HSBC Swiss bank accounts-AML compliance and money laundering implications

Abstract

Purpose – This paper aims to provide an analysis of the HSBC Swiss bank accounts scandal, from the perspective of anti-money laundering (AML) compliance, and considers the future AML implications for the banking sector and HSBC. It reviews the use of a whistleblower to highlight AML irregularities rather than official reporting through the current AML compliance system. Design/methodology/approach – The paper uses secondary data to offer a viewpoint on the HSBC issues from a money laundering and financial crime perspective. The paper extracts key statements from staff at HSBC and regulators and examines how AML risk assessment was undertaken at this time and what changes need to occur in the future. It considers the implications of the current theoretical context for AML from an agency theory perspective. Findings – The main findings are that AML compliance needs to be embedded into a proactive corporate social responsibility approach rather than relying solely on regulation to improve detection and reporting of money laundering activity. Research limitations/implications – The research topic is new, and therefore, analysis papers and other academic writing on this topic are limited. Future research could consider the outcomes of the Swiss bank’s attempts to prosecute the whistleblower and whether this would have implications for future internal reporting and whistleblowing approaches to support AML compliance. Practical implications – The implications from the research are the recommendations to the banking sector on addressing AML deficiencies especially within the context of an evolving level of criminal sophistication towards money laundering. Social implications – The paper supports the argument for integrating social corporate responsibility and AML compliance to produce a whole bank response to financial crime. This is in contrast to the current systems, which seem to be prevalent within the financial services, of profit and business being seen as separate rather than integral to regulation and control. Originality/value – The originality of this paper is the current example of the HSBC Swiss case and the focus specifically on AML compliance rather than tax evasion, which has been the media angle on the issue.

Suspicious alerts in money laundering – the Crédit Agricole case

“…This system has often been applied locally and then updated and adapted by national Financial Intelligence Units that frequently update the indicators as new schemes are uncovered. There are obvious challenges to using this system aside from the resource and cost issues, some of the other challenges are: The definition of the term suspicious needs to be clearly understood by all employees within the bank and this definition not only needs to be based on international standards, but also encompass specific issues pertinent to the local context and environment. Staff need to be updated regularly on any changes in red flag alerts and indicators of suspicious activity. Many money laundering schemes have complex transaction patterns and often involve multiple financial institutions and include other jurisdictions which means that banks will not have access to the full transaction pattern and data. Money laundering can use trade finance and shipping documents as part of the cover and staff need to have a thorough understanding of these processes to detect potential suspicious behaviour. Front office staff usually have the most contact with customers, and yet according to recent research studies (Naheem, 2015a, 2015b, 2015c, 2015d, 2015e, 2015f, 2015g, 2015h, 2015i, 2015j), this group are often not prioritised for training in AML. …”

“…Front office staff usually have the most contact with customers, and yet according to recent research studies (Naheem, 2015a, 2015b, 2015c, 2015d, 2015e, 2015f, 2015g, 2015h, 2015i, 2015j), this group are often not prioritised for training in AML.…”

Financial information in the context of anti-money laundering

“…In the context of financial investigations, several jurisdictions already have centralised bank account registries to facilitate compliance with anti-money laundering (AML) and counter-financing of terrorism (CFT) obligations and standards (Bergstrom, 2018; Naheem, 2015). It has been correctly pointed out that:…”

Money laundering and illicit flows from China – the real estate problem

“…Many risk assessment systems now advocate reviewing and analysing a number of different areas of the client’s risk (Ai et al , 2010), including geographic regions, third-party associates and risks from shipping, goods and trade routes. (Naheem, 2015a, 2015b, 2015c, 2015d, 2015e, 2015f)…”

“…To understand the true nature of the risk, other factors need to be analysed alongside these indicators (Ai et al , 2010). Naheem (2015a, 2015b, 2015c, 2015d, 2015e, 2015f) suggested four main areas of geographic risk, third-party involvement, client behaviour and transaction patterns. For example, if this model is applied within a real estate example, then the following four areas need to be considered: Client: Is the client a PEP (or could be considered a PEP because of the access to funds or influence that they have in work/through family connections)?…”