A recently released report reveals that global banking giant HSBC and its U.S. affiliate exposed the U.S. financial system to a wide array of money laundering, drug trafficking, and terrorist financing risks due to poor anti-money laundering (AML) controls. The report was released on July 16th by the Senate Permanent Subcommittee on Investigations. Sen. Carl Levin, D-Mich., Subcommittee Chairman, had this to say:
In an age of international terrorism, drug violence in our streets and on our borders, and organized crime, stopping illicit money flows that support those atrocities is a national security imperative. 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. Due to poor AML 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.
HSBC set aside $2 billion to cover the cost of U.S. investigations and compensate UK customers for mis-selling. The Subcommittee conducted a year-long investigation into HSBC and released its findings in a lengthy report, along with more than 100 documents, including bank records and internal emails. Senators listened to testimony from HSBC officials and federal regulators in a hearing by the subcommittee on the report. The investigation focused on HSBC’s key U.S. affiliate, HSBC Bank USA, N.A., known as HBUS, which functions as the U.S. nexus for HSBC’s worldwide network. HSBC has 7,200 offices in more than 80 countries with profits of $22 billion last year. HBUS has 470 branches across the United States with 4 million customers.
HBUS provides accounts to 1,200 other banks including more than 80 HSBC affiliates. Called correspondent banking, HBUS provides these banks with U.S. dollar services, including services to move funds, exchange currencies, cash monetary instruments, and carry out other financial transactions. Correspondent banking can become a major conduit for illicit money flows unless U.S. laws to prevent money laundering are followed.
In 2010, HSBC was cited by its federal regulator, the Office of the Comptroller of the Currency (OCC), for multiple severe AML deficiencies, including a failure to monitor $60 trillion in wire transfer and account activity, a backlog of 17,000 un-reviewed account alerts regarding potentially suspicious activity, and a failure to conduct AML due diligence before opening accounts for HSBC affiliates. Subcommittee investigators found that the OCC had failed to take a single enforcement action against the bank, formal or informal, over the previous six years, despite ample evidence of AML problems. That’s very hard to understand. Hopefully, things will change at OCC and wrongdoers will hereafter be held accountable for their actions.
Source: Corporate Crime Reporter
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