Executives of HSBC Holdings Plc and its US subsidiary are scheduled to testify Tuesday before a Senate panel about how the London-based bank has cleaned up its act after years of run-ins with US authorities over alleged anti-money laundering lapses.
However, a Reuters investigation has found persistent and troubling lapses in the bank's anti-money laundering compliance since 2010, which is when the bank's problems supposedly ended, suggesting that it had overlooked suspicious transactions linked to terror groups Hamas and Hezbollah.
- US alleges huge Hezbollah money laundering web
Three Bank Leumi customers suspected of tax evasion
Vatican added to US' money-laundering 'concern' list
On May 3, Reuters reported that US Attorney offices in West Virginia and New York had been investigating the bank, and that the West Virginia probe had found widespread anti-money laundering problems, including a backlog of nearly 50,000 alerts of suspicious transactions.
In confidential documents reviewed by Reuters, a report on the investigations excoriated HSBC's anti-money laundering program for its "gullible, poorly trained, and otherwise incompetent personnel who were incapable of recognizing blatantly suspicious money laundering activities."
Former employees of HSBC's anti-money laundering staff, who review customer transactions and so-called alerts generated when the bank's monitoring systems spot a suspicious transaction, said they were overseen by managers uninterested in investigating transactions with possible links to drug trafficking, terrorist financing, Iran and other countries under US sanctions.
Everett Stern, who worked in the New Castle building from October 2010 to November 2011, said that in the course of his work, he came across many suspicious transactions. Some involved parties he suspected of having ties to Hezbollah and Hamas - Islamist groups that the US considers to be terrorist organizations. When he alerted his superiors to these dealings, he said, his concerns were dismissed.
At one point, Stern said, he decided to take action on transactions linked to Palestine that he and some of his colleagues had noticed.
Stern sent an email to two superiors with the subject line, "Compliance error." In the email, Stern wrote: "I believe investigators in the department are unknowingly making a major compliance error. Over the last couple of months investigators have approached me about cases in the Middle East, especially in Palestine. It appears that most investigators do not understand that the government of Palestine is the terrorist organization Hamas."
One of the bosses, Jeff Kraft, an anti-money laundering compliance manager, came bursting out of his cubicle. "Are you out of your f------ mind?" he said, according to Stern's recollection. "I should fire you right now."
Kraft insisted that Hamas was not a terrorist organization and that if government officials saw the email, the New Castle office would be shut down, according to Stern.
Hamas, which governs the Gaza Strip of the Palestinian Territories, has been designated a terrorist organization by the US since 1995.
At Tuesday's hearing, the US Senate Permanent Subcommittee on Investigations plans to deliver a withering review of problems at HSBC and transactions tied to Iran, terrorist financing and drug cartels, according to people familiar with a report the panel has drafted on its investigation.
The Senate investigation is only one of many in recent years to target HSBC's internal policing. In 2003, the Federal Reserve Bank of New York and New York state bank regulators ordered HSBC to better monitor suspect transactions. The Justice Department, the Federal Reserve, the OCC, the Manhattan district attorney and the Office of Foreign Assets Control have all been scrutinizing client activities and anti-money laundering compliance, the bank said in a May regulatory filing.