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HSBC official resigns over drug money scandal
Compliance chief at Europe's largest bank quits over US inquiry that revealed porous anti-money laundering practices.
Last Modified: 18 Jul 2012 07:13

The head of compliance at HSBC has resigned from his position and apologised after a US senate investigation found that Mexican drug cartels laundered billions of dollars through its US division.

David Bagley told the senate investigations panel on Tuesday that he will remain at the London-based bank in a new role.

Other HSBC executives also apologised at the hearing, which focused on the bank's lapses. But all said they weren't fully aware of illicit transactions flowing through the bank.

The executives said the bank has made deep changes to its policies and corporate culture to prevent further exposure to illegal transactions.

But senators expressed skepticism. They noted that the problems persisted for seven years.

Irene Dorner, president and CEO of HSBC Bank USA, said in testimony prepared for Tuesday's hearing by the Senate Permanent Subcommittee on Investigations that "we deeply regret and apologise" for the lapses by HSBC.

The senate report, released ahead of the hearing on Monday, came after a year-long inquiry and said HSBC had routinely acted as a financier to clients routing funds from the world's most dangerous corners, including Mexico, Iran and Syria.

Lax controls at the bank allowed Mexican drug cartels to launder billions of dollars through its US operations, the investigation found.

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

In addition, HSBC and its US affiliate concealed more than $16bn in sensitive transactions to Iran, violating US transparency rules over a six-year period, a senate panel said.

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 similar groups.

Resignations begin

The harshest spotlight will be on Stuart Levey, who joined the bank in January as chief legal officer. He had been the
Treasury Department's top official on terrorism finance from 2004 to 2011.

He returns to Washington on the hearing's third panel to make HSBC's case that the bank has finally fixed its operation to prevent money laundering.

In a statement to British regulators early on Tuesday, the bank began its mea culpa.

"We will acknowledge that, in the past, we have sometimes failed to meet the standards that regulators and customers expect," it said.

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

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 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 on 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 US 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.

HSBC will have company in the senate's harsh spotlight - the report was also highly critical of the Office of the Comptroller of the Currency, a major US bank regulator.

The Senate report faulted the office, whose top officials will testify later in the day, for its oversight of HSBC.

In prepared testimony released at the start of the hearing, the OCC acknowledged the need for changes the report called for in its oversight of anti-money laundering operations.

"We agree with the concerns reflected in each of the recommendations and will take actions in response," it said.

The OCC will also testify on the extent of the failings it found in HSBC's money laundering controls, and the orders it
issued to the bank to correct them.

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Source:
Al Jazeera And Agencies
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