More on banking fraud

HSBC 'allowed drug cartels to launder money'

US senate probe has found that Europe's largest bank had lax controls that allowed money laundering for seven years.

al-Jazeera,

18 July, 2012

Lax controls at Europe's largest bank, HSBC, allowed Mexican drug cartels to launder billions of dollars through its US operations, an investigation by the US senate has found.

The extensive report on London-based HSBC Holdings PLC by the Senate Permanent Subcommittee on Investigations also says US regulators knew the bank had a poor system to detect problems but failed to take action.

HSBC executives brushed off complaints from other bank employees, so that the problems persisted for eight years, the report says.

In addition, some HSBC bank affiliates skirted US government bans against financial transactions with Iran and other countries, according to the report.

And HSBC's US division provided money and banking services to some banks in Saudi Arabia and Bangladesh believed to have helped fund al-Qaeda and other terrorist groups, the report said.

The subcommittee released the report Monday ahead of a Tuesday hearing on the topic. HSBC released a statement saying its executives will offer a formal apology at the hearing.

"We will apologise, acknowledge these mistakes, answer for our actions and give our absolute commitment to fixing what went wrong," the statement said.

The US justice department said it is conducting a criminal investigation into HSBC's operations but declined to confirm that the bank is in settlement talks.

The US investigations follow the Barclays Bank scandal in the UK over manipulated interest rates, which has provoked international outrage over what many view as regulators' failure to enforce financial regulation.

HSBC's net income last year was $16.8bn. It operates in about 80 countries around the world. Its US division is among the top 10 banks operating in the United States. It has assets of roughly $210bn in its US operations.

Illicit money

Money laundering takes profits from the trafficking of drugs, arms or other illicit activities and passes them through bank accounts to disguise the illegal activity.

The bank used its US operation as a "gateway" into the US financial system for other HSBC affiliates, Senator Carl Levin, the subcommittee's chairman, told reporters Monday. Because of lax controls against money laundering, HSBC Bank USA "exposed the United States to Mexican drug money" and other suspicious funds, Levin said.

"In an age of international terrorism, drug violence in our streets and on our borders, and organized crime, stopping illicit money flows that support those atrocities is a national security imperative," Levin said Monday.

The bank said in its statement that it changed its senior management last year and has made changes to strengthen its compliance with rules to prevent money laundering.

"We ... recognize that our controls could and should have been stronger and more effective in order to spot and deal with unacceptable behaviour," the statement said.

Levin also blasted the federal agency supervising the bank's US operations, the Office of the Comptroller of the Currency. He said the agency "tolerated" HSBC's weak controls against money laundering for years.

Thomas Curry, who heads the Office of the Comptroller of the Currency, also will testify at Tuesday's hearing.

Compliance with anti-money laundering laws "is crucial to our nation's efforts to combat criminal activity and terrorism," Curry said in a statement. He said the agency expects banks to have adequate programs in place to comply with the laws.

The Wall Street Journal reported Monday that HSBC and the justice department have been in settlement talks and an accord could be struck within weeks.

Alisa Finelli, a spokesperson for the justice department, acknowledged that an investigation is under way but declined to comment on possible settlement discussions or a deal.