‘It operated in many jurisdictions with weak anti-money laundering controls’

This week policymakers in the U.S. Treasury and State Department had to suspend their sense of disbelief as they watched one of the darlings of the US’ banking system, HSBC, slammed by the Senate for allowing billions of dollars’ worth of transactions in money laundering and terrorism financing that aided Mexican drug cartels, Saudi Arabian banks with links to al-Qaeda and even Iranian institutions subject to U.S. sanctions.

In a report released on Monday the U.S. Senate’s Committee on Homeland Security and Governmental Affairs pulled no punches as it argued that HSBC operated in many jurisdictions with “weak AML (Anti Money Laundering) controls, high risk clients, and high risk financial activities including Asia, Middle East, and Africa.”

HSBC’s staff and operations in India were shown in a poor light within the report too. In particular regulators had criticised HSBC’s AML reviewers in India and a few other jurisdictions as having deficiencies in the quality of the work, and requiring an independent assessment. When such an independent assessment was undertaken, it discovered that no less than 34 per cent of the alerts supposedly resolved had to be reviewed from scratch.

The report’s most stinging criticism of HSBC related to its Mexican affiliate, HBMX. HBMX was said to have offered high risk products, such as U.S. dollar accounts in the Cayman Islands, to high-risk clients in Mexico, despite a widespread lack of Know-Your-Customer information in client files.

Consequently during 2007-08, HBMX became the single largest exporter of US dollars to HBUS, allegedly moving $7 billion in cash onto U.S. soil and outstripping larger Mexican banks. According to the Senate these transactions reportedly occurred even as the “HSBC Group watched HBMX utilise its U.S. correspondent account, without alerting HBUS to the AML risks it was incurring.”

The HSBC Group’s refusal to cognise and put a halt to certain transactions supported by its affiliates also undermined US foreign policy against Iran, particularly US sanctions implemented through the so-called OFAC (Office of Foreign Assets Control) prohibited entities list.

The Senate came down hard on HSBC in this regard, noting that to avoid triggering the of AC filter HSBC’s European affiliate frequently fudged transaction information to strip out references to Iran and then characterised these transfers as occurring between banks in approved jurisdictions.

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