Jan 25, 2012, 09.08 PM IST
HSBC Holdings PLC is under investigation by a US Senate panel in a money-laundering inquiry, the latest step in a long-running US effort to halt shadowy money flows through global banks, according to people familiar with the situation and a company securities filing.
The inquiry being conducted by the Senate Permanent Subcommittee on Investigations could yield a report and congressional hearing later this spring, these people said. The subcommittee has a history of conducting high-profile hearings that have proved embarrassing for the world's biggest banks.
The intensifying scrutiny of HSBC is the latest in a series if investigations by US officials into how global banks have processed -- and in some cases, intentionally hidden -- financial transactions on behalf of countries which allegedly support terrorism, corrupt foreign officials, drug gangs and criminals.
Since 2008, European and US banks have signed deferred prosecution agreements and paid more than USD 1.2 billion in penalties for alleged violations of anti-money laundering regulations.
The specific focus of the Senate probe of HSBC isn't known. A Reuters review of legal documents and prior regulatory probes, though, points to a number of alleged breakdowns in HSBC's anti-money laundering systems.
HSBC spokesman Robert Sherman said in a statement, "We have ongoing discussions with officials" including the Senate panel "on a number of regulatory and compliance matters. The nature of these discussions is confidential; in all cases, we are cooperating."
A spokesperson for the Senate subcommittee declined comment.
Earlier this month, HSBC named former top US Treasury Department official Stuart Levey as chief legal officer in a sign of how the bank is hiring outside experts in money laundering. Levey, who specialized in combating terrorism financing and left the Treasury Department last year, is based in London. An HSBC spokesman said Levey wasn't available for comment.
Stuart Gulliver, HSBC chief executive, said in a statement this month that Levey's experience "dealing with international financial and legal issues is highly relevant to a global bank such as HSBC."
Early Warning Signs
For HSBC, which has operations in more than 80 countries and territories, the Senate probe is another sign that US law enforcement officials are widening their inquiries into the London bank - one that for the past decade has repeatedly drawn scrutiny from US financial regulators for weak money-laundering controls and allegedly enabling healthcare fraud and tax evasion.
In 2003 and 2010, two US bank regulators raised serious concerns about the bank's anti-money laundering systems and staff and ordered the bank to improve anti-money laundering systems and personnel, according to enforcement actions by the Federal Reserve Bank of New York and the Comptroller of the Currency, a Treasury Department unit.
In securities filings, the bank has disclosed increasing inquiries. In 2010, the bank disclosed that it had received grand jury subpoenas and was being investigated by the Justice Department in money-laundering inquiries. It subsequently said the district attorney's office in Manhattan was investigating.
Then in November, HSBC said additional inquiries were being pursued by the Senate panel and the US Securities and Exchange Commission, according to an SEC filing by HSBC USA Inc. The bank said the investigations focused on money laundering and the proper filing of US taxes by customers. The unit is HSBC's main US business, offering retail and corporate banking to some 4 million customers. HSBC's North American operations, which include HSBC Bank USA and a consumer-finance unit, account for about 5% of HSBC profits.
West Virginia Link
Investigations into how the bank allegedly was used to launder money extend to Vienna, W. Va. There, a pain-management doctor named Barton J Adams was indicted in 2008 by the Justice Department on 169 counts of alleged healthcare fraud, tax evasion, money laundering and witness tampering. Adams allegedly moved hundreds of thousands of dollars in Medicare fraud proceeds between an HSBC Bank USA internet account and other HSBC accounts in Canada, Hong Kong and the Philippines, according to US District Court filings in West Virginia. Dr. Adams has pleaded not guilty.
Stephen Herndon, an attorney for Adams, declined to comment citing the ongoing litigation. A spokesman for the US attorney's office in West Virginia declined comment.
To be sure, HSBC isn't the only major bank to face scrutiny from regulators over alleged money laundering. In 2009 and 2010, Barclays PLC, Lloyds Banking Group and Credit Suisse Group agreed to forfeitures totaling USD 1.2 billion with US regulators that found the banks evaded US law in aiding sanctioned countries.
Tags: HSBC Holdings, US Senate panel, money-laundering inquiry, Robert Sherman, Federal Reserve Bank of New York
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