HSBC – Criticised Over Their Banking Methods

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Outline

In the recent past, HSBC has come under attack over its banking methods. The Global Banking and Financial services company has been accused in the past decade of breaking national and international laws and regulations.

To retain their reputation, HSBC has to ensure a good public image and demonstrate that they are indeed an ethical company.

Hsbc-Criticism

HSBC Holdings plc was named in the year 2011 as the world’s second-largest banking and financial services group with a customer base of 100 million. Founded in 1991, HSBC has grown to be a universal bank with 7500 offices spread over Asia, Africa, North and South America as well as in the United Kingdom (Europe) where the bank’s headquarters are based.

A report published by Covalence named HSBC as the bank with the best ethical reputation for the year 2006. The Geneva-based consultancy highlighted such key factors as sound management practices and the decision to go carbon neutral as some of the reasons contributing to HSBC’s excellence.

However, over the recent past, the financial and banking services giant has been confronted by a wave of accusations and lawsuits over its banking methods. The global banking company has come under attack over failure to comply with international as well as national regulations and has allegedly been involved in unethical banking and financial malpractices. True, as Enderle (1999) argues, a company’s actual practices are much different from the company’s code of ethics.

In 2011, for example, the US Justice Department reported that it was working on a case against HSBC bankers who were allegedly involved in money laundering deals with the Mexican drug lords. Investigations on this scandal started in August 2010 after the US comptroller of currency blew the whistle that HSBC was involved in some “suspicious activity”. In this case, HSBC bankers contravened the Bank Secrecy Act (BSA), which requires financial institutions to report certain suspicious transactions to the United States Treasury. The bank had also failed to comply with the BSA requirement of customer diligence by failing to obtain satisfactory information as to the nature and source of money flowing through customer accounts. Ball (2001) indicates that money laundering “has been criminalized” in the US and failure to file a Suspicious Activity Report (SAR) can result in criminal prosecution. Heavy fines are imposed for non-compliance with Bank Secrecy Act and “defaulters risk being driven out of business” for failure to apply proper controls (Levi, 2010).

In some other jurisdictions, the principle of Bank Secrecy does not allow banks to disclose personal and account information about their customers unless a criminal complaint has been filed. Such was the case in Egypt where, in October 2011, HSBC came under attack for colluding with Egypt’s ruling military council to intimidate human rights groups and NGOs operating in-country. The groups accused HSBC of releasing vital personal and financial information and documents to the military council.

In another incident, the bank has been accused of violating Federal and State Labor Laws, in a case filed November, 2011by a Fund Accountant on behalf of former and current employees of the bank. The group accused the bank of unlawfully classifying Fund Accountants as exempt salaried employees and hence refusing to pay them for overtime worked. Co-Counsel Mitchell Schley pointed out that “HSBC often does not comply” with its obligations “unless compelled to do so by legal action”. She described the bank as one of the largest employers in the financial services industry who blatantly choose to ignore Federal and State labor laws. Dembinski and Lager (2006) describe “wage discrimination” as some of the malpractices common in most multinational companies. It is one of the “unlawful practices in which multinationals take advantage of international differences to impose low wages” for their employees, especially in developing countries (Markham, 2006).

In addition, HSBC has been found guilty for failing to conform to laws and regulations of general applicability. In 2006, for example, a British employment tribunal ruled that a former HSBC banker was discriminated against because of his sexual orientation. The landmark ruling under Britain’s new laws against discrimination toward sexual orientation in the workplace (legislation introduced in 2003) found HSBC guilty for giving Mr. Lewis “less favorable treatment”.

The bank has also been criticized alongside Barclays Bank and Royal Bank of Scotland (RBS) for their “involvement in some of the most ecologically damaging projects” around the world in the past ten years (Salinger, 2005). HSBC particularly has faced criticism for managing shares worth £122240 for a company by the name Archipelago Resources operating in Indonesia and responsible for causing groundwater contamination, eroding local fishing and tourism and endangering nearby nature reserves.

Therefore, to demonstrate that they are an ethical company HSBC should insist that all employees stick to the company’s code of ethics as stipulated in HSBC’s Finance Statement of Business Principles and Code of Ethics. The bank should formulate “internal policies to regulate or check the ethical conduct of employees”, (Greenfield, 2006). The company should also be “committed to conform to both domestic and foreign regulations” particularly on laws affecting corporate business such as laws on money laundering, corrupt practices, bank secrecy, re-investment, and fair credit reporting (Armstrong, 2002). Equally important, HSBC should “work to paint a totally different public image” of the company (Cetina and Preda 2005). Montiel (2003) also stresses the importance of embracing regulations of general applicability such as equal employment, wage and labor laws, antitrust laws and laws relating to the environment.

References

Armstrong, M. 2002. Ethical Issues in Accounting, Oxford: Blackwell.

Ball, D. 2011. “U.S. Banks Oppose Tighter Money Rules”, Wall Street Journal.

Cetina, K., and Preda, A.2005. The sociology of financial markets, Oxford: Oxford University Press.

Dembinski, P., and Lager, C.2006. Enron and World Finance: A Case Study in Ethics, New York: Palgrave.

Enderle, G. 1999. International Business Ethics, Notre Dame:University of Notre Dame Press.

Greenfield, K. 2006. The Failure of Corporate Law fundamental flaws & progressive possibilities, Chicago: The University of Chicago Press.

Levi, M. 2010. “Combating the Financing of Terrorism: A History and Assessment of the Control of Threat Finance”, British Journal of Criminology.

Markham, J. 2006. A financial history of Modern US Corporate Scandals. New York: M.E. Sharpe.

Montiel, P. 2003. Macroeconomics in Emerging Markets, Cambridge: Cambridge University Press.

Salinger, L. 2005. Encyclopedia of White-Collar Corporate Crime, California: Sage Reference.

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HSBC – Criticised Over Their Banking Methods

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