US Regulators & HSBC Unveil $700m Know-Your-Customer Program

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London-based HSBC will spend $700 million on a worldwide “know your customer” policy, as part of its 26-point man construed by a 2-point plan sketched with US regulators as a solution to the bank’s money laundering and sanctions breaks. The expenditures come as the  DoJ has accused the bank of allowing Mexican and Colombian drug cartels  to traffic at least $881 million through the bank. The bank also is accused of aiding nation-states evade sanctions put on them by the US, such as $660 from Iran, Cuba, Sudan, Libya and Myanmar. HSBC currently has a market cap of nearly $200 billion. What is amazing is that in a clearcut case against HSBC, nobody will be facing jailtime from Europe’s largest bank. They will instead pay a $2 billion settlement. What is this? Essentially, the US government needs a quick monetary injection and this is the quickest route other than a bailout. Don’t prosecute, fine, fine fine. Criminal convictions on money laundering violations would have forcible prevented HSBC from doing business in the US.

On Tuesday HSBC signed a five-year deferred prosecution agreement so as to not go to trial over the affair. It has agreed to pay a $1.25 billion penalty to the DoJ and a further $665 million to US regulators following a five-year investigation in which agents reviewed 9 million documents. So, essentially in this situation, you have two institutions who have helped to encourage drug cartels in Mexico, as well as the violence, working together while trying to make it seem as if they are working apart. What the public is watching is a show. The US government and HSBC, at the very top, have an implicit and/explicit understanding of each other’s role. While the US government sends weapons for the drug war in Mexico, the banking arm monitors the drug cartels accounts.

And, what we are seeing here, published about HSBC first, is a set of programs intended to be implemented worldwide not by HSBC, but also by the US government, to better track “world citizens” – from US citizens to terrorists.

“The record of dysfunction that prevailed at HSBC for many years was simply astonishing,” said Lanny Breuer, assistant attorney general, adding that there was now “a sword of Damocles” over HSBC. A monitor has been placed inside the bank, the first time the US has taken such a step at a foreign bank.

According to the DoJ Mexican and Colombian drug cartels were able to traffick at least $881 million through the bank. The bank also is accused of aiding nation-states evade sanctions put on them by the US, such as $660 from Iran, Cuba, Sudan, Libya and Myanmar.

Internally, HSBC made notes in certain deals such as “do not mention Iran.” HSBC became “the vehicle of choice for illegal money men”, said John Morton, director of US Immigration and Customs Enforcement.

The bank has stated it has increased its spending on US anti-money laundering ninefold to $224 million between 2009 and 2011. Their staff in the department has grown from 117 to 1,1147 over the period and ending 109 client relations in the US.

The program will now be rolled out globally, likely due to US programs such as FACtA, in which all US citizens, worldwide, will have to have report to the IRS.

HSBC has most recently aimed to rid their books of operations and client relationships that could cause regulator headaches.

“Know your customer” refers to a multitude of anti-money-laundering measures enacted in markets around the world,  particularly by the US government, although banks have some latitude in how principles are implemented. Banks around the world are shying away from US-based customers, in particular, due to overbearing regulations implemented on behalf of the IRS, who have, in recent years, hired who-knows how many thousands of new employees. The guise is that this is to prevent terrorism, when in reality it is a part of terrorism.

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