HSBC Said to Face Senate Criticism on Mexico, Iran Lapses

By Jesse Hamilton

HSBC Holdings Plc (HSBA)’s failure to implement adequate money-laundering controls in Mexico is among lapses that U.S. Senate investigators will criticize tomorrow, according to two people briefed on the matter. HSBC bought Grupo Financiero Bital SA in 2002, pumping $800 million into the Mexico City-based bank to meet capital standards. Money-laundering controls were largely absent in HSBC’s operations there in ensuing years, said the people, who requested anonymity because the findings of the Senate’s Permanent Subcommittee on Investigations aren’t yet public. The compliance failures in Mexico, a nation struggling to rein in drug cartels, as well as unreported Iranian transactions and insufficient attention to U.S. anti-money-laundering rules will be among allegations leveled at HSBC at tomorrow’s hearing, the people said. London-based HSBC, Europe’s largest bank, will be cited as an example of the financial system’s exposure to drug cartels and terrorists hiding cash, according to a statement from the subcommittee. “Oh sure, a bit of drug-cartel money here or there is a longstanding compliance problem, but this is different,” Karen Shaw Petrou, a managing partner at Washington-based research firm Federal Financial Analytics, wrote in a July 13 client note about the hearing. She called HSBC’s practices “a wink/nod business model” that showed “a profound lack of controls.”