WASHINGTON (AFP) ― HSBC apologized Tuesday for failing to apply anti-laundering rules and one senior executive resigned, as lawmakers accused the global bank of giving Iran, terrorists and drug dealers access to the US financial system.

With the banking sector already under fire for manipulating interest rates and reckless trading, HSBC said more should have been done to prevent years of abuse amounting to tens of billions of dollars of illicit transactions.

“We deeply regret and apologize for the fact that HSBC did not live up to the expectations of our regulators, our customers, our employees, and the general public,” HSBC Bank USA (President Irene Dorner told a hearing of the Senate Homeland Security Subcommittee on Investigations.

“HSBC’s compliance history, as examined today, is unacceptable.”

Before reading his own testimony, David Bagley, the head of group compliance for London-based HSBC, stepped down from his post in the wake of the subcommittee’s damning report on the bank’s operations.

“I recognize that there have been some significant areas of failure,” he said. “This clearly took far too long to resolve.”

In its 330-page report, the Senate found the lender allowed affiliates in countries such as Mexico, Saudi Arabia and Bangladesh to move billions of dollars in suspect funds into the United States without adequate controls.

Lawmakers grilled HSBC executives and U.S. Treasury officials for failing to guard against money laundering they said benefited Mexican drug lords and terrorist networks, and for their bypassing of US sanctions on Iran.

“It’s pretty shocking stuff,” subcommittee chairman Senator Carl Levin said.

Among the findings was the revelation that HSBC and its US affiliate concealed more than $16 billion (13 billion euros) in sensitive transactions to Iran, violating US transparency rules over a six-year period.

HSBC executives were aware of the “concealed Iranian transactions” ― which stripped all identifying Iranian information from documentation ― as early as 2001 but allowed thousands of transactions to continue until 2007.

A review of HSBC’s use of so-called U-turn transactions, in which funds are sent into and then out of the United States through non-Iranian foreign banks, showed the bank conducted almost 25,000 US dollar transactions with Iran.

“The vast majority of the Iranian transactions, ranging from 75 to 90 percent over the years, were sent through HBUS and other US dollar accounts without disclosing any connection to Iran,” according to the report.

The US prohibits doing business with nations it regards as foes such as Iran and North Korea, and its Office of Foreign Assets Control imposes tight filters to halt potentially prohibited transactions.

Levin said the bank and its affiliates willfully circumvented the OFAC filters.

The Democratic senator said senior HSBC officials in London “knew what was going on, but allowed the deceptive conduct to continue.”

HSBC’s Europe operations twice instituted internal deadlines to stop the practice of scrubbing Iranian details from the U-turns, according to the report.

“Both deadlines were ignored,” Levin said.

Under the slogan “The World’s Local Bank”, the network that began life as the Hong Kong and Shanghai Banking Corporation provides US dollars to HSBC banks in many countries under a procedure known as “correspondent banking.”

But its compliance failures clearly spun out of control.

The report said HSBC’s Mexican affiliate “transported $7 billion in physical US dollars to HBUS from 2007 to 2008... raising red flags that the volume of dollars included proceeds from illegal drug sales in the United States.”

And it said HBUS “provided US dollars and banking services to some banks in Saudi Arabia and Bangladesh despite links to terrorist financing.”

Dorner said HSBC has “learned some very hard lessons” in recent years and as a result of the Senate probe, and assured the panel that “fundamental changes” have been made to address the problems.

But Republican Senator Tom Coburn pressed her about them, saying “the real thing you have to change is the culture.”

Levin said he hoped the year-long probe will lead to greater reform in the international banking sector, but suggested HSBC would face penalties for their behavior.

“There’s that nagging question of accountability that others are going to have to judge,” Levin said.

Several banks have been fined huge sums for transactions involving Cuba, Iran, Libya, Myanmar and Sudan.

Last month ING Bank was fined $619 million for its role in processing $1.6 billion through the US financial system for Cuban and Iranian entities.