CARROLL FOUNDATION TRUST CASE
HSBC
OFFSHORE MONEY LAUNDERING
HSBC contrite as senators hammer money-laundering lapses | Reuters
HSBC contrite as senators hammer money-laundering lapses
An exterior view of the HSBC facility is pictured in New Castle, Delaware July 13, 2012.
Credit: Reuters/Tim Shaffer
WASHINGTON |
(Reuters) - HSBC Holdings Plc (HSBA.L) told a U.S. Senate panel on Tuesday that it has dealt head-on with allegations of pervasive money-laundering through bank accounts, saying it has overhauled how it polices transactions, exited lucrative businesses and shaken up executive leadership.
HSBC offered up the changes after the Senate's Permanent Subcommittee on Investigations released a report accusing the British bank of a "pervasively polluted" culture, underscoring money-laundering problems have been flagged by regulators for nearly a decade.
The report said the bank routinely acted as a financier to clients routing funds from the world's most dangerous corners, including Mexico, Iran and Syria.
During a hearing on the Senate report, David Bagley, a top compliance executive at HSBC since 2002, said he would step down. The resignation was part of HSBC's effort to apologize and show that it has cleaned up its act, even as the bank faces fresh questions about whether it has really fixed major flaws in catching and stopping money laundering.
A Reuters investigation has found persistent lapses in the bank's anti-money laundering compliance since 2010.
Senator Carl Levin, who chairs the Senate's Permanent Subcommittee on Investigations, kicked off the hearing by detailing how HSBC's lapses have systematically allowed suspicious actors to access the U.S. banking system.
"Accountability for past conduct is essential. That's what's been missing here," Levin said, adding that the bank's charter could be at risk if it did not do better.
The bank is still facing a Justice Department investigation could soon yield a fine that dwarfs the record $619 million that Dutch bank ING (ING.AS) agreed in June to pay to settle similar accusations.
NOT CONSISTENT
Bagley told the hearing that while reforms had been made at HSBC, it was time for him to go.
"I recommended to the group that now is the appropriate time for me and for the bank, for someone new to serve as the head of group compliance," he said.
Bagley also told the Senate panel that the bank would close thousands of Cayman Islands accounts as part of its renewed compliance efforts.
"That's good news," Levin said.
The Senate report said HSBC had little oversight of client accounts housed in a shell operation in the Cayman Islands, well known for offering secret accounts and a limited tax regime. By 2008, the Cayman accounts held $2.1 billion.
Bagley was on a panel with other high-level HSBC executives, but the harshest spotlight is expected later when Stuart Levey, who joined the bank in January as chief legal officer, is due to testify. He had been the Treasury Department's top official on terrorism finance from 2004 to 2011 -- during which time he was involved in cracking down on HSBC for Iran-related transgressions.
In prepared testimony released at the start of the hearing, Levey placed much of the blame on HSBC's rapid expansion, which left in place a decentralized management structure that did not implement consistent standards across the bank and viewed compliance only as an advisory job.
Levey said the bank has reorganized its businesses to make the firm better connected to manage risk.
The changes Bagley and Levey talked about are coming at a great cost to the bank, as spending on anti-money laundering systems and staff have increased substantially. HSBC Bank USA CEO Irene Dorner, in prepared remarks, said the bank now has 892 full-time anti-money laundering compliance professionals.
HSBC shares closed 1.7 percent lower in London trade. Analysts warned that the bank faced huge financial penalties -- but perhaps worse, was now in the crosshairs of politicians.
"(The) most important consequence is that the bank is now under the microscope ... at a very bad time where banks are used as scapegoats by politicians globally," analysts at Italian bank Mediobanca said in a research note, adding that they expect HSBC to face a $1 billion fine as well.
FAILED TO MEET STANDARDS
In a statement to British regulators early 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.
The Senate report detailed how between 2007 and 2008, HSBC's Mexican operations moved $7 billion into the bank's U.S. operations. 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, the report said.
It also examined banking HSBC did in Saudi Arabia with Al Rajhi Bank 1120.SE, which the report said has links to financing terrorism.
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 U.S. bank regulator.
In prepared testimony, the OCC acknowledged the need for changes in its oversight of anti-money laundering operations, as called for in the Senate report. 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.
NEW CLUES ON PROBE
The exhibits for the hearing also provide new clues about how the Justice Department and regulators developed their probes of HSBC and Mexican drug trafficking.
A July 2009 email from an OCC official to the bank relates a call received from the U.S. Attorney's office in Brooklyn.
The OCC official said that an assistant U.S. attorney "said that his office is in the early stages of investigating possible money laundering through the repatriation of U.S. currency through accounts at the banknotes division of HSBC-N.Y."
The author of the email, Daniel Stipano, is an OCC lawyer scheduled to testify on Tuesday.
Later that day, Stipano told his peers at the OCC, "From what I can tell, this has the makings of potentially being a major criminal case--we need to be all over it."
According to the Senate report, the OCC didn't take strong action against the bank until the fall of 2010, after the agency had learned of U.S. law enforcement probes.
(Reporting by Carrick Mollenkamp and Aruna Viswanatha in Washington and Steve Slater in London; Writing by Ben Berkowitz in Boston; Editing by Lisa Von Ahn and Tim Dobbyn)
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