HSBC culture 'pervasively polluted'

Analysts warned that the bank faced huge financial penalties - but perhaps worse, found itself in the crosshairs during an election year.

"(The) most important consequence is that the bank is now under the microscope ... at a very bad time where banks are used as scapegoats by politicians globally," analysts at Italian bank Mediobanca said in a research note, adding that they expect HSBC to face a $1 billion fine as well.

In a statement to British regulators early today, the bank began its mea culpa.

"We will acknowledge that, in the past, we have sometimes failed to meet the standards that regulators and customers expect," it said.

"We will apologise, acknowledge these mistakes, answer for our actions and give our absolute commitment to fixing what went wrong."

The senate report released yesterday detailed how between 2007 and 2008, HSBC's Mexican operations moved $7 billion into the bank's US operations.

According to the report, both Mexican and US authorities warned HSBC that the amount of money could only have reached such a level if it was tied to illegal narcotics proceeds.

It also examined banking HSBC did in Saudi Arabia with Al Rajhi Bank, which the report said has links to financing terrorism.

HSBC will have company in the senate's harsh spotlight - the report was also highly critical of the Office of the Comptroller of the Currency (OCC), a major US bank regulator.

In prepared testimony, the OCC acknowledged the need for changes in its oversight of anti-money laundering operations, as called for in the senate report.

The OCC will also testify on the extent of the failings it found in HSBC's money laundering controls, and the orders it issued to the bank to correct them.

The exhibits for the hearing also provide new clues about how the justice department and regulators developed their probes of HSBC and Mexican drug trafficking.

A July 2009 email from an OCC official to the bank relates a call received from the US Attorney's office in Brooklyn.

The OCC official said that an assistant US attorney "said that his office is in the early stages of investigating possible money laundering through the repatriation of US currency through accounts at the banknotes division of HSBC-NY.

"The author of the email, Daniel Stipano, is an OCC lawyer scheduled to testify today.

Later that day, Mr Stipano told his peers at the OCC, "From what I can tell, this has the makings of potentially being a major criminal case - we need to be all over it."

According to the senate report, the OCC didn't take strong action against the bank until the fall of 2010, after the agency had learned of US law enforcement probes.

Reuters