Financial Transparency Coalition

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Two pieces of pretty good news about anti-money laundering enforcement came out of HSBC this week. You might recall that earlier this year, a U.S. Senate investigation uncovered incredibly lax money laundering enforcement at the bank, including close ties to organized crime.

The first piece of news comes from Reuters, which reports that HSBC’s fine–long thought to end up around $1 billion–could not only be much higher than expected, but also be accompanied by real criminal penalties for individuals:

A U.S. fine for violating federal anti-money laundering laws could cost HSBC Holdings significantly more than $1.5 billion and is likely to lead to criminal charges as well, Europe’s biggest bank said on Monday.

HSBC said the U.S. investigation had damaged the bank’s reputation and forced it to set aside a further $800 million to cover a potential fine for breaches in anti-money laundering controls in Mexico and other violations. The provision was on top of $700 million it put aside in July

“It could be significantly higher,” Chief Executive Stuart Gulliver told reporters on a conference call, saying the latest provision was based on discussions with the various U.S. authorities involved in the probe.

Unlike the Department of Justice’s response to eerily similar crimes at Wachovia, which consisted of cursory fines and no criminal prosecutions, this is starting to look like real law enforcement. Obviously, we don’t know the details yet, but the second piece of news suggests that they, and investigators in the UK, have got HSBC’s attention. From BBC News:

HSBC bank says it is looking into allegations that criminals have used offshore accounts at its Jersey operation for money laundering. The bank issued a statement after the Daily Telegraph newspaper said it was at the centre of a major investigation by HM Revenue and Customs (HMRC).

HSBC said it was investigating “an alleged loss of certain client data in Jersey as a matter of urgency”

…

It is reported that the 4,000 offshore account holders include a well-known drug dealer living in Central America, bankers who face allegations of fraud and a man once dubbed London’s “number two crook”.

Enforcement works! Under pressure from law enforcement in the United States, Mexico, and the United Kingdom, HSBC is at least pretending to act with urgency to shut down criminals using its accounts to hide money and conduct illicit business. They’re not doing it out of the goodness of their hearts or because of some sort of moral catharsis, but because these law enforcement institutions are finally doing their job and forcing them to do it.

It needs to stop being economically rational for a bank, as an institution, to do business with criminals. And at the same time, it needs to stop being rational for individuals inside that bank to personally succeed by doing the same. That’s why the first piece of news is so important–we’re not only talking about a fine that’s starting to look like it will bite, but also putting individuals in jail who committed crimes.

We’ll definitely be keeping an eye on these developments, and make sure they are followed through.