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| The HSBC headquarters in London. According to a US Senate investigation, the bank failed to act on money laundering. Photograph: Facundo Arrizabalaga/EPA |
A hard-hitting
US Senate investigation has concluded that HSBC, Europe's largest bank, ignored
warning signs that its global operations were being used by money launderers
and potential terrorists.
The
findings of the investigation will be aired Tuesday in Washington when HSBC
officials will be called to account for the actions. The Senate committee
released a 340-page report prior to that meeting that catalogued lax controls
at the bank's operations.
HSBC's
Mexican division comes in for particularly hard criticism.
According
to the report it continued to do business with "casas de cambio" –
money-changing businesses – years after its rivals had stopped on fears that
they were fronts for drug-cartel money laundering.
The report
says that the Mexico business had a branch in the Cayman Islands that in 2008
handled 50,000 client accounts and $2.1bn in holdings – but had no staff or
offices. It also shipped bank notes by car or aircraft to the HSBC in the US.
The bank shipped $7bn to the US from Mexico in 2007 and 2008, according to the
report.
The bank
circumvented US sanctions on countries including Cuba and Iran, says the
report. In one case examined by the committee, two HSBC affiliates processed
25,000 transactions involving $19.4bn over seven years without disclosing the
transactions' links to Iran.
The bank
provided US dollars and banking services to banks in Saudi Arabia and
Bangladesh despite links to terrorist financing, says the report.
In another
example of lax controls the report says HSBC cleared $290m over four years in
suspicious US travellers cheques for a Japanese bank, benefiting Russians who
claimed to be in the used car business.
"In an
age of international terrorism, drug violence in our streets and on our
borders, and organised crime, stopping illicit money flows that support those
atrocities is a national security imperative," said senator Carl Levin,
subcommittee chairman.
"HSBC
used its US bank as a gateway into the US financial system for some HSBC
affiliates around the world to provide US dollar services to clients while
playing fast and loose with US banking rules."
In a
statement on Monday night HSBC said: "We have learned a great deal working
with the subcommittee on this case history and also working with US regulatory
authorities, and recognise that our controls could and should have been
stronger and more effective in order to spot and deal with unacceptable
behaviour.
"We
believe that this case history will provide important lessons for the whole
industry in seeking to prevent illicit actors entering the global financial
system.
"With
a new senior leadership team and a new strategy in place since last year, HSBC
has already taken concrete steps to augment the framework to address these issues
including significant changes to strengthen compliance, risk management and
culture."
The report
is also highly critical of regulators. In 2010, the Office of the Comptroller
of the Currency (OCC) cited HSBC for a number of deficiencies, including failure
to monitor $60tn in wire transfer and account activity and a backlog of 17,000
unreviewed account alerts regarding suspicious activities. But subcommittee
investigators found that the OCC had failed to take a single enforcement action
against the bank over the previous six years.
HSBC's new
chief executive Stuart Gulliver said to staff last week that he would apologise
for the bank's past behaviour before what is expected to be a substantial fine.
"Between
2004 and 2010, our anti-money-laundering controls should have been stronger and
more effective, and we failed to spot and deal with unacceptable
behaviour," Gulliver told staff.
"HSBC's
compliance culture has been pervasively polluted for a long time," Levin
said. "Its recent change in leadership says it's committed to cleaning
house. That commitment is welcome surely, but it will take more than words for
the bank to change course. Just as certain is the need for tough regulation by
the OCC."
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