A US Senate probe has disclosed how lax controls at Europe's largest bank left it vulnerable to being used to launder dirty money from around the world.

The report into HSBC, released ahead of a Senate hearing on Tuesday, says huge sums of Mexican drug money almost certainly passed through the bank, BBC reports.

Suspicious funds from Syria, the Cayman Islands, Iran and Saudi Arabia also passed through the bank.
HSBC said it expected to be held accountable for what went wrong.

The damning report comes at a difficult time for the British banking sector, which is having its standards and practices scrutinised by regulators and policymakers.

Critics say the current furore over the manipulation of the Libor inter-bank interest rate is the latest example of a banking system in need of fundamental reform.

The report also concludes that the US bank regulator, the Office of the Comptroller of the Currency, failed to properly monitor HSBC.