by Rob Davies and Tim Shipman

18 July 2012

from DailyMail Website





HSBC moved huge sum from Mexico into the U.S. between 2007 and 2008
Provided services for Saudi Arabia's Al Rajhi Bank linked to financing terrorism
Senate investigation suggests they also moved money tied to Iran
Accuses bank of 'pervasively polluted' culture
Another hammer blow to the credibility of British banking system

after Barclays was fined for allegedly rigging LIBOR interest rate


Britain's biggest bank allowed rogue states and drugs cartels to launder billions of pounds through its branches. HSBC stands accused of fostering such a ‘polluted’ culture it became a conduit for criminal enterprises.

A top executive at the bank sensationally quit yesterday in front of a US Senate hearing that exposed the scale of the scandal (watch video and end page).

Investigation: Mr Bagley, left, is sworn in at the Washington subcommittee, alongside Paul Thurston, chief executive of Retail Banking and Wealth Management HSBC Holdings plc, Michael Gallagher, former executive Vice President and head of PCM North America HSBC Bank USA, N.A.,

and Christopher Lok, former head of Global Banknotes for HSBC Bank USA


Assessing the evidence: Mr Bagley, left, and Paul Thurston, also of HSBC,

study documents during their appearance in Washington today

Following the Barclays rate-fixing revelations, it deals another blow to the City of London’s reputation.

HSBC - one of the few UK banks to survive the financial crisis with its reputation intact - now faces up to £640million in penalties. A devastating 335-page Senate report accused HSBC of ignoring warnings and breaching safeguards that should have stopped the laundering of money from Mexico, Iran and Syria.


Stepping down: David Bagley quit his post before the Homeland Security and

Governmental Affairs subcommittee in Washington today

The bank failed to monitor a staggering £38trillion of money moving across borders from places that could have posed a risk, including the Cayman Islands and Switzerland.


The failures stretched to dealings with Saudi Arabian bank Al Rajhi, which was linked to the financing of terrorism following 9/11.

HSBC’s American arm, HBUS, initially severed all ties with Al Rajhi. But it later agreed to supply the Saudi bank with US banknotes after it threatened to pull all of its business with HSBC worldwide.

According to the report, HBUS also accepted £9.6billion in cash over two years from subsidiaries without checking where the money came from.

In one instance, Mexican and US authorities warned HSBC that £4.5billion sent to the US from its Mexican subsidiary ‘could reach that volume only if they included illegal drug proceeds’.

Concerns over the bank’s links to Mexican drug dealers included £1.3billion stashed in accounts in the Cayman Islands. One HSBC compliance officer admitted the accounts were misused by ‘organised crime’.

London-based banker David Bagley, head of HSBC’s compliance division, which is meant to prevent breaches of the law, quit in front of the Senate committee. He had been with the bank for 20 years.

The affair is also an embarrassment for David Cameron, because his trade envoy Stephen Green chaired HSBC during the period covered by the allegations.


Evidence: Paul Thurston, HSBC Chief of Retail and Wealth Management,

said the bank 'took wrongdoing seriously'



Mr Thurston, pictured with Mr Bagley, gave evidence to the subcommittee

describing the difficulties the bank had in working in Mexico


Powerhouse: HSBC headquarters in the City of London.

The bank has been accused of laundering money for the Mexican mob

John Mann, a Labour MP on the influential Treasury committee, last night demanded that Lord Green resign or be sacked.

‘Someone whose bank has been assisting murdering drug cartels and corrupt regimes across the world should not be in charge of a government portfolio,’ he said.

A spokesman for the Prime Minister backed the peer - officially known as Baron Green of Hurstpierpoint - saying he was doing an excellent job and would play an important role during the Olympics. No 10 sources said Mr Cameron has not questioned Lord Green about his role in the scandal.

Labour MP Pat McFadden, a member of the Treasury select committee, stopped short of calling for Lord Green to resign over the affair, but said the trade minister should be quizzed over what he knew.


‘I don’t know the timeline of this, but if something was going on at the time anyone was chairman of the bank they should be expected to be asked questions about this,’ he said.

Evidence in the Senate report shows that HSBC staff sought to get round sanctions that prevent American firms doing business with Iran.

It said:

‘From 2001 to 2007, HSBC affiliates sent almost 25,000 transactions involving Iran worth over $19billion (£12billion) through HBUS and other US accounts, while concealing any link with Iran in 85 per cent of the transactions.’

The bank’s compliance division,

‘allowed the HSBC affiliates to continue to engage in these practices, which even some within the bank viewed as deceptive, for more than five years without disclosing the extent of the activity to HBUS’.

Many of HSBC’s breaches relate to its use of so-called bearer share accounts, in which ownership of shares and the income they incur can be passed from person to person in secrecy.

An HSBC facility in New Castle, Delaware. Executives insist that after years of run-ins with U.S. authorities over alleged anti-money laundering lapses, they have cleared up their act

Senator Carl Levin, a Michigan Democrat who is leading the investigation, said HSBC had been ‘pervasively polluted for some time’.


He added:

‘Banks that ignore money laundering rules are a big problem for our country. 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.’

In a statement, HSBC said:

‘We will apologize, acknowledge these mistakes, answer for our actions and give our absolute commitment to fixing what went wrong.’

The bank says it has sharpened up its controls and doubled spending on compliance to £255million.

It also said it was closing 20,000 accounts in the Cayman Islands as a result of the investigation.




The U.S. Senate Permanent Subcommittee on Investigations has been investigating HSBC for months as part of an effort by Congress to probe shadowy money flows.

It began in February this year when U.S. senator Carl Levin said he planned to refer HSBC Holdings to its U.S. bank regulator in connection with questionable accounts it provided for senior Angolan officials.



Probe: Senator Carl Levin referred HSBC

to bank regulators in connection with questionable accounting


Senator Levin, who chairs the Permanent Subcommittee on Investigations was particularly scathing about HSBC and the role of a Connecticut office of the bank in providing offshore accounts in the Bahamas nearly a decade ago to the Angolan central bank.

At the time he said:

'They've got some real regulatory problems in terms of their obligation to know their customers here in America.'

Mr Levin said he was not pleased with answers given at a hearing by Wiecher Mandemaker, director of general compliance for HSBC Bank USA.

'I thought his answers were very unsatisfactory.'

Asked to comment about Levin's remarks, HSBC, Europe's largest bank, said it takes compliance matters very seriously.

'HSBC's record demonstrates a commitment to vigorous enforcement and continuous enhancement of anti-money laundering policies and practices'.

A subcommittee report said attempts in 2002 by the then-head of the Angolan central bank, Aguinaldo Jaime, to transfer $50 million in government funds to the United States had been rebuffed by Citigroup (C.N) and Bank of America (BAC.N).

Nonetheless, Levin said at the hearing, London-based HSBC helped the Angolan central bank avoid a British court order freezing some of its assets.

The title of the hearing is,

'Vulnerabilities to Money Laundering, Drugs, and Terrorist Financing: HSBC Case History.'



Saudi terror links


Terror funding?

The probe has examined links between HSBC

and the Saudi Arabian Al Rajhi Bank

The Senate probe also examined banking HSBC did in Saudi Arabia with Al Rajhi Bank, which the report said has links to financing terrorism.

Evidence of those links emerged after the Sept 11, 2001 attacks on the United States, the Senate report said, citing U.S. government reports, criminal and civil legal proceedings and media reports.

In 2004, Al Rajhi sued the Wall Street Journal, which had published an article about U.S. and Saudi authorities monitoring accounts. The article referenced Al Rajhi.

Al Rajhi said in response to a WSJ story that it 'unequivocally condemns terrorism'. Al Rajhi and the paper settled in 2004.

The paper did not pay damages and stated that it,

'did not intend to imply an allegation that (Al Rajhi) supported terrorist activity, or had engaged in the financing of terrorism', the Senate report said.

In 2005, HSBC told its affiliates to no longer do business with the bank, the report said.


Four months later, HSBC officials reversed course, allowing affiliates to decide whether to continue to do business with Al Rajhi.

A Middle Eastern unit of HSBC continued doing business with the bank, the report said. HSBC ultimately stopped helping the bank handle certain types of transactions, and HSBC compliance officials rebuffed other HSBC bankers seeking to maintain ties to the bank.

Then in late 2006, Al Rajhi threatened to yank all of its business with HSBC unless it regained access to using HSBC's bulk-cash transaction business, the Senate report said.


The focus of the Senate probe was HSBC's U.S. operations, which has its main office in New York.

HSBC used the U.S. unit as a selling point to clients outside the United States, touting its ability to handle U.S. dollar transactions.

Among HSBC's problems, the report described the bank's compliance division failed to investigate the suspect money. High turnover of top compliance officials made it difficult for reform to take hold, the report said.


Employees were 'overwhelmed' by a mounting number of suspect transactions that needed review.

'We're strapped and getting behind in investigations,' one bank official wrote in June 2008.

By that time, HSBC was cutting costs to offset losses tied to subprime home loans and the brewing financial crisis. In 2010, one disgusted top compliance official threw up his hands and quit after less than a year on the job, according to the report.

Typical of the problems inside the bank were transactions tied to Mexico, a country the report said is,

'under siege from drug crime, violence and money laundering'.

HSBC, according to the report, helped move money for a Mexican foreign-exchange dealer called Casa de Cambio Puebla that served as a hub for laundered proceeds, according to the report.

Between 2005 and 2007, there was a 'growing flood' of U.S. dollars moving between the exchange house and HSBC, setting off red flags inside HSBC.

Some bankers said the transfers were legal. One said the money came from Mexican landscapers working in the United States and routing money back home to their families.

HSBC ultimately closed the account in November 2007 after it received a seizure warrant from the Mexican attorney general seeking money tied to the exchange dealer, the Senate report said.

HSBC agreed to continue to provide the bank bulk shipments of U.S. dollars until 2010 when HSBC exited entirely the bulk-cash business.

Officials at Al Rajhi could not immediately be reached for comment.




Dealings with Iran

Some of the money that moved through HSBC was tied to Iran, the report said, which would violate U.S. prohibitions on transactions tied to it and other sanctioned countries.

To conceal the transactions, HSBC affiliates used a method called 'stripping,' where references to Iran are deleted from records.


HSBC affiliates also characterized the transactions as transfers between banks without disclosing the tie to Iran in what the Senate report called a 'cover payment.'

HSBC 'failed to take decisive action to confront these affiliates and put an end to the conduct,' the report said.

Between 2001 and 2007, more than 28,000 transactions were identified by an outside auditor for HSBC that potentially could have run afoul of laws that prohibit transactions with sanctioned countries.

Of those, 25,000 involved Iran. A smaller number required additional analysis to determine if violations of U.S. regulations had occurred, the report said.

At the heart of HSBC's failings was the fact that it served as a hub for smaller financial firms needing access to the global banking system, the report said.

In one example detailed in the Senate investigation, HSBC continued to do business with one client that admitted to U.S. law enforcement that it had failed to maintain an effective anti-money laundering system.

The client, Sigue Corp, was a money processor in California, the report said. In 2008, the company agreed to a so-called deferred prosecution with the U.S. Justice Department and other U.S. agencies where it admitted to allowing millions of dollars of suspect transactions between 2003 and 2005.

Undercover U.S. officers, in a sting, even moved money through the company, explicitly telling Sigue agents they were moving illegal drug proceeds, the report said.




HSBC Executives admit mistakes,

commit to deal with money-laundering allegations...