HSBC money laundering probe: Bank's India staff under scanner
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HSBC money laundering probe: Bank's India staff under scanner

Last Updated: Wednesday, July 18, 2012, 15:22
 
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HSBC money laundering probe: Bank's India staff under scanner
Washington: HSBC's staff in India have come under the scanner for deficiencies in their role as "offshore reviewers" of the global banking giant's compliance to safety mechanism against money laundering and terrorist financing.

A probe by the US Senate's Permanent Subcommittee on Investigations found that HSBC's Anti-Money Laundering (AML) Compliance Department, which included employees in India, was highly inadequately staffed.

Besides, deficiencies were found in the quality of the work done by HSBC's "offshore reviewers in India", who were used for clearing a major backlog of suspected transaction alerts at the bank.

More than one-third of the alerts already resolved by the Indian reviewers and others "had to be re-done" after an independent assessment by the OCC (the US Office of the Comptroller of the Currency, which is the bank's primary federal regulator in the country).

The probe further found that an OCC visit to India in 2007 had revealed "Weak Monitoring Procedures" in the bank's internal control systems.

At a hearing before the Senate Subcommittee on the matter here yesterday, HSBC apologised for its mistakes and gave its "absolute commitment" to fix the problems.

The 340-page investigation report, which was released yesterday, found HSBC to have used its US bank (HSBC US Bank or HBUS) as a gateway into the US financial system to provide US dollar services to clients while "playing fast and loose with US banking rules," Senator Carl Levin, the Chairman of the subcommittee, said.

The investigations found that HSBC, with its headquarters in London, allowed affiliates in countries such as Mexico, Saudi Arabia and Bangladesh to move billions of dollars in suspect funds into the US without adequate controls.

Besides, HSBC in 2009 authorised its affiliate to supply Indian rupees to Saudi Arabia's Al Rajhi Bank, which, the report said, has links to financing terrorism.

The report also said that Al Rajhi Bank handled IIRO's (International Islamic Relief Organisation) "charitable contributions intended to benefit suicide bombers by directing Al Igatha Journal advertisements ... In Somalia, Sri Lanka, India, and the Philippines."

It cited a lawsuit to say that charitable organisations such as the IIRO use banks like Al Rajhi Bank to "gather donations that fund terrorism and terrorist activities" under the guise of IIRO funds labeled and designated for purposes such as 'war and disaster' or 'sponsor a child'.

IIRO is a Saudi-based nonprofit organisation which was added to the SDN list by the United States for "facilitating fund raising for Al Qaida and affiliated terrorist groups," the report said, while adding that HSBC's internal Financial Intelligence Group (FIG) itself had raised questions about IIRO in 2003.

SDN (Specially Designated Nationals) List, published by the US government, names individuals and entities with whom US citizens are prohibited from doing business.

Again in 2006, an FIG report noted that "the IIRO had been linked to Al Qaeda and other terrorist groups, plots to assassinate President Bill Clinton and the Pope, attacks on the Brooklyn Bridge and Lincoln Tunnel, and the 1993 attack on the World Trade Center," the report said.

It further said that Al Rajhi Bank had gained notoriety as well for providing banking services to several of the hijackers in the 9-11 terrorist attack, including Abdulaziz al Omari who was aboard American Airlines Flight 11.

The probe also found loopholes in HSBC's dealings with Islami Bank Bangladesh, which opened a US dollar account with HBUS in 2000, and US dollar clearing accounts with HSBC India and HSBC Pakistan in 2006.

Explaining the issue of inadequate staffing, the report said that "despite its high AML risks, millions of customers, and employment of more than 16,500 employees overall, from 2006 to 2009, HBUS' entire Compliance Department numbered less than 200 full time employees."

Besides, its AML Compliance staff was a subset of that and also included staff in India. The HBUS personnel told the Subcommittee that inadequate AML staffing was one of the biggest problems they faced and the OCC examinations also routinely identified inadequate staffing as a key AML problem, including with respect to 'unreviewed alerts'.

"Bank documents show that Compliance and AML staffing levels were kept low for many years as part of a cost cutting measure," the probe report said.

In early 2010, the OCC had discovered the CAMP (Customer Activity Monitoring Programme) backlog of more than 17,000 unreviewed alerts as well as a backlog of requests for enhanced due diligence (EDD) reviews.

On March 3, 2010, an OCC Supervisory Letter ordered the bank to eliminate the alert and EDD backlog by June 30, 2010. The bank met the deadline using "offshore reviewers in India, HBUS staff in Delaware, HBUS temporary volunteers (and) outside contractors".

A subsequent review by the OCC, however, found "deficiencies in the quality of the work" and required an independent assessment. The independent assessment found that 34 per cent of the alerts supposedly resolved had to be re-done.

The probe found backlogs to be a major issue in the bank's 'Embassy Banking' activities as well. An OCC probe in 2008 identified a backlog of over 3,000 alerts identifying potentially suspicious activity in Embassy accounts that were yet to be reviewed.

PTI



First Published: Wednesday, July 18, 2012, 14:52


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