HONG KONG: HSBC and Standard Chartered's Hong Kong shares dropped on Monday (Sep 21) after media reports that they and other banks, including Barclays and Deutsche Bank, moved large sums of allegedly illicit funds over nearly two decades despite red flags about the origins of the money.
BuzzFeed and other media reports were based on leaked suspicious activity reports (SARs) filed by banks and other financial firms with the US Department of Treasury's Financial Crimes Enforcement Network (FinCen).
The revelations underscore challenges for regulatory and financial institutions trying to stop the flow of dirty money despite billions of dollars of investments and penalties imposed on banks in the past decade.
HSBC shares in Hong Kong tanked 5.33 per cent to close at HK$29.30 - a level not seen since mid-1995.
StanChart plunged 6.18 per cent to close at HK$34.90. The Hang Seng Index was down 2.06 per cent.
London-headquartered HSBC and StanChart, among other global banks, have paid billions of dollars in fines in recent years for violating US sanctions on Iran and anti-money laundering rules.
The media reports come at a tough time for the two UK lenders, both of which make the bulk of their profits in Asia, and are reeling from the impact of the COVID-19 pandemic, US-China tensions and political uncertainty in Hong Kong.
Bharath Vellore, APAC managing director at Accuity, a financial crime and sanctions lists screening software provider, said the leaked files, if true, demonstrated the need for banks to enhance their due diligence on their customers.
"It also strengthens the recent regulatory focus on the banks to identify sources of funds and beneficial owners of their customers," he added.
More than 2,100 SARs, which are in themselves not necessarily proof of wrongdoing, were obtained by BuzzFeed News and shared with the International Consortium of Investigative Journalists (ICIJ) and other media organisations.
The files contained information about more than US$2 trillion worth of transactions between 1999 and 2017, which were flagged by internal compliance departments of financial institutions as suspicious.
The ICIJ reported the leaked documents were a tiny fraction of the reports filed with FinCEN. HSBC and StanChart were among the five banks that appeared most often in the documents, the ICIJ reported.
COMBATING FINANCIAL CRIME
The SARs showed that banks often moved funds for companies that were registered in offshore havens, such as the British Virgin Islands, and did not know the ultimate owner of the account, the report said.
Staff at major banks often used Google searches to learn who was behind large transactions, it said.
In some cases the banks kept moving illicit funds even after US officials warned them they could face criminal prosecutions if they continued to do business with criminals or corrupt regimes, it said.
Global banks in the recent years have boosted investments on technology and staff to deal with tighter anti-money laundering and sanctions regulatory requirements across the world.
Thousands of clients were booted out of bank accounts in major wealth hubs including Hong Kong and Singapore after a money laundering scandal in Malaysia, the "Panama Papers" expose, and a global push for tax transparency.
In a statement to Reuters on Sunday, HSBC said "all of the information provided by the ICIJ is historical". The bank said that as of 2012 it had embarked on a "multi-year journey to overhaul its ability to combat financial crime".
StanChart said in a statement it took its "responsibility to fight financial crime extremely seriously and have invested substantially in our compliance programmes".
Barclays said it believes it has complied with "all its legal and regulatory obligations, including in relation to US sanctions."
The most number of SARS in the cache related to Deutsche Bank. In a statement on Sunday, Deutsche Bank said the ICIJ had "reported on a number of historic issues".
"We have devoted significant resources to strengthening our controls and we are very focused on meeting our responsibilities and obligations," a spokesperson for the bank said.
FinCen said in a statement on its website on Sep 1 that it was aware that various media outlets intended to publish a series of articles based on unlawfully disclosed SARs, as well as other documents.