According to a US Senate committee report published on 17 July, HSBC Mexican affiliates exposed themselves and HSBC US to Mexican drug cartels’ money laundering, due to multiple AML deficiencies while serving high risk clients.
The fine was imposed by the Mexican National Banking and Securities Commission for infringements related to the late or failed reporting of about 1,750 unusual transactions as well as some administrative failures.
HSBC Mexico offered a full range of banking services, including private banking and wealth management, although there was no specific connection made in the report between money laundering in Mexico and the private bank.
According to the report, HSBC group officials in London were well aware of the money laundering risks connected with running banking operations in Mexico, as well as of HSBC Mexican unit historic record of AML and compliance deficiencies.
Nevertheless they failed to inform HSBC US of the situation for seven years – from 2002 to 2009, so that the US branch continued treating transactions with the Mexican unit as low risk.
Between 2002 and 2009, HSBC US provided HSBC Mexico with extensive correspondent services and free access to the U.S. financial system.
According to the report HSBC Mexico was the single largest exporter of US dollars to HSBC US, transferring more than $3bn in 2007 and $4bn in 2008.
Meanwhile the Mexican unit: "Opened accounts for high risk clients, including Mexican casas de cambios and U.S. money service businesses, such as Casa de Cambio Puebla and Sigue Corporation, which later legal proceedings showed had laundered funds from illegal drug sales in the United States," the report said.
In a statement HSBC Mexico apologised for its failure to strictly comply with banking regulations, and acknowledged that in the past it had sometimes failed to meet the standards that regulators and customers expect.
Apart from facilitating Mexican drug cartels’ money laundering, HSBC group is accused of providing bearer share accounts, to have provided US dollar services to banks linked to terrorist financing and to have bypassed US international sanctions on Cuba and Iran.
Reports suggest US regulators could fine HSBC up to $1bn for the lax anti-money laundering controls.
HSBC client held $205m in cash at home
Among HSBC Mexico high risk profile clients, the Senate commission reported the case of Zhenly Ye Gon.
Ye Gon was a longstanding HSBC Mexico client. Between 2003 to 2006 his companies moved $90m through 450 transactions involving four major Mexican banks – HSBC, Banamex, BBV Bancomer, and Banco Mercantil Del Norte – and multiple currency exchanges, including HSBC clients Casa De Cambio Puebla and Consultoria Internacional Casa De Cambio.
Ye Gon, a Chinese-Mexican prominent businessman, involved in the pharmaceutical field, was subsequently arrested in the US in 2007 after the U.S. Drug Enforcement Administration and the Mexican Government seized about $220m in cash hidden in a secret locked room in his residence.
Ye Gon was accused of using his pharmaceutical business to import, manufacture, and sell chemicals to drug cartels for use in manufacturing methamphetamine sold in the US, as well as displaying "significant unexplained wealth," despite reporting no gross income for his companies.
Source: Private Banker International