HSBC: A Money Laundering Machine Abstract This paper is about the scandal HSBC and its subsidiaries underwent during 2012. HSBC is one of the largest banking organizations in the world and in 2012 the organization went through some of its worst times and through one of the worst banking scandals that the world has ever been witness to. The paper discusses the background of HSBC as well as the background for many issues that were brought up in the accusations against HSBC. The paper explains several of the issues and more importantly, the violations that HSBC performed throughout several years. Money laundering, drug trafficking, and terrorism are main concepts that this paper will discuss related to the actions of HSBC and its subsidiaries.
In December 2008, the SEC charged Bernard Madoff and his investment firm, Bernard Madoff investment Securitirs LLC, with securities fraud for the multi-billion dollar Ponzi scheme he perpetrated on advisory clients of his firm for many years. The SEC filed emergency motions to freeze assets and appoint a receiver, and worker to return as much money as possible to harmed investors. The Bernie Madoff documentary was one of the more interesting videos I have ever seen. While the Madoff controversy was a highly public topic, this documentary helped fill in the infamous story from start to end. At the start of Bernie Madoff career, he had a very successful market making business.
He then simply moved the money between Chase Bank and a U.K. corporation called Madoff Securities International Ltd., (both claim to have known zero knowledge to any wrongdoings of Bernard). Closer to his arrest, he got desperate and started to solicit and sometimes threaten clients for more deposits. Not only were several investors out millions of dollars after the arrest, but several organizations lost their donation money due to Madoff unethical decisions. Many people lost their life savings due to the fall-out. Several family members became under attack and tragically Madoff’s son committed suicide.
Ethics play a role in everyday business. Company executives attempt to build a profitable organization but unethical decisions lead to the demise of organizations because of greed and power. Penn Square Bank and Dow Corning both made decisions in their business that started out making millions of dollars but in the end cost the companies more than possibly imagined. Because of the unethical decisions made by both companies they acquired large losses of money by one filing bankruptcy, and the other closing down. Not only were there large losses of money for both companies, but the loss of reputation as well.
Consequently, this lead to a liquidity crisis that required the United States Federal Reserve, European Central Bank, and the Bank of England to provide a considerable cash injection of capital into the financial markets. The mortgages were primarily in the US, but the resulting deficiency of finances had spread throughout the globe. Furthermore, this had a detrimental effect on other financial markets, thus having damaging consequences on many banks throughout Europe and the US. In addition economic growth showed a great downfall, with the increase in commodity prices influencing inflation to rise considerably. The inadequacy of the originate-to-distribute model to new mortgages that has been implemented over the years was held responsible for the unexpected change in financial environment, however a majority considered that after enjoying a credit ‘boom’ over many years, a credit ‘bust was due.
To prove this, one needs to look in at their own government to see what’s really going on. Unfortunately for the citizens of the city of Bell, they were robbed of their hard-earned money by the mayor, the former city manager, and six other officials taking more than $5.5 million of their hard-earned money. This created outrage because not only their money was stolen, but they were also manipulated into thinking that these people were doing great things to change their city. “They used the taxes of the hardworking citizens of Bell as their own piggy bank, which they looted,”
The question as to whether Bernard Ebbers, former Chief Executive Officer (CEO) and founder of WorldCom, should have gone to jail is one that many, during 2002, could easily answer with a resounding yes. However, the case goes much deeper than the visceral reaction by the public to punish those who are considered extremely wealthy. True, the violations committed by WorldCom, Ebbers, and others within the hierarchy of the company were grave and had an obvious negative impact on the public’s financial futures and standing, but we must also remember the impact this case had on the conduct of corporate business. Separating normal business practices from those practices that occur on the fringe of legality, one can make easy comparisons as to how the WorldCom fiasco helped to spotlight the practices that likely occurred throughout corporate America. Ethics is not something that can be written into law; one can be ethical and break the law just as easily as an unethical practitioner can remain within the bounds of legality.
Brief overview of WorldCom’s case and general discussion of its fraud nature: Beresford, Katzenbach and Jr (2003) stated that, from 1999 until 2002, a few executives at WorldCom perpetrated accounting fraud that led to the largest bankruptcy in history. The principle business strategy of its CEO – aggressive growth through acquisitions underlined its collapse and eventually imposed pressure to management to commit fraud. In fact, WorldCom’s fraud was a consequence of a set of complex factors, including the existence of dominant senior management, structurally weak internal controls, inadequate audits by Arthur Andersen, the poor oversight of the Board, and pressure from Wall Street’s expectation, etc. The large scale collapses of WorldCom and Enron triggered immediate remedies of corporate governance, essentially the Sarbanes-Oxley Act, which aimed to solve the issue of “lack of confidence” in the reported financials. WorldCom’s fraud was an intentional misconduct of the perpetrated senior management that results in an $11 billion material misstatement in the financial statements via two principle forms: reduction of the reported line costs and exaggeration of reported revenues, in order to create an image of increased earnings and revenue and hold the line costs lower than the industry average rather than indicate the truth and fairness of WorldCom’s wealth and progress (Beresford et al, 2003).
Justice system treated him too sparely and many people were not satisfied with this. I will tell some words about Mavrodi himself, his «child» MMM, about the verdict and the reasons for such verdict. Sergei Panteleevich Mavrodi (born August 11, 1955) is a Russian criminal and a former deputy of the State Duma. He is the founder of the МММ series of pyramid schemes. In 2007 Sergei Mavrodi was found guilty in a Russian court of defrauding 10,000 investors out of 110 million rubles ($4.3million).
He appeared to be an intelligent trader however, he poorly executed possibly good decisions. A one man show caused the company billions of dollars that made history as the largest financial fraud of $7.14 billion of dollars. The company was aware of several of Kerviel’s transactions; however, failed to investigate. Gapper (2011) stated trader’s bosses want to believe them – that legitimizes the bank’s success and the fact that everyone is paid a higher bonus….Rogue traders thrive by taking large bets on markets while pretending to be doing something safer, such as arbitrage or hedging (Gapper, 2011). Societe General’s overlooked Kerviel’s risky investments and rewarded him instead; the company appears to be aware and directly involved in illegal trades.