Published July 16, 2012
One of the top U.S. bank regulators drew stinging criticism in a Senate report on Monday for its inability to police widespread and long-term lapses in halting money laundering at HSBC Holdings Plc's U.S. operations.
The report said the Office of the Comptroller of the Currency allowed compliance problems to "fester" at the bank for years and that the agency failed to take strong action to correct the problems until it learned that two U.S. law-enforcement agencies were investigating money laundering through HSBC accounts.
The OCC's failure to force HSBC to fix a broken anti-money laundering system "identified by its examiners over a six-year period indicates that systemic weaknesses in the OCC's (anti-money laundering) oversight model require correction," the U.S. Senate Permanent Subcommittee on Investigations said in its report.
Thomas Curry, who took over as comptroller less than four months ago, will appear at a subcommittee hearing on Tuesday to answer questions from lawmakers on why the OCC failed to take stronger action against HSBC.
In a statement on Monday, Curry said anti-money laundering compliance "is crucial to our nation's efforts to combat criminal activity and terrorism, and the OCC expects national banks and federal thrifts to have programs in place to effectively comply with these laws."
Curry said the Senate report had made a number of "thoughtful" recommendations, "which we fully embrace."
The OCC took over as HSBC's primary regulator in 2004. The year before, the Federal Reserve Bank of New York and state banking regulators in New York had ordered HSBC to fix anti-money laundering problems.
According to the Senate report, OCC examinations subsequently identified anti-money laundering deficiencies.
"Each time problems were identified, (HSBC) promised to correct them and sometimes did," the Senate report said. "But those corrective actions were narrowly targeted."
By the end of 2007, the agency had completed 21 exams and identified multiple problems, including the way HSBC processed traveler's checks, which are used by drug traffickers to move money. According to the Senate report, the OCC considered an enforcement action to correct how the checks are processed, but no action ultimately was taken.
In October 2010, prompted by the law-enforcement probes, the OCC finally did take action. The probes were being undertaken by the U.S. Department of Homeland Security and a U.S. Attorney's office in West Virginia, the Senate report said.
The OCC issued a consent order against the bank, ordering HSBC to establish stronger anti-money laundering systems and to conduct a review, known as a "look back," of old transactions to identify any suspect activity.