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Senate Grills HSBC Bank On Cartel Cash

Photo by Michel Marizco

Illicit money exchangers line the street in Culiacán, Sinaloa, Mexico, waiting for customers with American dollars who need to transfer them into Mexican pesos. This represents one link in a money laundering chain.

The Senate’s Permanent Subcommittee on Investigations said HSBC accepted more than $15 billion in cash from branches in countries like Mexico.

Senator Carl Levin (D-M.I.) led the proceedings. He said cartels smuggled the cash south, and then used money exchange houses to make seemingly legitimate deposits into HSBC Mexico.

"Which in turn took all the physical dollars that it got, transported it by armored car or aircraft back across the border to HB U.S. for deposit," Levin said.

HSBC’s compliance officer David Bagley resigned from his position during the hearings. Bagley and other bank officials apologized but said they did not know the full extent of the illegal transactions occurring through HSBC banks.

The Senate's report notes that HSBC was warned by Mexican officials at least two times that cartels were likely using the bank for laundering money.

They also introduced the case of Zhenli Ye Gon as evidence against HSBC. When the Chinese businessman was arrested in 2007, authorities discovered more than $200 million in cash hidden in his Mexico City home. In 2005, the Senate's report states, Unimed Pharm Chem México S.A. de C.V, Ye Gon's company, was listed as a suspicious company. A HSBC official then cleared the company and Ye Gon as a member in good standing.

The bank also promised to close down 2,500 bearer share accounts in the Cayman Islands. They totaled more than $2.5 billion. Their account holders were a secret.

The Senate subcommittee also criticized the Treasury Department’s Office of the Comptroller of the Currency, the OCC, for allowing money laundering problems at banks like HSBC to fester for years.

Comptroller Thomas Curry took office barely four months ago. He answered Levin’s questions about whether the OCC had been too soft on HSBC.

"The agency has been much too slow in responding and addressing what are significant instances and violations at this institution," Curry said.

The OCC did little to stop HSBC until it learned other law enforcement agencies had opened investigations into the bank’s actions.