FIU initiates probe in HSBC India operations

The Financial Intelligence Unit (FIU) of the Finance Ministry has begun a probe into the HSBC's India operations after it was alleged that the country was exposed to terror funding and money laundering due to the banking giant's weak safety mechanisms.

The FIU, an enforcement agency, is empowered to undertake investigations under the provisions of the Prevention of Money Laundering Act (PMLA).

"The FIU-India has begun a probe into the operations of the HSBC Bank. The output of the investigation will be shared with agencies like the Enforcement Directorate and the Income Tax department," top sources in the Finance Ministry said.

India has termed as "serious" the alleged violation of safety compliance by HSBC staff in the country against anti-money laundering and terrorist financing instances in its economic channels.

Union Home Secretary R K Singh had said the government will "get to the bottom" of these reports which surfaced after a US Senate panel recently accused HSBC of exposing the American and Indian financial systems to various terror financing, money laundering and drug trafficking activities with transactions worth billions of dollars, due to poor risk control systems at the Bank.

The FIU probe, according to sources, will go into HSBC's India operations from the year 2007.

It will collect and analyse all the Suspicious Transaction Reports (STRs) and Cash Transaction Reports (CTRs) that the Bank has sent to it all these years as part of the mandatory requirement in the law.

The FIU provides information to the country's various enforcement and intelligence agencies about suspicious financial transactions that are done through banks and other financial institutions.

The FIU, as per sources privy to the development, will look into those specific instances where it was reported that deficiencies were found in the quality of the work done by HSBC's "offshore reviewers in India", who were deployed for clearing a major backlog of suspected transaction alerts at the Bank.

It was reported that over one-third of the alerts already resolved by the Indian reviewers and others "had to be re-done" after an independent assessment by the OCC (the US Office of the Comptroller of the Currency, which is the Bank's primary federal regulator in the country).

The probe report had said that an OCC visit to India in 2007 had revealed "weak monitoring procedures" in the Bank's internal control systems.

"It is the responsibility of the bank to inform the FIU about suspect financial dealings. If it missed their scanner, it also missed the FIU scrutiny. This is what the FIU will now sift through and ascertain," the sources said.

The FIU may also call for records and deposition of HSBC officials in connection with the probe, they said.

While an STR includes details of all accounts, transactions, individuals and legal persons or entities related to a suspect transaction, a CTR pertains to any transaction of more than Rs 10 lakh or its equivalent in foreign currency or all series of cash transactions integrally connected to each other which have been valued below Rs 10 lakh or its equivalent in foreign currency where such series of transactions have taken place within a month.