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From the U.S. Senate's Permanent Subcommittee on Investigation's report, "U.S. Vulnerabilities to Money Laundering, Drugs, and Terrorist Financing: HSBC Case History":
Transactions Involving Cuba
Internal bank documents indicate that, from at least 2002 through 2007, HSBC Bank USA (HBUS) processed potentially prohibited U.S. dollar transactions involving Cuba. HSBC affiliates in Latin America, in particular, had many Cuban clients and sought to execute transactions on their behalf in U.S. dollars, despite the longstanding, comprehensive U.S. sanctions program and the OFAC filter blocking such transactions.
In August 2005, a month after HSBC Group issued its new GCL policy barring HSBC affiliates from engaging in U.S. dollar transactions in violation of OFAC prohibitions, HBUS circulated an email identifying correspondent relationships that would be affected.
The email stated: “An overriding observation is that the revised policy will most significantly impact the Cuban and Sudan correspondent bank relationships.” It also observed: “For Sudan and Cuba, most of our business is conducted in USD and the discussions already initiated with the affected banks will dictate the extent of our ongoing relationships.”
In September 2005, HSBC Group Compliance head David Bagley told HSBC Group CEO Stephen Green that they had closed “a number of USD correspondent relationships with Cuban... banks.”
On October 3, 2005, Mr. Bagley sent an email to Matthew King, then head of HSBC Group Audit, that Mr. Green was “particularly concerned” about ensuring the 2005 GCL was “properly and fully implemented across the Group.”
Mr. Bagley asked Mr. King to use HSBC’s internal audits to help gauge compliance with the new GCL. Mr. King relayed the request to various HSBC auditors and, in response, learned from HSBC Mexico (HBMX) Compliance that the OFAC list had not been fully integrated into HBMX’s monitoring system and would not be for another six months, until April 2006.
HBMX reported that, pending the systems integration, it had set up “manual controls” in several divisions to implement the new GCL, but “no automated means exists to ensure that these controls are properly being carried out.”
HBMX explained further that its “greatest exposure” was “the volume of business historically carried out by HBMX customers with Cuba in US dollars.”
Mr. King responded that the HBMX transactions raised two sets of concerns, one with respect to the U.S. dollar transactions involving Cuba being run through HBMX’s correspondent account at HBUS, and the second with respect to non-U.S. dollar transactions being “transmitted through the HBUS TP gateway,” referring to a U.S.-based server that handled transfers from Mexico and South America.
Since the United States prohibited transactions involving Cuba, both types of transactions raised questions about whether they ran afoul of the OFAC list and the 2005 GCL. Mr. King responded:
“I note HBMX continues to process USD payments involving Cuba. It is very important that 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 the rectification work which is likely to be a pre-requisite to any settlement.
With regard to non-USD payments as described above, GHQ CMP [Group Headquarters Compliance] are urging HBUS to screen out these transactions to avoid any risk, and HBMX would have to put measures in place to p[re]-empt customer dismay.”
HSBC affiliates from outside of Latin America also occasionally sent potentially prohibited transactions involving Cuba through their HBUS accounts. For example, in December 2006, a payment for $15,350 that had been sent by an HSBC affiliate in the Asia-Pacific region was blocked by HBUS, because the transaction documents referred to “Air Tickets Moscow Havana Moscow 3Pax."
In 2007, an internal HSBC document entitled, “Information Requested in Connection With: (North Korea, Cuba, and Myanmar),” revealed that, as of May 2007, HSBC affiliates in Mexico and Latin America were still providing U.S. dollar accounts to Cuban clients, in apparent violation of HSBC Group GCL policy and OFAC regulations.
The document indicated that HBMX had 23 Cuban customers with U.S. dollar accounts containing assets in excess of $348,000, and 61 Cuban customers holding both U.S. dollar and Mexican peso accounts with assets totaling more than $966,000.977 In addition, the report disclosed that HSBC affiliates in Colombia, Costa Rica, El Salvador, Honduras, and Panama were also providing U.S. dollar accounts to Cuban nationals or the Cuban Embassy. The document also indicated that arrangements had been made to “cancel all business relationships with” Cuban clients, in relation to U.S. dollar accounts or commercial relationships for the entire region.
These steps were being taken almost two years after the July 2005 GCL had prohibited HSBC affiliates from executing U.S. dollar transactions involving OFAC sensitive persons.
Transactions Involving Cuba
Internal bank documents indicate that, from at least 2002 through 2007, HSBC Bank USA (HBUS) processed potentially prohibited U.S. dollar transactions involving Cuba. HSBC affiliates in Latin America, in particular, had many Cuban clients and sought to execute transactions on their behalf in U.S. dollars, despite the longstanding, comprehensive U.S. sanctions program and the OFAC filter blocking such transactions.
In August 2005, a month after HSBC Group issued its new GCL policy barring HSBC affiliates from engaging in U.S. dollar transactions in violation of OFAC prohibitions, HBUS circulated an email identifying correspondent relationships that would be affected.
The email stated: “An overriding observation is that the revised policy will most significantly impact the Cuban and Sudan correspondent bank relationships.” It also observed: “For Sudan and Cuba, most of our business is conducted in USD and the discussions already initiated with the affected banks will dictate the extent of our ongoing relationships.”
In September 2005, HSBC Group Compliance head David Bagley told HSBC Group CEO Stephen Green that they had closed “a number of USD correspondent relationships with Cuban... banks.”
On October 3, 2005, Mr. Bagley sent an email to Matthew King, then head of HSBC Group Audit, that Mr. Green was “particularly concerned” about ensuring the 2005 GCL was “properly and fully implemented across the Group.”
Mr. Bagley asked Mr. King to use HSBC’s internal audits to help gauge compliance with the new GCL. Mr. King relayed the request to various HSBC auditors and, in response, learned from HSBC Mexico (HBMX) Compliance that the OFAC list had not been fully integrated into HBMX’s monitoring system and would not be for another six months, until April 2006.
HBMX reported that, pending the systems integration, it had set up “manual controls” in several divisions to implement the new GCL, but “no automated means exists to ensure that these controls are properly being carried out.”
HBMX explained further that its “greatest exposure” was “the volume of business historically carried out by HBMX customers with Cuba in US dollars.”
Mr. King responded that the HBMX transactions raised two sets of concerns, one with respect to the U.S. dollar transactions involving Cuba being run through HBMX’s correspondent account at HBUS, and the second with respect to non-U.S. dollar transactions being “transmitted through the HBUS TP gateway,” referring to a U.S.-based server that handled transfers from Mexico and South America.
Since the United States prohibited transactions involving Cuba, both types of transactions raised questions about whether they ran afoul of the OFAC list and the 2005 GCL. Mr. King responded:
“I note HBMX continues to process USD payments involving Cuba. It is very important that 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 the rectification work which is likely to be a pre-requisite to any settlement.
With regard to non-USD payments as described above, GHQ CMP [Group Headquarters Compliance] are urging HBUS to screen out these transactions to avoid any risk, and HBMX would have to put measures in place to p[re]-empt customer dismay.”
HSBC affiliates from outside of Latin America also occasionally sent potentially prohibited transactions involving Cuba through their HBUS accounts. For example, in December 2006, a payment for $15,350 that had been sent by an HSBC affiliate in the Asia-Pacific region was blocked by HBUS, because the transaction documents referred to “Air Tickets Moscow Havana Moscow 3Pax."
In 2007, an internal HSBC document entitled, “Information Requested in Connection With: (North Korea, Cuba, and Myanmar),” revealed that, as of May 2007, HSBC affiliates in Mexico and Latin America were still providing U.S. dollar accounts to Cuban clients, in apparent violation of HSBC Group GCL policy and OFAC regulations.
The document indicated that HBMX had 23 Cuban customers with U.S. dollar accounts containing assets in excess of $348,000, and 61 Cuban customers holding both U.S. dollar and Mexican peso accounts with assets totaling more than $966,000.977 In addition, the report disclosed that HSBC affiliates in Colombia, Costa Rica, El Salvador, Honduras, and Panama were also providing U.S. dollar accounts to Cuban nationals or the Cuban Embassy. The document also indicated that arrangements had been made to “cancel all business relationships with” Cuban clients, in relation to U.S. dollar accounts or commercial relationships for the entire region.
These steps were being taken almost two years after the July 2005 GCL had prohibited HSBC affiliates from executing U.S. dollar transactions involving OFAC sensitive persons.
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