David Bagley, who for a decade was the front-man for HSBC's global compliance effort, has resurfaced as a compliance consultant for the troubled Co-Op Bank in the UK.

David Bagley, who for a decade was the front-man for HSBC's global compliance effort, has resurfaced as a compliance consultant for the troubled Co-Op Bank in the UK. A spokesman told Compliance Matters: "My understanding is that he's currently on a contract with the Co-Op. I would expect that he's working on AML."

The last time Bagley worked on AML, he resigned in front of a US Senate hearing that was examining the billions that HSBC laundered for Mexican drug cartels and for Iranian blacklisted entities. Many clients’ files contained no 'know your customer' information at all during the Bagley period.

Just to take one tiny episode from the ensuing US Senate subcommittee report into the ten-year history of laundering at HSBC, in February 2009, the US wing of the HSBC group issued a chart with its latest risk assessments for 239 countries. It assigned a score of '2' for Mexico, which was one of the lowest scores and very surprising as even then the country was riven by a drug-fuelled civil war. When asked about this low score, HSBC's US compliance officer then responsible for country risk assessments, Ali Kazmy, told the Senate subcommittee that, since 2006, HBUS’ assessments had inadvertently failed to take into account a 2006 Financial Crimes Enforcement Network warning note or 'advisory' that should have added 10 points to Mexico's score each year. Instead it was awarded a 'standard' risk, the lowest of the four risk ratings, despite a stinging email that Susan Wright, AML compliance head for the HSBC Group, wrote to Bagley in May 2008 on the subject of AML concerns related to Mexico.

The Senate subcommittee subsequently wrote: "This email shows that the head of HSBC AML Compliance was aware of and communicated to other compliance personnel the serious AML risks related to Mexico involving drug trafficking, suspect casas de cambio, and bulk cash smuggling, yet the February 2009 HBUS country risk assessments again assigned Mexico the lowest possible risk rating."

In 2004 the Mexican government passed a law to oblige every bank to set up a money-laundering committee. HSBC Mexico duly pretended to hold bogus meetings with faked minutes - this eventually came to light because of a whistleblower. Ramon Garcia, the head of compliance and chairman of the bogus committee, revealed at an HSBC conference in November 2007 that HSBC Mexico had "numerous cases of accounts with multiple suspicious activity reports (16 in one case!!) in Mexico that remain open." Bagley, however, described Garcia at the time of the bogus meeting scandal as someone who “has performed credibly, has worked very hard, and would otherwise be hard to replace. In the circumstances whilst we will need to keep his position under review at this stage I endorse the decision to retain his services."

One consequence of this laxity was the revelation that the Mexican bank had moved millions of dollars to the US on behalf of a money-laundering suspect called Zhenly Ye Gon, whose house had yielded up the largest seizure of cash ($205 million) in the history of drug investigations. Over the past five years HSBC Mexico had kept the accounts of his company in the wrong place (the personal financial division) and did not judge them to pose a high money laundering risk, despite the detection of a string of most peculiar transactions.

It is not known whether Bagley ever applied to the British regulators for a renewal of his 'permissions' to perform 'controlled functions'; his consultative post at the Co-Op suggests that he has found another way to stay in the world of compliance. The share price of HSBC, despite its epic US fine of $1.92 billion or 41 days of its global earnings, did not suffer at all because of the scandal.