A Senate report released ahead of the embargo time revealed that HSBC’s lax anti-money laundering policies allowed Mexican drug money, Iranian terrorist money, and even suspicious Russian money to enter the U.S. and gain access to U.S. dollar liquidity over the last couple of years.
The report, released late on Monday despite a 10 PM embargo time, was prepared by the Permanent Subcommittee on Investigations, and counted with the support of Senators Carl Levin and Tom Coburn.
In a year-long investigation, the Subcommittee found that HSBC violated several rules, exposing the U.S. financial system to “a wide array of money laundering, drug trafficking, and terrorist financing.” According to the report, HSBC’s Mexican affiliate channeled $7 billion into the U.S. between 2007 and 2008 which possibly included “proceeds from illegal drug sales in the United States.”
UPDATE: In a statement, HSBC acknowledged that "in the past, we have sometimes failed to meet the standards that regulators and customers expect." Vowing to improve their oversight and compliance with the law, they committed to fixing what is wrong, taking the opportunity to learn from previous mistakes.
HSBC actively circumvented rules designed to “block transactions involving terrorists, drug lords, and rogue regimes.” In one case, “two HSBC affiliates sent nearly 25,000 transactions involving $19.4 billion through their HBUS [HSBC’s U.S. affiliate] accounts over seven years without disclosing the transactions’ links to Iran.”
They provided U.S. dollar financing and services to banks in Saudi Arabia and Bangladesh that were tied to terrorist organizations, while also clearing $290 million in “obviously suspicious travelers cheques” that benefitted Russians “who claimed to be in the used car business.”
Furthermore, the investigation showed how the bank’s regulator, the Office of the Comptroller of the Currency (OCC) failed to take a single enforcement action against HSBC despite numerous violations by the international bank. Among them, failing 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 anti-money laundering due diligence before opening accounts for HSBC affiliates.
Senator Levin, whose scolding of Goldman Sachs’ Lloyd Blankfein during a hearing on collaterized debt obligations made him a well-known face in Wall Street, was hard on both HSBC and their regulator:
Due to poor AML [anti-money laundering] 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 Senate’s Subcommittee will reveal its findings on Tuesday during a Congressional hearing that will include testimony by HSBC officials and federal regulators. This report is the latest in a string of embarrassments for the world’s major banks. Only a few days ago, JPMorgan’s Jamie Dimon finally revealed further details on the so-called London Whale trades (which reportedly cost the bank more than $5 billion), while the on-going Libor manipulation scandal sparked a series of lawsuits that could be difficult to swallow for Barclays and other institutions involved.
HSBC’s New York-traded shares fell in post-market trading, as the report was leaked. After a 0.3% decline during the trading session, the stock dropped 2.5% to $42.50 by the end of aftermarket trading.
I think of this article whenever people claim bitcoin might be used for money laundering or terrorism.
This is one of the first things I saw which made me question how useful or effective capital controls or "regulation" are.
Another was the case of big pharma selling ephedrine/pseudo ephedrine directly to meth dealers without penalty.
In theory, things like this are never supposed to happen. In reality, they happen all the time.
