By Cassandra Novick
Sen. Carl Levin (D-Mich.) expressed bewilderment on Monday regarding the alleged failure of a global banking behemoth to comply with anti-money laundering rules and regulations.
Talking to reporters ahead of Tuesday’s Senate Homeland Security and Governmental Reform hearing into HSBC Holdings, the senior Democrat lit into the London-based financial firm for allowing its banks to be used by dangerous Mexican drug cartel members to launder money between the U.S. and Mexico.
A year-long probe by a subcommittee chaired by Levin found that HSBC engaged in risky business transactions through high risk affiliate banks that, in turn, jeopardized the safety and stability of American markets. The Senate panel reported a plethora of violations of Anti-Money Laundering (AML) policy and other OFAC requirements.
“Due to poor AML controls, HBUS exposed the United States to Mexican drug money, suspicious travelers cheques, bearer share corporations, and rogue jurisdictions,” Levin said.
“What is this, the School of Low Expectations Banking?” Levin asked in reference to a 2007 email sent by an HBMX employee acknowledging the lack of effort by the HSBC Mexican Affiliate to resolve regulation compliance issues with the U.S. Office of Foreign Asset Control’s (OFAC).
Levin also cited poor oversight on behalf of the Office of the Comptroller of The Currency (OCC) as being partly to blame for HSBC’s actions. The OCC, Levin said, “tolerated HSBC’s weak AML system for years.”
The subcommittee report found that within that pattern of toleration, the OCC did identify backlogging problems and even issued a Cease and Desist Order that called for HSBC to strengthen its AML program, but no corrective actions were taken.
A group of past and present senior HSBC officials will testify before the subcommittee on Tuesday morning. So, too, will current Comptroller of the Currency Thomas Curry.
A committee source also acknowledged that both HSBC and OCC tried to clean up the HBMX affiliate bank, taking some drastic actions, such as an AML shock plan to shut down branches with poor AML records and ceasing the acceptance of US dollars at HBMX in 2009. However, effective action wasn’t taken, because nothing ever changed for HBMX who continues to be the largest exporter of US dollars, 80-90% of which is allegedly drug money.
In addition to HSBC and OCC, Levin and committee sources faulted foreign governments for not monitoring or establishing and maintaining higher standards for their financial institutions.
Although the Mexican government recently cracked down on money laundering, the problem has simply spread elsewhere to other Latin American and African Countries with unchecked issues of money laundering, drug trafficking, and terrorist financing.
This trend, according to a committee source, exemplifies a bigger problem — the danger of international banks taking on high risk affiliates and giving these affiliates access to the US market.
The fact that HSBC’s financial transaction issues are not isolated to their Mexican Affiliate, paints a bigger picture that calls for an overhaul of the current international standards for financial transactions. There were multiple other issues cited by the committee such as business with Al Rajhi Bank, a primary benefactor of al Qaeda and engagement in indirect, undisclosed business with sanctioned Iran through U-turn transactions.
Levin said he is hopeful for change, because both HSBC and OCC are under new leadership. To aid the new leadership in making the right changes, Levin proposed a list of recommendations to resolve the issues of money laundering. He proposed this list of recommendations after having cited previous instances in which HSBC had apologized and planned to reform behavior without accomplishing any tangible changes.
Nonetheless, Levin challenged the international bank, saying there is a heavy burden of proof on HSBC to prove that its culture has changed. He insisted that “apologies would not be enough.”
A committee source assured that the Department of Justice would be releasing its own report on HSBC soon after the hearing takes place. The Wall Street Journal reported Monday that the two sides are close to reaching a settlement regarding the administration’s probe.