The global bank HSBC has been used by Mexican drug cartels looking to get cash back into the United States, by Saudi Arabian banks that needed access to dollars despite their terrorist ties and by Iranians who wanted to circumvent U.S. sanctions.
A 335-page Senate report released Monday levels these accusations and says that executives at HSBC and regulators at the Office of the Comptroller of the Currency ignored warning signs and failed to stop the illegal behavior at many points between 2001 and 2010.
In one case, an HSBC executive successfully argued that the bank should resume business with a Saudi Arabian bank, Al Rajhi Bank, despite the fact that Al Rajhi’s founder had been an early benefactor of al-Qaida. HSBC’s American branch ended up supplying a billion dollars to the bank.
The report is the product of a yearlong investigation by a Senate subcommittee, the Permanent Subcommittee on Investigations. It points to the problems at HSBC, Europe’s largest financial institution, as indicators of a broader problem of illegal money flowing through international financial institutions into the United States.
“Banks that ignore money laundering rules are a big problem for our country,” said Sen. Carl Levin, D-Mich., who leads the subcommittee. “Also troubling is a bank regulator that does not adequately do its job.” He called HSBC’s compliance culture “pervasively polluted for a long time.”
HSBC executives were expected to apologize for shortcomings in the bank’s internal controls in a hearing of the subcommittee on Tuesday. The company said in a statement on Monday that “we will apologize, acknowledge these mistakes, answer for our actions and give our absolute commitment to fixing what went wrong.”
Levin, however, said on Monday that HSBC had promised to fix similar problems in years past and failed. “While the bank is saying all the right things, and that is fine, it has said all the right things before,” he said.
The hearing is unlikely to be the end of HSBC’s problems. The bank has disclosed in regulatory filings that the issues with money laundering also are being investigated by the Department of Justice and could lead to criminal charges and “significant” fines, which analysts have said could reach $1 billion.
The report on HSBC is the latest of several scandals that have recently rocked global banks and highlighted the inability of regulators to catch what is claimed to be widespread wrongdoing in the financial industry. The British bank Barclays recently admitted that its traders tried to manipulate a crucial global interest rate, and multiple major banks are under investigation. JPMorgan Chase disclosed last week that its employees may have tried to hide trades that are likely to cost the bank billions of dollars.
Levin said that wrongdoing in the financial world has been exacerbated by the relatively light touch of government regulators. “As long as a bank just sees that it is going to be dealt with kid gloves, I think we are going to continue to see these shortfalls that have been so endemic,” Levin said.
The Office of the Comptroller of the Currency has come under particularly harsh criticism for showing too much deference to the banks it regulates. The new leader of the agency, Thomas J. Curry, has promised a stricter approach since he took over in April.
Curry said in a statement on Monday that members of his staff “fully embrace” the subcommittee’s report, and he is expected to testify Tuesday that the agency is already carrying out many of the report’s recommendations.