Switzerland’s financial regulatory authority, Finma, has imposed strict sanctions on HSBC’s Swiss private bank subsidiary following serious violations of anti-money laundering (AML) regulations. The enforcement includes a ban on the bank accepting new prominent public figures as clients, commonly known as politically exposed persons (PEPs) until a comprehensive review of its high-risk relationships and transactions is completed. These money laundering violations offer a clear reminder about the importance of having effective AML procedures and protocols in place.

Money Laundering Violations Sees Finma Ban HSBC Swiss Private Bank

Background of the Case

The penalties stem from a series of transactions between 2002 and 2015, where over $300 million was transferred between Lebanon and Switzerland. HSBC did not report these suspicious transactions until September 2020, four years after closing the accounts in question due to associated risks.

Finma highlighted the bank’s failure to identify signs of money laundering and its inability to meet due diligence requirements in managing relationships with PEPs. This lack of compliance led to severe breaches of AML obligations, prompting the regulatory body to take action.

Details of the Penalties

As part of the sanctions announced on Tuesday, Finma mandated HSBC to conduct an extensive AML review of all its high-risk relationships, particularly those involving PEPs. The bank is prohibited from initiating new PEP relationships until the review is satisfactorily completed. Both Finma and HSBC have refrained from disclosing the identities of the former clients involved in these transactions.

Connection to Lebanese Officials

Switzerland’s attorney-general opened an investigation in 2021 into allegations against Lebanon’s central bank governor, Riad Salameh, and his brother, Raja Salameh. They are accused of embezzling over $300 million from the Lebanese central bank via transactions to an offshore company named Forry Associates, which were funnelled through an HSBC Switzerland account.

Between 2002 and 2015, the Salameh brothers allegedly transferred $333 million to this account, with significant sums subsequently moved to Swiss bank accounts under their control. Finma’s enforcement proceedings against HSBC are directly linked to these Lebanese clients.

Legal Proceedings and Allegations

Riad Salameh has consistently denied any wrongdoing. Nevertheless, in 2022, Beirut prosecutors charged him with embezzling more than $330 million in public funds. He is also under criminal investigation in multiple jurisdictions, including Switzerland, France, and Germany, with several arrest warrants issued against him.

Raja Salameh, defending his integrity, stated in 2021, “My integrity has never been questioned. I have always earned my money legitimately.” The brothers did not provide any immediate comments following the recent Finma ruling.

In response to Finma’s decision, HSBC has announced its intention to appeal. Acknowledging the historic nature of the issues raised, the bank emphasized its commitment to AML obligations, ensuring compliance with all relevant laws and regulations in every market it operates.

This is not the first instance where HSBC’s Geneva-based subsidiary has faced enforcement actions from Finma. In 2008, a former IT worker leaked information about thousands of clients, revealing the bank’s role in helping customers evade taxes. This incident led to a criminal investigation by Geneva’s public prosecutor into suspected “aggravated money laundering” and resulted in police raids at the bank’s Swiss headquarters.

The Investigation Offers an Important Reminder for Financial Businesses

The recent actions by Finma against HSBC underscore the importance of stringent AML practices, especially when dealing with high-risk clients such as PEPs. The ban on accepting new PEP clients and the mandated AML review reflect the regulatory body’s commitment to maintaining the integrity of the financial system. As HSBC navigates these sanctions and appeals the decision, the case serves as a critical reminder for financial institutions globally to uphold rigorous compliance standards to prevent money laundering and related financial crimes.

Financial regulators across the globe are keen to ensure regulations are met, so it’s essential banks have effective, efficient procedures in place to combat money laundering and other financial crimes, especially at a time when financial firms are calling for more clarity on AML regulations.