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Comment by metadat | Hacker News Reader

> In this case, HSBC provided money-laundering services of more than $881 million to various drug cartels including Mexico’s Sinaloa cartel and Colombia’s Norte del Valle cartel. This included bulk movements of cash from the bank's Mexican unit to the U.S., with little or no oversight of the transactions. It also conducted transactions with Iran, removing references to the country in an effort to conceal them.

Only $881m? Isn't that relative chump change given the size and scale of these ultra large global banks? I find it surprising they thought it was worth the risk, though humans being short-sighted is a tale as old as time.

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These aren't business decisions taken to corner the money laundering market for Mexican cartels. It's more like Mexican cartels try all the banks to see which ones they can launder money through, and when they find one with poor controls that allow it they double-down on using that bank until their activity is stopped.

Maybe at the country level they were happy with the transaction fees, but I would be surprised if it went any higher than that and certainly wouldn't be worth the risk.

Do you have a source for the claim that drug cartels "try all the banks to see which ones they can launder money through"?

I don't believe that's how it works at all. If you read, for example Drug Cartels Do Not Exist by Oswaldo Zavala, you'll see that this money is fundamental to how global finance operates. Drug money provided the necessary liquidity to keep the world finance system from crashing in '08. It's the main event, not a sideshow.

That is an exceptionally contrarian claim.

Which one? Back up what you say. Antonio Maria Costa, head of the UN Office on Drugs and Crime, said he has seen evidence that the proceeds of organised crime were "the only liquid investment capital" available to some banks on the brink of collapse last year. He said that a majority of the $352bn (£216bn) of drugs profits was absorbed into the economic system as a result.

For HSBC I doubt it. But I remember seeing a map of all the branches the defunct BCCI bank had, and they had something like 10x more branches in Colombia than in the US (this was a Pakistani Bank). They went under a few years later.

I'm surprised that you'd bring up BCCI in this instance, an institution absolutely steeped in intelligence spookery. Refer to The Outlaw Bank by Jonathan Beaty.

HSBC was founded to finance the Opium wars in China in the 19th century. Let's be adults here, the world's biggest banks aren't letting drug trade profits, the world's most lucrative trade, simply fall to small fries. They own it.

Global size of illicit drug economy: $360 billion

Global size of FX market: $7.5 trillion per day

It's not small money, but it's not that big compared to financial markets.

Idk where you got that figure for the drug economy but $360B per year is on the low-end and likely outdated.

Going off a UN report from the 90s, the illicit drug trade is similar to international trade in oil and gas—that's the order we're talking about. Remember this is a commodity, so it's a bit misleading to compare it the flow of money in foreign exchange markets.

UNDCP Technical Series Number 6:ECONOMIC AND SOCIAL CONSEQUENCES OF DRUG ABUSE AND ILLICIT TRAFFICKING.

Not sure what source you do expect to hear. wouldn't delve into it any further, but it is so, from firsthand source.

When you move this kind of money, you don't just go to branch and ask "to speak to someone". Usually you know someone from bank who can arrange that's needed.

And they know. And you know they know. And they know you know they know. So usually it's very clear.

There is no ethical concerns at this money volume at any bank, that's I can say for sure. It's only matter of risk/reward, with potential risks coming from regulators. For talented bankers who know how to structure businesses in middle, it's a no-brainer.

Doesn't just apply for drug cartels but for any sort of money.

And yea, 900m is something they have been caught with. Pretty sure actual number is substantially different.

>>When you move this kind of money, you don't just go to branch and ask "to speak to someone". Usually you know someone from bank who can arrange that's needed.

That's probably true as well. Someone hears someone say in bar that their controls are lax, or someone in a bank is coerced into helping a cartel etc.

And don't get me wrong - this is still Very Bad that this happened, but it happened due to control and process cock-ups, not as a conscious desire to pursue a new business opportunity.

No, it's far too risky and stochastic to rely on overheard bar convos for this kind of thing. To do this kind of large-scale fraud you need to be built into the system, you need reliable methods, backstops, entire plans for fall guys and controlled demolition of your schemes.

Ask yourself what certainties you, yourself, would want if you decided to use your job to conduct significant fraud. Then imagine you could get all of them because you're an insider to the system, you can write the laws, pay off the right officials, blackmail the lowly functionaries, etc.

It's not a new business opportunity—HSBC was founded to finance the Opium Wars in China! They know how to do this. The real question is why let us see, why let something like this become public news. As always, the answer can be found by starting with the question, Who benefits? and then following the money from there.

I'm not actually expecting a source—it was a polite way of saying that person has no idea what they're talking about.

Your description is in line with what I've read—there's hardly a smoking gun, scruples are almost totally absent, this is very serious business.

The risk is spread throughout the entire milieu of bankers, central bankers, cartel heads, cartel lawyers, etc. A similar model to the revolving door in DC. Capitalism itself tends toward cartelization, which is what allows the power elite to move freely about in a mutually assured destruction kind of way. If everyone is guilty, no one is guilty and we're in a pact to maintain that.

So in your mental model of how this works, Pablo Escobar (or whoever) rings up the CEO of multinational banks and says "I've got a business proposition for you."?

No, this is not new. This is one of the oldest games there is, so it's more like grooming young lawyers/bankers to step into a role, a type, that's existed for hundreds of years. You have a pipeline of strivers to choose from, you have ultimate leverage over them. You force their hand.

One of the key bits is that the cartel worked out the OFAC check by HSBC was shitty so could add spaces etc to bypass it. It wasn't a conscious decision, but a failure of their process.

It's possible this was started by some sub-org within HSBC, where 881M would be a large fraction of that org's size. The management layer above them then doesn't look too deeply, or ensure prior compliance procedure, while promoting and giving bonuses to those who hit high numbers.

This is exactly how these things happen. In an organisation that employs quarter of a million employees it's impossible to have perfect transparency and controls everywhere. At this scale you just have to trust that people below you do the right thing. That's not to say there should be no criminal charges for individuals. Just explaining how this transpired.

It's responsibility of the CEO/BoD to ensure compliance. At that size and in that market, compliance departments are huge.

We get regular audits of our work by an outside company. The exact auditing company rotate to ensure no incompetence/cronyism hides something.

As the article states:

> Indeed, prior to 2010 when the OCC cited the bank for many AML deficiencies—including a huge backlog of unreviewed accounts and failure to file Suspicious Activity Reports (SARs)—for the previous six years the agency failed to take any enforcement action against the bank

If the big guys aren’t able to be responsible for bad things they also shouldn’t take responsibility for good things and not get their big paychecks.

In the end if an organization is too big to be controlled and to take responsibility it shouldn’t exist and be broken up.

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