HSBC used by 'drug kingpins', says US Senate

HSBC provided a conduit for "drug kingpins and rogue nations" according to a US senate committee investigating money laundering claims at the bank.

A Senate report said suspicious funds from countries including Mexico and Syria had passed through the bank.

HSBC is set to apologise for its wrong-doing when officials give their evidence at Tuesday's Senate hearing.

Senator Carl Levin said HSBC's lack of controls at its US and overseas units had been "a recipe for trouble".

Mr Levin is chairman of the Senate Permanent Subcommittee on Investigations which is looking into HSBC's activities between 2006 and 2010.

The subcommittee, which began at 13:30GMT, heard first from, David Cohen, Under Secretary for Terrorism and Financial Intelligence and Leigh Winchell, assistant director, of the customs enforcement unit ICE, which is part of Homeland Security.

In a statement, Europe's largest bank, said it expected to be held accountable for what went wrong.

It is right that we will be held accountable and that we take responsibility for fixing what went wrong”

"We will apologise, acknowledge these mistakes, answer for our actions and give our absolute commitment to fixing what went wrong," HSBC said in a statement released on Monday.

The Senate report said large sums of drug money from Mexico had almost certainly been laundered through the bank, as well as questionable funds from the Cayman Islands, Iran and Saudi Arabia.

Senator Carl Levin, chairman of the subcommittee that released the report, spoke of a "polluted" system that allowed black-market funds to move through the US banking system.

"In an age of international terrorism, drug violence in our streets and on our borders, and organised crime, stopping illicit money flows that support those atrocities is a national security imperative," said Mr Levin.

The report also concludes that the US bank regulator, the Office of the Comptroller of the Currency, failed to properly monitor HSBC.

The report comes at a difficult time for the British banking sector, which is having its standards and practices scrutinised by regulators and policymakers.

Critics say the current furore over the manipulation of the Libor inter-bank interest rate is the latest example of a banking system in need of fundamental reform.

Mexico cash

According to the Senate committee, HSBC accepted more than $15 billion in cash from subsidiaries in Mexico, Russia and other countries at high risk of money laundering but failed to conduct any monitoring of these bulk cash transactions between mid-2006 and mid-2009.

Furthermore, the report found that HSBC knew of lax anti-money laundering practices at its Mexican subsidiary HBMX which had dated back to its purchase in 2002.

HBMX was warned, on at least two occasions, by Mexican authorities that drug money was probably being laundered through HBMX accounts.

The report names individual cases such as that of Chinese-Mexican citizen, Zhenly Ye Gon.

Mr Ye Gon, and his three Mexican pharmaceutical firms including Unimed Pharmaceutical were long-standing clients of HBMX.

In 2007, a joint operation between the Mexican government and US Drug Enforcement Agency seized more than $205m in cash at Mr Ye Gon's residence - described as the largest drug-related cash seizure in history - along with $17m in Mexican pesos, firearms, and international wire transfer records.

Mr Ye Gon is currently in a US prison awaiting extradition to Mexico on charges relating to the import, manufacture, and sale of chemicals to drug cartels for use in manufacturing methamphetamine.

Many of HSBC's breaches of US anti-money laundering relate to its use of bearer share accounts. Under the rules for these accounts, ownership of shares and the income they incur can be passed from person to person in secrecy.

HSBC's US subsidiary HBUS had opened more than 2,550 accounts for bearer share corporations.

These businesses are commonly set up in tax havens such as the British Virgin Islands.

Most of the bearer share accounts - some 1,670 - were opened at the Miami office of HBUS.

At their peak, these Miami accounts held $2.6bn of assets and generated annual revenues of $26m.

The report highlights the case of Miami Beach hotel developers, Mauricio Cohen Assor and Leon Cohen Levy.

The father and son used HBUS accounts opened under the names Blue Ocean Finance Ltd. and Whitebury Shipping Time-Sharing Ltd. to help hide $150m in assets and $49m of income.

The pair were jailed for 10 years for criminal tax fraud and filing false tax returns in 2010.

The report into HSBC was released by the Senate Permanent Subcommittee on Investigations, a Congressional watchdog that looks at financial improprieties.

The year-long inquiry, which included a review of 1.4 million documents and interviews with 75 HSBC officials and bank regulators, will be the focus of the hearing on Tuesday.

Among the executives who will appear is HSBC's chief legal officer Stuart Levey, who joined the bank in January and was previously one of the top officials on terrorism and finance at the US Treasury Department.

The head of the Office of the Comptroller of the Currency, Thomas Curry, will also testify.

In a memo released ahead of the hearing, HSBC chief executive Stuart Gulliver said: "It is right that we will be held accountable and that we take responsibility for fixing what went wrong.

"As well as answering the subcommittee's questions, we will explain the significant changes we have already made to strengthen our compliance and risk management infrastructure and culture," he said.