Safeguarding HSBC against Zupta

Back in September, I received the first of four requests for proof of identity from HSBC, a bank I’ve had an account with for 40 years. It seemed a little unnecessary, so I did not immediately put together the set of documents needed to prove to the bank that I was who it thought I was—certified copies of passports, utility bills from the last three months, and all the other information that I was now required to submit under HSBC Safeguard.

Then, because I had consistently ignored requests, my debit card daily withdrawal limit was reduced to £50 a day.

It’s a shame the same kinds of sanctions were not placed on accounts held by the Guptas, the family at the centre of a major corruption investigation in South Africa because of their ties to and influence over the former president, Jacob Zuma. The scandal has come to be known as Zupta.

HSBC revealed last month that it had closed accounts linked to the Gupta corruption investigation back in 2014, after failing to admit to any connections with or concerns about the scandal. Ironically, a month later, the bank announced that its Deferred Prosecution Agreement (DPA), under which it had been labouring since 2012, after a record $1.9 billion fine for laundering cash for Mexican cartels narrowly avoided a full prosecution, had expired.

During the period covered by the DPA, one would have thought that the bank would have been extra-vigilant. But as reported in The Guardian, the bank said it had also “flagged up its worries to the financial crime expert who has overseen its money-laundering controls since the beginning of the DPA,” there is no indication that it has successfully avoided being the conduit for money laundering.

According to the Guardian, the bank said: “HSBC has been reviewing its exposure to the Guptas for some time, and has closed a number of accounts for associated front companies wherever we have found them.”

By accepting this amendment, the Government would at last demonstrate that the U.K. is serious about ensuring that its financial institutions must stop being used to pilfer public money from countries around the world and ensure that banks do not put profit before ethics when handling risky money.
Lord Hain

During the Lords’ debate on the Sanctions and Anti-Money Laundering Bill on 6 December, former Cabinet Minister Lord Peter Hain, who has been at the forefront of exposing Zupta, spoke in support of a ‘failure to prevent offence’ Amendment 69B of the Bill. He said that it “would make it significantly easier to hold large global banks such as HSBC to account for poor procedures and for turning a blind eye to handling corrupt wealth.” Under current rules, he explained, it is very difficult for the FCA or any other agency to prosecute banks like HSBC because the agences have to show that a director or “some other controlling mind in the parent company” both knew about the alleged misconduct and that the director intended the misconduct to happen. “This is an exceptionally high bar,” he said, “which makes it virtually impossible to hold large global financial actors such as HSBC to account in the UK.”

Hain, a former anti-apartheid campaigner who was born in South Africa, has consistently raised concerns about the involvement of U.K. banks in the Zupta scandal. Earlier in November he had written to Chancellor of the Exchequer Philip Hammond, “attaching printouts of bank transfers and asking him to pass them to the Serious Fraud Office (SFO), National Crime Agency (NCA) and Financial Conduct Authority (FCA),” said the Guardian. While these agencies have been asked to investigate, there are no announcements on their websites about current investigations into the Zupta scandal or into HSBC. However, Lord Hain said in his speech that the bank was being investigated by the FBI because many of the transactions were in dollars and were handled by its U.S. office. He also said that the FCA was considering investigating the transactions because he had handed over information to the Chancellor that detailed these, along with the relevant bank, and called on him to hand them over to the FCA. The information included amounts, account numbers and dates.

The bank internally flagged the illicit transactions as suspicious,” he said, “but I am reliably informed that it was told by the U.K. headquarters to ignore it. That is an iniquitous breach of legal banking practice in the U.K.” Money was laundered by the Gupta family, the Zuma family and multiple South African state-run and private companies, he alleged, with funds moving via accounts in Dubai and other UAE countries, as well as Indian and South African banks. “Each originating transaction would start with one bank account and then be split into a number of accounts a couple of times to disguise the origin,” he said, alleging the use of multiple shell companies.

Hain asked: “are their [U.K. banks’] compliance departments applying the necessary forensic eye to this secondary-layer threat—as primary accounts are shutdown, so the illicit funds must find alternative channels.”

Hain described what he referred to as “correspondent banking.” Correspondent banks are banks that are used to clear foreign currency transactions for smaller, mostly domestic, banks. Transaction thus move through a chain of financial institutions from the initial payment through to its intended beneficiary. Each bank in the transaction chain has to rely on the other to “correctly identify the customer, determine the real owner and monitor the transaction. In essence, the correspondent bank is only as strong as the weakest link in the chain.”

He said that all the involved banks’ compliance departments should have recommended that the banks shut down the accounts associated with the suspicious transactions once they had been reported to their relevant domestic regulatory authorities and not waited for “recent political and investigatory journalist pressures.”

HSBC Safeguard, the bank’s new KYC system, collects information on customers, including proof of identity, proof of residency, regular incomings and outgoings. This data will be shared across the entire HSBC Group as the bank has committed to global protection of its customers. “We need this information,” says the bank’s website “so that we can protect you and us from financial crime. Knowing who our customers are and understanding how they use their accounts ensures we can do this. To protect us both, we need to ensure that the information is accurate, up to date, and complete.”

HSBC’s new anti-money laundering (AML) and sanctions policies are due to be in place by the end of the year. However, when asked, the bank would not provide a spokesperson to discuss either compliance or enforcement of these policies, nor what form they would take. Both AML and sanctions policies are available on the banks’ Website but there is no indication as to when there were formulated or whether they have been updated recently.