Feds Charge HSBC Bank Violated Bank Secrecy Act, Handled 'Questionable' Foreign Accounts

HSBC Bank is in trouble with the feds. The Office of the Comptroller of the Currency (OCC) today issued a cease-and-desist against the bank for violating the Bank Secrecy Act (BSA).

The order requires the bank to take comprehensive corrective actions to improve its BSA compliance program. Today's action does not preclude the OCC from assessing a civil money penalty against the bank.

The British bank's U.S. branch is headquartered in McLean, Va. The OCC is the arm of the U.S. Treasury that regulates larger banks.

Two HSBC clients were convicted earlier this month of failing to report more than $49 million in income to the Internal Revenue Service. Prosecutors said Mauricio and Leon Cohen used offshore tax havens to conceal income, which included proceeds from the sale of a New York hotel.

'Questionable' accounts

In February, Sen. Carl Levin (D-Mich.), who chairs the Permanent Subcommittee on Investigations, asked federal regulators to take a closer look at HSBC, saying he was concerned about "questionable" accounts the bank provided for senior Angolan officials.

Levin said Aguinaldo Jaime, the former head of Angola's Central Bank, tried twice to transfer $50 million in Angolan government funds to private U.S. accounts at Citibank. Citibank became suspicious and closed the Angolan's accounts. HSBC, on the other hand, "not only continues to provide U.S. correspondent accounts to the Angolan Central, but also may be supplying the Central Bank with offshore accounts in the Bahamas," Levin said, adding: "A Central Bank of a nation with offshore accounts? that's a new one on me."

At the hearing, Levin released a report documenting four cases in which politically powerful individuals took advantage of the U.S. financial system, exploiting weaknesses in financial regulations that allowed them to move millions of dollars through U.S. bank accounts.

"The United States is engaged in a relentless, worldwide battle to stop the flow of illegal money into and within places like Iraq and Afghanistan. Laundered money is used to train and provide support for terrorists and terrorism," Levin said at a Feb. 4, 2010 hearing. "The fact is that those engaged in large-scale corruption want to put their money in a modern financial system that can store, protect, invest, and transfer their funds efficiently. They want access to U.S. banks. And it is our job to stop them and keep foreign corruption out of the United States."

The OCC said that the bank's BSA compliance program had deficiencies with respect to suspicious activity reporting, monitoring of bulk cash purchases and international funds transfers, customer due diligence concerning its foreign affiliates, and risk assessment with respect to politically-exposed persons and their associates.

HSBC was given 30 days to submit a written plan setting out how it will improve compliance.

"These actions require improvements for an effective compliance risk management program across the company's US business, including Bank Secrecy Act and Anti-Money Laundering (AML) compliance," the bank holding company said in a statement.

"The bank notes that it has cooperated fully with its regulators in reaching these agreements and continues to cooperate fully with them in implementing the agreement terms, and with other government agency investigations," it said.

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