HSBC exposed: Drug money banking, terror dealings
International banking giant HSBC may have financed terrorist groups and funneled Mexican drug money into the US economy through its lax policies, a damning Senate report reveals. The bank’s bosses have apologized for the misconduct.
David Bagley, HSBC’s Head of Group Compliance, admitted during a Senate subcommittee hearing that the company had made a number of lapses, adding that he planned to resign.
“I recognize that there have been some significant areas of failure,” Bagley told the US Senate Permanent Subcommittee on Investigation. “I have said before and I will say again: despite the best efforts and intentions of many dedicated professionals, HSBC has fallen short of our own expectations and the expectations of our regulators.”
Irene Dorner, CEO and President of the bank's American operation (HBUS), told the panel that HSBC deeply regrets the lapses in oversight, apologizing for the company's mistakes.
Senator Carl Levin, the chairman of the subcommittee, gave details of one such intricate scheme to launder cash between 2006 and 2009.
“Because our tough AML (anti-money laundering) laws in the United States have made it hard for drug cartels to find a US bank willing to accept huge unexplained deposits of cash, they now smuggle US dollars across the border into Mexico and look for a Mexican bank, or ‘casa de cambio’ to take the cash.,” Levin noted. “Some of those casas de cambio had accounts at HB Mexico, which, in turn, took all the physical dollars that it got, transported them by armored car or aircraft back across the border to HBUS for deposit in its US Banknotes account, completing the laundering cycle.”
The Senator welcomed HSBC’s apologies, but said it also had to be held accountable. He called on the bank to consider shutting down its Mexican affiliate, as well as other banks suspected of providing funding for terrorists.
Earlier, Levin said “the culture at HSBC was pervasively polluted for a long time.”
The findings are the results of a year-long Senate probe into HSBC’s activities, highlighting systemic negligence throughout the bank’s international structure. The probe was published in a 340-page report in Washington on Tuesday.
Financing terror and flouting the rules
HSBC’s activities in Saudi Arabia were brought into question in the report, specifically referencing banking with Al Rajhi Bank. The investigation claims the Saudi bank has links to financing terrorism based on evidence gathered after the September 11 attacks.
Information collated by investigators suggests one of Al Rajhi’s founders was an “early financial benefactor of al-Qaeda.”
HSBC forbade its affiliates from doing business with the Saudi bank in 2005, but this policy was overturned only a few months later when the banks resumed dealings.
In addition, the report cites dealings with two Bangladeshi banks thought to have links with terrorist organizations.
"From an oversight perspective, the failure of accountability here is dramatic," Senator Levin commented.
The probe also details how the bank bypassed US safeguards that protect against transactions potentially involving terrorists, drug lords, and rogue regimes. The investigations committee alludes to almost 25,000 transactions to Iran amounting to over $19 billion conducted through the bank's US office over a period of seven years. The bank did not disclose that the funds were being sent to Iran.
The reports cities HSBC’s activities in Mexico, highlighting the fact that the country was treated as a long-risk client despite being a known hub for drug trafficking and money laundering.
It gives reference to the banking conglomerate’s Mexican affiliate transporting a total of $7 billion in hard cash to HBUS from 2007 to 2008. The sheer quantity of capital transferred raised concerns that some of it came from illegal drugs sales in the US.
The report also implicates the Office of the Comptroller of the Currency (OCC), a US financial regulator, for failing to regulate HSBC’s activities.
The OCC reported multiple failings on the part of HSBC in 2010 to implement anti-money laundering measures, namely its failure to monitor $60 trillion in bank transfers and 17,000 account alerts detailing suspicious activity.
The Senate report lays the blame for HSBC’s negligence over the past six years partly at the feet of the OCC for its lack of action in spite of consistent evidence of the banks money laundering issues.
"We have learned a great deal working with the subcommittee on this case history and also working with US regulatory authorities, and recognize that our controls could and should have been stronger and more effective in order to spot and deal with unacceptable behavior,” HSBC said in a statement. The bank also emphasize that they had already taken “concrete steps” to address the issues including drastic changes to “strengthen compliance, risk management and culture."
The new report comes after the UK’s largest bank revealed it would have to pay a $1 billion fine to US authorities for money laundering offenses committed between 2004 and 2010.
HSBC laundered billions of dollars for Mexican drug cartels, Senate investigation finds
HSBC released a statement saying its executives will offer a formal apology at the Senate hearing.
WASHINGTON—Lax controls at Europe’s largest bank, HSBC, allowed Mexican drug cartels to launder billions of dollars through its U.S. operations, a Senate investigation has found.
The extensive report on London-based HSBC Holdings PLC by the Senate Permanent Subcommittee on Investigations also says U.S. regulators knew the bank had a poor system to detect problems but failed to take action.
HSBC executives brushed off complaints from other bank employees, so that the problems persisted for eight years, the report says.
In addition, some HSBC bank affiliates skirted U.S. government bans against financial transactions with Iran and other countries, according to the report. And HSBC’s U.S. division provided money and banking services to some banks in Saudi Arabia and Bangladesh believed to have helped fund Al Qaeda and other terrorist groups, the report said.
The subcommittee released the report Monday ahead of a Tuesday hearing on the topic. HSBC released a statement saying its executives will offer a formal apology at the hearing.
“We will apologize, acknowledge these mistakes, answer for our actions and give our absolute commitment to fixing what went wrong,” the statement said.
The U.S. Justice Department said it is conducting a criminal investigation into HSBC’s operations but declined to confirm that the bank is in settlement talks.
HSBC’s net income last year was $16.8 billion. It operates in about 80 countries around the world. Its U.S. division is among the top 10 banks operating in the United States. It has assets of roughly $210 billion in its U.S. operations.
Money laundering takes profits from the trafficking of drugs, arms or other illicit activities and passes them through bank accounts to disguise the illegal activity.
The bank used its U.S. operation as a “gateway” into the U.S. financial system for other HSBC affiliates, Sen. Carl Levin, the subcommittee’s chairman, told reporters Monday. Because of lax controls against money laundering, HSBC Bank USA “exposed the United States to Mexican drug money” and other suspicious funds, Levin said.
The report says the drug cartels laundered money through the bank’s U.S. division from 2002 through 2009.
“In an age of international terrorism, drug violence in our streets and on our borders, and organized crime, stopping illicit money flows that support those atrocities is a national security imperative,” Levin said Monday.
The bank said in its statement that it changed its senior management last year and has made changes to strengthen its compliance with rules to prevent money laundering.
“We ... recognize that our controls could and should have been stronger and more effective in order to spot and deal with unacceptable behaviour,” the statement said.
Levin also blasted the federal agency supervising the bank’s U.S. operations, the Office of the Comptroller of the Currency. He said the agency “tolerated” HSBC’s weak controls against money laundering for years.
Thomas Curry, who heads the Office of the Comptroller of the Currency, also will testify at Tuesday’s hearing.
Compliance with anti-money laundering laws “is crucial to our nation’s efforts to combat criminal activity and terrorism,” Curry said in a statement. He said the agency expects banks to have adequate programs in place to comply with the laws.
The Wall Street Journal reported Monday that HSBC and the Justice Department have been in settlement talks and an accord could be struck within weeks.
Justice Department spokeswoman Alisa Finelli acknowledged that an investigation is under way but declined to comment on possible settlement discussions or a deal.
Edited by key2thecup, 19 July 2012 - 09:19 PM.