British Banking Giant Fined for Laundering Mexican Drug Money Through U.S. Banks

by Matt Clarke

In December 2012, the U.S. Department of Justice (DOJ) fined major British bank HSBC almost $2 billion following an investigation that found HSBC was being used by Mexican cartels to launder drug money by transferring billions of dollars from its Mexican affiliates into U.S. banks. In addition to the fine, the huge financial conglomerate pledged to do what it can to improve its monitoring of suspected money laundering transactions.

In announcing the settlement, Assistant U.S. Attorney General Lanny Breuer defended the government’s decision not to file criminal charges against HSBC or any of its officials, even though the bank admitted to violating laws that included the Bank Secrecy Act and the Trading with the Enemy Act, because lengthy and complex criminal proceedings could cause the bank to fail, which in turn could spell disaster for the British and global economies.

Justice Department officials had accused HSBC – Europe’s largest bank by market capitalization – of failing to monitor $670 billion in wire transfers and $9.4 billion in cash that was transferred from its operations in Mexico to its U.S. affiliates between 2006 and 2009. The DOJ said those funds included at least $881 million in drug trafficking money from the Sinaloa Cartel in Mexico and the Norte del Valle Cartel in Columbia, which HSBC laundered through the transfers.

A separate investigation by the U.S. Senate Permanent Subcommittee on Investigations determined that in 2007 and 2008 alone, HSBC laundered at least $7 billion in Mexican drug cartel funds by transferring the money from Mexico to accounts in the Cayman Islands, then on to U.S. accounts. The Subcommittee found that, between 2006 and 2009, HSBC ignored basic controls for monitoring international transactions between its branches for suspected money laundering. The report quoted a bank official who blamed the lapse on a “lack of a compliance culture” within the bank’s Mexican affiliates.

Some experts believe the actual amount of drug cartel funds laundered by HSBC was much higher.

“There are a lot of diverse findings about the quantity of cash from contraband drug sales that annually crosses from the United States to Mexico,” said Mexico City anti-money laundering consultant Ramon Garcia Gibson. “Some of these estimates go as high as $40 billion.”

“When I was told that there could be in the billions of dollars being moved through these accounts, it was very difficult to believe,” said Jim Hayes, a senior agent with Immigration and Customs Enforcement (ICE). “A lot of people have asked, ‘Was this complicit?’ We don’t believe that they [HSBC personnel] knew for certain that the money being moved was drug money, but they should have known.”

Hayes noted that manipulating the banks is crucial to the drug cartels’ business. “It’s very important for them to get that money into the banking system and do so with as little scrutiny as possible,” he said. Hayes, the special agent-in-charge of Homeland Security investigations for ICE’s New York office, was lead agent in the 2012 Sinaloa Cartel drug laundering case.

He praised the Justice Department’s $1.92 billion fine levied against HSBC. “We think this forfeiture is significant enough to make other banks to look and make sure they’re in compliance,” he remarked.

In a statement emailed to National Public Radio, the bank reported making progress correcting “deficiencies” in compliance with anti-money laundering protocols.

“But,” the statement continued, “we recognize that protecting against financial crime is an ongoing journey and we have much more to do. Since 2011, we have implemented reforms and new controls, enhanced our monitoring systems, and strengthened and expanded our global financial crime and compliance organization.” As an example, HSBC pointed to increasing by more than half, between 2012 and 2013, the number of fulltime employees on the look-out for financial crimes.

The bank also said it “‘clawed back’ deferred compensation bonuses given to some of its most senior U.S. anti-money laundering and compliance officers, and agreed to partially defer bonus compensation for its most senior officials during the five-year period of the deferred prosecution agreement” with the DOJ as punishment for violating anti-money laundering controls. In other words, HSBC took back bonuses from officials who had failed to perform their jobs and put off part of the bonuses for other top executives.

The DOJ’s settlement with HSBC was touted as a record amount, but the $1.92 billion fine pales in comparison to the bank’s $2.6 trillion in assets – which is the equivalent of a man with $100 in his pocket paying a fine of seven cents. It also represents about six weeks’ worth of HSBC’s $16.8 billion profit in a single year.

Money laundering was not the only illegal activity in which HSBC was involved. The DOJ also accused the British banking giant of serving customers with terrorist ties and hiding transfers from prohibited locations such as Iran, Cuba, Sudan, Libya and Burma, processing $660 million in prohibited fund transfers by deliberately disguising the originating countries in the transactions.

And on November 13, 2014, HSBC was one of five banks that agreed to a nearly $3.4 billion settlement with the U.S. Commodity Futures Trading Commission, the UK Financial Conduct Authority and the Swiss Financial Market Supervisory Authority for attempting to manipulate foreign exchange markets, which handle some $5.3 trillion in financial transfers on a daily basis.

Investigators determined that between January 1, 2008 and October 15, 2013, the five banks failed to adequately train and supervise foreign currency traders. As a result, according to the Financial Conduct Authority, the traders tried to manipulate the foreign exchange market by forming groups that illegally shared data about clients to guarantee that their banks made a profit. The settlement also involved Citibank, JPMorgan Chase, Royal Bank of Scotland and UBS. According to a February 2015 news report, HSBC’s share of the settlement was $611 million, and it has set aside another $550 million to cover additional fines related to foreign exchange transactions.

HSBC is not the first or only bank involved in laundering drug money. On May 17, 2010, Miami U.S. Attorney Jeffrey Sloman announced a $160 million settlement with Charlotte, North Carolina-based banking giant Wachovia Corp. following an investigation into laundering illegal Mexican drug profits.

In the largest settlement of its kind at the time, prosecutors agreed not to pursue criminal charges against Wachovia or its executives in return for the $160 million fine and for making significant improvements in the bank’s anti-money laundering program. Authorities said Wachovia’s monitoring system was so inadequate that the bank had no procedures in place to investigate some $420 billion in transactions from Mexican exchange houses for possible money laundering. That deficit deprived investigators of crucial information on drug cartels, terrorist financing networks and other organized crime enterprises.

In a statement, Wachovia said it had ended its dealings with foreign currency exchange houses in 2008.

In spite of penalties levied against major banks and resulting reforms, experts agree it is impossible to fully stem the tide of laundered money from international drug trafficking cartels. “Despite all of the efforts, banks are still vulnerable to money laundering and it’s kind of an age-old thing,” said Kieran Beer, who edits a news website maintained by the Association of Certified Anti-Money Laundering Specialists.

“The drug trade is overwhelming in terms of how that money finds paths – like water – to come into the global financial system,” he added.

Apparently, though, with respect to avoiding criminal charges for money laundering, it helps to be an executive at a large bank that is simply too big to jail.

Sources: www.rollingstone.com, www.forbes.com, www.globalpost.com, www.money.cnn.com, www.huffingtonpost.com, www.npr.org, www.scmp.com, Associated Press

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