Trade minister Stephen Green "faces serious questions" after HSBC, the bank he was chairman of for four years, was accused of allowing drug king pins, terrorists and rogue nations to launder money through its global subsidiaries.
Lord Green of Hurstpierpoint was executive chairman of the British banking giant from 2006 until 2010 when he was given a ministerial job by David Cameron and made a member of the Cabinet Committee for Banking Reform.
HSBC was forced to apologise yesterday after a United States Senate committee found that over the last ten years the bank had provided services to some lenders in Saudi Arabia and Bangladesh believed to have helped fund al Qaeda and other terrorist groups.
Senator Carl Levin, the chairman of the subcommittee investigating the bank, said HSBC's compliance culture had been "pervasively polluted for a long time".
He added "HSBC's chief compliance officer and other senior executives in London knew what was going on but allowed the deceptive conduct to continue."
In one case the US arm of HSBC (HBUS) treated HSBC Bank Mexico, which transported seven billion US dollars (£4.5bn) in cash in armoured vehicles to the bank in 2007 to 2008, as a "low risk" client.
The bank's head of compliance, David Bagley, who had held the position since 2002, dramatically resigned yesterday while being grilled by senators.
"Despite the best efforts and intentions of many dedicated professionals, HSBC has fallen short of our own expectations and the expectations of our regulators," he said.
Lord Green, who was appointed trade minister by David Cameron in September 2010, works jointly under Lib Dem business secretary Vince Cable and foreign secretary William Hague.
He joined HSBC in 1982 and rose through the ranks before becoming chief executive in June 2003 and was appointed chairman in 2006.
In 2005 Bloomberg Markets magazine reported the bank’s alleged ties to Iran, Libya, Sudan and Syria. It also said the U.S. Treasury Department had fined HSBC for a transfer in April 2000 of $100,000 which benefited the Taliban, who were then running Afghanistan.
In a letter responding to the article Lord Green, the then CEO, said: "This was a singular and wholly irresponsible attack on the bank’s international compliance procedures."
Lord Green also served as chairman of the British Bankers Association (BBA), the financial services trade association, but was replaced by Barclays chairman Marcus Agius when he took his job in government.
Chris Leslie MP, Labour’s shadow financial secretary to the Treasury, said: "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."
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John Mann, a Labour member of the Treasury committee, told the Daily Mirror that Lord Green's appointment as a trade minister called into question the prime minister's judgement.
“Someone whose bank has been assisting drug cartels and corrupt regimes should not be in charge of a government portfolio," he said.
A spokesman for Lord Green told the Mirror: "We are waiting to see what HSBC is saying and will see if there’s anything we can add."
While Downing Street said: "This is a matter for HSBC. The prime minister speaks to ministers all the time, it's not something we're going to give a running commentary on."
Adrian Bailey, the Labour chair of the Commons business, innovation and skills committee that scrutinises Lord Green's department, said speculation about the minister's role and the activities of HSBC could "be damaging to Britain's exports and the government drive to expand them".
"The response of both David Cameron and the BIS department seems to be not say anything and hope it will go away," he told The Huffington Post. "I don't think that's adequate."
"He needs to give a strong response to these questions, otherwise the perception of him and the strategic role that he's engaged in, in promoting Britain's exports could be damaged.
"If the speculation goes on and it damages our exports, it will call David Cameron's judgement into account. Certainly if David Cameron knew things which have not been made public so far and still appointed Lord Green, that would be a serious issue of judgement."
HSBC now faces fines of up to £640m, and is a further blow to the British banking sector following the rate-fixing scandal at Barclays.
On Tuesday morning Ed Miliband said the HSBC scandal demonstrated the need for a "wide, judge-led inquiry on culture and practices of the industry".
He tweeted: "Cannot bring change we need without it."
Asked about the Senate subcommittee's report, chief Secretary to the Treasury Danny Alexander said it was 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," he said.
He told BBC Radio 4's Today programme that Britain has some of the world's toughest rules to prevent money laundering, adding: "Anyone who even withholds information about suspected money laundering can face up to five years in jail."
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