Money Laundering At HSBC

The Times  –  July 2012

A year ago I wrote several articles predicting that money laundering would be the next major scandal to rock the financial world … and if it hadn’t been for those pesky kids at Barclays I might just have been proven right! Still, I maintain that the pervasive money laundering at HSBC that the US Senate Committee report has bought to light this week is a far more pernicious crime than the manipulation of a borrowing rate that very few people had heard of before last month. Put simply, terrorists and drug dealers struggle to survive without the ability to clean their money.

Over my twelve year banking career I became so concerned about the deterioration in City ethics that I wrote an anonymous column for the now defunct thelondonpaper exposing the scandalous behaviour that I witnessed day in day out. Insider trading, market manipulation, spreading false rumours became de rigueur for bonus-hungry Cityboys who knew in their heart of hearts that the party was going to come to an end soon.

Towards the end of my career I began to hear more and more rumours about banks taking in dodgy money. It was clear that years of light-touch regulation, London’s determination to end New York’s reign as the financial capital of the world and the cut-throat competition between City firms had led to a free-for-all where dubious companies favoured our stock exchange and dodgy Russian oligarchs chose to do business in our City. Hedge fund manager clients of mine would cancel lunches at the last minute because of ‘scary men’ who had just popped in to have ‘a quick chat’ and maybe invest another few hundred million pounds in their fund whilst commodity analysts would huddle in corners debating whether an executive at some new resource company had been killed because of a corporate power struggle.

And what was the banks internal response to these worrying developments? Well, my colleagues and I on the trading floor used to have to pass a single multiple-choice on-line money laundering exam every year. Well, in theory we did. In reality, we were busy people and so we all paid an eager-to-please graduate trainee to sit at our desk and take the exam for us whilst we popped out for a coffee. Those compliance boys must have been really pleased, though somewhat suspicious, at the consistently outstanding scores attained by every single broker each and every year!

It was this regulation-free Wild West casino atmosphere that led me to conclude that money laundering was going to be the next scandal after the sub-prime debacle. Besides, British banks had previous. The vast majority of the $1.6bn that the late General Abacha looted from Nigeria ended up in British banks and French politicians, who admittedly always like to have a pop at us, had long been complaining about the ‘great permeability of the British banking system’. One indisputable fact was that between 1986 and 1998 only 357 money-laundering cases came to trial in London whereas Italy had 538 and the US had 2,034 in 1995 alone. Something was rotten in SE2.

But it was the Arab Spring that I felt would reveal that our City firms were none too fussy when it comes to accepting wonga from crooked rogues and sure enough much of the blood-stained money from those ousted despots was found to have ended up in London. Mohamed Layas, the head of the Libyan Investment Authority was revealed by Wikileaks to have told US diplomats that Libya’s lovely leaders favoured London because of the “ease of doing business” there whilst the sons of Egypt’s ousted leader, Hosni Mubarak, Alaa and Gamal, apparently “loved [London] and keep a lot of money there”.

All these thoughts led me to writing a novel called ‘Just Business’ last year. It focuses on a banker who discovers that his boss is using his firm to launder money for a Colombian drug cartel. Several critics felt that the story was far-fetched but I hope that this week’s revelations that HSBC had been used as a conduit for ‘drug kingpins and rogue nations’ puts paid to those concerns. In fact, the vast of sums of money involved, the illegal business that HSBC was conducting with Iran and the sheer laxness ofHSBC’s anti-money laundering controls make my scenario look positively tame. Once again, the truth is stranger than fiction.

Having just boasted, like a typical Cityboy, about being half-right about a prediction I once made (funnily enough, we generally fail to mention those that don’t come true) it would be remiss of me not to make another. My latest book ‘Payback Time’ focuses on a group of friends who take down the bank they blame for their friend’s suicide by using a ‘bear raid’. This ‘investment strategy’ involves spreading false rumours about a firm’s imminent bankruptcy whilst dumping and shorting its shares. This scam thrives in times of uncertainty and was, I believe, instrumental in exacerbating the 2008/9 financial crisis. I also believe that this nasty gambit will once again come to the fore in 2013 as the deepening Eurozone crisis and a conflict in Iran result in the uncertain markets in which bear raids thrive.

And if I’m right? Well, I’m afraid you may have to endure another self-congratulatory article on these pages. And if I’m wrong? Well you’d have forgotten by then anyway!

Thoughts ?

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