These weren’t a few instances of mistaken identity either. According to the Senate report, an outside auditor found from 2001 to 2007, more than 28,000 suspicious foreign transactions occurred involving roughly $20 billion, with 25,000 involving Iran and 3,000 involving "prohibitive" countries or persons. But there seemed to be no filter, or if there was it was ignored. Some transactions that would raise suspicions were purposely stripped of identification of the offending country, in many cases it being Iran. Although internal staff told HSBC compliance, the compliance officer says he told senior staff, but apparently nothing was done. This is just the tip of the iceberg with HSBC’s bad behavior and blatant disregard for following the law. And this bank isn’t alone. Several others, including ING, Barclays and even Lloyds have played fast and loose with these issues. And the bank regulator OCC was equally worthless as some futures regulators, as stated in the Senate committee report, “By consistently treating a failure to meet one or even several of these statuary requirements as a “Matter Requiring Attention” instead of a legal violation, the OCC diminishes the importance of meeting each requirement...”
With a new HSBC chief executive joining in 2011, the bank, which says it has increased its compliance department in size to almost 2,000 people from 200, may be changed, but it has 300,000 global employees, so is it enough? To HSBC's credit, it worked with the Senate subcommittee on the probe and told staff through a note to its employees: "Between 2004 and 2010, our anti-money laundering controls should have been stronger and more effective, and we failed to spot and deal with unacceptable behavior. It is right that we are held accountable and that we take responsibility for fixing what went wrong." Perhaps too little too late, but it actually is a breath of fresh air that a bank is fessing up.
This news follows the Libor fixing scandal by Barclays Bank (in addition to others still unnamed) and JP Morgan’s blatant disregard for over-trading, and leads me to believe the entire system is worse than the 2008 financial crisis first signaled. Does anyone pay attention to the law? And when rules are broken, does anyone pay? As Sen. Levin said in his closing remarks, this episode brings in "nagging questions of accountability" that seems to be "significantly missing."
Of course in the futures arena, failure to comply is equally as rampant, going back for decades. In the modern age, the senior leadership at Refco and Enron purposely played fast and loose with internal compliance. It still appears MF Global, despite its buck passing, did as well. But the latest news on Peregrine Financial, and its CEO Russ Wasendorf Sr.’s confession to 20 years of embezzlement, boggles the mind. Only now the regulators are inputting independent bank checks electronically. Why, in this age of technology (which has been with us for decades), has it taken so long to adopt it at a regulatory level? Then again, as the banks show, it’s not only electronic checking that is key, but the willingness of regulators to look into dark places and take action.