London’s HSBC is breathing a sigh of relief this week after the bank’s largest investor, China’s Ping An Asset Management, stepped in to curb free-falling share prices by increasing its stake to eight percent.
The move comes after months of controversy surrounding HSBC’s apparent support for contentious new Chinese laws relating to Hong Kong – the US Secretary of State Mike Pompeo has accused the bank of performing a “corporate kowtow” before Beijing – and allegations over HSBC’s role in the unfolding legal and diplomatic drama surrounding Chinese behemoth Huawei Technologies.
HSBC at the cliff’s edge
FinCEN leaks initially appeared to be the final straw for the British banking giant, with shares hitting a 25-year low last week in the wake of allegations that the bank handled a “massive flow of dirty money” on behalf of an international criminal scheme. The bank is no stranger to such allegations, having squandered its reputation in a string of lawsuits brought against it for allegedly laundering $881 million for Mexican drug cartels.
At the time these accusations were brought forward, in 2012, HSBC agreed to a deal with the US Department of Justice that included $1.9 billion fine and requirements to strengthen money-laundering controls. As it turned out, the bank benefited from protective moves by the British government which warned the US that the HSBC prosecution could gravely destabilize the global banking sector.
The case was definitely closed in 2017, but HSBC’s fortunes never really improved. Now, just when it seemed as though HSBC would never be able to recover, Ping An’s decision came as a godsent. The Chinese investor’s sign of confidence in HSBC will surely help reassure many of the other shareholders, but even so, the ongoing ordeal, exacerbated especially by the FinCEN revelations, has much wider implications. The leak has once again highlighted the criminal activities international banks are – more often than not – willing participants in.
UBS and the Akhmedov divorce
Several banks are facing renewed scrutiny over the leaks, including Deutsche Bank, Standard Chartered, Société Générale and UBS. For the latter in particular, the leaks are having adverse effects broadly mirroring those of HSBC, given how the Swiss bank has had run-ins with regulators for years over money laundering and tax evasion charges. In fact, even before the FinCEN leaks hit the headlines, the bank’s asset shielding operations for wealthy clients were already a major focus of attention, since at least 2009 when the US sought the identities of 52,000 American UBS customers accused of using the bank for wealth concealment.
In recent years, UBS saw itself embroiled in the “divorce of the century” between Baku-based billionaire Farkhad Akhmedov and his wife Tatiana Akhmedova, which made international headlines after she was awarded a record £453m by the UK High Court in 2016.
Still, Akhmedov has proved determined in his efforts to avoid paying the awarded settlement to Tatiana by allegedly transferring the family’s assets – including cash but also art works and a superyacht – to Liechtenstein asset holding companies. Allegedly, $650 million held by UBS via a shell company named Cotor found their way from there to Cotor accounts in Liechtenstein on her husband’s instructions.
From there, the funds were distributed to various trusts, as well as to the couple’s son, Temur, effectively putting them out of Akhmedov’s reach and preventing the enforcement of the original judgement. Temur now stands accused of receiving millions of dollars from his father as part of an effort to shield his assets, and was ordered by the British high court to explain what happened to the £13 million given to him by his father over the past two years. They both deny wrongdoing and proceedings are ongoing.
For UBS, the problem arises from the fact that Akhmedov and UBS were directly in touch throughout this process, according to a court testimony, directly implicating the Swiss bank in the effort to shield assets central to the court proceedings.
Such allegations have cost UBS dearly over the years, yet it has done nothing to change its ways. The pattern that has proven resistant even to a record €3.7 billion fine imposed by French authorities last year, after the banking giant was found to have helped wealthy French clients hide vast sums of money from authorities between 2004 and 2012. At the Paris trial, prosecutors compared the bank’s operations under the scheme to the plot of a James Bond novel, wherein bankers travelled abroad specifically to recruit wealthy clients, dubbed “big potatoes”.
To avoid detection, bankers used encrypted computers, as well as incognito business cards, and were even advised by a UBS manual to wear coats with hidden pockets. Successful visits would result in the opening of undeclared accounts back in Switzerland, with the result that more than €10 billion were hidden away from tax authorities.
HSBC and UBS are perhaps the current prime examples exposing the sophistication and crucial role played by international banks as enablers of their clients’ illicit financial activities. Yet for all the media scrutiny generated by leaks giving insight to the world of finance, these problems are self-made. As these cases show, the world’s biggest banks continue to pay lip service only to global regulatory compliance standards, while strategies to disguise bribery, embezzlement and the proceeds of crime remain the well-worn tools of the banking trade.