The U.S. Senate Permanent Subcommittee on Investigations has published a case history critical of large-scale non-compliance by HSBC Bank USA of anti-money laundering and terrorist financing laws since 2001. It is predicted HSBC will be fined an amount substantially larger than recently imposed on ING Bank.

UPDATE 1 August: HSBC has announced a provision of $700 million for a fine (BBC news)

The report concluded that HSBC has been used by Mexican drug cartels to transfer cash into the United States, by Saudi Arabian banks with terrorist connections that needed access to US dollars and by Iranians who wanted to circumvent United States sanctions.

The hearings by the Subcommittee resulted in admissions of failures by HSBC’s global head of compliance as well as the regulator at the bank’s main U.S. government regulator, the Treasury Department’s Office of the Comptroller of the Currency who admitted “systemic failures”.

The report highlighted issues illustrating key AML and terrorist financing problems that affect correspondent banking in the United States. They include opening U.S. correspondent accounts for high risk affiliates without conducting due diligence; facilitating transactions that hinder U.S. efforts to stop terrorists, drug traffickers, rogue jurisdictions, and other from using the U.S. financial system; providing U.S. correspondent services to banks with links to terrorism; clearing bulk U.S. dollar travelers cheques despite signs of suspicious activity; and offering high risk bearer share corporate accounts.

The Subcommittee concluded that “Avoiding the money laundering risks involved in these activities requires an effective AML program, with written standards, knowledgeable and adequate staff, the infrastructure needed to monitor account and wire transfer activity for suspicious transactions, effective AML training, and a compliance culture that values obtaining accurate client information”.