Mexico in the summer of 2006 was fun. Spirits were high, the go-go years were still not over, and Lehman was yet to cast its long shadow. On a sunny morning in Mexico City, the British bank HSBC was holding a leadership workshop for some of its bright sparks across markets.
The men and women who had assembled in the training centre straightened themselves with rapt attention as one of the stars at the global bank took the podium. The message that went across to the young managers (largely from sales) was one of the many untold stories behind banking excesses and a harbinger of events that could haunt the organization years later.
"If you have to grow the business take your own calls...the compliance man will only tell you how not to do business." The speaker, whose name figures in the recently released sensational US Senate report on the money laundering deals in HSBC, went on to share the tricks of the trade that had paid off in the Lat Am market. It was so bloody ironic that the guy spoke after a session on "business ethics", recalls someone who was part of the HSBC India team that was flown down for the workshop.
There was a silent flutter. Those at the receiving end of the street-smart wisdom looked at each other, eyebrows raised. "None of us questioned him."
But the man from India voiced his cautious concern while chatting with a member of the bank's global HR (which had organized the event). "They told me to spell out my views in writing...well, I couldn't have done that. He was a big guy," said the banker on Saturday after HSBC hit the headlines last week for wrong reasons.
STRANGE BANGLA LINK
It's not known whether any of those takeaways from Mexico were implemented in India. Perhaps not, at least not in a scale that happened in other markets: it was also the time banks were pulled up and anti-money laundering rules were tightened, with Sebi unearthing the IPO scam perpetrated through multiple demat accounts.
But the banking operation of HSBC India finds itself in the report for another reason that has gone largely unnoticed. The bank helped another bank with suspected links to terror - Islami Bank Bangladesh had opened a US dollar clearing account with HSBC India. The Bangla bank, one of the largest private sector lenders in that country, has strange shareholders: members of the Al Rajhi group held a 37% direct ownership in Islami Bank Bangladesh. The Al Rajhi Bank of Saudi Arabia was suspected to be a conduit for Islamic finance, according to a 2003 report by CIA.
HSBC India officials are unwilling to discuss anything about the report. Preferring anonymity, one of them said, "It was the account of another bank, not an individual or some shady group. It was natural to assume that it was regulated by the home country regulator."
BUSINESS COMPULSIONS
The Bangla bank would have possibly found it difficult to open a nostro account with a bank in the US; HSBC provided the facility. Though it was a good business decision - given that there were 60,000 Hajj pilgrims every year from Bangladesh - troubling reports on Al Rajhi had surfaced by 2007 when the account was opened. The Bangla bank ran accounts of an international Islamic NGO which was on the alert list of organisations. The bank first froze the accounts (after the NGO came under suspicion), but was later told to "unfreeze" the account (by Bangladesh central bank and ministry of finance) and transfer the funds to the government bank. It's a bizarre turn of events -- something Indian regulators and anti-money laundering agencies should make a mental note of.
The Senate report and some of the stories that are beginning to pop out are grim reminders of how rules can be bent, alerts ignored, and business compulsions can play an overriding role in a bank.
Not many outside banking circles know that since last year the US Office of the Comptroller of the Currency (OCC) has started inspecting American banks' back office and data processing centres in India.
Officials of the US authority check the AML systems and talk to vendors who supply and maintain software at these centres. These centres use AML filters to spot suspicious money transfers by their size, layering of transactions through different entities, odd money flow patterns, etc. But even robust systems can be twisted if compliance can be occasionally undermined in the interest of business. If it could have happened in boom time Mexico, fears are that it may repeat during a downturn in Asia. When business is slow and chips are down, many high-street banks, fueled by greed and low moral fortitude, will find it tough shutting the doors on rich clients who don't like too many questions.
Source: EconomicTimes
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