17 Jul 2012

HSBC ‘used by drug kingpins to launder money’

HSBC was used by ‘drug kingpins’ to launder money, according to a US Senate committee investigating the banks.

Committee chairman Carl Levin said the British bank’s lack of controls at its US and overseas units had been “a recipe for trouble”, as the bank’s group head of compliance David Bagley told the committee he was stepping down.

Mr Levin is chairman of the Senate permanent subcommittee on investigations, which is looking into HSBC’s activities between 2006 and 2010.

Mr Bagley said he recommended to HSBC senior management that it was the “appropriate time” for “someone new to serve as the head of group compliance”.

A report by the subcommittee said large sums of drug money from Mexico had almost certainly been laundered through the bank, as well as questionable funds from the Cayman Islands, Iran and Saudi Arabia.

Senator Levin spoke of a “polluted” system that allowed black-market funds to move through the US banking system.

Illicit money

“In an age of international terrorism, drug violence in our streets and on our borders, and organised crime, stopping illicit money flows that support those atrocities is a national security imperative,” said Mr Levin.

The report also concludes that the US bank regulator, the Office of the Comptroller of the Currency, failed to properly monitor HSBC.

In a statement, HSBC said: “We will apologise, acknowledge these mistakes, answer for our actions and give our absolute commitment to fixing what went wrong.”

The bank added that it has since changed its senior management and will strengthen its compliance with rules to prevent money laundering.”

David Bagley, who has been HSBC head of group compliance since 2002, stepped down before appearing in front of the subcommittee after its findings were published.

Mr Bagley, who had a 20 year career with the bank and is based in London, said: “Despite the best efforts and intentions of many dedicated professionals, HSBC has fallen short of our own expectations and the expectations of our regulators.”

The HSBC hearing comes a month after Barclays was fined £290m for attempting to manipulate inter-bank lending rates.