HSBC Compliance Boss Quits As US Senators Grill Bank For AML Failings

Tom Burroughes

18 July 2012

The compliance chief of HSBC, David Bagley, has resigned in front of a US Senate Committee hearing into the bank’s anti-money laundering failings. The bank faces a fine of up to $1 billion for offences that reports said facilitated laundering money for drug gangs, terrorists and rogue states.

Bagley, HSBC’s global head of compliance, had worked at the firm 20 years. Bagley, who will remain at the bank, said the UK/Hong Kong-listed banking giant had “fallen short of our own and regulators’ expectations”.

"As I have thought about the structural transformation of the bank's compliance function, I recommended to the group that now is the appropriate time for me and for the bank for someone new to serve as the head of group compliance. I have agreed to work with the bank's senior management towards an orderly transition of this important role,” Bagley said in a statement issued on the HSBC corporate website. The statement added that “David will continue to work with HSBC to secure a smooth transition for this important role”.

At the Senate hearing, the bank was described as being “pervasively polluted for a long time” as it allowed funds to be shifted to and from its branches in the US from Mexico, Syria, the Cayman Islands, Iran and Saudi Arabia.

“We have sometimes failed to meet the standards regulators and customer expect… we take responsibility for fixing what went wrong,” Stuart Gulliver, chief executive, said.

Taking steps

On 16 July, HSBC issued a statement ahead of the hearing in which it outlined measures it has already taken, it said, to tighten up on its AML procedures, among other steps.

“We have learned a great deal working with the Subcommittee on this case history and also working with US regulatory authorities, and recognise that our controls could and should have been stronger and more effective in order to spot and deal with unacceptable behaviour,” HSBC said.

Reports about the scale of the HSBC failings come just weeks after one of its biggest UK rivals, Barclays, was engulfed in a scandal about rigging of LIBOR inter-bank interest rates. That scandal – which is understood to involve other banks – has hit London’s reputation as a financial capital.

There has been a year-long investigation into HSBC’s anti-money laundering failings.

The Senate has issued a 335-page report into the bank; its probe saw it interview 75 HSBC officials, as well as bank regulators.

The bank allegedly ignored specific US measures designed to prevent transactions being made involving terrorists, drug lords and rogue regimes. According to one media report, for example, two HSBC subsidiaries processed 25,000 transactions over seven years, worth a total of $19.4 billion, without disclosing that the cash had links to Iran. The bank is also alleged to have moved billions of dollars in cash from Mexican subsidiary HBMX to its US network – despite being warned by both US and Mexican authorities that such sums could only be linked to drug trafficking.

Lessons

Henry Balani, managing director, compliance solutions at BankersAccuity, which is owned by Reed Business Information, the global publisher, said the US actions were part of a growing trend.

"Across the industry, we are finding that financial institutions are increasingly focusing on and investing in anti-money laundering efforts as any non-compliance could result in hefty fines,” Balani said in a statement emailed to this publication.

“In HSBC's case, while there were alleged issues between 2004 and 2010, the fact that they have spent considerable sums is a testament to their commitment to eradicating such issues going forward. Typically, a comprehensive compliance programme includes screening tools and data solutions that can detect and escalate potentially suspicious transactions and accounts,” he continued.

“Banks can mitigate risk further by selecting a compliance database that combines payment routing data along with sanctions and Politically Exposed Persons data. This way, even if an entity attempts to 'strip' a payment message of information that would cause a match such as its name or country, the associated routing code, which cannot be removed from the message, will still signal a hit and stop the payment," he added.