U.S. report slams HSBC's anti-money laundering efforts

WASHINGTON Mon Jul 16, 2012 7:21pm EDT

Tourists pass an HSBC bank in central London, May 8, 2012. REUTERS/Olivia Harris

Tourists pass an HSBC bank in central London, May 8, 2012.

Credit: Reuters/Olivia Harris

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WASHINGTON (Reuters) - A "pervasively polluted" culture at HSBC Holdings Plc allowed the bank to act as financier to clients seeking to route shadowy funds from the world's most dangerous and secretive corners, including Mexico, Iran, the Cayman Islands, Saudi Arabia and Syria, according to a scathing U.S. Senate report issued on Monday.

While the big British bank's problems have been known for nearly a decade, the Senate probe detailed just how sweeping the problems have been, both at the bank and at the Office of the Comptroller of the Currency, a top U.S. bank regulator which the report said failed to properly monitor HSBC.

"The culture at HSBC was pervasively polluted for a long time," said Senator Carl Levin, chairman of the U.S. Senate Permanent Subcommittee on Investigations, a Congressional watchdog panel.

The report comes at a troubling time for a banking industry reeling from a multi-country probe into the manipulation of global benchmark rates. Last month, rival British bank Barclays Plc agreed to pay a $453 million fine to settle a U.S.-U.K. probe into the rigging of the benchmark interest rate known as the London interbank offered rate, or Libor.

The report caps a year-long inquiry that included a review of 1.4 million documents and interviews with 75 HSBC officials and bank regulators. It will be the focus of a hearing on Tuesday at which HSBC and OCC officials are scheduled to testify.

The bank and the regulator are expected to face tough questions at the hearing about how the abuses were allowed to continue, even after the OCC took regulatory action against HSBC in 2010. A Reuters investigation found persistent and troubling lapses in the bank's anti-money laundering compliance since 2010.

In an emailed statement, HSBC said the Senate report had provided "important lessons for the whole industry in seeking to prevent illicit actors entering the global financial system."

The bank said it is spending more money on compliance and has become more coordinated in policing high-risk transactions.

The report also contained strong criticism of the OCC, saying the regulator failed to crack down on the bank despite multiple red flags, allowing money laundering issues "to accumulate into a massive problem.

Thomas Curry, who took over as comptroller less than four months ago, said in a statement on Monday that anti-money laundering compliance "is crucial to our nation's efforts to combat criminal activity and terrorism, and the OCC expects national banks and federal thrifts to have programs in place to effectively comply with these laws."

Curry said the Senate report had made a number of "thoughtful" recommendations, "which we fully embrace."

Among HSBC's problems, the report described the bank's compliance division as unable to battle the suspect money. High turnover of top compliance officials made it difficult for reform to take hold, the report said. Employees were "overwhelmed," by a mounting number of suspect transactions that needed review.

"We're strapped and getting behind in investigations," one bank official wrote in June 2008. By that time, HSBC was cutting costs to offset losses tied to subprime home loans and the brewing financial crisis. In 2010, one disgusted top compliance official threw up his hands and quit after less than a year on the job, according to the report.

Typical of the problems inside the bank were transactions tied to Mexico, a country the report said is "under siege from drug crime, violence and money laundering."

HSBC, according to the report, helped move money for a Mexican foreign-exchange dealer called Casa de Cambio Puebla that served as a hub for laundered proceeds, according to the report.

Between 2005 and 2007, there was a "growing flood" of U.S. dollars moving between the exchange house and HSBC, setting off red flags inside HSBC. Some bankers claimed the transfers were legal. One said the money came from Mexican landscapers working in the United States and routing money back home to their families.

HSBC ultimately closed the account in November 2007 after it received a seizure warrant from the Mexican attorney general seeking money tied to the exchange dealer, the Senate report said.

(Reporting by Carrick Mollenkamp; Editing by Alwyn Scott and Tim Dobbyn)

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