HSBC is Spared, Despite Concerns

In the first of three brief posts today, in order to stay abreast of a busy day in the financial arena, we will begin by looking at news that is coming out of the Department of Justice in the U.S. The news, that the DoJ is changing course on its agreement put in place to deter further transgressions by the multinational bank, is excellent news for the bank but, perhaps, sends a message about the pro-business sentiments that are emerging all the time under the Trump Administration.

On two specific occasions here in Financial Regulation Matters, we have looked at HSBC in particular with reference to their almost infamous track record when it comes to financial crime, particularly money laundering. It is no secret that the large multinational bank has been involved in some particularly damaging news stories, including having to pay a £1.9 billion fine to U.S. authorities in 2012 for ‘exposing the U.S. financial system to money laundering, drug (and) terrorist financing risks’ and also the bank’s connection to the so-called ‘Global Laundromat’, which has seemingly been lost to the news cycles. However, today, the focus is on the first of these two instances, with the suggestion emerging today that the DoJ will be filing a motion in New York that will see the ‘sword of Damocles’ – the charges attached to the Deferred Prosecution Agreement (DPA) that forced through the fine in 2012 – removed from over the head of HSBC. Many news outlets are carrying this story, and the Financial Times makes quite a point of indicating just how happy Stuart Gulliver (outgoing CEO), John Flint (incoming CEO), and Mark Tucker (non-Executive Chairman) will be with this result, with Gulliver proudly declaring that ‘HSBC is able to combat financial crime much more effectively today as the result of the significant reforms we have implemented over the last five years’. So, it would appear that Gulliver’s jubilance is deserved, given that it is surely the case that he is right because, quite frankly, the removal of the DPA must surely indicate the accuracy of the statement; regular readers of Financial Regulation Matters will know that we cannot be so fast to accept what we see, and the same principle unfortunately applies here.

It was only at the beginning of this year when the FCA were investigating HSBC over its Anti-Money Laundering (AML) procedures over concerns relating to the bank’s thoroughness in this all-important sector, and it was only in 2016 that the lawyer appointed to HSBC to monitor its compliance with regulations as part of the DPA expressed ‘significant concerns’ over its ability, and willingness, to comply with a range of regulations like AML regulations. Yet, this is seemingly not enough evidence to remain vigilant, and if the DoJ does indeed decide to lift the sword of Damocles, then it is essentially releasing HSBC from the continued restraint that the DPA brings – if it was showing concerning levels of compliance with a DPA-associated Lawyer on board, what will it do without the continued presence of a 3rd party overseer? The optimist will agree with Gulliver, that improvements have been made, but the pessimist will argue that there is little evidence of that; the continued transgressions make the optimist’s argument almost null and void. However, this ignorance of evidence is a common theme in the post-2016 political environment, and the willingness of the DoJ to intervene will be a clear signal that the U.S. is open for business and does not seek to operate conservatively based upon recent damage. It is, unfortunately, a signal that the marketplace will respond to, and not in a socially-positive manner.


Keywords – HSBC, Banking, Politics, Money Laundering, Financial Crime, @finregmatters

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