HSBC's unhappy hunting ground
To its many Hong Kong shareholders and customers HSBC remains their bank and a pillar of society, even if its identity has now been globalised. They would have been dismayed, therefore, with the blemished image that emerged from Washington last week. The US has not been a happy hunting ground for HSBC, after a disastrous venture into subprime consumer loans. Now, the hunter is the hunted. A hearing by a Senate panel on involvement in money laundering has brought closer a day of reckoning, with analysts predicting fines of up to US$1 billion by regulators.
The Senate panel is looking into the laundering of billions of dollars through HSBC's US operations by Mexican drug cartels, and transactions tied to Iran and Middle Eastern terrorist financing. That reflects concerns about the death, misery and corruption spread by illicit drugs and terrorist acts against innocent people.
The role of financier to drug cartels is hard to reconcile with HSBC's billing of itself as the world's local bank. But the shortcomings were inadvertent, according to its new chief legal officer, Stuart Levey. He told the panel that rapid global expansion resulted in decentralised management which failed to implement consistent standards or comply with anti-laundering measures. Levey's recruitment from the US Treasury is seen as a signal that the bank is serious about cleaning up its act.
The drive for growth at all costs that ended in the financial crisis, and the reluctance afterwards to ask the right questions about big money movements, made a mockery of HSBC's internal controls. The bank has apologised and one of its top compliance executives has fallen on his sword. In fact, senior management failed over the years to act on the concerns of subordinates and regulators.
HSBC is also embroiled in the widening investigation of fixing of interbank lending rates, a benchmark for hundreds of trillions of dollars in ordinary financial contracts, over which Britain's Barclays Bank has already been fined US$450 million by American and British regulators. This has prompted the Hong Kong Association of Banks to review the operation of the Hong Kong interbank rate, although there is no suggestion of any anomalies.
The Senate panel's reference to a 'pervasively polluted' culture at the bank may apply to its US operations, but the need for vigilance resonates in Hong Kong. A free port and low-tax financial centre appeals to money-launderers and tax dodgers. As a member of the international Financial Action Task Force, the government has complied with requests to close loopholes. Hopefully, Hong Kong bank, as it is still known by many, need not be troubled by the 'deep changes' to corporate culture the bank says it has introduced in the US.