UPDATE 1-US senator plans to refer HSBC to regulator

* Levin critical of service provided to Angolan officials

* Also hits Bank of America over arms dealer

* Panel hearing spotlights anti-money laundering loopholes (New throughout with Levin on HSBC, other detail, byline)

By Dan Margolies

WASHINGTON, Feb 4 (Reuters) - A senior U.S. senator said on Thursday he planned to refer HSBC Holdings (HSBA.L)(0005.HK) to its U.S. bank regulator in connection with questionable accounts it provided for senior Angolan officials.

Senator Carl Levin, who chairs the Permanent Subcommittee on Investigations, made his remarks after a hearing by the panel on the flow of tainted foreign money into the United States.

Levin was particularly scathing about HSBC at the hearing and the role of a Connecticut office of the bank in providing offshore accounts in the Bahamas nearly a decade ago to the Angolan central bank.

Afterward, Levin told Reuters in a telephone interview that he intended to refer the matter to the Office of the Comptroller of the Currency, an arm of the U.S. Treasury.

"They've got some real regulatory problems in terms of their obligation to know their customers here in America," said the Michigan Democrat.

Levin said he was not pleased with answers given at the hearing by Wiecher Mandemaker, director of general compliance for HSBC Bank USA. "I thought his answers were very unsatisfactory."

Asked to comment about Levin's remarks, HSBC, Europe's largest bank, said it takes compliance matters very seriously.

"HSBC's record demonstrates a commitment to vigorous enforcement and continuous enhancement of anti-money laundering policies and practices," the bank said in an e-mailed statement.

A subcommittee report said attempts in 2002 by the then-head of the Angolan central bank, Aguinaldo Jaime, to transfer $50 million in government funds to the United States had been rebuffed by Citigroup (C.N) and Bank of America (BAC.N).

Nonetheless, Levin said at the hearing, London-based HSBC helped the Angolan central bank avoid a British court order freezing some of its assets.

"Is it your policy that when a client tells you that it wants to establish an account to avoid your own government's court order, you view that as a legitimate request?" Levin asked Mandemaker.

"The entities choose the venue that's appropriate for them," Mandemaker replied.

The hearing was designed to call attention to legal loopholes that allow lawyers and other professionals to circumvent anti-money laundering laws.

But it quickly focused on the HSBC and Bank of America after three witnesses -- two lawyers and a lobbyist -- invoked their Fifth Amendment right against self-incrimination and declined to answer questions.

The three helped the son of the president of Equatorial Guinea funnel more than $100 million into U.S. bank accounts, according to the subcommittee report.

The report recommended restrictions on lawyers, lobbyists, real estate agents and escrow agents to make it more difficult for them to allow illicit foreign money into the United States.[ID:nN03193063]

BANK OF AMERICA

Levin criticized Bank of America for failing to scrutinize questionable accounts by a notorious arms dealer and flag them for possible money laundering.

He cited an internal report by Bank of America's own Global Anti-Money Laundering Unit that raised questions about an arms dealer, billionaire Pierre Falcone, who had moved more than $17 million through the bank.

Falcone, who defied a United Nations arms embargo during Angola's civil war, was jailed by a French court on corruption charges and has a history of run-ins with the law, Levin said, but the bank found that Falcone's account activity was "not unusual."

"It's incredible to me," Levin told Bank of America executive William Fox, who heads the unit.

Fox said that the bank had made "a bad judgment call" and has since instituted a "more robust" reviewing process for so-called Politically Exposed Persons -- the language used in international agreements to refer to politically powerful foreign officials, their relatives and their close associates.

One of the recommendations in the subcommittee's report is that Congress enact a law to strengthen bank controls over such persons.

The USA Patriot Act of 2001 already requires banks to give enhanced scrutiny to private banking accounts of senior foreign figures. There are exemptions for real estate and escrow agents, which the subcommittee has recommended be lifted. (Reporting by Dan Margolies; Editing by Tim Dobbyn)