HSBC Holdings Plc (HSBA)’s regulator was a “lapdog” that failed to stop bank affiliates from giving terrorists, drug cartels and criminals a portal into the U.S. financial system, a U.S. senator said at a hearing today.
The Office of the Comptroller of the Currency knew of weaknesses in the bank’s anti-money laundering program, yet was “often at a loss, however, to prescribe how HSBC could eliminate” problems, Senator Tom Coburn said at a hearing of the Permanent Subcommittee on Investigations.
“Its record of enforcement at HSBC resembles a lapdog rather than a watchdog that we sorely need,” Coburn, an Oklahoma Republican, said at a hearing about the subcommittee’s 335-page report on the bank.
Coburn joined Senator Carl Levin, the Michigan Democrat who heads the committee, in criticizing the OCC for not stopping a decade of compliance failures by Europe’s biggest bank. London- based HSBC enabled drug lords to launder money in Mexico, did business with firms linked to terrorism and concealed transactions that bypassed U.S. sanctions against Iran, according to the report.
Levin criticized the OCC for for failing to act until an Oct. 2010 cease-and-desist order in October 2010 against HSBC Bank USA. The regulator said then that the bank had “critical deficiencies” in reporting suspicious activities, monitoring bulk cash purchases and international funds transfers, and examining the background of customers.
Thomas J. Curry, comptroller of the currency, who appeared before the panel, agreed with Levin that the OCC issued its cease-and-desist order too late.
“The OCC could have, and should have taken this action sooner,” Curry said.
He said the OCC will make changes recommended by the subcommittee to ensure that banks comply with anti-money laundering requirements. One of the changes will be that deficiencies will threaten the safety-and-soundness ratings of banks, rather than their consumer compliance.
That cease-and-desist order followed a 31-page supervisory letter citing HSBC’s failure to monitor $60 trillion in wire transfers and account activity, conduct checks on $15 billion in bulk-cash transactions, and review a “massive backlog” of alerts about suspicious activity, according to the report.
One year earlier, the case against HSBC appeared strong, Daniel Stipano, the OCC’s deputy chief counsel, wrote in an e- mail included in the report.
“From what I can tell, this has the makings of potentially being a major criminal case -- we need to be all over it,” Stipano wrote on July 29, 2009.
In another e-mail on that day, Stipano said he spoke to a prosecutor in the Eastern District of New York who said the 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-N.Y.”
HSBC has said it is cooperating with a Justice Department criminal investigation into whether it violated the Bank Secrecy Act, which is designed to curb money laundering. HSBC also faces separate criminal probes of whether it violated U.S. sanctions on Iran and whether it helped Americans evade taxes.
The Senate panel heard from HSBC executives today, who expressed contrition about their failure to prevent money laundering or strengthen compliance programs.