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corruption money there is.

They don’t want to understand,

they don’t want to find out.

Anti-money laundering expert, 200886

So there are question marks hanging over the issue of customer due diligence standards in Spain and Luxembourg. But that is not the only problem. Even more disturbing is the impact of bank secrecy in these jurisdictions. Once the questioning from the Senate

investigators started, Riggs wrote under Section 314 of the Patriot Act to Banco Santander and HSBC USA, asking them to share information

about the beneficial owners of these accounts.89

But both banks said they could not provide this information, because the accounts were

opened at their affiliates in Spain, for Banco

Santander, and Luxembourg and Cyprus, for HSBC. Bank secrecy laws in these jurisdictions, they both said, barred disclosure of information not only to third parties, but to staff of the same bank who were outside that country.90

So banks which have received transfers

identified in another jurisdiction as suspicious

are able to shelter behind bank secrecy laws and refuse to identify the account owners, even to their own branches elsewhere. This is an extraordinary situation.

These secrecy laws do not only impede the tracking down of money that has already gone. As the Senate investigators commented, ‘The position taken by Banco Santander and HSBC USA means, in essence, that banks in the United States attempting to do due diligence on large wire transfers to protect

against money laundering are unable to find out from their own foreign affiliates key

account information. This bar on disclosure across international lines, even within the

same financial institution, presents a significant obstacle to US anti-money

laundering efforts.’92

This raises a disturbing question, applicable not just to US anti-money laundering efforts, but globally. How can banks say they are doing their due diligence, as required by anti-money laundering laws, when their subsidiaries operate in

jurisdictions with banking secrecy laws? It means that not only can they not find

out the identity of account owners in other jurisdictions to whom they might be requested

to transfer funds, as identified in the quote

from the Senate investigators above, but also that they cannot ensure that their foreign

branches are upholding sufficient standards.

Effectively, a bank has a correspondent relationship with each of its branches in other jurisdictions.93 _{A correspondent bank is one}

which holds an account for another bank, allowing the second bank to provide services to its customers in a country in which it does not itself have a presence. A bank cannot know who all of its correspondent bank’s individual customers are, which makes correspondent relationships a higher risk for money laundering. The regulations therefore recognise this: FATF Recommendation 7 requires countries to require their banks to collect enough information to fully understand their correspondent’s business, and to assess the quality of its anti-money laundering controls and how well it is supervised.94

Under US law the responsibility of a US bank is to assure itself that its correspondent banks have appropriate due diligence procedures.95

So to take the example of the Apexside transfers from the Equatorial Guinea account at Riggs:

HSBC USA has accepted HSBC

•

Luxembourg as a correspondent client. HSBC Luxembourg has a client, Apexside,

•

over whom serious questions have been raised in the US regarding the source of its funds (ie a state’s oil revenue, potentially diverted by its president),

and the identity of its beneficial owner

(potentially the president of Equatorial Guinea) to the point where HSBC USA might not be able to accept this client.

HSBC USA cannot, however, find out about •

this client, and who its ultimate owner is, from its own branch in Luxembourg. How, then, can HSBC US claim to know its correspondent bank HSBC Luxembourg – which is effectively a correspondent client because HSBC US holds accounts for it –

if it has no means of finding out who HSBC Luxembourg’s clients are? And how can it

assess how effective HSBC Luxembourg’s due

diligence is when it cannot find out anything about the clients that it chooses to take?

‘They’re playing the jurisdiction game with

their own branch standards,’ one US banking expert told Global Witness. ‘When you have cases that indicate different sets of standards, how can you accept their standards, yet say

you’re upholding the higher standards?’

Global Witness wrote to HSBC to ask on what basis HSBC USA can claim to know its correspondent customer HSBC Luxembourg, when, according to bank secrecy laws which prevent the sharing of

information, it has no means of finding out

who HSBC Luxembourg’s clients are. HSBC did not answer this, stating only that ‘We did [...] cooperate fully with the relevant Senate Subcommittee. This cooperation included providing guidance to them as to how to make cross-border information requests in respect of non-US accounts. It is a common principle of banking relationships world- wide that banks are subject to strict duties

of confidentiality and can supply information

to third parties only with customer consent or pursuant to a formal request from legally competent authorities.’96 _{The equivalent}

question was posed to Banco Santander,

Gagged by bank secrecy: laws in some jurisdictions prevent bankers revealing the owners of accounts – including to their colleagues in overseas branches of the same bank. This prevents effective cross border due diligence being done.

which did not reply to that letter.97 _The

standards articulated by the Wolfsberg Group, a voluntary grouping of 11 banks which sets standards for customer due diligence, and of which HSBC currently holds the chair – say nothing about this problem.

As the ability to move capital