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HSBC chief quits in front of US Senate committee

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July 17, 2012 in Economics

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HSBC  chief quits in front of  US Senate committee as bank is

accused of  ‘letting Mexican gangs launder $7 billion and working

with Saudi bank linked to  terrorism’.

The head of compliance at banking giant HSBC has resigned in front of a US Senate subcommittee after it emerged the British bank had exposed the US to billions of dollars worth of money laundering, drug trafficking, and terrorist financing.

David Bagley, who has been HSBC head of group compliance since 2002, stepped down before the Homeland Security and Governmental Affairs subcommittee after its findings were published.

Mr Bagley, who had a 20-year career with the bank and is based in London, said: “Despite the best efforts and intentions of many dedicated professionals, HSBC has fallen short of our own expectations and the expectations of our regulators.”

Earlier in the hearing, subcommittee chairman Senator Carl Levin said HSBC’s compliance culture had been “pervasively polluted for a long time”. The revelations are another blow to the reputation of the banking industry following the current scandal over the manipulation of the Libor inter-bank lending rate.

Mr Bagley told the panel that he had recommended to HSBC senior management that it was the “appropriate time” for “someone new to serve as the head of group compliance”.

In his written submission to the subcommittee, he said the bank had “learned a number of valuable lessons” and partly blamed the oversights on the bank’s rapid growth. “The bank underestimated some of the challenges presented by its numerous acquisitions, and despite efforts to meet these challenges, we were not always able to keep up,” he said.

Mr Bagley added that HSBC was in the process of “shedding the historical compliance model that the bank has outgrown”. He also revealed that the bank is to close 20,000 bank accounts on the Cayman islands as result of the money laundering investigation.

 

A US Senate probe has disclosed how lax controls at Europe’s largest bank left it vulnerable to being used to launder dirty money from around the world.

The report into HSBC, released ahead of a Senate hearing on Tuesday, says huge sums of Mexican drug money almost certainly passed through the bank.

Suspicious funds from Syria, the Cayman Islands, Iran and Saudi Arabia also passed through the British bank.

HSBC said it expected to be held accountable for what went wrong.

The report into HSBC was issued by the Senate Permanent Subcommittee on Investigations, a Congressional watchdog that looks at financial improprieties.

It also concluded that the US bank regulator, the Office of the Comptroller of the Currency, failed to properly monitor HSBC.

THE REPORT INCLUDES that HSBC moved huge sum from Mexico into the  U.S. between 2007 and 2008;

  • Provided services for Saudi Arabia’s Al  Rajhi Bank linked to financing terrorism
  • Senate investigation suggests they also  moved money tied to Iran
  • Accuses bank of ‘pervasively polluted’  culture
  • Another hammer blow to the credibility of  British banking system after Barclays was fined for allegedly rigging LIBOR  interest rate

Head of compliance at British banking  giant HSBC resigned in front of a US Senate subcommittee today after it emerged  the bank had exposed the US to billions of dollars worth of money laundering,  drug trafficking, and terrorist financing.

David Bagley, who has been HSBC head of group  compliance since 2002, stepped down before the Homeland Security and  Governmental Affairs subcommittee after its findings were published.

Mr Bagley, who had a 20 year career with the  bank and is based in London, said: ‘Despite the best efforts and intentions of  many dedicated professionals, HSBC has fallen short of our own expectations and  the expectations of our regulators.’

HSBC headquarters in the City of London: The bank has been accused of laundering money for the Mexican mobPowerhouse: HSBC headquarters in the City of London. The  bank has been accused of laundering money for the Mexican mob

Earlier in the hearing, subcommittee  chairman Senator Carl Levin said HSBC’s compliance culture had been  ‘pervasively polluted for a long time’.

The revelations are another blow to  the  reputation of the banking industry following the current scandal  over the  manipulation of the Libor inter-bank lending rate.

An explosive report claims a ‘pervasively polluted’ culture atHSBC led it to act as financier to clients seeking to route shadowy  funds from  the world’s most dangerous and secretive corners, including  Mexico, Iran, the  Cayman Islands, Saudi Arabia and Syria.

The Senate probe detailed how sweeping the  problems have been, both at the  bank and at the Office of the Comptroller of  the Currency, a top U.S.  bank regulator which the report said failed to  properly monitor HSBC.

‘The culture at HSBC was pervasively polluted  for a long time,’ said Senator Carl Levin, chairman of the U.S. Senate Permanent  Subcommittee on Investigations, a Congressional watchdog panel.

The report comes at a troubling time for a  banking industry reeling from a multi-country probe into the manipulation of  global benchmark rates.

Last month, rival British bank Barclays Plc  agreed to pay a $453 million fine to settle a U.S.- British probe into the  rigging of the benchmark interest rate known as the London interbank offered  rate, or Libor.

The Senate probe provides a rare look at how  HSBC responded when confronted with numerous cases of suspect money  flows.

Vicious: Mexican gangsters are paraded in a police photo. The country is one of the most crime-ridden places in the world as rival cartels compete to control the lucrative drugs tradeVicious: Mexican gangsters are paraded in a police  photo. The country is one of the most crime-ridden places in the world as rival  cartels compete to control the lucrative drugs trade
An HSBC facility in New Castle, Delaware. Executives insist that after years of run-ins with U.S. authorities over alleged anti-money laundering lapses, they have cleared up their actAn HSBC facility in New Castle, Delaware. Executives  insist that after years of run-ins with U.S. authorities over alleged anti-money  laundering lapses, they have cleared up their actThe report caps a year-long inquiry that  included a review of 1.4 million  documents and interviews with 75 HSBC  officials and bank regulators. It  will be the focus of a hearing on Tuesday at  which HSBC and OCC  officials are scheduled to testify. The bank and the regulator are expected to  face tough questions at the  hearing about how the abuses were allowed to  continue, even after the  OCC took regulatory action against HSBC in 2010. An investigation found persistent lapses in  the bank’s anti-money laundering compliance since 2010.In an emailed statement, HSBC said the Senate  report had provided  ‘important lessons for the whole industry in seeking to  prevent illicit  actors entering the global financial system’. The bank said it is spending more money on  compliance and has become more coordinated in policing high-risk transactions.

Several HSBC executives are expected  to  testify, including the bank’s chief legal officer Stuart Levey, who  joined in  January. He was previously one of the top officials on  terrorism and finance at  the U.S. Treasury Department.

HSBC plans to ‘acknowledge and  apologize’  for failing to spot and deal with money laundering within the bank during a U.S.  Senate panel hearing next week, according to an  internal memo sent by its chief  executive.

‘It is right that we are held  accountable  and that we take responsibility for fixing what went wrong,’ Chief Executive  Officer Stuart Gulliver said in a note sent to staff.

The report also contained strong criticism of  the OCC, saying the regulator failed to crack down on the bank despite multiple  red flags, allowing  money laundering issues ‘to accumulate into a massive  problem’.

HOW HSBC BECAME THE SUBJECT OF  A U.S. SENATE INVESTIGATION

Probe: Senator Carl Levin referred HSBC to bank regulators in connection with questionable accountingProbe: Senator Carl Levin referred HSBC to bank  regulators in connection with questionable accounting

The U.S. Senate  Permanent Subcommittee on Investigations has been investigating HSBC for months  as part of an effort by Congress to probe shadowy money flows.

It began in  February this year when U.S. senator Carl Levin said he planned to refer HSBC  Holdings to its U.S. bank regulator in connection with questionable accounts it  provided for senior Angolan officials.

Senator Levin, who  chairs the Permanent Subcommittee on Investigations was particularly scathing  about HSBC and the role of a Connecticut office of the bank in providing  offshore accounts in the Bahamas nearly a decade ago to the Angolan central  bank.

At the time he  said: ‘They’ve got some real regulatory problems in terms of their obligation to  know their customers here in America.’

Mr Levin said he  was not pleased with answers given at a hearing by Wiecher Mandemaker, director  of general compliance for HSBC Bank USA. ‘I thought his answers were very  unsatisfactory.’

Asked to comment  about Levin’s remarks, HSBC, Europe’s largest bank, said it takes compliance  matters very seriously.

‘HSBC’s record  demonstrates a commitment to vigorous enforcement and continuous enhancement of  anti-money laundering policies and practices’.

A subcommittee  report said attempts in 2002 by the then-head of the Angolan central bank,  Aguinaldo Jaime, to transfer $50 million in government funds to the United  States had been rebuffed by Citigroup (C.N) and Bank of America  (BAC.N).

Nonetheless, Levin  said at the hearing, London-based HSBC helped the Angolan central bank avoid a  British court order freezing some of its assets.

The title of  the hearing is ‘Vulnerabilities to Money Laundering, Drugs, and Terrorist  Financing: HSBC Case History.’

Thomas Curry, who took over as comptroller  less than four months ago, said in a statement on Monday that anti-money  laundering compliance ‘is crucial  to our nation’s efforts to combat criminal  activity and terrorism, and  the OCC expects national banks and federal thrifts  to have programs in  place to effectively comply with these laws’.

Curry said the Senate report had made a  number of ‘thoughtful’ recommendations, ‘which we fully embrace’.

The failings and lax controls inside HSBC  included an inability to properly monitor $15 billion in bulk cash transactions  between mid-2006 and  mid-2009, inadequate staffing and high turnover in the  bank’s compliance units, the report said.

HSBC ignored risks in doing business in  countries such as Mexico, a country rife with drug trafficking, it  said.

Between 2007 and 2008, HSBC’s Mexican  operations moved $7 billion into the bank’s U.S. operations.

According to the report, both Mexican and  U.S. authorities warned HSBC that the amount of money could only have reached  such a level if it was tied to illegal narcotics proceeds.

Saudi terror links

terror funding? The probe has examined links between HSBC and the Saudi Arabian Al Rajhi Bankterror funding? The probe has examined links between  HSBC and the Saudi Arabian Al Rajhi Bank

The Senate probe also examined banking HSBC  did in Saudi Arabia with Al Rajhi Bank, which the report said has links to  financing terrorism.

Evidence of those links emerged after the  Sept 11, 2001 attacks on the United States, the Senate report said, citing U.S.  government reports, criminal and civil legal proceedings and media  reports.

In 2004, Al Rajhi sued the Wall Street  Journal, which had published an article about U.S. and Saudi authorities  monitoring accounts. The article referenced Al Rajhi.

Al Rajhi said in response to a WSJ story that  it ‘unequivocally condemns terrorism’. Al Rajhi and the paper settled in 2004.

The paper did not pay damages and stated that  it ‘did not intend to imply an allegation that (Al Rajhi)  supported terrorist  activity, or had engaged in the financing of  terrorism’, the Senate report  said.

In 2005, HSBC told its affiliates to no  longer do business with the bank, the report said. Four months later, HSBC  officials reversed course, allowing affiliates to decide whether to continue to  do business with Al Rajhi.

A Middle Eastern unit of HSBC continued doing  business with the bank, the report said. HSBC ultimately stopped helping the  bank handle certain types of transactions, and HSBC compliance officials  rebuffed other HSBC bankers seeking to maintain ties to the bank.

Then in late 2006, Al Rajhi threatened to  yank all of its business with HSBC unless it regained access to using HSBC’s  bulk-cash transaction business, the Senate report said.

HSBC: THE DAMNING  FINDINGS

The focus of the Senate probe was HSBC’s U.S.  operations, which has its main office in New York.

HSBC used the  U.S. unit as a selling point  to clients outside the United States,  touting its ability to handle U.S. dollar  transactions.

Among HSBC’s problems, the report described  the bank’s compliance division failed to investigate the suspect  money.

High turnover of top compliance officials  made it difficult for reform to take hold, the report said. Employees  were  ‘overwhelmed’ by a mounting number of suspect transactions that  needed  review.

‘We’re strapped and getting behind in  investigations,’ one bank official wrote in June 2008.

By that time, HSBC was cutting  costs to  offset losses tied to subprime home loans and the brewing  financial crisis.

In 2010, one disgusted top compliance  official threw  up his hands and quit after less than a year on the job,  according to  the report.

Typical of the problems inside the bank were  transactions tied to Mexico, a country the report said is ‘under siege from drug  crime, violence and money laundering’.

HSBC, according to the  report, helped move  money for a Mexican foreign-exchange dealer called  Casa de Cambio Puebla that  served as a hub for laundered proceeds,  according to the report.

Between 2005 and 2007, there was a ‘growing flood’ of U.S. dollars moving between the exchange house and HSBC,  setting off  red flags inside HSBC.

Some bankers said the transfers were  legal.  One said the money came from Mexican landscapers working in the  United States  and routing money back home to their families.

HSBC  ultimately closed the account in  November 2007 after it received a  seizure warrant from the Mexican attorney  general seeking money tied to  the exchange dealer, the Senate report  said.

HSBC agreed to continue to provide the bank  bulk shipments of U.S. dollars until 2010 when HSBC exited entirely the  bulk-cash business.

Officials at Al Rajhi could not immediately  be reached for comment.

Dealings with Iran

Some of the money that moved through HSBC was  tied to Iran, the report said, which would violate U.S. prohibitions on  transactions tied to it and other sanctioned countries.

To conceal the transactions, HSBC affiliates  used a method called ‘stripping,’ where references to Iran are deleted from  records. HSBC affiliates also characterized the transactions as transfers  between banks without disclosing the tie to Iran in what the Senate report  called a ‘cover payment.’

HSBC ‘failed to take decisive action to  confront these affiliates and put an end to the conduct,’ the report  said.

Between 2001 and 2007, more than 28,000  transactions were identified by an outside auditor for HSBC that potentially  could have run afoul of laws that prohibit transactions with sanctioned  countries.

Of those, 25,000 involved Iran. A smaller  number required additional analysis to determine if violations of U.S.  regulations had occurred, the report said.

At the heart of HSBC’s failings was the fact  that it served as a hub for smaller financial firms needing access to the global  banking system, the report said.

In one example detailed in the Senate  investigation, HSBC continued to do business with one client that admitted to  U.S. law enforcement that it had failed to maintain an effective anti-money  laundering system.

The client, Sigue Corp, was a money processor  in California, the report said. In 2008, the company agreed to a so-called  deferred prosecution with the U.S. Justice Department and other U.S. agencies  where it admitted to allowing millions of dollars of suspect transactions  between 2003 and 2005.

Undercover U.S. officers, in a sting, even  moved money through the company, explicitly telling Sigue agents they were  moving illegal drug proceeds, the report said.

Senator Carl Levin, chairman of the sub-committee, spoke of a “polluted” system that allowed black-market funds to move through the US banking system.

In 2010, Wachovia agreed to pay $160m as part of a Justice Department probe that examined Mexican transactions.

Last month, ING agreed to pay $619m to settle US government allegations that it violated US sanctions against Cuba and Iran

 


source: http://www.dailymail.co.uk/news/article-2174785/U-S-probe-accuses-HSBC-moving-7-billion-Mexican-drug-money-working-Saudi-Arabian-bank-linked-terrorism.html#ixzz20tiyTaKK ;http://www.bbc.co.uk/news/business-18866018 ;http://www.manchesterwired.co.uk/news.php/1441018-HSBC-used-by-drug-kingpins-says-US-Senate


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3 responses to HSBC chief quits in front of US Senate committee

  1. Since Senate Repor on Riggs Bank, 2005, at least half a dozen overseers have come and gone. Compliance staff also encountered pushback from bankers eager to maintain relationships with lucrative clients whose dealings raised red flags.
    In the Miami office – an important center for HSBC’s private-banking and retail operations – a longtime private banker was fired for alleged sexual harassment after he warned compliance officers that clients were engaged in shady dealings.

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    Special Report: Documents allege HSBC money-laundering lapses

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    A HSBC logo is seen on the Private Bank Building in Geneva in this March 28, 2011 file photo. REUTERS-Denis Balibouse-Files
    The former site of a pain clinic investigated by federal officials is seen in this picture taken April 17, 2012 in Vienna, West Virginia. REUTERS-Andrew Lampard
    The entrance to a HSBC Bank branch is seen in New York in this August 1, 2011 file photo. REUTERS-Shannon Stapleton-Files

    By Carrick Mollenkamp, Brett Wolf and Brian Grow

    NEW YORK | Thu May 3, 2012 2:54pm EDT

    (Reuters) – In April 2003, the Federal Reserve Bank of New York and New York state bank regulators cracked the whip on HSBC Bank USA, ordering it to do a better job of policing itself for suspicious money flows. Staff in the bank’s anti-money laundering division, according to a person who worked there at the time, flew into a “panic.”

    The U.S. unit of London-based HSBC Holdings Plc quickly rallied. It hired a tough federal prosecutor to oversee anti-money laundering efforts. It installed monitoring systems for operations that had grown unwieldy during the bank’s U.S. expansion. The aim, as HSBC said in an agreement with regulators at the time, was to “ensure that the bank fully addresses all deficiencies in the bank’s anti-money laundering policies and procedures.”

    Nearly a decade later, the effort has failed to satisfy law-enforcement officials.

    The extent of that failure is laid out in confidential documents reviewed by Reuters that originate from investigations of HSBC’s U.S. operations by two U.S. Attorneys’ offices.

    These documents allege that from 2005, the bank violated the Bank Secrecy Act and other anti-money laundering laws on a massive scale. HSBC did so, they say, by not adequately reviewing hundreds of billions of dollars in transactions for any that might have links to drug trafficking, terrorist financing and other criminal activity.

    In some of the documents, prosecutors allege that HSBC intentionally flouted the law. The bank created an operation that was a “systemically flawed sham paper-product designed solely to make it appear that the Bank has complied” with the Bank Secrecy Act and is able to detect money laundering, wrote William J. Ihlenfeld II, U.S. Attorney for the Northern District of West Virginia, in a draft of a 2010 letter addressed to Justice Department officials.

    In that letter, Ihlenfeld compared HSBC unfavorably to Riggs Bank. In 2004 and 2005, that scandal-plagued Washington bank was fined a total of $41 million after it was found to have violated anti-money laundering laws, and it was acquired by PNC Financial Services.

    “HSBC is to Riggs, as a nuclear waste dump is to a municipal land fill,” Ihlenfeld wrote.

    The allegations laid out in the Ihlenfeld letter and other documents couldn’t be confirmed. It is possible that subsequent inquiries have led investigators to alter their views of what went on inside HSBC’s compliance operation.

    As they are, the documents reviewed by Reuters, combined with regulatory filings, court documents and interviews with current and former HSBC employees, paint a damning portrait of a bank allegedly unable, and unwilling, to police itself or its clients.

    HSBC’s U.S. anti-money laundering division – the people charged with ensuring that the bank toes the line of regulators and law enforcement – has experienced high turnover among executives. Since 2005, at least half a dozen overseers have come and gone. Compliance staff also encountered pushback from bankers eager to maintain relationships with lucrative clients whose dealings raised red flags.

    In the Miami office – an important center for HSBC’s private-banking and retail operations – a longtime private banker was fired for alleged sexual harassment after he warned compliance officers that clients were engaged in shady dealings.

    In one email exchange submitted as evidence in that case, employees debated whether the bank should help a Miami client get around U.S. sanctions by moving the client’s business to HSBC’s Hong Kong office. “I believe that the best outcome would be for the customer to open a relationship with Hong Kong just for leters (sic) of credit purposes. He travels there all the time,” private banker Antonio Suarez wrote in a 2008 email. Suarez has since left the bank and couldn’t be reached for comment.

    UNDER THE RADAR

    The revelations come as HSBC confronts multiple investigations into its internal policing abilities. The Justice Department, the Federal Reserve, the Office of the Comptroller of the Currency, the Manhattan district attorney, the Office of Foreign Assets Control and the Senate Permanent Subcommittee on Investigations are scrutinizing client activities such as cross-border movements of bulk cash, and transactions linked to Iran and other parties under U.S. economic sanctions, the bank said in a February regulatory filing.

    “We continue to cooperate with officials in a number of ongoing investigations,” HSBC spokesman Robert Sherman said. “The details of those investigations are confidential, and therefore we will not comment on specific allegations.” HSBC said in its February filing that it was likely to face criminal or civil charges related to the probes.

    A successful case against HSBC could result in an onerous fine and represent one of the most significant money laundering cases ever brought against an international bank. It also would draw unaccustomed attention to the challenges governments — and financial institutions — face in monitoring the trillions of dollars flowing through banks’ back-office operations, flows essential to the daily functioning of the global financial system.

    “Disguised in the trillions of dollars that is transferred between banks each day, banks in the U.S. are used to funnel massive amounts of illicit funds,” Jennifer Shasky Calvery, head of the Justice Department’s Asset Forfeiture and Money Laundering Section, said in congressional testimony on organized crime in February.
    .

  2. Too bad he didnt go on a talking spree and rat out everyone else involved

  3. d said on July 17, 2012

    Turning on their own. We’ve been reading stories about bofa and wells fargo doing this for 20 years. Besides that, we have no idea what a terrorist is supposed to be. Al qaeda is a cia recruit program. Today I looked at photos of a pack of filthy savages apparently desecrating a body, saying it’s a message to Assad. We know what evil is. Good people need to start turning on evil.

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