Some of the world’s biggest banks, including HSBC, JPMorgan Chase and Standard Chartered, moved trillions of dollars identified as being potentially tied to money laundering or other crimes despite raising concerns about those transactions in filings with US regulators, according to media reports on Sunday.
The disclosures again raised questions about the success of government efforts to stamp out the flow of illicit funds around the globe and the effectiveness of internal anti-money-laundering compliance systems, which global banks have spent tens of billions of dollars to revamp in the past decade.
Shares of HSBC and Standard Chartered fell sharply in Hong Kong on Monday after the media reports, with HSBC’s stock, at one point, trading at its lowest level since 1995.
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HSBC declined 2.9 per cent to HK$30.05 in morning trading in Hong Kong on Monday, while Standard Chartered fell 2.7 per cent to HK$36.20. The Hang Seng Index fell 1.4 per cent.
The reporting was based on more than 2,100 so-called suspicious activity reports (SARs) filed by banks and financial institutions between 1999 and 2017 with the US Department of Treasury’s Financial Crime Enforcement Network (FinCEN) that were obtained by Buzzfeed News and shared with the International Consortium for Investigative Journalists (ICIJ).
Among the SARs obtained by BuzzFeed, banks flagged more than US$2 trillion in transactions for potential criminal activity, including money laundering and sanctions violations. In some cases, banks continued to do business with individuals after receiving warnings from US officials, the ICIJ reported.
Several of the banks cited in the stories, including HSBC and Standard Chartered, previously paid billions of dollars in fines and agreed to deferred prosecution agreements in the past decade over failures in their anti-money-laundering programmes.
HSBC and Standard Chartered both declined to comment on individual clients, but said they have spent substantial amounts in recent years to improve their compliance programmes.
The Post was not able to independently verify the claims as the documents themselves were not made public by the ICIJ.
FinCEN said earlier this month that the unauthorised disclosure of SARs is a “crime that can impact the national security of the United States, compromise law enforcement investigations, and threaten the safety and security of the institutions and individuals who file such reports”. FinCEN said in its September 1 announcement that it referred the matter to the US Department of Justice and the Treasury Department’s inspector general.
Last week, FinCEN announced it was considering changes to enhance the effectiveness of its anti-money-laundering programme.
Deutsche Bank had the largest amount of transactions flagged in suspicious activity reports reviewed by ICIJ, with transactions totalling more than US$1.3 trillion. Photo: EPA-EFE alt=Deutsche Bank had the largest amount of transactions flagged in suspicious activity reports reviewed by ICIJ, with transactions totalling more than US$1.3 trillion. Photo: EPA-EFE
Financial institutions that access the American financial system are required to file reports on cash transactions by customers exceeding US$10,000 and report suspicious activity that might indicate criminal activity, such as money laundering or tax evasion.
Filing a report does not indicate misconduct actually occurred and only a handful of the reports filed annually result in action by law enforcement. About two million SARs are filed each year.
Of 640,000 SARs filed by 19 institutions in 2017, only about 4 per cent resulted in follow-up inquires by law enforcement, according to a 2018 study by the Bank Policy Institute, a US lobbying group for the financial industry.
Banks are barred from discussing SARs publicly and are asked, in some cases, to keep accounts identified as suspicious open “so that law environment can track where the money is going and gather further evidence to support an arrest and conviction”, the industry group said.
Deutsche Bank had the largest amount of transactions flagged in SARs reviewed by ICIJ, with transactions totalling more than US$1.3 trillion. JPMorgan was the second biggest with US$514 billion in transactions identified as suspicious.
Other financial institutions whose SARs were obtained by BuzzFeed include Bank of New York Mellon, China Investment Corporation, Citigroup and Societe Generale.
Aggressive efforts by the US and other governments to crack down on money laundering, terrorism financing and tax evasion in recent years have led to a dramatic uptick in transactions flagged as suspicious, as well as settlements with lenders for failures in their money-laundering controls.
But, that has not stopped banks from continuing to do business with individuals whose transactions raise red flags internally, even after agreeing to settlements for past compliance failures, the ICIJ found.
For example, JP Morgan and other banks reported more than 100 suspicious transactions since 2013 involving companies with links to Malaysian financier Jho Low and others related to the alleged siphoning of US$4.5 billion from the 1Malaysian Development Berhad state investment fund, according to the ICIJ.
JP Morgan and other banks reported more than 100 suspicious transactions since 2013 involving companies with links to fugitive Malaysian financier Jho Low. Photo: SCMP alt=JP Morgan and other banks reported more than 100 suspicious transactions since 2013 involving companies with links to fugitive Malaysian financier Jho Low. Photo: SCMP
After authorities sought Low’s arrest in 2016, JPMorgan raised questions about more than a dozen additional wire transactions, including purchases of property in New York City and paintings by Vincent van Gogh and Claude Monet, the report said. Low remains at large.
“We have played a leadership role in anti-money-laundering reform that will modernise how the government and law enforcement combat money laundering, terrorism financing and other financial crimes,” a JPMorgan spokesman said in a statement.
Another example cited by ICIJ was World Capital Market, which the US Securities and Exchange Commission accused of being a Ponzi scheme in 2014 and obtained an asset freeze against that year. The fraud allegedly raised US$80 million from investors.
HSBC moved more than US$30 million on World Capital Market’s behalf in 2013 and in 2014, despite the fund facing investigations in several countries, according to the consortium.
The bank was subject to a deferred prosecution agreement (DPA) with US authorities at the time after agreeing to pay US$1.9 billion in 2012 related to prior failures in its anti-money-laundering compliance and sanctions controls,
A HSBC spokesman declined to comment on its suspicious activity reporting, saying the information provided by the ICIJ was historical and predated the conclusion of its DPA.
“Starting in 2012, HSBC embarked on a multi-year journey to overhaul its ability to combat financial crime across more than 60 jurisdictions,” the spokeswoman said. “HSBC is a much safer institution than it was in 2012.”
Standard Chartered reached its own settlement with US authorities in 2012 and pledged to strengthen its financial crime controls that year, but continued to process transactions in 2013 and in 2014 for clients of a Jordanian bank found to have deficient money laundering controls, the ICIJ reported.
It continued to process transactions for Arab Bank despite the lender facing a jury trial over whether it had transmitted money disguised as charitable donations on behalf of Hamas, which the US considers a terrorist group, the ICIJ reported.
“The reality is that there will always be attempts to launder money and evade sanctions; the responsibility of banks is to build effective screening and monitoring programmes to protect the global financial system,” a Standard Chartered spokeswoman said. “We take our responsibility to fight financial crime extremely seriously and have invested substantially in our compliance programmes.”
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP’s Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved.
Copyright (c) 2020. South China Morning Post Publishers Ltd. All rights reserved.