1000 page report
Some reports have suggested that the 1,000 page report submitted by the monitor installed at HSBC to the Department of Justice, which has not yet been made public, contains allegations that the bank is not complying with the deferred prosecution agreement it reached with prosecutors in 2012, and that the bank is still laundering money for Mexican drug cartels and international terrorist organisations. A whistle-blower, John Cruz, has said that accounts that were used for money laundering before the 2012 settlement are still operational. The report on HSBC&rsquo;s compliance with the settlement terms, compiled by former prosecutor Michael Cherkasky, has been submitted to New York Attorney Loretta Lynch, whose nomination to US Attorney General is reportedly being stalled by concerns over her handling of the HSBC case, given that she oversaw the 2012 investigation into HSBC, and allegedly failed to act on key evidence brought forward by two whistle-blowers.Relevance: Concerns over regulatory compliance
NEW YORK – Loretta Lynch, the Obama administration nominee to replace Eric Holder as U.S. attorney general, has admitted HSBC is not complying with the deferred prosecution agreement she signed for the Justice Department, apparently confirming whistleblower suspicions that the bank is continuing to launder money for Mexican drug cartels and international terrorist organizations.

According to a summary letter not yet published on the DOJ website, Lynch forwarded to HSBC a highly critical 1,000-page report, also not yet published on the DOJ website, in which the outside monitor appointed to oversee the deferred prosecution agreement, former New York prosecutor Michael Cherkasky, charges HSBC has been unduly slow to comply with the requirements imposed on the bank.

“I’m confident HSBC never quit money-laundering despite the Department of Justice settlement in December 2012,” HSBC whistleblower John Cruz told WND, in February. “About six months ago, I called some of my friends at the bank and found out the same bank employees that were involved in the money laundering before I was fried are still there. We checked and bank managers refused to close the accounts they were using for money laundering.”

As WND reported, Lynch's confirmation vote in the Senate initially was postponed after Sen. David Vitter, R-La., a member of the Senate Judiciary Committee, opened the investigation of Lynch's role in the HSBC deferred prosecution after his staff quizzed Cruz, a former HSBC employeewhose trove of original evidence of money laundering was reported first by WND.

TRENDING: How the feds will control you by controlling your finances

Read the backstory inside the HSBC scandal – how WND first exposed the massive money-laundering scheme and the fallout from the discovery.

In 2012, Lynch, as the U.S. attorney for the Eastern District of New York, oversaw the investigation of drug-related, international money-laundering allegations that culminated in a deferred prosecution agreement in which HSBC admitted “willful criminal activity” and paid a $1.9 billion fine in return for the U.S. Department of Justice not bringing criminal charges against any HSBC employee.

The Cherkasky report, reported Bloomberg Business, "cites a litany of problems with the bank’s reforms and compliance procedures, finding that the pace of change is inadequate, said the people, who asked not to be named because the report isn’t public."

"In at least one instance, a bank manager shouted at an internal auditor who was critical of his work."

In another example, Bloomberg said, the monitor "discovered that documents justifying a decision to resolve a client alert were created after the fact although they were presented as being contemporaneous."

Meanwhile, controls in countries with high levels of financial risk, such as Oman and the Philippines, are inadequate, according to the people.

Reuters reported Lynch, in her letter accompanying the Cherkasky report, accused the bank of being “too slow” in complying, especially when it came to improving HSBC’s corporate culture and in getting adequate money-laundering compliance technology implemented in the U.S. banking operations.

Lynch pointed to instances in which senior bankers interfered with compliance reviews, reflecting a "combativeness" and "basic lack of cooperativeness," while compliance technology systems suffered from "fragmentation and a lack of connectivity," Reuters reported.

Cruz: 'HSBC never stopped'

“In my personal opinion, HSBC is still doing the criminal money-laundering activity they were found to be doing in the first place,” Cruz said. “The recent allegations coming out of HSBC’s private bank in Switzerland only provide more proof for the allegations I’ve made from the beginning that HSBC is a criminal enterprise engaged in massive tax evasion schemes as they launder money for drug cartels and terrorists around the world.”

Cruz gave WND a list of 15 HSBC employees at the bank while he was an employee that he named as people he suspected of being involved in the money-laundering activity or that he informed about it.

WND phone calls found that six on the list were still HSBC employees, though none reached by WND were willing to discuss Cruz or his allegations of HSBC money laundering.

As WND reported March 26 Lynch admitted to the Senate Judiciary Committee that her investigators in the probe of HSBC were aware of evidence compiled by Cruz but she chose, nevertheless, not to bring criminal charges.

Lynch provided written answers to questions submitted by committee chairman Sen. Charles Grassley, R-Iowa, in a document posted on the panel's website dated Feb. 18.

In response to Grassley, Lynch, as U.S. attorney for the Eastern District of New York, acknowledged Department of Justice "investigators did speak with and receive documents and information from Mr. Cruz."

"Based on the in formation he provided, we took appropriate additional investigative steps, including requiring additional information from HSBC," she replied to the senator.

"Investigators carefully considered the information he provided as we considered whether there was sufficient admissible evidence to prosecute violations at HSBC and whether any such prosecution otherwise would have been consistent with the principles of federal prosecution contained in the United States Attorney’s Manual," said Lynch.

"Ultimately, HSBC entered into a DPA that required remarkable reforms based on Bank Secrecy Act and sanctions violations, and that explicitly provides no protection from prosecution for conduct outside of the Statement of Facts.

Lynch repeatedly emphasized, however, the DOJ settlement with HSBC was limited to criminal violations of the Bank Secrecy Act.

“Note that we did not charge HSBC with money laundering,” Lynch told the Senate Judiciary Committee. “Rather, HSBC’s failure to maintain an effective anti-money laundering program violated the Bank Secrecy Act by creating a corporate environment that failed to stop others from laundering money through HSBC.”

Grassley noted Cruz spoke with IRS criminal investigators in Colorado in early 2012 and provided approximately 1,000 pages of documents and 30 hours of audio recordings to the IRS and the Securities and Exchange Commission in whistleblower submissions in July 2012.

Grassley also pointed out that Cruz provided the material to the Department of Justice in September 2012, more than two months before Lynch's office filed the deferred prosecution agreement Dec. 11, 2012.

Grassley asserted the Cruz documents “suggest the extent of HSBC’s criminal conduct may not have been fully described in the Statement of Facts associated with the [deferred prosecution agreement] reached with the government."

When initially asked by Grassley if HSBC provided any of the Cruz documents to the Department of Justice, Lynch answered: “I understand that investigators spoke with and received documents from Mr. Cruz, and after speaking with Mr. Cruz, required information from HSBC; I am not aware at this time whether HSBC then supplied documents identical to those that Mr. Cruz had supplied.”

Grassley then asked, if HSBC did provide the Cruz documents to the DOJ, why was the criminal money-laundering scheme Cruz exposed not included in the HSBC Statement of Facts or used as the basis for criminal prosecutions.

“Investigators considered the information and documents provided by Mr. Cruz, and took appropriate additional investigative steps,” Lynch responded. “I should reiterate, however, that the DPA reached with HSBC in 2012 addressed only the charges filed in the criminal information, which are limited to violations of the Bank Secrecy Act for failure to maintain an adequate anti-money laundering program and sanctions violations.”

Lynch emphasized there was nothing in the DPA that would prevent subsequent prosecution of HSBC employees for criminal money-laundering.

WND exposed HSBC money laundering

Breaking the story on Feb. 1, 2012, WND reported Cruz delivered to WND approximately 1,000 pages of customer account records he pulled from the HSBC computer system before he was fired by senior management, who had no interest in investigating his claim to have discovered illegal money-laundering activity at the bank.

Cruz began working at HSBC Jan. 14, 2008, and was terminated for “poor job performance” Feb. 17, 2010.

In his position as an account relationship manager, Cruz worked in the HSBC southern New York region, which accounts for about half of HSBC’s North American revenue. He was assigned to work with several branch managers to identify accounts where HSBC might introduce additional banking services.

“The Obama administration is continuing to cover up its role in the HSBC money laundering scandal,” Cruz told WND in a telephone interview Thursday.

“The IRS has blocked every legal effort I have made to be credited as a whistleblower in the HSBC billion-dollar settlement,” Cruz said. “It is impossible that the Obama administration did not know HSBC was laundering drug money for the Mexican cartels, because the documentation I had showed the laundered money passed through the federal wire-transfer services.”

HSBC a 'criminal enterprise'

As WND reported in May 2012, Cruz charged that HSBC was a “criminal organization” involved in a “culture of crime.”

“Money comes in daily, thousands of dollars, always in even amounts,” he said. “You look at a statement and it says ‘transfer,’ but where did it go? There’s no account number or tracking number that documents where the transaction went.”

Cruz contended that HSBC was running what amounted to a “shell game.”

“So many of these businesses are conducted out of a person’s home,” he said. “I would walk into these homes. There’s a couch, there’s a chair, a desk, but the house is empty – a couple of Mercedes sitting out front – but where is the business? It’s only online transactions of money-in and money-out.”

Identity theft

To implement the money-laundering scheme, Cruz charged the 1,000 pages of customer account records suggest HSBC relies on identity theft to capture legitimate Social Security numbers to create bogus retail and commercial bank accounts. Through the accounts, HSBC employees systematically deposited and withdrew hundreds of millions of dollars on a daily basis, apparently without the knowledge of the identity theft victims.

“When an individual finds out they got a loan they never knew about, 5 percent of that loan went to the accounting firm that made up the phony tax returns and the other 95 percent of that loan went to the manager,” he charged.

“One manager was involved in the transaction, another manager was involved in notarizing the transaction, and senior management was involved where they signed off permission to give the loans even when the loans get rejected by underwriting.”

On July 17, 2012, the Senate Permanent Subcommittee on Investigations, released a majority and minority 330-page staff report titled “U.S. Vulnerabilities to Money Laundering, Drugs, and Terrorist Financing: HSBC Case History.” It documented HSBC’s role in illegally laundering drug money for Mexican cartels Middle Eastern terrorists.

“In an age of international terrorism, drug violence in our streets and on our borders, and organized crime, stopping illicit money flows that support those atrocities is a national security imperative,” said Sen. Carl Levin, D-Mich., the chairman of the Senate Permanent Subcommittee on Investigations, upon the release of the report.

“HSBC used its U.S. bank as a gateway into the U.S. financial system for some HSBC affiliates around the world to provide U.S. dollar services to clients while playing fast and loose with U.S. banking rules,” Levin continued. “Due to poor AML [Anti-Money Laundering] controls, HBUS exposed the United States to Mexican drug money, suspicious travelers cheques, bearer share corporations, and rogue jurisdictions. The bank’s federal bank regulator, the OCC, tolerated HSBC’s weak AML system for years. If an international bank won’t police its own affiliates to stop illicit money, the regulatory agencies should consider whether to revoke the charter of the U.S. bank being used to aid and abet that illicit money.”

Senate vote expected in mid-April

On Wednesday, Politico reported Sen. Robert Menendez, D-N.J., despite being indicted by the Department of Justice on federal corruption charges, intends to vote for Lynch’s confirmation when it comes to the Senate floor.

Politico calculated that Menendez’s vote, plus the rest of the Senate Democratic Caucus in the Senate, plus the four GOP Senators that have indicated their support for Lynch, would place the expected number of votes at 50, requiring Vice President Joe Biden to vote for her confirmation to break the tie.

However, Reuters report Lynch received a boost Thursday when Sen. Mark Kirk, R-Ill., announced his support, possibly providing a crucial 51st vote.

"I am confident from my conversation with Loretta Lynch that she will be a valuable partner in confronting the gang violence that is robbing families of their children every day in Chicago," Kirk said in a statement.

Last week, Sen. John McCain, R-Ariz., announced he would oppose Lynch’s confirmation and demanded that Sen. Dick Durbin, D-Ill., apologize for telling the press that the GOP was putting the Lynch nomination at the “back of the bus. McCain interpreted that to mean the Obama administration had decided to “play the race” card to get Lynch confirmed as the first African-American woman nominated to be attorney general.