A "pervasively polluted" culture at HSBC Holdings Plc allowed the bank to act as financier to clients seeking to route shadowy funds from the world's most dangerous and secretive corners, including Mexico, Iran, the Cayman Islands, Saudi Arabia and Syria, according to a scathing U.S. Senate report issued on Monday.
While the big British bank's problems have been known for nearly a decade, the Senate probe detailed just how sweeping the problems have been, both at the bank and at the Office of the Comptroller of the Currency, a top U.S. bank regulator which the report said failed to properly monitor HSBC.
"The culture at HSBC was pervasively polluted for a long time," said Senator Carl Levin, chairman of the U.S. Senate Permanent Subcommittee on Investigations, a Congressional watchdog panel.
The report comes at a troubling time for a banking industry reeling from a multi-country probe into the manipulation of global benchmark rates. Last month, rival British bank Barclays Plc agreed to pay a $453 million fine to settle a U.S.-U.K. probe into the rigging of the benchmark interest rate known as the London interbank offered rate, or Libor.
The report caps a year-long inquiry that included a review of 1.4 million documents and interviews with 75 HSBC officials and bank regulators. It will be the focus of a hearing on Tuesday at which HSBC and OCC officials are scheduled to testify.
The report described an HSBC compliance division simply unable to battle the suspect money. High turnover of top compliance officials made it difficult for any reform to take hold, the Senate report said. Employees were "overwhelmed," swamped by mounting suspect transactions that needed review.
"We're strapped and getting behind in investigations," one bank official wrote in June 2008. By that time, HSBC was cutting costs to offset losses tied to subprime home loans and the brewing financial crisis. In 2010, one disgusted top compliance official threw up his hands and quit after less than a year on the job, according to the report.
Typical of the problems inside the bank were transactions tied to Mexico, a country the report said is "under siege from drug crime, violence and money laundering." HSBC, according to the report, helped move money for a foreign-exchange dealer called Casa de Cambio Puebla that U.S. authorities have connected to illegal narcotic funds.
Between 2005 and 2007, there was a "growing flood" of U.S. dollars moving between the exchange house and HSBC, setting off red flags. But some bankers claimed it was legal. One said it was because Mexican landscapers were working in the United States and then routing money back home to their families.
(Reporting by Carrick Mollenkamp; Editing by Alwyn Scott and Tim Dobbyn)