[ by Howard Haykin ] HSBC, a global bank, has gotten into some very bad habits, like hanging out with the wrong crowds - like Mexican drug cartels, Saudi Arabian banks with terrorist ties, and Iranians who like to circumvent U.S. sanctions.  But HSBC is not going down alone.  Regulators at the Office of the Comptroller of the Currency will share the blame with bank executives.  Says who? The Permanent Subcommittee on Investigations Does. This Senate subcommittee has for all intensive purposes effectively linked the pair and labeled them, "partners in crime" - as documented in the committee's 335-page report released Monday.  The yearlong investigation points to the problems at HSBC, Europe's largest financial institution, as indicators of a broader problem of illegal money flowing through international financial institutions into the United States. The icing on the cake is that this mess is not based on an isolated incident.  No, according to the Senate Sub-Committee, money laundering was transacted continuously between 2001 and 2010.  And all throughout the relevant period, HSBC executives and OCC regulators waived or red flags and warning signs - which meant that money laundering operated without little or no resistance.  Again, it's all in the 335-page report. In one case, an HSBC executive successfully argued that the bank should resume business with a Saudi Arabian bank, Al Rajhi Bank, despite the fact that Al Rajhi's founder had been an early benefactor of Al Qaeda. HSBC's American branch ended up supplying a billion dollars to the bank.  You can look it up. Senator Carl Levin (Dem-MI), who leads the subcommittee, who was deeply troubled by the findings, said:  "Banks that ignore money laundering rules are a big problem for our country. Also troubling is a bank regulator that does not adequately do its job." He added that HSBC's compliance culture has been "pervasively polluted for a long time." HSBC executives were planning to apologize for their shortcomings, but Senator Levin, said a day before the hearing that HSBC had promised to fix similar problems in years past and failed.  He effectively said that words mean nothing at this point. More Troubles for HSBC. The hearing won't be the end-all for HSBC, which has disclosed in regulatory filings that the issues with money laundering are also being investigated by the Department of Justice and could lead to criminal charges and "significant" fines.  Some analysts say the fines could reach $1 billion. Regulation Lite. Mr. Levin said that wrongdoing in the financial world has been exacerbated by the relatively light touch of government regulators.  "As long as a bank just sees that it is going to be dealt with kid gloves, I think we are going to continue to see these shortfalls that have been so endemic," Mr. Levin said. The Office of the Comptroller of the Currency has come under particularly harsh criticism for showing too much deference to the banks it regulates. The new leader of the agency, Thomas Curry, has promised a stricter approach since he took over in April.  Mr. Curry issued a statement on Monday that members of his staff "fully embrace" the subcommittee's report, and he is expected to testify Tuesday that the agency is already carrying out many of the report's recommendations. In the Senate report, HSBC faces accusations that it helped its clients circumvent rules intended to stop transactions from countries facing international sanctions, and in some cases flouted laws in pursuit of profits. While HSBC is accused of moving money into the United States from North Korea and Cuba, the most extensive problems involved accounts in Iran.  An independent audit, paid for by HSBC, found that the bank facilitated 25,000 questionable payments involving Iran between 2001 and 2007.  In some cases, HSBC executives counseled Iranian financial institutions on how to evade the filters of American regulators, the report says. When the bank developed a way to process transactions for Iran's largest retail bank, an HSBC executive wrote an e-mail to his colleagues that said, "I wish to be on the record as not comfortable with this piece of business."  None of his colleagues responded and the deal went ahead, according to the report. The subcommittee also found evidence of widespread wrongdoing in HSBC's failure to stop money laundering through accounts tied to drug trafficking in Mexico.  The bank is accused of shipping $7 billion in cash from Mexico to the United States in 2007 and 2008 despite several warnings that the money was coming from cartels that needed a way to return their profits to the United States. In many of the cases detailed in the report, the Office of the Comptroller of the Currency is said to have spotted the problematic behavior.  But in nearly every case, the subcommittee found that the agency gave HSBC only a warning or mild punishment and did not push the bank to make large-scale changes. The agency ultimately issued a cease-and-desist order against HSBC in 2010 after other law enforcement agencies began looking into the problems.  Mr. Levin, though, said that his subcommittee found that some of the problems had not been fixed by the time the subcommittee began looking into them over the last year. A new chief executive took over at HSBC early last year and he has committed to making sweeping changes at the company.  In its statement, the bank laid out several steps it had recently taken to increase oversight of international flows of money. Levin said the kind of failures HSBC exhibited should be cause for U.S. regulators to consider whether to revoke its charter. The bank has repeatedly expressed remorse about "unacceptable behavior," including in a July 10 memo by Chief Executive Officer Stuart Gulliver, who took the helm in January 2011.  The company has restructured itself to make compliance a more urgent priority, he wrote, and has bolstered staff devoted to such oversight from 200 to about 1,000. HSBC’s Sherman, in his statement yesterday, said the bank’s lapses represent "important lessons for the whole industry." For further details, go to: [Dealbook, 7/16/12].