HSBC used by ‘drug kingpins’, says US Senate

Posted by on Jul 17, 2012 | Comments Off on HSBC used by ‘drug kingpins’, says US Senate


HSBC provided a conduit for “drug kingpins and rogue nations”, according to a US Senate committee investigating money laundering claims at the bank.

According to the Senate committee, HSBC accepted more than $15bn in cash from subsidiaries in Mexico, Russia and other countries at high risk of money laundering but failed to conduct any monitoring of these bulk cash transactions between mid-2006 and mid-2009.

Furthermore, the report found that HSBC knew of lax anti-money laundering practices at its Mexican subsidiary HBMX, which had dated back to its purchase in 2002.

HBMX was warned, on at least two occasions, by Mexican authorities that drug money was probably being laundered through HBMX accounts.

Its report said suspicious funds from countries including Mexico, Iran and Syria had passed through the bank.

The committee is hearing from HSBC officials, one of whom said he found it “painful and embarrassing” to talk about the bank’s shortcomings.

HSBC’s head of group compliance, David Bagley, stepped down at the hearing.

Mr Bagley told the committee that the bank had “fallen short of our own and regulators’ expectations but that a major overhaul of the bank’s compliance activities was underway and that HSBC had “learned a lot of valuable lessons”.

He said despite being head of compliance he had not had full authority to act over all parts of the bank.

Dangerous environment

Senator Carl Levin said HSBC’s lack of controls at its US and overseas units had been “a recipe for trouble”.

Mr Levin is chairman of the Senate Permanent Subcommittee on Investigations, which is looking into HSBC’s activities between 2006 and 2010.

Some of the things I found frankly took my breath away”

Paul ThurstonHSBC executive

Its report also says that some HSBC bank affiliates got round US government rules prohibiting financial transactions with Iran and certain other countries, in some cases assisting terrorism.


Painful and embarrassing

One HSBC executive, Paul Thurston, who was head of retail banking and wealth management, said the bank had taken wrongdoing seriously, and had taken action on many occasions, including dismissing staff.

He told the hearing of the difficulties of working in Mexico, which, he said, was a dangerous environment where kidnapping of bank staff was widespread and employees came under pressure from criminals who would attempt to corrupt them.

Mr Thurston referred to substandard record-keeping and the difficulty of knowing who the bank’s clients were. He said: “Some of the things I found frankly took my breath away.”

Another executive, Christopher Lok, said he found it “painful and embarrassing to talk about where we fell short”.

The subcommittee heard first from David Cohen, Under Secretary for Terrorism and Financial Intelligence and Leigh Winchell, assistant director, of the customs enforcement unit ICE, which is part of Homeland Security.

The report also concludes that the US bank regulator, the Office of the Comptroller of the Currency, failed to properly monitor HSBC.

Before the hearing began, HSBC said in a statement, that it expected to be held accountable for what went wrong.

“We will apologise, acknowledge these mistakes, answer for our actions and give our absolute commitment to fixing what went wrong,” HSBC said.

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

“In an age of international terrorism, drug violence in our streets and on our borders, and organised crime, stopping illicit money flows that support those atrocities is a national security imperative,” said Mr Levin.

Drugs charges

“Now is the appropriate time for someone new to head group compliance”

The report names individual cases such as that of Chinese-Mexican citizen, Zhenly Ye Gon, a long-standing client of HBMX.

In 2007, a joint operation between the Mexican government and US Drug Enforcement Agency seized more than $205m in cash at his residence – described as the largest drug-related cash seizure in history.

These businesses are commonly set up in tax havens such as the British Virgin Islands.

The bank says it is in the process of closing 20,000 bank accounts on the Cayman islands as result of the moneylaundering investigation.

Many of HSBC’s breaches of US anti-money laundering relate to its use of bearer share accounts. Under the rules for these accounts, ownership of shares and the income they incur can be passed from person to person in secrecy.

HSBC’s US subsidiary HBUS had opened more than 2,550 accounts for bearer share corporations.



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