London-based HSBC not only did business with firms linked to terrorism and let money-laundering safeguards in its Mexico operations erode, but also had lax adherence to those safeguards in Miami, as outlined in a 335-page Senate report issued earlier this week.
“The neglect and nonfeasance of regulatory agencies is the soft underbelly of the financial crime wave in the U.S., ” said Charles Intriago, president of the Miami-based Association of Certified Financial Crime Specialists, which has been covering the role of big banks in fostering financial crimes.
Among the issues cited in the report released by the Senate’s Permanent Subcommittee on Investigations, were the bank’s issuance of “bearer share accounts.” HSBC’s U.S. operations opened more than 2,000 accounts in the name of bearer share corporations, a notorious type of corporation that invites secrecy and wrongdoing by assigning ownership to whomever has physical possession of the shares, according to the report.
At its peak, HSBC’s Miami office had more than 1,670 bearer share accounts; the New York office had more than 850; and the Los Angeles office had at least 30. The Miami bearer share accounts alone held assets totaling an estimated $2.6 billion and generated annual bank revenues of $26 million. Multiple internal audits and regulatory examinations criticized the accounts as high risk and advocated that HSBC either take physical custody of the shares or require the corporations to register the shares in the names of the shareholders, but the bankers initially resisted tightening anti-money laundering controls and regulators took no enforcement action, the Senate report said.
In a local example of the risks the accounts posed, Miami Beach hotel developers, Mauricio Cohen Assor and Leon Cohen Levy, father and son, used bearer share accounts they opened for Blue Ocean Finance Ltd. and Whitebury Shipping Time-Sharing Ltd. to help hide $150 million in assets and $49 million in income, according to the Senate report. In 2010, both were convicted of criminal tax fraud and filing false tax returns, sentenced to 10 years in prison, and ordered to pay back taxes, interest and penalties totaling more than $17 million.
HSBC has since reduced its bearer share accounts to 26, most of which are frozen, while at the same time maintaining a policy that allows the bank to open new bearer share accounts in the future.