THE head of compliance at British banking giant HSBC resigned in front of a US Senate subcommittee 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.”
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 scandal over the manipulation of the Libor inter-bank lending rate.
Mr Bagley told the panel that he had recommended to HSBC senior management that it was the “appropriate time” for “someone new to serve as the head of group compliance”.
He said the bank had “learned a number of valuable lessons” and partly blamed the oversights on the bank’s rapid growth. “The bank underestimated some of the challenges presented by its numerous acquisitions, and despite efforts to meet these challenges, we were not always able to keep up,” he said.
HSBC was in the process of “shedding the historical compliance model that the bank has outgrown”, he added.
He also revealed that the bank is to close 20,000 bank accounts on the Cayman islands as result of the money laundering investigation.
The US arm of HSBC treated HSBC Bank Mexico, which transported seven billion US dollars in cash in armoured vehicles to the bank in 2007 to 2008, as a “low risk” client, the subcommittee found.
Foreign HSBC banks avoided safeguards designed to block transactions involving terrorists, drug lords, and rogue regimes, the subcommittee said, while it also ignored links to terrorists, providing services to risky banks in Saudi Arabia and Bangladesh.
Mr Levin told the hearing that HSBC used its US bank as a gateway into the US financial system for HSBC affiliates around the world while “playing fast and loose with US banking rules”.
The bank was also found to be clearing suspicious bulk travellers cheques, including 290 million US dollars in “obviously suspicious” cheques for a Japanese bank, benefiting Russians who claimed to be in the used car business.