Illicit financial flows: HSBC case study
Journal of Money Laundering Control
Article publication date: 8 May 2018
This paper provides examples of how illicit financial flows (IFFs) are occurring through the formal banking and financial services sector. The purpose of this paper is to explore which elements of anti-money laundering (AML) compliance need to be addressed to strengthen the banking response and reduce the impact of IFFs within the banking sector.
The paper uses a number of sources of secondary data including the Swiss leaks data for HSBC and also the Permanent Sub Committee Report on HBUS in the USA, the OECD report on money laundering compliance and Financial Action Task Force (FATF) guidelines on beneficial ownership. It links this information to the relevant IFF reports produced through Global Financial Integrity to highlight the connection between banking AML compliance and IFF transfers through the banking sector.
The main findings from the analysis are that banks have a greater legal responsibility towards detecting and reporting suspicious transactions than they would have previously considered. This includes identifying the source and purpose of fund transfers and establishing the beneficial ownership of recipients.
The research topic is new; therefore, analysis papers and other academic writing on this topic are limited.
The research paper has identified a number of implications to the banking sector on addressing AML deficiencies, especially the need to improve standards of beneficial ownership verification and customer due diligence (CDD) checks for politically exposed persons.
This paper has implications for the international development and the global banking sector. It will also influence approaches to AML regulation, risk assessment and audit within the broader financial services sector.
The originality of this paper is the link between the HSBC cases and IFFs and the implications this will have for future AML compliance processes across the banking sector.
Please note that this paper was composed and submitted for review to this journal in June 2015 – a time at which the author was working on his second doctorate level research project titled “Trade Based Money Laundering: Exploring the Empirical Implications for International Banks”. This current paper contributes towards a series of papers that explore the links between illicit financial flows and the formal financial services/banking sectors. All the content within this paper was current at the time of submission (June 2015). The banking and regulation industries have evolved since then, with new material from academic research also emerging. These points need to be taken into consideration when reading this paper. The author is a specialist researcher and practitioner in the fields of trade-based money laundering and cryptocurrency regulation, contracted exclusively to Mayfair Compliance (www.mayfaircompliance.com). The author acknowledges being the recipient of a research grant awarded by Princess Ālae as part of Seven Foundation’s “2020 Banking Vision – building banks of the future” and he thanks her for the continued support and motivation both to himself and other students who benefit through her generosity (www.sevenfoundation.ch). The author also thanks Professor Muhammad Jum’ah (a leading economist of this era based in Damascus) who has continued to provide valuable input both through his teaching of the science of economics and for his continued guidance.
Naheem, M.A. (2018), "Illicit financial flows: HSBC case study", Journal of Money Laundering Control, Vol. 21 No. 2, pp. 231-246. https://doi.org/10.1108/JMLC-08-2015-0036
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