FROM: U.S. SENATOR CARL LEVEN'S NEWSLETTER
How a Global Bank Brought Big Risks to the U.S.07-20-2012
For today’s sprawling international banks, access to the U.S. financial system is a must. Global banks want access to U.S. dollars, and U.S. wire transfer systems. And they want the safety, efficiency, and reliability that are the hallmarks of U.S. banking.
But some banks abuse that access. The Senate’s Permanent Subcommittee on Investigations, which I chair, recently released a report and held a hearing on how one such global bank, HSBC, exposed the U.S. financial system to abuse by money launderers, drug kingpins, terrorists, and rogue nations such as Iran.
HSBC, headquartered in London, has been among the most active banks in Asia, the Middle East, and Africa. It first acquired a U.S. presence in the 1980s; today its leading U.S. affiliate is HSBC Bank USA. The bank has more than 470 branches across the United States and 4 million customers.
But HSBC’s history in the United States is one of poor protections against illicit money flows. In 2003, the Federal Reserve and New York State Banking Department required the bank to revamp its anti-money laundering program. And in 2010, the Office of the Comptroller of the Currency again demanded changes. The OCC cited massive failures in HSBC’s monitoring system.
To examine these issues, the subcommittee issued subpoenas, reviewed more than 1.4 million documents, and conducted extensive interviews with HSBC officials from around the world, as well as officials at other banks, and with federal regulators. Our evidence showed five key areas in which HSBC exposed the U.S. financial system to abuse:
HSBC units in Europe and the Middle East conducted transactions with the U.S. unit while hiding the fact that the transactions involved rogue regimes such as Iran, Sudan and North Korea. From 2001 to 2007, HSBC units overseas sent 25,000 transactions involving Iran, worth $19 billion, and in 85 percent of those transactions, concealed the links to Iran.
HSBC’s U.S. bank did business with offshore banks linked to terrorist financing. For example, it opened an account for a Saudi Arabian bank with known links to terror groups when the Saudi bank threatened to pull its business from HSBC worldwide unless it could open a U.S. account.
HSBC cleared hundreds of millions of dollars in suspicious bulk travelers cheques. One Japanese bank regularly sent HSBC’s U.S. bank $500,000 or more a day in such cheques, all sequentially numbered and signed with the same illegible signature –sure signs of wrongdoing. When regulators forced HSBC to investigate, the Japanese bank could provide no information about the mysterious Russian clients behind the transactions.
HSBC offered bank accounts to what are known as bearer-share corporations, a form of corporation prone to money laundering and other illicit activities because it can be used to conceal the true owners of the corporation. One such HSBC account was used by a father-son team of Florida developers who later were convicted of tax fraud.
It’s deplorable that a bank would demonstrate such weak defenses against terrorists, drug money and rogue regimes. But making matters worse is the poor effort by the Office of the Comptroller of the Currency, HSBC’s main U.S. regulator. The OCC knew of and tolerated HSBC’s unacceptable performance for more than five years without taking a single enforcement action.
Our report includes a number of recommended changes, for both HSBC and the OCC. Officials at the bank and the regulatory agency have promised improvements, and the steps they have announced so far are welcome. HSBC cooperated with our investigation, and its leaders apologized at our hearing. But promised changes have failed to materialize in the past. This global bank, and the agency that oversees it, must do a better job of protecting Americans from the illicit flows of money that enable crime, terrorism and weapons proliferation.
