HSBC gave terrorist organizations and drug traffickers access to the U.S. financial system


U.K.-based bank HSBC used its U.S. affiliate to give terrorist organizations and drug traffickers access to the U.S. financial system, a July 17 Senate subcommittee report (.pdf) found.

The Senate Homeland Security and Governmental Affairs permanent subcommittee on investigations released the report in conjunction with a hearing where it also examined federal regulators' role in preventing anti-money laundering, or AML, deficiencies.

The report says that HSBC's U.S. affiliate's weak AML controls let it provide bank accounts to overseas banks with terrorist-financing links, allowed hundreds of millions of dollars in bulk U.S. travelers cheques to clear despite suspicious circumstances and failed to enforce a screening device designed to block transactions by terrorists, drug kingpins and rogue nations.

AML deficiencies at banks are safety and soundness problems, not matters of consumer compliance, Comptroller of the Currency Thomas Curry said as he vowed that his office will start to treat them as such.

Other U.S. bank regulators treat AML deficiencies as safety and soundness problems, and the report says the Office of the Comptroller of the Currency should too.

Curry, who became comptroller in April, agreed with that and two other recommendations that the subcommittee directed at OCC. One was that OCC should hand out AML violations and not a lesser Matters Requiring Attention notice when a bank fails to meet statutory AML requirements. The former is an enforcement action, whereas the latter is just a warning.

The subcommittee also recommended that the OCC establish a policy so that when examiners identify a certain number of Matters Requiring Attention or AML-related legal violations, the OCC will conduct an institution-wide examination of a bank's AML program.

OCC has already begun to implement these changes, Curry said.

He expressed concern about how OCC failed to see the bigger picture of HSBC's cumulative AML deficiencies. Subcommittee Chairman Carl Levin (D-Mich.) added that OCC examiners did not fail at their jobs--rather, "the higher-ups were overly passive," he said.

Curry said he hoped he could develop a culture at OCC where examiners feel free to voice documented concerns and know that those concerns will be thoroughly reviewed.

For more:
- go to the hearing webpage (prepared testimonies and webcast available)
- download the subcommittee report, "U.S. Vulnerabilities to Money Laundering, Drugs, and Terrorist Financing: HSBC Case History" (.pdf)

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