By Steve Slater
LONDON (Reuters) - HSBC
"Our structure was not fit for purpose for a modern world," Stuart Gulliver told lawmakers on a British banking inquiry on Wednesday. "Our geographic footprint became very attractive to trans-national criminal organizations, whether they are terrorist in origin or criminal in origin."
HSBC, whose former slogan "The world's local bank" reflects its presence in more than 80 countries, was in December given a $1.9 billion fine, the largest ever imposed on a bank, following a U.S. investigation into its Mexican and U.S. operations.
The probe made scathing criticism of HSBC's anti-money-laundering systems and found its lax controls allowed two drug cartels to move $881 million through the bank.
"We've crushed our reputation with the Mexico events," Gulliver said. "The behavioral stuff of what went on in Mexico is absolutely shocking to us."
After taking the bank's helm at the start of 2011, Gulliver centralized control and created global business operations, taking much of the control out of the hands of country managers.
"It's the biggest organizational change in this firm since 1865 and we did it to deal with the weaknesses," the CEO said.
HSBC's problems in Mexico stemmed from its purchase of Grupo Financiero Bital in 2002, and Gulliver and his chairman, Douglas Flint, said the bank was too slow to improve its systems and controls.
Gulliver said some senior people had been removed from the bank for "values breaches" in the last two years, but he said there were rewards on offer as well as penalties.
The bank's chief risk officer is likely to be the fifth-highest paid person at the bank in 2012, whereas he wouldn't have been in the top 50 in 2006, he said.
The CEO has sold or exited from 45 businesses deemed non-core in the last two years, in an attempt to not only reduce complexity, but also cut costs and boost profitability.
Last week it set up a Financial System Vulnerabilities Committee to help further simplify business activities and spot risks in areas such as preventing terrorist financing or illegal drugs activities.
"We're not saying the job is done ... the people we're dealing with are highly sophisticated and will continue to change their ways of trying to penetrate the banking system," Gulliver said.
(Editing by Dan Lalor and David Holmes)