HSBC bolstered its presence in Mexico in 2002 when it bought the nation’s fifth-largest bank, Grupo Financiero Bital SA, better known as Bital, which Senate investigators found had a history of “severe” deficiencies in anti-money-laundering controls. At the time, Bital had “no recognizable compliance or money-laundering function,” David Bagley, head of HSBC compliance, wrote in an internal e-mail.
From 2000 to 2009, HSBC gave its lowest risk rating to Mexico “despite overwhelming information indicating that Mexico was a high-risk jurisdiction for drug trafficking and money laundering,” Senate investigators wrote. HSBC’s Mexican clients included casas de cambio, or currency-exchange firms, that were identified in U.S. Treasury Department warnings as hubs for laundering drug money.
Wells Fargo & Co.’s Wachovia Bank unit paid $160 million in 2010 to resolve a criminal probe that cartels were using such exchange houses to launder cash through the lender.
HSBC’s Mexican bank shipped $7 billion in bulk cash to the firm’s U.S. bank in 2007 and 2008. That was more than all HSBC affiliates and other banks in Mexico and left U.S. and Mexican authorities concerned that the volumes could only be supplied by the illegal drug trade, according to the report.
In 2007, the head of Latin America compliance sent an e- mail to a colleague condemning the Mexican affiliate for “rubber-stamping unacceptable risks,” according to the report.
“What is this, the School of Low Expectations Banking?” the executive, John Root, wrote in the e-mail.
Leopoldo Barroso, a former HSBC anti-money-laundering director, told company officials in an exit interview that he was concerned about civil and criminal sanctions and that there were “allegations of 60 percent to 70 percent of laundered proceeds in Mexico” going through HSBC’s affiliate, according to the report.
The report also cited HSBC’s violations of Treasury Department sanctions on dealings with Iran, which the U.S. wants to isolate from the global banking system. The sanctions, enforced by the Office of Foreign Assets Control, or OFAC, seek to punish Iran for operating a nuclear program outside international inspection. Internal communications show the U.S. bankers were aware that some of the transactions were linked to Iran in violation of U.S. sanctions.
An outside audit by Deloitte LLP showed that 25,000 transactions totaling more than $19.4 billion involved Iran, according to the report. Of those, as many as 90 percent passed through the bank’s U.S. accounts with no disclosure of ties to Iran, the report shows. Senate investigators documented similar transactions from a list of other prohibited jurisdictions including North Korea, Cuba, Sudan and Burma.
Bank documents also showed HSBC’s U.S. unit cleared dollar transactions through U.S. accounts for at least six Iranian banks.