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Behind HSBC's money laundering scandal

HSBC

HSBC Bank will further shrink its presence in Western New York by laying off 77 employees here and shifting its money-laundering prevention unit from Buffalo to New York City and Delaware.

Jonathan Epstein gives some background in Friday's Buffalo News:

HSBC has been bulking up its compliance division in response to federal investigations and accusations that the global bank -- which operates in 82 countries around the world -- has been violating U.S. money-laundering rules, particularly provisions of the Bank Secrecy Act, as well as bans on U.S. banks doing business with certain countries or certain foreign individuals.

The laws are designed to prevent the U.S. financial system from being used to support criminal activities, including but not exclusively terrorism. They're also aimed at punishing certain foreign leaders or governments that have been identified as threats or violators of international law.

HsbcChina

But the full story is much juicier. It's almost surreal. 

This special report from Reuters  digs into what's behind the allegations, uncovering what is said to be flagrant flouting of the law and a willful cover-up for known money launderers in order to keep large accounts.

Here's an excerpt from the article by Carrick Mollenkamp, Brett Wolf and Brian Grow:

HSBC [violated the law on a massive scale] by not adequately reviewing hundreds of billions of dollars in transactions for any that might have links to drug trafficking, terrorist financing and other criminal activity.

In some of the documents, prosecutors allege that HSBC intentionally flouted the law. The bank created an operation that was a “systemically flawed sham paper-product designed solely to make it appear that the Bank has complied” with the Bank Secrecy Act and is able to detect money laundering, wrote William J. Ihlenfeld II, U.S. Attorney for the Northern District of West Virginia, in a draft of a 2010 letter addressed to Justice Department officials.

In that letter, Ihlenfeld compared HSBC unfavorably to Riggs Bank. In 2004 and 2005, that scandal-plagued Washington bank was fined a total of $41 million after it was found to have violated anti-money laundering laws, and it was acquired by PNC Financial Services.

“HSBC is to Riggs, as a nuclear waste dump is to a municipal land fill,” Ihlenfeld wrote.

JP Morgan heats up bank regulation debate

Dimon

Jamie Dimon, CEO of JPMorgan Chase, will face shareholders at the bank's annual meeting in Florida today for the first time since the company revealed its $2 billion trading loss.

An editorial in the New Jersey Star-Ledger says this latest incident is proof that, despite bringing the American economy to its knees in previous gambles, big banks continue to take risks that put the entire economy in danger.

"Dimon and other bankers must now admit their human penchant for error — errors that can bring down the economy, as we learned in 2008 — and get out of the way of common-sense regulations such as the Volcker rule and its parent, Dodd-Frank, the major banking reform of the post-meltdown era," the editorial board writes.

Warren

Elizabeth Warren has called for Dimon's resignation from his board post at the New York Federal Reserve. "The banks cannot regulate themselves," she said on 'CBS This Morning.' (Read more of her opinions in this Washington Post blog).

Newsweek correspondent Michael Tomasky thinks Dimon should resign, too--from JPMorgan.

"I’m well aware that the suggestion will strike most people as ridiculous. And I am here to say that the very fact that it sounds ridiculous demonstrates the sickness that we have come to accept as normal. We live in a society whose elites do everything they can to take no responsibility for anything," Tomasky writes in the Daily Beast.

 Obama

President Obama, in an appearance on TV talk show "The View," said the fact that one of the country's smartest, best bankers can make such a huge mistake in the derivatives market shows the need for its regulation.

"Keep in mind if we get all the rules that we proposed and were passed by Congress implemented into law, it should prevent this kind of stuff from happening ,"Obama said . "But this, again, is going to be part of what the election is about. We've got real differences here, because Governor Romney, members -- some of the Republican members of Congress and the financial industry have been arguing that this is unnecessary, that this is impeding capital formation."

A really big bank blunder

J.P. Morgan's $2 billion trading loss is the big story today, and has tongues wagging.

Dimon

It is the lead story in both the Wall Street Journal , Forbes and the New York Times, but for bank reformers, the story is like manna from heaven.

While he failed to foresee his company's huge losses from risky trading, J.P. Morgan CEO Jamie Dimon did accurately predict the feeding frenzy among critics that would ensue.

"It plays into the hands of a bunch of pundits but you have to deal with that and that’s life,” Dimon said in a conference call.

BetterMarkets.com, a non-profit reform group, said the incident at J.P. Morgan is all the proof necessary to show that reform is needed.

"Jamie Dimon and JP Morgan Chase just proved what anyone not getting a paycheck from a Wall Street bank already knows: gigantic too-big-to-fail banks are too-big-to-manage," writes Dennis Kelleher, the group's president.

Here is more of Kelleher's statement:

"Ignoring the trillions in dollars of damage done by Wall Street in causing the economic collapse, JPMorgan Chase CEO Jamie Dimon has been a relentless critic of financial reform.  He has denied that the biggest banks continue to threaten our financial system and our economy and claims they are well run and know how to manage risk.  JPM's announcement today of a surprise $2 billion in losses from illiquid derivatives proves him wrong and shows the need for financial reform, especially a strong Volcker Rule, to limit such risky betting."

Levin

The Volcker Rule would, among other things, restrict banks' ability to make risky trades.

"Today’s announcement is a stark reminder of the need for regulators to establish tough, effective standards to implement the Merkley-Levin language to protect taxpayers from having to cover such high-risk bets," said U.S. Senator Carl Levin, chairman of the Senate Permanent Subcommittee on Investigations and co-author of the Merkley-Levin language establishing the Volcker Rule.

But more than making the case for a Volcker rule, some say the incident exposes a major flaw in the proposed legislation.

Matthew Yglesias at Slate.com writes:

"Dimon repeatedly insisted that the whole operation is Volcker-compliant, and JP Morgan is describing the operation as an effort at hedging gone wrong. Nobody knows exactly what happened, but in general if you just lost $2 billion that's a good sign that you're not hedging. The idea of hedging is to accept a small cost in order to insure yourself against the risk of a big loss. Two billion dollars is a big loss even for JP Morgan. So why call it hedging? Presumably because the Volcker Rule allows proprietary trading for the purposes of hedging. This turns out to be a big loophole."

Americans for Financial Reform believes that's why the Volcker Rule not only needs to be enacted, but strengthened.

JPMorgan

"The regulators current rule has a loose, permissive standard for portfolio hedging that might have permitted these trades under a hedge exemption, even though they clearly violated the proprietary trading ban. We hope that regulators will heed the warning here, and move speedily to finalize a Volcker Rule that is stronger than their initial proposed rule," its statement reads. 

But according to the Journal's Steve Goldstein, blogging in MarketWatch, "The simple fact is that no rule is going to be strong enough to prevent a bank from acting with hubris and stupidity."

"The best way to combat 'too big to fail' is to make banks small enough that failures wouldn’t matter," Goldstein writes. "Short of that obvious step, best to be prepared for the worst."

How much more will the eurozone crisis affect us?

Unemployment in the eurozone rose by 169,000 in March, bringing the unemployment rate to its highest ever since the euro was created n 1999.

Stocks

Bad jobs reports coming out of Europe and the United States caused stock prices to drop Wednesday. The Dow Jones industrial average fell by 87 points before closing down 10.75, while the Standard & Poor's 500 fell 3.51 points to 1,402.31.

You can follow the history of the crisis in this archive  of related articles compiled by Bloomberg.

Catherine Rampell, writing for the New York Times, sums up the three dangers the eurozone's problems pose to the U.S.: trade, the stock market and credit. Europe's struggle leaves a smaller customer base for our exports, makes our dollar (and thus our goods) more expensive and sends stocks down. Worse, because European countries own so much of each other's debt, one country's troubles will have a domino effect on those tied up with it. That would make it harder for Americans to borrow money.

Reuters wades through several different scenarios, ranging from a mild eurozone recession to a financial meltdown. 

Clash

In the case of the latter, Stella Dawson writes that the risk of one or more countries leaving the eurozone "would cause political, economic and market upheaval."

This audio report from Marketplace in 2010 shows how European troubles don't affect all regions of the U.S. in the same way. Cities tied to the automobile and pharmaceutical industries could be hit harder, for example.

As usual, the Economic Collapse blog does not disappoint with its, "27 Statistics About the European Economic Crisis That Are Almost Too Crazy to Believe." It includes Spain's sky-high unemployment rate (now at 24.1 percent) and asks "Just how far can you stretch the rubberband before it snaps? Perhaps we are about to find out."

Breadline

It continues:

"The European financial system is leveraged like crazy right now.  Even banking systems in countries that you think of as 'stable' are leveraged to extremes. For example, major German banks are leveraged 32 to 1, and those banks are holding a massive amount of European sovereign debt. When Lehman Brothers finally collapsed, it was only leveraged 30 to 1."

 

Concerned bank investors speak out.

From Business Today:

Koelmel

First Niagara Financial Group CEO John R. Koelmel spent much of the company's annual meeting defending himself and the company's business strategies Wednesday. He spoke before about 75 investors, many of them disgruntled about First Niagara stock's decline and dividend cut in 2011. Koelmel attributed the bank's slipping performance to several factors outside the company's control and said it had nothing to do with its $1 billion purchase of 195 HSBC Bank USA branches.

CEONasca

Profits were up at Evans Bancorp during the first quarter. Profits rose at the 26.9 percent from a year ago.  It reported net income of $2.4 million, or 58 cents per share, up from $1.9 million, or 46 cents per share, in the same period a year ago. The increase was attributed to growing loan revenues, rising deposits and strenghtened credit. Evans Bancorp is the Hamburg-based parent of Evans Bank.

Pinnacle

Pinnacle Airlines will be under the microscope of federal aviation safety inspectors since filing for bankruptcy, to be sure the company's financial problems will not encourage it to take shortcuts that might put passengers at risk. Enhanced oversight is the standard policy for the Federal Aviation Administration when any passenger airline files for bankruptcy.

Calspan

The New York State Power Authority's Recharge New York program will give 64 Western New York Companies low-cost electricity. The biggest local recipient, Calspan Corp., will receive 5,500 kilowatts. Others to receive the low-cost power include Roswell Park Cancer Institute, Buffalo General Hospital, and Yahoo Inc.

 

FiveStarBank

Profits were up at Financial Institutions during the first quarter. Profits rose six percent, while the company reported net income of $6.2 million, or 42 cents per common share, up from $5.8 million, or 33 cents per share, a year ago. The bump is attributed to an increase in loans and lending income. Financial Institutions is the Warsaw-based parent company of Five Star Bank.

Who is getting hired, promoted and honored?

The Reverend Horton Heat will be at the Tralf tonight:

 

New venture funding for local firm

From Business Today:

CommunityBank

Profits were up at Community Bank System during the first quarter. The DeWitt-based bank is in the process of buying 19 bank branches from HSBC Bank USA and First Niagara Financial Group. Profits rose 16.5 percent, while the company reported net income of $18.8 million, or 48 cents per share, up from $16.2 million, or 48 cents per share. The increase was attributed to higher revenues from an earlier acquisition last April, as well as growth in deposits.

Liazon

Liazon Corp. has received $18.2 million in venture funding from Bessemer Venture Partners and Fidelity Biosciences, along with follow-up capital from existing investors Bain Capital Ventures and Buffalo-based Rand Capital SBIC. The Buffalo-based company operates a private health insurance exchange system for small businesses.

Icearena

Profits at Northwest Bancshares were down during the first quarter. The Pennsylvania-based company is the parent of Northwest Savings Bank, which operates as Jamestown Savings Bank in Chautauqua County. It had net income of $15.2 million, or 16 cents per share, down from $17.3 million, or 16 cents per share, a year ago. The loss was attributed to lower revenues and higher expenses despite loan growth and an improvement in credit quality.

Freetaxhelp

Accounting students from the University at Buffalo’s School of Management donated nearly 2,200 hours of tax service during the 2012 season, preparing more than 900 tax returns for low-income taxpayers. That resulted in a total of $1.35 million being refunded to individuals and families.

 

Who is getting hired, promoted and honored?

Speaking of taxes:

 

Getting back to work.

From Business Today:

JobSeekersThe job-growth rate in the Buffalo Niagara region accelerated in March. The region saw a one percent annual growth rate compared to the same month last year, adding 5,400 jobs. It's the strongest growth rate in six months. The labor department attributes the improvement to strong growth in construction work and a rebound in manufacturing.

  AGSchneiderman

Sprint Nextel Corp. has been purposely dodging taxes since 2005, according to Attorney General Eric Schneiderman. The cell phone company failed to collect $100 million in state sales tax from customers, ducking out of its obligation to pay New York State $200,000 per week. Schneiderman called the failure to pay a "deliberate" plan to keep the cell phone company's prices more competitive.  Dupont

  The blast that killed a welder and injured an Angola man two years ago was partly caused by procedures followed at the DuPont plant on River Road in the Town of Tonawanda. According to a report released Thursday by the U.S. Chemical Safety and Hazard Investigation Board, technicians should have tested the tank the welders were working on to be sure they weren't flammable.  

 The Clarence Industrial Development Agency will consider tax breaks for a new office park on Sheridan Drive near the Eastern Hills Mall. The IDA will hold a public hearing next month in consideration of granting tax breaks to the $2.1 million project. The Rockledge Professional Office Park is being proposed for vacant land at 8175 Sheridan Drive, on the south side of the street, just east of Transit Road.

Koelmel

Profits soared at First Niagara Financial Group during the first quarter. First-quarter profits were up 22 percent from a year ago, thanks to higher loan and fee revenues offsetting higher expenses from an acquisition in Connecticut. The company reported net income available to common shareholders of $54.8 million, up from $44.9 million.

 Who is getting hired, promoted and honored?

I'll bet Grant Cardone is glad it's Friday. The motivational speaker who appeared in Buffalo this week was on the Delta flight that had to make an emergency landing after striking birds. Here is a video from Cardone after it happened:

 

Getting motivated, getting confident.

From Business Today:

Cardone

Motivational sales expert and author Grant Cardone spoke to about 250 attendees at Statler City Wednesday. It was one of 20 pro-bono stops on his speaking tour, donated to churches, schools and communities. His message incorporated the usual get-you-hyped-up stuff, but also tied in references to the recession and Western New York's challenging economy. He encouraged attendees to see both as an opportunity to be bold when their competition is being defensive.

Consumers

For the first time in five years, consumer confidence in the Buffalo Niagara region is on the upswing. A survey of 400 people conducted by researches at Siena College has revealed that consumers here are more willing to make purchases than they have been during any year since the first quarter of 2007, before the Great Recession hit. Shoppers here are especially willing to buy furniture and pay for home improvements, the survey said.

 

Koelmel

Three local banks have been ranked among the best performing in the nation by Virginia-based industry research firm SNL Financial. Buffalo-based First Niagara Financial Group, Community Bank System of DeWitt and NBT Bancorp of Norwich ranked in the top 25 regional banks based on profitability and other factors, according to SNL.

Mercedes

West Herr Automotive Group has opened its new Mercedes-Benz of Rochester dealership, which employs 52 people. West Herr bought Mercedes-Benz of Rochester and BMW of Rochester from Holtz House of Vehicles in 2010. It leased that facility while it completed the new one at 4296 West Henrietta Road in Henrietta.

Who is getting hired, promoted and honored?

Grant Cardone uses a video of his child crying to help him close sales. When one client hesitated to pay his full speaking fee, he sent a link to this video and told him, "You're not paying me to speak. You're paying me to leave my family."

 

Deputies called in.

From Business Today:

ECIDA

Seven sheriff's deputies stood sentinel at the Erie County Industrial Development Agency's board meeting Monday. The board had requested security to discourage outbursts from members of the Occupy Buffalo movement, who have attended and disrupted two previous meetings. Erie County Executive Mark C. Poloncarz said the show of force was "overkill." But the sheriff's office said it received an anonymous call saying Occupy Buffalo had planned to create a disturbance, so it sent more deputies in response to the call.

Graystone

Developer Carl P. Paladino will receive tax breaks on a $5.3 million project to convert the Graystone Building into 42 apartments. The Erie County Industrial Development Agency agreed Monday to approve nearly $213,000 in sales and mortgage tax breaks for the project. Paladino has received a host of financial incentives to restore the vacant building, including including $1.2 million in historic tax credits from the state.

Wilmers

Compared to a year ago, profits were flat for the first quarter at M & T Bank Corp, the Buffalo-based parent of M&T Bank. Per-share earnings fell. Despite higher loan and fee revenues and lower credit costs, the purchase of Wilmington Trust Corp. resulted in higher operating expenses. The company had net income of $206 million. Per-share profits fell by 5.7 percent, to $1.50, from $1.59 a year ago.

Hochul

 Rep. Kathleen C. Hochul, D-Amherst is proposing the Workforce-Ready Educate America Act, which would give employers a $1,000 tax credit for each student placed in qualified training program. The legislation is intended to bridge the gap between unemployed graduates and companies with unfilled positions.

Who is getting hired, promoted and honored?

 Esperanza Spalding will perform at UB tomorrow night:

 

 

First Niagara deal gets approval

From Business Today:

  Koelmel

The last step has been completed toward making First Niagara's purchase of HSBC's New York State branches official. The Office of the Comptroller of the Currency has approved the acquisition, which is set to be complete May 18. First Niagara has begun sending out letters to HSBC customers to keep them informed about the transition.

Clinic

The New York State Health Foundation has given grants of $100,000 each to two local health clinics. Neighborhood Health Center/ Northwest Buffalo Community Health Care Center in Buffalo will use the money to expand its management infrastructure, while Southern Tier Community Health Center in Olean will use its grant to expand services in Allegany and Cattaraugus counties.

 

Who is getting hired, promoted and honored?

Sugarland is coming to the Fallsview Casino Avalon Theatre in Ontario tonight:

  

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