U.S. Vulnerabilities to Money Laundering, Drugs and Terrorist Financing: HSBC Case History

HSBC (along with the OCC) was severely criticized in a Senate Report for violations of AML requirements and of OFAC procedures. The principal findings of fact regarding HSBC was that (i) its AML procedures were generally extremely weak; (ii) it did not identify its high risk affiliates (particularly in the Middle East and Mexico) and treat them accordingly; (iii) it overrode its own OFAC procedures; (iv) it provided services to non-U.S. banks that had been linked to terrorist financing; (v) it engaged in overtly suspicious transactions involving U.S. travelers checks that were obtained in Russia and deposited into the account of a Japanese bank; and (vi) it carried numerous bearer share accounts with no controls around them. The OCC was also criticized for treating AML as a limited "consumer compliance" issue, rather than as an issue that goes to the heart of the bank's safety and soundness. To see the full report, link here; to see a summary of the report, link here; to see the relevant web page for Senator Levin (head of the Committee producing the report), link here.

The report may lead to further regulatory and enforcement focus on the AML and OFAC procedures at other financial institutions. Persons wishing to discuss these issues may contact Ray Banoun, Brad Bondi, Scott Cammarn, Peter Clark, or Adam Lurie. For a general description of the AML requirements applicable to financial institutions, see Anti-Money Laundering Regulations for Financial Institutions (Cabinet subscribers).