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HSBC compliance director resigns amid Senate findings

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Top executives from one of the world's largest banks, HSBC Holdings, apologized Tuesday, July 17, 2012 for not having stricter controls to prevent money laundering. The officials appeared at a hearing by the U.S. Senate Permanent Subcommittee on Investigations, which issued a scathing report today on the bank's practices. Andrew Conte | Tribune-Review
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The U.S. Senate Permanent Subcommittee on Investigations found that HSBC Holding’s lax anti-money laundering controls created the potential for criminals to easily move money around the world, thwarting U.S. banking laws and exposing gaping holes in the international financial system. Andrew Conte | Tribune-Review
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The U.S. Senate Permanent Subcommittee on Investigations holds a hearing Tuesday, July 17, 2012, to discuss findings that HSBC Holding’s lax anti-money laundering controls created the potential for criminals to easily move money around the world, thwarting U.S. banking laws and exposing gaping holes in the international financial system. Andrew Conte | Tribune-Review

WASHINGTON — The top compliance officer at HSBC announced his resignation on Tuesday as other top bank officials and the U.S. Comptroller expressed regret in response to a scathing Senate report about lax money-laundering prevention.

Officials from London-based HSBC Holdings appeared at a hearing by the Senate permanent subcommittee on investigations, which issued the report. David Bagley, the top compliance officer at the bank, announced his intention to resign, saying it was the “appropriate time.”

“We deeply regret and apologize for the fact that HSBC did not live up to our own expectations or the expectations of our regulators, our customers, our employees and the general public,” said Irene Dorner, president and CEO of HSBC Bank USA.

“We have made fundamental changes in governance, culture, training and funding to ensure that we can effectively deter illicit use of our bank,” she said.

The Senate report faulted the U.S. Office of the Comptroller of the Currency for not acting swiftly enough on oversight of HSBC.

Thomas Curry, who became comptroller this year, agreed with the findings, saying the agency should act when problems start creeping up, rather than waiting until violations occur.

The comptroller's office also should increase the use of regulatory actions, he said, such as cease-and-desist orders.

“I would like to see, going forward, a much more aggressive posture,” Curry said of his office.

HSBC increased compliance spending nine-fold over two years to $244 million in 2011, and it has turned away 14,000 customers who did not meet the bank's risk appetite, Dorner said. The financial institution is in the process of closing thousands of Cayman Islands accounts set up through its Mexican affiliate.

Globally, the bank will adopt the highest standards among the 80 jurisdictions worldwide where it operates, said Stuart Levey, HSBC's chief legal officer. He could not say how the bank would reconcile conflicts between the United States and secrecy jurisdictions that do not permit identification of account holders.

“We welcome the commitments, we welcome the apologies,” said Sen. Carl Levin, D-Mich., the subcommittee chairman. “It's the change in culture and actions that are critical.”

HSBC – named for The Hongkong and Shanghai Banking Corp. Ltd. — reported profits of $22 billion last year. Its U.S. affiliate, HSBC Bank USA, has 470 branches and 3.5 million customers.

The Senate hearing reflects growing concerns about the impact of secret international money deposits on the world economy.

A Tribune-Review investigation found as much as half the world's economy flows through about 70 international secrecy jurisdictions. Several organizations, including the International Monetary Fund, estimate the stash might total $25 trillion.

The yearlong Senate investigation found that HSBC's lax controls created the potential for criminals to easily move money around the world, thwarting U.S. banking laws and exposing gaping holes in the international financial system.

The findings highlight widespread problems, said Sen. Tom Coburn, R-Oklahoma, the minority chairman of the subcommittee. He noted that other banks — such as Citibank, Bank of America, Wachovia and Western Union — have faced scrutiny for laundering drug cartel profits.

The U.S. banking system's size and sophistication make it a prime target for abuse, said David Cohen, U.S. Treasury undersecretary for terrorism and financial intelligence. Terrorists, drug lords and organized crime figures need banks to move or launder money, he said.

Editor's note: This story is one in a series on hidden money that can be found at www.shadow-economy.com.

Andrew Conte is a staff writer for Trib Total Media. He can be reached at 412-320-7835 or andrewconte@tribweb.com.