Failure after failure at HSBC led to the London-based bank being used as a conduit for “drug kingpins and rogue nations”, a 300-page report compiled for a US Senate committee and has found.
The July 2012 report and investigations by US authorities led to the UK-based bank being fined almost $2bn for failing to stop criminals using its banking systems to launder money.
Here we summarise some of the Senate Permanent Subcommittee on Investigation’s main findings against HSBC.
Mexican drug barons
Despite HSBC Mexico (HSMX) operating in a country “under siege from drug crime, violence and money laundering” it had inadequate money laundering controls.
Between 2007-8, for example, HBMX shipped $7bn to HSBC’s US operation, more than any other HSBC affiliate.
Mexican and US authorities expressed concern that drug traffickers were able to circumvent the anti-money laundering controls at US banks by transporting US dollars to Mexico, and then using HBMX to transfer it to the US.
The committed report said HBMX had:
- high-profile clients involved in drug trafficking
- millions of dollars of suspicious bulk travellers cheques
- a resistance to closing accounts linked to suspicious activity
HSBC US (HBUS) nevertheless classed Mexico as a low-risk country and as a result, failed to properly monitor its transfers and other dealings with it.
Dealings with Iran
US laws prevent banks doing business with what it regards as the most dangerous individuals and countries.
HSBC frequently circumvented the rules designed to prevent dealings with Iran, Burma, North Korea and Iran.
Actions taken to get around these safeguards in the system “may have facilitated transactions on half of terrorists, drug traffickers or other wrongdoers”, it said.
For example, HBUS carried out 28,000 undisclosed sensitive transactions between 2001 and 2007, an internal audit commissioned by the bank found. The vast majority of those transactions – worth $19.7bn – involved Iran.
Two affiliates, HSBC Europe and HSBC Middle East repeatedly altered transaction information to take out any reference to Iran, the report said.
This may have been to prevent red flags in the system triggering an individual review of an accepted transaction, slowing it down, the committee said.
But more work would need to be done to established which of these thousands of cases, if any, had broken US law.
Terrorist financing links
HSBC did business with Saudi Arabia’s biggest financial institution, Al Rajhi Bank.
The report claims that after the terrorist attacks in the US on 11 September 2001, evidence emerged that Al Rajhi and some of its owners had links to financial organisations associated with terrorism.
HSBC Middle East was one of a number of affiliates which continued to work with the bank.
HBUS closed the accounts it provided to Al Rajhi, before resuming some ties with them in 2006.
The report claimed it had done this after pressure from HSBC, after Al Rajhi threatened to withdraw all of its business from HSBC globally.
Suspicious travellers’ cheques
The committee is concerned that HSBC cleared large amounts of travellers’ checks over a number of years, without proper anti-money laundering controls, despite evidence of suspicious activity.
Between 2005 and 2008, HBUS cleared $290m worth of US dollar travellers’ cheques which were being presented at a Japanese bank.
The daily transactions were worth up to half a million dollars, with large blocks of sequentially numbered cheques being handed over.
After prompting from US regulators, HBUS found out that the travellers’ cheques were being bought in Russia – a country at high-risk of money laundering.