The U.S. Senate Permanent Subcommittee on Investigations issued a 330-page report entitled U.S. Vulnerabilities to Money Laundering, Drugs, and Terrorist Financing – HSBC Case History (the “Report”), which concluded that HSBC Bank USA, N.A. (“HSBC US”), the U.S. affiliate of HSBC (which operates in more than 80 countries) had deficient anti-money laundering (“AML”) compliance practices and controls and processed large transactions for HSBC affiliates in Mexico and other foreign countries with insufficient scrutiny of the source of the funds. Among the AML compliance lapses at HSBC US identified in the Report were:
Over seven years, HSBC US, HSBC bankers in Europe and two HSBC affiliates in the Middle East executed 28,000 transactions without complying with OFAC rules that require disclosure of possible links to Iran. The 28,000 transactions had an aggregate value of $19.4 billion;
Over a period of less than four years, HSBC US cleared more than $290 million in suspicious bulk U.S. dollar travelers checks bought by Russians at a Japanese regional bank;
Over ten years, HSBC opened over 2,000 accounts for bearer share corporations, entities that the Report described as inviting “secrecy and wrongdoing by assigning ownership to whomever has physical possession of the shares”; and
Dealing with a Saudi Arabian bank whose founder had suspected links to al-Qaida.
The Report focused on five areas of AML compliance weaknesses at HSBC US: servicing high-risk affiliates; avoiding or ignoring OFAC requirements; ignoring links to terrorist financing; clearing suspicious travelers’ checks; and offering bearer share accounts.
The Report criticized the OCC, HSBC US’s federal bank regulator, for its failure to supervise HSBC US effectively. The Report also took exception to the OCC’s treatment of AML deficiencies as compliance lapses rather than as safety and soundness weaknesses.