The Cayman Islands Monetary Authority has revoked the banking licence for the local branch of HSBC Mexico SA.
The bank was named last year in an investigation by the US Senate’s Permanent Subcommittee on Investigations of anti money laundering weaknesses at HSBC. The investigation had pointed to a significant number of high risk transactions with insufficient anti money laundering controls involving US dollar accounts held by Mexican residents at the branch, a class B banking licence holder in the Cayman Islands.
The Cayman branch itself had no local staff or customers and was operated from Mexico by HSBC subsidiary HBMX. Its services were not related to the retail arm of HSBC in the Cayman Islands.
According to the investigation, internal documents from HSBC showed that the Cayman accounts had operated for years with deficient anti money laundering and know your customer information. An estimated 15 per cent of the accounts had no KYC information at all, which meant that HSBC’s Mexican subsidiary HBMX did not know who was behind the accounts. Other accounts were, according to an HBMX compliance officer, “misused by organised crime”, the subcommittee said in its report.
In July 2012, following the release of the subcommittee report, CIMA launched its own investigation of HSBC Mexico SA to determine whether the bank and its Cayman affiliate had breached any local laws or regulations.
In a decision notice dated 27 February, 2013, the monetary authority set out its decision to revoke the category “B” banking licence held by HSBC Mexico SA with respect to its Cayman Islands branch pursuant to Section 18(1)(i) of the Banks and Trust Companies Law. CIMA concluded that “the Cayman Islands branch of the company is conducting business in a manner detrimental to the public interest, the interest of its depositors or of the beneficiaries of any trust or other creditors and that the direction and management of its business has not been conducted in a fit and proper manner”.
HSBC had originally acquired the branch when it purchased Mexican bank Bital in November 2002. In 1980, Bital had received a licence from Cayman Islands regulators to offer Cayman US dollar accounts to customers.
The subcommittee investigation alleged based on the bank’s internal documents that HSBC was aware of the compliance weaknesses at the branch. Internal audits pointed to missing, incomplete and wrong account holder information in a significant number of cases. Weaknesses were also found in the account opening and supervision processes.
At its peak in 2008, HBMX maintained more than 60,000 accounts with assets of $2.1 billion in its Cayman branch.
According to the subcommittee’s report, the accounts allowed HSBC in Mexico to circumvent local regulations prohibiting Mexican residents from holding US dollar accounts.
In 2012, more than 20,000 HBMX clients maintained over $657 million in Cayman US dollar denominated accounts. Following the release of the subcommittee’s findings, HSBC had pledged to close the accounts.
HSBC was fined $700 million for its failure to address the money laundering deficiencies in Mexico, Iran and Syria disclosed by the investigation.
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