Why not a single banker was jailed over HSBC’s billion-dollar money laundering scandal

NEW YORK, NY - JULY 17: Jeffrey Lichtman (R), attorney for Joaquin "El Chapo" Guzman, leaves federal court, July 17, 2019 in the Brooklyn borough of New York City. El Chapo was sentenced to life in prison after being found guilty on all charges in a drug conspiracy trial. (Photo by Drew Angerer/Getty Images)

Ten years after the bank admitted enabling El Chapo’s Mexican drug cartel, the drug lord is serving a life sentence but bankers only faced fines. Whose job is it to police global finance?

No senior banker went to jail over 2008; no HSBC banker was charged, let alone went to jail, when the bank admitted in 2012 to enabling the laundering of billions of dollars of drugs money for El Chapo and his Mexican Sinaloa cartel.

The reason, as I explain in my new book Too Big to Jail – Inside HSBC, the Mexican drug cartels and the greatest banking scandal of the century, is that HSBC literally was too big.

The British government, in the shape of then-Chancellor George Osborne, went to bat, persuading the Americans – who were anxious to press charges – to back off. Osborne argued that they risked bringing down not only the bank but also the entire global financial system, such was HSBC’s size and reach.

No hard evidence was offered for this assertion. Yet in the end, the US authorities relented, and HSBC was fined $1.9bn, the largest amount in US history, and agreed to reform its ways under a deferred prosecution agreement (DPA).

HSBC admitted everything: how it had become a vast laundromat for the Mexican mob, even acknowledging that a tape existed on which a gang boss described HSBC as “the place to launder money”. Even by the dismal standards of its own industry, HSBC’s behaviour was truly shocking.

FILE – This photo provided by the United States Drug Enforcement Administration, Mexican drug kingpin Joaquin “El Chapo” Guzman arrives at Long Island MacArthur Airport in Ronkonkoma, N.Y., after being extradited to the United States to face drug trafficking charges, on Jan. 19, 2017. The lawyers of several United States government functionaries said Tuesday, June 14, 2022, that a court plans to dismiss a complaint by Guzman were he claims cruel and unjust treatment in the Colorado jail where he is imprisoned. (United States Drug Enforcement Administration via AP)

The Sinaloa cartel operates in the “Golden Triangle” of rural, mountainous states in northwest Mexico. The isolated region is a major producer of Mexican opium and marijuana.

According to the US Attorney General, the Sinaloa was the world’s number-one drugs trafficking organisation, responsible for distributing millions of tonnes of narcotics across the US. And for several years, it laundered its drugs proceeds via HSBC in Mexico. The cartel had boxes made to fit cashiers’ windows, so it could deposit more dollar bills more quickly; in one visit to the bank, one of Chapo’s associates handed over $933,000, in cash.

HSBC made its international network available to the Sinaloa, so its new Mexican customers were encouraged to open dollar accounts at HSBC Mexico’s branch in the Cayman Islands. Except there was no such physical branch – it was all done on desktops in the HSBC Tower in Mexico City. In a matter of months, 60,000 accounts were opened in Cayman – often without requiring ID or paperwork.

While this was going on, HSBC management focused on making their bank even bigger, completing acquisitions around the world. Politicians fawned over them – the bank’s head for much of this period, Stephen Green, was made a life peer and a trade minister, a colleague of Osborne, in the UK government.

Stephen Green, Group Chairman of HSBC Holdings, addresses the Confederation of British Industry (CBI) annual conference in central London, on November 24, 2008. British Prime Minister Gordon Brown and opposition leader David Cameron presented rival plans to counter looming recession Monday, to business leaders seeking urgent help. Speaking at the Confederation of British Industry’s (CBI) annual conference, the pair put forth contrasting visions, with Brown advocating fiscal stimulus while Cameron called for what he described as “monetary activism.” AFP PHOTO/SHAUN CURRY (Photo by SHAUN CURRY / AFP) (Photo by SHAUN CURRY/AFP via Getty Images)

The greed and ambition of a drug lord and his business acumen – because Chapo was a businessman – and the greed and ambition of a major bank, were perfectly suited.

Chapo went to prison, as did many of his cronies, right down to the lowliest street dealers. They, like us when we commit wrongdoing, are not given the option of a DPA. Corporations and their chiefs, they are not the same: they are able to negotiate their way out of prison.

The bankers remain free – there was not even an official inquiry in the UK, despite HSBC being the country’s biggest bank. HSBC grew so big that even when it was found out to have sinned – or at least when its executives could, and perhaps should, have been interrogated in a court of law – that was not allowed to occur.

The then-US Attorney General Eric Holder explained about HSBC and its work for Chapo: “I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if we do prosecute – if we do bring a criminal charge – it will have a negative impact on the national economy, perhaps even the world economy.”

Growing their bank so big provided the HSBC bankers with a “Get Out of Jail” card. Just as no banker went to jail in 2008, no banker went to jail for facilitating money laundering for the Sinaloa mobsters.

In 2019, Chapo received life plus 30 years and he was ordered to forfeit $12.6bn. The bank that helped him wash his cash so he could buy weapons, drugs, and feed his luxury lifestyle, however, was fined what amounted to just five weeks’ profits.

As part of its settlement, HSBC promised to reform it ways. But in December last year, it was fined £63.9m, this time by the UK Financial Conduct Authority, for “serious weaknesses” in its money laundering processes.

To a company like HSBC, this is treated as a cost of doing business, it’s written off. Without the prospect of prison there is no incentive for their bosses to behave properly – the very real threat of jail is all they will understand.

It’s what the former Bank of England governor, Mervyn King, described as “moral hazard” when we deemed banks “too big to fail” in 2008. Sure enough, along came HSBC. We’ve created a rod for our own backs. Unless we get tougher and start jailing those responsible, we can expect more of the same.

Chris Blackhurst’s ‘Too Big to Jail – Inside HSBC, the Mexican drug cartels and the greatest banking scandal of the century’ (Macmillan, £20) is out now

HSBC and the Cayman Islands bank branch that never was

GEORGE TOWN, CAYMAN ISLANDS – APRIL 24: George Town pictured on 24 April, 2008 in Grand Cayman, Cayman Islands. (Photo by David Rogers/Getty Images)

In Mexico, drug lord El Chapo had a problem with washing the money through local bank accounts because by Mexican law, those accounts must be held in pesos rather than dollars.

For both legitimate and illegitimate business, the international currency of choice is the mighty US dollar, and what Chapo needed was to be able to open accounts in US dollars. This was a facility that HSBC was able to offer through its Cayman Islands branch.

In George Town, the capital of the Cayman Islands in Grand Cayman, along the seafront, past the Lobster Pot restaurant, is 68 West Bay Road. This is HSBC House, and the low-slung building with the HSBC sign outside looks for all the world like the bank’s branch in Cayman.

Modern, blue, and designed by an architect from Florida, it is part of the HSBC network all right, and it provides HSBC banking services. However, this is not the section of the bank that looked after the Sinaloa money. That was the “Cayman Islands branch of HSBC Mexico”, which, confusingly, was not in Cayman at all.

It’s no use trying to find the “Cayman Islands branch of HSBC Mexico” on the map or on a George Town street in bricks and mortar. It doesn’t physically exist and it never did.

The “Cayman Islands branch of HSBC Mexico”, which allowed Chapo to keep his dollars in Mexico and away from the eyes of the US authorities, was controlled electronically from HSBC Torre in downtown Mexico City, 1,157 miles away. It possessed no staff or customers in the Cayman Islands and was totally made-up.

It existed, but it was not real in the way bank branches normally are, with proper premises, with branded signs, a solid front door, banking hall, counters and ATMs. Instead the “Cayman Islands branch of HSBC Mexico” existed in the Mexico headquarters and in branches across Mexico, and only in the minds of HSBC staff and their clients, on paper and on computer screens.

And yet, by clicking their mouses, by making a few keystrokes, HSBC employees in the branches across Mexico could access it instantly, create accounts and transfer money there.

The people “staffing” the “Cayman Islands branch of HSBC Mexico” never went to Cayman. As such, US investigators confirmed it “operated in that jurisdiction solely as a shell entity. It was maintained by [HSBC Mexico] personnel in Mexico. Any branch across Mexico had the authority to open a Cayman account for a client”.

Within three years, more than 60,000 accounts were opened for nearly 50,000 customers, with total assets approaching $2.1bn.

The fictitious “Cayman Islands branch of HSBC Mexico” allowed Chapo and the cartel to use their dollars to smoothly enter the world’s financial system, to buy whatever they were able to afford wherever they wanted – always with the imprimatur of having the ultra-respectable HSBC behind them. Nobody doing business with them would ever know that there was no actual branch.

It is through this system that the Sinaloa was able to buy some of its aircraft – three planes used to ferry drugs are purchased by a company in Miami with dollars sent from the “Cayman Islands branch of HSBC Mexico”.

What is more, this wasn’t like a branch, either, where you must complete lots of forms and show ID – the helpful HSBC Mexico staff do it all.

As for the petty bureaucratic bit – supplying the security details – that wasn’t a problem, either. At least 15 per cent of the accounts contained no detail that could be checked regarding the account holder. In more than 50 per cent of cases, nobody from HSBC ever meets the supposed account holder; 7,500 accounts have no files at all.

This is an extract from Chris Blackhurst’s book, ‘Too Big to Jail’ (Macmillan, £20).


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