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HSBC allowed scammers to transfer millions of dollars around the world even after learning of their scam, leaked secret files show.
Britain’s largest bank moved money through its US business to HSBC accounts in Hong Kong in 2013 and 2014.
His role in the $ 80 million (£ 62 million) fraud is detailed in a document leak, the banks’ “suspicious activity reports”, which have been dubbed the FinCEN Archives.
HSBC says it has always complied with its legal obligations when reporting such activity.
The files show that the investment scam, known as a Ponzi scheme, began shortly after the bank was fined $ 1.9 billion (£ 1.4 billion) in the United States for money laundering. She had vowed to clamp down on such practices.
Lawyers for the duped investors say the bank should have acted earlier to close the scammers’ accounts.
The document leak includes a number of other revelations, such as the suggestion that one of the largest banks in the US may have helped a notorious mobster move more than $ 1 billion.
What are FinCEN files?
The FinCEN archives are a leak of 2,657 documents, at the heart of which are 2,100 Suspicious Activity Reports, or SARs.
SARs are not evidence of wrongdoing – banks send them to authorities if they suspect that customers might not be doing anything good.
By law, they have to know who their customers are; it’s not enough to file a SAR and keep getting dirty money from customers while waiting for law enforcement to deal with the problem. If they have evidence of criminal activity, they should stop moving the cash.
The leak shows how money was laundered through some of the world’s largest banks and how criminals used anonymous British companies to hide their money.
The SARs were leaked to the Buzzfeed website and shared with the International Consortium of Investigative Journalists (ICIJ). Panorama conducted the investigation for the BBC as part of a global investigation. ICIJ spearheaded the report on the leaks of the Panama Papers and Paradise Papers, secret files detailing the offshore activities of the rich and famous.
Fergus Shiel of the consortium said FinCEN’s files are an “insight into what banks know about the vast flows of dirty money around the world … [The] the system that is meant to regulate contaminated money flows is broken. “
The leaked SARs were submitted to the US Financial Crime Investigation Network, or FinCEN, between 2000 and 2017 and cover approximately $ 2 trillion worth of transactions.
FinCEN said the leak could affect US national security, risk investigations and threaten the safety of reporters.
But last week it announced proposals to review its anti-money laundering programs.
The UK also unveiled plans to reform its business information register to crack down on fraud and money laundering.
- Everything you need to know about FinCEN’s document leak
What was the Ponzi scam?
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Murder victim Reynaldo Pacheco
The investment scam that HSBC was warned about was called WCM777. It led to the death of investor Reynaldo Pacheco, who was found underwater at a wine farm in Napa, California, in April 2014.
Police say they beat him with stones.
He signed up for the scheme and was expected to recruit other investors. The promise was that everyone would get rich.
A 44-year-old woman Pacheco filed lost about $ 3,000. That led to the murder at the hands of men hired to kidnap him.
“He was literally trying to … improve people’s lives, and he was scammed and scammed himself, and sadly he paid for it with his life,” said Sgt. Chris Pacheco (no relative), one of the officers who investigated the murder. .
Reynaldo, he said, “was killed as a victim of a Ponzi scheme.”
What did the scam promise?
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Xu Ming claimed he was running a global bank
The plan was started by the Chinese citizen Ming Xu. Little is known about how he came to live in the United States, although he claims to have studied for a master’s degree in California.
Based in the Los Angeles area, Xu – or “Dr. Phil” as he called himself – served as pastor in evangelical churches.
Xu said he was operating a global investment bank, World Capital Market, which would pay off 100% of the profits in 100 days. Actually, I was running the WCM777 Ponzi scheme.
Through roaming seminars, Facebook, and YouTube webinars, he raised $ 80 million by selling purported investment opportunities in cloud computing.
Some of the Facebook posts used to market the WCM Pozi scheme
Thousands of people in the Asian and Latino communities were misled. The scammers used Christian images and targeted poor communities in the United States, Colombia, and Peru. There were also victims in other countries, including the UK.
California regulators told HSBC it was investigating WCM777 in September 2013 and alerted its residents to the fraud.
And California, along with Colorado and Massachusetts, took action against WCM for selling unregistered investments.
HSBC detected suspicious transactions running through its systems. But it wasn’t until April 2014, after the United States’ financial regulator, the Securities and Exchange Commission, filed charges that WCM777’s accounts at HSBC in Hong Kong were closed.
At that moment there was almost nothing left in them.
What do suspicious activity reports show?
HSBC filed its first SAR on the scam on October 29, 2013 in relation to more than $ 6 million sent to scammers’ accounts in Hong Kong.
Bank officials said there was “no apparent economic, commercial or legal purpose” for the transactions, and pointed to allegations of “Ponzi scheme activities.”
A second SAR in February 2014 identified $ 15.4 million in suspicious transactions and a “potential Ponzi scheme.”
A third report in March concerned a company associated with WCM777 and nearly $ 9.2 million, and pointed to regulatory moves by US states and an investigation ordered by the president of Colombia.
What did HSBC do?
The WCM777 scheme emerged months after HSBC avoided criminal prosecution in the United States for money laundering by Mexican drug traffickers. It did so by agreeing to improve procedures.
ICIJ analysis shows that between 2011 and 2017 HSBC identified suspicious transactions moving through Hong Kong accounts of more than $ 1.5 billion, around $ 900 million linked to general criminal activity.
But the reports did not include key data on customers, including the ultimate beneficiaries of the accounts and the origin of the money.
Banks cannot discuss suspicious activity reports.
HSBC said: “Starting in 2012, HSBC embarked on a multi-year journey to review its ability to combat financial crime in more than 60 jurisdictions … HSBC is a much safer institution than it was in 2012.”
The bank added that the US authorities had determined that it was “complying with all its obligations under the [agreement struck with US prosecutors]”.
Xu was finally arrested by Chinese authorities in 2017 and jailed for three years for the scam.
Speaking to ICIJ from China, Xu said HSBC had not contacted him about his business. He denied that WCM777 was a Ponzi scheme, saying the SEC wrongly attacked it and that its goal had been to build a religious community in California on more than 400 acres of land.
What is a Ponzi scheme?
A Ponzi scheme, named after the early 20th century con artist Charles Ponzi, does not make a profit on the cash it raises. Instead, investors are paid a return on the money that other new investors come in.
More and more investors are needed to cover these payments. Meanwhile, the owners of the scheme move money to their own accounts.
A Ponzi scheme will collapse if it cannot find enough new investors.
What else did the leak find?
FinCEN files also show how the multinational bank JP Morgan may have helped a man known as the boss of the Russian mafia bosses move more than a billion dollars through the financial system.
Semion Mogilevich has been charged with crimes such as arms trafficking, drug trafficking and murder.
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FBI
You shouldn’t be allowed to use the financial system, but a SAR filed by JP Morgan in 2015 after the account was closed reveals how the bank’s London office may have moved some of the cash.
It details how JP Morgan provided banking services to a secret offshore company called ABSI Enterprises between 2002 and 2013, although ownership of the company was unclear from the bank’s records.
Over a five-year period, JP Morgan sent and received wire transfers totaling $ 1.02 billion, the bank said.
The SAR noted that ABSI’s parent company “may be associated with Semion Mogilevich, an individual who was on the FBI’s 10 most wanted list.”
In a statement, JP Morgan said: “We follow all laws and regulations in support of the government’s work to combat financial crime. We dedicate thousands of people and hundreds of millions of dollars to this important work.”
FinCen Files is a leak of secret documents that reveal how major banks have allowed criminals to move dirty money around the world. They also show how the UK is often the weak link in the financial system and how London is awash in Russian cash.
The files were obtained by BuzzFeed News, which shared them with the International Consortium of Investigative Journalists (ICIJ) and 400 journalists from around the world. Panorama has conducted research for the BBC.
FinCEN Archives: full coverage; follow the reaction on Twitter using #FinCENFiles; In the BBC News app, follow the tag “FinCEN Files; Watch Panorama on BBC iPlayer (UK viewers only).
