Why are the Hong Kong authorities still in awe of HSBC?
‘Hong Kong made a fuss when HSBC moved to London, but it rather looks like something of a blessing right now,’ writes Stephen Vines
Lord Hain believes that HSBC needs to be investigated for “possible criminal conspiracy” over money laundering for South Africa’s Gupta family who, in turn, are alleged to have unlawfully profited from ties to President Jacob Zuma. These allegations against HSBC follow a litany of other controversies that have given the bank an extraordinarily bad name in its London home base.
However in Hong Kong, its previous base, the regulatory authorities appear to remain in awe of an organisation that abandoned the SAR (Special Administrative Region) for what at the time appeared to be greater expansion opportunities in Europe.
HSBC, self-aggrandisingly known in some quarters as The Bank, remains much in demand by the authorities, who tried to lure it back to Hong Kong following the uncertainties that have arisen over the UK’s Brexit vote. Meanwhile the bank continues to be one of the three local note issuers and remains the bank of choice for a host of official bodies.
It is not as though the allegations of wrongdoing do not involve Hong Kong. They do, in the case of the Guptas where it is alleged that part of the laundered money passed through the bank’s branches in the SAR alongside South Africa and Dubai.
Lord Hain, previously better known as Peter Hain, a former Labour Party minister and high-profile anti-apartheid campaigner, also alleges that these transactions were flagged up by the bank’s staff as being suspicious but they “were told to by the UK headquarters to ignore it”.
It should be stressed that the Guptas and President Zuma reject charges of wrongdoing and the bank is denying liability, nor have Lord Hain’s allegations been proven.
Yet HSBC has considerable form when it comes to dodgy dealings. In 2008 its Swiss private bank was hit by data-theft revelations followed by a tax-avoidance complicity scandal. In 2011 a probe was launched into money laundering at its Mexican subsidiary. This resulted in a £1.2 billion fine by the US authorities to settle allegations of laundering money for Mexican drug cartels.
There was no respite in 2013 as HSBC, alongside several other banks, was back in the news with an investigation into foreign-exchange manipulation. By 2014 HSBC joined others in being charged by the European Commission with trying to manipulate the Euribor interest rate.
In February of this year London’s financial watchdog launched a separate money-laundering probe, the results of which have yet to be revealed.
Stuart Gulliver, who was HSBC’s CEO at the time, responded to this with the kind of arrogance that is pretty much the hallmark of the way the bank operates. He said: “It’s quite normal for a bank of our size and scale with 37 million customers … to find amongst our customers instances of money laundering, either that we have ourselves identified, the monitor has identified, or our own regulators have identified.”
Mr Gulliver’s last pay cheque from the bank, however, reflected concerns over what was happening at HSBC when the independent remuneration committee decided to reduce part of his bonus because of “unsatisfactory internal audits covering anti-money laundering and sanctions-related issues”. However, the former CEO was hardly reduced to penury as his overall pay dropped to a “mere” £5.7 million from £7.3 million.
HSBC has made quite an effort to assure its investors that its control systems were being upgraded. The bank’s 2017 interim report stated that having spent US$1 billion to enhance controls it had “transformed [its] ability to manage financial crime risk, making the group and its customers safer and helping us to protect the integrity of the financial system”. Then came the Gupta scandal.
HSBC, which operates in 70 countries, has something of a point in arguing that it is hard to control all aspects of this vast operation. However, it is the very international nature of the bank on which its reputation rests and if indeed it cannot adequately supervise its sprawling empire the crown it wishes to wear must be severely tarnished.
Meanwhile, back in Hong Kong it is all too easy to find humble private customers who have suffered from HSBC’s arrogance, which is one of the reasons why, despite its profitable operations here, so many smaller customers have gone elsewhere for banking services.
Yet the Hong Kong government apparently remains so in awe of the bank that it wants it to come “back home” and re-establish the group HQ here. I strongly suspect that if that were to happen, there would be few cries of anguish in London, aside from general concerns over the demise of the City’s role as one of the world’s great financial centres.
Hong Kong made a fuss when HSBC moved to London, but it rather looks like something of a blessing right now.
Stephen Vines runs companies in the food sector and moonlights as a journalist and a broadcaster