{"id":6202,"date":"2020-05-18T00:00:00","date_gmt":"2020-05-18T00:00:00","guid":{"rendered":""},"modified":"2021-08-16T14:30:17","modified_gmt":"2021-08-16T14:30:17","slug":"the-ethical-analysis-and-evaluation-of-hsbc-money-laundering-scandal","status":"publish","type":"post","link":"https:\/\/www.ukessays.com\/essays\/banking\/the-ethical-analysis-and-evaluation-of-hsbc-money-laundering-scandal.php","title":{"rendered":"The Ethical Analysis & Evaluation of the HSBC Money Laundering Scandal"},"content":{"rendered":"

HSBC is a bank that originated from Hong Kong in 1865 with the original purpose to\u00a0help trade between Europe and Asia take place. From these roots, HSBC has blossomed into\u00a0existing branches in nearly 66 countries and territories (HSBC, 2019). HSBC had essentially\u00a0started as a local bank in Hong Kong and grew into one of the most well-known multinational\u00a0banks in the world. Despite the bank\u2019s growth and successes, it later struggled as they battled\u00a0through several ethical dilemmas within the last decade. HSBC and its upper management could\u00a0have taken more precautions to help prevent the most recent situation from taking place.<\/p>\n

The most recent HSBC ethical scandal took place when the bank essentially allowed\u00a0itself to be used to launder a river of drug money that was being fluctuated out of\u00a0Mexico. This was the third time in the last decade that HSBC had been fined and penalized for\u00a0lack of supervision. This is also the third time of which the bank has been told to improve\u00a0monitoring of transactions that deem to be suspicious. The previous two times HSBC was under\u00a0this circumstance was during 2003 and 2010. During 2003, the Federal Reserve Bank of New\u00a0York and New York State Regulations ordered HSBC to better monitor suspicious outflows of\u00a0funds from accounts. In 2010, they were notified to do the same by the Office of the Comptroller\u00a0of the Currency (OCC) (Viswanatha & Wolf, 2012).<\/p>\n

What are ethics and why are they important in global banking and business?<\/u><\/strong><\/p>\n

Ethics is defined as a set of moral principles that ultimately lead to a decision a person\u00a0or business makes. While often illegal decisions are unethical, not all unethical decisions are\u00a0illegal. In the business world, managements are forced to make decisions on a daily basis.\u00a0<\/p>\n

Some of these decisions are much harder to make than others, at business decisions can often\u00a0affect the everyday lives of people who work in that business. Global Banking decisions affect\u00a0the lives of many people as well.<\/p>\n

Global Banking transactions take place between financial institutions and corporations all\u00a0over the world. Unfortunately, not every decision made in these transactions is ethical. As a\u00a0result, finances of the general public are affected and can cause damage to someone\u2019s personal\u00a0life. In this example, HSBC\u2019s lack of supervision from its compliance department was unethical\u00a0for not taking enough security measures to monitor suspicious transactions that were taking\u00a0place. The lack of supervision was unethical because of the consequences that come with this\u00a0discovery, along with the fact that this money was being laundered by two cartels of Mexican\u00a0and Colombian descent.<\/p>\n

It is unethical on HSBC\u2019s part to be unaware of the money laundering<\/a> taking place in the\u00a0respective branches in Mexico along with all of the other branches. These branches essentially\u00a0helped cartels that were up to no good in order to fund their drug operations along with possible\u00a0other operations that the cartels may be responsible for. This is why not enforcing compliance\u00a0on suspicious accounts and transactions is considered unethical. In conclusion, ethics is\u00a0extremely important in the business world as it could either strengthen or weaken your\u00a0productivity, which will then affect the overall success of the bank of business.<\/p>\n

What was the case about?<\/u><\/strong><\/p>\n

HSBC Holdings Plc had to pay an extremely large amount of money for allowing itself to\u00a0be used to launder drug money from a Mexican cartel along with a Colombian cartel. Mexico\u2019s\u00a0Sinaoa cartel along with Colombia\u2019s Norte de Valle cartel were involved in this scandal as a\u00a0significant amount of money was laundered between the two of them\u00a0(Viswanatha & Wolf, 2012). At the time when HSBC was discovered to have been inadvertently\u00a0helping these cartels, it was discovered that HSBC did not have any sort of program against\u00a0money laundering. Even though there were understood risks with accounts of civilians in that\u00a0area, the bank had put the accounts in the \u201clowest risk category\u201d (Viswanatha & Wolf, 2012).<\/p>\n

HSBC after the matter invested in a new compliance monitor to help the department\u00a0monitor accounts. A total of $665,000,000 went to regulators for civil penalties\u00a0(Viswanatha & Wolf, 2012). These regulators were the OCC, Federal Reserve, and the Treasury\u00a0Department.\u00a0 Bank officials reportedly ignored several warnings from within the bank\u2019s\u00a0operations that HSBC\u2019s compliance monitoring systems were out of date and needed to be\u00a0improved.\u00a0 Traffickers in Mexico reportedly had used boxes that fit the size of the teller windows\u00a0inside HSBC branches in Mexico, yet the suspicions were not yet intriguing enough to turn to\u00a0action. In conclusion, the problems stemmed from lack of assistance for the compliance\u00a0department in HSBC.<\/p>\n

Who were the individuals and companies involved?<\/u><\/strong><\/p>\n

There were several parties involved in this scandal. HSBC was responsible for\u00a0being careless and allowing the \u201cNorte de Valle\u201d Colombian cartel, along with the \u201cSinaoa\u201d\u00a0cartel to launder a significant amount of money in branches located in Mexico\u00a0\u00a0(Viswanatha & Wolf, 2012). As a result, HSBC had to pay fines from the OCC, the Federal\u00a0Reserve, and the Treasury Department. The main party to blame for this taking place would be\u00a0the compliance department of HSBC. HSBC had only up to two compliance officers in charge of\u00a0500-600 accounts belonging to customers at the time. HSBC\u2019s compliance department also only\u00a0had up to four compliance officers reviewing alerts for potentially suspicious wire transfers from\u00a0the accounts the customers had (Viswanatha & Wolf, 2012).<\/p>\n

When and where did it happen? How much money was involved?<\/u><\/strong><\/p>\n

HSBC\u2019s most recent money laundering scandal took place in 2012 and involved branches\u00a0in Mexico. HSBC was also penalized for processing transactions in Iran, Libya, Sudan, and\u00a0Burman (McCoy, 2012). It is illegal to process transactions flowing in or out of these countries.\u00a0<\/p>\n

The total amount laundered between the \u201cNorte de Valle\u201d and \u201cSinaoa\u201d cartels was about $881\u00a0million (Viswanatha & Wolf, 2012). To retain a new and improved compliance monitor, HSBC\u00a0had to spend $1.256 billion dollars (Viswanatha & Wolf, 2012).<\/p>\n

Also, HSBC had to agree to pay $665 million for civil penalties to regulators, the OCC,\u00a0Treasury Department, and the Federal Reserve (Viswanatha & Wolf, 2012). As a result, the\u00a0grand total HSBC had to agree to pay in order to continue business operations was $1.92 billion.<\/p>\n

When accounts based from Mexico were placed in the lowest risk category, it excluded $670\u00a0billion dollars\u2019 worth of transactions that had taken place (Viswanatha & Wolf, 2012). The\u00a0prosecutors decided to use deferred prosecutions, meaning HSBC would be able to continue\u00a0operations if it paid the total of $1.92 billion along with taking steps to improve compliance.<\/p>\n

Why did it happen?<\/u><\/strong><\/p>\n

The cartels engaging in these transactions do this in order to fund operations for their\u00a0own reasons, none of which are ethical. This should not have happened as there are laws and\u00a0procedures placed to prevent these situations. However, it lasted as long as it did due to lack of\u00a0due diligence<\/a> from the compliance department at HSBC. In 2008, the CEO of HSBC Mexico\u00a0received notice that Mexican law enforcement had a recording from a Mexican cartel leader\u00a0stating HSBC was the best place to launder their money (Viswanatha & Wolf, 2012). However,\u00a0no further action from HSBC\u2019s part took place as upper management made the mistake of not\u00a0intensifying security measures.<\/p>\n

How did it come to the attention of the media?<\/u><\/strong><\/p>\n

When authorities cracked down on the case, HSBC had to go to a hearing in order to\u00a0agree on a settlement to decide if they would be able to continue business operations again. Since\u00a0this was the third time in the past decade HSBC had problems tracking down suspicious\u00a0transactions, it came to the attention to the media. HSBC branches can be found in 66 countries\u00a0and territories, therefore if the bank would have had to close, it would have affected a large\u00a0amount of people across the world (HSBC, 2019). It also brought attention to the media when the\u00a0cost of shares were not nearly as drastic as expected. HSBC shares only dropped 0.56% as HSBC told investors that they had saved $1.5 billion for incoming settlement fees regarding the scandal\u00a0\u00a0(Viswanatha & Wolf, 2012).<\/p>\n

What was the outcome of the case?<\/u><\/strong><\/p>\n

The outcome of the case was positive as HSBC was able to increase compliance staff\u00a0to ensure better quality security. HSBC is now under new senior leadership and they have\u00a0progressively taken steps in the right direction to prevent the bank from being vulnerable to\u00a0laundering scandals in the future. HSBC created a new position in senior management\u00a0titled the head of financial crime compliance. This is the designated officer to\u00a0report money-laundering suspicions (McCoy, 2012). While they did have a compliance\u00a0department in charge of monitoring these accounts previously, it was extremely understaffed and\u00a0ill-equipped to be able to monitor everyone\u2019s accounts as much as needed. HSBC Holdings Plc\u00a0has managed to bounce back from these scandals and still continues to conduct in business with\u00a0civilians across the world. As of 2019, the bank stands as the seventh largest bank by $2.37\u00a0trillion in total assets (Berger, 2019). HSBC now currently employs 235,000 people\u00a0\u00a0(Berger, 2019).<\/p>\n

How could this case have been avoided?<\/u><\/strong><\/p>\n

There are several ways this series of events could have been avoided. As previously\u00a0stated, earlier senior management of HSBC had ignored several tips and warnings to increase\u00a0compliance staff and investigate suspicions that arise. New senior management was placed\u00a0immediately and that is when HSBC began to start to get itself together. If the CEO of HSBC in\u00a02008 had taken action from the recording Mexican law enforcements spoke about, this particular\u00a0scandal could potentially have been prevented or stopped earlier than it did. This case could have\u00a0been prevented, as it gave notice to banks all around the world that compliance is not to be taken\u00a0lightly.<\/p>\n

What can we learn from the case?<\/u><\/strong><\/p>\n

The biggest lesson learned from this ethical scandal was that compliance in bank\u2019s is not\u00a0always as enforced as it may need to be. Some CEO\u2019s do not invest as much in their respective\u00a0compliance departments to increase the value of the bank and its revenue.\u00a0 HSBC Holdings Plc\u2019s\u00a0old senior management was acting greedy, as it commonly happens in the finance world. Senior\u00a0management needs to act on any leads that come from law enforcements regarding any kind of\u00a0money-laundering suspicions. A weak compliance department has the potential to cost a bank\u00a0billions of dollars.<\/p>\n

Gangs, cartels, and others up to no good are unethical and are always going to find\u00a0creative ways to finance their own agendas. Banks always need to be on the look out for any\u00a0suspicions, as these people who are up to no good may not always be funding these laundering\u00a0scandals for drugs. Cartels and gangs will often money-launder the sale of drugs and other illegal\u00a0things for them to accomplish other illegal activities they may want to engage in. Banks could\u00a0potentially save lives if they are enforcing their compliance department, as these cartels are\u00a0unethical and do not have remorse for human life.<\/p>\n

Works Cited<\/u><\/strong><\/p>\n