The U.S. affiliate of global banking giant HSBC was for years a haven for foreign money laundering, drug-trafficking money and potential terrorist financing activities, largely because of the bank’s woefully inadequate monitoring practices, according to a 340-page Senate report scheduled for release Tuesday.
The report chastises the bank’s primary U.S. regulator, the Office of the Comptroller of the Currency, for failing to take more aggressive enforcement measures against the bank after the OCC became aware of illicit activities.
Sen. Levin (D-M.I.) says HSBC allowed its Mexican subsidiary to transfer money from Mexican drug cartels into the United States.
“Banks that ignore anti-money-laundering rules are a big problem for our country,” said Sen. Carl Levin (D-Mich.), who chairs the permanent subcommittee on investigations. “But also troubling is a bank regulator that does not adequately do its job.”
Both HSBC executives and top officials from the OCC are expected to encounter stiff questioning Tuesday when they face Senate lawmakers during a hearing on Capitol Hill. The report comes as HSBC, which has faced a string of alleged money-laundering lapses in the past, works to overhaul its practices and rehabilitate its image.
The Britain-based bank’s chief executive last week acknowledged in a memo to employees that the firm’s anti-money-laundering controls in recent years “should have been stronger and more effective, and we failed to spot and deal with unacceptable behavior.” In addition, the Wall Street Journal reported Monday that HSBC has been locked in settlement talks with the Justice Department over a probe into whether bank officials were complicit in laundering activities by Mexican drug cartels.
The year-long Senate investigation, which could serve as a blueprint for similar inquiries into other firms, involved interviews with scores of HSBC officials and bank regulators and a review of more than 1 million documents, including internal e-mails. Investigators focused primarily on HSBC’s U.S. affiliate, HSBC Bank USA (HBUS), which functions as a hub for the firm’s vast global network.
According to the report, investigators discovered a persistent lack of internal oversight that left the U.S. banking system vulnerable to abuse from bad actors around the globe. Said Levin: “HSBC’s compliance culture has been pervasively polluted for a long time.”
Among the findings:
●HBUS treated some high-risk affiliates like low-risk clients. A key example was HSBC Mexico, which despite its location in a country rife with money laundering and drug trafficking, was allowed to transport $7 billion in U.S. currency to HBUS between 2007 and 2008, raising suspicions that the money came from illegal drug sales.
●Some overseas HSBC affiliates circumvented government safeguards meant to block funding for terrorists, drug lords and unsavory foreign regimes. In one case, investigators found that HSBC allowed two foreign affiliates to shield the fact that thousands of transactions involved links to Iran. In addition, the investigation found that HBUS did business with certain banks in Saudi Arabia and Bangladesh, despite evidence of links to terrorist financing.