HSBC, kidnappings and fear on the financial front line: Bank boss tells of threats from Mexican criminals
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Forget uniformed policeman kicking down doors in the global fight against organised crime, drug dealing, terrorism and tax evasion. The new front line is the banks.
And as HSBC found out last week just how very expensive it is likely to be to fail in this new role of crook catcher, one of its top executives has revealed the nightmare of trying to make sure procedures are rigorous enough to meet the tough demands of global regulators, particularly the ferocious American watchdogs.
With the bank facing possible fines of $1 billion (£640 million) for its failings, Paul Thurston – once chief executive of the HSBC Mexican operation at the centre of the concerns investigated last week by the US Senate Committee on Homeland Security– has told of being parachuted into somewhere more resembling the Wild West than the genteel banking world of the City.
Drug wars: A member of the Mexican Navy stands guard as packages of cocaine are incinerated
He revealed how the bank failed catastrophically in its assessment of the criminal risk in Mexico, and while Thurston himself faces some blunt criticism, the report from the US Senators’ inquiry and his own testimony paint a picture of a bank already immersed in corruption and criminality.
‘Some of the things I found took my breath away,’ Thurston told US senators last week.
One HSBC insider said that Thurston, who went on to head the bank in Britain and is now global head of retail banking, was handed a ‘mission impossible’ by his bosses.
The fiasco leaves a litany of questions for the bosses of HSBC who first bought the Bital bank in Mexico in 2002, and for Sandy Flockhart, who headed the operation until Thurston took over, head office chief executive Mike Geoghegan, and chairman Stephen Green. All have since left the bank, though Green – now Lord Green and a Trade Minister – is facing mounting pressure to explain what he knew and when.
The Thurston testimony threw a bright light on the scale of safeguards needed to ensure banks meet the new rigorous standards.
‘The external environment in Mexico was as challenging as any I had ever experienced,’ he said. ‘Bank employees faced very real risks of being targeted for bribery, extortion and kidnapping – in fact multiple kidnappings occurred throughout my tenure – and high levels of security were required for bank staff working in Mexico.’
He added: ‘This was not HSBC as I knew it.’
The full scale of what was happening hit Thurston within weeks of his arrival at HSBC’s Mexico City HQ on February, 2007.
On March 15, Mexican authorities working in partnership with the US Drug Enforcement Administration raided the home of Chinese Mexican citizen Zhenli Ye Gon.
In his basement they uncovered a huge pile of carefully stacked dollar bills amounting to $205 million along with $17 million in Mexican pesos, a stash of weapons and records of international wire transfers recording the movement of millions of dollars between Mexico and America.
Ye Gon was later arrested in America, where he is still being held pending extradition to Mexico accused of providing key chemicals to Mexican drug barons for the manufacture of methamphetamine – better known as the deadly crystal meth. He has denied the charges.
Worryingly for HSBC, Ye Gon was a long-time customer of its Mexican banking business. It was bad enough that a client was implicated in serious offences, but HSBC in Mexico had already been warned to steer clear of Ye Gon’s company, Unimed, and had ignored the alert.
The pattern of orders mysteriously not being followed was to become familiar to Thurston.
Two months after the raid on Ye Gon, the US Authorities swooped on a Mexican company called Casa de Cambio Puebla.
This was a money transfer business and had about $11 million on deposit with American bank Wachovia in Miami and London that were seized by the US authorities.
Soon after one of Puebla’s staff in America confessed to money laundering.
Like Ye Gon, Puebla was a long-standing customer of HSBC in Mexico having begun as a client of Bital in the 1980s and staying on as an HSBC client after the takeover. In July, after an internal review, Thurston ordered that all of Puebla’s accounts be closed.
Incredibly, the order was not carried out until November 2007 and even then only after the Mexican Attorney General sent a warrant requesting seizure of all Puebla’s cash.
HSBC was at a loss to explain how the order had been ignored, but insiders suspect that lax controls in the bank or even outright corruption were the probable explanation.
Thurston claims he took decisive steps to clean up Mexico, including action to stop lower-level staff being bribed or threatened into opening accounts or transferring money without proper checks.
One HSBC employee said it was about ‘protecting front line staff’.
‘No one could go into a branch and try to launder money and threaten the clerk by saying I know where your family live. That is precisely what was happening. If local staff cannot open an account on their own they cannot be bribed or threatened,’ he said.
But Thurston’s tenure at HSBC Mexico ended with failure. In December, 2007 he was appointed to run HSBC’s UK retail bank, but he remained in Mexico for a further three months – just enough time for another bombshell.
This time it involved Sigue Corporation, another money transfer service company, with its headquarters in California. Its main line of business was moving money from America to Mexico and other Latin American countries. The US authorities launched a sting operation in 2007 in which US agents transferred $500,000 from America to Mexico through Sigue.
As they did so, they openly told Sigue agents they were transferring drug money. In January 2008, Sigue reached a settlement with American authorities, admitting its business was out of control.
On February 4, David Bagley, global head of compliance at HSBC, recommended to Thurston that he close the Sigue account in Mexico. Thurston ignored Bagley’s recommendation and allowed the Sigue account to stay open.
It was to prove an embarrassing decision and the one example where Thurston was clearly slammed by the Senate report.
Thurston left Mexico in April 2008. Looking back on his experience he said: ‘I believe we made real progress at HSBC Mexico during my short tenure.’ But he admitted: ‘We know we should have done this better sooner.’
Thurston’s testimony and the Senate report beg many questions about HSBC’s management of the Mexican takeover and its aftermath. But the lesson for banks is that in the war on organised crime, they will be in the front line for the foreseeable future.
Read more: http://www.thisismoney.co.uk/money/news/article-2176963/HSBC-kidnappings-fear-financial-line.html#ixzz21WgWfZbd
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