Bank boss quits over rogue cash

ATOP BOSS at British banking giant HSBC resigned in front of a US Senate subcommittee yesterday after it emerged the bank had exposed the US to billions of dollars- worth of money laundering, drug trafficking and terrorist financing.

David Bagley, HSBC’s head of group compliance since 2002, stepped down before the Homeland Security and Governmental Affairs subcommittee after its findings were published.

Mr Bagley, who had a 20-year career with the bank and is based in London, said: “Despite the best efforts and intentions of many dedicated professionals, HSBC has fallen short of our own expectations and the expectations of our regulators.”

The revelations are another blow to the reputation of the banking industry following the current scandal over the manipulation of te Libor inter-bank lending rate.

In his written submission to the subcommittee, Mr Bagley said the bank had “learned a number of valuable lessons” and partly blamed the oversights on the bank’s rapid growth.

“The bank underestimated some of the challenges presented by its numerous acquisitions and despite efforts to meet these challenges, we were not always able to keep up,” he said.

Mr Bagley added that HSBC was in the process of “shedding the historical compliance model that the bank has outgrown”.

He also revealed the bank is to close 20,000 bank accounts on the Cayman islands as result of the money laundering investigation.

Foreign HSBC banks avoided safeguards designed to block transactions involving terrorists, drug lords and rogue regimes, the subcommittee said, while it also ignored links to terrorists, providing services to risky banks in Saudi Arabia and Bangladesh.

Subcommittee chairman Senator Carl Levin told the hearing HSBC used its US bank as a gateway into the US financial system for HSBC affiliates around the world while “playing fast and loose with US banking rules”.

He said: “Due to poor anti-money laundering controls, HBUS exposed the United States to Mexican drug money, suspicious travellers cheques, bearer share corporations and rogue jurisdictions.”

HBUS offered banking services to HSBC Bank Mexico despite the country’s troubles with money laundering and drug trafficking, high-risk clients, high-risk products, a secretive jurisdiction and weak anti-money laundering controls, Mr Levin said.

In another case examined by the subcommittee, two HSBC affiliates sent nearly 25,000 transactions involving $19.4 billion (£12 billion) over seven years without disclosing the transactions’links to Iran.

The bank was also found to be clearing suspicious bulk travellers cheques, including clearing $290 million in “obviously suspicious” US travellers cheques for a Japanese bank, benefiting Russians who claimed to be in the used car business.

Paul Thurston, chief executive of retail banking and wealth management, who was previously chief executive of HSBC Mexico, said his experience in the Central American country was “as challenging as any I had experienced”.

He added: “Some of the things I found frankly took my breath away.”

Mr Thurston said bank employees faced very real risks of being targeted for bribery, extortion and kidnapping and high levels of security were required for Bank staff working in Mexico.

HSBC said it has changed its senior management and moved to strengthen its compliance with rules to prevent money laundering.

Police lay floral tributes near the scene of the deaths of three children in Shropshire.

David Bagley.