However, some of these customers were about to learn the term “de-risking”, which basically meant that they were also going to lose their HSBC accounts in the UK or offshore. Still others, who needed an international banking option, and hoped to become customers of HSBC offshore or HSBC UK, found that their business was not wanted. If they didn't already have an alternative international account they were faced with one heck of a predicament.
Sadly, the story of HSBC's indifference to their customers is as global as the bank itself. And the business HSBC saw fit to conduct, while denying accounts and services to individual clients is incredible.
Although it is the world’s fourth largest bank by assets, it has for years marketed itself as “The World's Local Bank”. The fact that it had branch offices throughout the UK, United States, Europe, South America – but especially Asia - added to the myth that this “big boy bank” really did make itself available to help the little guy, too. For once, a company seemed to be living up to its marketing slogan.
The Hong Kong and Shanghai Banking Corporation commenced operations in Hong Kong in 1865. The success of the Opium Wars (from a British perspective) meant that Hong Kong was now a colony, and a bank was needed to finance trade throughout the Empire and with Europe.
Through the expansion of trade, as well as acquisition, this bank with mercantile origins eventually became one of the leading retail banks in the world. And as more people began working and living abroad (especially Brits), HSBC was the natural choice for a bank – if you banked with HSBC in the UK, you could move to Hong Kong, Singapore, Thailand, Malaysia, Philippines, the Middle East or even New York . . . and continue to bank with HSBC in those countries. How convenient was that!?
In addition, people who worked in Oil & Gas in places where it was undesirable to bank in the local currency could opt for an HSBC Offshore account, which not only allowed them to keep their money in Sterling, but linked them directly to the BACS payment system in the UK. Thanks to the World's Local Bank, they could pay their mortgage, council tax or even utility bills on their home in the UK – for free – from their bank in the Isle of Man, Jersey or Guernsey.
How is it then that HSBC has, in a relatively short period of time, gone from the World's Local Bank to the World's Loathsome Bank?
One could argue that it started around 2008. Whether related to the financial crisis, or not, HSBC Offshore banks in the British Isles raised their minimum current account balance from GBP 1,000 to GBP 25,000. For many, this was more than they cared to keep in cash at any one time, and the fines imposed when the balance fell below GBP 25,000 were an annoyance. Thus began the “cull” of HSBC's retail clients in the offshore market.
In 2011, HSBC then sold its Japanese private banking arm to Credit Suisse. This was followed the following year by the sale of its operations Thailand. In 2016, HSBC announced that they would close their doors in Brunei, Turkey and Brazil. Also in recent years, the bank has begun to target individual and corporate accounts all over the world for closure. Account holders in these countries have banked with HSBC for years – or in some cases, decades – and many of them have been left in the lurch. As a foreigner, it is not always easy to open a new bank account – especially today. In some countries, if you do not have the backing of an embassy, a multi-national corporation or an international school your application is likely to be rejected.
In 2014, some UK customers were prevented from withdrawing monies from their accounts unless they could provide evidence as to their reason for wanting the money. Never mind that these customers were withdrawing their own money from their own accounts, HSBC nevertheless refused to let them have it. Some customers were only allowed a withdrawal of GBP3,000 per day and that anything above this amount would be rejected.
Irrespective of whether frustrated customers were brand new account holders, or had banked with the HSBC for 30 years, they were refused money. It was not even about the balance held in their account . . . They were simply being refused unimpeded access to their own money.
The branch closures, account closures and restrictions continue to this this day.
Why is HSBC doing this? Is the bank struggling financially? Not exactly. It's pre-tax profits for the first half of 2016 were $9.71 billion – while tabling plans to cut 8,000 jobs in the U.K. You could possibly say HSBC is facing a Crisis of Reputation.
When the financial crisis hit, HSBC fared better than most, being one of the major banks not to take any bailout money from the British government. But over the next few years, the source of HSBC's “strong balance sheet” slowly came to light, in the form of fines issued by governments and regulators around the world for the highly profitable (and legally ambiguous) activities which helped them to “earn” some of that money.
As a former U.S. Senate investigator, Jack Blum, put it: “They violated every goddamn law in the book.” The following list of “indiscretions” was recently published by Forbes magazine (with our own notation of reported fines paid, fines payable or investigations still pending):
Rigging of London Interbank Offered Rate (LIBOR), European Interbank Offered Rate (EURIBOR) and other benchmark interest rates. (Ordered to pay $35m related to Yen Libor and Euroyen Tibor benchmark interest rates. Investigations and lawsuits continue, with Forbes estimating that the LIBOR Rigging scandal could result in penalties exceeding the amount paid out in asbestos lawsuits. For the record, the sum total awarded in asbestos lawsuits to date is over $250 billion in the United States alone, with billions more expected to be paid out.)
Conspiring with other banks to rig benchmark FX rates. (In November, 2014, fined $275 million by the U.S Commodity Futures Trading Commission and £216m by Britain's Financial Conduct Authority. In July 2016 one current and one former HSBC executive were charged with conspiracy to commit wire fraud in connection with FX manipulation. Further investigations continue in the US, UK and elsewhere.)
Illegal foreclosures of US mortgages and other breaches of US law with regard to mortgage servicing obligations. (In February, 2016, agreed to pay $470 million to federal and state agencies. This was in addition to the $249 million HSBC paid in 2013 to settle similar allegations by the Federal Reserve and the Office of the Comptroller of the Currency.)
The Office of the Comptroller of the Currency was busy in 2016, also ordering HSBC to pay $35 million in April, as restitution to U.S. customers for Unfair Billing Practices related to legacy credit card add-on products.
A range of offenses connected with US mortgage origination and securitization prior to the financial crisis (HSBC agreed to pay $550 million in 2014 for abuses in the sale of mortgage-backed securities to Fannie Mae and Freddie Mac. Also agreed to pay $10 million and admit to misconduct to settle civil fraud charges related to reimbursement claims submitted to the U.S. government.)
Rigging of the gold and gold derivatives markets from January 2004 onwards (Investigations are ongoing)
Violation of US anti-trust legislation in relation to the selling of credit default swaps from 2006-2009 (12 banks reach a $1.9B settlement, $25 million of which was to HSBC.)
In 2011, HSBC in the UK was fined £10.3m for mis-selling investments to pensioners, and ordered to pay a further £29.3m in compensation to affected customers.
HSBC even had involvement in Madoff’s Ponzi scheme for its role as a counter-party in funds which invested with Madoff. (There has been a $62.5m settlement with the Dublin-based Thema International Fund, as well as purported $35.6m from the Kalix Fund Ltd. Further cases are pending.)
HSBC Private Bank (Suisse) paid CHF 40m (£28m), the biggest financial penalty ever imposed by the Geneva authorities, for “organisational deficiencies” which allowed money laundering to take place. (HSBC is still facing tax evasion and/or money laundering investigations by US, French, Belgian, Argentinian and Indian authorities.)
In 2012, the U.S. Justice Department announced that for violating the Bank Secrecy Act, the International Emergency Economic Powers Act and the Trading with the Enemy Act, HSBC would pay US$1.9 billion. (Additional private lawsuits are still pending.)
The aforementioned $1.9b fine included HSBC's involvement in laundering money for Mexican drug cartels. One of those cartels was responsible for the brutal murders of an American family, and U.S. law states that survivors of those killed in terror attacks may sue for damages. The lawyers for the family maintain that “by facilitating the laundering of billions of dollars of drug cartel proceeds through its banks, HSBC materially supported the terrorist acts of cartels.” This lawsuit is still pending.
And in the granddaddy of them all . . . HSBC is one of many banks implemented in the Payment Protection Insurance (PPI) Mis-Selling Scandal. HSBC has already set aside nearly £3bn to compensate clients' PPI claims, but the Financial Conduct Authority has extended the deadline for filing claims to 2019, so that figure is expected to rise.
If HSBC were a person, that rap sheet would have already seen it put it behind bars for life – and it is by no means even the full list of fines HSBC has paid in the last decade.
They are also apparently good at silencing their critics. The chief political commentator at The Daily Telegraph, Peter Osborne, resigned because he claimed the Telegraph dropped its investigations into HSBC because of the bank's huge advertising account with the newspaper. In a strongly worded letter posted openly on the news website openDemocracy.net, he criticized the paper for “compromising its integrity” and accused the paper of instigating a “form of fraud” against its readers.
This was the same publication which had only a few years earlier uncovered the MP Expenses Scandal in Westminster, and was renowned for its investigative journalism. But, according to Osborne, after running a series of 6 articles critical of HSBC between 8 and 15 November 2012, HSBC stopped advertising with Telegraph. Osborne went on to write that the newspaper spent about one year winning back their HSBC advertising budget, so when the currency rigging story broke in November, 2014, it was “the city splash in the Times, Guardian and Mail, making a page lead in the Independent . . . (but only) generated five paragraphs in total on page 5 of the (Telegraph) business section.”
So in the wake of all of this scandal, with the governments of multiple countries breathing down its neck to reform its practices – and having been hit with literally billions of Pounds Sterling in fines for not having done so to date – HSBC is obviously going out of its way to avoid controversy . . . right? Well, that depends on your definition of “avoid”. Enter the Panama Papers.
In April 2016, the International Consortium of Investigative Journalists released documents related to the financial dealings of the clients of Panamanian law firm Mossack Fonseca & Co. In addition to its trust and advisory services, Mossack Fonseca specialized in “international business services”, which included acting as the “post box” for a number of Panamanian companies. What the Panama Papers also revealed is that, over the last 40 years, approximately 2,300 companies set up by Mossack Fonseca were clients of HSBC or one of its affiliates.
And embarrassingly for HSBC, one of those of clients was its own CEO, Stuart Gulliver, who admitted to using a Panamanian company and Swiss banks accounts for some of his pay. To quote a recent Forbes article: “HSBC was at pains to point out that Gulliver pays UK taxes, less a credit for tax paid in Hong Kong – though evidently not on his pre-2003 bonuses, since a Panamanian company is of course offshore. But I would have to agree with John Christensen of the Tax Justice Network (quoted in the Guardian) that these arrangements look suspiciously as if they are intended to avoid UK taxes on Gulliver’s global investment income.
Of course no-one is suggesting that any of this is illegal. But it does raise questions about the attitude of a bank to its customers’ tax affairs when its CEO appears to have structured his personal finances in such a way as to avoid significant taxation. Tone comes from the top, and all that.”
What could be even more embarrassing still is that industry experts have warned that HSBC could be threatened with losing its US banking license if the information revealed by the Panama Papers shows that HSBC has acted improperly.
To put it all in perspective, HSBC can strong-arm news organisations, cheat pensioners, destroy the lives of home owners, launder money for drug dealers, funnel money to suspected terrorists, and THEN proceed to shut down the accounts of honest hard-working individuals and law-abiding companies because the bank is wants to “de-risk” its balance sheet. It is the ultimate tragi-comedy – you truly do not know whether to laugh or cry at the absurdity.