HSBC, one of the largest global banking institutions, has recently found itself under intense scrutiny as it faces allegations of failing to identify suspicious transactions worth hundreds of millions of dollars that flowed into an account linked to Raja Salameh, the brother of Lebanon’s former central bank governor, Riad Salameh. Despite numerous red flags raised by compliance officers, the bank continued to allow transactions linked to a major money-laundering scheme to proceed unchecked for more than a decade. This case, which has drawn international attention, exposes deep gaps in HSBC’s anti-money laundering (AML) controls and raises serious questions about the effectiveness of the bank’s due diligence processes.

HSBC’s Involvement in the Lebanese Money Laundering Scandal

The series of suspicious transactions began when Raja Salameh, who was operating a brokerage company called Forry Associates, set up accounts at HSBC Geneva. Despite clear indications of illegal activity, including the lack of substantial information about the nature of these transactions, HSBC continued to maintain its business relationship with Salameh. According to leaked internal documents obtained by The National, compliance officers within the bank flagged multiple transactions but were overruled by senior management, who were eager to preserve the relationship with a high-profile client.

Raja Salameh’s connections to Lebanon’s central bank, where his brother Riad was the governor, provided him with significant leverage. Investigators have accused Raja of embezzling over $330 million through a secretive slush fund operating at Banque du Liban (BDL), the central bank of Lebanon. The funds were allegedly siphoned off between 2002 and 2015, with the Salameh brothers using shell companies like Forry Associates to launder the money, much of which ended up financing luxury properties abroad.

The Role of HSBC in Facilitating the Fraud

HSBC’s failure to identify the suspicious nature of these transactions is underlined by the fact that, over the years, multiple compliance officers within the bank raised concerns about the legitimacy of the transactions. Despite these warnings, the relationship continued, largely due to the actions of Sobhi Tabbara, the relationship manager at HSBC Geneva. Tabbara, who had known Raja Salameh for years, continuously vouchsafed for him, describing him as a man of “morality” and disregarding the lack of transparency surrounding Forry Associates.

Internal HSBC documents reveal that in 2006, concerns were raised about the legitimacy of the account, and again in 2007, the account was referred to the bank’s Due Diligence Committee (DDC). However, rather than addressing these concerns, senior managers decided to proceed with the account based on vague explanations from Raja Salameh and BDL officials. In 2009, Tabbara provided an official document from BDL that purportedly authenticated the transactions, but this document was later found to be misleading, as it was not approved by BDL’s board as claimed.

Investigation Findings: A Decade of Non-Action

In 2015, after years of warning signs, HSBC’s internal Financial Intelligence Unit (FIU) requested a thorough review of the Forry account. The review revealed that a large portion of the funds transferred through the account had been moved to Raja Salameh’s personal accounts in Lebanon. Further investigation showed that these personal accounts were used as “pass-through” accounts, essentially moving money to conceal its origins and ultimate destination.

Despite the alarming findings, HSBC chose to close the Forry account in 2016. However, it was not until 2019, when Lebanon’s financial system collapsed and a national-scale Ponzi scheme linked to Riad Salameh was uncovered, that the bank finally reported the suspicious activities to Switzerland’s Money Laundering Reporting Office (MROS). This late report triggered investigations in multiple European countries, including France, Luxembourg, and Germany, leading to the seizure of assets and the issuance of an arrest warrant for Riad Salameh.

Political Exposures and HSBC’s Inaction

One of the key issues in the scandal is HSBC’s handling of politically exposed persons (PEPs), a category of individuals deemed high risk due to their political positions. Despite the Salameh brothers’ powerful political connections and the numerous red flags indicating illicit activity, HSBC continued its relationship with the Salamehs. In fact, HSBC had previously been embroiled in other money-laundering scandals involving PEPs, including a 2012 settlement with US regulators for laundering money for drug cartels and processing transactions for countries under sanctions.

HSBC’s failure to adequately investigate the Forry account is indicative of a deeper issue within the banking system. When dealing with PEPs, banks are required to exercise heightened scrutiny, as these individuals have access to vast amounts of public funds. HSBC’s complacency, in this case, suggests that maintaining lucrative business relationships with powerful clients took precedence over adhering to proper due diligence protocols.

The Bigger Picture: Money Laundering in Lebanon

The case against HSBC is just one part of a broader investigation into Lebanon’s financial system, which has long been rife with corruption. Riad Salameh, who was considered one of the most powerful figures in Lebanon’s financial sector, is accused of orchestrating one of the country’s largest money-laundering schemes. As governor of the central bank, Salameh had immense control over Lebanon’s financial operations, and prosecutors allege that he used this position to funnel public funds into offshore accounts and finance his own luxurious lifestyle.

The collapse of Lebanon’s financial sector in 2019 exposed the scale of the corruption, and subsequent investigations have revealed a complex network of transactions designed to hide the origin of the funds. These funds were often transferred through shell companies like Forry Associates, which had no legitimate business operations, yet was paid millions in commissions by BDL.

Consequences for HSBC and the Financial Sector

The HSBC scandal has already resulted in significant legal and reputational damage to the bank. In 2024, the Swiss Financial Market Supervisory Authority concluded that HSBC Geneva had “seriously violated financial market law” in relation to the Salameh case. As a result, the bank was banned from taking on new PEP clients. Furthermore, Lebanon has filed a lawsuit against HSBC in Switzerland, accusing the bank of failing to properly vet the origin of the funds involved in the scheme.

The case highlights the ongoing challenges faced by global financial institutions in preventing money laundering and financial crime, particularly when dealing with high-profile clients with political ties. It also underscores the importance of robust compliance systems and the need for banks to prioritize transparency and accountability, especially when it comes to dealing with PEPs.

Conclusion: HSBC’s Ongoing Struggles with Financial Crime

HSBC’s involvement in the Lebanese money-laundering scandal represents a broader issue within the banking sector: the difficulty in balancing business relationships with ethical compliance. Despite numerous red flags and concerns raised by compliance officers, HSBC’s failure to take action allowed a significant amount of illicit funds to flow through its accounts, facilitating one of Lebanon’s largest financial scandals. As investigations continue and more details emerge, it remains to be seen whether HSBC will be held accountable for its role in this scandal or if it will face further legal challenges in the future.

Related Links

• Swiss Financial Market Supervisory Authority (FINMA) Statement on HSBC
• Lebanon’s Financial Collapse: What Went Wrong?
• Public Eye Report on HSBC’s Role in Lebanese Money Laundering
• Lebanon’s Central Bank Scandal Explained
• HSBC’s Legal Troubles Over Money Laundering Allegations

Other FinCrime Central News About HSBC

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• HSBC calls on tech firms to help refund victims of fraud

Source: The National, by Nada Maucourant Atallah