HSBC needs to do more to clean up the way it does business and overhaul the culture that exists in some of its operations, according to a report for the US authorities.
A monitor installed by the US Department of Justice found that deep-rooted cultural problems inside Britain’s largest bank continue to exist despite the efforts of the new management, led by chief executive Stuart Gulliver, to reform the way the bank operates.
Installed after HSBC’s record-breaking $US1.9bn (£1.2bn) fine in 2012 for laundering money for Mexican drug cartels, terrorists and pariah states, the monitor said: “In certain instances, the monitor believes that HSBC group’s progress has been too slow. The monitor does not believe this is the result of bad faith or lack of commitment by HSBC group’s senior leadership, but does believe that HSBC group can — and must — do more”.
In the US, there was “combativeness, overblown complaints about factual inaccuracy, and a basic lack of cooperativeness” in some instances. As a result the head of the US business is being moved and bonuses cut by 50%.
The bank’s internal cultures have been subjected to fresh scrutiny in recent weeks following the revelations in the Guardian, and other publications, about tax avoidance practices in its Swiss banking operations.
The appointment of the monitor — Michael Cherkasky, a top US lawyer — is not related to the Swiss operations. Appointed for five years to oversee pledges by HSBC to ensure it will no longer breach US rules on money laundering and sanctions, he has made his second annual report to the US authorities.
A review of that 1,000-page report filed in the US courts by the Department of Justice found that while senior executives at HSBC were attempting to improve the culture, this was not the case in other parts of the business.
“Notwithstanding the attitude of HSBC group’s senior executives, the monitor observed other indicators that some of HSBC group’s historical cultural deficiencies continue to pervade its operations today,” the report said.
In the US, senior managers of the global banking and markets area “inappropriately pushed back against adverse findings” by an internal audit team into reviews of the “know your customer” anti-money laundering rules. Senior managers in the division “resisted the review in a manner that caused the final audit report to be more favourable to the business than it would otherwise have been” and “delayed and interfered” with other reviews.
But, Gulliver reacted quickly when the problem was uncovered, issuing a memo to staff to tell them that “rudeness, cynicism, or any attempt to intimidate are not acceptable and will not be tolerated” towards the internal audit team.
“At my direction, our global internal audit team is holding us to a higher standard than in the past. Therefore, we should expect to have more insightful and critical audits,” the memo said.
The bank’s monitor said there had been progress in improving its technology to assess money laundering risks but that there was a “material weakness in which a great deal of work remains to be done”.