HSBC Faulted by Senate Over Iran, Drug Money

HSBC, the U.K.-based banking giant, allowed suspicious funds from Mexico, Syria, and Iran to be funneled through the bank, according to a U.S. Senate subcommittee hearing Tuesday after a yearlong investigation. Overall poor anti-money laundering (AML) controls provided an ideal environment for money laundering, terror funding, and other illegal transactions.

The 330-page report and supporting documents detailed how Mexican drug cartels extensively used HSBC for laundering money, which the bank claims it knew nothing about. The bank did admit to poor oversight and weak regulations in a statement posted on its website.

“We will acknowledge that, in the past, we have sometimes failed to meet the standards that regulators and customers expect,” the statement reads.

The HSBC official in charge of group compliance said he would resign in the wake of the Senate committee’s investigation and revelations.

“I recommend it 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,” David Bagley, the official, said in a statement. “I have agreed to work with the bank’s senior management toward an orderly transition of this important role.”

Bagley and other HSBC officials apologized and acknowledged that mistakes were made.

Between 2007 and 2008, HSBC’s Mexican affiliate HBMX shipped US$7 billion to the U.S. affiliate, HBUS, despite warnings that the money may have come via drug cartels that regularly did business there.

“That was more than any other Mexican bank, even one twice HBMX’s size,” said Sen. Carl Levin, who chairs the Permanent Subcommittee on Investigations, in opening remarks to Tuesday’s hearing.

The report said HSBC did not treat HBMX as a high-risk account when it should have given that HBMX operates in Mexico—a high-risk country rife with drug cartels and has high-risk clients—and given that HBMX has a long history of deficiencies. 

The report also said between 2001 and 2007, nearly 25,000 transactions worth $19.4 billion were made involving Iran through HBUS and other accounts. Of those transactions, about 85 percent actively concealed that they were linked to Iran. 

HBUS between 2006 and 2010 also did business with Al Rajhi bank, the largest private bank in Saudi Arabia with known ties to al-Qaeda. Its founder was a financial supporter of al-Qaeda. During that time, HBUS supplied nearly US$1 billion to Al Rajhi. 

Similarly, HBUS also had dealings with Bangladesh where there was also evidence of terrorist financing.

There were also transactions between the bank’s U.S. affiliate and North Korea, Cuba, and Sudan, all of which are sanctioned by the United States. It also made transactions with Burma before some sanctions were lifted by the United States earlier this year.

“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,” stated Sen. Levin.

The report said the U.S. Office of the Comptroller of the Currency (OCC) ignored warnings and did not act to stop the transactions that occurred often between 2001 and 2010. 

“It is bad enough that a single bank such as HSBC exposes the U.S. financial system to multiple money laundering risks. It is made worse when there is a failure of AML oversight by the OCC, which is supposed to oversee our biggest banks,” said Levin.

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