HSBC money laundering: Bank vows fixes. Senators doubtful.

Levin battered Levey with questions about whether the bank would follow U.S. law or Cayman law in cases of conflict and whether HSBC would improve its own internal sharing of information to help cut down on illicit activity.

Levey placed much of the blame on HSBC's rapid expansion, but said the bank is now better at spotting risky activities.

To some extent Levey and HSBC Bank USA CEO Irene Dorner were able to deflect the harshest criticism by pointing out that they were relatively new to their jobs, and had taken them up after the worst of the bad acts had happened.

"We've committed within the company ... to maximize the sharing of info for risk management purposes," Levey said. "We've decided that's the value that we're going to pursue, we need to share information."

The changes Bagley and Levey talked about are coming at a significant cost to the bank, as spending on anti-money laundering systems and staff have increased substantially. Dorner said the bank now has 892 full-time anti-money laundering compliance professionals.

FAILED TO MEET STANDARDS

HSBC shares closed 1.7 percent lower in London trade. Analysts warned that the bank faced huge financial penalties but said political risk may be a greater threat.

"(The) most important consequence is that the bank is now under the microscope ... at a very bad time where banks are used as scapegoats by politicians globally," analysts at Italian bank Mediobanca said in a research note, adding that they expect HSBC to face a $1 billion fine as well.

The Senate report alleged that HSBC did regular business in areas tied to drug cartels, terrorist funding and tax cheats.

It detailed how between 2007 and 2008, HSBC's Mexican operations moved $7 billion into the bank's U.S. operations. Both Mexican and U.S. authorities warned HSBC that the amount of money could only have reached such a level if it was tied to illegal narcotics proceeds, the report said.

It also examined banking HSBC did in Saudi Arabia with Al Rajhi Bank, which the report said has links to financing terrorism.

HSBC had company in the Senate's harsh spotlight -- the report was also highly critical of the Office of the Comptroller of the Currency, a major U.S. bank regulator.

The OCC took enforcement action against HSBC in 2010, more than seven years after the Federal Reserve Bank of New York and the New York State Banking Department issued their own criticism of HSBC's money-laundering detection systems.

Levin pounced on Grace Dailey, the former deputy comptroller for large bank supervision at OCC, demanding to know why more action had not been taken and sooner.

"We probably did not appreciate the systemic nature of some of those issues," Dailey said. "We could have and should have taken formal enforcement action, with the benefit of hindsight."

Levin was quick to dismiss the notion of hindsight and put one of his sharpest comments of the day to Thomas Curry, who took over as Comptroller of the Currency less than four months ago and who expressed his regrets for the OCC's inaction.

"This is pretty feeble enforcement," Levin said.

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