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.




Senate Permanent Subcommittee on Investigations

Subcommittee Report (PDF)

Cay Compass


Daily Telegraph





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