HSBC Allowed Drug and Terrorism Money Laundering

HSBC Allowed Drug Money Laundering, Apologizes: Senate

http://economictimes.indiatimes.com/news/international-business/hsbc-allowed-drug-money-laundering-apologizes-senate/articleshow/15021701.cms

WASHINGTON: HSBC Holdings Plc put itself at the mercy of the US Senate on Tuesday, acknowledging shortcomings in its anti-money laundering operations and revealing the resignation of a global executive.

David Bagley, a top compliance executive at HSBC since 2002, told a Senate investigative panel that he would step down, after the panel released a scathing report calling out a "pervasively polluted" culture at the bank.

The Senate report, which came after a year-long inquiry, said the bank had routinely acted as a financier to clients routing funds from the world's most dangerous corners, including Mexico, Iran and Syria.

While the big British bank's money-laundering problems have been flagged by regulators for nearly a decade, the report and hearing escalate pressure on the bank, as it awaits a massive fine from the Justice Department for lapses in its safeguards.

It also comes as international banks' reputations have taken a fresh blow due to allegations of a manipulation of a key global benchmark rate.

Senator Carl Levin, who chairs the Senate's Permanent Subcommittee on Investigations, kicked off the hearing on Tuesday with an extensive explanation of how HSBC's lapses have been a threat to financial markets around the world.

A Reuters investigation has found persistent lapses in the bank's anti-money laundering compliance since 2010, despite its assertions that it has cleaned up its act.

"Accountability for past conduct is essential. That's what's been missing here," Levin said, adding that the bank's charter could be at risk if it did not do better.

Not consistent

The hearing started with officials from the US Treasury and Department of Homeland Security, but the fireworks began when HSBC executives came to testify.

Bagley, HSBC's head of group compliance since 2002, told the hearing he had been hamstrung by the bank's structure, and that while changes had been made it was time for him to go.

"I recommended to the group that now is the appropriate time for me and for the bank, for someone new to serve as the head of group compliance. I have agreed to work with the bank's senior management towards an orderly transition," he said.

The harshest spotlight will be on Stuart Levey, who joined the bank in January as chief legal officer. He had been the Treasury Department's top official on terrorism finance from 2004 to 2011 -- during which time he was involved in cracking down on HSBC for Iran-related transgressions.

In prepared testimony released at the start of the hearing, Levey placed much of the blame on HSBC's rapid expansion, which left in place a decentralized management structure that did not implement consistent standards across the bank and viewed compliance only as an advisory job.

HSBC shares fell 1.9 percent in late London trade. Analysts warned that the bank faced huge financial penalties -- but perhaps worse, found itself in the crosshairs during an election year.

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http://economictimes.indiatimes.com/news/politics/nation/hsbc-exposed-us-and-possibly-india-to-terror-funding-senate-permanent-subcommittee/articleshow/15019272.cms
17 JUL, 2012, 06.53PM IST, PTI

HSBC exposed US and possibly India to terror funding: Senate Permanent Subcommittee

US report says HSBC handled Iran, drug money

WASHINGTON: Global banking giant HSBC failed in preventing money laundering by drug cartels and terrorists not only in the US, but also other parts of the world, possibly including India, a Senate Permanent Subcommittee on Investigations probe has found. 

"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," Senator Carl Levin, the Chairman of the subcommittee, said following the release of the investigation report in this regard. 

According to the report, the Mexican affiliate of HSBC transported USD 7 billion in physical US dollars to HSB-US from 2007 to 2008, outstripping other Mexican banks, even one twice its size, raising red flags that the volume of dollars included proceeds from illegal drug sales in the US. 

The investigations found that HSBC, with its headquarters in London, allowed affiliates in countries such as Mexico, Saudi Arabia and Bangladesh to move billions of dollars in suspect funds into the US without adequate controls. 

According to the report running into 340 pages, HSBC in 2009 authorised its affiliate to supply Indian rupees to Saudi Arabia's Al Rajhi Bank, which, the report said, has links to financing terrorism. 

"From 2007 to 2010, HBUS (HSBC-USA) continued to supply, through its London branch, hundreds of millions of US dollars to Al Rajhi Bank in Saudi Arabia. 

"In addition, at Al Rajhi Bank's request, HBUS expanded the relationship in January 2009, by authorising its Hong Kong branch to supply Al Rajhi Bank with non-US currencies, including the Thai bat, Indian rupee, and Hong Kong dollar," the report said. 

However, no further details about the Indian rupees are available in the report. 

According to the report, in 2010 HSBC launched a new funds transfer product called 'HBL Fast Cash', which was designed to allow the instant transfer of funds from Riyadh, Saudi Arabia, to any branch of the Habib Bank, the largest bank in Pakistan, whether or not the sender or recipient of the funds had an account in either financial institution.