HSBC boss David Bagley resigns during US Senate meeting after money laundering revelations

 

The head of compliance at British banking giant HSBC resigned in front of a US Senate subcommittee today after it emerged the bank had exposed the US to billions of dollars worth of money laundering, drug trafficking, and terrorist financing.

David Bagley, who has been HSBC head of group compliance since 2002, stepped down before the Homeland Security and Governmental Affairs subcommittee after its findings were published.

Mr Bagley, who had a 20 year career with the bank and is based in London, said: "Despite the best efforts and intentions of many dedicated professionals, HSBC has fallen short of our own expectations and the expectations of our regulators."

Earlier in the hearing, subcommittee chairman Senator Carl Levin said HSBC's compliance culture had been "pervasively polluted for a long time".

The revelations are another blow to the reputation of the banking industry following the current scandal over the manipulation of the Libor inter-bank lending rate.

 
Mr Bagley told the panel that he had recommended to HSBC senior management that it was the "appropriate time" for "someone new to serve as the head of group compliance".

In his written submission to the subcommittee, he said the bank had "learned a number of valuable lessons" and partly blamed the oversights on the bank's rapid growth.

"The bank underestimated some of the challenges presented by its numerous acquisitions, and despite efforts to meet these challenges, we were not always able to keep up," he said.

Mr Bagley added that HSBC was in the process of "shedding the historical compliance model that the bank has outgrown".

He also revealed that the bank is to close 20,000 bank accounts on the Cayman islands as result of the money laundering investigation.

The US arm of HSBC (HBUS) treated HSBC Bank Mexico, which transported seven billion US dollars (£4.5 billion) in cash in armoured vehicles to the bank in 2007 to 2008, as a "low risk" client, the subcommittee found.

Foreign HSBC banks avoided safeguards designed to block transactions involving terrorists, drug lords, and rogue regimes, the subcommittee said, while it also ignored links to terrorists, providing services to risky banks in Saudi Arabia and Bangladesh.

Mr Levin told the hearing that HSBC used its US bank as a gateway into the US financial system for HSBC affiliates around the world while "playing fast and loose with US banking rules".

He said: "Due to poor anti-money laundering controls, HBUS exposed the United States to Mexican drug money, suspicious travellers cheques, bearer share corporations, and rogue jurisdictions."

HBUS offered banking services to HSBC Bank Mexico despite the country's troubles with money laundering and drug trafficking, high risk clients, high risk products, a secretive jurisdiction and weak anti-money laundering controls, Mr Levin said.

In another case examined by the subcommittee, two HSBC affiliates sent nearly 25,000 transactions involving 19.4 billion US dollars (£12 billion) over seven years without disclosing the transactions' links to Iran.

The bank was also found to be clearing suspicious bulk travellers cheques, including clearing 290 million US dollars in "obviously suspicious" US travellers cheques for a Japanese bank, benefiting Russians who claimed to be in the used car business.

Paul Thurston, chief executive of retail banking and wealth management, who was previously chief executive of HSBC Mexico, said his experience in the Central American country was "as challenging as any I had experienced".

He added: "Some of the things I found frankly took my breath away."

Mr Thurston said bank employees faced very real risks of being targeted for bribery, extortion, and kidnapping and high levels of security were required for Bank staff working in Mexico.

He said Mexico was a data-poor environment, making it difficult to verify the identity of customers.

Mr Levin also criticised the federal agency supervising the bank's US operations, saying it "tolerated" HSBC's weak controls against money laundering.

HSBC said it has changed its senior management and moved to strengthen its compliance with rules to prevent money laundering.

PA

Suggested Topics
Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

The Jenrick Group: Night Shift Operations Manager

£43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...

SThree: Trainee Recruitment Consultant - LONDON

£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

Day In a Page

Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all
The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there