HSBC: Lack of Fraud Controls

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Lack of Fraud Controls

Source: web

HSBC CEO Stuart Gulliver admits his bank’s shortcomings in money laundering checks and balances are both “shameful and embarrassing” and admits it may have to pay out well over $2 billion before the scandal is put to rest. Already, it’s put aside $700 million in anticipation of hefty fines, legal expenses and other costs.

Earlier this month, an American Senate report revealed the bank allowed clients to shift funds with little or no oversight and many of them found their way to Mexico, which is being called “dangerous and shifty”. On Monday, Gulliver said the costs could go much higher. Declaring “compliance changes” and new approaches to rebuilding its reputation, he said the activities in both Mexico and the U.S. were painful, embarrassing and shameful. He didn’t argue the American senator’s statements that the entire atmosphere at HSBC is “polluted”.

In business since 1865 and currently the UK’s largest bank, it has a presence in more than 80 countries. This necessitated the need for a streamlined and seamless structure and Gulliver has been credited for making those changes. He now says efforts to ensure compliance are transparent and with no shortage of checks and balances.

HSBC is also involved in the global LIBOR scandal, which could result in criminal charges being filed against many bank presidents and other banking officials. Gulliver said his bank is cooperating fully and with no limitations placed on various documents investigators request. HSBC is also one of more than a dozen banks under scrutiny in a global interest rate-rigging scandal that has rocked the sector and further damaged the reputation of bankers following criticism of their culture and standards.

HSBC’s biggest British banking competitor, Barclays, is also deeply involved in this latest bank scandal. It too has already put aside hundreds of millions of dollars in anticipation of various penalties and fees. It’s long since admitted its wrongdoing, but has said the illegal activities were limited to just two years – 2008 and 2009.

Other global banks are finding themselves under regulator microscopes as the Libor investigation continues, including other UK competitors, Deutsche Bank, Royal Bank of Scotland and Credit Suisse. In the U.S. the banks include Citigroup and JPMorgan Chase. Each has announced their investigations. Currently, HSBC is in talks to settle the investigation into money laundering while also hammering out anti-money laundering compliance issues with the U.S. Department of Justice and other regulators. Gulliver said:

It may take several more months to come to fruition.

When asked if HSBC is considering a “clawback” of some of its bonuses for anyone involved in the scandal, Gulliver said it was possible, though opted not to elaborate on whether former Chief Executive Michael Geoghegan could face clawbacks. He also reiterated the bank continues to cut costs while also channeling direct investments into the Asian market, which is considerably stronger these days.

In the past 18 months, HSBC has eliminated close to 30,000 jobs and closed 26 various businesses – including sales of its U.S. credit card businesses as well as at least half of its American bank branches. Gulliver said he was aware of the investigation into its U.S. compliance problems in 2010 before he took over, and that shaped some of his restructuring. This also includes centralizing control functions over a bank that was unwieldy.

Meanwhile, a small bank in New York filed filed its own class action suit against at least 16 of the world’s largest banks, including HSBC. In its suit, it alleges it was damaged by the manipulation of LIBOR interest rates. This is surely just the first of many lawsuits that will occur as the scandal continues to unfold.

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About Author

David is a CPA and has spent the past decade as a financial adviser helping clients meet their fiscal objectives. With an appreciation for journalism, he has spent the past few years overseeing several financial columns as well as writing two previous finance blogs. He resides on the East Coast with his wife and two sons and has guided many through the recent recession while providing a no-nonsense approach to spending and saving.


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