Bank regulators to face tough questions over HSBC money laundering

Mon Jul 16, 2012 1:29am EDT
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By Carrick Mollenkamp

(Reuters) - Current and former bank regulators are likely to face tough questions by a U.S. Senate panel Tuesday about their agency's oversight of HSBC Holdings Plc's efforts to stop illegal money flows between its U.S. and international offices, according to people familiar with the situation.

The Senate investigation is expected to be a roadmap for other investigations being conducted by the Treasury and Justice departments, according to people familiar with those inquiries. Those investigations are likely to lead to fines or settlements totaling between hundreds of millions of dollars to $1 billion, they said.

Comptroller of the Currency Thomas Curry, as well as an Office of the Comptroller of the Currency (OCC) lawyer and a former OCC official are scheduled to testify Tuesday before the U.S. Senate Permanent Subcommittee on Investigations, which is releasing a 450-page report Tuesday exposing how money from high-risk corners of the world, including the Middle East and Mexico, moved through the British bank.

The current and former OCC officials are expected to face questions about how the office, a principal regulator of HSBC's U.S. operations, monitored the bank's anti-money laundering compliance, according to these people. A Reuters investigation has found persistent and troubling lapses in the bank's anti-money laundering compliance since 2010.

Executives from HSBC and its U.S. unit also are scheduled to testify about how the bank, after years of run-ins with U.S. authorities over alleged anti-money laundering lapses, has cleaned up its act since the OCC issued HSBC a consent order on money laundering in 2010.

The hearing on Tuesday marks another chapter in the decade-long effort by regulators to rein in illegal money flows at HSBC. The Senate probe is one of a number of investigations HSBC is confronting. Two U.S. Attorney's offices have probed multiple lapses inside the bank, including the movements of bulk cash in transactions tied to Mexican foreign-exchange dealers, which are widely suspected of laundering drug-trafficking proceeds, according to documents reviewed by Reuters.

An investigation by the Office of Foreign Assets Control (OFAC) is also examining how HSBC handled funds tied to Iran, according to an HSBC regulatory filing in May. OFAC's inquiry extends beyond HSBC. Other banks that have agreed to fines as part of probes conducted by OFAC and the district attorney in Manhattan include Lloyds Banking Group, Credit Suisse Group and Barclays Plc.

The hearing on Tuesday also could yield new details on how well the Comptroller of the Currency regulated HSBC's U.S. operations. Curry took over as comptroller of the currency in April.   Continued...

A bus drives past an advertisement of HSBC displaying outside its headquarters in Hong Kong September 7, 2011. REUTERS/Bobby Yip