When Your Anti-Money Laundering Unit is Compared to A Nuclear Waste Dump

It’s bad enough to have U.S. attorneys poking around your anti-money laundering unit, worse still when those pesky reporters get hold of the documents. That’s the spot HSBC finds itself in this morning, after Reuters put out a massive story on the state of affairs at the British lender’s U.S. bank.

The short-story: Reuters got hold of a draft letter from U.S. attorney William J. Ihlenfeld II to justice department officials alleging HSBC had created an anti-money laundering operation that was a “systemically flawed sham paper-product designed solely to make it appear that the Bank has complied.”

HSBC staffed its U.S. anti-money laundering unit with “gullible, poorly trained, and otherwise incompetent personnel,” the letter alleges, and also ignored thousands of internally generated alerts and failed to forward legally-mandated notifications to law enforcement.

It gets worse. In 2009, the Office of the Comptroller of the Currency determined that the HSBC executive in charge of installing a program to monitor suspicious retail transactions was incompetent. The next year, a Miami-based HSBC banker brought suit against the bank, alleging that he was fired on sexual harassment charges after he warned colleagues that lucrative private bank clients had violated U.S. trade restrictions with Iran and Cuba.

HSBC has been upfront about regulator interest, and told Reuters that it’s cooperating with investigations. The lender disclosed in November that it had entered into consent orders regarding its anti money-laundering and Bank Secrecy Act compliance. (Excerpt: “It is likely that there could be some form of formal enforcement action in respect to some or all of the ongoing investigations.“)

The devil of the Reuters story, of course, is in the details. In the draft letter reporters obtained, U.S. attorney Ihlenfeld compared HSBC to Riggs Bank, which was fined $41 million in 2004 and 2005 for violating money-laundering laws.

“HSBC is to Riggs, as a nuclear waste dump is to a municipal land fill,” wrote Ihlenfeld.

When Your Anti-Money Laundering Unit is Compared to A Nuclear Waste Dump