Lord Green, former CEO and chair of HSBC, warned he has 'serious questions' to answer as bank awaits details of US fine

The trade minister, Lord Green, has been drawn in to the HSBC money laundering scandal after Labour warned he had "serious questions" to answer about the way the bank laundered money for drug cartels, terrorists and pariah states while he was at the helm.

Green was chief executive of Britain's biggest bank between 2003 and 2006 and was its chairman until 2010 when he resigned to take up a position of trade minister in the coalition government.

A damning Senate report - which concluded the bank had a "pervasively polluted" culture - covers the period 2004 to 2010 and shows that HSBC subsidiaries moved billions of dollars around the financial system from countries such as Iran and Syria as well moving cash for Mexican drug cartels.

An example of an email reproduced in the report appears to show that Green was warned by HSBC's head of compliance David Bagley - who dramatically resigned during Tuesday's appearance before Senators - to alert him to a potential breach to the rules in relation to sanctions in trading with Burma. Bagley wrote there is a "significant risk of financial penalty" as there is "little doubt that it is a breach" of the sanctions (which were lifted in May this year). The report found that a new internal policy was introduced afterwards, but that transactions continued to occur.

The report also shows that executives set up internal reviews to try to tackle the problems and referred themselves to the regulatory body.

Chris Leslie, Labour's the shadow financial secretary to the Treasury, said on Wednesday: "The US Senate sub-committee's report, which suggests that HSBC allowed money laundering by drug cartels and possibly even terrorists, is so serious that the bank's head of compliance has already resigned.".

"Stephen Green, who was executive chairman of the bank when this took place and is now a trade minister in David Cameron's government, now has serious questions to answer about what he knew and when," said Leslie

With the Commons in recess for the summer, Labour's leader in the Lords, Baroness Royall, tabled an urgent question to force a statement about Green's involvement but the request was rejected by Lords Speaker Baroness D'Souza.

Green, who is also an advisor to the government on banks, was not available for comment following Leslie's remarks. A respected banking figure, who has been cited as potential candidate to be the next governor of the Bank of England, Green was also chairman of the British Bankers' Association during the time of the Libor-rigging scandal that led to the £290m fine on Barclays and the departure of chief executive bob Diamond.

Labour was quick to call on Green to answer questions following the intense pressure that shadow chancellor Ed Balls faced from George Osborne following the Libor scandal which at one point risked drawing in former Labour ministers.

Bagley's dramatic resignation during the Senate hearing on Tuesday, came as Paul Thurston, currently chief executive of retail banking and wealth management and former head of the UK bankat HSBC, and head of the Mexican banking business in 2007 and told Ssenators he was "horrified" by what he found.

HSBC has been quick to apologise for the failings and Bagley told senators Carl Levin and Tom Coburn that: "HSBC has fallen short of our own expectations and the expectations of our regulators."

Danny Alexander, chief secretary to the Treasury, told the Today programme that the issues stemmed from the past: "This is a reminder of the huge difficulties our banking system got into in the run-up to the banking crisis, the culture that existed then that led to all sorts of appalling and irresponsible behaviour from which this country is still suffering under the weight of the consequences from those mistakes," Alexander said.

Labour peer Lord Foulkes claimed Lord Green was too "embarrassed" about his record to answer questions in Parliament.

In the spotlight

Aside from Lord Green, questions about the money laundering saga could also be asked of Sir John Bond, who was chairman of HSBC until May 2006 when he retired after 45 years with the bank when we was succeeded by Green. Bond has been chairman of Xstrata since May 2011 and was chairman of Vodafone until July 2011. Michael Geoghegan took over from Green as chief executive in May 2006, one of many assignments he had since joining the bank in 1973. He left in 2010 when Green's departure caused a boardroom tussle. Another long-standing HSBC executive Sandy Flockhart ran the Mexican operations from 2002 to 2006 but after a 37 year career his retirement from the bank was announced earlier this month to fight cancer. The current chairman Douglas Flint was finance director during the period.