Question

HSBC and Money Laundering

In December 2012, multinational banking institution HSBC was penalized a record $1.92 billion by the United States for violating laws designed to prevent money laundering and other illegal financial activity. HSBC was under consistent suspicion and twice given warnings and orders to strengthen its anti-money laundering programs by the U.S. between 2003 and 2010 but failed to make the proper adjustments. The $1.92 billion penalty, issued under the Bank Secrecy Act, was handed down after a report and subsequent investigation that confirmed the bank had set up offshore accounts for drug cartels and suspected criminals in Jersey. HSBC banking executives admitted to laundering as much as $881 billion dollars.

Using business ethical reasons use decision making along with any recommendations for any changes needed using sound ethical reasoning? (8-9 sentences)

Answer 1

BUSINESS ETHICAL REASONS

From 2003-2006, HSBC Bank USA was under heavy suspicion by United States regulators and operated under a written agreement to correct the deficiencies of their operational practices. HSBC Bank USA specifically agreed to enhance its anti-money laundering program to achieve adequate compliance with the Bank Secrecy Act.

Between 2006 and 2010, HSBC Bank USA violated several components of the BSA: Money laundering risks associated with doing business with certain Mexican customers were ignored, compliance issues at HSBC Mexico were overlooked, and a BSA-adequate anti-money laundering program was not implemented. The Court notes four significant HSBC Bank USA failures:

1. HSBC failed to obtain and maintain due diligence on HSBC Group Affiliates.
2. HSBC failed to adequately monitor over $200 trillion in wire transfers between 2006 and 2009 from customers in nations classified as “standard” or “medium” risk ($670 billion in wire transfers specifically from HSBC Mexico).
3. HSBC Bank USA failed to adequately monitor billions of dollars in U.S. banknote purchases.
4. HSBC Bank USA failed to provide proper staffing and resources necessary to maintain an effective anti-money laundering program.

As part of the Deferred Prosecution Agreement, HSBC Bank USA admitted to gross violations of the Bank Secrecy Act, including failure to establish and maintain an effective anti-money laundering program, failure to establish due diligence, and involvement in the laundering of over $881 billion

RECOMMENDATION

The ethical analysis above applies theories of justice, utilitarianism, and deontology to the Department of Justice decision not to pursue prosecution of HSBC executives. The analysis suggests that criminal prosecution is probably the right move, rather than the deferred prosecution agreement currently in place. The reasons are:

1. The $1.92 billion fine and 5-year probationary monitoring period is unlikely to deter future misconduct.
2. The long-term consequences of the Deferred Prosecution Agreement may outweigh its immediate utility.
3. The DOJ is not fulfilling its prosecutorial duty to pursue punishment for those who violate the law.

While some may believe the Deferred Prosecution Agreement promotes the best interests of the United States, its long-term effects may ultimately pose a greater danger.