Britain’s biggest bank and the 6th largest bank in the world in 2020, HSBC Holdings plc moved millions in scam money through its US business to HSBC accounts in Hong Kong in 2013 and 2014.
The British multinational investment bank and financial services holding company allowed fraudsters to transfer millions of dollars around the world even after it had learned of their scam, leaked secret files show.
Its role in the $80m (£62m) fraud is detailed in a leak of documents, banks’ “suspicious activity reports” dubbed the FinCEN Files.
The files show the investment scam, known as a Ponzi scheme, started soon after the bank was fined $1.9bn (£1.4bn) in the US over money laundering. After which HSBC promised to clamp down on similar crimes.
However, the leaked documents shows the bank continued to deal with the dirty money. The documents also include a series of other revelations such as how the biggest banks in the US may have helped a notorious mobster to move more than $1bn.
What are the FinCEN Files?
The FinCEN Files are a leak of 2,657 documents, at the heart of which are 2,100 suspicious activity reports, or SARs. SARs are not evidence of wrongdoing – banks send them to the authorities if they suspect customers could be up to no good.
By law, banks have to know who their clients are – it’s not enough to file SARs and keep taking dirty money from clients while expecting enforcers to deal with the problem. If they have evidence of criminal activity, they should stop moving the cash.
The leak shows how money was laundered through some of the world’s biggest banks and how criminals used anonymous British companies to hide their money.
The SARs were leaked to Buzzfeed and given to the International Consortium of Investigative Journalists (ICIJ). Panorama led the research for the BBC as part of a global probe.
The ICIJ led the reporting of the Panama Papers and Paradise Papers leaks – secret files detailing the offshore activities of the wealthy and the famous.
Fergus Shiel, from the consortium, said the FinCEN Files are an “insight into what banks know about the vast flows of dirty money across the globe… [The] system that is meant to regulate the flows of tainted money is broken”.
The leaked SARs were submitted to the US Financial Crimes Enforcement Network, or FinCEN between 2000 and 2017 and cover transactions worth about $2 trillion. FinCEN said the leak could impact US national security, risk investigations, and threaten the safety of those who file the reports before announcing last week it had proposals to overhaul its anti-money laundering programmes.
The UK also unveiled plans to reform its register of company information to clamp down on fraud and money laundering.
What was the Ponzi scam?
The investment scam that HSBC was warned about was called WCM777. It led to the death of investor Reynaldo Pacheco, who was found under water on a wine estate in Napa, California, in April 2014 bludgeoned with rocks.
He signed up to the scheme and was expected to recruit other investors. The promise was everyone would get rich, he introduced a woman who lost about $3,000, angry she hired men to kidnap him, they killed him.
“He literally was trying to… make people’s lives better, and he himself was scammed, and conned, and he unfortunately paid for it with his life,” said Sgt Chris Pacheco (no relation), one of the officers who investigated the killing.
Reynaldo, he said, “was murdered for being a victim in a Ponzi scheme”.
What did the scam promise?
The scheme was started by Chinese national Ming Xu. Little is known about how he came to be living in the US, although he claims to have studied for an MA in California. Basing himself in the Los Angeles area, Xu – or “Dr Phil” as he styled himself – acted as a pastor at evangelical churches.
Xu said he was operating a global investment bank, World Capital Market, that would pay out 100pc profit in a 100 days. In reality, he was running the WCM777 Ponzi scheme. Through travelling seminars, Facebook and webinars on YouTube, it raised $80m selling supposed investment opportunities in cloud computing.
Thousands of people from the Asian and Latino communities were taken in. The fraudsters used Christian imagery and targeted poor communities in the US, Colombia and Peru. There were also victims in other countries, including the UK.
Regulators in California told HSBC it was investigating WCM777 as early as September 2013 – and alerted its residents to the fraud. California, along with Colorado and Massachusetts, took action against WCM for selling unregistered investments.
HSBC spotted these suspicious transactions going through its systems. But it was not until April 2014, after US financial regulator the Securities and Exchange Commission filed charges, that the WCM777 accounts at HSBC in Hong Kong were shut.
By that time, almost everything had been withdrawn from the accounts.
HSBC filed its first SAR about the scam on 29 October 2013 relating to more than $6m sent to the fraudsters’ accounts in Hong Kong. Bank officials said there was “no apparent economic, business, or lawful purpose” for the transactions – and noted allegations of “Ponzi scheme activities”.
A second SAR in February 2014 identified $15.4m in suspicious transactions, and a “Potential Ponzi scheme”. The third report in March related to a company associated with the scam company WCM777 and nearly $9.2m and noted the regulatory moves by US states and an investigation ordered by Colombia’s president.
Analysis by the ICIJ shows that between 2011 and 2017 HSBC identified suspicious transactions moving through accounts in Hong Kong of more than $1.5bn – about $900m linked to overall criminal activity.
But the reports failed to include key facts about customers, including the ultimate beneficial owners of accounts and where the money came from.
HSBC said: “Starting in 2012, HSBC embarked on a multi-year journey to overhaul its ability to combat financial crime across more than 60 jurisdictions… HSBC is a much safer institution than it was in 2012.”
The bank added the US authorities had determined that it “met all of its obligations under the [agreement struck with US prosecutors]”.
Xu was eventually arrested by the Chinese authorities in 2017 and jailed for three years over the scam.
The FinCEN Files also show how multinational bank JP Morgan may have helped a man known as the Russian mafia’s boss of bosses to move more than a $1bn through the financial system.
Semion Mogilevich has been accused of crimes including gun running, drug trafficking and murder.
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