HSBC Private Bank’s US business offered
high-risk bearer share accounts to wealthy clients without
providing accurate controls despite regulator’s concerns the
accounts were open to abuse for money laundering.
According to a US Senate committee
investigating drugs and terrorist financing, HSBC opened more than
2,000 bearer share corporate accounts over the past decade.
Go deeper with GlobalData
The committee also alleged that HSBC, in some
cases, weakened the application compliance standards to grant its
wealthy clients secrecy.
At its peak, HSBC’s Miami office alone had
about 1,670 bearer share accounts holding an estimated $2.6bn in
assets, which generated annual revenues of $26m for the bank.
Bearer shares are shares in a corporation
which assign ownership to whoever has physical possession. The
shares can be readily transferred without a trail and with no need
of registration to any authority making them a prime vehicle for
money laundering.
In a written statement, HSBC said: “We
recognise that our controls could and should have been stronger and
more effective in order to spot and deal with unacceptable
behaviour.”
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalData
Controls loosened for UHNW Peruvian
client
The Senate report detailed a series of control
failures at HSBC’s US bank. Despite multiple internal audits and
regulatory authorities’ calls, HSBC did not treat all of these
accounts as high-risk and, consequently, did not either take
physical custody of the shares or require shareholders’ names to be
registered.
The bank also asked its clients to update
ownership information only once every three years.
The US Senate committee report quoted one
example where HSBC compliance guidelines were bypassed to allow a
wealthy Peruvian businessman to open two bearer share accounts
without registering his name.
HSBC policy at the time was to register the
share when opening a new account.
Nevertheless the Peruvian businessman was
looking for confidentiality.
In a reported exchange of emails between Jaime
Carvallo, a Miami bank executive and the head of HSBC private
banking Americas, Marlon Young, Carvallo wrote:
“This is too important a family in Peru for us
not to want to do business with,
and one that has taken a lot of my time and
effort to convince to start a relationship with
us.”
Young advocated for granting the account
opening without registration. The account was eventually opened in
2007.
When asked by the US Senate if an exception to
the bank’s rules had been granted in that case, HSBC’s legal
counsel told the subcommittee: “We don’t know.”
HSBC accounts used for millionaire tax
evasion
In 2010 two Miami Beach hotel developers,
father and son Mauricio Cohen Assor and Leon Cohen Levy, were
sentenced to ten years in jail and a $17m fine, after having used a
HSBC bearer share account to help hide $150m in assets and $49m in
income.
According to telephone transcripts, when asked
by HSBC to register the shares putting his name on them, Mauricio
Cohen said:
“I can’t put that, otherwise I have to declare
them in the United States? I can’t do that, I don’t want to
declare… otherwise, I have to close the accounts with you and go to
Geneva.”
After that the account was closed. HSBC
currently has 26 bearer shares accounts still open.
Drugs, terrorism and
resignations
HSBC’s chief compliance officer David Bagley
resigned before the US Senate committee during a hearing in June
2012 as a result of the money laundering scandal.
Bagley told the committee it was the
“appropriate time” for “someone new to serve as the head of group
compliance”.
Apart from providing bearer share accounts,
HSBC group is accused of facilitating Mexican drug cartels’ money
laundering, to have provided US dollar services to banks linked to
terrorist financing and to have bypassed US international sanctions
on Cuba and Iran.
Reports suggest US regulators could fine HSBC
up to $1bn for the lax anti-money laundering controls.
