HSBC Hong Kong implicated in terrorist money laundering scandal

HSBC stock prices in Hong Kong took a hit on Wednesday
==========================================================================

HSBC's operations in Hong Kong have been implicated in the money laundering scandal in which the London-based international bank is accused of concealing transactions that benefited terrorist networks, reports Guangzhou's 21st Century Business Herald.

On July 17, HSBC executives were questioned during a hearing conducted by the US Senate Homeland Security Subcommittee on Investigations, which alleged that the bank enabled affiliates in Mexico and the Middle East to move billions of dollars of suspect funds into the country.

The failure to properly follow anti-laundering rules — and intentionally concealing problematic transactions — were said to have benefited drug lords and terrorists and had bypassed US sanctions on Iran, the Senate found in its 335-page report. Some senators reportedly called for the bank's US license to be revoked.

The findings revealed that HSBC and its US affiliate covered up more than US$16 billion in sensitive transactions to Iran between 2001 and 2007. Reviews of transactions revealed the bank had conducted almost 25,000 US dollar transactions with Iran, a country with which US companies are generally prohibited from doing business.

"We deeply regret and apologize for the fact that HSBC did not live up to the expectations of our regulators, our customers, our employees and the general public," said Irene Dorner, president of HSBC Bank USA. "HSBC's compliance history, as examined today, is unacceptable," she said.

The head of HSBC's compliance department, David Bagley, stepped down from his post prior to reading his own testimony before the panel.

While the majority of the claims related to accounts and transactions in countries such as Mexico, Saudi Arabia and Bangladesh, HSBC's operations in Hong Kong have also been implicated. In 2009, HSBC Bank USA was said to have authorized its Hong Kong branch to open an account for Al Rajhi Bank, an organization that had been found to have ties to al-Qaida in a post-9/11 panel back in 2004. Under the terms of the account, Al Rajhi was provided access to US$4.6 million of non-US dollar currency notes every month, including Hong Kong dollars, Thai baht and Indian rupees, reported the 21st Century Business Herald.

HSBC was supposed to have cut ties with Al Rajhi in January 2005, but the connection was apparently never completely severed and gradually recovered over the next two years. By December 2006, Al Rajhi's cash account at HSBC was officially reopened and in the four years that followed, Al Rajhi reportedly bought nearly US$1 billion but sold only US$10 million through the bank.

Up to August 2008, HSBC Bank USA had also intercepted more than US$3.2 million of payment requests related to Sudan, of which US$300,000 were issued by HSBC Hong Kong.

The bank's shares fell more than 2% in Hong Kong to close at HK$66.55 (US$8.58) on Wednesday