Business Crimes Hotline

Specifically, the Government alleged that SCB had caused its New York Branch, SCB NY (as well as other, unaffiliated U.S. financial institutions), to process through the U.S. financial network over $200 million in transactions that should have been rejected, blocked or stopped for investigation, per the OFAC regulations. These regulations restrict transactions involving sanctioned countries and parties, including transactions on behalf of Iranian, Sudanese, Libyan, and Burmese entities. In its release, the Government specifically noted that the activities ' which occurred principally in SCB's Dubai and London offices ' had been undertaken with the knowledge and approval of senior corporate managers, as well as the SCB legal and compliance departments.

Regarding the transactions themselves, the Government explained that, as part of its processes, SCB had: 1) directed OFAC-sanctioned country customers to use SCB London's unique banking code to represent themselves; 2) replaced payment message references to sanctioned entities with special characters; and 3) deleted payment data indicating the involvement of sanctioned countries/entities using wire payment methods to mask their involvement.

In addition to the transactions, the Government was also critical of SCB's non-disclosure of the conduct to both state and federal regulators (specifically the Federal Reserve Bank of New York and New York Department of Financial Services), indicating that the regulators were consequently misled about both the nature and extent of SCB's business with sanctioned countries.

Finally, the Government noted that, even when SCB discussed its transactions with regulators, the financial institution (FI) had made misleading statements to further mask its involvement with sanctioned countries. The Government specifically noted an August 2003 letter from SCB to OFAC, wherein the financial institution stated that the use of cover payments related to sanctioned countries was contrary to its global policies, despite the fact that SCB had not only used the cover payment method to effect billions of dollars in payments (including legal payments) originating from or for the benefit of customers in sanctioned countries, but that SCB continued to do so even after the letter was sent to OFAC.

NEW YORK

HSBC Reaches $1.256 Billion Dollar Settlement For Anti-Money Laundering and Sanctions Violations

On Dec. 11, 2012, the DOJ announced that U.S.-based corporation HSBC Holdings plc (HSBC Group” and HSBC Bank USA N.A. (HSBC Bank USA) (collectively, HSBC)) had agreed to forfeit $1.256 billion and enter into a five-year DPA in connection with violations of the International Emergency Economic Powers Act (IEEPA), the Bank Secrecy Act (BSA), and the Trading with the Enemy Act (TWEA). A corresponding Information was filed in the Eastern District of New York, charging HSBC with willfully failing to maintain an effective anti-money laundering (AML) program, willfully failing to conduct due diligence on its foreign correspondent affiliates, along with IEEPA and TWEA violations in connection with transactions on behalf of customers in Cuba, Iran, Libya, Sudan and Burma.

Under the terms of its DPA, HSBC agreed to implement enhanced AML and other compliance obligations, as well as make global structural changes to its operations that address the underlying conduct. The company's remediation also extended to individuals, as the Government noted that HSBC had already replaced nearly all of its senior management, in addition to clawing back deferred compensation bonuses previously awarded to its highest-ranking AML and compliance officers. Further, HSBC agreed to partially defer certain senior executives' bonus compensation for the length of the DPA, while simultaneously increasing the accountability of those executives for future AML compliance failures.

In addition to the forfeiture amount, which also satisfies the company's obligations to OFAC, HSBC agreed to pay $665 million in civil penalties, split amongst the Federal Reserve ($165 million) and the Office of the Comptroller of the Currency ($500 million, which also satisfies a Financial Crimes Enforcement Network penalty). DOJ noted that the UK's Financial Services Authority is separately pursuing HSBC.

DISTRICT OF COLUMBIA

Standard Chartered Bank Agrees to $227 Million Settlement in Connection With OFAC Sanctions

On Dec. 10, 2012, the Department of Justice (DOJ) announced that it had reached an agreement with London-based financial institution Standard Chartered Bank (SCB) in connection with transactions prohibited by the International Emergency Economic Powers Act (IEEPA). The 24-month deferred prosecution agreement (DPA) includes a $227 million payment by SCB. This payment will be used to settle forfeiture claims by both DOJ and New York State, as well as to satisfy an OFAC (Treasury Department's Office of Foreign Assets Control) penalty. As part of the DPA, SCB is also required to review its policies and procedures and conduct a risk-based sampling analysis of U.S. dollar payments as a means to test its prospective OFAC compliance.

Specifically, the Government alleged that SCB had caused its New York Branch, SCB NY (as well as other, unaffiliated U.S. financial institutions), to process through the U.S. financial network over $200 million in transactions that should have been rejected, blocked or stopped for investigation, per the OFAC regulations. These regulations restrict transactions involving sanctioned countries and parties, including transactions on behalf of Iranian, Sudanese, Libyan, and Burmese entities. In its release, the Government specifically noted that the activities ' which occurred principally in SCB's Dubai and London offices ' had been undertaken with the knowledge and approval of senior corporate managers, as well as the SCB legal and compliance departments.

Regarding the transactions themselves, the Government explained that, as part of its processes, SCB had: 1) directed OFAC-sanctioned country customers to use SCB London's unique banking code to represent themselves; 2) replaced payment message references to sanctioned entities with special characters; and 3) deleted payment data indicating the involvement of sanctioned countries/entities using wire payment methods to mask their involvement.

In addition to the transactions, the Government was also critical of SCB's non-disclosure of the conduct to both state and federal regulators (specifically the Federal Reserve Bank of New York and New York Department of Financial Services), indicating that the regulators were consequently misled about both the nature and extent of SCB's business with sanctioned countries.

Finally, the Government noted that, even when SCB discussed its transactions with regulators, the financial institution (FI) had made misleading statements to further mask its involvement with sanctioned countries. The Government specifically noted an August 2003 letter from SCB to OFAC, wherein the financial institution stated that the use of cover payments related to sanctioned countries was contrary to its global policies, despite the fact that SCB had not only used the cover payment method to effect billions of dollars in payments (including legal payments) originating from or for the benefit of customers in sanctioned countries, but that SCB continued to do so even after the letter was sent to OFAC.

NEW YORK

HSBC Reaches $1.256 Billion Dollar Settlement For Anti-Money Laundering and Sanctions Violations

On Dec. 11, 2012, the DOJ announced that U.S.-based corporation HSBC Holdings plc (HSBC Group” and HSBC Bank USA N.A. (HSBC Bank USA) (collectively, HSBC)) had agreed to forfeit $1.256 billion and enter into a five-year DPA in connection with violations of the International Emergency Economic Powers Act (IEEPA), the Bank Secrecy Act (BSA), and the Trading with the Enemy Act (TWEA). A corresponding Information was filed in the Eastern District of New York, charging HSBC with willfully failing to maintain an effective anti-money laundering (AML) program, willfully failing to conduct due diligence on its foreign correspondent affiliates, along with IEEPA and TWEA violations in connection with transactions on behalf of customers in Cuba, Iran, Libya, Sudan and Burma.

Under the terms of its DPA, HSBC agreed to implement enhanced AML and other compliance obligations, as well as make global structural changes to its operations that address the underlying conduct. The company's remediation also extended to individuals, as the Government noted that HSBC had already replaced nearly all of its senior management, in addition to clawing back deferred compensation bonuses previously awarded to its highest-ranking AML and compliance officers. Further, HSBC agreed to partially defer certain senior executives' bonus compensation for the length of the DPA, while simultaneously increasing the accountability of those executives for future AML compliance failures.

In addition to the forfeiture amount, which also satisfies the company's obligations to OFAC, HSBC agreed to pay $665 million in civil penalties, split amongst the Federal Reserve ($165 million) and the Office of the Comptroller of the Currency ($500 million, which also satisfies a Financial Crimes Enforcement Network penalty). DOJ noted that the UK's Financial Services Authority is separately pursuing HSBC.