This is an exclusive English-language translation of an article that originally appeared in Edition 21 of Revista Crisis as ‘Los Guantes Mágicos del HSBC’ by Pablo Waisburg.
The biography of British bank HSBC includes having financed the opium wars and facilitated money laundering of Mexican drug cartels. In Argentina, the courts, the tax office, and Congress are investigating its manoeuvres to force a devaluation last summer, as well as systematic tax evasion. With some of the most VIP clients in the local market, the bank is preparing to seduce the media.
Money laundering and tax evasion. The two charges brought against HSBC Argentina in allegations made over the last two years. And last July another, more serious one was added: participating in “speculative operations in the currency market”. HSBC is accused, along with six other banks and oil giant Shell, of provoking a devaluation last January. Soon afterwards, the Legal Office for Economic Crime and Money Laundering (Procelac), one of the organisations that regulates the financial sector, urged AFIP to accelerate its investigation into alleged tax evasion by the bank.
That was the signal for HSBC’s Argentine subsidiary, which has already accumulated hefty fines with the Financial Information Unit (UIF), to line up its troops. The bank opened a new communications front to the legal battle already under way: at the start of November, it swapped the silent approach with a surgical public relations campaign. But just as everything was ready to launch, another bomb went off.
From their office on the 16th floor of the Fortabat Tower, HSBC Argentina CEO and president Gabriel Martino, watched the TV conference live. From that room, with its views over the northern lock of Puerto Madero, he listened to the public accusations made by AFIP director Ricardo Echegaray, who said that his bank had been part of a “conspiracy” and created an “illegal platform” to allow its clients to evade taxes. And Echegaray went further still: “HSBC Argentina has a hidden account in Switzerland, and furthermore, the bank’s president possesses an undeclared account in Geneva.”
Perhaps it was in that moment that Martino thought the time had come for Federico Etiennot, just hired as the bank’s head of communications. The new position – and the new strategy – has Etiennot merging the functions of communications and public relations.
“Talking about Public Relations is to expose the practice of managing the reputation of a company, director, or institution,” explains a consultant who has worked in the field with many multinationals. “It means mediating the interests of media owners, journalists, and society. It makes use of tools of persuasion in the grey area between what is right and what is possible, depending on the ethics of the person involved.”
The People’s Opium
HSBC operates at the top end of the Argentine financial system. “It has the highest-income clients and directly targets the high-end sector,” says an experienced worker at the Central Bank. But it also imports dollars from its external headquarters and even sells notes to the Central Bank when it is out of dollars obtained from the US Federal Reserve.
The bank has 4,023 employees, more than Citibank (2,784) and ICBC (3,563), but fewer than Banco Macro (7,900), which is owned by Argentine Jorge Brito. All of them are in the top ten private banks operating in the country, according to the Central Bank. More than half of that list have their headquarters abroad: Great Britain, the US, China, or Spain. HSBC Argentina holds 309,197 current accounts and 863,967 savings accounts; it has issued 1,481,633 credit cards and extended loans to 18,775 companies according to data up to March 2014 from the Central Bank.
The bank’s origins have other twists that don’t show up in these numbers. It was born in 1865 as the Hong Kong and Shanghai Banking Corporation, founded as a way of administering the funds that opium trafficking generated, and which encouraged Great Britain to boost commercial ties with China. The British had made the play 50 years earlier: China only accepted money for its goods, which generated a deficit for the UK, which in response obtained cash via the trafficking of opium cultivated in India. To stop the trafficking, China prohibited the drug in 1830, but nine years later, faced with British persistence, an emissary of the Chinese empire – Lin Hse Tsu – sent a letter to Queen Victoria. He asked the monarch to end the illicit trade and warned that any ships arriving with opium would be burned, no matter which flag it sailed under.
There was no formal answer to the request, but the response in practice was the creation of HSBC.
Now the Argentine national government has its sights on HSBC: “It’s a predatory bank and it is always in trouble.” One of these – according to this source – is the manipulation of the Libor rate, which ended up in a US$3.4bn fine for HSBC and four other banks. “Operators used this information to devise currency buying strategies, seeking to manipulate the exchange rates to inflate profits,” noted the report by the UK’s Financial Conduct Authority.
Another scandal was unleashed by a systems engineer – Hervé Falciani – who took information from HSBC Switzerland about 130,000 tax evaders, including more than 4,000 Argentines.
In Buenos Aires the UIF has fined HSBC nearly $104m for not reporting irregularities in certain operations, though the bank has appealed. In the US it paid US$1.9bn to settle an investigation into money laundering: the bank’s directors were brought before the Department of Justice in 2012 and were accused by the Senate of not stopping money laundering activities by Mexican drug lords, despite having indications of illegal activity. According to the investigators, HSBC Mexico sent more than US$4bn to the US – some bills in trucks crossing over the border, others sent in planes.
“We accept responsibility for our errors in the past. We have said before that we deeply regret these errors, and we’ll say it again. HSBC today is fundamentally different from the organisation that committed these errors,” said HSBC Group’s chief executive, Stuart Gulliver, when confirming that the fines would be paid. Throwing money at the problem ensured the end of the criminal investigation that had threatened those responsible with prison.
Martino was treasurer and a member of the executive committee of the Mexican subsidiary. He came to Buenos Aires in 2012 when the investigation was still under way. “HSBC marked Argentina as one of 20 strategic markets in which it wants to be operating in,” said Martino in an interview published in El Cronista in June 2012, in explaining why he had been promoted. The son of accountants and grandson of the owner of a currency exchange house, Martino returned to Buenos Aires to give the local subsidiary a bigger presence, with an eye on China. “Argentina needs millions and millions of dollars for infrastructure,” he said in a feature interview this April for OrientAr, the magazine for the Argentina-China chamber of commerce.
Martino became the third vice-president for the Argentine Banking Association, which groups together the international banks operating in the country. Since his arrival, bonds operations have increased for individual and corporate customers. The number of companies operating with the bank has increased, as has the number of credit cards. Martino also worked to improve public relations, cosying up to Augusto Rodríguez Larreta, PRO party politician and brother of the city government’s cabinet chief [Horacio Rodríguez Larreta]. And he mingles with other executives of his level at parties in José Ignacio, near Punta del Este.
The investigation carried forward by AFIP is linked to two companies – Más Distribuidora SA and Recaudaciones y Servicios del Sur SRL – which used fake invoices and tax codes to launder money and evade taxes. The case, which is being led by prosecutor Jorge Dahl Rocha and involves nearly $400m, has not yet yielded concrete results. However, the public declarations by AFIP director Ricardo Echegaray are more powerful than the progress made so far: “Don’t insist on looking for me at events and maintaining a relationship. In the face of these operations you must pay, return what you owe to the state, and examine all the operations with generic accounts offered to private clients.” That was on 18th March 2013, during a press conference that left on record the idea of a direct lobby with a public official, which was not publicly refuted by HSBC. Around 18 months later, AFIP raided three HSBC branches, including its headquarters.
Last August, Procelac requested legal actions against HSBC directors. This has not been started so far because, according to sources in the judiciary, there needs to be more investigative work as there is “not enough to charge” former HSBC Argentina head (and current regional executive) Antonio Miguel Losada, his successor, Martino, and four other directors: Marcelo Luis Degrossi, Alexander Andrew Flockhart, Simon Christian Martin, and David Clive Kenney.
According to the presentation made by Procelac, which supports the case being brought forward by AFIP, HSBC neglected to “deliberately inform” authorities about the operations of Más distribuidora and Recaudaciones y Servicios del Sur. Evidence of the collaboration could be seen in the way HSBC created a unique banking code for the two companies, used to identify accounts and make transfers. It also alleges that HSBC did not inform the tax office of transactions greater than $10,000, as is required under current law. Nor did it inform AFIP of these company accounts, “in this way hiding their existence, and making it impossible for the entity to trace operations.”
Procelac went even further and analysed the roles of staff at the Central Bank. An IT and systems inspection conducted by the monetary authority between the 4th and 29th of October 2010 revealed “flaws that allow for the possibility for internal or external fraud at HSBC.” It also noted the CAMELBIG measure, used by the Superintendence for Financial Entity and Currency Exchange Houses to rate the quality of financial organisations on a scale of one to five (with one being the highest score). Between 4th October 2010 and 29th April 2011, HSBC, one of the top ten banks in the country, scored just three.
Lastly, Procelac highlighted the results of an evaluation on the bank’s commitment to tackle and prevent money laundering, conducted between 4th June and 10th August 2012. The Central Bank found various inconsistencies – including the lack of an “adequate” analysis of cheques, and reports into suspicious operations that took more than 150 days to be made – yet still came to conclusions that now surprise prosecutors. “The serious flaws detected at HSBC Argentina were followed up with this statement from the Central Bank: ‘The directors, managers, and staff have shown at all times a good disposition to adopt the recommendations and suggestions made by the inspection.’” Prosecutors underlined the phrase “good disposition” in the written report made by the Central Bank.
This prompted a specific request. “There should be an investigation into the behaviour of authorities and those responsible at the BCRA for the noted evaluation, which failed to offer adequate control over HSBC Argentina and allowed the bank to hide accounts holding at least $397,030,616,” remarked the prosecutors, when Juan Carlos Fábrega was still head of the Central Bank.
The bank’s legal problems – which include more than $100m in fines – intensified this year with the allegation of its role in January’s devaluation. This case also involves Banco Galicia, Citibank, BBVA Banco Francés, BNP Paribas, JP Morgan Chase Bank, Banco de la Provincia de Córdoba, and oil company Shell.
They are accused of forming a “coalition” to take coordinated actions like “speculative operations in the currency market to drive an increase in the dollar exchange rate and provoke a devaluation of the peso.” These alleged operations “resulted in extraordinary profits for the financial sector and in particular for the banks involved: nearly $10bn in January 2014, compared to just $427m in the same month a year earlier.”
According to the legal presentation, HSBC appears to be the primus inter pares among seven banks. The report detailed the: “conspicuous operations by Shell and HSBC in the retail market, with exorbitant volume and exchange rates.” According to the allegation, on 23rd January HSBC made a strong play in the wholesale market, accepting an exchange rate of $8.50 and contributing to a 18.21% fall in the peso. It also made three sales of dollars to Shell for more than $4.5m “at an exchange rate of $8.70, when the day before the rate had closed at $7.12,” according to the information held by the Public Prosecutor’s Ministry and published on fiscales.gob.ar.
Also working on the allegations was Pedro Biscay, at that moment head of economic and banking fraud at Procelac. Biscay, now a deputy director at the Central Bank, defined the behaviour of the reported banks as “collusive, with the aim of destabilising the economic order.” This allegation carries more weight since the resignation of Fábrega as head of the Central Bank and the removal of other directors suspected of having links with the financial operators they are supposed to be regulating.
The Chosen One
Against this backdrop of legal accusations and tighter controls in the banking sector and currency market, HSBC has changed its communications strategy. New communications head Federico Etiennot has “among his biggest challenges to consolidate the bank’s external relations and promote dialogue with its collaborators,” according to various reports in publications specialising in corporate communication.
This was the same task Etiennot had at Barrick Gold, his previous employer. He headed up a change in communications policy at the mining company operating in San Juan province, and was also a key figure with the Argentine Chamber of Mining Companies (CAEM), which in recent years has presented technical, financial, and environmental reports polished by public relations companies. The focus of these reports was to make a convincing case that the multinational mining companies were suffering from excessive taxation, created many jobs, and that their environmental impact was no greater than a tannery operating in Greater Buenos Aires.
The 27th November press conference held by AFIP’s Echegaray put this new strategy to the test. That day things were heated in the office on the 16th floor, with discussions centred on how to respond; as is often the case, there were two lines of thought, including one that recommended seeking to lower the tone and not aggravate the situation. But the decision went the other way, cementing the shift in communications strategy with two statements, one by HSBC Argentina and one by Martino.
The bank declared that it complied with “Argentine law and all the controls that regulate its activity in the country,” rejected “emphatically any participation in illicit activities,” and stated that it “does not have an account” in HSBC Switzerland. Martino’s statement followed a similar line, but went further and accused Echegaray of lying: “The declarations made by the AFIP director regarding the existence of an account in HSBC Switzerland in my name are absolutely false. I do not own an account at HSBC Switzerland or any bank in that country.” This claim could be easily refuted by AFIP, which a day later confirmed the suit filed at the national courts. Martino and the bank are now silent.
This battle is set to be heated. It’s not just about convincing clients – as Martino attempted in a column in Ambito Financiero – that the bank’s aim is to “help them realise their dreams.” The bank’s brand and position at the local and international level is at the centre of the debate. Banks are often considered the villains of the system by society, not because of history but because of their recent role in the sub-prime mortgage crisis. The history of HSBC – which next year will turn 150 years old without ever needing a rescue – is at stake again. But this time it is not just about reputation: there is a legal element, and the prospect of ending up behind bars is haunting the corridors of the bank.
Translated by Marc Rogers.