New York—U.K.-based global banking giant HSBC Group PLC and its U.S. affiliate appeared before the Senate Permanent Subcommittee on Investigations Tuesday to testify regarding the allegations of “expos[ing] the U.S. financial system to a wide array of money laundering, drug trafficking, and terrorist financing risks.”
“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,” said the chairman of the subcommittee Sen. Carl Levin (D-Mich.), on Monday before the hearing.
During its yearlong investigation that involved the screening of millions of pages of documents and emails, as well as dozens of interviews with the bank’s management across the globe, the subcommittee uncovered several major issues that could have been easily prevented by following generally accepted Anti-Money Laundering (AML) regulations.
HSBC Bank USA Inc. processed a number of shady transactions, including bulk shipments of $7.1 billion in cash from its Mexican bank, and clearing from a Japanese bank several hundred thousand dollars in travelers’ checks per day, the ultimate origin of which was Russia.
Representatives from HSBC broadly acknowledged the commission’s findings: “Despite the best efforts and intentions of many dedicated professionals, HSBC has fallen short of our own expectations and the expectations of our regulators,” said the global head of compliance, David Bagley who already tendered his resignation.
“We will apologize, acknowledge these mistakes, answer for our actions, and give our absolute commitment to fixing what went wrong,” read the group press release from HSBC before the hearing. While taking responsibility, the group maintains that great autonomy at the local branches, especially in Mexico, led to the centralized policies not being implemented.
The commission, however, also noted that the regulator dealing with HSBC—the Office of the Comptroller of the Currency (OCC)—actually found out about the irregularities but did not know how to properly deal with the situation: “Its record of enforcement at HSBC resembles a lapdog rather [than] a watchdog that we sorely need,” said ranking minority member Sen. Tom Coburn (R-Okla.) in his opening address at the hearing. The OCC had reprimanded HSBC numerous times over the course of many years, but HSBC just did not comply with the regulator’s demands.
In an HSBC memo leaked last week, the bank is preparing to be slapped with a fine of up to $1 billion. In addition, Sen. Levin is calling for a much tougher punishment, including the possibility of revoking HSBC’s U.S. banking charter.
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