HSBC chief quits in front of US Senate committee as bank is accused of ‘letting Mexican gangs launder $7 billion and working

A US Senate probe has disclosed how lax controls at Europe’s largest bank left it vulnerable to being used to launder dirty money from around the world.

The report into HSBC, released ahead of a Senate hearing on Tuesday, says huge sums of Mexican drug money almost certainly passed through the bank.

Suspicious funds from Syria, the Cayman Islands, Iran and Saudi Arabia also passed through the British bank.

HSBC said it expected to be held accountable for what went wrong.

The report into HSBC was issued by the Senate Permanent Subcommittee on Investigations, a Congressional watchdog that looks at financial improprieties.

It also concluded that the US bank regulator, the Office of the Comptroller of the Currency, failed to properly monitor HSBC.

THE REPORT INCLUDES that HSBC moved huge sum from Mexico into the  U.S. between 2007 and 2008;

  • Provided services for Saudi Arabia’s Al  Rajhi Bank linked to financing terrorism
  • Senate investigation suggests they also  moved money tied to Iran
  • Accuses bank of ‘pervasively polluted’  culture
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  • Another hammer blow to the credibility of  British banking system after Barclays was fined for allegedly rigging LIBOR  interest rate

Head of compliance at British banking  giant HSBC resigned in front of a US Senate subcommittee today after it emerged  the bank had exposed the US to billions of dollars worth of money laundering,  drug trafficking, and terrorist financing.

David Bagley, who has been HSBC head of group  compliance since 2002, stepped down before the Homeland Security and  Governmental Affairs subcommittee after its findings were published.

Mr Bagley, who had a 20 year career with the  bank and is based in London, said: ‘Despite the best efforts and intentions of  many dedicated professionals, HSBC has fallen short of our own expectations and  the expectations of our regulators.’

HSBC headquarters in the City of London: The bank has been accused of laundering money for the Mexican mobPowerhouse: HSBC headquarters in the City of London. The  bank has been accused of laundering money for the Mexican mob

Earlier in the hearing, subcommittee  chairman Senator Carl Levin said HSBC’s compliance culture had been  ‘pervasively polluted for a long time’.

The revelations are another blow to  the  reputation of the banking industry following the current scandal  over the  manipulation of the Libor inter-bank lending rate.

An explosive report claims a ‘pervasively polluted’ culture atHSBC led it to act as financier to clients seeking to route shadowy  funds from  the world’s most dangerous and secretive corners, including  Mexico, Iran, the  Cayman Islands, Saudi Arabia and Syria.

The Senate probe detailed how sweeping the  problems have been, both at the  bank and at the Office of the Comptroller of  the Currency, a top U.S.  bank regulator which the report said failed to  properly monitor HSBC.

‘The culture at HSBC was pervasively polluted  for a long time,’ said Senator Carl Levin, chairman of the U.S. Senate Permanent  Subcommittee on Investigations, a Congressional watchdog panel.

The report comes at a troubling time for a  banking industry reeling from a multi-country probe into the manipulation of  global benchmark rates.

Last month, rival British bank Barclays Plc  agreed to pay a $453 million fine to settle a U.S.- British probe into the  rigging of the benchmark interest rate known as the London interbank offered  rate, or Libor.

The Senate probe provides a rare look at how  HSBC responded when confronted with numerous cases of suspect money  flows.

Vicious: Mexican gangsters are paraded in a police photo. The country is one of the most crime-ridden places in the world as rival cartels compete to control the lucrative drugs tradeVicious: Mexican gangsters are paraded in a police  photo. The country is one of the most crime-ridden places in the world as rival  cartels compete to control the lucrative drugs trade
An HSBC facility in New Castle, Delaware. Executives insist that after years of run-ins with U.S. authorities over alleged anti-money laundering lapses, they have cleared up their actAn HSBC facility in New Castle, Delaware. Executives  insist that after years of run-ins with U.S. authorities over alleged anti-money  laundering lapses, they have cleared up their actThe report caps a year-long inquiry that  included a review of 1.4 million  documents and interviews with 75 HSBC  officials and bank regulators. It  will be the focus of a hearing on Tuesday at  which HSBC and OCC  officials are scheduled to testify. The bank and the regulator are expected to  face tough questions at the  hearing about how the abuses were allowed to  continue, even after the  OCC took regulatory action against HSBC in 2010. An investigation found persistent lapses in  the bank’s anti-money laundering compliance since 2010.In an emailed statement, HSBC said the Senate  report had provided  ‘important lessons for the whole industry in seeking to  prevent illicit  actors entering the global financial system’.

The bank said it is spending more money on  compliance and has become more coordinated in policing high-risk transactions.

Several HSBC executives are expected  to  testify, including the bank’s chief legal officer Stuart Levey, who  joined in  January. He was previously one of the top officials on  terrorism and finance at  the U.S. Treasury Department.

HSBC plans to ‘acknowledge and  apologize’  for failing to spot and deal with money laundering within the bank during a U.S.  Senate panel hearing next week, according to an  internal memo sent by its chief  executive.

‘It is right that we are held  accountable  and that we take responsibility for fixing what went wrong,’ Chief Executive  Officer Stuart Gulliver said in a note sent to staff.

The report also contained strong criticism of  the OCC, saying the regulator failed to crack down on the bank despite multiple  red flags, allowing  money laundering issues ‘to accumulate into a massive  problem’.

HOW HSBC BECAME THE SUBJECT OF  A U.S. SENATE INVESTIGATION

Probe: Senator Carl Levin referred HSBC to bank regulators in connection with questionable accountingProbe: Senator Carl Levin referred HSBC to bank  regulators in connection with questionable accounting

The U.S. Senate  Permanent Subcommittee on Investigations has been investigating HSBC for months  as part of an effort by Congress to probe shadowy money flows.

It began in  February this year when U.S. senator Carl Levin said he planned to refer HSBC  Holdings to its U.S. bank regulator in connection with questionable accounts it  provided for senior Angolan officials.

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