HSBC accused of not making enough effort to tackle financial crime

HSBC has been accused by the US authorities of not doing enough to tackle financial crime; a new report reveals "significant concerns" about the pace of progress in making changes required to boost its compliance systems after an official monitor was installed in the bank following a money laundering scandal four years ago. The report also revealed that HSBC has a string of issues including ongoing litigation involving the collapse of the investments by Bernard Madoff, litigation dating back to the subprime mortgage crisis in the US, and investigations in FIFA. It also noted a $1.2bn provision to cover the foreign exchange rigging scandal.

HSBC has admitted that an official monitor installed at the bank after a money-laundering scandal four years ago has raised “significant concerns” about the slow pace of change to its procedures to combat crime.

As Britain’s biggest bank reported profits of £13.2bn ($18.8bn) for 2015 and a £7.3m pay deal for its chief executive, Stuart Gulliver, it also published a string of legal disclosures which included an investigation by US regulators over its hiring of individuals with links to government officials in Asia, known as “princelings”.

The bank said that in a report it received in January the monitor installed by the US Department of Justice had highlighted the slow pace of progress on changes required to avoid a rerun of the 2012 scandal, for which it was fined £1.2bn.

The bank said the monitor had “expressed significant concerns about the pace of that progress, instances of potential financial crime and systems and controls deficiencies, whether HSBC is on track to meet its goal to the monitor’s satisfaction within the five-year period of the US deferred prosecution agreement and, pending further review and discussion with HSBC, did not certify as to HSBC’s implementation of and adherence to remedial measures specified in the US DPA”.

Gulliver defended the bank by indicating the scale of the task of monitoring 47 million customers in 71 countries, and said the number of compliance staff had increased from 1,600 to 9,000 over five years.

In its 502-page report detailing profits for 2015, the bank included a reference to an investigation by the securities and exchange commission in the US to hiring of the children or younger relatives of China’s political leaders or of powerful executives at state-owned enterprises. Other banks are also being investigated over such concerns.



Among the other matters were ongoing litigation involving the collapse of the investments by Bernard Madoff, litigation dating to the subprime mortgage crisis in the US, and investigations into the world football governing body, Fifa.

HSBC pay, dividend and profits figures HSBC pay, dividend and profits figures

The bank said it was continuing to cooperate with investigations into tax practices at its Swiss arm which were exposed by the Guardian and other publications and described by Gulliver at the time of last year’s results as “a source of shame”.

Kicking off the UK banking reporting season in one of the most febrile environments for the sector since the 2008 crisis, HSBC said its full-year profits were up just 1%. In the fourth quarter of 2015 it made an unexpected loss.

The shares were down almost 2% in late London trading on Monday even though the bank raised its dividend to $0.51 from $0.50, a total payout of $10bn for shareholders. The 4% rise in the total dividend compared with a 2% fall in total employee pay of $20.3bn, the bank said.

Gulliver said he was running the bank on the assumption that interest rates would not rise in 2016, making it harder to boost profits. Concerns about the impact of continued low or negative interest rates imposed by central banks have hammered confidence in bank shares since the start of the year.

Chairman Douglas Flint said the bank had been operating amid “seismic shifts in global economic conditions”, pointing to sharp falls in prices for oil and other commodities, partly stemming from slowing growth in China.

Plans to hire 4,000 staff in China over four years have been extended to five years, although Gulliver is pressing on with a plan to axe 25,000 jobs in other parts of the operation.

In an attempt to quell lingering investor concerns about the impact of $30 a barrel oil on loans to oil and gas companies, HSBC revealed it had exposure of $29bn and had taken a charge of just $400m against losses. To put that into perspective, the bank said it had $106bn of subprime loans before the 2008 banking crisis.



About $4.5bn (£3.2bn) – up from $4bn a year ago – has been set aside to cover investigations into tax-related matters and foreign exchange manipulation, as well as a court case involving its US arm, and compensation for payment protection insurance (PPI). The provision for PPI misselling increased by $549m during the year. Other banks reporting in the coming days are also expected to increase their provisions.

Last week, HSBC ended a nine-month review of whether it should remain headquartered in the UK, and concluded it would stay put. The UK government appears in recent months to have cut back on “bashing” bankers and reduced a bank levy calculated on the size of balance sheets, which cost HSBC $1.5bn last year and $1.1bn the year before.

Flint said: “It is too early to say whether this amounts to a new understanding between the industry and the public, but it is encouraging that the industry is once again gaining a voice at a time of great economic and geopolitical uncertainty.”