I don't know if HSBC have done anything at all wrong here - I completely lack the relevant information to form any judgement on that.
Until senior executives and boards of directors have something personal very much at stake, like the prospect of a couple of weeks in prison and being banned from holding positions in financial institutions they will always have an incentive to organise their systems to maximise profitability treating fines as a business expense and doing the usual expected value tradeoffs of the outcomes.
The CEO has to have systems in place to make willful infringement for profit very difficult. The buck has to stop there. If the CEO has been lax in implementing and maintaining such systems they should not be able to plead ignorance and throw more junoir employees under a bus. It happened on your watch. We've established you didn't take a proper interest in ensuring such things don't happen. Guilty. Negligence, incompetence, inability to take an interest due to more pressing concerns, these should not be valid defences.
Now HSBC may have done the right thing, this time, after all that lawlessness they've demonstrated before. I don't know. But if they haven't, the CEO doesn't need to retire on his millions, he needs have a stretch in the big house. Probably doesn't even have to be very long but it has to be to concentrate minds that this is NOT a business expense, you have a personal stake in it.
As anything it could be done terribly but seems possible to me to be done well enough to have a good, fair and jusst outcome for all. Especially underlings being surreptitiously coerced into doing bad things.
Could it be that the law here is just unreasonable and only the biggest players can afford to get away with breaking it? (likely for an additional premium)
What you don't see in this article is that HSBC has tons of false positives and the scrutinization of transactions slows everyone down. The more strict they need to be with money flow, the more regular people suffer from crippling KYC and financial reporting.
Do we want every transaction we send out to require an accompanying invoice and paper trail? Payment reviews, account freezing, in-depth explanations for every transaction?
Moving money has become tedious and a bureaucratic nightmare. I doubt HSBC is doing this on purpose, they just have so many obligations already from their transaction volume that it's nearly impossible to comply with regulations.
This year they quadrupled their harassment of the common customers with the updates in the KYC and antifraud policy. It's close to be completely unbearable.
As we can see all these regulations do not help at all. It's better to scrap them whatsoever and just let law enforcement to do their job on following the trails themselves.
They are applying scrutiny to the wrong parties. Ever-more-strict KYC for individuals will never catch commercial clients, by design. That is not a reason to just give up.
> the scrutinization of transactions slows everyone down
I really don't know if this is a problem. "It is hard to follow the law" doesn't tend to be an excuse for individuals. I have to scrutinize my tax return pretty closely and "it would take a lot of time" isn't going to convince the IRS that I should be let off the hook.
Law enforcement could help. Compared to things like the drug war, we have very few people investigating financial crimes. This appears to be by design, where our society is so invested in enabling the rich to make money that anything that stands in their way is unacceptable.
The law allows for jail time, it's just rarely pursued these days by the DoJ because Eric Holder changed their system to pursue 'wins' (fines) rather than criminal prosecution, because the bar for successful prosecution is so much higher to convict someone of a crime.
Can't lose a case if you never try and convict anyone.
From government perspective the prosecution with jailtime will mean lengthy court processes with an army of lawyers. Lots of costs for government and headache for the government officials.
Instead if you just impose a fine, the government will actually get lots of money with little work and headache, and everyone involved will be moderately happy.
> From government perspective the prosecution with jailtime will mean lengthy court processes with an army of lawyers.
You're missing the point.
The US government has no desire to try SEC and/or white-collar cases without almost certainty that they will win. They don't really care about deterrence - losses tarnish runs for political office later. (You can watch "Law and Order" to see how that works at the city and state level.)
This is a subtle form of regulatory capture that greatly favors the largest companies. Fines look like a govt. win without the risk of a loss.
It's so bad that federal prosecutors mailed companies to not fund legal defenses for executives charged with a crime, in order to win more cases against defendants who couldn't mount a vigorous defense. (There are even some court forms that ask where you got the money to pay your defense lawyer.)
The Countryside shutdown was a multi-billion dollar debacle for the US government. Countrywide CEO Angelo Mozilo basically walked away without legal repercussions after it cratered. He even gave discounted mortgages to politicians to ingratiate the company in Washington. Who's going to indict their mortgage holder?
Strawman argument. More surveillance is _not_ what I have proposed.
There is an argument that we could have signficantly /less/ regulation if regulation were taken seriously from the top down. This would encourage it to be taken seriously.
What kinds of systems did you have in mind, then? It's hard to see how a CEO could keep personal tabs on all the bank's activities without automated surveillance - it's not like she can individually review every deal the bank makes.
What forces do you think are capable of causing leaders at financial institutions to internalize the cost of criminal banking activity such that they adequately prevent it?
I don't agree with the premise. The way to fight criminal banking activity is to write clear, straightforward, and consistently enforced laws. No system of incentives is going to meaningfully reduce financial crime in a world where grey areas are gigantic and almost all cases end with a settlement.
You can try to write all the laws you want, eventually it boils down to manually reviewing a ton of transactions and everyone loses. The bank needs to pay for growing compliance departments, customers are scrutinized on a growing number of transactions.
Small businesses who are in higher risk industries, however that is chosen to be defined, become inundated with KYC tasks. Every transaction needs an accompanying stack of documents showing the entire trail.
Finance is becoming a bureaucratic hellhole which disproportionately affects lower income people and small businesses. If you don't have a hired compliance agent you will spend your time as a business owner complying to endless demands for onboarding/KYC/transaction reporting.
That's how it works today. The problem is that any sequence of links in the chain can decide to lie. That's how most major banking scandals happen; some guy, his boss, and maybe his boss's boss conspire against the rest of the chain to be dishonest together. I feel like I end up circling to 1MDB very often here, but it's just such a good example; the 1MDB bankers had to lie extensively to the chain of responsibility at Goldman Sachs, since the compliance department had repeatedly instructed people not to do business with their major point of contact.
An investigation will reveal a subset of the people in the chain involved in the misdeed and/or coverup. Could the following process work?
1. Identify the subset of people involved and color them red.
2. For each of the red-colored nodes, color their immediate superiors yellow if not colored.
3. Until there are only uncolored or blue nodes left in the company, do:
3a. Put all red and yellow nodes in front of a court (presumably in parallel)
3b. When a verdict is reached for a given node, color it blue.
3c. If a yellow node is revealed to be involved, color it red, and goto step 2.
3d. If an investigation reveals further people possibly involved, color them yellow, goto step 2.
This is based on a principle of "your subordinate, your responsibility", and is meant to give everyone involved and their superiors a fair chance of landing jail time. I would hope the courts are already doing something like this.
Let’s be real here, the only thing these banks would do is impose more draconian KYC/AML on customers to cover their ass. Whatever it takes to tick that box.
Exactly: this is the warrantless mass-surveillance approach to combatting crime. But add a few buzz words about big banks, CEOs with hefty salaries not being held accountable, and drug cartels, and suddenly everyone's for it.
And it's overt surveillance, where privacy is blatantly criminalized, rather than the type of covert mass-surveillance we're accustomed to hearing about, where a 3 letter agency secretly deprives you of your privacy, showing you enough respect to not demand that you knowingly give it up.
So-called anti-money laundering laws are a complete and utter violation of democratic principles, namely privacy and due process, and create the kind of surveillance apparatus that puts the populace under the complete control of the state.
You're guilty until proven innocent on nearly every regulated financial service platform. Prepare to explain with evidence how you got the money, why it's being sent, and who it's being sent to, at a moment's notice. Otherwise expect to be separated from your balance on said platform indefinitely.
Exactly. Money is treated differently than every other medium. As soon as you use it, traditional democratic principles are ignored, and the population is largely okay with that.
The public support for this kind of double standard translates to: "we support you being secure in your rights, unless you want to do something meaningful, like send, receive or possess economic value".
As long as these broad invasions of AML laws into privacy are in place, the West's support for the principles of liberal democracy looks superficial.
HSBC always comes out first when the topic of money laundering comes up. They seem to know where the money is and how to get the cut. It’s not going to stop as they paying fines is a no-brainer if that is the only side effect for illegal/criminal activity.
I dont know why Institutions get away with criminal activity with a slap on the wrist. Tells a lot about our society. Sometimes it feels like laws exist only to keep the poor guy without clout in check.
Probably has more to do with the fact that it is the only bank that operates pretty much everywhere on the planet. Even large international banks only have licenses in a handful of countries and post 2008 financial regulations have applied pressure to reduce that number.
Pretty dubious about those in this thread running the "Oh, goodness those poor banks having to enforce these laws ... how does anyone expect them to do that ?". A fundamental skill of banks is assessing risk and reacting to it, I would have thought reacting to money laundering falls within that.
The part of this story (scroll to "What was the Ponzi scheme") https://www.bbc.com/news/uk-54225572 that mentions a scam targetting US citizens which HSBC "sort of noticed" but didn't do anything about until it was too late is suggestive of priorities.
Again the issue here is that the SAR’s were disclosed to the regulators if the regulator isn’t following up on them it’s not clear where the fault lies.
If HSBC wasn’t following the guidelines and covering this up yes jail them all, but this seems to have been a major regulatory failure.
Society outsources all money laundering compliance to banks. It’s an impossible task to stop it such that you can’t find examples where banks messed up. If 100% of flows go through banks and banks stop 99.99% of money laundering, that 0.01% is still billions.
It’s not a matter of incompetence or lack of effort. As an analogy, in a big city with the best police force, you still have thousands of robberies and assaults and a few hundred murders. Not for lack of resources or trying.
The only way to eliminate money laundering completely is slow down the system so much that it’s literally unusable.
You might be surprised, but many places have similar murder rates to Iceland. For example, Vancouver, Canada had 9 murders in 2019 [1], not far off of the ~2/year that Iceland has [2].
I am surprised about Canada. I always thought being nice and saying sorry were just Canadian stereotypes, but maybe it's because of a culture that doesn't promote violence?
I do not know what that has to do with the comment you replied to. The second part is false. As the only Vancouverite on duty here on HN at this hour, I suppose it is my duty to correct you.
When people say Vancouver, they are often referring to the metro region. 49.3% are of European ethnic origin[0], with the remainder a broad mix. There certainly is a large Chinese population. We have the second-largest Chinatown in N. America, after SF. We have a lot of Cantonese speakers here.
There was a Chinese-focused ride hailing service that flew under the radar back when Uber/Lyft weren't permitted. It feels like a separate world sometimes. I'd like to learn Cantonese and/or Mandarin, just so I could peek into it.
Offshore style banks like HSBC are more susceptible to this kind of stuff because they have less of a wider stake in the situation.
Also, with 'cross jurisdictional' stuff, then it gets easier to hider.
Another way of helping would be saying 'your business transactions in the US has to be transacted by a financial entity hosted in a regime with strong regulations and transparency with the US' kind of thing. As an example.
Also, consider that merely hosting the accounts for a company committing fraud is not fraud itself in much the same way that hosting a website or doing their cleaning, or leasing them a building isn't either.
I think stuff like the OP make this unclear to the layman. The reports that have been leaked are documents that banks are passing to law enforcement. They are evidence of banks attempting to stop crimes, not facilitating them.
The issue is that banks often have no idea themselves because they aren't actually law enforcement. I saw one SAR that actually referenced a random blogpost. And, as you say, it is a slippery slope. The only way to ensure that this never happens ever is to essentially bring the system to a standstill, and ask both law enforcement and regulators to approve every transaction (and even then, they probably won't get it right from the POV of the public all the time).
The example that I read was of a Ponzi scheme where HSBC moved money through accounts, they filed SARs...and yes, if you are a journalist it is easy to go back in time and say: "Oh, look...this ponzi scheme was so obvious, they must have known". Well no, they didn't know, they filed SARs, and waited until someone had actually been found guilty of a crime before acting as judge and jury themselves (which btw, was likely an investigation in which HSBC assisted).
The only foolproof way to launder money these days is to completely conceal your identity (not something a bank can do anything about) or corrupt someone at a financial institution (almost never happens, most large financial institutions have teams of people that track the movements and communications of people working in AML, both personal and business). The effectiveness of this system, given the amount of transactions, is astonishing.
Not necessarily yours but yes, there's a weird lot of "AML sucks so hard so don't bother". Without suggesting what better way to approach the problem of fighting criminality[0]
If you want a precise criticism of your post, I gave it, in maths. Your figures don't seem credible and you gave no backup of them.
[0] Which eg, HSBC seems happy to indulge in while others supposedly on the side of law & order let it.
My numbers were made up - they are illustrative. To rephrase that without numbers: "because banks are responsible for all AML, because all financial transactions go through banks, and even if you are very diligent in reviewing transactions, you will still miss a lot." Is that better?
My post didn't say AML sucks so hard so don't bother. It says AML=good, but AML=imperfect so there will be misses.
And as another person in the thread pointed out, the article is based on Suspicious Activity Reports submitted by banksto regulators
Don't make up numbers. Invented stuff is not illustrative, it makes you look ill-informed.
> "...you will still miss a lot"
What is 'a lot'? 2%? 20%? 85%?
> My post didn't say AML sucks so hard so don't bother
I quote: "The only way to eliminate money laundering completely is slow down the system so much that it’s literally unusable."
which is not the same as "...but AML=imperfect so there will be misses"
What little AML I've seen is about automated checking. Conmputers do it not people except when something is flagged. You don't need to "eliminate money laundering completely", they can't and they don't try, it's a best-effort, due dilligence thing.
Most crime is done by large corporations and most money laundering is done by banks. KYC laws aren't about stopping money laundering, they're about preventing people from using alternatives to the crooked banks.
The only way to stop money laundering is to stop all money from flowing. The AML programs currently in place in banks already pose significant impediments for law-abiding people to do their banking.
This kind of guilty-until-proven-innocent lack of due process, and invasive questioning of one's personal financial activity, is creating a highly centralized banking system that obstructs the flow of capital and will undoubtedly concentrate power in the hands of a few, and it's all being done in the name of safety.
Creating a vast graph of the populace's significant private transactions, and giving a privileged elite working for a handful of government agencies exclusive access to it, while enabling the small subset of the population who work in the banking sector to extract intimate trade secrets from bank clients, in the name of KYC/AML compliance, will create information asymmetries that inevitably lead to wealth/power asymmetries, that in the long run, will negatively impact safety, by making the socio-economic structure less efficient and more fragile.
It's exactly the opposite direction that society should be going.
The more pressure banks are under to stop all money laundering, the worse banking will be. It'll only force them to be more invasive, and increase the false-positives for money laundering.
When transferring a large amount of money to Mexico as part of a business deal my bank flagged it as suspicious (fair enough!) and froze my entire account. But getting unfrozen wasn't a quick call, it was a painful 3 month process that cost me a both immense amount of stress and financial hardship.
I don't really understand why people would think banks should play the role of law-enforcement, when it's something they are so clearly not equipped to do (in resources, legal powers and incentives).
HSBC started as the Hong Kong and Shanghai Banking Corporation and its founders were intimately involved in the opium trade. This article seems reasonably neutral and historically accurate: https://mondediplo.com/2010/02/04hsbc.
Don't they keep doing this ? I remember they paid a big fine just a few years back. And I'm sure there are smaller fines in other countries they keep paying for "local" frauds. At what point is it enough for the regulators to swoop down on them ?
Mega banks are objects of the big state, without exception. They're used by the governments in the nations where they reside. That's true across Europe, it's true across Asia, and it's true in the US. The big banks, wherever you go, are extensions of power for the government in question. It's just as true in the UK as it is in Ukraine. They don't get swooped down on, for that very reason, the people in power have no interest in doing anything overly detrimental to their own arms of power. So usually at best what you'll get are some slaps on the wrist handed out, the powers that be don't particularly like slapping their own wrists.
JP Morgan, Wells Fargo, Bank of America, Citi, Goldman Sachs, Morgan Stanley, these are financial arms of the US Government. They help the government in countless ways, they do things the Fed or Treasury tells them to do, when they're told to. They assist the government with its funding processes, or with any agendas it might have (eg housing, or sanctions). And no doubt they occasionally do bad things at the behest of someone in government as well. They're amazing scapegoats too, everyone hates big banks, you can just point at them anytime you feel like it; no matter how dirty you are as a politician, you can always win some points by attacking big banks.
It is effectively a press-driven tax. TPTB feel obligated to pretend to care if it gets too much attention, so some fines get issued and life goes on.
You can tell the types of finance crime apart by looking for personal liability. If there isn't any, it is effectively a tax with a performative aspect.
It seems inevitable now that the system is going to collapse. There is no way that people will ignore all the things which happened over the past few months and move on...
We're stuck in a media limbo. The public is not digesting the 'everything is good' rhetoric anymore; some people are pretending to believe it, but deep down, everyone knows what's really going on.
I can see occasional articles being published which try to normalize the situation to dig the corporate elites out of this hole but it's not working.
There is no recovery from this. The system will stay stuck in limbo until it collapses; collapse is the only way out.
Incredible economic power, apparently non-existent oversight, but of course they get saved by national governments when they fuck up and are about to wring severe harm on the whole world.
Banks are infrastructure and should obviously be regulated as such. But that will (literally) never happen, as long as the people in charge can get rich by wringing increasing misery on the rest of the population for a quick buck...
I don't want to sound like I'm defending HSBC here, but it's important to acknowledge that the reason it's so hard to enforce these rules is that nobody else would go to prison at all. The obligation for banks to check whether their customers are running scams is quite unique; Microsoft for example isn't on the hook if a scammer makes their presentations in Powerpoint.
Yes so you raise fines to the point where they outweigh the benefit of breaking the law. Right now, there is little incentive to actually follow the law when it is more profitable not to.
I think this is sort of punishment is like job security but at the level of governments and nation-states. If people in charge really want to shut something down, then it drops pretty fast.
Cynical-but-opportunitistic start-up idea: find the shortest path to becoming too big to fail.
> Then make the fines 50x more costly. Put them out of business. Anyone else would go to prison for life.
That is over simplifying the situation.
First, you cannot just arbitrarily x50 the fines. That would put the bank out of business. You cannot jeopardize a whole business (and the customers savings) just for the behavior of some bad actors. The fine should be at an appropriate level to trigger strong incentives for the existence of a reasonable compliance layer.
Second, the relationship between the severity of the punishment and the crime rate is definitely non linear.
i.e. even at the highest possible severity (say, death penalty) there will be crimes committed. This has been demonstrated over and over again.
There is a number of reasons for this, but I think the most compelling is that crime is often not a well thought out plan, it's a slope.
Imagine the following situation:
You're walking in an empty street and spot a truck loading MacBooks from an Apple store. Truck looks legit, workers wear Apple uniforms. Upon looking at the guy filling the truck, he charmingly smiles back at you and explains that they are sending back last year models for refurbishing, and hands you one of the boxes saying "here mate, half of these will be recycled anyway".
That's what bribery in the real life look like. It happens in broad daylight, and with just enough credibility that your brain will try very hard to convince your rational self that the "good luck" is not illegal. It also places you in a situation where you have to give an answer quickly, during a potentially stressful or socially awkward situation.
If you read this from your office chair, it seems completely obvious that the guys are robbing an Apple store. And handing you a free MacBook in the process is really shady. After this gift accepted, it will be much harder for you to be 100% honest with a policeman asking questions on what happened.
But when placed in the real situation, your brain will try very hard to convince you that an abnormal situation is surely normal. The social anxiety of refusing the MacBook may also lead you to accept it without thinking, because you don't want the other person to think you believe they are robbers. You may also see some other people receiving the MacBooks too and that may reinforce the feeling that this is normal.
Bribery is all about the gentle slope of deviances. You will deal with people from respectable companies, with a good title. It will start with a lunch that they insist to pay, then it will be a good bottle of wine sent for christmas (how mindful), then a small irregularity in the account will be discussed over dinner in a fancy restaurant, you will be flattered to have such a good relationship with your client. You will feel like you're important and it's just the way business works in the high spheres. Next thing you know you will think you're some kind of entrepreneur doing business with them without necessarily really understanding what they are doing.
That slope is the very reason compliance rules often start at ridiculously low numbers. Most bankers with a reasonably actionable position will have a 6 figure salary. Yet the compliance rules will prevent any kind of gift higher than $50. You will definitely not bribe anyone with 50$, but it's enough to kickstart a slope of "I pay the restaurant bill, it's no big deal we don't count between us right?"
All in all, I'm not saying bribery is acceptable or anything like that. I just want to emphasize that when placed in certain situations of stress, social anxiety, etc, entering the "crime slope" may happen without the actor really having the time to make a rational, well thought out decision.
Bad businesses need to fail. Especially the ones who break the law and an enable crime.
I’m simply suggesting making the fines more expensive than it’s worth to do the crime in the first place. Why should we let the banks profit off their crimes? Take the profit out and they would start following the law.
> Then make the fines 50x more costly. Put them out of business.
If it were only so simple! But crime always finds a way.
Harsher penalties, three strike laws, and stop-and-frisk haven't stopped street-level crime, why should the white-collar equivalent do anything to stop finance opportunists from committing their crimes?
Also, it costs money to enforce. HSBC probably has an entire floor of well-compensated slimy lawyers ready to fight off enforcement.
Ever since the Panama papers story broke (https://en.wikipedia.org/wiki/Panama_Papers), it has seemed to me that the good-guys are profoundly out-matched when it comes to power and money.
Until senior executives and boards of directors have something personal very much at stake, like the prospect of a couple of weeks in prison and being banned from holding positions in financial institutions they will always have an incentive to organise their systems to maximise profitability treating fines as a business expense and doing the usual expected value tradeoffs of the outcomes.
The CEO has to have systems in place to make willful infringement for profit very difficult. The buck has to stop there. If the CEO has been lax in implementing and maintaining such systems they should not be able to plead ignorance and throw more junoir employees under a bus. It happened on your watch. We've established you didn't take a proper interest in ensuring such things don't happen. Guilty. Negligence, incompetence, inability to take an interest due to more pressing concerns, these should not be valid defences.
Now HSBC may have done the right thing, this time, after all that lawlessness they've demonstrated before. I don't know. But if they haven't, the CEO doesn't need to retire on his millions, he needs have a stretch in the big house. Probably doesn't even have to be very long but it has to be to concentrate minds that this is NOT a business expense, you have a personal stake in it.
As anything it could be done terribly but seems possible to me to be done well enough to have a good, fair and jusst outcome for all. Especially underlings being surreptitiously coerced into doing bad things.