The HSBC CIO And The Money Laundering Problem

by drjim on December 2, 2015

HSBC has a money laundering problem that they are trying to solve

HSBC has a money laundering problem that they are trying to solve
Image Credit: Christian Senger

The person with the CIO job has a lot to do in the best of circumstances. When your company has been accused of aiding in aiding in the laundering of US$881M and has had to pay a US$1.9B fine, things just got a whole lot tougher and the importance of information technology doesn’t matter as much. HSBC is in a bad place and right now it looks like their IT department is not going to be able to help them to get out of it any time soon.

What HSBC Has Tried To Do To Fix Its Problem

Back in 2012, HSBC agreed to pay US$1.9B and enter into a five year deferred prosecution agreement in order to settle charges that it had failed to catch US$881M in drug trafficking proceeds that got laundered through its U.S. banks. Just to make things even worse, in order to avoid U.S. sanctions its staff was accused of stripping data from financial transactions that the bank was doing with nations that it was not supposed to be dealing with: Iran, Libya, and Sudan. Clearly things had gotten out of control and the bank agreed to clean things up.

The procedures that HSBC had in place to root out and report on suspicious behavior were clearly flawed. One of the biggest problems that HSBC is facing as it tries to do a better job of becoming more transparent is that its CIO and the IT department are not helping. Part of the reason that the IT department is dragging it’s feet is because of how the IT department has been built. HSBC’s IT department was not designed to work with the bank from the ground up. Instead, it has been cobbled together through various mergers and acquisitions.

HSBC can’t be accused of not spending enough to try to solve this problem. They have had a roughly US$1.4B increase in their operating expenses. A great deal of this has gone to hiring thousands of compliance staff. Unfortunately the regulators who are overseeing HSBC’s efforts to clean shop have not been impressed. They have been quoted as saying “…throwing bodies at it and putting your finger in the dike – that’s not a sustainable system.”

What HSBC Still Has To Do

The regulators are accusing the HSBC IT department of still lacking “integration, coordination, and standardization”. Just to make things a bit more real for the HSBC management, the regulators want to dock their bonuses because of the lack of progress that has been made.

What HSBC has to do is to revamp their IT infrastructure. What this is going to require is that they upgrade all of the systems that the bank currently uses. One step the bank has taken is to install new screen savers on every laptop used within the firm which says “Ask The Right Question”. This is a good first step, but more still needs to be done.

One important step that the IT department could help HSBC with would be for the bank to sever its relationships with known money laundering clients. It would be the responsibly of the IT department to use known money laundering patterns to detect which of the bank’s customers were probably engaged in money laundering. Once these customers had been detected, then the bank could drop them and potentially start to get on the good side of the regulators.

What All Of This Means For You

HSBC is a bank with big problems. They have been accused of aiding in money laundering activities and so they are now trying to reform how they do business. Their IT shop is a key part of the reform activities that they are undertaking. However, the regulators believe that they have not yet done enough to fix their problems.

One of the biggest parts of HSBC’s technology problem is that their IT systems have not been systematically built. Instead, the systems that they use today have been cobbled together based on a series of mergers and purchases. What HSBC really needs to do is to sit down and revamp their IT systems from the ground up.

HSBC is a very large and very successful bank. If they put their mind to it, the person in the CIO position can fix the IT problems that are contributing to their current situation. However, if they attempt to just patch over the issues that their poorly put together systems have caused, then they’ll continue to be fighting not only their issues, but also regulators.

– Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World IT Department Leadership Skills™

Question For You: How could HSBC keep the bank running while revamping their core IT systems?

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What We’ll Be Talking About Next Time

As a CIO we are always searching for ways that we can better communicate the importance of information technology in order to improve ourselves, our IT shop, and, of course, our company. Exactly how go about doing this is one of life’s greatest mysteries. It turns out that each and every one of us has the skills that it takes to make this kind of improvement happen. All that we have to do is to ask ourselves the right types of questions. Do you know what questions you should be asking yourself right now?

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