The web is buzzing with reports that HSBC Holdings Plc, through a “pervasively polluted culture”, allowed the bank 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, according to a scathing U.S. Senate report issued on Monday.

Reuters report is the one most used on a lot of websites including: http://www.chicagotribune.com/business/sns-rt-us-hsbc-compliance-senatebre86f182-20120716,0,3401961.story

The Permanent Subcommittee on Investigations reports:

HSBC Exposed U.S. Financial System to Money Laundering, Drug, Terrorist Financing Risks

Monday, July 16, 2012

WASHINGTON – Global banking giant HSBC and its U.S. affiliate exposed the U.S. financial system to a wide array of money laundering, drug trafficking, and terrorist financing risks due to poor anti-money laundering (AML) controls, a Senate Permanent Subcommittee on Investigations probe has found.

“In an age of international terrorism, drug violence in our streets and on our borders, and organized crime, stopping illicit money flows that support those atrocities is a national security imperative,” said Sen. Carl Levin, D-Mich., subcommittee Chairman. “HSBC used its U.S. bank as a gateway into the U.S. financial system for some HSBC affiliates around the world to provide U.S. dollar services to clients while playing fast and loose with U.S. banking rules.  Due to poor AML controls, HBUS exposed the United States to Mexican drug money, suspicious travelers cheques, bearer share corporations, and rogue jurisdictions.  The bank’s federal bank regulator, the OCC, tolerated HSBC’s weak AML system for years.  If an international bank won’t police its own affiliates to stop illicit money, the regulatory agencies should consider whether to revoke the charter of the U.S. bank being used to aid and abet that illicit money.”

The Subcommittee conducted a year-long investigation into HSBC and has detailed its findings in a 330-page report to be released at the hearing Tuesday, along with more than 100 documents, including bank records and internal emails.  The hearing, which begins at 9:30 a.m., will include testimony from HSBC officials and federal regulators.

The Subcommittee investigation focused on HSBC’s key U.S. affiliate, HSBC Bank USA, N.A., known as HBUS, which functions as the U.S. nexus for HSBC’s worldwide network.  HSBC has 7,200 offices in more than 80 countries and 2011 profits of $22 billion; HBUS has 470 branches across the United States with 4 million customers.  HBUS provides accounts to 1,200 other banks including more than 80 HSBC affiliates.  Called correspondent banking, HBUS provides these banks with U.S. dollar services, including services to move funds, exchange currencies, cash monetary instruments, and carry out other financial transactions.  Correspondent banking can become a major conduit for illicit money flows unless U.S. laws to prevent money laundering are followed.
In 2010, HSBC was cited by its federal regulator, the Office of the Comptroller of the Currency (OCC), for multiple severe AML deficiencies, including a failure to monitor $60 trillion in wire transfer and account activity; a backlog of 17,000 unreviewed account alerts regarding potentially suspicious activity; and a failure to conduct AML due diligence before opening accounts for HSBC affiliates.  Subcommittee investigators found that the OCC had failed to take a single enforcement action against the bank, formal or informal, over the previous six years, despite ample evidence of AML problems.

The Subcommittee investigation focused on five areas of abuse:

–Servicing High Risk Affiliates.  HSBC’s U.S. bank, HBUS, offered correspondent banking services to HSBC Bank Mexico, and treated it as a low risk client, despite its location in a country facing money laundering and drug trafficking challenges, high risk clients like casas de cambio, high risk products like U.S. dollar accounts in the Cayman Islands, a secrecy jurisdiction, and weak AML controls.  The Mexican affiliate transported $7 billion in physical U.S. dollars to HBUS from 2007 to 2008, outstripping other Mexican banks, even one twice its size, raising red flags that the volume of dollars included proceeds from illegal drug sales in the United States.

–Circumventing OFAC Safeguards.  Foreign HSBC banks actively circumvented U.S. safeguards at HUBS designed to block transactions involving terrorists, drug lords, and rogue regimes.  In one case examined by the Subcommittee, two HSBC affiliates sent nearly 25,000 transactions involving $19.4 billion through their HBUS accounts over seven years without disclosing the transactions’ links to Iran.

–Disregarding Terrorist Financing Links.  HBUS provided U.S. dollars and banking services to some banks in Saudi Arabia and Bangladesh despite links to terrorist financing.

–Clearing Suspicious Bulk Travelers Checks.  In less than four years, HSBC cleared $290 million in obviously suspicious U.S. travelers cheques for a Japanese bank, benefiting Russians who claimed to be in the used car business.

–Offering Bearer Share Accounts.  HSBC offered more than 2,000 accounts to bearer share corporations, despite the high risk of money laundering and illicit conduct that results since their ownership can be readily transferred without a trail.

The report recommends a number of changes at HSBC’s U.S. bank, including higher scrutiny of HSBC affiliates for money-laundering risk, closing accounts of banks linked to terror financing, and steps to ensure the bank does not process transactions with prohibited entities such as terrorists, drug lords, and rogue regimes.  It also recommends overhauling the AML controls on travelers cheques and eliminating bearer share accounts.

The report also offers several criticisms of the OCC’s AML oversight.  It recommends that the agency follow the lead of regulators at other banks and treat money laundering as a threat to a bank’s safety and soundness, rather than as a consumer compliance concern.  It also recommends the OCC change its practice of foregoing statutory violations when a bank’s AML program does not meet one or more of four minimum statutory requirements.  In addition, it recommends that the OCC take stronger action when a bank hits a threshold number of AML statutory violations or Matters Requiring Attention from bank management.
“HSBC’s compliance culture has been pervasively polluted for a long time,” Levin said.  “Its recent change in leadership says it’s committed to cleaning house.  That commitment is welcome surely, but it will take more than words for the bank to change course.  Just as certain is the need for tough regulation by the OCC.”

The following story on the same subject was sent to us by EIR Executive Intelligence Review:

HSBC Under Multiple Investigations
For Drug Money Laundering

July 12, 2012 (EIRNS)—This release was issued today by the Lyndon LaRouche Political Action Committee (LPAC)

Today, the Financial Times, the same newspaper, which has launched a campaign to return to Glass-Steagall, revealed on page 1 that HSBC will appear before a U.S. Senate investigative hearing on July 17 and that, in advance of that hearing, the CEO of HSBC, Stuart Gulliver, has released an internal memo to staff saying:

“Between 2004 and 2010, our anti-money laundering controls should have been stronger and more effective, and we failed to spot and deal with unacceptable behavior.” He said it was “right that we be held accountable and that we take responsibility for fixing what went wrong.”

The Financial Times reports that HSBC may face $1 billion in fines, which is more than the $619 million that the Dutch bank ING agreed to pay to settle accusations that it violated US sanctions by helping Iranian and Cuban companies move billions of dollars through the U.S. financial system. Gulliver warned that HSBC was likely to face further action from other U.S. authorities in coming months.

According to the Financial Times, Irene Dorner, chief executive of HSBC’s North American business, and at least one other senior executive are expected to testify. The full list of witnesses will be available on Friday, July 13.

The title of the hearing scheduled by the Senate Committee on Homeland Security and Government Affairs’ Permanent Subcommittee on Investigations is “U.S. Vulnerabilities to Money Laundering, Drugs, and Terrorist Financing: HSBC Case History.” The Subcommittee reports that it

“plans to hold a hearing on the money laundering and terrorist financing vulnerabilities created when a global bank uses its U.S. affiliate to provide U.S. dollars, U.S. dollar services, and access to the U.S. financial system to high-risk affiliates, high-risk correspondent banks, and high-risk clients, using HSBC as a case study.”

The ThisIsMoney.co.uk website reports that the Senate probe has lasted months. In addition, HSBC is under investigation by the SEC and the DOJ. Another probe by the U.S. Federal Reserve and Office of the Comptroller of the Currency found that there was significant potential for unreported money laundering or terrorist financing.

HSBC is reportedly also under investigation for its involvement in the LIBOR rate-fixing scheme.

HSBC’s involvement in drug money laundering also has implications for the Obama administration. In December 2011 the New York Times reported on the Department of Justice’s involvement in drug money laundering. Immediately, the House Oversight and Government Reform Committee, which is investigating Operation Fast and Furious, announced that it was going to expand its investigation of gunwalking to the Mexican Sinaloa drug cartel to now include drug money laundering, but the Department of Justice refused to cooperate.

The same Lanny Breuer who is implicated in gunwalking also was involved in letting Wachovia Bank off with a slap on the wrist after it had been established that it was laundering drug money for the same Sinaloa cartel. HSBC then moved in to take over the drug money laundering activity of the cartel under the watchful eye of the Obama administration.

The question posed by Lyndon LaRouche is, how much of the drug money was funneled into the 2008 Obama Presidential campaign?

A serious investigation would have to explore the relationship between gunwalking and drug money laundering, and whether there was a deal between the Obama campaign and the drug cartel to launder funds into the campaign.