Senate investigation alleges serious money-laundering flaws at
HSBC
19 July 2012
A US Senate report has accused the bank HSBC
of failing to prevent its US subsidiary being used for large-scale
money-laundering of criminal proceeds.
The allegations in the 330-page report,
released this week by the Senate Permanent Subcommittee on
Investigations, include allowing Mexican drug gangs to move cash to
the USA through HSBC accounts.
The investigation focussed on HSBC Bank USA.
HBUS, as it is known, provides correspondent banking services to
hundreds of other banks worldwide, so that they can maintain
dollar-denominated accounts and carry out financial transactions in
dollars. One of these correspondent clients was HSBC's Mexican
affiliate bank, HBMX, which was later found to have channelled USD7
billion in paper money into HBUS in one year alone, far more than
even the largest Mexican banks.
The implication was that some of this was
illicit drug money, said the Senate committee, chaired by Carl
Levin.
Moreover, says the committee report, many high
risk transactions were conducted through US dollar accounts held by
Mexican residents at HSBC Cayman SA, an affiliate bank
based in the Cayman Islands. In 2008, it said, HBMX provided
US dollar accounts in the Cayman Islands to nearly 50,000 clients
with USD2.1 billion in assets, ‘many of which supplied no
know-your-customer information and some of which misused their
accounts on behalf of a drug cartel’. Despite this large volume of
business, the Cayman bank had no offices or employees of its
own and was run by HBMX personnel in Mexico.
Senior HSBC managers called before the
committee to give evidence this week said most of these accounts
have been closed down since 2008. At that date, HSBC's head of
group compliance David Bagley had become suspicious of large US
dollar remittances being made by a number of HBMX Cayman customers
to a Miami-based air freight company suspected of involvement in
the supply of aircraft to drug cartels. It turned out that about
one in seven of the Cayman accounts did not even have a customer
file. Bagley immediately began anti-money-laundering measures
against the Cayman accounts and put a block on any new ones being
opened. Despite his actions, he has now resigned his post.
Other allegations made in the Senate report
are that HSBC cleared USD290 million in ‘obviously suspicious’ US
travellers' cheques for a Japanese bank on behalf of Russian
second-hand car dealers; and that the bank offered more than 2,000
accounts to bearer share corporations, which are generally regarded
as a high money-laundering risk.
It is further alleged that HBUS deliberately
circumvented statutory money-laundering controls when dealing with
foreign HSBC affiliate banks - even when handling transactions
linked to Iran, against which the US government has been enforcing
a financial embargo.
Sources
Senate Permanent Subcommittee on Investigations
Subcommittee Report (PDF)
Cay Compass
Reuters
Daily Telegraph
Independent
BBC