HSBC discloses AML breaches to AUSTRAC
The Australian arm of HSBC Bank has launched an anti-money laundering remediation program to fix holes in its record-keeping and reporting of cross-border transactions.
Banking Day can reveal that the global bank's local entity has notified the Australian anti-money laundering regulator, AUSTRAC, of a longstanding failure to record and report some types of international transfers to foreign banks and financial institutions.
HSBC Bank Australia discloses limited details of the reporting breaches in its 2019 financial accounts that were published on its parent's global website in late March.
"In December 2019, the bank raised with AUSTRAC one such matter relating to the under-reporting of a limited category of cross-border transactions involving non-bank financial institutions and other financial institutions," HSBC Australia's directors state in the accounts.
"The bank is continuing to work with AUSTRAC in relation to this matter in line with our open and transparent approach to regulators," the bank said in the report.
Banking Day understands that the reporting breaches relate to HSBC's failure to record details of transactions with non-bank financial institutions using the SWIFT financial messaging system.
It is believed the breaching persisted for many years because HSBC was not using SWIFT's MT202 messaging format in line with AUSTRAC requirements.
This meant that details about thousands of cross-border payments and instructions were never reported to AUSTRAC.
A spokesperson for HSBC Bank Australia yesterday declined to comment on the remediation now underway within the company and whether the bank suspected that the non-compliance might have allowed criminal conduct to go unscrutinised.
Given the recent cases of AML breaches at Westpac and Commonwealth Bank, the Australian arm of HSBC is facing a potentially onerous process of having to identify every transaction that was "under-reported" to the regulator and take corrective action.
Risk management consultant and researcher, Dr Patrick McConnell, said he was not surprised that AML compliance issues had re-surfaced within HSBC.
McConnell, who documents HSBC's problems complying with international AML and count-terrorism funding laws in his book Systemic Operational Risk, believes the banking group still faces a big challenge to make its global operations compliant.
"Last year HSBC was operating out of 6000 offices around the world, which means it probably has the widest reach of any bank," he said.
"In the last 15 years they've acquired many other financial institutions and that means they have lots of systems likely to create compliance holes across their operations."
In 2012, HSBC was fined $US1.9 billion by US authorities for allowing its global banking network to be used by drug cartels to launder money.
Banks operating in Australia face fines of up to $A21 million for each individual breach of federal anti-money laundering laws.