Top HSBC official resigns; bank apologises over money laundering scandal
Washington: Admitting massive shortcoming in its anti-money laundering operations, a top HSBC official on Tuesday informed a Senate panel his decision to step down and the measures being taken to address the issues raised by the Senate committee's investigative report in this regard.
"I recognize that there have been some significant areas of failure. I have said before, and I will say again, despite the best efforts and intentions of many dedicated professionals, HSBC has fallen short of our own expectations, and the expectations of our regulators," David Bagley, head of group compliance HSBC Holdings Plc, told a key Senate panel during a Congressional hearing.
"This is something that a bank seeking to conduct business in the United States, and globally, must acknowledge, learn from, and most importantly, take steps to avoid in future," Bagley told lawmakers as he announced his resignation from the post that he has held since 2002.
"I recommended to the group that now is the appropriate time for me, and for the bank, for someone new to serve as the head of Group Compliance. I have agreed to work with the bank's senior management towards an orderly transition of this important role," Bagley said.
In his testimony, Paul Thurston, chief executive of Retail Banking and Wealth Management for the HSBC Group, said that the bank is now in the process of closing all of the HSBC Mexico accounts in the Caymans.
"We will continue to scrutinize our businesses in Mexico to determine how we can further mitigate compliance risk. We know that criminals operate globally and as an international bank, we will be a target. We have to be sure that we have the best and strongest defence in place in every business, in every market in which we operate regardless of the local challenges," he said.
Michael Gallagher, the former executive vice president at HSBC Bank US, told lawmakers that during his time at HSBC, there were steps taken to tighten anti-money-laundering controls and he understand that significant progress has been made in this regard since his departure.
"For me it is painful and embarrassing to talk about the areas where in hindsight, we fell short," said Christoper Lok, who served as the global head of the banknotes business at HSBC from 2001 to 2010.
"Over a period of years, there were some occasions when I communicated with my colleagues in compliance in a manner that was unnecessarily aggressive and harsh. These communications were unprofessional and I deeply regret them," he said.
"In retrospect, we did not adequately appreciate the concerns being raised about our business environment in Mexico. While we did our best to deal with these enquiries, I am sorry to say that I did not understand what later became apparent.
With the benefit of hindsight, it is now clear that we did not perceive the extent of the anti-money laundering deficiencies and the risks present in Mexico," Lok said.
Bangladesh to probe HSBC bank terror funding charges
Bangladesh's central bank said on Wednesday it had launched a probe into allegations that two local Islamic banks helped fund terrorist groups amid lax controls at banking giant HSBC. The US Senate in a report found that HSBC allowed affiliates in countries such as Mexico, ---------------------
India staff under scanner in HSBC investigation
An OCC visit to India in 2007 has revealed ‘weak monitoring procedures’ in the bank’s internal control systems
HSBC’s staff in India have come under the scanner for deficiencies in their role as “offshore reviewers” of the global banking giant’s compliance to safety mechanism against money laundering and terrorist financing.
A probe by the U.S. Senate’s Permanent Sub-committee on Investigations found that HSBC’s Anti-Money Laundering (AML) Compliance Department, which included employees in India, was highly inadequately staffed.
Besides, deficiencies were found in the quality of the work done by HSBC’s “offshore reviewers in India”, who were used for clearing a major backlog of suspected transaction alerts at the bank.
More than one-third of the alerts already resolved by the Indian reviewers and others “had to be re-done” after an independent assessment by the OCC (the US Office of the Comptroller of the Currency, which is the bank’s primary federal regulator in the country).
The probe further found that an OCC visit to India in 2007 had revealed “weak monitoring procedures” in the bank’s internal control systems.
At a hearing before the Senate Sub-committee on the matter here on Tuesday, HSBC apologised for its mistakes, and gave its “absolute commitment” to fix the problems.
The 340-page investigation report, which was released Tuesday, found HSBC to have used its US bank (HSBC US Bank or HBUS) as a gateway into the US financial system to provide US dollar services to clients while “playing fast and loose with US banking rules,” Senator Carl Levin, the Chairman of the sub-committee, said.
The investigations found that HSBC, with its headquarters in London, allowed affiliates in countries such as Mexico, Saudi Arabia and Bangladesh to move billions of dollars in suspect funds into the U.S. without adequate controls.
Besides, HSBC, in 2009, authorised its affiliate to supply Indian rupees to Saudi Arabia’s Al Rajhi Bank, which, the report said, had links to financing terrorism. The report also said that Al Rajhi Bank handled IIRO’s (International Islamic Relief Organisation) “charitable contributions intended to benefit suicide bombers by directing Al Igatha Journal advertisements ... in Somalia, Sri Lanka, India, and the Philippines.”
It cited a lawsuit to say that charitable organisations such as the IIRO use banks like Al Rajhi Bank to “gather donations that fund terrorism and terrorist activities” under the guise of IIRO funds labelled and designated for purposes such as ‘war and disaster’ or ‘sponsor a child’. IIRO is a Saudi-based non-profit organisation which was added to the SDN list by the United States for “facilitating fund raising for Al Qaida and affiliated terrorist groups,” the report said, while adding that HSBC’s internal Financial Intelligence Group (FIG) itself had raised questions about IIRO in 2003.
SDN (Specially Designated Nationals) List, published by the U.S. government, names individuals and entities with whom the US citizens are prohibited from doing business
Again in 2006, an FIG report noted that “the IIRO had been linked to Al Qaeda and other terrorist groups, plots to assassinate President Bill Clinton and the Pope, attacks on the Brooklyn Bridge and Lincoln Tunnel, and the 1993 attack on the World Trade Center,” the report said.
It further said that Al Rajhi Bank had gained notoriety as well for providing banking services to several of the hijackers in the 9-11 terrorist attack, including Abdulaziz al Omari who was aboard American Airlines Flight 11.
The probe also found loopholes in HSBC’s dealings with Islami Bank Bangladesh, which opened a US dollar account with HBUS in 2000, and US dollar clearing accounts with HSBC India and HSBC Pakistan in 2006.
Explaining the issue of inadequate staffing, the report said that “despite its high AML risks, millions of customers, and employment of more than 16,500 employees overall, from 2006 to 2009, HBUS’ entire Compliance Department numbered less than 200 full time employees.”
Besides, its AML compliance staff was a subset of that, and also included staff in India. The HBUS personnel told the Sub-committee that inadequate AML staffing was one of the biggest problems they faced and the OCC examinations also routinely identified inadequate staffing as a key AML problem, including with respect to ‘unreviewed alerts’
“Bank documents show that compliance and AML staffing levels were kept low for many years as part of a cost cutting measure,” the probe report said.
US Senate calls HSBC ‘pervasively polluted’, bank apologizes
WASHINGTON: HSBC Holdings Plc put itself at the mercy of the US Senate on Tuesday, acknowledging shortcomings in its anti-money laundering operations and revealing the resignation of a global executive.
David Bagley, a top compliance executive at HSBC since 2002, told a Senate investigative panel that he would step down, after the panel released a scathing report calling out a " pervasively polluted" culture at the bank.
The Senate report, which came after a year-long inquiry, said the bank had routinely acted as a financier to clients routing funds from the world's most dangerous corners, including Mexico, Iran and Syria.
David Bagley, a top compliance executive at HSBC since 2002, told a Senate investigative panel that he would step down, after the panel released a scathing report calling out a " pervasively polluted" culture at the bank.
The Senate report, which came after a year-long inquiry, said the bank had routinely acted as a financier to clients routing funds from the world's most dangerous corners, including Mexico, Iran and Syria.
While the big British bank's money-laundering problems have been flagged by regulators for nearly a decade, the report and hearing escalate pressure on the bank, as it awaits a massive fine from the Justice Department for lapses in its safeguards.
It also comes as international banks' reputations have taken a fresh blow due to allegations of a manipulation of a key global benchmark rate.
Senator Carl Levin, who chairs the Senate's Permanent Subcommittee on Investigations, kicked off the hearing on Tuesday with an extensive explanation of how HSBC's lapses have been a threat to financial markets around the world.
A Reuters investigation has found persistent lapses in the bank's anti-money laundering compliance since 2010, despite its assertions that it has cleaned up its act.
"Accountability for past conduct is essential. That's what's been missing here," Levin said, adding that the bank's charter could be at risk if it did not do better.
Not consistent
The hearing started with officials from the US Treasury and Department of Homeland Security, but the fireworks began when HSBC executives came to testify.
Bagley, HSBC's head of group compliance since 2002, told the hearing he had been hamstrung by the bank's structure, and that while changes had been made it was time for him to go.
"I recommended to the group that now is the appropriate time for me and for the bank, for someone new to serve as the head of group compliance. I have agreed to work with the bank's senior management towards an orderly transition," he said.
The harshest spotlight will be on Stuart Levey, who joined the bank in January as chief legal officer. He had been the Treasury Department's top official on terrorism finance from 2004 to 2011 -- during which time he was involved in cracking down on HSBC for Iran-related transgressions.
In prepared testimony released at the start of the hearing, Levey placed much of the blame on HSBC's rapid expansion, which left in place a decentralized management structure that did not implement consistent standards across the bank and viewed compliance only as an advisory job.
HSBC shares fell 1.9 per cent in late London trade. Analysts warned that the bank faced huge financial penalties -- but perhaps worse, found itself in the crosshairs during an election year.
"(The) most important consequence is that the bank is now under the microscope ... at a very bad time where banks are used as scapegoats by politicians globally," analysts at Italian bank Mediobanca said in a research note, adding that they expect HSBC to face a $1 billion fine as well.
Failed to meet standards
In a statement to British regulators early Tuesday, the bank began its mea culpa.
"We will acknowledge that, in the past, we have sometimes failed to meet the standards that regulators and customers expect," it said. "We will apologise, acknowledge these mistakes, answer for our actions and give our absolute commitment to fixing what went wrong."
The Senate report released on Monday detailed how between 2007 and 2008, HSBC's Mexican operations moved $7 billion into the bank's U.S. operations. According to the report, both Mexican and U.S. authorities warned HSBC that the amount of money could only have reached such a level if it was tied to illegal narcotics proceeds.
It also examined banking HSBC did in Saudi Arabia with Al Rajhi Bank, which the report said has links to financing terrorism.
HSBC will have company in the Senate's harsh spotlight -- the report was also highly critical of the Office of the Comptroller of the Currency, a major US bank regulator.
In prepared testimony, the OCC acknowledged the need for changes in its oversight of anti-money laundering operations, as called for in the Senate report.
The OCC will also testify on the extent of the failings it found in HSBC's money launderingcontrols, and the orders it issued to the bank to correct them.
New clues on probe
The exhibits for the hearing also provide new clues about how the Justice Department and regulators developed their probes of HSBC and Mexican drug trafficking.
A July 2009 email from an OCC official to the bank relates a call received from the U.S. Attorney's office in Brooklyn.
The OCC official said that an assistant U.S. attorney "said that his office is in the early stages of investigating possible money laundering through the repatriation of U.S. currency through accounts at the banknotes division of HSBC-NY"
The author of the email, Daniel Stipano, is an OCC lawyer scheduled to testify on Tuesday.
Later that day, Stipano told his peers at the OCC, "From what I can tell, this has the makings of potentially being a major criminal case--we need to be all over it."
According to the Senate report, the OCC didn't take strong action against the bank until the fall of 2010, after the agency had learned of U.S. law enforcement probes.
It also comes as international banks' reputations have taken a fresh blow due to allegations of a manipulation of a key global benchmark rate.
Senator Carl Levin, who chairs the Senate's Permanent Subcommittee on Investigations, kicked off the hearing on Tuesday with an extensive explanation of how HSBC's lapses have been a threat to financial markets around the world.
A Reuters investigation has found persistent lapses in the bank's anti-money laundering compliance since 2010, despite its assertions that it has cleaned up its act.
"Accountability for past conduct is essential. That's what's been missing here," Levin said, adding that the bank's charter could be at risk if it did not do better.
Not consistent
The hearing started with officials from the US Treasury and Department of Homeland Security, but the fireworks began when HSBC executives came to testify.
Bagley, HSBC's head of group compliance since 2002, told the hearing he had been hamstrung by the bank's structure, and that while changes had been made it was time for him to go.
"I recommended to the group that now is the appropriate time for me and for the bank, for someone new to serve as the head of group compliance. I have agreed to work with the bank's senior management towards an orderly transition," he said.
The harshest spotlight will be on Stuart Levey, who joined the bank in January as chief legal officer. He had been the Treasury Department's top official on terrorism finance from 2004 to 2011 -- during which time he was involved in cracking down on HSBC for Iran-related transgressions.
In prepared testimony released at the start of the hearing, Levey placed much of the blame on HSBC's rapid expansion, which left in place a decentralized management structure that did not implement consistent standards across the bank and viewed compliance only as an advisory job.
HSBC shares fell 1.9 per cent in late London trade. Analysts warned that the bank faced huge financial penalties -- but perhaps worse, found itself in the crosshairs during an election year.
"(The) most important consequence is that the bank is now under the microscope ... at a very bad time where banks are used as scapegoats by politicians globally," analysts at Italian bank Mediobanca said in a research note, adding that they expect HSBC to face a $1 billion fine as well.
Failed to meet standards
In a statement to British regulators early Tuesday, the bank began its mea culpa.
"We will acknowledge that, in the past, we have sometimes failed to meet the standards that regulators and customers expect," it said. "We will apologise, acknowledge these mistakes, answer for our actions and give our absolute commitment to fixing what went wrong."
The Senate report released on Monday detailed how between 2007 and 2008, HSBC's Mexican operations moved $7 billion into the bank's U.S. operations. According to the report, both Mexican and U.S. authorities warned HSBC that the amount of money could only have reached such a level if it was tied to illegal narcotics proceeds.
It also examined banking HSBC did in Saudi Arabia with Al Rajhi Bank, which the report said has links to financing terrorism.
HSBC will have company in the Senate's harsh spotlight -- the report was also highly critical of the Office of the Comptroller of the Currency, a major US bank regulator.
In prepared testimony, the OCC acknowledged the need for changes in its oversight of anti-money laundering operations, as called for in the Senate report.
The OCC will also testify on the extent of the failings it found in HSBC's money launderingcontrols, and the orders it issued to the bank to correct them.
New clues on probe
The exhibits for the hearing also provide new clues about how the Justice Department and regulators developed their probes of HSBC and Mexican drug trafficking.
A July 2009 email from an OCC official to the bank relates a call received from the U.S. Attorney's office in Brooklyn.
The OCC official said that an assistant U.S. attorney "said that his office is in the early stages of investigating possible money laundering through the repatriation of U.S. currency through accounts at the banknotes division of HSBC-NY"
The author of the email, Daniel Stipano, is an OCC lawyer scheduled to testify on Tuesday.
Later that day, Stipano told his peers at the OCC, "From what I can tell, this has the makings of potentially being a major criminal case--we need to be all over it."
According to the Senate report, the OCC didn't take strong action against the bank until the fall of 2010, after the agency had learned of U.S. law enforcement probes.
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