India to investigate alleged HSBC lapses in checking money-laundering

New Delhi: HSBC is being investigated by the Reserve Bank of India after a US senate committee said the bank's Indian staff mishandled checks to ensure the global banking giant was following norms that guard against money-laundering and terror-funding.

"Any financial institution that does not follow the norms laid being down, makes the nation vulnerable," said Home Secretary RK Singh. The issue will be studied by the RBI as a regulatory matter, said Department of Financial Services Secretary DK Mittal.

A US Senate committee has found that the global banking giant failed in preventing money laundering by drug cartels and terrorists not only in the US, but also in other parts of the world, possibly including India. In its 340-page report, the committee also said that HSBC's Anti-Money Laundering (AML) Compliance Department, which included employees in India, was highly inadequately staffed. The Indian staff involved in the process delivered sub-standard results, the committee said, pointing out that nearly one-third of the "alerts" flagged for review had to be de-done by the OCC (the US Office of the Comptroller of the Currency, which is the bank's primary federal regulator in the country).

The probe further found that an OCC visit to India in 2007 had revealed "Weak Monitoring Procedures" in the bank's internal control systems.

At a hearing before the Senate Subcommittee on the matter on Tuesday, HSBC apologised for its mistakes and gave its "absolute commitment" to fix the problems.

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Among others, HSBC was found to be doing business with Saudi Arabia's Al Rajhi Bank, whose key founder "was an early financial benefactor of Al Qaeda ," according to the Senate Permanent Subcommittee on Investigations.

After a year-long investigation, the committee has said in its report that the bank has also been accused of indulging in various questionable transactions with entities from countries like, Iran, Saudi Arabia, Bangladesh , Burma and Russia. The committee says that HSBC, with its headquarters in London, allowed affiliates in countries such as Mexico, Saudi Arabia and Bangladesh to move billions of dollars in suspect funds into the United States without adequate controls.

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"HSBC used its US bank as a gateway into the US financial system for some HSBC affiliates across world to provide US dollar services to clients while playing fast and loose with US banking rules," said senator Carl Levin, the chairman of the subcommittee.

According to the report running into 340 pages, HSBC in 2009 authorised its affiliate to supply Indian rupees to Saudi Arabia's Al Rajhi Bank, which, the report said, has links to financing terrorism. The report states: "From 2007 to 2010, HBUS (HSBC-USA ) continued to supply, through its London branch, hundreds of millions of US dollars to Al Rajhi Bank in Saudi Arabia. In addition, at Al Rajhi Bank's request, HBUS expanded the relationship in January 2009, by authorising its Hong Kong branch to supply Al Rajhi Bank with non-US currencies , including the Thai bat, Indian rupee, and Hong Kong dollar."

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Apologising to the US lawmakers for its "mistakes" in tackling terror funding and money laundering related risks, global banking giant HSBC on Tuesday said it is committed to fixing the lapses with the bank's risk management system. "With a new senior leadership team and a new strategy in place since last year, HSBC has already taken concrete steps to augment the framework to address these issues. We will apologise, acknowledge these mistakes, answer for our actions and give our absolute commitment to fixing what went wrong," the bank said in a statement.