The Way of the World

imagesThis is not an opinion piece; at least it is written simply in the form of a timeline, and for the most part it uses the words of the principals where possible (or provides primary sources to be read, or heard/watched by the reader), or of official reports, or of news reports. It offers no comment. It draws no conclusions. The conclusions I leave the reader to draw for him or herself.

10th September and 9th October, 2012

September: Letter from the Chancellor, George Osborne to Ben Bernanke, Chairman US Federal Reserve, regarding the possible prosecution of HSBC by the US Department of Justice (DOJ); followed by an October meeting between Osborne and Bernanke to discuss the contents of the letter. Source references and context will be given below.

11th December, 2012 (Reuters report)

“HSBC Holdings Plc agreed to pay a record $1.92 billion in fines to U.S. authorities for allowing itself to be used to launder a river of drug money flowing out of Mexico and other banking lapses.

Mexico’s Sinaloa cartel and Colombia’s Norte del Valle cartel between them laundered $881 million through HSBC and a Mexican unit, the U.S. Justice Department said on Tuesday.

In a deferred prosecution agreement with the Justice Department, the bank acknowledged it failed to maintain an effective program against money laundering and failed to conduct basic due diligence on some of its account holders.

Under the agreement, which was reported by Reuters last week, the bank agreed to take steps to fix the problems, forfeit $1.256 billion, and retain a compliance monitor. The bank also agreed to pay $665 million in civil penalties to regulators including to the Office of the Comptroller of the Currency, the Federal Reserve, and the Treasury Department.

‘We accept responsibility for our past mistakes. We have said we are profoundly sorry for them, and we do so again. The HSBC of today is a fundamentally different organization from the one that made those mistakes,’ HSBC Chief Executive Stuart Gulliver said.

HSBC’s money-laundering lapses in Mexico and elsewhere were cited in an extensive Senate report earlier this year, but the documents filed in court on Tuesday provided new details.

Despite the known risks of doing business in Mexico, the bank put the country in its lowest risk category, which excluded $670 billion in transactions from the monitoring systems, according to the documents.

Bank officials repeatedly ignored internal warnings that HSBC’s monitoring systems were inadequate, the Justice Department said. In 2008, for example, the CEO of HSBC Mexico was told that Mexican law enforcement had a recording of a Mexican drug lord saying that HSBC Mexico was the place to launder money.

Mexican traffickers used boxes specifically designed to the dimensions of an HSBC Mexico teller’s window to deposit cash on a daily basis.” (Reuters, 11th December, 2012)

9th March 2015 (

Westminster: House of Commons Public Accounts Select Committee (Chair: Patricia Hodge MP).

Subject: Tax avoidance and evasion: HSBC. Meeting started at 3.17pm, ended 5.27pm

Witnesses: Stuart Gulliver, Chief Executive, HSBC Holdings PLC, Chris Meares, former Group General Manager and Chief Executive Officer, HSBC Global Private Banking, and Rona Fairhead, Independent non-executive Director, HSBC; [Edward Troup, Second Permanent Secretary and Tax Assurance Commissioner, HM Revenue and Customs: not called at this meeting].

4th June, 2015 (Guardian newspaper)

“HSBC has been ordered to pay a record 40m Swiss francs (£28m) and been given a final warning by the Geneva authorities for ‘organisational deficiencies’ which allowed money laundering to take place in the bank’s Swiss subsidiary.

The settlement means the Swiss will not prosecute HSBC or publish the findings of their investigation into alleged aggravated money laundering. But Geneva’s chief prosecutor, Olivier Jornot, cautioned that the bank was on notice, saying: ‘This is an excuse which will only apply once’.

Announcing the biggest financial penalty ever imposed by the Geneva authorities, Jornot launched a stinging attack on his own country’s financial laws, adding his voice to a growing a number of Swiss politicians and campaigners calling for reform of the country’s secretive banking system” (The Guardian, 4th June, 2015).

15th February, 2016 (Quotations from BBC website)

Having threatened for some time to take its headquarters out of London to an unspecified overseas destination because of the threats from over-regulation and an uncompetitive environment in London, Douglas Flint, HSBC Chairman announced that “The UK is one of the most globally connected economies in the world with a fantastic regulatory system and legal system and immense experience in dealing with international affairs …. …. The government’s made very clear its commitment to ensuring that that UK remains a leading international financial centre … We’ve ended up with the best of both worlds – a pivot to Asia led from London”. The Chairman added, “it was important that there was a change in the scope of the levy”. When apparently questioned on any discussion with government over the Bank Levy he said: “We had no negotiation with the government. The government was well aware of our view, and indeed the view of many other people who commented upon it, but there certainly was no pressure put, or negotiation”. He did endorse the view that London had an “internationally respected regulatory framework and legal system”. (

11the July, 2016 (US Republican Report)

“Senior Department of Justice (DOJ) leadership, including Attorney General Holder, overruled an internal recommendation by DOJ’s Asset Forfeiture and Money Laundering Section to prosecute HSBC because of DOJ leadership’s concern that prosecuting the bank would have serious adverse consequences on the financial system.

The involvement of the United Kingdom’s Financial Services Authority in the U.S. government’s investigations and enforcement actions relating to HSBC, a British-domiciled institution, appears to have hampered the U.S. government’s investigations and influenced DOJ’s decision not to prosecute HSBC”. (‘Too Big to Jail’: Report prepared by the Republican Staff of the Committee on Financial Services, US House of Representatives, 114th Congress 11the July, 2016 – p.1)
The evidence offered for this influence is contained in the Report. George Osborne sent a letter to Ben Bernanke, Chairman of the US Federal Reserve on 10th September, 2012, referred to at the beginning of this timeline (the letter is reproduced in the US Republican Congress Report, Appendix 4, pp.43-5). The letter was followed up with a meeting to discuss its contents (9th October, 2012) between Osborne and Bernanke, on which a Briefing Memorandum was prepared for US Treasury Secretary Geithner, also contained in the Report. In this briefing it was stated that it was argued on the British side that recent “tougher enforcement measures” by the US against British-based banks raised “unwanted questions about potential U.S. hostility to London as a financial center. While acknowledging the importance of regulatory enforcement, Osborne sought Bernanke’s assistance to ensure that future actions involving British banks would be conveyed in advance and be fair” (US Republican Congress Report, Appendix 22, pp.173-181; quotations, p.174).

13th July, 2016 (Downing Street)

“When we take the big calls, we’ll think not of the powerful, but you. When we pass new laws, we’ll listen not to the mighty but to you. When it comes to taxes, we’ll prioritise not the wealthy, but you. When it comes to opportunity, we won’t entrench the advantages of the fortunate few. We will do everything we can to help anybody, whatever your background, to go as far as your talents will take you.” (Theresa May)

20th July, 2016 (Bloomberg and

Bloomberg: “Federal agents surprised an HSBC Holdings Plc executive as he prepared to fly out of New York’s Kennedy airport around 7:30 p.m. Tuesday, arresting him for an alleged front-running scheme involving a $3.5 billion currency transaction in 2011.

Mark Johnson, HSBC’s global head of foreign exchange cash trading in London, was held in a Brooklyn jail overnight and will appear in court Wednesday, according to prosecutors. The U.S. unsealed a complaint against him and Stuart Scott, the bank’s former head of currency trading in Europe, making them the first individuals to be charged in the long-running probe.

The arrest and charges are a coup for the Justice Department, which has struggled to build cases against individuals in its investigation into foreign-exchange trading at global banks. U.S. prosecutors once had so much confidence in the quality of evidence they were gathering thanks to undercover cooperators that in September 2014, then-Attorney General Eric Holder said he expected charges against individuals within months. The U.K. Serious Fraud Office also found it difficult to make cases against currency traders and announced in March that it was dropping its efforts.” ( on the same story: “The US Department of Justice has already been criticised for failing to prosecute HSBC after it paid $2bn in 2012 over laundering billions of dollars for Mexican and Colombian drug gangs.” (


Comments (24)

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  1. Alan says:

    Warren, there is an important bit missing from your timeline:

    Thomas Sutherland, had joined P&O. He devoted his career to the company, worked on the construction of new wharves in Hong Kong and became the Hong Kong superintendent of P&O as well as the first chairman of Hong Kong and Whampoa Dock in 1863. Opium made up 70% of maritime freight from India to China, where it was sold to the Chinese by British compradores, despite all efforts by the Chinese authorities to stop it. Sutherland understood that the time was right for a commercial bank. In 1865 he and a few others founded the Hong Kong and Shanghai Banking Corporation. The board was chaired by Francis Chomley, and included the remarkable Thomas Dent, founder of Dent & Co. In 1839 a senior Chinese government official, Lin Zexu, known for his competence and moral standing, issued a warrant for Dent’s arrest in an attempt to close his warehouses, which infringed the Chinese ban on opium. That helped trigger the first opium war, which ended in August 1842 with the unequal treaty of Nanking….HSBC’s first wealth came from opium from India, and later Yunan in China. (HSBC: Chinese for making money

    As they say, a tiger cannot change its stripes.

    1. Alan says:

      My tiger comment should be read to apply to both the bank and the British government.

      The opium trade is a vile piece of British colonial history, in which Scots were heavily involved. Millions died of starvation in Bengal in the 18th century because they were forced to grow opium. Adam Smith takes the East India Company to task over this and much else besides in Wealth of Nations. Also look up Jardine Matheson.

      1. Haideng says:

        Not to excuse the opium trade, nor the gun boat diplomacy of the British, but it is important to consider events within the moral framework of times. Opium was not introduced into China by the British, it was and had been a staple of Chinese medicine – improted and home grown – for thousands of years, growing in recreational consumption during the Ming and Qing dynasties. The main reason, contrary to the Chinese party line, the primary reason why the Qing tried to ban British and other foreign imports was that they taxed Chinese opium and it was a significant source of income. The British simply imported a higher grade of Opium that under cut local supplier and flooded the market – that was controlled by secret societies like the Triads and later the Qing Bang in Shanghai – all consented to under the 1911 rev govt of Sun Yat Sen and later Chang Kai Chek, finally banned by the Communists – although the trade had all but died out (with the help of the British in 1906) when the Indian govt (Brit) signed a treaty with the Chinese Qing that if they stopped exporting Opium then China must stop her domestic production. So, to assume the same moral disapproval based on today, and the knowledge we have of the damaging effects and the neurobiology of addiction is a false outrage (although the damage was understood the notion of state control was alien – an interesting argument for those who want to legalise drugs today – the rule of law does reduce consumption and trade it seems) . For example, during the 1840’s opium, cocaine, high strength Gin, was all freely available in the UK also and not illegal. There is a reason why Coke got it’s name in the USA.

        And yes the biggest traders of Opium (or facilitators – the East india company itself never traded, but outsourced everything to private merchants and smugglers – was Jardine and Mathewson, both Scots who essentially founded Hong Kong and made the East India company what it was – ditto in India with the likes of Warren Hastings. And who is connected to the direct descendent of that Noble Scottish House???…..but David and Samantha Cameron – see the Keswicks in Scotland + Camerson’s Scottish family. Shame the SNP aren’t interested in proper Land reform.

        1. John S Warren says:

          An interesting post; thank you for that.

          In the 19th century the import of opium into the UK was often casually overlooked. It should be noted that Whitehall was involved in the trade, which provided a substantial source of Imperial revenues to offset the import of Chinese tea, silk and porcelain. By the 19th century there was a balance of payments deficit in trade with China, and a shortage of silver to pay for the imports. The British discovered opium as a substitute for silver, and turned round the deficit. The State was always present in the trade, in one form or another, one way or another; including (but not exclusively) the Opium Wars.

          Hostility to opium, even to its use, was not automatic in the UK; save the habit of smoking opium which was recognised early as particularly insidious. The ‘tea party’, celebrated by Jane Austin and which has come almost iconically to represent a mannered, refined example of British salon culture that defines “Britain” and British behaviour and values; in the 19th century was in reality quite likely to provide a discreet, genteel cover for a social activity designed to facilitate the taking of opiates, often in the form of laudanum, and an indulgence in such activities as mesmerism (hypnosis) or table-turning.

  2. Fay Kennedy. says:

    Thanks for that Alan. I have been looking at this just recently thanks to this site. What an indictment on our past.

  3. manandboy says:

    But of course all Westminster’s dealings with Scotland are open and above board. For opium read North Sea Oil and Gas. The British Establishment is the very hallmark of criminality and corruption.

    As for the Independence Referendum – you can fool some of the people all of the time, and sadly, Scotland has more than it’s fair share of them.

  4. Broadbield says:

    Should we be surprised? Finance has always been in charge. In Roman times those with money were the “government”, those who aspired to govern (assuming they came from the right families) became clients of the rich, owing them huge debts; they in turn had their own clients. To discharge these debts, some, like Caesar, waged aggressive wars to capture huge amounts of booty. Sound familiar?

    Today, the money men are more nuanced, having allowed “representative democracy” to become embedded, but they still pull the strings by capturing politicians and key government departments through “infiltration” – getting placemen inside, for example, by “helping” to frame legislation likely to impact on finance.

    There’s an excellent essay by Walden Bello in “State of Power 2016”, entitled “Tyranny of Global Finance” in which he shows how the big banks in the US bribed, black-mailed – “too big to fail” -and got their people into government to protect their interests agains plans to regulate, and changed the narrative from banks being to blame for the crash to “big” government being to blame. The same happened here when Darling invited the bankers in to solve the impending crash.

    The more I read the less I believe things will ever change.

  5. john young says:

    What I have always said we are drip fed from our early days about glorious history of the British Empire is it no wonder that still to this day we cling to it,s coat tails,try engaging a Unionist about the facts and he will ignore/blank you.As for money laundering 6 of the biggest financial institutions on Wall Street were found guilty on felony charges not one ever jailed.

  6. nick says:

    i think we should democratically control the banks…if we want we can…reform/abolish fractional reserve banking (invented in early 17th C. curiously the first bubble occurred not long after – south sea bubble)…

  7. George Gunn says:

    John Warren, as usual, has done us all a service. In an independent Scotland banks should be local and serve their community. There is more heroin in Thurso and the north Highlands than there has ever been thanks to the Afghan war. This is not our country.

    1. J Galt says:

      Government protected Opium Production – who’d have thought?

      British India – 19th Century, American Afghanistan – 21st Century?

  8. Drew Campbell says:

    HSBC’s new advertising slogan: “Say hello to my leeetle friend…”

  9. Alf Baird says:

    Interesting analysis John, and comments. On a related matter, does anybody really know whose money has been used to purchase Scotland’s major airports and seaports, upon which most of our diminishing trade depends? Cayman Island ‘funds’ are anything but transparent. Another feature of this type of ownership is a loss of international competitiveness to host nations through lack of investment in new infrastructure, lack of provision of modern/adequate capacity to enable growth, and higher user prices. Does Scotland’s Transport Minister know, or care? This research explains further:

    1. Connor McEwen says:

      So wee are better together then

      1. Alf Baird says:

        Naw, but we could dae better, a lot better.

  10. Willie says:

    Oh Alfie, it’s all Scotland’s finance minister’s fault is it. Oh you are so awful in your little jibes. Bitchy, bitchy bitchy – we know.

    1. Alf Baird says:

      Some of us are fortunate enough to be ably qualified to comment and advise on such matters. For my own part, as far as I am aware, I am the only person in Scotland who has a PhD in strategic management in the global shipping industry, also having lectured, researched, and advised on the subject for 25 years or so, in addition to having worked in the industry prior to this.

      Do you have any sensible contribution to make, Willie, or does your post reflect all you have to say?

      1. J Galt says:

        Does Scotland’s Transport Minister have the power “to care” or intervene?
        And are Scotland’s Ports not now largely irrelevant to what remains of Scotland’s Exports?
        For instance how much Whisky is exported through Scottish Ports?
        Not much I would venture – Liverpool and Felixstowe are Scotland’s most important Ports and who owns them?

        1. Alf Baird says:

          Any Transport Minister in any government has the powers: to build new ports; to regulate existing and new ports; and to concession international shipping services as required (e.g. ‘Motorways of the Sea’ in the case of Europe). Each of these needs to be properly dealt with to enable trade to flow. To do nothing is simply ignorance and inertia, and that is the accusation I have no hesitation at levelling against our so-called ‘competent’ Holyrood administration. Dependence on remote seaports in the south of England simply adds costs and makes our economy even less competitive.

  11. willie says:

    Thanks for the potted CV to confirm how fortunately able, academic and experienced you are Alf. You must be very proud of your Uber abilities. But super endowed as you say you are, see
    We’d it doesn’t stop you from cheapskate infantile political jibes.

    1. Alf Baird says:

      I see “jibes” coming only from your keyboard, Willie.

      FYI the role of a specialist advisor is not like that of a political sycophant. The Scottish Transport Minister must have thought highly enough of me to appoint me as a member of his Expert Ferry Group. However this in no way suggests I agree with Government policy on ferries; on the contrary I believe current policy is misguided and actually constrains island economies. You may wish to read one of my joint articles on this: “Lessons from innovative cost-efficient private ferry operations” in

  12. Lochside says:

    Alf, I’m interested in your comments criticising the Scottish Transport Minister. Particularly your comment on his or her ‘ ability build new ports; to regulate existing and new ports; and to concession international shipping services as required’. Under Holyrood’s limited powers is this the case? Surely the building of new ports would involve capital expenditure beyond Holyrood’s budget at present? My understanding is that the Scottish government has limited or even no borrowing powers. So how would you suggest these suggestions would be paid for?

    I am genuinely interested in how and why these proposals of yours are not apparently being taken seriously by our SG. We need an integrated transport system including ferries, ports etc. in addition to roads and rail, for Scotland to be fully linked comprehensively from each point of the compass. The Scandanavian model makes us look like dinosaurs.

    1. Alf Baird says:

      I understand my Reid Foundation publication on ports and economic growth was sent to all new MSP’s, however not one of them has shown interest thus far. That brief paper explains why and what needs to be done to enable Scotland to develop its international trade and generate economic growth:

      SG/Holyrood already has responsibility for ports, yet has failed to develop any policy or strategy for our international port modernisation and associated trade facilitation – it is as if major seaports (and their capacity, ownership, regulation, investment, management etc) do not matter. That said, the state does not always need to raise finance for port projects. The most common international approach today is to ‘concession’ ports and shipping services via tenders which set out what the state wants/needs (in terms of new port capacity, technology etc), and whereby the selected ‘operator’ makes the necessary investments, less any available state/EU investment. I would add that a modern international ferry/cruise/intermodal terminal can be relatively inexpensive (e.g. £30-50m), depending on where it is sited – yet can facilitate many £billions in trade.

      With major international ports – if a state wants a new port it can simply advertise for one, and invite the market/operator to bid to provide and operate it, say based on a 30 year lease and at an agreed fee – after which the port usually reverts to state ownership (unlike PFI deals). The operator repays the investment via user charges, which are usually regulated, less any state subsidy that may be available. I should add however that SG has had little problem finding money for domestic ports – hundreds of millions have been spent across dozens of island ferry terminals over the past 20 years, but as you will gather these have limited impact on Scotland’s international trading or competitiveness or on economic growth. CalMac’s strategy of deploying ever bigger boats (rather than improving frequency, which is what users really desire) inevitably implies a need for major new port investment.

      In the case of domestic ferries, in Norway and many other European states private firms bid for ferry contracts and these operators are required to provide their own vessels at their expense; here in Scotland for some obscure reason Ministers own CMAL which is a monopoly state owned provider of vessels – and typically high cost inefficient types of the sort only a state entity would tend to ‘specify’! So Ministers here do currently prefer to have the state make investments in ferries, not that they actually need to do so, and this goes against the international trend.

      So Scotland does invest large sums in shipping and ports (e.g. £1bn alone for the new calmac tender, plus port/ship expense) however this is all for domestic usage, with limited effect on our international trade, or on our international competitiveness or economic growth. One key issue I see is Holyrood’s mindset is still domestic, not international, and civil servants are still working in much the same way they did and with similar responsibilities they had prior to Holyrood in the old Scottish Office. They all need to widen their horizons and up their game – its a big world out there and it is passing Scotland by – our ongoing decline in international trade reflects our lack of competitiveness/lack of port investment and absence of policy reflects this constrained mindset. Apologies for the lengthy response.

  13. Ruben Petti says:

    I couldn’t help but be moved by the immediate story the film conveyed, and also to think of its relevance to Scotland. Where have been our ‘Spotlights’ ? Who has systematically shone light on abuses of power, and do most of us even care that most power is exercising in the dark far from scrutiny?

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