HSBC accused of serving as "bag men" for criminals

From its relatively humble beginnings 150 years ago, the London-based Hong Kong Shanghai Banking Corporation, now known as HSBC, has evolved into a global financial services organization and the second-largest bank in the world.

But the once-venerable HSBC could find itself in even deeper trouble following an international investigation by a team of journalists from 45 countries that found the financial giant maintained secret bank accounts for a variety of criminals, politicians and celebrities, as well as affluent tax-dodgers.

According to documents obtained by obtained by the International Consortium of Investigative Journalists (ICIJ) via the French newspaper Le Monde, HSBC's private banking division in Switzerland has been holding accounts worth more than $100 billion for what the ICIJ describes as "bag men for Third World dictators, traffickers in blood diamonds and other international outlaws."

The investigative outfit also alleges the bank helped athletes, entertainers, movie actors, politicians, royalty, corporate executives and "old-wealth families" hide hundreds of millions of dollars from a variety of tax authorities.

The ICIJ said HBSC initially demanded the journalists destroy the data. But last month, HSBC acknowledged the "compliance culture and standards of due diligence in HSBC's Swiss private bank, as well as the industry in general, were significantly lower than they are today."

The written statement also said HSBC's Swiss private bank had cut its client base by nearly 70 percent since 2007 and that HSBC had "taken significant steps over the past several years to implement reforms and exit clients who did not meet strict new HSBC standards, including those where we had concerns in relation to tax compliance."

Responding to the allegations, HSBC said it has taken action to ensure that its private banking services aren't used to evade taxes or launder money.

"New senior management have comprehensively overhauled the business, including closing the accounts of clients who did not meet our high standards and ensuring we have strong compliance controls in place," said Franco Morra, CEO of HSBC Private Bank Switzerland, in a statement. "We have no appetite for business with clients or potential clients who do not meet our financial crime compliance standards. These disclosures about historical business practices are a reminder that the old business model of Swiss private banking is no longer acceptable."

HSBC is facing other investigations by British and U.S. authorities. A U.S law enforcement official tells Reuters the probes could reopen a 2012 agreement between the bank and the Department of Justice.

According to that agreement, HSBC, which the Justice Department at the time described as the "preferred financial institution of drug cartels and money launderers," would avoid criminal prosecution by paying a record $1.9 billion fine to the U.S. government

"It is quite possible that the [agreement] may be reopened as a result of the bank's activities on either or both the tax evasion and foreign exchange manipulation front," the U.S. law enforcement official, who requested anonymity because of the ongoing investigations, told Reuters.