December 12, 2012 –
2 banks slammed for BSA/AML/OFAC violations: HSBC, Standard Chartered Bank

HSBC

Yesterday, HSBC Holdings plc (“HSBC Holdings”) and HSBC Bank USA N.A. (“HSBC USA”) reached a collective settlement (the “Settlement”) amounting to approximately $1.92 billion (the largest bank settlement in U.S. history) relating to their alleged violation of the Bank Secrecy Act (“BSA”), the International Emergency Economic Powers Act (“IEEPA”) the Trading with the Enemy Act (“TWEA”), and several U.S. sanctions programs.

The $1.92 billion Settlement, which stems from a combined federal, local, and international government action, is comprised of the following:

• A deferred prosecution agreement with and $1.256 billion forfeiture to the U.S. Department of Justice (“DOJ”) for HSBC Holdings’ and HSBC USA’s (collectively, HSBC”) alleged violation of the BSA, the IEEPA and the TWEA;
• A $375 million settlement between the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) and HSBC Holdings to settle potential liability on behalf of itself and certain of its affiliates for alleged violations of the Iranian Transactions Regulations, the Burmese Sanctions Regulations, the Sudanese Sanctions Regulations, the Cuban Assets Control Regulations and the Libyan Sanctions Regulations. This settlement will be deemed satisfied by the forfeiture of an equal amount to the DOJ for the same pattern of conduct;
• Separate assessments of $500 million in civil money penalties issued by the Financial Crimes Enforcement Network (“FinCEN”) and the Office of the Comptroller of the Currency (“OCC”) against HSBC USA for BSA violations.  The OCC civil money penalty is being levied for failure to comply fully with a remedial order addressing these violations, issued by the OCC in 2010. Both of these penalties will be deemed satisfied by a single payment of $500 million to the U.S. Department of the Treasury; and
• The assessment of $165 million in civil money penalties and the issuance of a cease and desist order by the Board of Governors of the Federal Reserve System (the “Federal Reserve”) against HSBC Holdings and HSBC North America Holdings, Inc. for alleged unsafe and unsound practices related to insufficient compliance with the BSA and anti-money laundering requirements, and U.S. sanctions programs.

According to court documents and the various press releases issued by the federal, local, and international governmental agencies involved in the Settlement, since at least mid-2006, the HSBC lacked an effective risk-based AML program reasonably designed to manage risks of money laundering or other illicit activity, given its products, services, transaction volume, scope of business activities, geographic reach, and customers. Additionally, it is alleged that for a number of years, up to and including 2007, HSBC’s affiliates in Europe, the Middle East, and Asia processed transactions through U.S. financial institutions that involved countries, entities, or individuals subject to U.S. sanctions.

STANDARD CHARTERED BANK

Standard Chartered Bank (“SCB”) has agreed to a $132 million settlement with OFAC for apparent violations of the following U.S. sanctions: the Burmese Sanctions Regulations, the Iranian Sanctions Regulations, the now-repealed Libyan Sanctions Regulations, the Sudanese Sanctions Regulations, and the Foreign Narcotics Kingpin Sanctions. SCB’s settlement with OFAC is part of a global settlement of $327 million among SCB and OFAC, the DOJ, the New York County District Attorney’s Office and the Federal Reserve.

OFAC determined that the OFAC sanctions violations, except for the apparent violations of the Foreign Narcotics Kingpin Sanctions, were egregious and SCB’s conduct was reckless.  Furthermore, OFAC determined that:  (i) a number of SCB employees, including senior management, were aware of the conduct that led to the apparent violations; (ii) the apparent violations resulted in significant harm to U.S. sanctions programs objectives; and (iii) SCB did not maintain adequate policies or procedures to ensure compliance with the sanctions programs administered by OFAC.

The landmark settlements represent yet another example of the ever-increasing stakes faced by financial institutions seeking to comply with BSA/AML/OFAC requirements.

Now, more than ever, is the time for financial institutions to review their BSA/AML/OFAC Compliance Programs to ensure that they comply with legal requirements as well as meet regulator expectations.

If you have any questions concerning your BSA/AML/OFAC Compliance Program or the contents of this alert, please contact Clemente Vazquez-Bello, Andres A. Fernandez, Marina Olman, Gabriel Caballero or Stephanie Quinones.