By Louise Armitstead & Richard Blackden
HSBC was forced to apologise publicly yesterday (Tuesday) before the US Senate – and its compliance chief resigned – over facilitating a multi-billion-dollar money-laundering operation for drug gangs, terrorists and rogue nations worldwide.
Britain’s biggest bank was “pervasively polluted for a long time” as it allowed funds to be shifted to and from its branches in the United States as far afield as Mexico, Syria, the Cayman Islands, Iran and Saudi Arabia, the hearing was told.
Issuing an apology, Stuart Gulliver, chief executive of HSBC, said: “We have sometimes failed to meet the standards regulators and customer expect… we take responsibility for fixing what went wrong.”
HSBC, the only British bank with US branches, is now braced for a “substantial” fine which analysts said could be up to $1 billion (£640 million). The latest banking scandal comes in the wake of Barclays’ £290 million fines for its role in rigging Libor.
The hearing by the Senate’s Committee on Homeland Security was the culmination of a year-long investigation. Its 335-page report into HSBC saw the committee sift through 1.4 million documents and interview 75 HSBC officials, as well as bank regulators. It highlighted damning examples of lax controls and inadequate compliance by staff at HSBC’s 470 US branches.
The bank allegedly ignored specific US measures designed to prevent transactions being made involving terrorists, drug lords and rogue regimes. Two HSBC subsidiaries, for example, processed 25,000 transactions over seven years, worth a total of $19.4 billion, without disclosing that the cash had links to Iran. The bank is also alleged to have moved billions of dollars in cash from Mexican subsidiary HBMX to its US network – despite being warned by both US and Mexican authorities that such sums could only be linked to drug trafficking.
The report said that HSBC accepted more than $15 billion in cash between 2006 and 2009 from Mexico, Russia and other countries at high risk of money-laundering but failed properly to monitor transactions.
The bank even managed to label Mexico, ravaged by corruption and drug wars, as “low risk”, the committee said. HSBC also provided US dollars and banking services to banks in Saudi Arabia and Bangladesh despite apparent links to terrorist financing, according to the report.
David Bagley, HSBC’s global head of compliance who had worked at the bank for 20 years, yesterday resigned in front of the committee. He admitted HSBC had “fallen short of our own and regulators’ expectations”.
Senator Carl Levin, who led the committee’s investigation, said HSBC’s lack of controls in America and abroad between 2006 and 2010 had been “a recipe for trouble”.
The report said many of the abuses occurred as a result of HSBC’s failure to monitor its so-called “bearer share accounts”, facilities that legally keep secret the owners and some transactions. At one stage the Miami branch had 1,670 bearer share accounts, holding $2.6 billion of assets and generating revenues of $26 million.
Levin told the hearing: “In an age of international terrorism, drug violence in our streets and on our borders, and organised crime, stopping illicit money flows that support those atrocities is a national security imperative.”
The chairman accepted HSBC had overhauled its systems since the failures were found and was “committed to cleaning its house”.
The investigation into HSBC is the latest US attempt to crack down on money-laundering. Last month, ING agreed to pay $619 million to settle allegations that it broke American sanctions against Cuba and Iran.