|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."