HSBC exposed: Drug money banking, terror dealings, money laundering!

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HSBC hid '$16bn,' says a US senate
HSBC concealed more than $US16 billion in sensitive transactions to Iran, a US Senate panel says.
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The HSBC Private Bank in Geneva Source: AFP 

SHAMED HSBC Bank executives have admitted to allowing Iran, terrorists and drug dealers to launder billions of dollars.

With the international banking sector already under fire for manipulating interest rates and reckless trading, HSBC said more should have been done to prevent years of abuse amounting to tens of billions of dollars of illicit transactions.

US politicians grilled HSBC executives and US Treasury officials for failing to guard against money laundering they said benefited Mexican drug lords and terrorist networks, and for their bypassing of sanctions on Iran.

"It's pretty shocking stuff," subcommittee chairman Senator Carl Levin said.

Among the findings was the revelation that HSBC and its US affiliate concealed more than $15.67 billion in sensitive transactions to Iran, violating US transparency rules over a six-year period.

The chief compliance officer of HSBC says he is stepping down from that position after the investigation.

But David Bagley, the head of compliance for London-based HSBC Holdings, told a Senate investigations panel that he will remain at HSBC.

Bagley and other current and former executives of the bank apologised for lapses but said they weren't fully aware of illicit transactions flowing through the bank.

Senators expressed scepticism that they didn't know about problems that persisted for seven years.

"I recognise that there have been some significant areas of failure," David Bagley said at a hearing of the Senate Homeland Security Subcommittee on Investigations.

"HSBC has fallen short of our own expectations and the expectations of our regulators," he said.

While Bagley said the bank has "learned a number of valuable lessons" he acknowledged that this "clearly took far too long to resolve."

In its 330-page report, the Senate found the lender allowed affiliates in countries such as Mexico, Saudi Arabia and Bangladesh to move billions of dollars in suspect funds into the United States without adequate controls.

Bagley has been the head of compliance since 2002, during the period in which the Senate investigation found that HSBC's lack of oversight allowed the bank to be used by drug traffickers and possible financiers of terrorist groups, and for other illicit purposes around the globe.

Bagley said he lacked full authority over the bank's far-flung affiliates, which each had their own compliance officer.

HSBC executives were aware of the "concealed Iranian transactions" - which stripped all identifying Iranian information from documentation - as early as 2001 but allowed thousands of transactions to continue until 2007.

A review of HSBC's use of so-called U-turn transactions, in which funds are sent into and then out of the United States through non-Iranian foreign banks, showed the bank conducted almost $US25,000 transactions with Iran.

"The vast majority of the Iranian transactions, ranging from 75 to 90 per cent over the years, were sent through HBUS and other US dollar accounts without disclosing any connection to Iran," according to the report.

The US prohibits doing business with nations it regards as enemies such as Iran and North Korea, and its Office of Foreign Assets Control (OPAC) imposes tight filters to halt potentially prohibited transactions.

Levin said the bank willfully circumvented the OFAC filters.

The senator said senior HSBC officials in London "knew what was going on, but allowed the deceptive conduct to continue."

Under the slogan The World's Local Bank, the network that began life as the Hong Kong and Shanghai Banking Corporation provides US dollars to HSBC banks in many countries under a procedure known as "correspondent banking."

But its compliance failures clearly spun out of control.

The report said HSBC's Mexican affiliate "transported $7 billion in physical US dollars to HBUS from 2007 to 2008 ... raising red flags that the volume of dollars included proceeds from illegal drug sales in the United States."

And it said HBUS "provided US dollars and banking services to some banks in Saudi Arabia and Bangladesh despite links to terrorist financing."

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HSBC exposed: Drug money banking, terror dealings money laundering for Iran, drug lords !

‘Father of pen drive’ now a Datuk

Official recognition: Pua receiving a gift from his business partner Hotayi Electronics (M) Sdn Bhd general manager Goh Guek Eng after the investiture ceremony.

GEORGE TOWN: Pen drive inventor Pua Khein Seng was beaming with joy after being conferred the Darjah Setia Pangkuan Negeri (DSPN) award which carries the title Datuk.

“I was informed last week that I would be receiving the award. It was surprising news for me,” said Pua, who is CEO of Taiwan-based Phison Engineering Corp.

The 38-year-old Malaysian, who is popularly known as K.S. Pua, invented the pen drive when he was only 27. The father of three is even regarded as the “father of the pen drive” in Malaysia.

“I want to share this award with all Chinese-educated students who pursue their studies overseas.
“They must put more effort and strive harder. They must also be humble,” he said yesterday.

 

Pua, who hails from Sekinchan, Selangor, said the recognition was a form of encouragement for Malaysian talents to return and contribute to the country's development.

The former Pin Hwa High School student left Malaysia at the age of 19 to pursue his degree in electrical and control engineering at Chiao Tung University in Taiwan.

During his third year at Chiao Tung, he began conducting research into flash memory technology.

Pua founded Phison Electronics with four partners and produced the world's first USB flash drive with system-on-chip technology in 2001.

To date, Phison, which stands for “five persons”, boasts a market capitalisation of US$1.4bil (RM4.43bil).

Pua's success has brought him many awards in Taiwan including Outstanding Young Entrepreneur Award, Top 10 Outstanding General Managers' Award and the Electronics Research and Service Organisation Award from the Pan Wen Yuan Foundation.

In Malaysia, he received an Outstanding Youth Award as well as the Ernst and Young Entrepreneur of the Year Award.

A total of 346 out of 1,138 recipients received their awards during the second session of the investiture ceremony in conjunction with the 74th birthday of the Yang di-Pertua Negeri Tun Abdul Rahman Abbas.

By KOW KWAN YEE kowky@thestar.com.my

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Call for SME Masterplan custodian

NSDC says single agency should ensure implementation and track progress of the plan

PETALING JAYA: The National SME Development Council (NSDC) has called for a single agency to be the custodian of the SME Masterplan.

The NSDC said the agency should be accountable for ensuring the implementation of the plan and tracking the progress of the master plan's objectives.

“The role of SME Corp Malaysia has to be further strengthened, empowered and elevated to take on the lead role to implement the master plan,” it said, noting that “this may require some organisational restructuring and changes to the co-ordination mechanism to allow greater empowerment for the agency to function effectively in executing the plan.”

NSDC said SME Corp would need to be given sufficient authority and resources and have a more active role in the budgetary decision on SME development. Among the measures SME Corp should take is reviewing existing programmes with the ministries and agencies to rationalise those that overlap and remove those that have no significant impact.

It said SME Corp had to put in place a world-class monitoring and evaluation system where “evaluations would require accurate and credible firm level data which entails working together with the ministries and agencies to collate the necessary information from programme recipients”.

The council said SME Corp would be engaging the private sector to participate in the master plan, especially in the six high impact programmes through public-private partnerships.

“The role of industry associations, chambers and non-governmental organisations will be further enhanced in assisting in reaching out the programmes to more SMEs in the country, and in capacity building at the district, state and national levels,” it said.

A risk mitigation plan was among NSDC's recommendation, too, as the global economy will likely remain uncertain with volatility in the financial markets posing external risks to Malaysia's growth momentum.

As for internal risks, the council said that comprised policy changes on the macroeconomic front and issues associated with the implementation and operation processes of the master plan itself.

“This may include risks from resource constraints due to escalation in costs, delays in execution, lack of authority of the coordination agency in driving the policies and programmes, and challenges faced in coordination and alignment of the policies and programmes,” it said.

By LIZ LEE lizlee@thestar.com.my

Libor scandal blows to British banking system

The still-developing Libor scandal is the latest and biggest blow to the credibility of big banks and their regulators, and should catalyse wide-ranging reforms to the financial system.

THE reputation and credibility of banks, regulators and the banking system in Western developed countries, already battered by the twists and turns of the financial crises, have reached new lows with the Libor scandal, which is still evolving and will yet reveal more wrong-doing. Blow ... Barclays >>

Besides Barclays Bank, which has paid US$456bil (RM1.45 trillion) in penalties to the British and US authorities, at least another 11 banks that were part of the rigging of Libor face up to US$22bil (almost RM70bil) in penalties and damages to investors and counterparties, according to an article in The Financial Times.

This is likely to be an underestimate because in addition, they may also face fines of billions of dollars or euros from anti-cartel actions. And more than the 12 banks that are publicly named are involved.

The Libor scandal could not have come at a worse time because the banking sector is already mired in many deep crises.

That the biggest banks in the world have been manipulating the revered Libor rates, which the public for so many years considered something that is set objectively and scientifically, is almost unimaginable.

The manipulations were reportedly of two types: to influence Libor rates so that the bank could make profits in its derivatives trades, and to dishonestly portray that its own borrowing costs were lower than what they were, so as to raise the bank’s image.

The scandal hits at the heart of the global banking business, because Libor (the London Interbank Offered Rate), is the benchmark relied upon for many thousands of contracts in the financial world.

This new hit to the banks’ credibility comes at a time when there are new signs of a serious downturn in the global economy.

In particular, the growth rates of many major developing countries have declined significantly in the last three months, signifying that the banking and debt crises in Europe are beginning to have a serious impact on the developing world.

The Libor scandal may contribute to the deteriorating world economic situation.

At the least, the banks involved in the scandal may have a worsened financial position, with less credit to provide to the real economy.

The estimated fines would cut 0.5% off their book value, and each bank may also have to pay an average of US$400mil (RM1.27bil) because of lawsuits, according to a study by Stanley Morgan, as reported in The Financial Times.

This may only be the tip of the iceberg. Regulators in many countries, other than Britain and the United States, are investigating, including Canada, Japan, and Switzerland, while many corporations and lawyers are considering lawsuits against the banks. The credibility of the European and US regulators have also been affected.

Either they did not know about the manipulations of the banks and were thus not doing their job, or they knew about it and allowed the deception to continue for years.

Manipulation in the Libor system was apparently known, at least in the trade, by 2005.

In April 2008, an article in Wall Street Journal raised questions about the way Libor was set.

Last week (on July 13), documents released by the New York Federal Reserve showed that US officials had evidence from April 2008 that Barclays was knowingly posting false reports about the rate at which it could borrow, according to several news reports, including in the Wall Street Journal.

A Barclays employee told a New York Fed analyst on April 11, 2008: “So we know that we’re not posting, um, an honest Libor.”

He said Barclays started under-reporting Libor because graphs showing the relatively high rates at which the bank had to borrow attracted “unwanted attention” and the “share price went down”.

The Fed analyst’s information and concerns were passed on to Tim Geithner, then head of the New York Fed.

In June 2008, Geithner sent a memo to the Governor of the Bank of England, with six proposals to ensure the integrity of Libor, including a call to “eliminate incentive to misreport” by banks.

The documents show that the US authorities knew about irregularities in the Libor interest-rate market and had discussed the need for reforms with the British authorities as far back as mid-2008.

The question being asked is why the regulators did not act until this year.

The Libor scandal may be, or should be, the final straw that forces the developed countries’ political leaders and financial authorities to undertake a thorough and systemic reform.

The financial system has been plagued by one crisis and scandal after another, and of crisis responses.

There needs to be reform of the regulatory framework and enforcement, the hugely excessive leveraging allowed by financial institutions, the laws that permit a combination of commercial banking and proprietary trading in the same institution, the speculative and manipulative activities and instruments of financial institutions, fraudulent practices and the incentive system, including unjustified high pay and bonuses and high rewards to bankers for speculation-based earnings.

A reform of the Libor system or establishing an alternative to it is of course also required.

In the Libor system, a panel of banks will set the borrowing rates for 10 currencies at 15 different maturity periods.

Two types of manipulation emerged in the Barclays case.

The first involved derivatives traders at Barclays and several banks trying to influence the final Libor rate to increase profits (or reduce losses) on their derivative exposures.

The second manipulation involved submissions by Barclays and other banks of estimates of their borrowing costs which were lower than what was actually the case.

Almost all the banks in the Libor panels were submitting rates that may have been 30-40 basis points too low on average, according to The Economist.

GLOBAL TRENDS By MARTIN KHOR newsdesk@thestar.com.my

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