The chief compliance officer of Britain’s HSBC is stepping down from his position, following the U.S. Senate subcommittee’s investigation into the company’s lax controls.
The bank let Mexican drug cartels launder billions of dollars through its U.S. operation from 2002 through 2009, said the committee in a report released today.
It’s been running a year-long probe into the company’s failure to regulate illegal transactions made through some of its accounts.
As a result, David Bagley, head of compliance for the bank, told a Senate investigations panel during today’s hearing he plans to resign from his current post, but will still remain at HSBC.
Watch the hearing and download witness testimonies.
Bagley has been the head of compliance since 2002—during the period in which the Senate investigation found HSBC’s lack of oversight allowed the bank to be used by drug traffickers and possible financiers of terrorist groups around the globe.
Bagley claims he lacked full authority over the bank’s far-flung affiliates, which each had their own compliance officer. He testified the bank has fallen short of its own expectations and the expectations of its regulators.
He also says he’s told HSBC senior management “now is the appropriate time, for both me and the bank, for someone new to serve as the head of group compliance.”
Bagley and other current and former executives of the bank apologized for lapses but said they weren’t fully aware of illicit transactions flowing through the bank. Senators expressed skepticism, however, that they didn’t know about problems persisting for seven years.
A report by the Senate Permanent Subcommittee on Investigations also found U.S. regulators knew the bank had a poor system to detect problems but failed to act.
“I believe that we made real progress at HSBC Mexico during my short tenure,” said Paul Thurston, who headed HSBC’s Mexican affiliate in 2007 and 2008, earlier today.
However, he added, “We know we should have done this better, sooner.” In his view, the Mexican bank—which HSBC acquired in 2002—had been a fast-growth bank that lacked controls against money laundering.
Sen. Carl Levin, a Michigan Democrat and the subcommittee’s chairman, challenged Thurston. “This is something that people knew was going on at that bank. Why did people allow it to continue?”
“We welcome the apologies. We welcome the commitments,” U.S. Senator Carl Levin (D-Mich.) told the hearing room. But, what the Senate permanent subcommittee on investigations is really hoping to see is a change in culture and behaviour at HSBC.
In his opening remarks, Levin berated witnesses from the bank for lax procedures, including one incident in which bulk travelers cheques with concurrent serial numbers and bearing the same illegible signature for the bearer and casher were cleared by the bank.
He added the subcommittee’s duty is not to prosecute, but rather to investigate. If it finds sufficient problems, the matter will be turned over to government entities that possess the correct authority to move forward.
Levin did say, though, HSBC’s new policies are all good steps in the right direction. What’s missing, he continued, “is accountability for past conduct, [which] is essential.”
He says the bank needs to identify which of its affiliates pose a high risk and put them under close monitoring. The bank should also consider closing the account of its Mexican affiliate and those of banks suspected of providing funding to terrorist groups.
The U.S. Justice Department is conducting a criminal investigation into HSBC’s operations, but declined to confirm the bank is in settlement talks.
For more on the U.S. Senate subcommittee’s investigation, continue reading.
