U.S. report says HSBC handled Iran, drug money The Senate probe provides a rare look at how HSBC responded when confronted with numerous cases of suspect money flows. The failings and lax controls inside HSBC included an inability to properly monitor $15 billion in bulk cash transactions between mid-2006 and mid-2009, inadequate staffing and high turnover in the bank's compliance units, the report said. HSBC ignored risks in doing business in countries such as Mexico, a country rife with drug trafficking, it said. Between 2007 and 2008, HSBC's Mexican operations moved $7 billion into the bank's U.S. operations. According to the report, both Mexican and U.S. authorities warned HSBC that the amount of money only could have reached such a level if it was tied to illegal narcotics proceeds. The focus of the Senate probe was HSBC's U.S. operations, which has its main office in New York. HSBC used the U.S. unit as a selling point to clients outside the United States, touting its ability to handle U.S. dollar transactions. Some of the money that moved through HSBC was tied to Iran, the report said, which would violate U.S. prohibitions on transactions tied to it and other sanctioned countries. To conceal the transactions, HSBC affiliates used a method called "stripping," where references to Iran are deleted from records. HSBC affiliates also characterized the transactions as transfers between banks without disclosing the tie to Iran in what the Senate report called a "cover payment." HSBC "failed to take decisive action to confront these affiliates and put an end to the conduct," the report said. Between 2001 and 2007, more than 28,000 transactions were identified by an outside auditor for HSBC that potentially could have run afoul of laws that prohibit transactions with sanctioned countries. Of those, 25,000 involved Iran. A smaller number required additional analysis to determine if violations of U.S. regulations had occurred, the report said. At the heart of HSBC's failings was the fact that it served as a hub for smaller financial firms needing access to the global banking system, the report said. In one example detailed in the Senate investigation, HSBC continued to do business with one client that admitted to U.S. law enforcement that it had failed to maintain an effective anti-money laundering system. The client, Sigue Corp, was a money processor in California, the report said. In 2008, the company agreed to a so-called deferred prosecution with the U.S. Justice Department and other U.S. agencies where it admitted to allowing millions of dollars of suspect transactions between 2003 and 2005. Undercover U.S. officers, in a sting, even moved money through the company, explicitly telling Sigue agents they were moving illegal drug proceeds, the report said. A day after the agreement was announced, David Bagley, the head of HSBC compliance, sent a handwritten note to another bank official, asking, "Obvious question--I assume they are not our customer." Bagley is scheduled to testify on Tuesday at the Senate hearing. In fact, Sigue was an HSBC customer, and bank officials internally discussed whether to close the account. One compliance official recommended it should be shut down. In the end, the bank kept doing business with Sigue. In 2009, the Justice Department said Sigue had satisfied the requirements of the agreement and a criminal case was dismissed.