Iranian and Drug Cartels money-laundering aided by the opium bank HSBC
HSBC Aided Money-Laundering by Iran, Drug Cartels, Probe Shows
By Jesse Hamilton and David Voreacos – Jul 16, 2012 10:25 PM GMT+0100
HSBC Holdings Plc (HSBA) did business with firms linked to terrorism, let money-laundering safeguards in its Mexico operations erode and circumvented U.S. sanctions against Iran, according to U.S. Senate investigators.
The Permanent Subcommittee on Investigations released a 335-page report today detailing a decade of lax controls that allowed HSBC affiliates around the world to give terrorists, drug cartels and other criminals a portal into the U.S. financial system. Lawmakers plan to question senior executives from Europe’s largest bank at a hearing in Washington tomorrow.
“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 Senator Carl Levin, the Michigan Democrat who heads the subcommittee. “The failure of accountability here is dramatic.”
The report said HSBC ignored ties to terrorist financing among its customer banks, including Riyadh, Saudi Arabia-based Al Rajhi Bank (RJHI), which it said had links to terrorist groups through its owners. Internal documents show HSBC decided to cut ties with the bank before reversing itself under pressure from Al Rajhi, the report said, detailing $1 billion in U.S. dollars shipped to it from HSBC Bank USA NA between 2006 and 2010.
One of the report’s largest sections focuses on HSBC Mexico, which shipped $7 billion in cash to HSBC’s U.S. bank in 2007 and 2008 — outpacing all HSBC affiliates and other banks in Mexico and leaving U.S. authorities concerned the volumes could only be supplied by the illegal drug trade, the report said. The Mexico bank, acquired by HSBC in 2002, has a history of “severe” deficiencies in anti-money-laundering controls, and the U.S. bank failed to monitor its activity, the report said.
In the six years until 2006, two HSBC affiliates sent thousands of Iran-involved transactions through the U.S. bank without telling the U.S. bankers they involved Iran. Internal communications show the U.S. bankers were aware that some of the transactions were linked to Iran in violation of U.S. sanctions. Similar transactions came from a list of other prohibited jurisdictions including North Korea, Cuba, Sudan and Burma.
Many Iran transfers involved so-called “U-turn” transactions, which were allowed under Treasury Department regulations before November 2008. Those rules let U.S. banks process dollar payments involving Iran that began and ended with non-Iranian institutions.
In 2005 and 2006, HSBC processed about 1,800 U-turn transactions through a correspondent account at JPMorgan Chase & Co. (JPM) The report quoted an e-mail from HSBC Middle East Deputy Chairman David Hodgkinson saying that HSBC’s U.S. unit was “unwilling to process them for reputational risk reasons.”
The Senate investigation also accuses the Office of the Comptroller of the Currency, the primary regulator of HSBC’s U.S. bank, of failing to treat repeated findings of violations in the bank’s money-laundering controls with sufficient weight. The OCC has tolerated severe money-laundering deficiencies “for years,” the report said, while HSBC’s examiners were suggesting action to their supervisors.
Levin said that the kind of failures HSBC exhibited should be cause for U.S. regulators to consider whether to revoke its charter. The bank has expressed remorse about “unacceptable behavior,” according to a memo written by Chief Executive Officer Stuart Gulliver, and Senate investigators said it has pumped up its compliance staff from 200 to about 1,000.