Special Report: U.S. documents allege HSBC money-laundering lapses

Thu May 3, 2012 6:09am EDT
 
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By Carrick Mollenkamp, Brett Wolf and Brian Grow

NEW YORK (Reuters) - In April 2003, the Federal Reserve Bank of New York and New York state bank regulators cracked the whip on HSBC Bank USA, ordering it to do a better job of policing itself for suspicious money flows. Staff in the bank's anti-money laundering division, according to a person who worked there at the time, flew into a "panic."

The U.S. unit of London-based HSBC Holdings Plc quickly rallied. It hired a tough federal prosecutor to oversee anti-money laundering efforts. It installed monitoring systems for operations that had grown unwieldy during the bank's U.S. expansion. The aim, as HSBC said in an agreement with regulators at the time, was to "ensure that the bank fully addresses all deficiencies in the bank's anti-money laundering policies and procedures."

Nearly a decade later, the effort has failed to satisfy law-enforcement officials.

The extent of that failure is laid out in confidential documents reviewed by Reuters that originate from investigations of HSBC's U.S. operations by two U.S. Attorneys' offices.

These documents allege that from 2005, the bank violated the Bank Secrecy Act and other anti-money laundering laws on a massive scale. HSBC did so, they say, by not adequately reviewing hundreds of billions of dollars in transactions for any that might have links to drug trafficking, terrorist financing and other criminal activity.

In some of the documents, prosecutors allege that HSBC intentionally flouted the law. The bank created an operation that was a "systemically flawed sham paper-product designed solely to make it appear that the Bank has complied" with the Bank Secrecy Act and is able to detect money laundering, wrote William J. Ihlenfeld II, U.S. Attorney for the Northern District of West Virginia, in a draft of a 2010 letter addressed to Justice Department officials.

In that letter, Ihlenfeld compared HSBC unfavorably to Riggs Bank. In 2004 and 2005, that scandal-plagued Washington bank was fined a total of $41 million after it was found to have violated anti-money laundering laws, and it was acquired by PNC Financial Services.

"HSBC is to Riggs, as a nuclear waste dump is to a municipal land fill," Ihlenfeld wrote.   Continued...

 
A view shows the entrance to a HSBC Bank branch in New York August 1, 2011. REUTERS/Shannon Stapleton