HSBC Holdings PLC reached a landmark $1.9 billion settlement with U.S. authorities over allegations that the U.K-based big bank intentionally permitted illegal transactions with a variety of countries including Iran, Libya, Sudan and Burma.
However, documents released Tuesday provide new details also about how HSBC allegedly became “the preferred bank” for narcotics drug cartels in Mexico and Colombia and left “dangerous gaps” that traffickers abused with major cash deposits– all while top executives froze staffing at the bank’s anti-money-laundering unit.
A Justice Department statement notes that banks are supposed to try to mitigate money-laundering risks by monitoring wire transfers. HSBC allegedly used an internal system that would trigger a review of wire transfers based on the amount of the transaction and the type and location of the customer.
However, between 2002 and 2009 HSBC ranked Mexico as having “standard” money laundering risks, the lowest of the bank’s four possible country risk ratings. As a result, the Justice Department contends that its transactions in Mexico weren’t subject to HSBC’s automated monitoring unless customers were classified as high risk. Read about how HSBC officials were quizzed about money-laundering in July
Basically, the low ranking allowed “hundreds of billions of dollars” in wire transfers from Mexico to be excluded from the bank’s internal reviews, as a result, the Justice Department alleges.
Specifically, the government says HSBC failed to monitor over $670 billion in wire transfers from HSBC’s Mexico division between 2006 and 2009 and failed to monitor over $9.4 billion in purchases of U.S. dollars from HSBC’s Mexico unit over the same period. (The Justice Department’s said HSBC’s Mexico division became the “preferred financial institution for drug cartels and money-launderers.”)
The Treasury Department notes that HSBC allowed “hundreds of millions of dollars” from Mexican drug trafficking organizations to flow though accounts in the U.S” even though the bank had “substantial resources” to limit money-laundering risks.
Specifically, $881 million in drug trafficking proceeds by the Sinaloa Cartel in Mexico and the Norte del Valle Cartel in Columbia were laundered through HSBC’s U.S. unit without being detected by the bank, the Justice Department alleges.
The agency also adds that HSBC failed to monitor over $200 trillion in wire transfers between 2006 and 2009 from countries that HSBC’s U.S. unit deemed to be “standard” or “medium” risk.
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