[Senate Hearing 112-597, Volume 2]
[From the U.S. Government Publishing 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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                       Printed for the use of the
        Committee on Homeland Security and Governmental Affairs




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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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        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


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