Embattled British bank HSBC finds itself embroiled in yet another scandal

Just when you thought things couldn’t get any worse for HSBC, a report published by Global Witness in November accuses the British financial giant of bankrolling unsustainable logging companies in Sarawak, Borneo.

According to the Global Witness investigation, a number of HSBC’s Sarawak clients have been engaging in illegal logging and unethical practices, violating the bank’s 2004 forest policy – and earning it $130m.

HSBC’s 2004 forest policy required the bank to drop clients unlikely to achieve Forest Stewardship Council or equivalent certification for 70% of their operations, by 2009. Global Witness says that as of 2012, none of HSBC’s Sarawak forestry clients analysed in the report hold an FSC or equivalent certification, representing a 100% compliance failure over an eight-year period.

Responding to Ethical Corporation, the bank says that “99% of our customers in the forestry sector are compliant or near compliant with our policy” and that it is ending its relationships with the “remaining 1%”.

Tom Picken of Global Witness says: “HSBC have tried to deflect the seriousness of this by stating almost all of their clients are ‘compliant or near-compliant’. They won’t, however, explain what ‘near-compliant’ means.”

Global Witness suggests that while HSBC’s forest policies are more progressive than those of other banks, it has failed to monitor and implement those policies.

Picken adds: “It is deeply disappointing that HSBC have still not agreed to a meeting with Global Witness at a level higher than simply fielding HSBC’s sustainability people – this suggests they are not taking these matters seriously.”  

A new low

The Global Witness report represents a new nadir for the embattled bank. In July 2012, a 12-month US Senate investigation found that HSBC’s compliance culture had been “pervasively polluted for a long time” after years of poor anti-money-laundering controls allowed billions of dollars to be laundered through its US and Mexican banking operations.

A Senate subcommittee concluded HSBC had “exposed the US financial system to money laundering, drug trafficking, and terrorist financing risks” through a systematic failure to enforce internal controls. HSBC says: “We are actively engaged in discussions with US authorities to try to reach a resolution, but there is not yet an agreement.”

The bank is currently preparing itself for fines from the US authorities that could reach as much as $1.5bn – one of the largest ever imposed in the financial services industry. For comparison, Standard Chartered recently received a fine of $340m from US regulators for its alleged role in illegal banking transactions with Iran.

If money laundering and bankrolling of unsustainable logging companies weren’t enough, last month HSBC also found itself looking into evidence that criminals and tax evaders were using offshore accounts at its Jersey operations following a leak from a whistleblower.

While it is not the responsibility of the bank to police the tax affairs of its account holders, HSBC shareholders, regulators and the public will surely be very concerned.