In a settlement over its weak controls of money-laundering, the banking giant, HSBC is expected to pay a fine of almost $2 billion dollars. This comes after a Senate subcommittee report that was released in July which accused the London-based company of lax controls regarding money transfers. These transfers, involving billions of dollars, are believed to have been linked to Mexican drug cartels and terrorism.
The Senate’s subcommittee on Investigations says that HSBC failed to review thousands of suspicious transactions over the past several years. One of the issues examined involved a $7 billion cash transaction from the Mexican branch of HSBC to the bank’s U.S. affiliate. Law enforcement officials say that such a huge transaction had to include illegal drug proceeds. HSBC Mexico also delayed the closing of accounts that were to be closed due to suspicious activity.
The Senate report also noted that HSBC worked closely with the Al Rahji Bank of Saudi Arabia, of which some owners have been linked to terrorism. One of the bank’s founders is suspected to have been an early funder of Al Queda. HSBC supplied Al Rahij with almost $1 billion of U.S. banknotes. Two Bangladeshi banks with evidence of terrorist links were also involved in those transactions.
Sen. Carl Levin, chairman of the subcommittee, said “From an oversight perspective, the failure of accountability here is dramatic.”
The U.S. affiliate of the global company dealt with nearly 25,000 transactions involving Iran between 2001 and 2007 even as U.S. sanctions were applied to that country. Other affiliates would aid in this subterfuge by stripping information from the transaction, making them harder to trace. Some executives of HSBC’s U.S. branch were aware of this practice.
The Senate subcommittee’s hearings included HSBC executives, Treasury Department officials, the Department of Homeland Security and the Office of the Comptroller of Currency. The OCC, being the primary overseer of HSBC, came under attack for lack of regulation. The subcommittee scolded the office for years of lax regulation of money-laundering before finally requiring HSBC in 2010 to improve its internal controls.
The banking giant has acknowledged that they “… sometimes failed to meet the standards that regulators and customers expect.” They also added that they had strengthened its compliance efforts over the past few years, devoting more resources and increasing its diligence. In addition, HSBC compliance executive David Bagley said that he would be stepping down as part of this process, though he will remain with the firm.
The U.S. Department of Justice is also investigating on this issue but declined comment, citing the ongoing investigation.