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Federal Reserve terminates HSBC’s Cease and Desist Order

September 01, 2022

Federal Reserve Board announces termination of enforcement action with HSBC Holdings plc

For release at 2:30 p.m. EDT 

The Federal Reserve Board on Thursday announced the termination of the enforcement action listed below:

HSBC Holdings plc, London, United Kingdom
Cease and Desist Order dated December 11, 2012 (PDF)
Terminated August 26, 2022

From the Cease and Desist Order:

WHEREAS, on October 4, 2010, HNAH consented to the issuance of a Cease and Desist Order by the Board of Governors of the Federal Reserve System (the “Board of Governors”) designed to correct deficiencies with its firm-wide compliance risk-management program and to address compliance with applicable United States federal and state laws, rules, and regulations, including the BSA/AML Requirements;
WHEREAS, on October 6, 2010, HBUS consented to the issuance of a Cease and Desist Order by the Office of the Comptroller of the Currency designed to remedy deficiencies in HBUS’s BSA/AML compliance program;
WHEREAS, the United States Department of Justice (the “DOJ”) has been conducting an investigation into the practices of Holdings concerning the transmission of funds through HBUS, including by and through entities and individuals subject to sanctions regimes imposed under the International Emergency Economic Powers Act (“IEEPA”), 50 U.S.C. §§ 1701-06, and the Trading with the Enemy Act (“TWEA”), 50 U.S.C. §§ 5, 16, both of which are administered by the Office of Foreign Assets Control of the United States Department of the Treasury (“OFAC”). In order to resolve the investigation, Holdings and HBUS have agreed to enter into a Deferred Prosecution Agreement (“DPA”) with the DOJ, wherein:
A. HBUS admits that it violated the BSA by willfully failing to establish and maintain an effective AML program and willfully failing to establish due diligence for foreign correspondent accounts; and

B. Holdings admits that it violated TWEA by willfully violating or attempting to violate any regulation issued under TWEA, including regulations restricting transactions with Cuba. Holdings further admits that it violated IEEPA by willfully violating or attempting to violate any regulation issued under IEEPA, including regulations restricting transaction with Iran, Libya, Sudan, and Burma.
WHEREAS, after entry of the 2010 Cease and Desist Orders, the Board of Governors obtained information supporting allegations that:
A. Holdings lacked adequate risk management and legal review policies and procedures to ensure compliance with applicable United States law. As a result:

  • Between 2006 and 2009, Holdings’s banking subsidiary in Mexico, HSBC Mexico (“HBMX”), was able to engage in a substantial number of high-risk transactions with HBUS while maintaining an inadequate system of internal controls to manage the risk of money laundering. Holdings officials failed to communicate certain negative findings in internal audits of HBMX and concerns raised by foreign governing bodies regarding the AML practices of HBMX to HNAH and HBUS appropriate legal and compliance staff in the United States, while simultaneously maintaining firm-wide standards and policies that discouraged HBUS from conducting appropriate levels of due diligence and monitoring of the bank’s foreign correspondent accounts; and
  • From at least 2001 to 2007, Holdings’s banking subsidiaries in Europe, HSBC Bank plc (“HBEU”), and the Middle East, HSBC Bank Middle East (“HBME”), moved, or permitted to be moved, illegally several hundred million dollars through the U.S. financial system on behalf of banks located in Cuba, Iran, Libya, Sudan, and Burma, and persons listed as parties or jurisdictions sanctioned by OFAC in violation of U.S. economic sanctions in a manner that circumvented the system established by HBUS for ensuring compliance with the laws of the United States, including the regulations issued by OFAC (31 C.F.R. Chapter V) (the “OFAC Regulations”). Holdings failed to adequately review the procedures used by HBEU and HBME to determine whether these transactions were carried out in a manner consistent with U.S. law.

B. Between 2006 and 2010, HBUS failed to maintain internal controls, staffing and resources sufficient to adequately identify and mitigate the risks associated with high risk transactions conducted through the bank’s foreign correspondent accounts, especially those relating to the bank’s Mexican affiliate. In this regard, HNAH failed to ensure that HBUS had an adequate process to identify high risk customers and countries that may be potentially associated with money-laundering or terrorist financing.

And:

U.S. Law Compliance Program

  1. Within 120 days of this Order, Holdings shall submit to the Federal Reserve Bank of Chicago (the “Reserve Bank”) an acceptable compliance program, including a timetable for implementation (the “ U.S. Law Compliance Program”), that shall, at a minimum, provide for:
  2. BSA/AML compliance elements
    (a) Measures to ensure that Holdings and its global subsidiaries appropriately identify and communicate activities or deficiencies within its operations that may impact the ability of U.S. subsidiaries to comply with BSA/AML Requirements;
    (b) policies and procedures that require the escalation of significant issues related to BSA/AML Requirements to appropriate senior officers for resolution;
    OFAC compliance elements
    (c) during the term of this Order, an annual assessment of OFAC compliance risks arising from the global business activities and customer base of Holdings subsidiaries, including risks arising from transaction processing and trade finance activities conducted by or through Holdings’s global operations;
    (d) policies and procedures to ensure compliance with OFAC Regulations by Holdings’s global business lines, including screening with respect to transaction processing and trade financing activities for the direct and indirect customers of Holdings subsidiaries;
    (e) the establishment of an OFAC compliance reporting system that is widely publicized within the global organization and integrated into Holdings’s other reporting systems in which employees report known or suspected violations of OFAC Regulations, and that includes a process designed to ensure that known or suspected OFAC violations are promptly escalated to appropriate compliance personnel for appropriate resolution and reporting;
  3. (f) procedures to ensure that the OFAC compliance elements of the U.S. Law Compliance Program are adequately staffed and funded;
  4. (g) training for Holdings employees in OFAC-related issues appropriate to the employee’s job responsibilities that is provided on an ongoing, periodic basis; and
  5. (h) an audit program designed to test for compliance with OFAC.
  6. (a) During the term of this Order, to ensure that the OFAC compliance elements of the U.S. Law Compliance Program are functioning effectively to detect, correct, and report OFAC sanction transactions when they occur, Holdings shall conduct on an annual basis: (i) a review of OFAC compliance policies and procedures and their implementation, and (ii) an appropriate risk-focused sampling of U.S. dollar payments (the “OFAC Compliance Review”).
    (b) The OFAC Compliance Review, the first of which shall commence one year after the date of this Order, shall be conducted by an independent consultant acceptable to the Reserve Bank and the FSA. No later than 30 days before the scheduled commencement of the OFAC Compliance Review, Holdings shall submit an engagement letter acceptable to the Reserve Bank and the FSA that details the independent consultant’s scope of work.
    (c) Each OFAC Compliance Review shall be conducted in accordance with generally accepted auditing standards and the results of each review shall be submitted to the Reserve Bank and the FSA within 90 days of the anniversary date of this Order.
  7. Within 60 days of the Reserve Bank’s approval of the U.S. Law Compliance Program required by paragraph 1, Holdings shall complete a global OFAC risk assessment with particular attention to transactions involving group affiliates. A copy of the risk assessment shall be submitted to the Reserve Bank and the FSA upon its completion.
  8. Compliance with the Order
  9. Within 30 days after the end of each calendar quarter following the date of this Order, Holdings shall submit to the Reserve Bank written progress reports detailing the form and manner of all actions taken to secure compliance with this Order and the results thereof.
  10. Approval and Implementation of Program
  11. (a) Holdings shall submit the written enhanced U.S. Law Compliance Program that is acceptable to the Reserve Bank within the time period set forth in paragraph 1 of this Order. An independent consultant acceptable to the Reserve Bank and the FSA shall be retained within the time period set forth in paragraph 2(b) of this Order. An engagement letter acceptable to the Reserve Bank and the FSA shall be submitted within the time period set forth in paragraph 2(b) of this Order.
    (b) Within 10 days of approval by the Reserve Bank, Holdings shall adopt the approved U.S. Law Compliance Program. Upon adoption, Holdings shall promptly implement the approved program, and thereafter fully comply with it.
    (c) During the term of this Order, the approved program and engagement letter shall not be amended or rescinded without the prior written approval of the Reserve Bank.

Links:

Federal Reserve Press Release

2012 Cease and Desist Order

Categories: Anti-Money Laundering Cease and Desist Orders Enforcement Actions Federal Reserve updates Sanctions News

eric9to5

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