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HSBC Admits Wrongdoing in Another Money Laundering Affair

Another day, and another bank fails to implement what should be standard controls and procedures.

Another day, and another bank fails to implement what should be standard controls and procedures. Earlier this week, the brother of the alleged leader of a Mexican cocaine-trafficking cartel told the FBI he used Bank of America Corp. accounts to buy and sell race horses using money generated from cocaine trafficking, extortion and bribery.

Now, it’s HSBC's turn to be under the spotlight. While no drugs cartel or Mafia boss has yet admitted to using the UK bank to launder money, the bank by its own admission did very little – for several years - to prevent a similar scenario, despite strict anti-money laundering regulations.

Indeed, HSBC is now set to apologize at a U.S. Senate hearing for failing to put the right controls in place to prevent money laundering over a six-year period, the bank’s chief executive said in an internal memo.

"Between 2004 and 2010, our anti-money-laundering controls should have been stronger and more effective and we failed to spot and deal with unacceptable behaviour," Stuart Gulliver said in the memo, which was sent to employees Tuesday and seen Wednesday by Dow Jones Newswires.

The bank is now set to testify at a Senate hearing on July 17 which will "look at the money-laundering and terrorist-financing vulnerabilities" when a global bank provides services in U.S. dollars to "high-risk clients," the panel said Monday.

Existing anti-money laundering regulations for banks include having a customer due diligence program, appointing an anti-money laundering compliance officer, developing an ongoing training program for employees, audit procedures to test the effectiveness of an anti-money laundering program and reporting any suspicious activity.

In his memo, Gulliver said HSBC didn't yet know the full details of the panel's investigation but that the hearing would "reveal that in the past we fell well short of the standards that our regulators, customers and investors expect," the Wall Street Journal reported.

According to documents seen by Reuters, U.S. regulators allege that from 2005, HSBC violated the Bank Secrecy Act and other anti-money laundering laws on a massive scale. "HSBC did so, they say, by not adequately reviewing hundreds of billions of dollars in transactions for any that might have links to drug trafficking, terrorist financing and other criminal activity," Reuters reports.

US regulators could now fine HSBC for its lax procedures. In the meantime, Gulliver did note that the UK bank will continue to invest in compliance, having raised its spending on this to $400 million from $200 million in 2010.

In related news, the SEC announced that it has hired a new chief counsel and chief compliance and ethics officer: Paula Drake will start in the Office of Compliance Inspections and Examinations (OCIE) on August 6.

OCIE conducts the SEC’s national examination program for investment advisers and investment companies, broker-dealers, self-regulatory organizations, clearing agencies, and transfer agents.

Drake will oversee a staff of eight lawyers and coordinate the efforts of attorney advisers in the SEC’s 11 regional offices, the SEC said.

Melanie Rodier has worked as a print and broadcast journalist for over 10 years, covering business and finance, general news, and film trade news. Prior to joining Wall Street & Technology in April 2007, Melanie lived in Paris, where she worked for the International Herald ... View Full Bio

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