Borderland Beat
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Stepping Up the Settlement To Move To The Criminal Investigation
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(AP)Europe's largest bank had lax controls that allowed Mexican drug cartels to launder billions of dollars through its U.S. operations for seven years, a Senate investigation found.
The Senate Permanent Subcommittee on Investigations extensive report on HSBC Holdings PLC also says U.S. regulators knew that the bank had a poor system to detect problems but failed to take action.
In addition, some bank affiliates skirted U.S. government bans against financial transactions with Iran and other countries, according to the report. And HSBC's U.S. 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 panel 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 apologize, acknowledge these mistakes, answer for our actions and give our absolute commitment to fixing what went wrong," the bank said in a statement.
The U.S. Justice Department said that it is conducting a criminal investigation into HSBC's operations but declined to confirm that the bank is in settlement talks.
HSBC's net income last year was $16.8 billion. It operates in about 80 countries around the world. Its U.S. division is among the top 10 banks operating in the United States. It has assets of roughly $210 billion in its U.S. operations.
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 U.S. operation as a "gateway" into the U.S. financial system for other HSBC affiliates, Sen. Carl Levin, D-Mich., 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.
The report says the drug cartels laundered money through the bank's U.S. division from 2002 through 2009.
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 behavior," the statement said.
Sen Levin blasted the federal agency supervising the bank's U.S. 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, will also testify at Tuesday's hearing.
Compliance with anti-money laundering laws "is crucial to our nation's efforts to combat criminal activity and terrorism," said Curry in a statement. He said the agency expects banks to have adequate programs in place to comply with the laws.
Not Fined
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| HSBC's Stuart Guliver admits "mistakes" |
Global banking giant HSBC and its U.S. affiliate exposed the U.S. financial system to a wide array of money laundering, drug trafficking, and terrorist financing risks due to poor anti-money laundering (AML) controls, a Senate Permanent Subcommittee on Investigations probe has found.
The important word in there, the vital word, is “risks”.
“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,” said Sen. Carl Levin, D-Mich., subcommittee Chairman. “HSBC used its U.S. bank as a gateway into the U.S. financial system for some HSBC affiliates around the world to provide U.S. dollar services to clients while playing fast and loose with U.S. banking rules. Due to poor AML controls, HBUS exposed the United States to Mexican drug money, suspicious travelers cheques, bearer share corporations, and rogue jurisdictions. The bank’s federal bank regulator, the OCC, tolerated HSBC’s weak AML system for years. If an international bank won’t police its own affiliates to stop illicit money, the regulatory agencies should consider whether to revoke the charter of the U.S. bank being used to aid and abet that illicit money.”
The important word out of Senator Levin’s mouth there is “exposed”.
HSBC did not have sufficiently robust internal audit and verification systems to be able to prove that the transactions it was undertaking were not money laundering, terrorist financing or aiding the financing of the drugs trade. This is, and I’m sure you will agree, rather different from actually allowing or doing any of those things
Those things may even have happened as well: but that isn’t why HSBC has been fined. Their paperwork was inadequate: that is why they were fined.
The Justice Department and HSBC Holdings HBC -0.30%PLC are accelerating settlement talks to resolve a criminal probe into laundering of drug-cartel and other money, according to people familiar with the investigation.
A settlement of the money-laundering investigation is near and could come within weeks, according to these people. Among the allegations Justice Department prosecutors have focused on, according to people familiar with the criminal probe, is whether bank officials were complicit in laundering by drug cartels by allowing suspicious money to be hidden in flows of bulk cash between the U.S. and Mexico.
Sources: AP, Forbes, Bloomberg, WSJ
