Financial Transparency Coalition

Senate hearing examines money laundering, drug trafficking and terrorist financing allegations

According to the chair of a U.S. Senate subcommittee, HSBC’s “pervasively polluted” culture allowed money launderers, drug dealers and suspected terrorists to move their money through the U.S. financial system. Today, the Permanent Subcommittee on Investigations (PSI) will hold a hearing exposing HSBC’s North American banking units alleged failure to curb financial crime, and the failure of banking regulators to address this.

Global Witness has consistently highlighted the reluctance of major banks to turn away suspect funds, and today’s hearing will provide more evidence of this. Global Witness’ investigations have detailed how weaknesses in theglobal anti-money laundering system have allowed corrupt politicians to move their illicitly-acquired loot with a high degree of impunity.

“Profit seems to trump responsibility; if these allegations are true, HSBC’s failure to comply with money laundering laws has left the U.S. financial system wide open to terrorist finance, as well as the proceeds of corruption, tax evasion and other crimes,” said Stefanie Ostfeld, a Policy Advisor with Global Witness. “HSBC shouldn’t be anyone’s favorite bank given the massive and sustained flaws alleged by the committee”. 

A report released to coincide with the hearing provides details of HSBC’s failings:

• Between 2007 and 2008 HSBC Mexico moved $7bn into the U.S. Both Mexican and U.S. authorities warned that these bulk cash shipments could only reach that volume if they included illegal drug proceeds.
• HSBC provided services to banks in Saudi Arabia and Bangladesh despite their links to terrorist financing.
• The bank offered more than 2,000 accounts to companies with bearer shares, despite the difficult of tracing the ownership of these sorts of accounts and the high money laundering risk they pose.

In the aftermath of September 11, Congress strengthened U.S. laws intended to combat terrorism and money laundering. Banks have a legal obligation to perform “due diligence” to identify their customers and report suspicious activity to the authorities.

Despite these stronger laws, banks have consistently failed to seriously tackle money laundering. Over the last decade, U.S. bank regulators have told HSBC multiple times to fix deficiencies in its anti-money laundering systems.

The PSI report is also critical of the role played by HSBC’s regulator, the Office of the Comptroller of the Currency (OCC). The regulator failed to use either formal or informal enforcement actions to compel improvements in HSBC’s compliance program, despite mounting evidence of HSBC’s failings. 

In addition to the Senate, HSBC is under investigation by the U.S. Department of Justice, NY County District Attorney’s Office, Office of Foreign Assets Control, Federal Reserve, Office of the Comptroller of the Currency and the Internal Revenue Service, according to an SEC filing. According to one report, HSBC may be facing a fine of up to $1 billion.

It is unlikely that HSBC is the only bank failing in its anti-money laundering compliance program responsibilities. Global Witness investigations have detailed banks in major financial centers doing business with corrupt senior officials from Nigeria, Angola, Turkmenistan, Liberia, Equatorial Guinea and Republic of Congo. Last year, a study by the British financial regulator found that banks in the UK were systematically failing to carry out the required anti-money laundering checks, particularly when dealing with customers where there was a high risk of corruption. There is no evidence to suggest that the situation in other financial centers, including the U.S., is any different.

”The current system is broken. Banks are not doing enough to turn away dirty money and the regulators aren’t doing enough to make them,” said Ostfeld. “Banks need to take financial crime seriously so that they don’t facilitate money laundering, drug running and terrorism. Our regulators need to make it very clear that the sort of behavior displayed by HSBC is unacceptable. The worst offenders should face criminal sanctions”.  

Global Witness is calling on HSBC to strengthen its anti-money laundering compliance program and to carry out and publish an external audit of how well they are managing money laundering risk.

Global Witness is calling on the U.S. Government to:

• Ensure U.S. anti-money laundering laws and regulations are being robustly enforced, including by issuing punitive fines when banks fail to do this, as U.S. authorities have done for banks that facilitate evading taxes and sanctions. If HSBC is found to have major breaches in anti-money laundering compliance, the U.S. bank regulators should issue serious fines and consider criminal prosecution of individuals.
• Close loopholes in the U.S. anti-money laundering framework, including explicitly requiring banks to obtain information about the ultimate, or beneficial, owner for all company accounts, and to consider whether the ownership structure is reasonable in light of the commercial activities and profile of the account holder.
• Banks should also be required to perform extra checks on the accounts of all senior foreign politicians and officials (referred to as politically exposed persons) and not just those with private bank accounts with deposits of more than $1 million, as is the case at the moment.
• Advocate that Congress pass legislation that would require companies to disclose their beneficial ownership information at the point of incorporation, as hidden company ownership enables corrupt dictators, drug traffickers and other criminals to disguise their identities, and therefore their dirty money, behind anonymous shell companies in order to access the financial system. The White House committed to do this in the U.S. National Action Plan of the Open Government Partnership and the Strategy to Combat Transnational Organized Crime.

Global Witness is available to provide comment and context about this hearing.

/Ends

Contact: 

Washington, DC:

Stefanie Ostfeld on +1 202 577 5858, sostfeld@globalwitness.org

London:

Robert Palmer on +44 (0)20 7492 5860 or +44 (0)7545 645406, rpalmer@globalwitness.org

Notes to editors

1.      The hearing, “U.S. Vulnerabilities to Money Laundering, Drugs, and Terrorist Financing: HSBC Case History,” is on Tuesday, July 17, 2012, at 9:30 a.m., in Room 106 of the Dirksen Senate Office Building. The Subcommittee released a report to accompany the hearing. 

2.      Global Witness and the FACT Coalition will host a joint press conference on Tuesday, July 17th following the hearing. This will be at 3:00 PM, or, if the hearing concludes after 2:30 PM, 30 minutes after the conclusion of the hearing. The venue is Mott House, 122 Maryland Avenue NE, Washington, DC (Across the street from the Dirksen Senate Office Building).

3.      Representatives from HSBC, the US Treasury Department and a financial regulator, the Office of the Comptroller of the Currency, will discuss how high risk clients of HSBC’s U.S. affiliate accessed the financial system. This allegedly left the U.S. vulnerable to drug trafficking, money laundering and terrorist financing.

4.       In October 2010, the Office of the Comptroller of the Currency (OCC) found that HSBC Bank USA had multiple deficiencies in its anti-money laundering compliance program. According to the OCC these deficiencies included “inadequate collection and analysis of CDD information, including inadequate monitoring of PEPs” and poor monitoring of suspicious activity and correspondent funds transfer activity, leading to “a significant potential for unreported money laundering or terrorist financing.”

5.      In February 2012, HSBC stated in an SEC filing that it was being investigated by the U.S. Department of Justice, NY County District Attorney’s Office, Office of Foreign Assets Control, Federal Reserve, Office of the Comptroller of the Currency, Internal Revenue Service and the U.S. Senate Permanent Subcommittee on Investigations for multiple issues, including compliance with U.S. anti-money laundering laws, the Bank Secrecy Act, economic sanctions and tax and securities laws.

6.      A February 2010 PSI report shined a spotlight on how failures by American banks had enabled the proceeds of foreign corruption to enter the U.S. The report found that HSBC staff facilitated suspicious wire transfers into the country for the Angolan Central Bank. Other banks, including Bank of America and Wells Fargo, flagged these transfers as suspicious and ultimately didn’t accept them as they had concerns about moving money from an Angolan government account to a private individual’s account. The report, Keeping Foreign Corruption Out of the United States: Four Case Histories is available here.

7.      In November 2009 Global Witness’ report The Secret Life of a Shopaholic exposed major weaknesses in the American anti-money laundering regime, particularly the rules on wire transfers, that are supposed to keep dirty money—whether from corruption, terrorism or narcotics—out of the financial system. The report revealed that banks including Wachovia, Bank of America and UBS, allowed Teodorin Obiang, son of the president of oil-rich Equatorial Guinea, to bring $75 million into the U.S. between 2005 and 2007.