Fiduciary Duty in AML matters

Fiduciary Duty and the Update on Madoff's Fraud Case

News Headline: HSBC to set aside $1.1 billion in third quarter for potential hit from Madoff case

https://www.cnbc.com/2025/10/27/hsbc-1point1-billion-in-provision-third-quarter-madoff-case.html

Question to AI: HSBC was not the accomplice in Madoff’s fraud case. It is the trustee who should account for the losses of the victims. But it was said that HSBC was sued for damages because it had breached its fiduciary duty to the account holders. Your though?

Yes, HSBC has been sued for allegedly breaching its fiduciary duty as a custodian and service provider to funds that invested with Bernard Madoff — particularly by failing to safeguard client assets and perform adequate due diligence.

What Is Fiduciary Duty — and How It Applies to HSBC

A fiduciary duty is a legal obligation to act in the best interest of another party — in this case, HSBC’s clients and account holders.
As a custodian bank and administrator for several Madoff-linked feeder funds (including Herald Fund SPC), HSBC was expected to:
- Safeguard the assets held in custody
- Monitor and verify investment activity
- Flag suspicious or irregular transactions

Allegations Against HSBC

Herald Fund SPC sued HSBC Luxembourg in 2009, claiming that HSBC failed to protect its assets and perform proper oversight, leading to losses in the Madoff fraud.
The lawsuit argued that HSBC breached its fiduciary duty by:
- Not verifying the existence of securities supposedly held by Madoff
- Failing to detect red flags in Madoff’s operations
- Continuing to provide services despite mounting concerns

Court Rulings and Outcomes

In October 2025, a Luxembourg court ruled that HSBC must provide restitution of securities but denied the claim for cash restitution, suggesting partial liability.
HSBC has not been found criminally liable or labeled an accomplice, but civil courts have held it accountable for negligence and breach of duty in its custodial role.
As the time of this ruling, HSBC was planning an appeal to mitigate its financial responsibility.

Key Distinctions

Role	Legal Exposure
Madoff	Criminal fraud, Ponzi scheme mastermind
Trustees	Responsible for recovering assets
HSBC	Sued for civil damages due to alleged breach of fiduciary duty

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