HSBC probe shows bank allowed laundering, dodged sanctions

July 17 (Bloomberg) -- HSBC Holdings Plc did business with firms linked to terrorism, failed to guard against money- laundering violations in Mexico and bypassed U.S. sanctions against Iran, according to U.S. Senate investigators.

HSBC affiliates worldwide gave terrorists, drug cartels and criminals a portal into the U.S. financial system, the Permanent Subcommittee on Investigations said in a 335-page report yesterday detailing a decade of lax controls. Lawmakers plan to question senior executives from the London-based bank, Europe’s largest, at a hearing in Washington today.

“HSBC sets up a U.S. bank affiliate as its gateway into the U.S. financial system and lets its global network of affiliates abuse that gateway,” Senator Carl Levin, the Michigan Democrat who heads the subcommittee, told reporters. “The failure of accountability here is dramatic.”

Senate investigators focused on New York-based HSBC Bank USA NA as a “nexus” for U.S. dollar services and transfers. Their report will be the basis of a hearing in which senators question senior executives including Irene Dorner, president and chief executive of HSBC North America Holdings Inc., and the U.S. regulators accused in the report of failing to act.

HSBC rose 0.2 percent to 558 pence at 9:57 a.m. in London trading, valuing the bank at 102 billion pounds ($160 billion).

“We will acknowledge that, in the past, we have sometimes failed to meet the standards that regulators and customers expect,” Robert Sherman, an HSBC spokesman, said in an e-mailed statement. “We will apologize, acknowledge these mistakes, answer for our actions and give our absolute commitment to fixing what went wrong.”

Terrorist Financing

HSBC ignored links to terrorist financing among its customer banks, including Riyadh, Saudi Arabia-based Al Rajhi Bank, which had ties to terrorist groups through its owners, according to the report. Internal documents show HSBC decided to cut ties with the bank before reversing itself under pressure from Al Rajhi, which received shipments of $1 billion in cash from HSBC’s U.S. operation between 2006 and 2010, according to the report.

HSBC’s U.S. unit, with faulty safeguards, “offers a gateway for terrorists to gain access to U.S. dollars and the U.S. financial system,” according to the report. “HSBC has a legal obligation to take reasonable steps to ensure it is not dealing with banks that may have links to or facilitate terrorist financing.”

Mohammad Al Yami, an Al Rajhi spokesman, didn’t immediately respond to an e-mail sent outside of regular business hours requesting comment on the report.

Copyright 2014 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

Comments
comments powered by Disqus