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Leaked HSBC Files Show Banking Giant Provided Services to Clients Tied to Arms Trafficking, Blood Diamonds

Files from a whistleblower, which a major French newspaper obtained, show HSBC’s Swiss private bank offered services to clients, who the United Nations, court documents and media had singled out as having connections to arms trafficking, bribery and blood diamonds.

The HSBC files span from 2005 to 2007. According to The Guardian, the files “amount to the biggest banking leak in history, shedding light on some 30,000 accounts holding” almost $120 billion of assets.

The leak comes from Hervé Falciani, who worked as a systems specialist at HSBC Private Bank in Switzerland. In 2008, Falciani contacted European tax authorities and intelligence agencies, claiming to have the “client list of one of the world’s largest wealth management banks.” When he contacted French officials, he provided an encrypted list containing personal details on seven clients living in France.

“These disclosures shine a light on the intersection of international crime and legitimate business, and they dramatically expand what’s known about potentially illegal or unethical behavior in recent years at HSBC, one of the world’s largest banks,” according to the International Consortium of Investigative Journalists (ICIJ), a global network which worked on the files and uncovered several revelations.

For reporting on the files, ICIJ “enlisted more than 140 journalists from 45 countries, including reporters from Le Monde, The Guardian, BBC, 60 Minutes, Süddeutsche Zeitung and over 45 other media outlets. The journalism directly challenges bank secrecy, which made much of the illicit conduct apparent in the files possible.

ICIJ reported, HSBC kept Aziza Kulsum, who is known as the “Coltan Queen,” and her family as clients “even after Kulsum was named by the United Nations as financing the bloody Burundian civil war in the 1990s.”

Kulsum was identified by a 2001 UN report as being a “key player in the Democratic Republic of the Congo in the illicit trade in coltan, a strategically important mineral used in electronic devices.” Exploitation of the black mineral by the rich has fueled war for well over a decade.

“While two of Kulsum’s accounts were closed before 2001, a third account worth $3.2 million was frozen (though not closed) for unspecified ‘compliance reasons’ at an unknown date,” according to ICIJ. “Kulsum’s husband had an unspecified connection to a further account that was not closed and held an additional $1.6 million at one point in 2006/2007. HSBC referred to Kulsum as a ‘businesswoman (stone and noble metals)’ and the owner of a cigarette factory.”

Katex Mines Guinee, which was a front company which Guinea’s Ministry of Defense used to “traffic arms to rebel soldiers in Liberia during fighting in 2003,” apparently had an account with “$7.14 million in its three years after UN reports about the company.

A few accounts show questionable transactions on behalf of British arms company BAE. For example, Fana Hlongwane, a South African political adviser and businessman, could be linked to three accounts, two which held $12 million in 2006-2007. The UK Serious Fraud Office declared in statements to South African prosecutors in 2008 that the businessman had received “money from BAE through a disguised chain of offshore intermediaries in order to promote arms deals.”

At least 2,000 HSBC clients in the files are “associated with the diamond industry.” One of the clients, Emmanuel Shallop, was convicted in 2010 of dealing in blood diamonds.

HSBC was aware Belgian authorities were investigating him yet helped him anyway. “We have opened a company account for him based in Dubai…The client is very cautious currently because he is under pressure from the Belgian tax authorities, who are investigating his activities in the area of diamond fiscal fraud.” And, when ICIJ sought comment, Shallop’s lawyer stated, “My client does not want his name to be mentioned in any article because of reasons of privacy.”

Al Qaeda leader Osama bin Laden is known to have referred to a list of the organization’s “financial benefactors” as the “Golden Chain.” Three “Golden Chain” names were found by ICIJ in the HSBC files. In 2012, a US Senate report called attention to the “alleged internal al Qaeda list of financial benefactors,” which showed HSBC had clients with ties to a terrorist organization.

Initially, HSBC insisted that journalists destroy the bank’s files, but, when the company realized that boorish reaction was not going to work, it decided to provide a full response to revelations and claim all is well now. HSBC has reformed.

“Although there are numerous legitimate reasons to have a Swiss bank account, in some cases individuals took advantage of bank secrecy to hold undeclared accounts. This resulted in private banks, including HSBC’s Swiss private bank, having a number of clients that may not have been fully compliant with their applicable tax obligations. We acknowledge and are accountable for past compliance and control failures,” HSBC stated.

“HSBC chief executive, Stuart Gulliver, announced HSBC’s commitment to implement the highest or most effective standards across the group to combat financial crime. HSBC is following through on that commitment to Global Standards, and is now just over two years into a five-year program to transform the way that HSBC manages financial crime risk. The steps HSBC has taken globally to de-risk and the comprehensive reforms the group is putting in place will ensure that HSBC has a robust, sustainable anti-money laundering and sanctions compliance program.”

The Guardian articulated why the public had a right to know the identities of people who had accounts with HSBC’s Swiss private bank:

Following the HSBC leak, scores of its Swiss clients are already under criminal investigation, in Britain and globally. Many others have paid civil penalties. Only one Briton has previously been publicly identified – Michael Shanly, a millionaire property developer, whose failure to pay inheritance tax on his late mother’s £800,000 home has cost him £850,000 in criminal penalties. Other clients of HSBC now turn out to be unsavoury characters, attracted by the secrecy on offer. Evidence exists that some may have been smuggling drugs, handling bribes, committing fraud, helping to finance terrorists, or looting their own countries. Others have done nothing unlawful but have kept untaxed money in Switzerland while making political donations in Britain or the US.

In addition to providing services to clients tied to arms trafficking and blood diamonds, the bank served individuals with ties to Egyptian president Hosni Mubarak, former Tunisian president Ben Ali and Syrian President Bashar al Assad, including Rami Makhlouf, a cousin.

The late Frantz Merceron, who was the “alleged bagman for the late former Haitian President Jean Claude ‘Baby Doc’ Duvalier” and accused of embezzling $900 million before fleeing the country, is named in the files.

Also, according to The Guardian, HSBC “marketed tax avoidance strategies to its wealthy clients.” They explicitly relied upon a 1934 bank secrecy law, one of the strictest in the world, to conceal corrupt transactions and bankers encouraged malpractice.

In a separate transaction, the bankers themselves recorded that they were uneasy when a Serbian businessman wanted to deposit €20m (£15m). But they merely asked him to act less conspicuously.

HSBC “explained that as per today the bank did not interfere in his money transfer transactions but would have preferred to reduce those activities on a lower scale. [He] understands our concerns and will use smaller amounts”.

There are numerous criminal investigations into HSBC that are ongoing. And, although the United States Justice Department and Internal Revenue Service have investigated and had access to some of the leaked files, it is unclear whether there will be any further action against HSBC or any of its subsidiaries.

Evidence that HSBC had allowed clients to violate sanctions in Cuba, Iran and Sudan, permitted money laundering by Mexican drug cartels and did not stop terrorism financing by some clients led to a $1.9 billion fine for HSBC and its US bank two years ago.

The fine was part of a “deferred prosecution agreement” and was overseen by Loretta Lynch, the US Attorney for the Eastern District of New York and nominee for Attorney General. Lynch defended the agreement as it was criticized for making it possible for bank executives to avoid criminal indictments.

“Had the US authorities decided to press criminal charges,” Assistant Attorney General Lanny Breuer said at a press conference where the settlement was announced, “HSBC would almost certainly have lost its banking license in the U.S., the future of the institution would have been under threat and the entire banking system would have been destabilized.”

As journalist Matt Taibbi wrote in a major cover story for Rolling Stone in 2013, “In the years just after 9/11, even being breathed on by a suspected terrorist could land you in extralegal detention for the rest of your life. But now, when you’re Too Big to Jail, you can cop to laundering terrorist cash and violating the Trading With the Enemy Act, and not only will you not be prosecuted for it, but the government will go out of its way to make sure you won’t lose your license.”

“Some on [Capitol] Hill put it to me this way: OK, fine, no jail time, but they can’t even pull their charter? Are you kidding?”

Creative Commons Licensed Photo by bstrasser

CommunityThe Dissenter

Leaked HSBC Files Show Banking Giant Provided Services to Clients Tied to Arms Trafficking, Blood Diamonds

Files from a whistleblower, which a major French newspaper obtained, show HSBC’s Swiss private bank offered services to clients, who the United Nations, court documents and media had singled out as having connections to arms trafficking, bribery and blood diamonds.

The HSBC files span from 2005 to 2007. According to The Guardian, the files “amount to the biggest banking leak in history, shedding light on some 30,000 accounts holding” almost $120 billion of assets.

The leak comes from Hervé Falciani, who worked as a systems specialist at HSBC Private Bank in Switzerland. In 2008, Falciani contacted European tax authorities and intelligence agencies, claiming to have the “client list of one of the world’s largest wealth management banks.” When he contacted French officials, he provided an encrypted list containing personal details on seven clients living in France.

“These disclosures shine a light on the intersection of international crime and legitimate business, and they dramatically expand what’s known about potentially illegal or unethical behavior in recent years at HSBC, one of the world’s largest banks,” according to the International Consortium of Investigative Journalists (ICIJ), a global network which worked on the files and uncovered several revelations.

For reporting on the files, ICIJ “enlisted more than 140 journalists from 45 countries, including reporters from Le Monde, The Guardian, BBC, 60 Minutes, Süddeutsche Zeitung and over 45 other media outlets. The journalism directly challenges bank secrecy, which made much of the illicit conduct apparent in the files possible.

ICIJ reported, HSBC kept Aziza Kulsum, who is known as the “Coltan Queen,” and her family as clients “even after Kulsum was named by the United Nations as financing the bloody Burundian civil war in the 1990s.”

Kulsum was identified by a 2001 UN report as being a “key player in the Democratic Republic of the Congo in the illicit trade in coltan, a strategically important mineral used in electronic devices.” Exploitation of the black mineral by the rich has fueled war for well over a decade.

“While two of Kulsum’s accounts were closed before 2001, a third account worth $3.2 million was frozen (though not closed) for unspecified ‘compliance reasons’ at an unknown date,” according to ICIJ. “Kulsum’s husband had an unspecified connection to a further account that was not closed and held an additional $1.6 million at one point in 2006/2007. HSBC referred to Kulsum as a ‘businesswoman (stone and noble metals)’ and the owner of a cigarette factory.”

Katex Mines Guinee, which was a front company which Guinea’s Ministry of Defense used to “traffic arms to rebel soldiers in Liberia during fighting in 2003,” apparently had an account with “$7.14 million in its three years after UN reports about the company.

A few accounts show questionable transactions on behalf of British arms company BAE. For example, Fana Hlongwane, a South African political adviser and businessman, could be linked to three accounts, two which held $12 million in 2006-2007. The UK Serious Fraud Office declared in statements to South African prosecutors in 2008 that the businessman had received “money from BAE through a disguised chain of offshore intermediaries in order to promote arms deals.”

At least 2,000 HSBC clients in the files are “associated with the diamond industry.” One of the clients, Emmanuel Shallop, was convicted in 2010 of dealing in blood diamonds.

HSBC was aware Belgian authorities were investigating him yet helped him anyway. “We have opened a company account for him based in Dubai…The client is very cautious currently because he is under pressure from the Belgian tax authorities, who are investigating his activities in the area of diamond fiscal fraud.” And, when ICIJ sought comment, Shallop’s lawyer stated, “My client does not want his name to be mentioned in any article because of reasons of privacy.”

Al Qaeda leader Osama bin Laden is known to have referred to a list of the organization’s “financial benefactors” as the “Golden Chain.” Three “Golden Chain” names were found by ICIJ in the HSBC files. In 2012, a US Senate report called attention to the “alleged internal al Qaeda list of financial benefactors,” which showed HSBC had clients with ties to a terrorist organization.

Initially, HSBC insisted that journalists destroy the bank’s files, but, when the company realized that boorish reaction was not going to work, it decided to provide a full response to revelations and claim all is well now. HSBC has reformed. (more…)

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Kevin Gosztola

Kevin Gosztola

Kevin Gosztola is managing editor of Shadowproof Press. He also produces and co-hosts the weekly podcast, "Unauthorized Disclosure."