HSBC, Europe’s biggest bank headquarter in the world’s financial capital London, is under a U.S. Senate investigation for violations in its anti-money laundering operations. HSBC was questioned by the Senate Permanent Subcommittee on Investigations chaired by no other than super communist Carl Levin, who unfortunately also heads the Senate Committee on Armed Services.
Here is a short overview of what HSBC is accused of:
1. HSBC failed to engage its anti-money laundering policy or applied a very loose policy in its U.S. banking division, HSBC Bank USA NA located in New York, which allowed cartels, terrorists as well as criminal’s access to the U.S. financial system.
2. In 2002 HSBC purchased Mexico’s fifth largest bank, Grupo Financiero Bital SA, which had a history of ignoring anti-money laundering protocols and constantly catered to Mexican drug cartels. HSCB gave Mexico its lowest risk rating from 2000 through 2009. Cartels frequently use currency exchange firms known as casas de gambio to launder money. Bital counts a large number of those among its clients. Wachovia Bank, now part of Wells Fargo & Co, settled a similar investigation for a $160 million fine.
3. In 2007/2008 HSBC’s Mexican unit moved $7 billion to the U.S. unit. U.S. as well as Mexican officials cited cartels as the source of the funds. A former HSCB anti-money laundering director, Leopoldo Barroso, informed superiors that he estimated roughly 70% of laundered money was distributed to affiliates.
4. In 2008 the Mexican unit was supposed to clear a multi-year backlog of accounts marked for closure. 675 out of the 3,659 accounts were flagged as money laundering accounts. The report of suspected money laundering activity on those 675 accounts was compiled by Warren Leaming, a former HSBC legal advisor.
5. In 2005 Bloomberg reported of HSBC bank ties to Iran, Libya, Sudan and Syria. HSBC also ignored connections to Al Rajhi Bank based in Riyadh, Saudi Arabia. Al Rajhi Bank has known connection to terrorist networks and allegedly finances their operations.
6. HSBC also ignored sanctions on Iran and an outside report by Deloitte showed 25,000 transactions worth $19.4 billion to Iran. HSBC did not report Iranian ties and funneled 90% through its U.S. unit. HSBC reportedly used six Iranian banks to clear transactions.
7. HSBC is accused of Iran-style transaction with regimes in North Korea, Cuba, Sudan and Myanmar.
8. HSBC is also under investigation by the Justice Department as well as Internal Revenue Service for aiding U.S. citizens in tax evasion through HSBC India.
HSBC did agree to close the U.S. units Cayman Island accounts which is a rather unfortunate development and raises the question if it is better for HSBC to simply close all U.S. based operations especially given Dodd-Frank.
HSBC may be fined in access of $1 billion for its U.S. dilemma as it stripped information from wire-transfers to hide the role of the transaction or the person as well as entity responsible for the transaction. Six other banks have already settled similar allegations and HSBC is not the only bank under investigation.
HSBC Compliance Chief David Bagley offered his resignation.
Given all the issues in the U.S. most if not all foreign banks may want to seriously consider an exit out of the U.S. banking system as the risks outweigh the rewards