HSBC not necessarily liable for clients' alleged corruption

Ahram Online, Monday 2 May 2011

Mixed opinions on the international financial giant's liability for its clients' mishaps, as some question its links to the corruption of the former regime

HSBC Egypt
HSBC suffered physical damages during the Jan 25 protests; now its facing damages to its reputation due to accusations of corruption

It is not yet clear whether HSBC’s officials are heading to court soon or not. 

Recent reports by several British news sources accused the financial giant of providing assistance to land deals tainted by corruption from the Mubarak regime.

The international bank raised more than LE 4.5 billion for two of the largest-- lately controversial-- real estate developers, one of which is Palm Hills Developments.

Former housing minister Ahmed El-Maghrabi and his cousin, ex-transport minister Mohamed Mansour, are shareholders in Palm Hills' parent company, while Mansour's brother is Palm Hills' chairman. El-Maghrabi is now in custody awaiting trial.

Despite the obvious common interest between any investment bank and its clients, some think that HSBC should not be liable for any corruption charge against its clients.

“The role of an investment bank is purely technical; they use the audited financial statements of their clients to provide a certain financial service,” said Walaa Hazem, asset manager at HC securities.

Investment banks generally perform thorough financial and legal due diligence, measure financial strength, then package and market their client’s equity.

“It is not the bank’s role to investigate their client’s business beyond a certain level; rather, it is the role of other regulatory bodies,” Hazem adds.

However, some argue that the bank should be aware of the main sources of its clients' wealth.

“The bank is responsible for ensuring that all major assets of its underwriting client were obtained through legal means,” said Tarek El-Marsafawy, senior associate at Zaki Hashem Law Firm.

But the bank is not held liable if the legal stature of an asset changes due to change in regulation or due to political consideration, according to El-Marsafawy.

Others take a tougher stance on the issue. “As HSBC are bankers of record for many of the Egyptian figures who were politically exposed, and many of the dealings were extremely suspicious, this is definitely a concern.” said Engi M. El-Haddad, director of the Egyptian anti-corruption group Afro-Egyptian Human Rights Organisation.

HSBC officials refused to comment on the subject; promising a press release would be issued on Tuesday.

Two former directors from the Egyptian board of HSBC became ministers in Mubarak's government in 2004, overseeing land sales and privatisations -- former investment minister Mahmound Mohieldin and ex-trade minister Rachid Mohamed Rachid.

Recently, Andrew Long, former head of Global Transaction Banking at HSBC, was appointed as HSBC Egypt’s CEO, succeeding Abdel Salam El-Anwar, who had served as the CEO and chairman for most of the last decade.

El-Anwar is also a board member of the Central Bank of Egypt.

With an asset base exceeding USD 7.5 billion, HSBC is one of the fastest growing banks in Egypt, a course that might be impeded if these corruption charges are escalated.

HSBC was established in Egypt in 1982 under the name of Hong Kong Egyptian Bank and in 1994, it was renamed the Egyptian British Bank under the same shareholding structure.

It was then rebranded as HSBC Bank Egypt in April 2001, following an increase in the HSBC Group's shareholding from 40 per cent to over 90 per cent of its issued share capital.

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