HSBC acted as Correspondant Bank to Stanford

July 12, 2009

While no Stanford financial company had any presence in the UK, they used the British banking system through HSBC London as their correspondent bank for all deposits in Sterling and Euros.

Most people around the world are aware of HSBC bank. HSBC gave SIB an aura of respectability which simply wasn't appropriate or warranted.

Having looked at the money laundering regulations introduced throughout the European Economic Area (EEA) in 2007 which were passed into British law as Statutory Instrument 2007 number 2157, there are a couple of points to be noted:

1) The regulations state: A credit institution ("the correspondent") which has or proposes to have a correspondent banking relationship with a respondent institution ("the respondent") from a non-EEA state must—(a) gather sufficient information about the respondent to understand fully the nature of its business; (b) determine from publicly-available information the reputation of the respondent and the quality of its supervision. As you may be aware, the British government had revoked the banking license of Alan Stanford's Guardian International Bank situated on Montserrat which would usually undermine one's "reputation" in banking. Further SIB was audited by an unknown auditor.

2) The regulations also state: A credit institution must not enter into, or continue, a correspondent banking relationship with a shell bank….A "shell bank" means a credit institution, or an institution engaged in equivalent activities, incorporated in a jurisdiction in which it has no physical presence involving meaningful decision-making and management, and which is not part of a financial conglomerate or third-country financial conglomerate. You might be aware that the US receiver has issued a statement indicating that the mind and management of SIB was solidly placed in the US and not in Antigua. Further SIB was not part of Stanford Financial Group. It was an affiliate.

While there is little doubt that the subtleties of the Stanford situation have only come to light after the US Securities and Exchange Commission's freeze on all Stanford assets, the Uk governemnt were aware that this "bank" was being monitored and were in fact monitoring SIB them selves. HSBC is an enormous bank with many more resources to hand than individual investors. Further, agreeing to be a correspondent bank for all Euro transactions with a bank outside of the EEA should add an additional responsibility to undertake thorough due diligence given the ability to transfer funds freely within the EU and EEA.

How was it possible for HSBC to have become the correspondent bank for all Sterling and Euro deposits given the exercise of due diligence expected from correspondent banking with offshore entities and the history that Allen Stanford had with the British banking authorities.

The Foreign and Commonwealth Office comments to the recent BBC Panorama programme on Alan Stanford said that the "UK government does take financial malpractice very seriously and issues regular advice on countries and jurisdictions where there may be serious deficiencies in regulation. It is for companies and the financial professionals they employ to act on this advice with all due diligence". Presumably, the last part of this comment would apply to HSBC.

There have been many blunders it seems in the case of discovering what was at the heart of Allen Stanford's financial empire. We, as UK depositors with the bank, can only hope that all of those involved will participate in helping us recover our investments. One part of this is for HSBC (and the various insurance policies it holds) to step up to its part in the scheme and to assist those who deposited funds through them.


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