Money-Laundering Ring Pushed $4 Billion through HSBC

EXPOSURES - EXPOSÉS, 2 Aug 2021

Franz Wild and Ben Stockton | The Bureau of Investigative Journalism - TRANSCEND Media Service

The Bureau of Investigative Journalism

28 Jul 2021 – A vast money-laundering ring moved $4.2bn through a network of 60 HSBC accounts in Hong Kong starting only two years after the bank promised to clean up its act, an investigation by the Bureau of Investigative Journalism and the Guardian has revealed.

Insiders have raised questions over whether HSBC appropriately informed US monitors about the ring, which was uncovered by the bank during an internal review. The independent monitoring team was specifically installed by the US Department of Justice (DoJ) as part of a deal not to prosecute HSBC in 2012, when the bank admitted allowing Latin American drug cartels to launder hundreds of millions of dollars through its accounts.

HSBC discovered the Hong Kong ring in 2016 while trying to assess its exposure to the wealthy Gupta family, who have been embroiled in corruption scandal allegations in South Africa. The Guptas have denied any wrongdoing.

While the resulting report concluded that its exposure to Gupta-linked accounts was “contained and minimal”, HSBC’s financial investigations unit ended up raising concerns about “larger professional money laundering networks”, including the Hong Kong ring, which it said had processed more than $4.2bn worth of payments between 2014 and 2017. While much of this sum may not have been “dirty money”, laundering often relies on mixing legitimate and illegitimate funds together.

The bank, which is headquartered in London, would have been expected to disclose the information to the independent monitors brought in by the DoJ when criminal proceedings were deferred on the condition the bank reform its anti-money laundering checks. However, former members of the monitoring team say they were never told about the Hong Kong ring.

“HSBC never voluntarily disclosed money laundering. They waited to be asked about it,” one former member of the monitoring team, who agreed to speak on the condition of anonymity, said. “As far as I’m aware, this particular report … was never disclosed to the monitor,” they confirmed, adding that this appeared to be a bigger money-laundering network than any they had identified at the bank.

Another former official from the team suggested it was likely that the HSBC report “would have made it to board level,” adding executives at the bank could have been aware of the suspected network.

HSBC told the Bureau it reported suspected money laundering to local authorities “as appropriate”, but the monitor “serves a different role in helping a bank to improve its capabilities” and all discussions with the team were confidential.

The bank is facing criticism from senior political figures on both sides of the Atlantic, as are regulators for failing to adequately hold executives to account.

“HSBC had nearly a decade to clean up its act, yet it continued to break the law after receiving mere slaps on the wrist for previous violations,” US senator Elizabeth Warren said. “Instead of relying on toothless deferred prosecution agreements like HSBC’s, the DoJ and Treasury must hold the executives of these giant banks personally accountable for allowing money laundering.”

Pat McFadden, the UK’s shadow economic secretary and a Labour MP, said the case illustrated the need for “tougher standards” on money laundering and financial crime.

“The UK rightly prides itself on having a global financial services sector,” he said, “but that sector can only prosper in the future if it operates to the highest standards and rigorous action is taken against illicit finance and money laundering.”

The internal HSBC report was disclosed as part of the Zondo judicial inquiry in South Africa, which is examining claims of high-level corruption involving former president Jacob Zuma and members of the wealthy Indian Gupta family. The Guptas have been accused of alleged bribery, money laundering and political patronage, which they deny, and became the subject of US sanctions in 2019.

HSBC handed over the report after officials from the inquiry demanded it confirm leaked transactions revealing Gupta-linked money had flowed through the bank’s accounts. Shadow World Investigations (SWI), a group of non-profit researchers based in London, had used the leak to allege that in all more than a hundred million dollars had been laundered out of South Africa through Hong Kong and China by various parties.

“The vast flow of funds into and out of South Africa, and through laundry vehicles abroad, raises profound questions about the role of professional enablers in the process of state capture,” Shadow World Investigations wrote in a submission to the Zondo commission. “It is vital that the banking sector in South Africa and abroad (and, in the latter case, HSBC in particular), as well as the auditing sector, answer how such large quantities of criminal funds could be transmitted around the world with seemingly little hindrance.”

The bank’s report expressed concerns that HSBC was exposed to the South African corruption allegations, most notably through three Gupta-linked companies that held business accounts at its Hong Kong bank. It explained that those accounts may have been used for legitimate business purposes, but raised concerns whether they had also been “allegedly used to receive bribery money”.

While its internal compliance team could not find any evidence of “an extended network of money-laundering accounts controlled by the Guptas operating in HSBC”, it alleged the family likely made use of a larger money-laundering network to handle their funds.

The three Gupta-linked companies are said to have funnelled about $12.2m through this wider ring via 96 payments between 2014 and 2017. However, those funds represented a tiny fraction of the overall money that was paid into the suspected network, which received about 50,000 payments worth $4.2bn over the three-year period covered by the report.

The corruption commission

Details of HSBC accounts suspected of being used to launder more than a hundred million dollars of dirty money were put together by a small London-based non-profit called Shadow World Investigations. The group was set up by Andrew Feinstein, a former South African MP for the ruling African National Congress, and Paul Holden, who has led much of the pair’s years of research on corruption and the arms trade.

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Based on a leak of HSBC transactions, SWI mapped out how funds seemingly related to the Gupta family businesses could have been laundered, largely through Hong Kong and China. SWI submitted its findings to a South African judicial commission, presided over by Deputy Chief Justice Raymond Zondo, that is investigating allegations of grand corruption during former president Jacob Zuma’s term in office. Zuma himself was jailed this month for contempt of court after he refused to testify at the Zondo commission.

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At the commission’s request HSBC confirmed the transactions and provided the report by its financial investigation unit, which SWI submitted as part of a follow-up report in June 2021, before a copy was also obtained by the Bureau and shared with the Guardian.

The bank’s investigations team could not follow the Gupta money after it was deposited into the first level of the network, comprised of 203 accounts, because “the money was mingled with non-Gupta payments”. HSBC said 92 of those top-level accounts were held by HSBC clients, mostly at its Hong Kong bank. While a third had been closed over that period, 60 were still operating by the time the investigation concluded in April 2017, and had made onward payments worth $3.78bn to another 5,576 accounts, nearly half of which were held with HSBC.

In a statement, the Gupta family said they were previously unaware of HSBC’s findings and that the family has no connections to the bank and is in no way connected to the companies identified by HSBC, nor a money-laundering ring. They denied the allegations of corruption being investigated by the Zondo commission.

A redacted note at the end of the report suggests the 60 top-level accounts were not flagged for immediate closure. Instead, they were referred to an undisclosed party “for live financial crime risk mitigation” and follow-up analysis in March 2017.

It is not clear whether the monitoring team were informed of the discovery; at the time the team was preparing to wind down its supervision programme after four and a half years. The team of almost 300 lawyers and accountants had begun its work in 2013, after HSBC agreed to pay $1.9bn in fines – a record at the time – for allowing drug traffickers to funnel at least $881m through its accounts in one of the most high-profile money laundering scandals in a decade.

The programme sent supervisors to nearly a dozen countries and territories each year, including Hong Kong, to assess the controls that HSBC had in place across its sprawling global business, which at the time extended to 75 countries. As part of a visit, a team of up to 35 staff would request copies of the bank’s policies, procedures and meeting minutes for the previous year and ask to review specific potentially suspicious client accounts.

One former team member explained that the supervisors were realistic, and expected HSBC would uncover misuse of accounts across the global business. “Regulators don’t expect them to have no money laundering in their accounts,” they explained. “They just expect them to deal with it when they find it, and expect them to be looking for it proportionately.”

But another former member of the team said that in their opinion some HSBC staff “were quite evasive”. “We had a sense that there may have been a whole set of other stones that we hadn’t been able to lift and that some staff had not really wanted us to look that hard,” they added.

A spokesperson for the bank told the Bureau: “HSBC took very seriously its obligation to cooperate fully with the monitor and his team. The monitor acknowledged this cooperation in his reports.”

She added: “HSBC is determined to prevent criminals from accessing the financial system and, over several years, has overhauled its capabilities aimed at doing just that. This has included putting in place robust policies and procedures to detect, deter, and prevent financial crime across all of our affiliates globally that often exceed what is required in the local jurisdictions where we operate.”

Read the HSBC report below

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Reporters: Franz Wild and Ben Stockton
Desk editor: James Ball
Investigations editor: Meirion Jones
Production editor: Frankie Goodway
Fact checker: Chrissie Giles
Legal team: Stephen Shotnes (Simons Muirhead Burton)
Illustration: Daniel Stolle

Our Enablers project is funded by Open Society Foundations and out of Bureau core funds. None of our funders have any influence over the Bureau’s editorial decisions or output.

Franz Wild leads the Bureau’s reporting on wrongdoing in the City of London. Previously at Bloomberg for 13 years, his work focused on corruption.

Ben Stockton is an award-winning investigative reporter who has worked for the Bureau on its Health and Enablers projects.

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