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Why is HSBC unable to resolve its money-laundering issues?

By January 18, 2015 December 4th, 2019 No Comments

The wave of fines levied against financial institutions has not stopped since the financial crisis of 2008 precipitating financially and reputationally expensive recapitalisations of British and international banks. Despite this, even by 2015, the waves of fines is ongoing, as indicated this week by further reports that even well capitalised banks such as HSBC are still unable to resolve their money-laundering issues.

HSBC Holdings PLC has spent hundreds of millions of dollars to overhaul its anti-money-laundering system, including hiring a former British spy and a tobacco-spitting former drug-enforcement official from the U.S.

The message from U.S. officials: Not good enough.”

WSJ, January 12th 2015

In 2012 the U.S. justice department agreed to a litany of measures as a result of widespread violations of a numerous U.S. laws. Now, in 2015, according to the Wall Street Journal, the assigned monitor will again criticise the bank.

In terms of product line, the particular issues lie in HSBC’s private banking and trade finance business. In terms of geography, the problems are in Malaysia, Hong Kong and the United States.

So why is HSBC able to resolve its money-laundering issues? The most obvious issue is the sheer size and scope of HSBC. According to HSBC, it currently has “around 52 million customers”, through “Retail Banking and Wealth Management, Commercial Banking, Global Banking and Markets, and Global Private Banking”, covering “74 countries and territories in six geographical regions: Europe, Asia, Middle East and North Africa, North America and Latin America”. In short: as a global and universal bank, confirming with compliance legislation across every business line is very challenging.

This is not that HSBC has shirked its responsibility to resolve the issues. Notoriously, HSBC was one of the first banks to pull away completely from the risks relating to money service businesses. In May 2013, HSBC stated:

“As a result of a strategic review of the money-services business sector, HSBC is withdrawing from offering banking services to this segment. This withdrawal represents further progress in HSBC’s execution of the global strategy set out in May 2011, and demonstrates the group’s commitment to driving growth and improving returns by exiting businesses that do not meet its investment criteria.”

Such wholesale withdrawal from business lines indicate that HSBC is taking radical action. But whilst rivals agitate for the break-up of sizeable banks such as J.P. Morgan, and regulators levy additional capital regulations as a result of such banks complexity, the financial industry itself has to ask: “how much is too far, and what is an acceptable level of risk”?

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