HSBC facing North Cyprus legal battle
July 23, 2012 1 Comment
HSBC facing North Cyprus legal battle
Britain’s largest bank, HSBC, is facing legal proceedings in the US over the sale of property in Northern Cyprus.
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Court papers filed by a group of UK investors allege that HSBC took part in a “fraudulent property scheme of biblical proportions”. The documents claim the bank supported an “illegal commercial enterprise” in the disputed region.
Northern Cyprus – or the Turkish Republic of Northern Cyprus (TRNC) – is only recognised by Turkey, while Greek Cypriots see the area as illegally occupied territory.
The battle for land rights on the divided island has been the subject of intense legal battles for many years. More than 60pc of property in the territory is understood to have been Greek Cypriot-owned before a Turkish invasion in 1974.
“The Plaintiffs invested life savings into what they believed were vacation or retirement dwellings with valid legal title issued by the TRNC,” papers seen by The Daily Telegraph claim.
“HSBC is involved in illegally transferring monies for the sale of these properties knowing that title to the underlying properties are illegal and/or defective because the “TRNC” lacks the sovereign power to issue or obtain title.”
According to the writ, the “total aggregate amount due to Plaintiffs” exceeds $50m (£32m).
HSBC declined to comment on the legal proceedings, which were filed in Washington D.C. However, they are likely to raise further questions on the type of activities mainstream lenders are involved in.
Last week, HSBC was forced to apologise before the US Senate over facilitating a multi-billion-dollar money-laundering operationfor drug gangs, terrorists and rogue nations worldwide. The Senate heard how the company was “pervasively polluted for a long time” as it allowed funds to be shifted to and from its branches in the United States as far afield as Mexico, Syria, the Cayman Islands, Iran and Saudi Arabia. HSBC is now braced for a “substantial” fine which analysts said could be up to $1bn.
Although the cases bear few similarities, experts say lenders are likely to face increased scrutiny over the coming months.
Another high profile case last month saw ING agree to pay $619m (£396m) to settle allegations that it broke American sanctions against Cuba and Iran. US authorities said ING moved $1.6bn illegally through banks in the United States from the early 1990s through 2007 by concealing the nature of the transactions.
Simon Bevan, head of fraud and financial crime at accountants BDO, said: “Speaking generally, regulators have begun to pay a lot of attention to rogue states and the type of activities linked to them. In reality, about 90pc of staff in banks will stick to the spirit of the rules but 10pc will bend themselves into a pretzel to justify taking deposits they should refuse or report.
“In an environment where the regulator is king, we can expect to see more action taken, particularly when it concerns areas of rogue states such as North Korea and Iran”
“One of the ways this has been done is by swift stripping. Which is changing the coding on electronic fund transfers to disguise the country of origin.”
ING was the fourth major bank to settle with US authorities over “stripping” wire transfer information to hide the illegal movement of money through banks in New York on behalf of clients subject to US sanctions.
Credit Suisse agreed to pay $536m in 2009 to settle charges of illegal transactions involving Iran, Cuba and Libya, among other countries. Others implicated in the past include Lloyds TSB and Barclays.
Neill Blundell, partner and head of fraud at Eversheds, said: “Financial crime teams at individual regulators will be placing a greater emphasis on systems and controls over the next few years and months. Huge global banks are likely to be in the spotlight.”
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