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.’

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.

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

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 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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