guardian.co.uk,
Dominic Rushe in New York, Tuesday 17 July 2012
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| HSBC apologised for its lapses, said reforms had been put in place, and admitted it was 'horrified' by what it found. Photograph: Gary Cameron/Reuters |
Executives
with Europe's biggest bank, HSBC, were subjected to a humiliating onslaught
from US senators on Tuesday over revelations that staff at its global
subsidiaries laundered billions of dollars for drug cartels, terrorists and
pariah states.
Lawmakers
hammered the British-based bank over the scandal, demanding to know how and why
its affiliates had exposed it to the proceeds of drug trafficking and terrorist
financing in a "pervasively polluted" culture that persisted for
years.
A report
compiled for the committee detailed how HSBC's subsidiaries transported
billions of dollars of cash in armoured vehicles, cleared suspicious travellers'
cheques worth billions, and allowed Mexican drug lords buy to planes with money
laundered through Cayman Islands accounts.
Other
subsidiaries moved money from Iran, Syria and other countries on US sanctions
lists, and helped a Saudi bank linked to al-Qaida to shift money to the US.
David
Bagley, HSBC's head of compliance since 2002, and who had worked with the bank
for more than 20 years, resigned before the committee.
"Despite
the best efforts and intentions of many dedicated professionals, HSBC has
fallen short of our own expectations and the expectations of our
regulators," he said.
The bank
has been under investigation for nearly a decade, and faces a massive fine from
the US justice department for lapses in its safeguards. Senators Carl Levin and
Tom Coburn, who conducted the hearing, said the permanent subcommittee of
investigations had examined 1.4m documents as part of its review and thanked
the bank for its co-operation.
The bank
has apologised for its lapses and said reforms had been put in place. Paul
Thurston, chief executive of retail banking and wealth management, who was sent
in to try and clear up HSBC's Mexican banking business in 2007, said he was
"horrified" by what he found.
"I
should add that the external environment in Mexico was as challenging as any I
had ever experienced. Bank employees faced very real risks of being targeted
for bribery, extortion, and kidnapping – in fact, multiple kidnappings occurred
throughout my tenure," he said.
The
committee had released a damning report on Monday, which detailed a collapse in
HSBC's compliance standards. The report showed executives at the bank has
consistently warned of problems. At its Mexican subsidiary, one executive had
warned the bank was "rubber-stamping unacceptable risks", according
to one email gathered by the committee.
HSBC's
Mexican operations moved $7bn into the bank's US operations, and according to
its own staff, much of that money was tied to drug traffickers. Before the bank
executives testified, the committee heard from Leigh Winchell, assistant
director for investigative programs at US immigration & customs
enforcement. He said 47,000 people had lost their lives since 2006 as a result
of Mexican drug traffickers.
The
senators highlighted testimony from Leopoldo Barroso, a former HSBC anti
money-laundering director, who told company officials in an exit interview that
he was concerned about "allegations of 60% to 70% of laundered proceeds in
Mexico" going through HSBC's affiliate.
"In
hindsight," said Bagley, "I think we all sometimes allowed a focus on
what was lawful and compliant rather than what should have been best
practices."
Levin and
Coburn directed particular ire at a Cayman Islands subsidiary set up by the
Mexico division of HSBC. That bank handled 50,000 client accounts and $2.1bn in
holdings, but had no staff or offices. Money from the Cayman Islands was used
to buy planes for Mexican drug traffickers, said the senators. Bagley said
those accounts were all now in the process of being closed.
"Forget
hindsight," said Levin. "Is there any way that should have been
allowed to happen?"
"No,
senator," said Thurston.
Levin
repeatedly said that HSBC must have been aware of the problems. "This is
something that people knew was going on at the bank," he said.
Bagley and
Thurston said that HSBC's compliance had been fragmented and that oversight had
been poor. They said that had now been changed. The bank has now adopted a
global compliance structure and doubled the amount of money it is spending on
oversight.
"Criminals
operate globally and if we are to combat them and stop them from accessing and
abusing the financial system, we must look at issues from a global perspective.
Institutions which operate internationally, like HSBC, will be targeted by
these criminals, and our experience in Mexico vividly demonstrates that you are
no stronger than your weakest link," said Thurston.
While much
of the hearing focused on Mexico, the senators also slammed the bank for
dealings in Iran, Syria, Cuba, and other countries on US sanctions lists. HSBC
executives continued to so business with Al Rajhi Bank in Saudi Arabia, even
after it emerged that its owners had links to organizations financing terrorism
and that one of the bank's founders was an early financial benefactor of
al-Qaida.
While
Coburn was unsparing of his criticism of HSBC, he thanked the bank for its
co-operation and said there were issues at other institutions including
Citigroup, Wachovia and Western Union.
But the
report comes at a highly sensitive moment for British banks in the US.
Following Barclays fine in the Libor-interest rate scandal and the massive
losses at JP Morgan Chase's London offices US politicians have become
increasingly critical of the UK's financial services sector.
At a recent
hearing into the JP Morgan losses, Carolyn Maloney, a Democratic representative
from New York, said: "It seems to be that every big trading disaster
happens in London."
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