly investigate and possibly sanction any shortcomings found. The responsibility of the supervisory body is questionable on several points. In none of the leaked SAR reports has a specific investigation been launched. The observations of the external commissioner appointed during the DPA period were not followed up.
Michael Cherkasky, who headed the team that oversaw the company's transactions under the DPA, indicated to the Ministry of Justice at the end of his tenure that, although significant changes had been made, the bank was still unable to detect in time the types of suspicious transactions that had caused the previous abuses. Despite this, on 11 December 2017, the DoJ (Department of Justice) closed the DPA, announcing that the bank had complied with the required mandatory measures and that no further external supervision was needed. The report prepared by the supervisors was never made public[44] .
The selection process of the Commissioner is also a matter of concern from an ethical point of view. The Commissioner is not appointed by the supervisory body, but the bank proposes three candidates and the supervisory body can choose from them. The Su-
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pervisor has no executive powers. He is an independent professional, paid by the bank. His powers are also limited, he cannot compel anyone to cooperate and he cannot impose penalties. His only option is to prepare reports for the authorities, in the hope that they will trigger an investigation or inquiry.
It is also important to examine the duties and responsibilities of bank employees and managers. The commitment and willingness of senior management to cooperate with the authorities is questionable. There is no direct evidence of this, but some staff interviewees suggested that instructions from senior management made it difficult for them to cooperate. There was one staff member who received a death threat before the interview[45]
From an ethical point of view, it is a matter of concern that in many cases individual responsibility is not currently being taken. The supervisory body penalises the company for irregularities, but does not punish the individual responsible with sufficient severity. This system makes it easier to deflect responsibility at management level.
The personal interviews showed that the work of the commissioners was very difficult. In HSBC's non-US companies, neither the local organisation nor the local authorities were cooperative with the investigators. In Switzerland, Malta, Sri Lanka, China, Hong Kong, the Commissioners' work was made more difficult in different ways and styles. In some cases, local laws were invoked to refuse to provide information, in others the Commissioners were almost threatened.
In addition, there are concerns that during the DPA period, HSBC employed overpaid consultants under the banner of strengthening its compliance programme, who held weekly parties at its London headquarters, "coloured" with prostitutes and drugs. When this was reported by an investigating commissioner, nothing happened.
The intimidating corporate climate and the limited possibility of supervisory commissioners and the misuse of power and information by corporate managers indicated that the process of change was long and difficult.
In conclusion, it can be seen that there is no ethical approach to explain and justify the irregularities found. Rather, it is the profit motive, the lust for power, selfishness, local economic policy interests and negligence that have led to the present situation.
One of the founding documents of corporate governance is the UK Corporate Governance Code, first published in 1992 by the Cadbury Committee, and since then the comply and explain principle has been a model of soft law regu-
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lation and the focus of the UK's corporate governance principles. This is why the authors consider it relevant to examine HSBC's second wave of abuses in the light of the legal principles of the 2012 UK Corporate Governance Code. HSBC is headquartered in London, its shares are listed on the London Stock Exchange, and the group's corporate governance code also provides a basis for examining the HSBC group's operations in the light of the principles of corporate governance, as set out in the UK Corporate Governance Code.
The fundamental objective of the set of legal principles is to create a corporate governance system that enables the company to operate in an efficient, entrepreneurial and prudent manner, which can ensure long-term sustainable growth for the company.[46] This objective can also create a balance between growth and risk-taking, without compromising prudence, which is particularly important for a financial institution.
In the case of the HSBC group, it can be seen that there was a lack of appropriate lines of responsibility[47] and consistent implementation in senior management.[48] There has been insufficient attention to the implementation of anti-money laundering rules at the top management level in terms of responsibilities, even despite the direct supervisory audit and significant fine imposed on the US subsidiary in 2012, which entailed significant reputational risk and actual losses. Indeed, if the appropriate conclusions had been drawn at senior management level following this significant problem, not only would capacity have been increased, but also the appropriate depth of analysis would have been carried out when investigating suspicious transactions.[49] Then, for example, the money laundering activities of the WMC777 pyramid scheme in Hong Kong would have resulted in the suspension of transactions in any case, following calls from several US states, and the final amount would certainly not have been paid out. In doing so, the HBSC Group has failed to comply with the recommendation of the UK Corporate Governance Code's guiding principles to delegate responsibility to the appropriate levels of management and, in this case, to monitor its implementation at the highest level.[50] This may also have resulted in the fact that, instead of a substantive control at staff level, an accelerated formal control was carried out, as the staff report that the fight against money laundering in practice continued in the case of the Hong Kong subsidiary after 2012.[51]
Independent board members have a particularly significant responsibility for risk management under the relevant chapter (A.4) of the UK Corporate Governance Code, where they are required to satisfy themselves fully that the system of financial controls and risk management is sufficiently prudent and broadly based.[52] Following the HSBC scandal in 2012, an important guide for independent board members could also be the scope of significant weaknesses in the fight against money laundering: the severity and volume of problems identified at HSBC's Mexican and US subsidiaries. Based on these weaknesses, if the compliance manager
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does not do so, or if the board member supervising the compliance manager does not initiate it, the independent board member could ensure the robustness of the above risk management system precisely by initiating an investigation covering all subsidiaries with annual reporting requirements after 2012.[53]
If risk management and the fight against money laundering have not been a focus of top management after 2012, the question arises whether this is not because a strict fight against money laundering could be detrimental to the company's growth strategy and business policy. If HSBC can and intends to continue to attract customers by treating customers suspected of money laundering at a lower level than its risk rating in the subsidiaries where it intends to achieve further growth, then the assumption may well be justified. The growth of the US subsidiary and the dominant weight of the Hong Kong subsidiary in the company's profits of almost 50% in the post-2012 period point in this direction.[54]
Management is required to review the effectiveness of the risk management system at least annually as set out in the relevant chapter of the UK Corporate Governance Code (C2.1.) This has certainly been done in all years after 2012 at HSBC given the fact that it is the reporting that forms the basis of the remuneration package in the compliance area. In the compliance area, the detailed reporting covering all relevant areas[55] would most likely not have been sufficiently in-depth in terms of the effectiveness of the measures if such suspicious money laundering transactions were taking place in the Hong Kong branch despite external calls (from the three US federal states).
In this study, the authors examined, from the perspective of business ethics and corporate governance, what might have been the reason for the recurrence of similar significant failures in the HSBC Group in the post-2012 period.
Looking at the role of stakeholders from an ethical perspective, the study found that senior management did not place sufficient emphasis on preventing future US abuses before 2010 at all subsidiary levels. The multi-faceted ethical analysis highlights the motive behind the irresponsible management behaviour, which cannot be ethically justified in any way: the desire to increase profits globally and at all costs, but also individual greed and the protection of perceived local economic interests, combined with negligence, led to the inadequate handling of the abuses in Hong Kong after the HSBU, which were mostly money laundering activities.
A similar conclusion was made from the perspective of corporate governance. In line with the 2012 UK Corporate Governance Code recommendation, the HSBC Group did not assign responsibilities according to their weight, and within senior management, compliance and risk management were not addressed in a manner commensurate with their importance and the need to prevent past abuses -
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particularly in light of the 2012 sanction against the US subsidiary. ■
NOTES
[1] ICIJ - International Consortium of Investigative Journalists
[2] FinCen - US Financial Crime Inforcement Network is the staff of the Financial Fraud Enforcement Division of the US Department of the Treasury.
[3] https://www.riskscreen.com/kyc360/news/hsbc-dirty-money-and-white-collars/ (downloaded 21.10.2023).
[4] https://www.theguardian.com/business/2020/sep/21/barclays-hsbc-shares-standard-chartered (downloaded 26.11.2024)
[5] "A polluted compliance culture" - https://www.corp-research.org/HSBC Retrieved (27.11.2024) ibid. "..compliance culture pervasively polluted for a long time."
[6] https://www.corp-research.org/HSBC (downloaded 21.11.2024)
[7] The court appointed former New York Chief Financial Prosecutor Michael Cherkasky as the Financial Group's Supervisory Commissioner. https://www.icij.org/investigations/fincen-files/hsbc-moved-vast-sums-of-dirty-money-after-paying-record-laundering-fine/ (downloaded 21.11.2024)
[8] https://www.corp-research.org/HSBC (downloaded 21.11.2024)
[10] https://www.icij.org/investigations/fincen-files/hsbc-moved-vast-sums-of-dirty-money-after-paying-record-laundering-fine/ (downloaded 20.11.2024)
[11] Dennis Cox: Handbook of Anti Money Laundering John Wiley and Sons Ltd. United Kingdom, 2014, pp. 169 - 180.
[12] Dennis Cox: i.m. pp. 225 - 234.
[13] In correspondent banking, the client's bank that receives the foreign currency transfer opens an account with a commercial bank in the country where the transaction is made, so the correspondent bank provides the settlement in the given currency directly to the client's account-keeping bank and indirectly to the client by using the correspondent bank. In addition to the business losses, there is a reputational risk of a correspondent bank's poor reputation or poor anti-money laundering performance, which could lead to a money laundering scandal.
[14] Dennis Cox: i.m. pp. 265 - 270.
[15] Carl Levin - Tom Coburn:United States Senate Permanent Subcommittee on Investigations Committee of Homeland Security and Governmental Affairs, US Vulnerabilities to Money Laundering, Drugs, and terrorist financing: HSBC Case study 2012 July 17
[16] Carl Levin - Tom Coburn: i.m. p. 4.
[17] Carl Levin - Tom Coburn: i.m. pp. 10-11
[18] Office of the Comptroller of the Currency https://www.treasury.gov/about/history/Pages/occ.aspx Downloaded: 27.11.2024.
[19] Carl Levin - Tom Coburn: i.m. p. 8.
[20] Carl Levin - Tom Coburn: i.m. page 4
[21] https://www.riskscreen.com/kyc360/news/hsbc-dirty-money-and-white-collars/ (downloaded 11.11.2024)
[22] Carl Levin - Tom Coburn: i.m. page 5
[23] Carl Levin - Tom Coburn: i.m. pp. 10-11
[24] Carl Levin - Tom Coburn: i.m. p. 11
[25] http://www.hsbc.com/1/2/newsroom/news/2012/hsbc-announces-settlements-with-authorities (downloaded 11.11.2024)
[26] ICIJ- International Consortium of Investigative Journalists
[27] https://www.buzzfeednews.com/article/anthonycormier/hsbc-money-laundering-drug-cartels (downloaded 11.11.2024)
[28] https://www.icij.org/investigations/fincen-files/hsbc-moved-vast-sums-of-dirty-money-after-paying-record-laundering-fine/ (downloaded 21.011.2024)
[29] https://www.corp-research.org/HSBC (downloaded 21.11.2024)
[30] https://www.bbc.com/news/uk-54225572 (downloaded 21.11.2024)
[31] https://www.buzzfeednews.com/article/anthonycormier/hsbc-money-laundering-drug-cartels (downloaded 10/11/2024)
[32] https://www.buzzfeednews.com/article/anthonycormier/hsbc-money-laundering-drug-cartels (downloaded 10/11/2024)
[33] https://www.buzzfeednews.com/article/anthonycormier/hsbc-money-laundering-drug-cartels (downloaded:10/11/2024.)
[34] https://www.buzzfeednews.com/article/anthonycormier/hsbc-money-laundering-drug-cartels (downloaded: 10/11/2024.)
[35] https://www.justice.gov/opa/pr/hsbc-holdings-plc-agrees-pay-more-100-million-resolve-fraud-charges (downloaded 20/11/2024.
[36] Judit Chrenóczy-Nagy Chrenóczy: Pitfalls in business decisions; Economy and Finance in the 21[st] Century (eds Csaba Szilovics, Zsolt Bujtár, Barnabás
- 103/104 -
Ferencz, Alexander Roland Szívós, Botond Breszkovics, Zsolt Gáspár) - Conference Proceedings Pécs, Hungary: University of Pécs, Faculty of Law and Political Science 2020, pp. 155-169.
[37] Judit Chrenóczy-Nagy:The Challenges of Ethical Managerial Decision-Making Today and the Possibilities of Dealing with them Economic Challenges in the 21st Century Conference Proceedings (eds: Csaba Szilovics, Zsolt Bujtár, Barnabás Ferencz, Alexander Roland Szívós, Botond Breszkovics, Zsolt Gáspár) Pécs, Hungary: University of Pécs, Faculty of Law and Political Sciences 2021, pp. 8-11
[38] https://www.hsbc.com/-/files/hsbc/investors/hsbc-results/2020/annual/pdfs/hsbc-holdings-plc/210223-annual-report-and-accounts-2020.pdf? (downloaded 21.11.2024)
[39] Kecskés András - Halász Vendel - Bujtár Zsolt Tőzsdeuniverzum HVG-Orac Lap- és Könyvkiadó Kft 2019 Budapest 365-374. p.
[40] https://www.hsbc.com/-/files/hsbc/investors/hsbc-results/2020/annual/pdfs/hsbc-holdings-plc/210223-annual-report-and-accounts-2020.pdf? (downloaded 21.11.2024)
According to the 2020 Annual Report, HSBC Holding has 3 main business lines with the following shares: Wealth and Personal Banking: 44%, Commercial Banking: 26%, Global Banking: 30%
[41] SEC:US. Securities and Exchange Commission
[42] Legislative institution e.g. Ministry of Finance, Ministry of Justice
[43] Stuart McWilliam: Banks and Dirty Money https://www.globalwitness.org/en/campaigns/corruption-and-money-laundering/banks-and-dirty-money/ (downloaded 21.02.2023)
[44] https://www.buzzfeednews.com/article/anthonycormier/hsbc-money-laundering-drug-cartels (downloaded: 21.11.2024.)
[45] https://www.buzzfeednews.com/article/anthonycormier/hsbc-money-laundering-drug-cartels (downloaded 21.11.2024)
[46] UK Corporate Governance Code 2012 page 1.
[47] Division of leadership responsibilities (DoLR) see also Marc T. Moor: The scope and dynamics of corporate governance regulation) Comparative Corporate Governance A Functional and International Analysis, (ed. Andreas M. Flecker - Klaus J. Hopt), Cambridge University Press, 2013, pp. 922-923.
[48] Dr. Mary Halton: Lessons from the Banking Crisis:Leadership and Effective Board Behaviors The Handbook of Board Governance A comprehensive Guide for Public, Private and Not-for-profit Board Members (ed. Richard Leblanc) John Wiley @ Sons Hoboken, New Jersey USA, 2016, 216-220 pp.
[49] Alessio M. Pacces: Rethinking Corporate Governance The law and economics of control powers Routledge Taylor & Frabcis Group London and New York 174-177 pages.
[50] UK Corporate Governance Code 2012 p. 9.
[51] https://www.buzzfeednews.com/article/anthonycormier/hsbc-money-laundering-drug-cartels (downloaded 10/11/2024)
[52] UK Corporate Governance Code 2012 p. 9.
[53] Sharon Ward: The Changing Face of Compliance Managing Regulatory Risk, Gower Publishing Company Burlington"VT USA, 2015, pp. 113-115.
[54] https://www.buzzfeednews.com/article/anthonycormier/hsbc-money-laundering-drug-cartels (downloaded 10/11/2024)
[55] UK Corporate Governance Code 2012 p. 21.
Lábjegyzetek:
[1] The Author is doctoral student, Doctoral School of the Law, University of Pécs
[2] The Author is assistant professor, Department of Financial and Business Law, Faculty of Law, University of Pécs.
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