HSBC allowed scammers to transfer millions of dollars around the world even after learning of their scam.
The UK’s largest bank transferred the money to HSBC accounts in Hong Kong through its US business in 201
His role in the $ 80 million (£ 62 million) fraud is described in a leak of documents – the banks’ “suspicious activity reports” – which have been labeled FinCEN files.
HSBC says it has always met its legal obligations to report such activity.
The files show that the investment fraud known as the Ponzi program began shortly after the bank was fined $ 1.9 billion (£ 1.4 billion) in the US for money laundering. It had promised to curb these types of practices.
Defrauded investor lawyers say the bank should have acted sooner to close the scammers’ accounts.
The document leak contains a number of other revelations – such as the suggestion that one of the largest banks in the US may have helped a notorious gangster move more than $ 1 billion.
What are the FinCEN files?
The FinCEN files are a leak of 2,657 documents, the core of which are 2,100 suspicious activity reports or SARs.
SARs are not proof of wrongdoing – banks send them to the authorities if they suspect that customers are doing no good.
The law requires them to know who their customers are – filing SARs and continuing to take dirty money from customers while the enforcers are expected to solve the problem is not enough. If they have evidence of criminal activity, stop moving the money.
The leak shows how money was laundered by some of the largest banks in the world and how criminals used anonymous British companies to hide their money.
The SARs were posted on the Buzzfeed website and made available to the International Consortium of Investigative Journalists (ICIJ). Panorama led the research for the BBC as part of a global investigation. The ICIJ directed the reporting of the leaks in Panama Papers and Paradise Papers – secret files listing the offshore activities of the rich and famous.
Fergus Shiel of the consortium said the FinCEN files are “a glimpse of what banks know about the vast flows of dirty money around the world … [The] System that is supposed to regulate the flow of corrupt money is broken “.
The leaked SARs were filed with the U.S. Financial Crimes Investigation Network (FinCEN) between 2000 and 2017 and cover transactions valued at approximately $ 2 trillion.
FinCEN said the leak could compromise US national security, conduct risk investigations and put the safety of those who file the reports at risk.
But last week it announced proposals to revise its anti-money laundering programs.
The UK has also unveiled plans to reform its business information register to curb fraud and money laundering.
- Everything you need to know about FinCEN documents is leaking
What was the Ponzi scam?
The investment scam that HSBC was warned about was called WCM777. This resulted in the death of investor Reynaldo Pacheco, who was found underwater at a winery in Napa, California in April 2014.
The police say he was hit with stones.
He joined the program and was supposed to be recruiting other investors. The promise was that everyone would get rich.
A woman introduced by Mr. Pacheco, 44, lost approximately $ 3,000. This resulted in men being killed in order to kidnap him.
“He was literally trying to … improve people’s lives and he himself has been betrayed and betrayed and he unfortunately paid for it with his life,” said Sgt. Chris Pacheco (no relationship), one of the officials who served investigated the murder.
Reynaldo, he said, “was murdered for being a victim of a Ponzi scheme”.
What did the fraud promise?
The program was initiated by the Chinese citizen Ming Xu. Little is known about its origins in the US, although he claims to have studied for an MA in California.
Xu – or “Dr. Phil” as he styled himself – has settled in the Los Angeles area and has served as a pastor in Protestant churches.
Xu said he runs a global investment bank, World Capital Market, which would pay out 100% profit in 100 days. In reality, he directed the WCM777 Ponzi program.
Travel seminars, Facebook and webinars on YouTube raised $ 80 million to sell alleged investment opportunities in cloud computing.
Thousands of people from the Asian and Latin American communities were admitted. The scammers used Christian imagery and were targeted against poor communities in the United States, Colombia, and Peru. There have been casualties in other countries as well, including the UK.
The regulators in California told HSBC that they were investigating WCM777 as early as September 2013 – and made residents aware of the fraud.
And California, along with Colorado and Massachusetts, has taken action against WCM to sell unregistered investments.
HSBC has discovered suspicious transactions in its systems. It wasn’t until April 2014, after the US Securities and Exchange Commission filed charges, that the WCM777 accounts at HSBC in Hong Kong were closed.
At this point there was almost nothing left in them.
What do the suspicious activity reports show?
HSBC filed its first SAR on October 29, 2013 on the fraud involving more than US $ 6 million deposited into the scammers’ accounts in Hong Kong.
Bank officials said there was “no apparent economic, business, or lawful purpose” for the transactions – citing allegations of “activities of the Ponzi scheme”.
A second SAR in February 2014 identified suspicious transactions worth $ 15.4 million and a “potential Ponzi program”.
A third report in March was for a WCM777 affiliate and nearly $ 9.2 million. He pointed to the regulatory measures of the US states and an investigation ordered by the Colombian President.
What did HSBC do?
The WCM777 program came about months after HSBC avoided US prosecution for money laundering by Mexican drug lords. It did so by agreeing to improve procedures.
The ICIJ’s analysis shows that between 2011 and 2017, HSBC identified suspicious transactions that were processed through Hong Kong accounts worth more than $ 1.5 billion – approximately $ 900 million related to criminal activity in total.
However, the reports did not reveal any key facts about customers, including the ultimate beneficial owners of accounts and the origin of the money.
Banks are not allowed to talk about suspicious activity reports.
HSBC said, “As of 2012, HSBC took a multi-year journey to revise its ability to fight 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 they had “all of their obligations under the [agreement struck with US prosecutors]”.
Xu was finally arrested by Chinese authorities in 2017 and detained for three years for the fraud.
Speaking to the ICIJ from China, Xu said that HSBC had not contacted him about his business. He denied that WCM777 was a Ponzi program, saying it was falsely targeted by the SEC. His goal was to build a religious community in California on more than 400 acres.
What is a Ponzi Scheme?
A Ponzi program – named after the early 20th century Conman Charles Ponzi – does not generate profits from the money it collects. Instead, investors get a return on funds received from other new investors.
More and more investors are needed to cover these payments. In the meantime, the system’s owners are pulling funds into their own accounts.
A Ponzi program will collapse if it doesn’t find enough new investors.
What else did the leak find?
The FinCEN files also reveal how multinational bank JP Morgan helped a man known as the head of the Russian mafia move more than $ 1 billion through the financial system.
Semion Mogilevich has been charged with crimes such as gun races, drug trafficking, and murder.
He shouldn’t be allowed to use the financial system, but a SAR filed by JP Morgan in 2015 after the account was closed shows how the bank’s London office may have moved some of the money.
It details how JP Morgan provided banking services to a secret offshore company called ABSI Enterprises between 2002 and 2013, even though the company’s ownership structure was not apparent from bank records.
Over a five-year period, JP Morgan has sent and received transfers totaling $ 1.02 billion, the bank said.
The SAR noted that ABSI’s parent company “may be linked to Semion Mogilevich – a person on the FBI’s top 10 wanted list”.
In a statement, JP Morgan said, “We obey all laws and regulations in support of government work to combat financial crime. We devote thousands of people and hundreds of millions of dollars to this important work.”
The FinCen files are a leak of classified documents revealing how large 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 flooded with Russian money.
The files were obtained from BuzzFeed News, who shared them with the International Consortium of Investigative Journalists (ICIJ) and 400 journalists around the world. Panorama has conducted research for the BBC.
FinCEN files: full coverage; Follow the reaction on Twitter with #FinCENFiles. In the BBC News app, follow the tag “FinCEN files; watch panorama on BBC iPlayer (UK viewers only).