How to halt money laundering

3 JAN, 2013, 12.37PM IST, NEW YORK TIMES

TAMPA: Last month, HSBC admitted in court pleadings that it had allowed big Mexican and Colombian drug cartels to launder at least $881 million. The bank also admitted to using various schemes to move hundreds of millions of dollars to nations subject to trade sanctions, including Iran, Cuba and Sudan, in violation of the Trading With the Enemy Act.

"On at least one occasion," according to a statement by Assistant Attorney General Lanny A. Breuer, "HSBC instructed a bank in Iran on how to format payment messages so that the transactions would not be blocked or rejected by the United States."
Those were some of the transgressions uncovered during a two-year investigation led by the Justice and Treasury Departments and acknowledged by HSBC in a settlement, known as a deferred prosecution agreement, that was filed in a federal court in December. Not a single executive was charged with a crime. Instead, the bank paid $1.9 billion in fines and forfeitures - or roughly 10 per cent of the pretax profits it earned in just 2010, one of the more than five years during which it admitted to criminal conduct.
HSBC is hardly alone.
Court filings show that, since 2006, more than a dozen banks have reached settlements with the Justice Department regarding violations related to money laundering.
ING BankBSE -1.35 % paid a $619 million fine for altering records and secretly transferring more than $2 billion for entities trading with Iran and other nations under sanctions.
American Express Bank International acknowledged that more than $55 million in drug proceeds may have been laundered through offshore shell accounts it maintained.
The Justice Department has signed similar agreements, withholding prosecution in exchange for bank promises to tighten oversight, with Wachovia, Union Bank of California, Lloyds, Credit Suisse, ABN Amro Holding (now owned by Royal Bank of Scotland), Barclays and Standard Chartered. All admitted to criminal offenses; all were handed the equivalent of traffic tickets - pay a fine on your way out the door.
This has been the government's playbook in fighting terrorism and the drug trade. For make no mistake, without the ability to "wash" billions of dollars of money from illicit sources each year and bank the untraceable profits, both of these criminal enterprises would falter.
In November, the House Subcommittee on Oversight, Investigations and Management issued a shocking report documenting the collaboration between Mexican and Colombian drug cartels and Hezbollah in narcotics and human trafficking, smuggling and financial crimes in the United States and Latin America - a partnership that, in just the border region between Brazil, Paraguay and Argentina, produces an estimated $12 billion in cash each year.
Yet data from the Department of Justice Asset Forfeiture Fund and the United Nations Office on Drugs and Crime Research Report show that United States law enforcement tracks down and seizes no more than 1 per cent of the drug fortunes generated each year by global cartels.
The rest isn't hiding in mattresses. It's being washed - stripped clean of information that would identify its source, then transferred from one account to another, and often moved surreptitiously through various business enterprises, until it can settle safely in a criminal's private offshore bank account. None of this happens without help from bankers, lawyers and businessmen.
I have seen this firsthand. I was a federal agent for 27 years and worked undercover as a money launderer within this murky realm for five of them. I worked on teams that put leaders of drug cartels behind bars.
The largest and most sophisticated of these criminal enterprises don't trick banks into laundering their money - they partner with that small segment of the international banking and business community that recirculates drug profits and cash from other illicit trades, like black-market arms dealing.
The only way to stop the flow of this dirty money is to get tough on the bankers who help mask and transfer it around the world. Banks themselves don't launder money, after all; people do.
The standard of proof needed to charge and convict a bank officer of money laundering is simple. If the person knows that funds are proceeds of a crime and, thereafter, he attempts to disguise or conceal the true source of the funds, he has committed the criminal offense of money laundering.
Any individual who intentionally provides financial services to criminal organizations should be dealt with as harshly as possible under the law.
Bank officers at HSBC branches in Mexico who facilitated the transfer of $881 million for the Sinaloa Cartel in Mexico, the Norte del Valle Cartel in Colombia and other narcotics traffickers - deposits that were often passed through teller windows in cash-filled boxes, some with hundreds of thousands of dollars in them - might contend that they were naive about this money's source.
But there's little incentive for them, or any bank officer, to be more vigilant when turning a blind eye comes with little or no penalty.
The stakes are simply too high for such a soft-glove approach on money laundering. As long as drug traffickers can wash the stainBSE 9.56 % from 99 per cent of their ill-gotten gains, as long as terrorists can move their cash freely around the world, we'll have no chance to halt their deadly trades. We can help put an end to both of these scourges by putting the bankers who facilitate them in jail.

10 Biggest Banking Scandals Of 2012

Halah Touryalai, Forbes Staff 12/27/2012 @ 11:39PM

Jamie Dimon, chairman of the board, president and CEO of JPMorgan Chase & Co. testifies before a US Senate Banking Committee full committee hearing on 'A Breakdown in Risk Management: What Went Wrong at JPMorgan Chase?'

No year would feel complete without a few high-profile financial scandals.

It’s been just fours years since the financial crisis hit yet there’s been no shortage of bad behavior among the world’s powerful money men and women since then.

Libor Scandal Just Took A Nasty Turn,

Know Your Financial Scandals: Libor, Peregrine And The London Whale

This year’s financial scandals and trouble makers resulted in billions lost and  included a too-big-to-fail bank, a small Iowa-based futures brokerage and a once boring benchmark rate that is suddenly at the center of a massive, global investigation. Criminal charges and prosecutions were few and far between but that’s not anything new for the industry. Many of these scandals ended like many before it-with a monetary settlement.

1.First up is perhaps the biggest financial scandal this year. It stemmed from the nation’s biggest and arguably safest bank, JPMorgan Chase. In May chief executive and Wall Street poster boy Jamie Dimon revealed that his bank had suffered a massive trading loss initially reported to be $2 billion. That $2 billion turned into roughly $5.8 billion loss.

While there was no wrongdoing at hand Dimon did find himself front and center testifying not once but twice before members of Congress. His long-time, trusted CIO Ina Drew lost her job amid the loss as well as a handful of other executives. The trading mess left JPM with billions less but perhaps more significantly put a mark on Dimon’s previously stellar reputation.

2. The Libor manipulation scandal was the year’s most far-reaching, hitting dozens of banks across the U.S. and Europe. This summer Barclays was the first bank to settle allegations that it manipulated the London Interbank Offered Rate–a benchmark rate tied to hundreds of trillions of dollars worth of financial contracts and derivatives.

Robert E Diamond, former Barclays CEO, lost his job after the bank paid $450 million for its role in Libor-rigging.

Barclays paid up $450 million and American CEO Bob Diamond lost his job over the matter after regulators lost their faith in him.

There’s plenty more where that came from as over a dozen other banks are under investigation for their own role in Libor rate-rigging.

3. UBS learned that the hard way last week when it paid a jaw-dropping $1.5 billion to settle Libor allegations. The Swiss bank admitted its wrongdoing and some of its former traders were arrested in Europe as a part of the investigation.

The UBS settlement doesn’t bode well for the remaining banks under investigation. Why? The charges made against UBS show the bank not only manipulated the Libor rate to make itself look healthier to outsiders but also, and perhaps more often, to make money by apparently colluding with other banks. From a regulator’s perspective that’s a lot worse than lying a bit to appear in better condition.

4. The UBS settlement amount was only outdone by the one paid by HSBC just a week prior. The British bank paid a record $1.9 billion to UK and U.S. regulators over money laundering. More specifically, HSBC settled charges that its lax money-laundering policies allowed billions in Mexican drug money and Iranian terrorist money to be transferred into the U.S. financial system.

5. That wasn’t the only money laundering settlement this year. Standard Chartered, a UK bank, paid $327 million to U.S. regulators in December over alleged illegal transactions with Iran, Sudan, Libya, and Burma. The countries are all subject to U.S. sanction and the U.S. Department of Justice and Federal Reserve say Standard Chartered Bank moved millions of dollars between 2001 and 2007 illegally through the U.S. financial system on behalf of Iranian, Sudanese, Libyan and Burmese entities.

Earlier this year in August, Standard Chartered paid $340 million to a New York state regulator over similar allegations. The NY Department of Financial Services said the British bank schemed with the Iranian government for nearly a decade, reaping hundreds of millions of dollars in fees through thousands of secret transactions involving $250 billion.

6. Back at UBS the scandals keep rolling. Late last year UBS disclosed one of its traders had gone rogue and lost the bank over $2 billion as a result. According to documents Kweku Adoboli’s bets exposed the bank to $12 billion in losses even though his unit was only authorized to risk $100 million intra-day and $50 million overnight. He was found guilty on two counts of fraud in November after a 10-week trial.

7. Not all scandals involved billions of dollars. A small futures brokerage firm in Iowa went under after its CEO allegedly engaged in fraud losing over $215 million of client money.

CEO Russell Wasendorf Sr. was indicted by federal prosecutors who say he submitted false information for his U.S. futures and currency brokerage firm. Wasendorf pleaded not guilty even though last month he confessed in a suicide note that he  had been using fake bank statements to embezzle millions of dollars from customers.

8. A larger brokerage firm faced another type of mess. Market-maker Knight Capital Group this summer suffered a $440 million loss after a problem with its trading system resulted in unwanted securities purchases. The loss forced it to be saved by outside investors including TD Ameritrade, Blackstone and Jefferies.

It ended up selling itself to one of its investors, Getco, for $3.75 a share. Knight shares were trading around $10 before the trading screw-up.

9. Insider trading has been a big focus for regulators over the last year. The prosecution of former hedge fund titan Raj Rajaratnam over illicit profits he made on inside information also shined a spotlight on one of his informants. Rajat Gupta, a former Goldman Sachs director, was fined $5 million and jailed for two years for sharing inside information with Rajaratnam. Among the secret information was a $5 billion investment Warren Buffett would make in Goldman Sachs amid the 2008 financial crisis.

10. Prosecutors have been circling billionaire hedge fund manager Steven Cohen and his firm, SAC Capital, for quite some time. In recent weeks it appears they’ve been getting closer in their attempt to take him down.

A former portfolio manager at an affiliate of SAC Capital Advisors was indicted this month for allegedly trading on inside information. Mathew Martoma worked for a unit of SAC and according to documents his inside information was apparently used by Cohen–though he isn’t named in any of the prosecution’s documents.

It won’t be the last we hear of Cohen, SAC and the regulators. After all, 2013 is just around the corner and will require its share of financial scandals.

British banks pay big for BSA/AML violations

Dorsey & Whitney LLP Greg Pulles and Brent YlvisakerUnited Kingdom, USA

December 18 2012 from ACC Association for Corporate Counsels

Two British banks recently agreed to pay significant penalties to settle allegations of violations of the Bank Secrecy Act and U.S. sanctions programs, with deficiencies in each bank’s Bank Secrecy Act/anti-money laundering (“BSA/AML”) compliance program underlying each case. On December 10, Standard Chartered Bank (“SCB”) reached a $132 million settlement with the Office of Foreign Assets Control (“OFAC”). On December 11, HSBC reached a collective settlement with the Financial Crimes Enforcement Network, the Department of Justice, OFAC, the Federal Reserve Board and the Office of the Comptroller of Currency, with penalties assessed against HSBC totaling more than $1.9 billion.

The SCB settlement arose primarily out of SCB’s dealings with Iranian banks and entities. OFAC’s director states the SCB settlement was the result of an investigation into SCB’s “attempts to violate U.S. sanctions programs through the ‘stripping’ from payment messages of critical information.” OFAC alleged that SCB had interfered with the implementation of U.S. economic sanctions through such practices as “omitting or removing material references to U.S.-sanctioned locations or entities from payment messages sent to U.S. financial institutions,” “replacing the names of ordering customers on payment messages” and “sending payment messages to or through the United States without references to locations or entities implicating U.S. sanctions.”

SCB’s London office had released a Quality Operation Procedure which instructed London payments staff on the omission of the bank identifying code of Iranian remitting banks and had instructed staff to use cover payment to effect Iranian bank payments. As early as 2005, SCB’s head of legal compliance had expressed concern over these procedures. SCB’s Dubai office operated USD accounts for a number of Iranian banks and customers and “did not have adequate controls in place to prevent prohibited payments from being sent through the United States . . . nor did it have adequate controls in place to ensure” payments contained the information necessary for U.S. correspondents to assess the transfers. Electronic funds transfers were also processed for the benefit of persons in Burma, Sudan and Libya and for “specially designated narcotics traffickers.” SBC voluntarily disclosed the apparent violations and cooperated with OFAC in conducting a historical review of transactions.

The settlement against HSBC represents the largest bank settlement in U.S. history. HSBC was accused of “deliberately channel[ling] hundreds of millions of dollars” of prohibited transactions through its U.S. arm by “laundering money from Mexican drug trafficking and processing banned transactions on behalf of Iran, Libya, Sudan and Burma.” U.S. Assistant Attorney General Lanny Breuer characterized HSBC’s conduct as “stunning failures of oversight.” Federal regulators found that HSBC had “failed to adopt and implement a program that adequately covers the required BSA/AML program elements, including, in particular, internal controls for customer due diligence, procedures for monitoring suspicious activity, and independent testing” and had “severely understaffed its AML compliance function.”

Some of the “critical deficiencies” in HSBC’s compliance program highlighted by federal regulators include:

• Excluding wire transfers initiated from customers in countries risk rated as “standard” or “medium” from its automated BSA/AML monitoring. 
• Inadequate collection and analysis of customer due diligence (“CDD”) information, including not collecting or maintaining CDD or enhanced due diligence information for Group Entities. 
• Not performing BSA/AML monitoring for banknote transactions with Group Entities (HSBC’s foreign affiliates). 
• Inadequate monitoring of the accounts and funds transfer activity of Group Entities and correspondents. 
• Unwarranted reliance on Group Entities following HSBC’s BSA/AML policies. 
• Not appropriately designating customers as “high-risk” for purposes of BSA/AML monitoring. 
• Failing to report suspicious activity on time, caused by inadequate procedures to ensure the timely reporting of suspicious activity and inadequate staffing and procedures in the alert investigations unit that resulted in a significant backlog of alerts. 
• The closure of alerts based on ineffective review.

A “look-back” review of account and transaction activity resulted in the late-filing of 890s SARs concerning activity in the amount of $6.34 billion. Federal regulators stated that HSBC “benefited from [the BSA/AML] violations of law by conserving funds it should have expended in order to maintain a robust BSA/AML compliance program.” HSBC has now spent more than $200 million to improve its money-laundering prevention policies.

SCB and HSBC join a list of other foreign banks operating in the U.S. (including Credit Suisse, Barclays and Lloyds) that have made payments to settle allegations of BSA/AML violations since 2009.

These recent settlements serve as an important reminder that foreign banks with U.S. subsidiaries are subject to U.S. laws and regulations, including BSA/AML regulations, and that violations of such laws are treated very seriously. The settlements also demonstrate that it is imperative for all financial institutions subject to U.S. law to develop and effectively implement a robust BSA/AML compliance program.

A public statement by OFAC regarding the SCB settlement can be found here:

• http://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20121210.aspx

Public statements by federal regulators concerning the HSBC settlement can be found here:

• http://www.justice.gov/opa/pr/2012/December/12-crm-1478.html  (DoJ)
• http://www.federalreserve.gov/newsevents/press/enforcement/20121211b.htm  (FRB) 
• http://www.occ.gov/news-issuances/news-releases/2012/nr-occ-2012-173.html  (OCC) 
• http://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20121211_33.aspx  (OFAC)

Too big to jail? HSBC executives avoid money laundering charges

18 DEC, 2012, 02.03PM IST, AP The Economic Time

NEW YORK: When the Justice Department announced its record $1.9 billion settlement against British bankHSBC last week, prosecutors called it a powerful blow to a dysfunctional institution accused of laundering money for Iran, Libya and Mexico's murderous drug cartels.
But to some former federal prosecutors, it was only the latest case of the government stopping short of bringing criminal money laundering charges against a big bank or its executives, at least in part on the rationale that such prosecutions could be devastating enough to cause such banks to fail.
They say it sounds a lot like the "too big to fail" meme that kept big but sickly banks alive with the support of taxpayer-funded bailouts. In these cases, they call it, "Too big to jail."
"Shame on the Department of Justice. Shame on them," said Jimmy Gurule, a former federal prosecutor who teaches law at the University of Notre Dame.
"These are actions that facilitated major international drug cartels to continue their operations," he said. "Now, if that doesn't justify criminal prosecution, I can't imagine a case that would."
Oregon Democratic Sen. Jeff Merkley shot off a letter to U.S. Attorney Eric Holder after the HSBC settlement, saying the government "appears to have firmly set the precedent that no bank, bank employee, or bank executive can be prosecuted even for serious criminal actions if that bank is a large, systemically important financial institution."
Neil Barofsky, the former inspector general of the government's Troubled Asset Relief Program and a former federal prosecutor in New York, warned that big banks could interpret the Justice Department's leniency as "a license to steal."
Since 2009, several European banks have paid heavy settlements related to allegations they moved money for people or companies on the U.S. sanctions list: Switzerland's Credit Suisse, $536 million; British bank Barclays, $298 million; British bank Lloyds, $350 million; Dutch bank ING, $619 million; and the Royal Bank of Scotland, $500 million for alleged money laundering at Dutch bank ABN Amro.
While those cases involved deals with such countries as Iran, Libya, Cuba and Sudan, the HSBC case was notable for the government's allegation that the bank also helped launder $881 million in drug-trafficking proceeds for Mexican drug cartels.
As bad as those allegations were, prosecutors say they could not prove HSBC executives conspired to aid drug organizations or rogue nations. Breakdowns in security controls within the company had occurred gradually, over decades, with a motive of increasing profits rather than committing crimes, prosecutors said.
Prosecutors also expressed fear of "collateral consequences" _ that going further could have sunk a company that employs tens of thousands of people and is tied tightly to the economies of the roughly 80 countries where it does business.
Such a collapse has happened in white-collar prosecutions before, most notably in 2002 when the huge accounting firm Arthur Andersen was convicted for destroying Enron-related documents before the energy giant's collapse. It was forced to surrender its accounting license and to stop conducting public audits. Only after 85,000 people worldwide lost their jobs did the court case ultimately play out, with the Supreme Court overturning the conviction too late to save the doomed Chicago-based business

Picture source: Google Search.

Lutte antiblanchiment : HSBC reconnaît des "défaillances"

Do Le monde Le Monde.fr avec AFP | 18.07.2012 à 06h26 • Mis à jour le 18.07.2012 à 09h19

Le géant bancaire britannique HSBC a reconnu des "défaillances" et a présenté publiquement ses excuses mardi 18 juillet devant le Sénat américain pour avoirmanqué de vigilance face à de possibles opérations de blanchiment d'argent.

"Nous présentons nos excuses quant au fait que la HSBC n'a pas été à la hauteur des attentes de nos régulateurs, de nos clients, de nos employés et des citoyens", a affirmé devant une commission sénatoriale Irene Dorner, présidente de HBUS, la filiale américaine de HSBC. Ce non-respect des réglementations "est inacceptable", a-t-elle ajouté devant la commission d'enquête du Sénat liée à la sécurité intérieure, qui a publié un rapport accablant sur les pratiques de la banque.

Le responsable du respect des réglementations chez HSBC, David Bagley, a annoncé en pleine audition sa démission en reconnaissant qu'il y a eu des"domaines dans lesquels nous avons connu des défaillances significatives". Selon le rapport des sénateurs, la banque a fait prendre des risques au système financier américain en l'exposant à de possibles activités de blanchiment d'argent lié au trafic de drogue ou au financement du terrorisme dans les années 2000.

La mise au jour de ces pratiques intervient au moment où le scandale des manipulations du Libor, le taux interbancaire offert à Londres, prend de plus en plus d'ampleur dans le monde de la finance. Le rapport de la commission d'enquête du Sénat a souligné de "graves carences" dans le système antiblanchiment de HBUS, qui n'a pas réussi, selon les parlementaires, à surveillerde façon efficace les activités suspectes.

TRANSACTIONS SECRÈTES AVEC L'IRAN

L'audition de mardi a par exemple souligné que la banque avait réalisé 16 milliards de dollars de transactions secrètes avec l'Iran sur une période de six ans. Les responsables de la banque étaient au courant des "transactions secrètes avec l'Iran" – dont la documentation ne mentionnait aucun lien avec ce pays – depuis 2001 et jusqu'en 2007, pour un total de 25 000 opérations, selon le document parlementaire de 335 pages.

Les Etats-Unis interdisent les relations commerciales et financières avec l'Iran, laCorée du Nord ou encore le Soudan. Le sénateur démocrate Carl Levin, qui préside la commission, a qualifié de "choquantes" les manipulations de la banque et a déploré le fait que les responsables de la banque "savaient ce qui se passait, mais ont permis à cette pratique trompeuse de continuer".

Par ailleurs, selon des éléments du rapport mis en avant par la commission dès lundi, la banque a exposé le système financier américain à de possibles opérations de blanchiment de l'argent de la drogue des cartels mexicains. La filiale mexicaine a ainsi transféré un montant de 7 milliards de dollars vers HBUS entre 2007 et 2008. HBUS a également entretenu des relations financières avec des établissements bancaires soupçonnés de liens avec des organisations terroristes présumées. Le rapport cite à cet égard la banque saoudienne Al Rajhi Bank.

Le document souligne aussi que le géant bancaire britannique a aidé à écouler un montant de 290 millions de dollars en chèques de voyage émis par une banque japonaise au bénéfice de ressortissants russes qui prétendaient travailler dans les voitures d'occasion. HBUS possède 470 agences aux Etats-Unis et fournit desservices à environ 1 200 autres banques, dont 80 filiales.