In recent years, HSBC’s Swiss private banking division has faced serious accusations of failing to prevent money laundering activities linked to the channelizing of hundreds of millions of dollars from Lebanon’s central bank, Banque du Liban (BDL). These accusations have drawn consequential attention from financial regulators and the international community, underscoring potential lapses in HSBC’s internal controls and compliance mechanisms.
The Background
Between 2002 and 2015, substantial sums—totaling approximately $300 million—were transferred from BDL to HSBC’s Swiss accounts and thereafter moved back to various accounts in Lebanon. These transactions were interconnected with politically exposed persons (PEPs), notably Riad Salameh, the former governor of BDL, and his brother, Raja Salameh. Investigations disclosed that these funds were siphoned through Forry Associates Ltd, an offshore company registered in the British Virgin Islands, purportedly controlled by Raja Salameh. Forry Associates allegedly had no employees and provided no actual services to BDL, raising skepticism about the legitimacy of the transactions.
Regulatory Findings and Actions
In June 2024, the Swiss Financial Market Supervisory Authority (FINMA) concluded that HSBC Private Bank (Suisse) had “seriously violated financial market law” by failing to perform appropriate due diligence on these high-risk transactions. FINMA’s probation revealed that HSBC did not sufficiently authenticate the origin, purpose, or economic background of the assets involved. As a result, FINMA imposed measures requiring HSBC to review all its current high-risk business relationships and temporarily banned the bank from establishing new relationships with PEPs until compliance improvements were substantiated.
HSBC’s Internal Oversight Failures
Confidential documents acquired during investigations indicated that HSBC’s internal compliance mechanisms were compromised by the undue influence of senior managers eager to maintain lucrative and profitable client relationships. Specifically, the relationship manager overseeing Raja Salameh’s accounts reportedly downplayed compliance concerns, allowing the continuation of questionable transactions despite numerous red flags. This situation puts forth major and multiple weaknesses in HSBC’s internal controls and highlights the challenges banks face in balancing client relationships with regulatory compliance.
Legal Repercussions and HSBC’s Response
In response to these findings, HSBC has faced legal actions and financial penalties. In January 2025, the Lebanese government filed a lawsuit against HSBC in Switzerland, accusing the bank of failing to conduct apt due diligence on the origin of the funds and seeking significant compensation. HSBC has expressed its intention to appeal FINMA’s decision and has stated its commitment to enhancing its anti-money laundering controls.
Broader Implications for the Banking Industry
This case is part of a bigger picture of financial institutions facing penalties for lapses in anti-money laundering controls. For instance, in 2012, HSBC agreed to a $1.92 billion fine for money laundering lapses, and in 2024, TD Bank agreed to pay $3 billion in penalties to U.S. authorities for insufficient monitoring of money laundering activities. These incidents explicitly tell about the continuous challenges within the banking industry to effectively prevent illicit financial flows and the importance of stringent compliance frameworks.
The allegations against HSBC’s Swiss private banking division regarding the facilitation of money laundering activities linked to Lebanon’s central bank highlight crucial loopholes in the bank’s internal controls and compliance mechanisms. This case serves as a grave reminder of the imperative for financial institutions to uphold robust anti-money laundering standards and the potential repercussions of failing to do so.
