Hong
Kong and Shanghai Banking Company Faces Multiple Court Cases Following
Questionable Activities
By
Daniel Buell
The Hong Kong and Shanghai Banking Company is a bank that
has locations in the United States and in China. The Company started to face
backlash after it was revealed that they were committing fraud and stealing
from their customers. The money that new customers used to create new accounts
was immediately siphoned into the accounts of the stakeholders in the bank. The
bank was able to acquire new customers by advertising at traveling seminars,
on Facebook, and on YouTube with Webinars. The bank also used Christian imagery
to draw people in as well.
The
bank was also involved in a money-laundering scandal with the Sinaloa Cartel.
This ordeal was tracked by Immigration and Customs Enforcement, and they found
multiple trails of money linking the Cartel and the bank. As a result of the
scandal, someone was murdered by an unhappy customer who lost three thousand
dollars after investing with the Hong Kong and Shanghai Banking Company.
The Hong Kong and Shanghai Banking Company faced multiple charges for fraud and Money Laundering, but no one went to prison for their crimes. The highest degree of punishment was heavy fines and probation. The company still operates to this day without any scrutiny from the Department of Justice.
The Hong Kong and Shanghai Banking Company (HSBC) was founded in 1865 by Thomas Sutherford. The bank was created in order to provide a local alternative to the foreign banks in the British colony of China. Eventually, the HSBC became the central bank of China while also opening up several branches overseas (Mattera).
The HSBC moved money from the United States to Hong Kong
over the course of 2013 and 2014. There was an eighty-million-dollar fraud
scandal following the bank getting fined for 1.9 billion dollars. The actions
of the bank became known after the release of the Financial Crimes Enforcement
Network (FinCEN) files. The files are composed of 2657 documents including 2100
suspicious activity reports (SAR) (FinCEN Files reporting team). They led to
the implication of five banks including the HSBC (Alonzo) These files covered
two trillion dollars’ worth of transactions. The files were a subject of
concern because they contained information that could affect national security.
The whole scam was started by a Chinese National named Ming Xu. He ran a global
investment bank called World Capital Market. This bank would return one hundred
percent of the profit in one hundred days. He was able to eighty million
dollars selling false investment opportunities through traveling seminars,
Facebook, and YouTube webinars. Christian imagery was also a tactic used to
bring in new members. The scam then led to the death of one of the investors, Reynaldo
Pacheco, who was found underwater apparently having been bludgeoned to death
with rocks. His job was to bring in new investors with the promise of getting
rich. One woman he brought in lost three thousand dollars. This resulted in her
hiring a team to kidnap him. This eventually led to his death. The first SAR
was filed on October 29, 2013. The HSBC was filing the SARs, but they left off
certain details about customers including the ultimate owners of the accounts
and where the money came from (FinCEN Files reporting team).
Comic Depicting HSBC Corruption
Source:
Politics in the Zeros
The
acts of the HSBC affected not only the United States financial system but also
the Mexican financial system. According to InSight Crime, the HSBC, including
the branch in Mexico, was accused of,
1.
Deliberately failing to maintain and implement strict controls
that would have avoided the laundering of proceeds from illicit activities and
the financing of terrorism.
2.
Maintaining supervision with “staggering and obvious blunders,”
that permitted Mexican and Colombian drug traffickers to launder at least $881
million in the US financial system between 2006 and 2010.
3.
“Turning a blind eye to money laundering” that occurred “right
in front of their eyes.”
4.
Intentionally making mistakes when it came time to put in action
an effective program for monitoring suspicious transactions conducted by HSBC
Mexico.
5.
Relying on a system with such weak anti-money laundering
controls that drug traffickers could deposit hundreds of thousands of dollars
in cash into its HSBC Mexico accounts on a daily basis.
These findings were eventually confirmed by United States Investigative
services. During the course of the investigation, a Mexican executive was
questioned fifty-nine times. This individual now holds a position in the government
of President Andrés Manuel López Obrador. His job entails preventing money laundering
in the Tax Administration Service. The HSBC was the recommended bank to use for
criminals due to the bank's ability to ignore illicit activities. All the
criminals had to do was have constant and continuous transactions occurring so
that the bank could make money. Over a six-month period between 2007 and 2008, a
group of auditors audited the HSBC in Mexico. They were able to produce ten
thousand pages worth of reports that revealed the corruption inside the HSBC.
This led to an extremely heavy fine of three hundred seventy-nine million pesos
or about twenty-seven and a half million dollars. The United States Justice
Department found that eight hundred eighty-one million dollars were laundered
between 2006 and 2010. All the bank received for these heinous crimes were the
fines of twenty-seven and a half million dollars. No one was sentenced to
prison for any of the wrongdoing that occurred at the HSBC (Reyna).
After numerous court hearings, a 1.92-billion-dollar settlement
and five years of probation were the ultimate punishments for those involved.
In 2012, the United States Department of Justice had the opportunity to indict
executives of the HSBC for collusion with the Sinaloa Cartel (Woodman). The
Bank was accused of money laundering for cartels and state-sponsored terrorism.
The blame can be placed on the inadequacy of the anti-money laundering
protocols in place at the time. Immigration Customs Enforcement (ICE)
discovered trails of money leading between the United States and Mexico that
led back to the HSBC (Ross). The bank was also accused of money laundering for
some Russians. The HSBC was also the bank that the company Alahdin which is
registered in Hong Kong but has ties to the terrorist organization known as
the Taliban. Ultimately, the Department of Justice decided to abstain from
performing the indictment. This decision was opposed by multiple prosecutors
who gathered 175 criminal charges against the HSBC that were ultimately hidden
away. No one ever went to prison for the crimes cited in the charges (Woodman).
 |
Timeline of Events Source:
Financial Times |
Individualism
The stakeholders within the company and the cartels
profited nicely from this whole scandal. They did not however operate within
the law as multiple executives from the bank were brought to court regarding
allegations of fraud and money laundering. They siphoned profits into the executives’
accounts. They laundered money for a cartel, Russians, and an organization with
ties to the Taliban. The laundering of eight hundred eighty-one million dollars
allowed for the operations of the cartel to continue. The scam also led to the
death of one of the investors, Reynaldo Pacheco. While all charges were
dropped, the bank is still responsible for the death of Reynaldo Pacheco and
all of their other illegal activities. Money laundering is highly illegal as
well as fraud. The HSBC was not even close to operating within the boundaries
of the law. While they did not murder Reynaldo Pacheco, they may as well have. The
HSBC performs unethical business practices according to individualism. The bank
has received multiple fines for billions of dollars and consequently, they are
not maximizing profit either.
Utilitarianism
Everybody loses money in this case. The bank loses money
from the fines. The people that open new accounts lose their money to the
stakeholders in the company. Terrorism was sponsored which makes peaceful
nations unhappy. The laundering of eight hundred eighty-one million dollars
made the cartel happy, but it made anyone who had to deal with the cartel
unhappy. The massive fine of twenty-seven and a half million dollars made the HSBC
very unhappy, though they continued their activities despite the fines Reynaldo
Pacheco lost his life as a result of the bank's actions. His family and friends
will forever be unhappy with the actions of the HSBC. No one, in this case, is
happy, and therefore the company should look for a different course of action.
A utilitarian approach to this case sees that none of the parties are happy,
and therefore the business practices are unethical. This means that the company
needs a new direction that maximizes the most amount of happiness.
Kantianism
Kantianism analyzes the formula of humanity which states
that businesses should not treat people as a mere means, but rather as an end.
The HSBC does not do this at all. The customers are treated as mere means as
the money the customers use to open accounts is siphoned into the accounts of
the stakeholders in the bank. Reynaldo Pacheco died trying to genuinely
contribute to a cause of making more money, but his blind following led to his
death by an angry customer. Another main idea of Kantianism is to do the right
thing because it is the right thing to do. The HSBC does not even try to do the
right thing. They launder money for cartels and they look the other way for any
illicit activities that occur. This case is highly unethical according to
Kantianism because the people are not treated with any amount of respect and
are stolen from. The company has acted with no regard for humanity, nor do they
try to do the right thing because it is the right thing to do, and therefore
needs to change its course.
Virtue Theory
Basic
virtues include Prudence, the ability to make the right decision, courage, the
ability to stay the course no matter what, self-control, the ability to use
emotions to drive your mission in life, and justice, the ability to correctly
assign punishments and rewards. Along with these virtues comes magnanimity
which is to be great and generous with said greatness. Everyone must benefit
from what they are doing. None of the values of virtue theory are shown in this
case. The company has to rely on manipulation to pull in any new members, and
they quickly find out how bad their investments were. This manipulation has led
to multiple court cases, fines, and the death of Reynaldo Pacheco. The HSBC
keeps lying about what they are doing. They claim to correct themselves, but
they keep doing their nefarious activities This strategy has not worked out for
the company; therefore, the company will ultimately fail.
Justification
What the HSBC did was clearly wrong. Any and all of the
money earned was through stealing and manipulation of the customers. Those
involved in the scandal deserve to go to jail for what they did. The
multimillion-dollar fines were not enough to prevent anything from happening as
the illegal activities continued regardless of the fines imposed upon the
company. Reynaldo Pacheco and his family deserve justice for what happened to
him. Those responsible for their deaths deserve the most jail time of all the
guilty parties. The money laundering for the Sinaloa Cartel, Russians, and the
Taliban is unforgivable. The HSBC helps the cartel hold its drug money. They
look the other way allowing for the cartel to continue what they are doing. All
the HSBC requires is that the cartel has constant and continuous transactions
with the bank. The one executive that still has his job in the Mexican
government needs to go to jail as he was in charge of preventing the money
laundering at the HSBC, but he let it happen. They help the Russians launder
their money from their nefarious activities. They have ties to the Taliban,
specifically to a portion that helped build roadside bombs to detonate against
the United States Military.
Action Plan
The Hong Kong and Shanghai Banking Company needs a
full-scale restructure in order to come back from such a large scandal. Any and
all ties between the bank and the cartel, the Russians, and the Taliban need to
be severed. They need to stop siphoning money into the stakeholders’ accounts.
The bank will have to start small again to gain the trust of its customers. The
best place to begin would be in China where the bank was founded. The bank might
even have to change its name in order to get out of the shadow of the Hong Kong
and Shanghai Banking Company. The damage may be irreparable and a new name
might settle some unsettled customers. The HSBC needs to hire somebody to keep
them in check and not be threatened with the loss of their job. If the bank
wants to operate cleanly without amassing large fines for misconduct like
fraud, it needs someone who can stop bad deals, someone who can prevent illegal
activities like stealing from the customers.
Bibliography
Alonzo, Isaiah. “World's
Biggest Bank Scandal: HSBC, Barclays, and Other Three Allow Illegal Money to
Move on Its Systems!” Tech Times; Tech Science Business Health Culture
Features Buzz, 21 Sept. 2020, www.techtimes.com/articles/252708/20200920/worlds-big-bank-scandal-hsbc-barclays-allowing-2-trillion-worth-illegal-money.htm.
FinCEN Files reporting
team. “FinCEN Files: HSBC Moved Ponzi Scheme Millions despite Warning.” BBC
News, BBC, 20 Sept. 2020, www.bbc.com/news/uk-54225572.
Mattera, Philip. “HSBC:
Corporate Rap Sheet: Corporate Research Project.” Good Jobs First, 1
Aug. 2020, www.corp-research.org/HSBC.
Reyna, Ignacio, et al. “HSBC: Dirty Money and White
Collars.” InSight Crime, 10 Oct. 2020,
www.insightcrime.org/news/analysis/hsbc-dirty-money-white-collars/.
Ross, Marc L. “HSBC's Money
Laundering Scandal.” Investopedia, Investopedia, 28 Aug. 2020,
www.investopedia.com/stock-analysis/2013/investing-news-for-jan-29-hsbcs-money-laundering-scandal-hbc-scbff-ing-cs-rbs0129.aspx.
Woodman, Spencer. “HSBC
Moved Vast Sums of Dirty Money after Paying Record Laundering Fine.” ICIJ,
International Consortium of Investigative Journalists, 22 Sept. 2020,
www.icij.org/investigations/fincen-files/hsbc-moved-vast-sums-of-dirty-money-after-paying-record-laundering-fine/.
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