Argentina pushes to prosecute HSBC bankers for money laundering

• InSight Crime researches, analyzes, and investigates organized crime in the Americas. Find all of Steven Dudley's research here.

The accusations from Argentina's tax authority that London-based HSBC laundered over $100 million may pale in comparison to that of the bank's US - Mexico case, but they raise the specter that someone from HSBC could finally go to jail.

The charges, [which were] announced by the head of Argentina's tax collection agency, Ricardo Echegaray, on March 19, include tax evasion and money laundering totaling up to $120 million.

HSBC was in damage control mode prior to the announcement and in a press conference, Mr. Echegaray seemed angered by the company's attempts to persuade him not to proceed with the case. 

"Stop looking for me to lobby me," he said, referring to the bank. "Pay us what you owe us. Then you will go to court, and it will determine what actions to take."

The company can hardly afford another public relations hit. It has spent the last few months trying to shore up its US - Mexico case and its internal anti-money laundering (AML) team.

The company has hired a former a US Deputy Attorney General, Jim Comey as well as Joseph Evans, who, up until a few months ago, was the head of the Drug Enforcement Administration's (DEA) regional office in Mexico City. 

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The Argentine government's combative attitude is a stark contrast to the United States government, which decided to fine the bank a record $1.9 billion but did not pursue criminal charges even though the company had been a laundering haven for years.

A 337-page report by the Senate Committee on Homeland Security and Governmental Affairs released to coincide with hearings on the case in July 2012 details just how much worse it was than that of Argentina. (Watch hearings and read report here.)

As money laundering schemes go, this one was pretty simple. Drug traffickers' proceeds from the US were moved, in bulk or in small quantities, back to Mexico where Mexican financial institutions accepted large deposits with less scrutiny and controls, and kept the money in US dollars. The money was then wired back, or hauled back in armored trucks, to the US from exchange houses or Mexico-based banks, including HSBC's Mexico Branch, HBMX.

"From 2007 through 2008, HBMX was the single largest exporter of US dollars to HBUS [HSBC's United States branch], shipping $7 billion in cash to HBUS over two years, outstripping larger Mexican banks and other HSBC affiliates," the report says. "Mexican and US authorities expressed repeated concern that HBMX's bulk cash shipments could reach that volume only if they included illegal drug proceeds."

HSBC plead ignorance in the matter, and bank officials testified that once they understood the gravity, they acted as quickly as possible to shore up the loopholes. However, the timeline and internal communications of the company, also detailed in the committee's report, suggest otherwise.

"From 2000 until 2009, HSBC Group and HBUS gave Mexico their lowest AML risk rating, despite overwhelming information indicating that Mexico was a high risk jurisdiction for drug trafficking and money laundering," the report says.

Indeed, every year, the State Department highlighted this risk in its annual report on money laundering. And every year, HSBC downplayed this risk. Internal documents show that in 2005, HBMX employees falsified documents related to the mitigation of this risk, including fabricating minutes of meetings of the anti-money laundering team that never occurred. The company cannot claim ignorance because a whistle-blower reported the incident that same year.

"In one three-month period from November 2006 to February 2007, HBMX shipped nearly $742 million in U.S. dollars to HBUS," the report says. "At its peak, HBMX exported $4 billion in bulk cash shipments to HBUS over the course of one year, 2008. Until it sharply curtailed its U.S. dollar services in Mexico in January 2009, HBMX shipped more U.S. dollars to HBUS than any other Mexican bank or HSBC affiliate."

In that 2002 - 2009 time span, there were other warnings that seemingly went unheeded. US government agencies, including the Department of Homeland Security, the Federal Bureau of Investigation, and the DEA spoke in Congressional hearings about money laundering in Mexico. 

Other banks, including rival Wachovia, were investigated and sanctioned for moving billions in drug money in the same way as traffickers were using HSBC's bank system.

"In addition to its high risk location, clients, and activities, HMBX had a history of severe AML deficiencies," the report states. "Its AML problems included a widespread lack of Know Your Customer (KYC) information in client files; a dysfunctional monitoring system; bankers who resisted closing accounts despite evidence of suspicious activity; high profile clients involved in drug trafficking; millions of dollars in suspicious bulk travelers cheque transactions; inadequate staffing and resources; and a huge backlog of accounts marked for closure due to suspicious activity, but whose closures were delayed."

One of those clients was Zhenli Ye Gon, a Chinese-Mexican citizen and owner of several Mexico-based pharmaceutical companies. In March 2007, Mexican and US authorities raided several of Ye Gon's properties in Mexico and found $205 million and 17 million Mexican Pesos in cash, as well as weapons and wire transfer records.

Ye Gon was captured in July 2007 in the United States and accused of being a major player in the methamphetamine trade. He has maintained his innocence and the case was thrown out of court in the United States. He remains in custody and faces extradition to Mexico to confront similar charges.

The Senate Committee report, citing Mexican news sources and the Mexican Ministry of Finance, says Ye Gon moved $90 million through four Mexico-based banks, including HSBC.

Despite all this, HSBC maintained its "standard" rating for Mexico's risk until May 2009, when it abruptly changed it to highest warning. Senate Committee members believe that was because the company realized that it was under US and Mexican government scrutiny.

"HBUS' awareness of the increasing US law enforcement and regulatory interest in Mexico may have contributed to its decision to review and, ultimately, in May 2009, to increase its risk rating for Mexico," the report says.

The HSBC case is not limited to Mexico. As Reuters reported, US authorities were able to reconstruct the case using a Colombian middle-man who pleaded guilty and turned state's witness. The Colombian detailed how the groups would use the sale of domestic goods to camouflage their money moving back to that country. 

"In a typical transaction, a middleman in a drug cartel would offer to deliver consumer goods, such as computers or washing machines, to Colombian businesses on favorable terms," the Reuters report says. "Another person in the United States would buy the goods from firms using funds from drug trafficking, and fulfill those orders."

The underworld reputation of the bank was that of a safe haven. Reuters says one drug lord described it as "the place to launder money." The Sinaloa Cartel reportedly used the bank to purchase an airplane. 

Despite what one top Department of Justice (DOJ) official called "stunning failures of oversight," the DOJ did not prosecute any bank officials, opening up the department to widespread ridicule and scorn. 

"This is corruption," one government investigator who wished to remain anonymous told InSight Crime. "We do corruption on a bigger scale and more efficiently than any banana republic."

Major media quipped that the bank appeared "too big to indict," a play on the notion that many banks were "too big to fail" during the economic meltdown in late 2008.[...]

Argentina, on the other hand, is the perfect candidate to take these bankers to task. The country already lived through a banking meltdown of epic proportions and had an overall dismal couple of decades economically thanks, in part, to bankers' and investors' whims.

The government is "socialist," at least in rhetoric, and there is no such thing as "too big to indict" when your entire banking sector has gone through that type of turmoil and your economy has been turned upside down.

What's more, the bank is British and a recent vote on the Falklands to stay with the Motherland no doubt irked the government. In fact, all this may make the Argentine government more inclined to pursue the banks as a kind of divine retribution.

However, prosecution is unlikely. The financial crimes unit, known by its acronym UIF, has been even more of a joke than that of the United States, and has come under constant scrutiny for being "politicized" and lacking any teeth.

When the unit finally prosecuted someone, Urgente24.com titled the article: "The UIF has its first sentence." The news outlet said the condemned man had made "ignominious" history. The unit had been formed in 2000. The irony: the sentenced man was slated to be extradited to the United States.

– Steven Dudley is a director at Insight – Organized Crime in the Americas, which provides research, analysis, and investigation of the criminal world throughout the region. Find all of his research here. Additional reporting provided by Andres Ortiz Sedano.