Washington - The chief compliance officer of Britain's HSBC
on Tuesday said he was stepping down from that position after an investigation
found that lax controls at the international bank allowed Mexican drug cartels
to launder billions of dollars through its US operation and other illicit
But David Bagley, the head of compliance for London-based
HSBC Holdings, told a senate investigations panel that he will remain at HSBC.
Bagley and other current and former executives of the bank
apologised for lapses but said they weren't fully aware of illicit transactions
flowing through the bank.
Senators expressed skepticism that they didn't know about
problems that persisted for seven years.
A report by the panel, the Senate Permanent Subcommittee on
Investigations, also found that US regulators knew the bank had a poor system
to detect problems but failed to take action.
Bagley has been the head of compliance since 2002, during
the period in which the senate investigation found that HSBC's lack of
oversight allowed the bank to be used by drug traffickers and possible
financiers of terrorist groups, and for other illicit purposes around the
Bagley said he lacked full authority over the bank's
far-flung affiliates, which each had its own compliance officer.
HSBC, with net income last year of $16.8bn, operates in
about 80 countries around the world.
"HSBC has fallen short of our own expectations and the expectations
of our regulators," Bagley testified.
He said he had told HSBC senior management "that now is
the appropriate time - for me and for the bank - for someone new to serve as
the head of group compliance".
The executive who headed HSBC's Mexican affiliate in 2007
and 2008 said he tried to clean up deficiencies he found in the operation.
"I believe that we made real progress at HSBC Mexico
during my short tenure," Paul Thurston told the panel. However, he added,
"we know we should have done this better, sooner."
The executives said the bank has made deep changes to its
policies and corporate culture to prevent illicit use of the bank. London-based
HSBC, which is Europe's largest bank, changed its senior management last year.
Senator Carl Levin, a Michigan Democrat and the
subcommittee's chairperson, challenged Thurston. "This is something that
people knew was going on at that bank," Levin said.
"Why did people
allow it to continue?"
Thurston said the Mexican bank, which HSBC had acquired in
2002, had been a "fast-growth" bank that lacked controls against
Senator Tom Coburn of Oklahoma, the panel's senior
Republican, said he found it hard to believe that HSBC executives didn't know
what was going on.
The CEO of the US division of HSBC also apologised for weak
oversight at the bank.
Irene Dorner, president and CEO of HSBC Bank USA, said
"we deeply regret and apologise" for the lapses by HSBC.
division is among the top 10 banks operating in the United States. It has
assets of roughly $210bn in its US operations.
The changes the bank made "'will be embedded and
sustained going forward", Dorner said. "We're burning the bridges to
make sure no one can get back to the way it was before."
Stuart Levey, a former high-ranking Treasury Department
official who joined HSBC in January as chief legal officer, said the bank in
April put in new stricter oversight standards that apply to all its affiliates.
Levin said HSBC's new policies "are all good
steps." However, he said, while apologies are welcome,
"accountability... is essential as a deterrent and that accountability
has been missing."
He cited instances in past years in which HSBC - after being
sanctioned by regulators - had promised to fix deficiencies but didn't carry
Levin said HSBC needs to identify which of its affiliates
pose a high risk of problems and put them under close monitoring. The bank
should consider closing the account of its Mexican affiliate, he said.
HSBC also should close its accounts with banks suspected of
providing funding to terrorist groups, Levin said.
Some HSBC bank affiliates skirted US government bans against
financial transactions with Iran and other countries, according to the
And HSBC's US division provided money and banking
services to some banks in Saudi Arabia and Bangladesh believed to have helped
fund al-Qaida and other terrorist groups, the report said.
The US justice department said it is conducting a criminal
investigation into HSBC's operations but declined to confirm that the bank is
in settlement talks.
Its US division is among the top 10 banks operating in the
United States. It has assets of roughly $210bn in its US operations.
Money laundering takes profits from the trafficking of
drugs, arms or other illicit activities and passes them through bank accounts
to disguise the illegal activity.
Levin also blasted the federal agency supervising the bank's
US operations, the Office of the Comptroller of the Currency. He said the
agency "tolerated" HSBC's weak controls against money laundering for
Thomas Curry, who heads the Office of the Comptroller of the
Currency, also was to testify at Tuesday's hearing.
Compliance with anti-money laundering laws "is crucial
to our nation's efforts to combat criminal activity and terrorism", Curry
said in a statement.
He said the agency expects banks to have adequate programmes
in place to comply with the laws.