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HSBC immersed in Mexican money laundering scandal

July 20, 2012

A U.S. Senate Committee accused British-based bank HSBC of laundering billions of dollars on behalf of Mexican drug gangs in a 300-page report released Monday.

In 2007 and 2008 alone, HSBC’s Mexican subsidiary HBMX moved seven billion dollars in cash into the bank’s U.S. branches, despite warnings from both U.S. and Mexican authorities that much of the money was tied to drug cartels. The bank did not properly monitor these transactions and also refused to investigate numerous internal warnings.

The Senate report accused HBMX of lax anti-money laundering practices dating back to its purchase in 2002. The senators also slammed the bank for setting up a Cayman Islands subsidiary, which, they said, was used for money laundering and the purchase of aircraft by Mexican drug traffickers.

That subsidiary held 2.1 billion dollars in 50,000 client accounts, but had no staff or offices. Furthermore, 41% of the Cayman Islands accounts had no customer information attached. HSBC said it is now in the process of closing almost 20,000 Cayman Islands accounts as a result of the investigation.

HSBC has also closed an undisclosed number of Mexican branches “considered at high risk of money laundering,” fomer HSMX President Paul Thurston told the Senate Committee on Tuesday.

David Bagley, HSBC’s head of compliance, resigned at the Senate hearing, while Irene Dorner, president and chief executive of HSBC Bank USA, issued a public apology “for the fact that HSBC did not live up to the expectations of our regulators, our customers, our employees, and the general public.”

Mexico’s Special Investigation of Organized Crime (SIEDO) unit has several money laundering investigations open since 2008 which involve HSBC.   The federal Attorney General’s Office (PGR) has not brought charges against the bank yet, but it is awaiting reports from the National Banking Commission (CNBV) and the U.S. Justice Department, which is conducting its own criminal investigation into HSBC’s operations.

The Senate report also accused HSBC of money laundering in other countries such as Iran and Russia.

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