HSBC Money Laundering: HSBC Compliance Head Resigns

David Bagley,

the chief of compliance of HSBC,announced his resignation before the U.S. senators at a Senate hearing after a public report which suggested that negligent regulations allowed Mexican drug Mafias to swindle billions of dollars from the United States.
He asserts that it was time for the bank to have a new compliance head. He also went on to say that HSBC is undergoing a transition phase when it comes to the Bank’s compliance function. Despite his resignation as the chief of compliance, Bagley will remain with HSBC, at least until the change is complete. The hearing takes place after the publication of a report by The Senate Permanent Subcommittee on Investigation.The report is said to have alleged that the bank’s compliance failures allowed drug cartels in Mexico and terrorist financiers in the Middle East to obtain US dollars through illegal transactions.

Bagley accompanied by other top executives assured the panel that they were unaware of any such transactions being conducted by the bank. The report, however, stated that the high officials of HSBC were well-acquainted with the bank’s flawed detection system, yet took no step to get the system restored. The reports state that it was during Bagley’s reign as the head of Compliance,  that there had been transactions with Mexican drug lords and Middle Eastern terrorist financiers.

Bagley retorted that he had little control over some of the banks’ affiliates, most of whom had a respective compliance head. Executives have said that efforts were being made to resolve these shortcomings and some progress has been made after it changed its senior management last year. They have accepted the fact that these steps should have been taken much earlier.

Paul Thurston, head of compliance at HSBC’s Mexican affiliate said that the bank which HSBC acquired lacked proper measures against money laundering. He also conceded that measures against these irregularities should have been implemented much sooner. Some of HSBC’s bank affiliates, as investigated, were involved with banks that have ties with  Al-Qaeda in the Central Asian countries, namely  Bangladesh and KSA. A few of the bank’s affiliates had also bypassed sanctions on Iran and other countries, imposed by the U.S Government.

Irene Dorner, CEO of HSBC USA, apologized for the bank’s weak foresight but did say that new policy changes were encouraging signs in the right direction which needed to be sustained for the future. Senator Carl Levin of Michigan said while apologies were important, so was the accountability of past actions.  He said affiliates of the bank which posed potential difficulties and were suspicious should have all activities monitored. Levin said accounts of the Mexican Affiliate should be closed and so should be the ties with HSBC affiliated banks which were linked with terrorist groups.

Senators also criticized the Office of the Comptroller of the Currency, the federal body which monitored the bank’s operations. Senators said the agency was too lenient with the bank’s weak anti-money laundering policies. The head of the agency, Thomas Curry, said strong anti-money laundering regulations were expected from banks and these were steps imperative to combat terrorism.