International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Wednesday, April 1, 2015

HSBC's April 1st DOJ Court Filing About AML Non-Prosecution Available Here

DOJ Letter signed by U.S. Attorney Loretta Lynch and Chief of Asset Forfeiture & Money Laundering Criminal Division Kendall Day, filed in Court of Monitor Report, states: "... the government concurs with the Monitor’s assessment that HSBC Group continues to act in good faith to meet the requirements of the DPA."  (Thank you anonymous reader for the tip off)

Excerpts below...

On January 20, 2015, the Monitor submitted his First Annual Follow-Up Review of HSBC Group’s anti-money laundering (“AML”) and sanctions compliance program (the “Follow-Up Review”) as required under the terms of the DPA. The Follow-Up Review consisted of four inter-related components: (a) monitoring of HSBC Group-level enhancements to the AML and sanctions compliance program; (b) phased reviews of six country operations within HSBC Group; (c) thematic reviews of HSBC Group’s AML and sanctions compliance program as it relates to its trade finance and private banking businesses; and (d) monitoring of remediation efforts, program enhancements, and efforts to meet obligations not otherwise addressed. 

Overall, the Monitor believes that HSBC Group has made progress in developing an effective AML and sanctions compliance program and is better protected from and positioned to detect financial crime than when it entered into the DPA in December 2012. Specifically, the Monitor found that HSBC Group has made progress in the areas of risk assessment, “Know Your Customer” information and customer due diligence processes, compliance monitoring and testing, transaction monitoring alert adjudication and suspicious activity reporting, distribution of information to management, responses to potential financial crime violations, and incentivizing AML and sanctions compliance through compensation adjustment.

However, in certain instances, the Monitor believes that HSBC Group’s progress has been too slow. The Monitor does not believe this is the result of bad faith or lack of commitment by HSBC Group’s senior leadership, but does believe that HSBC Group can – and must – do more.

While adopting strong written policies is a significant step, it is only part of the equation. At present, the Monitor believes HSBC Group has a substantial amount of work left to do to implement its written policies. In the Monitor’s view, two of the greatest impediments to HSBC Group’s implementation of a sustainable compliance program are its corporate culture and its compliance technology.

Notwithstanding the attitude of HSBC Group’s senior executives, the Monitor observed other indicators that some of HSBC Group’s historical cultural deficiencies continue to pervade its operations today. For example, during the United States country review, the Monitor found that senior managers of HSBC Bank USA’s Global Banking and Markets (“GBM”) business line inappropriately pushed back against adverse findings by the HSBC Global Internal Audit team and HSBC Bank USA’s Compliance Testing and Control (“CTAC”) team arising from separate reviews in early 2014 of GBM’s “Know Your Customer” practices.

More specifically, the Monitor found that the GBM senior managers resisted the review in a manner that caused the final audit report to be more favorable to the business than it would otherwise have been, and similarly delayed and interfered with the work of the CTAC team. In the Monitor’s view, GBM’s interactions with both Internal Audit and CTAC were marked by combativeness, overblown complaints about actual inaccuracy, and a basic lack of cooperativeness. The Monitor concluded that the GBM business in the United States demonstrated a deficient culture that had not fully accepted the role and legitimacy of the Internal Audit and control functions.

The Monitor found it encouraging, however, that HSBC Group’s Internal Audit function, and also the CTAC team in the United States, have challenged business-side executives and have issued hard-hitting reports.

image from www.lexisnexis.comThe International Financial Law Professor Blogger William Byrnes is the author of Money Laundering, Asset Forfeiture and Recovery, and Compliance- A Global Guide is an eBook designed to provide the compliance officer, BSA counsel, and government agent with accurate analyses of the AML/CTF Financial and Legal Intelligence, law and practice in the nations of the world with the most current references and resources.  Special topic chapters will assist the compliance officer design and maintain effective risk management programs.  Over 100 country and topic experts from financial institutions, government agencies, law, audit and risk management firms have contributed analysis to develop this practical compliance guide.

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