HSBC Preferred Bank for Drug Cartel|
Documents released Tuesday from the U.S. Justice Department provide new
details about how HSBC Holdings PLC allegedly became “the preferred bank” for
narcotics drug cartels in Mexico and Colombia as the bank left “dangerous gaps”
that traffickers abused with major cash deposits as top executives froze
staffing at the bank’s anti-money-laundering unit. A statement from the Justice
Department notes that banks are supposed to try to mitigate money-laundering
risks by monitoring wire transfers. HSBC however, allegedly used an internal
system that would trigger a review of wire transfers based on the amount of the
transaction and the type and location of the customer. From 2002 and 2009 HSBC
ranked Mexico as having “standard” money laundering risks which was the lowest
of the bank’s four possible country risk ratings. The result, HSBC transactions
in Mexico were not subject to HSBC’s automated monitoring unless customers were
classified as high risk. The Justice Department alleges the low ranking from
HSBC allowed “hundreds of billions of dollars” in wire transfers from Mexico to
be excluded from the bank’s internal reviews. HSBC failed to monitor over $670
billion in wire transfers from HSBC’s Mexico division between 2006 and 2009 and
failed to monitor over $9.4 billion in purchases of U.S. dollars from HSBC’s
Mexico unit over the same period, per the Justice Department. Even though the
bank had “substantial resources” to limit money-laundering risks, HSBC allowed
“hundreds of millions of dollars” from Mexican drug trafficking organizations to
flow though accounts in the U.S.”, per the U.S. Treasury Department. The Sinaloa
Cartel in Mexico and the Norte del Valle Cartel in Columbia laundered $881
million in drug trafficking proceeds through HSBC’s U.S. unit without being
detected by the bank, the Justice Department alleges. HSBC also failed to
monitor over $200 trillion in wire transfers between 2006 and 2009 from
countries that HSBC’s U.S. unit deemed to be “standard” or “medium” risk. The
Justice Department said that between 2006 and 2009, the unit had only one or, at
times two, compliance officers responsible for reviewing transactions of between
500 and 600 customers. In 2007, HSBC senior executives allegedly instructed its
anti-money laundering departments to “freeze” staffing levels as part of a
bank-wide effort to “cut costs and increase the bank’s return on equity.” The
Justice Department said the goal was accomplished by not replacing departing
employees, combining the functions of multiple positions into one, and not
creating new positions.” By October 2009, a senior executive in HSBC’s U.S.
compliance unit allegedly said its anti-money-laundering efforts had “gone down
the hole in the past 18 months,” per the Justice Department. Assistant attorney
general Lanny Breuer said over the years it became easy for narcotic drug
traffickers. “These traffickers didn’t have to try very hard. They would
sometimes deposit hundreds of thousands of dollars in cash, in a single day,
into a single account, using boxes designed to fit the precise dimensions of the
teller windows in HSBC Mexico’s branches,” Breuer said. HSBC reached a landmark
$1.9 billion settlement with U.S. authorities over allegations that the U.K.
based big bank intentionally permitted illegal transactions with a variety of
countries including Iran, Libya, Sudan and Burma.
On Tuesday, U.S. stocks moved higher due to optimism that the White House and
House Republicans will come to terms on a deal to prevent the all ensuing,
fiscal cliff. Reports out late Monday appear to present that negotiations
between the White House and House Speaker John Boehner have made steady progress
in recent days. Boehner addressed the House Tuesday with comments that he was
hopeful a deal could be reached as they wait for President Barack Obama to
outline acceptable spending cuts. Boehner took to the House floor on Tuesday to
demand specific cuts from the White House as part of a deal, only to be rebuffed
later in the day by the White House. Boehner and Senate Republican Leader Mitch
McConnell of Kentucky spent more time Tuesday, emphasizing on spending cuts, a
possible sign that Republican leaders are giving in on tax policy and may accept
some higher taxes on the wealthy. Jay Carney, White House spokesman, pushed back
against Boehner and said that the administration has detailed spending cuts for
at least a year. Carney added that House Republicans haven’t given details about
how they would raise revenue in a fiscal-cliff deal and that the White House’s
cuts include savings from entitlement programs. The Obama administration wants
unlimited power to raise the debt limit to be included in a fiscal-cliff deal
but Republicans have rejected that proposal, and want to use the debt limit as a
bargaining chip to extract spending cuts. On a negative note during Tuesday
afternoon, Senate Democratic Leader Harry Reid said that a deal to avoid the
fiscal cliff will be difficult to reach before Christmas. Reid added that, once
an agreement is in hand, “we can do things very quickly”. Reid's comments
resulted in a reversal of market gains on the day. Into the 5 o'clock hour,
Boehner spokesman Michael Steel said, "We sent the White House a counter-offer
that would achieve tax and entitlement reform to solve our looming debt crisis
and create more American jobs." Steel said Republicans' offer was in response to
a new White House offer but would not describe the GOP offer in detail.
The Commerce Department on Tuesday reported that U.S. wholesale inventories rose
0.6% during October, while wholesale sales fell 1.2%. The inventory-to-sales
ratio increased to 1.22 from 1.19 in the prior month, with October's sales pace.
During October, inventories of durable goods increased 1.0% in October while
inventories grew 1.1% in September with sales up a slightly revised 1.9%.
The Commerce Department said Tuesday that the he U.S. trade deficit climbed 4.9%
to $42.2 billion during October from a downwardly revised $40.3 billion in
September. While imports decreased by 2.1% to $222.8 billion, exports fell by a
larger 3.6% to $180.5 billion. The export value of U.S. goods, which consists of
items such as autos, chemicals or electronics, dropped to the lowest level seen
since November 2011. The drop reflects tough economic conditions in many
overseas nations that are key markets for American manufacturers. Imports of
foreign goods into the U.S. fell to the lowest level since April 2011. U.S.
trade deficits increased on an unadjusted basis with Japan, the European Union
and the oil-producing OPEC nations. Surpluses with Brazil, Central America and
South America hit record highs.
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