A US Senate probe has disclosed how lax controls at HSBC, Europe’s largest bank, left it vulnerable to being used to launder dirty money from around the world.
The report into HSBC, released ahead of a Senate hearing on Tuesday, says huge sums of Mexican drug money almost certainly passed through the bank.
Suspicious funds from Syria, the Cayman Islands, Iran and Saudi Arabia also passed through the British bank.
HSBC said it expected to be held accountable for what went wrong.
The damning report comes at a difficult time for the British banking sector, which is having its standards and practices scrutinized by regulators and policymakers.
Critics say the current furor over the manipulation of the Libor inter-bank interest rate is the latest example of a banking system in need of fundamental reform.
US Senate report into HSBC says huge sums of Mexican drug money almost certainly passed through the bank
The report also concludes that the US bank regulator, the Office of the Comptroller of the Currency, failed to properly monitor HSBC.
The report into HSBC was issued by the Senate Permanent Subcommittee on Investigations, a Congressional watchdog that looks at financial improprieties.
The year-long inquiry, which included a review of 1.4 million documents and interviews with 75 HSBC officials and bank regulators, will be the focus of a hearing on Tuesday at which HSBC executives are scheduled to testify.
These will include HSBC’s chief legal officer Stuart Levey, who joined the bank in January and was previously one of the top officials on terrorism and finance at the US Treasury Department.
In a memo released ahead of the hearing, HSBC chief executive Stuart Gulliver said: “It is right that we will be held accountable and that we take responsibility for fixing what went wrong.”
“As well as answering the subcommittee’s questions, we will explain the significant changes we have already made to strengthen our compliance and risk management infrastructure and culture,” he said.
A separate HSBC statement said its executives will offer a formal apology at the hearing.
“We will apologize, acknowledge these mistakes, answer for our actions and give our absolute commitment to fixing what went wrong,” the bank said.
Senator Carl Levin, chairman of the sub-committee, spoke of a “polluted” system that allowed black-market funds to move through the US banking system.
In 2010, Wachovia agreed to pay $160 million as part of a Justice Department probe that examined Mexican transactions.
Last month, ING agreed to pay $619 million to settle US government allegations that it violated US sanctions against Cuba and Iran.
JPMorgan Chase has raised its estimate of the value of its recent losses from trading in complex financial derivatives to $4.4 billion.
The US bank said the executives responsible had been dismissed without severance pay and the bank would be clawing back two years of their pay.
When it first announced the loss in May, it said it had lost at least $2 billion.
The bank also said it had found evidence that some traders may have been trying to hide their losses.
The bank said it would restate its results from the previous three months because it had made $459 million less than it thought.
It blamed the restatement on the fact that “certain individuals may have been seeking to avoid showing the full amount of the losses in the portfolio during the first quarter”.
JPMorgan Chase has raised its estimate of the value of its recent losses from trading in complex financial derivatives to $4.4 billion
Despite those losses from its chief investment office, the bank reported three-month net profit of $4.96 billion, down 8.7% from the same period last year. JPMorgan’s shares opened up 3% in New York.
Chief executive Jamie Dimon said he had closed the division of the bank responsible for the losses and moved the remainder of the trading position to its investment banking division.
The executive in charge of the closed division, Ina Drew, left the bank in May, days after the losses were announced.
Before Friday’s gains, JPMorgan had lost about 15% of its market value since the losses were first announced.
It also said that it expected another $700 million to $1.7 billion of losses from the derivatives trading.
Responding to questions from analysts following the release of results, Jamie Dimon said: “I think it’s silly for anyone in the business world to think you’re not going to make mistakes.”
“It is not possible in the real world. I just think the mistakes should be smaller, fewer and far between, this being an exception.”
Another bank with rising shares on Friday was Wells Fargo, which was also reporting results.
It posted second-quarter net profits of $4.6 billion, up 17% from the same period last year.
Its profits from mortgages were up to $2.9 billion from $1.6 billion last year.
Wells Fargo is the fourth-biggest US bank and the biggest mortgage lender.
The results came the day after it paid $175 million to settle allegations from the Justice Department that during the housing boom, it had charged higher rates and fees to African-American and Hispanic customers.
Wells Fargo said it had settled to avoid a long legal battle.