Swiss Regulator Cracks Down on HSBC Over Money Laundering Lapses

Swiss Regulator Cracks Down on HSBC Over Money Laundering Lapses


The Swiss Financial Market Supervisory Authority (FINMA) has cracked down on HSBC Private Bank (Suisse) SA for serious violations of anti-money laundering laws involving two politically exposed persons (PEPs).

In enforcement proceedings concluded this week, FINMA found that the bank failed to adequately verify the origins, purpose and background of over $300 million that flowed through accounts connected to the PEPs between 2002 and 2015. The funds originated from a government institution in Lebanon, were transferred to Switzerland, and largely flowed back to Lebanon after a short period, yet the bank never clarified why the Swiss accounts were used for these transactions.

According to FINMA, the bank failed to recognize indications of potential money laundering risks in these transactions. It also fell short of due diligence requirements when initiating and maintaining the PEP relationships. Critically, the bank violated reporting obligations by not alerting authorities about the suspicious activities for years after first becoming aware of the risks involved.

The case appears linked to an ongoing investigation into alleged embezzlement by former Lebanese central bank governor Riad Salameh and his brother Raja involving over $330 million, though the Salamehs deny any wrongdoing.

In its ruling, the regulator imposed punitive measures requiring HSBC Swiss to conduct a comprehensive review of all high-risk accounts and PEP relationships to ensure compliance with anti-money laundering laws. It must also verify risk classifications for other customers. The audits will be monitored by an independent auditor.

Perhaps most significantly, HSBC Swiss is barred from taking on any new PEP clients until the reviews are completed and the auditor confirms compliance has been restored. The bank must also clarify responsibilities and reporting lines among its leadership.

While acknowledging the matters raised by FINMA, HSBC stated it plans to appeal the decision, asserting it "takes its anti-money laundering obligations very seriously."

The FINMA decision highlights increasing scrutiny of banks to verify legitimate sources of client funds and identify PEP accounts posing heightened corruption risks. HSBC's substantial lapses appear to have enabled a concerning amount of illicit fund flows.

While the ruling has not entered into legal force, the substantial remediation work required demonstrates FINMA's commitment to combating money laundering and financial crime enablers. The case serves as a stark warning to all Swiss banks about rigid enforcement of laws protecting financial integrity.

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