Big banks just continue to let us down. In the latest scandalous development in the world of banking, the global bank HSBC has been used by Mexican drug cartels looking to get cash back into the US, and by Saudi Arabian banks that needed access to dollars.

This was despite their terrorist ties and by Iranians who wanted to circumvent US sanctions, an American Senate report revealed yesterday.

In the report, which is 335 pages long, and is the product of a yearlong investigation by a Senate subcommittee, serious laundering has been uncovered.

The report says the problems at HSBC, Europe’s largest financial institution, are indicators of a much larger problem of illegal money moving through international financial institutions into the US.

It also says that executives at HSBC, and regulators at the Office of the Comptroller of the Currency, ignored warning signs and failed to stop the illegal behaviour at many points between 2001 and 2010.

Reuters says it like it is:

A “pervasively polluted” culture at HSBC Holdings Plc allowed the bank to act as financier to clients seeking to route shadowy funds from the world’s most dangerous and secretive corners, including Mexico, Iran, the Cayman Islands, Saudi Arabia and Syria.

One of the cases examined in the report shows how an HSBC executive successfully argued that the bank should resume business with a Saudi Arabian bank, Al Rajhi Bank, despite the fact that Al Rajhi’s founder had been an early benefactor of Al-Qaeda. HSBC’s American branch ended up supplying a billion dollars to Al Rajhi.

Reuters continues:

The focus of the Senate probe was HSBC’s US operations, which has its main office in New York. HSBC used the US unit as a selling point to clients outside the United States, touting its ability to handle US dollar transactions.

Among HSBC’s problems, the report described the bank’s compliance division as unable to battle the suspect money. High turnover of top compliance officials made it difficult for reform to take hold, the report said. Employees were “overwhelmed” by a mounting number of suspect transactions that needed review.

“We’re strapped and getting behind in investigations,” one bank official wrote in June 2008. By that time, HSBC was cutting costs to offset losses tied to subprime home loans and the brewing financial crisis. In 2010, one disgusted top compliance official threw up his hands and quit after less than a year on the job, according to the report.

Typical of the problems inside the bank were transactions tied to Mexico, a country the report said is “under siege from drug crime, violence and money laundering”.

HSBC, according to the report, helped move money for a Mexican foreign-exchange dealer called Casa de Cambio Puebla that served as a hub for laundered proceeds.

This latest banking catastrophe will no doubt add further fuel to the debate as to whether enough is actually being done to regulate world finances.

Barclays is also still rightly facing the music from its involvement in fixing the Libor – basically the most important rate in the world.

Time magazine rightly points out that Barclays is just the beginning in a damning piece entitled “Libor Rigging: What the Regulators Saw (but Didn’t Shut Down)”.

[Source: Reuters]