[Senate Hearing 112-597, Volume 2]
[From the U.S. Government Printing Office]
S. Hrg. 112-597
U.S. VULNERABILITIES TO MONEY
LAUNDERING, DRUGS, AND TERRORIST
FINANCING: HSBC CASE HISTORY
=======================================================================
HEARING
before the
PERMANENT SUBCOMMITTEE ON INVESTIGATIONS
of the
COMMITTEE ON
HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
----------
VOLUME 2 OF 2
----------
JULY 17, 2012
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S. Hrg. 112-597
U.S. VULNERABILITIES TO MONEY
LAUNDERING, DRUGS, AND TERRORIST
FINANCING: HSBC CASE HISTORY
=======================================================================
HEARING
before the
PERMANENT SUBCOMMITTEE ON INVESTIGATIONS
of the
COMMITTEE ON
HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
__________
VOLUME 2 OF 2
__________
JULY 17, 2012
__________
Available via the World Wide Web: http://www.fdsys.gov
Printed for the use of the
Committee on Homeland Security and Governmental Affairs
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20402-0001
COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii TOM COBURN, Oklahoma
THOMAS R. CARPER, Delaware SCOTT P. BROWN, Massachusetts
MARK L. PRYOR, Arkansas JOHN McCAIN, Arizona
MARY L. LANDRIEU, Louisiana RON JOHNSON, Wisconsin
CLAIRE McCASKILL, Missouri JOHN ENSIGN, Nevada
JON TESTER, Montana ROB PORTMAN, Ohio
MARK BEGICH, Alaska RAND PAUL, Kentucky
JERRY MORAN, Kansas
Michael L. Alexander, Staff Director
Nicholas A. Rossi, Minority Staff Director
Trina Driessnack Tyrer, Chief Clerk
Patricia R. Hogan, Publications Clerk
------
PERMANENT SUBCOMMITTEE ON INVESTIGATIONS
CARL LEVIN, Michigan, Chairman
THOMAS R. CARPER, Delaware TOM COBURN, Oklahoma
MARY L. LANDRIEU, Louisiana SUSAN M. COLLINS, Maine
CLAIRE McCASKILL, Missouri SCOTT P. BROWN, Massachusetts
JON TESTER, Montana JOHN McCAIN, Arizona
MARK BEGICH, Alaska RAND PAUL, Kentucky
Elise J. Bean, Staff Director and Chief Counsel
Robert L. Roach, Counsel and Chief Investigator
Laura E. Stuber, Senior Counsel
Christopher Barkley, Staff Director to the Minority
Keith B. Ashdown, Chief Investigator to the Minority
Mary D. Robertson, Chief Clerk
C O N T E N T S
------
Opening statements:
Page
Senator Levin................................................ 1
Senator Coburn............................................... 7
Prepared statements:
Senator Levin................................................ 85
Senator Coburn............................................... 91
WITNESSES
Tuesday, July 17, 2012
Hon. David S. Cohen, Under Secretary for Terrorism and Financial
Intelligence, U.S. Department of the Treasury.................. 10
Leigh H. Winchell, Assistant Director for Programs, Homeland
Security Investigations, U.S. Immigration and Customs
Enforcement, U.S. Department of Homeland Security.............. 13
David B. Bagley, Head of Group Compliance, HSBC Holdings plc,
London, England................................................ 21
Paul Thurston, Chief Executive, Retail Banking and Wealth
Management, HSBC Holdings plc, Hong Kong....................... 23
Michael Gallagher, Former Executive Vice President, Head of PCM
North America, HSBC Bank USA, N.A., New York, New York......... 24
Chiu Hon ``Christopher'' Lok, Former Head of Global Banknotes,
HSBC Bank USA, N.A., New York, New York........................ 25
Irene Dorner, President and Chief Executive Officer, HSBC Bank
USA and HSBC North America Holdings, Inc., New York, New York.. 47
Stuart A. Levey, Chief Legal Officer, HSBC Holdings plc, London,
England........................................................ 49
Hon. Thomas J. Curry, Comptroller of the Currency, U.S.
Department of the Treasury..................................... 65
Grace E. Dailey, Former Deputy Comptroller for Large Bank
Supervision, Office of the Comptroller of the Currency......... 67
Daniel P. Stipano, Deputy Chief Counsel, Office of the
Comptroller of the Currency.................................... 67
Alphabetical List of Witnesses
Bagley, David B.:
Testimony.................................................... 21
Prepared statement........................................... 111
Cohen, Hon. David S.:
Testimony.................................................... 10
Prepared statement........................................... 94
Curry, Hon. Tomas:
Testimony.................................................... 65
Prepared statement........................................... 150
Dailey, Grace E.:
Testimony.................................................... 67
Prepared statement........................................... 150
Dorner, Irene:
Testimony.................................................... 47
Prepared statement........................................... 130
Gallagher, Michael:
Testimony.................................................... 24
Prepared statement........................................... 124
Levey, Stuart A.:
Testimony.................................................... 49
Prepared statement........................................... 137
Lok, Chiu Hon ``Christopher'':
Testimony.................................................... 25
Prepared statement........................................... 127
Stipano, Daniel P.:
Testimony.................................................... 67
Prepared statement........................................... 150
Thurston, Paul:
Testimony.................................................... 23
Prepared statement........................................... 116
Winchell, Leigh H.:
Testimony.................................................... 13
Prepared statement........................................... 99
APPENDIX
Report by the Permanent Subcommittee on Investigations Majority
and Minority Staff entitled ``U.S. Vulnerabilities to Money
Laundering, Drugs, and Terrorist Financing: HSBC Case
History,'' July 17, 2012....................................... 169
EXHIBIT LIST
1. a. GMatters Requiring Attention (MRAs) and Recommendations in
OCC Supervisory Letters for HSBC Bank USA, N.A., January 2005-
July 2009, chart prepared by the Permanent Subcommittee on
Investigations................................................. 575
b. GHBMX Compliance Failures, chart prepared by the Permanent
Subcommittee on Investigations................................. 576
c. GDisclosed v. Undisclosed Iranian U.S. Dollar Payments Sent
by HSBC Foreign Affiliates to U.S. Banks, Including HSBC Bank
USA, chart prepared by the Permanent Subcommittee on
Investigations................................................. 577
d. GExcerpts from emails of David Bagley re HBUS awareness of
Iranian transactions, 2003-2004................................ 578
e. GRatings Used in OCC Report of Examinations, chart prepared
by the Permanent Subcommittee on Investigations................ 579
f. G31 USC Sec. 5318(h)--Anti-Money Laundering Programs....... 580
General Documents:
2. a. GHSBC Group News, HSBC Group Chief Executive Stuart
Gulliver letter to all HSBC employees. [PSI-HSBC-76-0001-0002]. 581
b. GHSBC Group Circular Letters (GCL), GCL 120014--HSBC Global
Standards. [PSI-HSBC-75-0001].................................. 583
c. GHSBC Group Standards Manual, Chapter 5 Legal, Compliance
and Reputation................................................. 585
3. GHSBC internal email, dated September 2008, re: Kyc hires (.
. . still grappling with some of the grim realities of the
present--the upcoming OCC exam in November being one of those
grim realities.). [HSBC OCC 0616352-356]....................... 587
4. G30 Day Observations and Recommendations Report from AML
Director (Extremely high risk business model from AML
perspective * * * AML Director has the responsibility for AML
compliance, but very little control over its success). [HSBC-
PSI-PROD-0065332-334].......................................... 592
5. GHSBC internal email, dated October 2009, re: OFAC resources
(. . . not good in that we don't get the staffing levels we
need.). [OCC-PSI-00162661]..................................... 595
6. GHSBC internal email, dated February 2010, re: Received a
call from Kathy G this am. (we are in dire straights right now
over backlogs, and decisions being made by those that don't
understand the risks or consequences of their decisions!!!!).
[OCC-PSI-00165898]............................................. 597
7. GHSBC internal email, dated February 2010, re: Bco Nac Angola
(We don't appear to be on the same page as to who owns the
risk.). [OCC-PSI-00165932]..................................... 599
Documents Related to HBMX and HSBC Mexico:
8. GHSBC internal email, dated July 2002, re: BITAL (There is no
recognisable compliance or money laundering function in Bital
at present . . .) [HSBC OCC 8877797-798]....................... 605
9. GHSBC internal email, dated August 2002, re: HIGH NOON,
attaching copy of Group Internal Audit, Due Diligence Review--
Project High Noon). [HSBC OCC 8873843-855]..................... 607
10. GHSBC internal email, dated November 2002, re: COMPLIANCE DUE
DILIGENCE TRIP BY JOHN ROOT, BITAL (MEXICO CITY)--4-8NOV02.
[HSBC OCC 8877800-807]......................................... 620
11. GMay 2004 Group Audit of HBMX (In our opinion, based upon the
foregoing, the Direction of Money Laundering Deterrence is
operating with a BELOW STANDARD level of Control Risk.). [HSBC
OCC 8874376-381]............................................... 628
12. GHSBC internal email, dated January 2005, re: COMPLIANCE
EXCEPTION (. . . 3 members of the Compliance function within
HBMX have alleged that senior persons within the Compliance
function fabricated records of certain mandatory anti-money
laundering meetings . . . * * * There appears little doubt that
the transaction is a breach of the relevant OFAC sanction on
the part of HBUS, . . .). [HSBC OCC 8873671-673]............... 634
13. GHSBC internal email, dated December 2005, re: OFAC (Some
Western authorities allege more sinister purposes, e.g. the
funding of terrorist Hizbollah activities . . .). [HSBC OCC
8876612-613]................................................... 637
14. GHSBC internal email, dated March 2007, re: Subject redacted
by HSBC (This is a very serious, and high profile, case which
has potential reputational damage to the HSBC Group, and must
be given the highest priority.). [HSBC OCC 8874315-326]........ 639
15. GHSBC internal email, dated March 2007, re: Travellers
Cheques (. . . in the year through 3Q04, HBMX has sold over USD
110 million of travellers cheques, an amount that eclipses that
of HBEU here in the UK, . . .). [HSBC OCC 8876645-646]......... 644
16. GHSBC internal email, dated April 2007, re: GROUP AUDIT
COMMITTEE--APR07 (Lack of a compliance culture, evidenced (in
the most serious way) by the number of staff defalcations and
(in a more widespread general negligence) in the number of
fines we receive from the regulators for avoidable errors . .
.). [HSBC OCC 8874328-330]..................................... 646
17. GHSBC internal email, dated April 2007, re: Managerial
Letter: HBMX (. . . process he initiated over a month ago
following the seizure of the arms and money from our customer's
premises. . . . * * * Not a happy story.). [HSBC OCC 8875010-
014]........................................................... 649
18. a. GHSBC Bank USA, National Association Office Memorandum,
dated May 1, 2007, re: Wall Street Journal Article Regarding
Wachovia (Sigue Corp.--A money service business that allegedly
processed $24.7 million in suspicious money remittances related
to drug-trafficking proceeds.). [OCC-PSI-01358514-517]......... 654
b. GExcerpt from Sigue Corporation Deferred Prosecution
Agreement, January 24, 2008.................................... 658
19. GHSBC internal email, dated July 2007, re: Weekly Compliance
Report (It looks like the business is still retaining
unacceptable risks and the AML committee is going along after
some initial hemming and hawing.). [HSBC OCC 8875925-927]...... 673
20. GHSBC internal email, dated July 2007, re: Subject redacted
by HSBC (The principal factor here is that the quality of
response from the CMB team has not been of the standard that
leads me to believe that they are on top of the compliance
risks here.). [HSBC OCC 8875132-135]........................... 676
21. GHSBC internal email, dated October 2007, re: CNBV Inspection
(This is disturbing and clearly we will need to look at the
management structure and practices.). [HSBC OCC 8873338-342]... 680
22. GHSBC internal email, dated November 2007, re: Mexico (. . .
there are numerous cases of accounts with multiple SARs (16 in
one case!!) in Mexico that remain open.). [HSBC OCC 8875423]... 685
23. GHSBC internal email, dated December 2007, re: Warren
Learning HBMX DEC Visit Issues (Sinaloa massive money-
laundering scheme (+USD 100 million). [HSBC OCC 8875837]....... 686
24. G12/2007 Audit of HBMX-Money Laundering Deterrence (MLD),
GROUP AUDIT MEXICO, AUDIT REPORT SUMMARY SCHEDULE (Main control
weaknesses identified during the audit . . .). [HSBC OCC
8876347]....................................................... 687
25. GHSBC internal email, dated January 2009, re: US Issues--
Various (. . . if they were contacted by US authorities then
they should have thought to advise HBUS.). [HSBC OCC 8873759].. 688
26. GHSBC internal email, dated December 2006, re: OFAC--Wire
payments blocked from HSBC offshore entities--USD 32,000 (re
SDGT) and USD 2,538,939.33 (re Sudan) (How is it that these
payments continue to be processed by our affiliates in light of
the GCLs?). [HSBC OCC 3407608-609]............................. 689
27. GHSBC internal email, dated February 2008, re: CNBV (. . .
Mexico is suffering a major problem with drugs dealers and the
Government is being very robust. . . .). [HSBC-PSI-PROD-
0198508-509]................................................... 691
28. GHSBC internal email, dated February 2008, re: Subject
redacted by HSBC (. . . in spite of the seriousness of this
case and the issues involved, CMB is proposing to retain this
relationship.). [HSBC OCC 8875139-141 and HSBC OCC 8875020-021] 693
29. GHSBC internal email, dated February 2008, re: CONFIDENTIAL--
CNBV/FIU Meeting (This is most disturbing and we will need to
have the most thorough of investigations.). [HSBC OCC 8966014-
018]........................................................... 698
30. GHSBC internal email, dated March 2008, re: HBMX (The
comments made by Leopoldo are quite concerning, and it would
appear that he was more aware of the weaknesses, and the
concerns of the CNBV, than Ramon has indicated.). [HSBC OCC
8874821-825]................................................... 703
31. GHSBC internal email, dated July 2008, re: HBMX Visit Update
(The report . . . concluded that KYC control was ``below
standard.'' A sampling showed that 15% of the customers did not
even have a file. For the files that could be found, there were
serious failures in following Group procedures.). [HSBC OCC
8873487-489]................................................... 708
32. GHSBC internal email, dated July 2008, re: HBMX--Cayman
Accounts (. . . it appears that our CAMP monitoring system
identified significant USD remittances being made by a number
of customers to a US company alleged to have been involved in
the supply of aircraft to drugs [sic] cartels.). [HSBC OCC
8874829-833]................................................... 711
33. GHSBC internal email, dated September 2008, re: Cayman
Accounts (Account opening documentation is generally poor or
non-existent and there is a lot of work to do. Money-laundering
risk is consequently high.). [HSBC OCC 8876784-787]............ 716
34. GHSBC internal email, dated November 2008, re: Seriously
consider restricting the product Dollars accounts in the zona
frontera Product 63 Cuenta Maestra en Dolares P.F. (In the same
way we have already restricted new Caiman Island accounts from
opening, due to the massive misuse of them by organised crime .
. .). [HSBC OCC 8875736-738]................................... 720
35. GHSBC internal email, dated November 2008, re: Mexico (What I
find most frustrating is the way in which new issues constantly
emerge however much time is spent with HBMX.). [HSBC OCC
8875605-607]................................................... 723
36. GHSBC internal email, dated December 2008, re: Mexico Visit
(. . . significant backlog (3,659) of accounts to be closed. .
. . 675 accounts pending closure were ordered to be closed by
the CCC on suspicion that they are used for money laundering
activity. . . . 16 accounts that were sent for closure in 2005,
. . .). [HSBC-PSI-PROD-0197874-876]............................ 726
37. a. GHBUS Banksnotes NY-USD Bought from or Sold to Customers
in Mexico: 3 Month Period (Nov-06 to Feb-07). [OCC-PSI-
00151506]...................................................... 729
b. GBANKNOTES-NY Selected Customers' Activity Alerts &
Traders' Explanations for USD Purchases & Sales from 2005-2009,
prepared by OCC. [OCC-PSI-00005890-904]........................ 730
38. GOCC internal email, dated June 2010, re: HSBC (. . . this
has the makings of potentially being a major criminal case . .
.). [OCC-PSI-00928756-758]..................................... 745
39. GHSBC Presentation, Conducting an Enhanced KYC for Grand
Cayman Accountholders, undated (* * * almost no progress has
been made in enhanced KYC completion * * * success rate in file
completion is approximately 25%). [HSBC OCC 8874560-566]....... 748
Documents Related to HSBC Affiliates--Circumventing OFAC
Prohibitions:
40. GHSBC internal email, dated May 2001, re: BANK MELLI (I wish
to be on the record as not comfortable with this piece of
business.). [HSBC-PSI-PROD-0096138-142]........................ 755
41. GHSBC internal email, dated July 2001, re: Bank Melli (With
the amount of smoke coming off this gun, remind me again why we
think we should be supporting this business?). [HSBC OCC
8876128-136]................................................... 760
42. GHSBC internal email, dated October 2001, re: OFAC SANCTIONS
(. . . bear in mind pending US legislation which will in effect
give the US extra-territorial authority over foreign banks,
particularly if we are unfortunate enough to process a payment
which turns out to be connected to terrorism.). [HSBC OCC
8873890-893]................................................... 769
43. GHSBC internal email, dated October 2002, re: IRAN (Your
already processing USD payments from two existing accounts held
in London.). [HSBC OCC 7687373-377]............................ 773
44. GHSBC internal email, dated January 2003, re: USD Payments
from Iranian Banks (As you may recall, it was agreed that our
London/Middle East office would put together a business case
regarding plans for providing USD payment services to Iranian
Banks . . .). [HSBC OCC 3407510-515]........................... 778
45. GHSBC internal email, dated February 2003, re: BUSINESS
CASE--US PAYMENTS FROM IRANIAN BANKS/ENTITIES (The business
case includes a number of express references to practices which
may constitute a breach of US sanctions, including the OFAC
provisions, and could provide the basis for action against the
HSBC Group . . .). [HSBC OCC 8876487-488]...................... 784
46. GHSBC internal email, dated October 2003, re: IRAN--STRATEGY
DISCUSSION PAPER (. . . there remain serious political and
reputational risks within the USA if they proceed with this . .
.). [HSBC OCC 8873941-947]..................................... 786
47. GHSBC Document, IRAN--STRATEGY DISCUSSION PAPER, undated,
(The Iranian market offers substantial untapped potential for
the HSBC Group.). [HSBC OCC 8873949-956]....................... 793
48. GHSBC internal email, dated October 2003, re: USD Clearing--
Iranian Banks (. . . HBEU have been manually intervening in the
processing of Iranian bank payment instructions by removing the
remitter's name and country to prevent the probable trigger of
a filter in the US, and the subsequent declaration to OFAC (and
possible freezing) of the funds.). [HSBC OCC 8875217-218]...... 801
49. GHSBC internal email, dated October 2003, re: Iran (The
practice of amending instructions is clearly a long standing
one which has hitherto continued despite the RMs believing it
had ceased some years ago.). [HSBC OCC 8874660-663]............ 803
50. a. GHSBC internal email, dated December 2003, re:
COMPLIANCE--OFAC ISSUES IN GENERAL AND SPECIFIC TO IRAN (I
currently feel that we may be exposing ourselves to unnecessary
and unacceptable Reputational and Operational Risk when we are
handling payments originating from FIs domiciled in or who are
a local branch of an FI domiciled in an OFAC regulated
country.). [HSBC OCC 3407517-522].............................. 807
b. GHSBC internal email, dated June 2003, re: PLC--Re ``do not
mention our name'' (When Funds Transfer staff noted the
messages in the BBI field stating ``do not mention our name''
the payment was rejected, per our policy, due to concerns about
evasion issues under the OFAC regulations.). [HSBC OCC 8873922-
928]........................................................... 813
c. GHSBC internal email, dated May 2005, re: Wire Payments
Suspended (Wire payment suspended re ``Iran''--USD
6,912,607.82). [HSBC OCC 8874710-712].......................... 820
d. GHSBC internal email, dated February 2008, re: Rami
Makhlouf (Please be advised that we currently maintain a
relationship with Sellor, Mohamad Makhlouf in our capacity as
Trustee and the individual named in your search request (Rami
Makhlouf) is actually a beneficiary of the Trust . . .). [HSBC-
OCC-8878838-840]............................................... 823
51. GHSBC internal email, dated March 2004, re: BankMarkazi
Payment (. . . I remain extremely uncomfortable with the
practice of amending Iranian payment orders for whatever
means.). [HSBC OCC 8873979-982]................................ 826
52. GHSBC internal email, dated March 2004, re: Bank Markazi
Payment (The complexity of the OFAC regulations, and the fact
that HBUS were unaware that any arrangements existed with
Iranian Banks, has made speedy resolution of this issue
difficult.). [HSBC OCC 8873985-986]............................ 830
53. GHSBC internal email, dated April 2004, re: Iran
Correspondent Banking Services--OFAC (. . . the most pressing
issue to be resolved is that relating to the limited number of
existing relationships that we have (for two small Iranian
Banks) where I suspect that HBUS are not aware that payments
may be passing through them.). [HSBC OCC 8873994-997].......... 832
54. GHSBC internal email, dated June 2004, re: Iran (. . . there
are very compelling commercial reasons which need to be borne
in mind when making this decision, not least of which is the
threat to the Group's position in and business with Iran over
the medium term.). [HSBC OCC 8874001-004]...................... 836
55. GHSBC internal email, dated June 2004, re: Iran (. . . our
interpretation was that we were being asked to ``fudge'' the
nature of the payments to avoid the U.S. embargo and seizure .
. .). [HSBC OCC 8873999]....................................... 840
56. GHSBC internal email, dated July 2004, re: HBEU Iranian
Payments Business (. . . we are being asked to amend
instructions or, assume responsibility that the contents of the
payment message do not attract the fed's attention and seize
the payment. . . .). [HSBC OCC 8876861-863].................... 841
57. GHSBC internal email, dated November 2004, re: U-turns (. . .
initially there were concerns about the potential intentional
removal of wording ``off limit payments'' from these
payments.). [HSBC-PSI-PROD-0096165-167]........................ 844
58. GHSBC internal email, dated December 2004, re: U-turns
(Attached are the conditions under which HBUS will accept U-
Turn transactions.). [HSBC OCC 3407526-527].................... 847
59. GHSBC internal email, dated June 2005, re: IRANIAN PAYMENTS
(. . . HBME is currently seeking to open a USD account with JP
Morgan Chase as our first choice . . . in order to process
Iranian related USD payments.). [HSBC OCC 8878026-029]......... 849
60. GHSBC internal email, dated May 2006, re: TP GATEWAYS (I
would have thought the US regulators would have taken a dim
view of routing stuff around the US.). [HSBC OCC 7687437-438].. 853
61. GHSBC internal email, dated May 2006, re: U Turns (I
anticipate that you would prefer to see Field 72 completed, but
this will mean more hits in the filters even if they will then
be passed.). [HSBC OCC 3243782-787]............................ 855
62. GHSBC internal email, dated January 2007, re: Transactions
with Iran/Cuba, etc (. . . let's set up a completely different
Swift address to help avoid any problems with Cuba and Iran.).
[HSBC OCC 8876921-931]......................................... 861
63. GHSBC internal email, dated June 2007, re: Iran (There are
further complications surrounding the process of closure with
all Iranian banks as we have some USD 9m in reimbursements due
from Sepah, where we are running off trade lines . . .). [HSBC
OCC 8878214-216]............................................... 872
64. GHSBC internal email, dated June 2007, re: GROUP MESSAGING
GATEWAY FOR LAM--CLEAR CHOICE REPORT (We have not engaged with
CI and Nassau as we have no leadership responsibility for this
geography.). [HSBC OCC 8874349-355]............................ 875
65. GHSBC internal email, dated June 2008, re: OFAC processing in
GSC's (. . . we're strapped and getting behind in
investigations (on OFAC cases) and have some of our key
managers in the queues releasing items . . . I cannot hire
first level staff unless it's offshored . . .) [HSBC OCC
0616349-350]................................................... 882
66. GHSBC internal email, dated December 2009, re: OFAC Payments
(. . . we could use 5 or 6 people for 10 days who can review
payments to clear the 700 and building backlog of payments that
have been held over and need to be worked to process.). [HSBC
OCC 7688668-670]............................................... 884
67. GHSBC internal email, dated August 2010, re: Project Topaz US
Urgent Requirements (We need to move quickly to reduce the AML
alerts and the connected KYC issues as it is impossible to plan
the required capacity * * * Attached is a list of 121
international banks that we can no longer support and need to
exit. * * * the US requirements cut across business lines and
it is crucial that the strategies of PCM, TSC and FIG are
aligned to prevent this situation occurring in the future.).
[HSBC OCC 8876104-106]......................................... 887
68. GExcerpt from Deloitte Review of OFAC transactions, RESULTS
OF THE TRANSACTIONS REVIEW--UK GATEWAY, March 29, 2012. [HSBC-
PSI-PROD-0197919, 930-931, 940, 968-969, 976, 980]............. 890
69. GExcerpt from March 29, 2012 Presentation, prepared by
Sullivan & Cromwell LLP and Cahill Gordon & Reindel LLP on OFAC
compliance by HSBC Bank USA. [HSBC OCC 8966113, 118, 143]...... 898
70. GHSBC Group Circular Letters (GCL):
a. GGCL 050047--Compliance with sanctions (28/Jul/2005) [HSBC
OCC 3407560-561];.............................................. 901
b. GGCL 060011--US Dollar Payments (06/Apr/2006) [HSBC OCC
3407587];...................................................... 905
c. GGCL 060041--US OFAC Sanctions against Iran--U-Turn
Exemption (25/Oct/2006) [HSBC OCC 3407606];.................... 907
d. GGCL 070049--Sanctions Against Iran (24/Sep/2007). [OCC-
PSI-00141530-531].............................................. 909
Documents related to other countries:
71. a. GHSBC internal email, dated September 2005, re: OFAC
sanctions (In particular regard to the Sudanese payments, but
also to a lesser extent, Cuban and Burmese, there are a
considerable number of USD denominated transactions.). [HSBC
OCC 8877213-214] 912
b. GHSBC document prepared May 2007. INFORMATION REQUESTED IN
CONNECTION WITH: NORTH KOREA, CUBA, AND MYANMAR (We were
notified that there are relationships with Cuban and North
Korean customers.). [HSBC OCC 8876093-095]..................... 914
c. GHSBC internal email, dated October 2005, re: GCL 050047--
Compliance with Sanctions (I note HBMX continues to process USD
payments involving Cuba. It is very important this is stopped
immediately as the regulators are getting very tough and the
cost to the Group could be considerable if a breach occurs,
both in terms of the fine and in the rectification work which
is likely to be a pre-requisite to any settlement. If this
identifies further breaches, the cost could spiral.). [HSBC OCC
8874357-362]................................................... 917
d. GExcerpt from Deloitte, Transaction Review Progress and
Results Reporting, 18th & 19th October 2011 (Correspondent and
other accounts . . .). [HSBC-PSI-PROD-0096628, 649]............ 923
Documents Related to Al Rajhi Bank--Disregarding Links to
Terrorist Financing:
72. GHSBC internal email, dated January 2005, re: Al Ra[jh]i
Trading/Al Ra[jh]i Banking (. . . Group Compliance has
recommended that the US businesses sever ties with these
clients based on the current regulatory environment and the
interest of US law enforcement.). [HSBC OCC 1884218]........... 925
73. GHSBC internal email, dated March 2005, re: Al Ra[jh]i
Guidance Clarified (Looks like you're fine to continue dealing
with Al Rajhi. You'd better be making lots of money!). [HSBC
OCC 3114022]................................................... 926
74. GHSBC internal email, dated May 2005, re: Al Rajhi (After the
OCC close out and that chapter hopefully finished, could we re-
visit Al Rajhi again. London compliance has taken a more
lenient view . . .). [OCC-PSI-00144350]........................ 927
75. GHSBC internal email, dated August 2005, re: Al Rajhi (We've
gotten push back from OCC on Al Ra[jh]i Trading, which is less
controversial than the bank.). [OCC-PSI-00343527].............. 929
76. GExcerpt from HBUS Global Banknotes--Purchases & Sales USD--
2008 vs 2009. [HSBC OCC 5364770, 784, 793, 794]................ 932
77. GHSBC internal email, dated November 2006, re: Al Rajhi
Banking (. . . the PCM Regional Sales Manager at HBME in
Bahrain . . . has called to say that Al Rajhi has now run out
of patience waiting for us to re-start our banknote trading
relationship . . .). [HSBC OCC 3280505]........................ 936
78. GHSBC internal email, dated November 2006, re: Al Rajhi
Banking (At the end of the day, its Compliance who's the key.).
[OCC-PSI-00150795]............................................. 937
79. GHSBC internal email, dated November 2006, re: Alrajhi [sic]
(To cancel the Amanah business is much bigger than not dealing
with banknotes.). [OCC-PSI-00150798]........................... 939
80. GHSBC internal email, dated December 2006, re: Al Rajhi Bank
(. . . the notion of `no smoke without fire' is one we must
bear in mind and any business unit dealing with this entity
must acknowledge the associated risks.). [OCC-PSI-00150892].... 942
81. GHSBC internal email, dated July 2007, re: Al Rajhi Bank in
Saudi Arabia (This article on Al Rajhi Bank & TF was in the
Wall Street Journal today.). [HSBC OCC 2830874-879]............ 943
82. GHSBC internal email, dated November 2007, re: ISLAMI BANK
BANGLADESH LIMITED (. . . the money is there and we should go
for this account.). [HSBC OCC 0739987-991]..................... 949
83. GHSBC internal email, dated November 2007, re: ISLAMI BANK
BANGLADESH LIMITED--Bangladesh (. . . the Al-Rajhi family has
been associated with Islami Bank, Bangladesh Limited, since its
inception.). [OCC-PSI-00154139]................................ 954
84. a. GHSBC internal email, dated August 2009, re: EDD Report of
Findings [redacted] Bank Ltd in Bangladesh (BN-SP & PCM) (I
support Hersel's stance that this is such a large bank hence
malfeasance is expected.). [HSBC OCC 7688017-024].............. 958
b. GHSBC internal email, dated September 2005, re: Report of
Findings--[redacted] Bank--FIG (Yes, corruption can be rampant
in this bank. . . .). [HSBC OCC 7690024-032]................... 964
85. GHSBC Know Your Customer Profile for Al Rajhi Banking &
Investment Corp, October 2010. [HSBC-PSI-PROD-0102310-324]..... 967
86. GHSBC Know Your Customer Profile for Islami Bank Bangladesh
Limited, June 2011. [HSBC-PSI-PROD-0117222-237]................ 982
87. a. GIslami Bank Bangladesh Ltd. responses to questions from
the U.S. Senate Permanent Subcommittee on Investigations, July
4, 2012. [PSI-IBBL-01-0001-003]................................ 998
b. GSocial Islami Bank Ltd. responses to questions from the
U.S. Senate Permanent Subcommittee on Investigations, July 10,
2012. [PSI-SIBL-01-0001-004]................................... 1001
Documents Related to Hokuriku Bank--Cashing Bulk Travelers
Checks:
88. GHSBC internal email, September 2008, re: Hokuriku Bank Ltd--
Compliance query (Information from Hokuriku Bank regarding some
of the car dealerships they do business with that we
questioned. Its very limited information that took us over a
month to get.). [OCC-PSI-00409214-216]......................... 1005
89. GHSBC internal email, dated November 2008, re: Hokuriku Bank
(This use of cash letter is inappropriate and the Committee has
concluded that PCM should no longer allow Hokuriku to send
traveler's checks through cash letter.). [OCC-PSI-00808695].... 1017
90. GHSBC internal email, dated December 2008, re: Hokuriku
Bank--information needed (They have been good enough to provide
information so far but as you may understand from bank secrecy
view point, they should not or cannot disclose customer
information.). [OCC-PSI-00811358].............................. 1024
91. GHSBC internal email, dated December 2008, re: SK Trading (.
. . we uncovered huge amounts of [redacted] travelers' checks
(daily averages of $500M to $700M per day) being processed by
HSBC for their correspondent Hokuriku Bank in Japan.). [OCC-
PSI-00888526].................................................. 1037
92. GHokuriku Bank, Ltd. responses to questions from the U.S.
Senate Permanent Subcommittee on Investigations, June 26 and
29, 2012. [PSI-HokurikuBank-01-0001-005 and PSI-HokurikuBank-
02-0001]....................................................... 1038
Documents Related to HBUS Private Bank Americas:--Offering Bearer
Share Accounts:
93. GHSBC internal email, dated August 2007, re: Bearer Share
Companies (The following is our current policy for Bearer Share
Corporations in NY . . .). [OCC-PSI-00318438].................. 1044
94. GHSBC internal email, dated December 2007, re: Bearer Share
Corporation Policy (IPB Miami maintains existing accounts for
1,679 Bearer Share Corporations of which 126 are considered
High Risk.). [OCC-PSI-00226652]................................ 1059
95. GTranscript of 4/25/2007 telephone conversation between HBUS
Claude Mandel and Mauricio Cohen (Mr. Cohen: But I can't put
that, otherwise I have to declare them in the United States? I
can't do that, I don't want to declare . . . otherwise, I have
to close the accounts with you and go to Geneva.). [HSBC-PSI-
PROD-0024791-795].............................................. 1062
96. a. GHSBC internal email, dated June 2007, re: Waiver Request
(The two accounts are bearer shares. The client does not want
neither to register nor custodize the shares, and they do not
want to sign the BOL.). [OCC-PSI-00214516]..................... 1067
b. GHSBC internal email, dated June 2007, re: Waiver Request
(I would do it without going to Geneva but audit wrote up DPB
on a similar situation.). [OCC-PSI-00214534]................... 1071
97. Documents related to Peruvian Family:
a. GHSBC internal email, dated June 2007, re: [redacted]
Family (I spoke to Susan Wright, Group Head of AML. She is
reluctant to grant the exception but will consider it.). [OCC-
PSI-00214880].................................................. 1073
b. GHSBC internal email, dated June and July, 2007, re:
[redacted] Family (This is too important a family in Peru for
us not to want to do business with, . . .). [OCC-PSI-00215211]. 1075
Documents Related to OCC--Exercising Ineffective AML Oversight:
98. GHSBC internal email, dated February 2010, re: OCC Meeting
(In light of the extent of our alert backlogs, Sally indicated
that they will shortly be issuing a Supervisory Letter . . .).
[HSBC OCC 3405315-316]......................................... 1081
99. GHSBC internal email, dated June 2009, re: GMO business
reviews--LATAM (The inherent AML risk in Mexico is still very
high . . .). [HSBC OCC 8874895]................................ 1083
Additional Documents:
100. GCorrespondence from the Comptroller of the Currency (OCC)
to the Permanent Subcommittee on Investigation, September 20,
2012, on actions taken by the OCC since the Subcommittee's July
2012 hearing. [PSI-OCC-45-0000010-016]......................... 1084
101. GResponses to supplemental questions for the record from
HSBC, September 11 and 25, 2012. [PSI-HSBC-80-000001-006, PSI-
HSBC-81-000001-003]............................................ 1100
VOLUME 2
102. GDocuments cited in footnotes to U.S. Vulnerabilities to
Money Laundering, Drugs, and Terrorist Financing: HSBC Case
History, the Report released in conjunction with the
Subcommittee hearing on July 17, 2012. A Document Locator List
provides Bates numbers and document descriptions of the
documents cited in the Report. Not included are documents
related to Subcommittee interviews, which are not available to
the public, and widely available public documents.............. 1109
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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