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 

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U.S. VULNERABILITIES TO MONEY LAUNDERING, DRUGS, 

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76–646 PDF 2012

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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(II) 

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

JOSEPH I. LIEBERMAN, Connecticut, Chairman 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

THOMAS R. CARPER, Delaware 

MARK L. PRYOR, Arkansas 

MARY L. LANDRIEU, Louisiana 

CLAIRE MCCASKILL, Missouri 

JON TESTER, Montana 

MARK BEGICH, Alaska 

SUSAN M. COLLINS, Maine 

TOM COBURN, Oklahoma 

SCOTT P. BROWN, Massachusetts 

JOHN MCCAIN, Arizona 

RON JOHNSON, Wisconsin 

JOHN ENSIGN, Nevada 

ROB PORTMAN, Ohio 

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 

MARY L. LANDRIEU, Louisiana 

CLAIRE MCCASKILL, Missouri 

JON TESTER, Montana 

MARK BEGICH, Alaska 

TOM COBURN, Oklahoma 

SUSAN M. COLLINS, Maine 

SCOTT P. BROWN, Massachusetts 

JOHN MCCAIN, Arizona 

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 

(III) 

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 

Page

IV 

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. Matters 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. HBMX Compliance Failures, chart prepared by the Permanent Subcommittee on Investigations ....................................................................... 576 

c. Disclosed 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. Excerpts from emails of David Bagley re HBUS awareness of Iranian 

transactions, 2003–2004 .............................................................................. 578 

e. Ratings Used in OCC Report of Examinations, chart prepared by the 

Permanent Subcommittee on Investigations ............................................. 579 

f. 31 USC § 5318(h)—Anti-Money Laundering Programs ............................. 580 

General Documents: 

2. a. HSBC Group News, HSBC Group Chief Executive Stuart Gulliver 

letter to all HSBC employees. [PSI–HSBC–76–0001–0002] .................... 581 

b. HSBC Group Circular Letters (GCL), GCL 120014—HSBC Global 

Standards. [PSI–HSBC–75–0001] .............................................................. 583 

c. HSBC Group Standards Manual, Chapter 5 Legal, Compliance and 

Reputation .................................................................................................... 585 

3. HSBC 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. 30 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. HSBC 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. HSBC 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. HSBC 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 

Page

V 

Documents Related to HBMX and HSBC Mexico: 

8. HSBC 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. HSBC 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. HSBC internal email, dated November 2002, re: COMPLIANCE DUE 

DILIGENCE TRIP BY JOHN ROOT, BITAL (MEXICO CITY)—4– 

8NOV02. [HSBC OCC 8877800–807] .............................................................. 620 

11. May 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. HSBC 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. HSBC 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. HSBC 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. HSBC 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. HSBC 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. HSBC 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. HSBC 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. Excerpt from Sigue Corporation Deferred Prosecution Agreement, January 24, 2008 ............................................................................................... 658 

19. HSBC 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. HSBC 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. HSBC 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. HSBC 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. HSBC internal email, dated December 2007, re: Warren Learning HBMX 

DEC Visit Issues (Sinaloa massive money-laundering scheme (+USD 100 

million). [HSBC OCC 8875837] ....................................................................... 686 

Page

VI 

24. 12/2007 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. HSBC 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. HSBC 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. HSBC 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. HSBC 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. HSBC 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. HSBC 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. HSBC 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. HSBC 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. HSBC 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. HSBC 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. HSBC 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. HSBC 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. HBUS Banksnotes NY–USD Bought from or Sold to Customers in 

Mexico: 3 Month Period (Nov-06 to Feb-07). [OCC–PSI–00151506] ........ 729 

b. BANKNOTES–NY Selected Customers’ Activity Alerts & Traders’ Explanations for USD Purchases & Sales from 2005–2009, prepared by 

OCC. [OCC–PSI–00005890–904] ................................................................ 730 

38. OCC internal email, dated June 2010, re: HSBC (. . . this has the makings of potentially being a major criminal case . . .). [OCC–PSI– 

00928756–758] .................................................................................................. 745 

39. HSBC 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 

Page

VII 

Documents Related to HSBC Affiliates—Circumventing OFAC Prohibitions: 

40. HSBC 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. HSBC 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. HSBC 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. HSBC 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. HSBC 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. HSBC 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. HSBC 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. HSBC Document, IRAN—STRATEGY DISCUSSION PAPER, undated, 

(The Iranian market offers substantial untapped potential for the HSBC 

Group.). [HSBC OCC 8873949–956] ............................................................... 793 

48. HSBC 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. HSBC 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. HSBC 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. HSBC 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. HSBC 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. HSBC 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 

Page

VIII 

51. HSBC 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. HSBC 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. HSBC 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. HSBC 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. HSBC 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. HSBC 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. HSBC 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. HSBC 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. HSBC 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. HSBC 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. HSBC 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. HSBC 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. HSBC 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. HSBC 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. HSBC 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. HSBC 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 

Page

IX 

67. HSBC 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. Excerpt 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. Excerpt 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. HSBC Group Circular Letters (GCL): 

a. GCL 050047—Compliance with sanctions (28/Jul/2005) [HSBC OCC 

3407560–561]; .............................................................................................. 901 

b. GCL 060011—US Dollar Payments (06/Apr/2006) [HSBC OCC 

3407587]; ...................................................................................................... 905 

c. GCL 060041—US OFAC Sanctions against Iran—U-Turn Exemption 

(25/Oct/2006) [HSBC OCC 3407606]; ....................................................... 907 

d. GCL 070049—Sanctions Against Iran (24/Sep/2007). [OCC–PSI– 

00141530–531]. ............................................................................................ 909 

Documents related to other countries: 

71. a. HSBC 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. HSBC 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. HSBC 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. Excerpt 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. HSBC 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. HSBC 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. HSBC 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. HSBC 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. Excerpt from HBUS Global Banknotes—Purchases & Sales USD—2008 

vs 2009. [HSBC OCC 5364770, 784, 793, 794] ............................................... 932 

Page

X 

77. HSBC 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. HSBC 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. HSBC 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. HSBC 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. HSBC 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. HSBC 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. HSBC 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. HSBC 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. HSBC 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. HSBC Know Your Customer Profile for Al Rajhi Banking & Investment 

Corp, October 2010. [HSBC–PSI–PROD–0102310–324] ............................... 967 

86. HSBC Know Your Customer Profile for Islami Bank Bangladesh Limited, 

June 2011. [HSBC–PSI–PROD–0117222–237] .............................................. 982 

87. a. Islami 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. Social 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. HSBC 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. HSBC 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. HSBC 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. HSBC 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. Hokuriku 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 

Page

XI 

Documents Related to HBUS Private Bank Americas:—Offering Bearer Share Accounts: 

93. HSBC 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. HSBC 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. Transcript 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. HSBC 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. HSBC 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. HSBC 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. HSBC 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. HSBC 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. HSBC 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. Correspondence 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. Responses 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. Documents 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 

(1109) 


76061.941

Hearing On 

U.S. Vulnerabilities to Money Laundering, Drugs, 

and Terrorist Financing: HSBC Case History 

July 17,2012 

EXHIBIT #102: 

Documents cited in footnotes to Us. 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 (next page) 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. 

Permanent Subcommittee on Investigations 

EXHIBIT #102 
1110 


76061.942

DOCUMENT LOCATOR LIST 

Bates Number or Document Description Page Number 

Articles related to "Taliban" bank, Afghan National 1122 Credit and Finance Ltd. 

"Bank Secrecy Act Pillar Violations 2007-2011," chart 

prepared by the Pennanent Subcommittee on 1127 

Investigations, July 2012. 

BOG-A-205484-511 Sealed Exhibit* 

BOG-A-207130 Sealed Exhibit* 

BOG-A-300035-068 Sealed Exhibit* 

BOG-SR-000442-443 Sealed Exhibit* 

BOG-SR-001368-374 Sealed Exhibit* 

BOG-SR -001402-409 Sealed Exhibit* 

HSBC OCC 0616010-026 1128 

HSBC OCC 0616168-178 1145 

HSBC OCC 0616217-218, 220-221, 241-242 1156 

HSBC OCC 0616259-260 1162 

HSBC OCC 0616262 1164 

HSBC OCC 0616264-268 1165 

HSBC OCC 0616314-316 1170 

HSBC OCC 0616318 1173 

HSBC OCC 0616340-343 1174 

HSBC OCC 0616349-350 (Printed as Exhibit 65) 882 

HSBC OCC 0616352-356 (Printed as Exhibit 3) 587 

HSBC OCC 0616384-385 1178 

HSBC OCC 0630892-893 1180 

HSBC OCC 0659988-997 1182 

HSBC OCC 0695039-041 1192 

HSBC OCC 0739987-991 (Printed as Exhibit 82) 949 

HSBC OCC 0741466-473 1195 

HSBC OCC 0752005-017 1203 

HSBC OCC 0760928-930 1216 

HSBC OCC 0761014-017 1219 

HSBC OCC 0948192-195 1223 

HSBC OCC 0953080-084 1227 

HSBC OCC 1105891-893 1232 

HSBC OCC 1413725-727 1235 

HSBC OCC 1638463-464 1238 

HSBC OCC 1638575-576 1240 

HSBC OCC 1884218 (Printed as Exhibit 72) 925 

HSBC OCC 1933599-601 1242 

HSBC OCC 2405588-589 1245 

HSBC OCC 2495056-123 1247 

HSBC OCC 2691117-124 1315 
1111 


76061.943

DOCUMENT LOCATOR LIST 

Bates Number or Document Description Paj!e Number 

HSBC acc 2725167-169 1323 

HSBC acc 2830874-879 (Printed as Exhibit 81) 943 

HSBC acc 3111888-890 1326 

HSBC acc 3113976-977 1329 

HSBC acc 3114022 (Printed as Exhibit 73) 926 

HSBC acc 3180772-797 1331 

HSBC acc 3185023-025 1346 

HSBC acc 3224893 1349 

HSBC acc 3225386 1350 

HSBC acc 3241692-701 1351 

HSBC acc 3243782-787 (Printed as Exhibit 61) 855 

HSBC acc 3243965-967 1361 

HSBC acc 3250655 1364 

HSBC acc 3250665-667 1365 

HSBC acc 3250730-732 1368 

HSBC acc 3259936-939 1371 

HSBC acc 3260409-414 1375 

HSBC acc 3260426 1381 

HSBC acc 3261519-529 1382 

HSBC acc 3261530-532 1393 

HSBC acc 3279589-590 1396 

HSBC acc 3280496-497 1398 

HSBC acc 3280498-499 1400 

HSBC acc 3280504-505 1402 

HSBC acc 3280505 (Printed as Exhibit 77) 936 

HSBC acc 3280945-946 1404 

HSBC acc 3281773-774 1406 

HSBC acc 3287261-262 1408 

HSBC acc 3342182 1410 

HSBC acc 3352026-037 1411 

HSBC acc 3391185-190 1423 

HSBC acc 3391262-268 1429 

HSBC acc 3400666 Sealed Exhibit* 

HSBC acc 3405315-316 (Printed as Exhibit 98) 1081 

HSBC acc 3405534-537 1436 

HSBC acc 3406951-953 1440 

HSBC acc 3406981-996 1443 

HSBC acc 3407449-451 1446 

HSBC acc 3407510-515 (Printed as Exhibit 44) 778 

HSBC acc 3407517-522 (Printed as Exhibit 50a) 807 

HSBC acc 3407526-527 (Printed as Exhibit 58) 847 

HSBC acc 3407536-541 1449 

2 
1112 


76061.944

DOCUMENT LOCATOR LIST 

Bates Number or Document Description Pae:e Number 

HSBC OCC 3407543-547 1455 

HSBC OCC 3407549-555 1460 

HSBC OCC 3407560-561 (Printed as Exhibit 70a) 901 

HSBC OCC 3407565-569 1467 

HSBC OCC 3407587 (Printed as Exhibit 70b) 905 

HSBC OCC 3407606 (Printed as Exhibit 70c) 907 

HSBC OCC 3407608-609 (Printed as Exhibit 26) 689 

HSBC OCC 3516806-812 1472 

HSBC OCC 3601119-139 Sealed Exhibit* 

HSBC OCC 3633806-812 1478 

HSBC OCC 3800290-296 1485 

HSBC OCC 4816460-462 1492 

HSBC OCC 4827027 1495 

HSBC OCC 4844209 1496 

HSBC OCC 5364770, 784, 793, 794 (Printed as Exhibit 76) 932 

HSBC OCC 7519403-406 1497 

HSBC OCC 7519413 1501 

HSBC OCC 7687346-348 1502 

HSBC OCC 7687373-377 (Printed as Exhibit 43) 773 

HSBC OCC 7687437-438 (Printed as Exhibit 60) 853 

HSBC OCC 7688017-024 (Printed as Exhibit 84a) 958 

HSBC OCC 7688584-589 1505 

HSBC OCC 7688655-657 1511 

HSBC OCC 7688668-670 (Printed as Exhibit 66) 884 

HSBC OCC 7688676-678 1514 

HSBC OCC 7688680-682 1517 

HSBC OCC 7688689-690 1520 

HSBC OCC 7688742 1522 

HSBC OCC 7688749-751 1523 

HSBC OCC 7688824-827 1526 

HSBC OCC 7688871-873 1530 

HSBC OCC 7690024-032 (Printed as Exhibit 84b) 964 

HSBC OCC 7695260-266 1533 

HSBC OCC 7730334-335 1538 

HSBC OCC 8873261-266 1540 

HSBC OCC 8873286-289 1546 

HSBC OCC 8873338-342 (Printed as Exhibit 21) 680 

HSBC OCC 8873393-394 1550 

HSBC OCC 8873463-465 1552 

HSBC OCC 8873474-478 1555 

HSBC OCC 8873485 1560 

HSBC OCC 8873487-489 (Printed as Exhibit 31) 708 

3 
1113 


76061.945

DOCUMENT LOCATOR LIST 

Bates Number or Document Description Paj!e Number 

HSBC OCC 8873500-511 1561 

HSBC OCC 8873598-599 1573 

HSBC OCC 8873671 (Printed as Exhibit 12) 634 

HSBC OCC 8873673 1575 

HSBC OCC 8873750 1576 

HSBC OCC 8873759 (Printed as Exhibit 25) 688 

HSBC OCC 8873843-855 (Printed as Exhibit 9) 607 

HSBC OCC 8873871-875 1577 

HSBC OCC 8873890-893 (Printed as Exhibit 42) 769 

HSBC OCC 8873909 1582 

HSBC OCC 8873922-928 (Printed as Exhibit 50b) 813 

HSBC OCC 8873941-947 (Printed as Exhibit 46) 786 

HSBC OCC 8873949-956 (Printed as Exhibit 47) 793 

HSBC OCC 8873958-959 1583 

HSBC OCC 8873974-976 1585 

HSBC OCC 8873979-982 (Printed as Exhibit 51) 826 

HSBC OCC 8873985-986 (Printed as Exhibit 52) 830 

HSBC OCC 8873994-997 (Printed as Exhibit 53) 832 

HSBC OCC 8873999 (Printed as Exhibit 55) 840 

HSBC OCC 8874001-004 (Printed as Exhibit 54) 836 

HSBC OCC 8874023-034 1588 

HSBC OCC 8874039 1600 

HSBC OCC 8874051-057 1601 

HSBC OCC 8874194-228 1608 

HSBC OCC 8874307-310 1643 

HSBC OCC 8874315-326 (Printed as Exhibit 14) 639 

HSBC OCC 8874328-330 1647 

HSBC OCC 8874349-355 (Printed as Exhibit 64) 875 

HSBC OCC 8874357-362 (Printed as Exhibit 71c) 917 

HSBC OCC 8874376-381 (Printed as Exhibit 11) 628 

HSBC OCC 8874383-392 1650 

HSBC OCC 8874560-566 (Printed as Exhibit 39) 748 

HSBC OCC 8874595-600 1660 

HSBC OCC 8874660-663 (Printed as Exhibit 49) 803 

HSBC OCC 8874671 1666 

HSBC OCC 8874673-675 1667 

HSBC OCC 8874703-708 1670 

HSBC OCC 8874710-712 (Printed as Exhibit 50c) 820 

HSBC OCC 8874714 1676 

HSBC OCC 8874731-732 1677 

HSBC OCC 8874762 1679 

HSBC OCC 8874802-810 1680 

4 
1114 


76061.946

DOCUMENT LOCATOR LIST 

Bates Number or Document Description Page Number 

HSBC acc 8874821-825 (Printed as Exhibit 30) 703 

HSBC acc 8874829-833 (Printed as Exhibit 32) 711 

HSBC acc 8874846-847 1689 

HSBC acc 8874849-850 1691 

HSBC acc 8874856 1693 

HSBC acc 8874857 1694 

HSBC acc 8874895 (Printed as Exhibit 99) 1083 

HSBC acc 8874965 1695 

HSBC acc 8874967-974 1696 

HSBC acc 8875007-008 1704 

HSBC acc 8875010-014 (Printed as Exhibit 17) 649 

HSBC acc 8875020-021 (Printed as Exhibit 28) 693 

HSBC acc 8875040-041 1706 

HSBC acc 8875046 1708 

HSBC acc 8875063-069 1709 

HSBC acc 8875086-090 1716 

HSBC acc 8875132-135 (Printed as Exhibit 20) 676 

HSBC acc 8875139-141 (Printed as Exhibit 28) 693 

HSBC acc 8875171 1721 

HSBC acc 8875191-193 1722 

HSBC acc 8875217-218 (Printed as Exhibit 48) 801 

HSBC acc 8875225-232 1725 

HSBC acc 8875256 1733 

HSBC acc 8875423 (Printed as Exhibit 22) 685 

HSBC acc 8875462-465 1734 

HSBC acc 8875492-493 1738 

HSBC acc 8875507-509 1740 

HSBC acc 8875565-575 1743 

HSBC acc 8875605-607 (Printed as Exhibit 35) 723 

HSBC acc 8875736-738 (Printed as Exhibit 34) 720 

HSBC acc 8875786-792 1754 

HSBC acc 8875818-829 1761 

HSBC acc 8875837 (Printed as Exhibit 23) 686 

HSBC acc 8875925-927 (Printed as Exhibit 19) 673 

HSBC acc 8876013-015 1773 

HSBC acc 8876050-057 1776 

HSBC acc 8876088-095 1784 

HSBC acc 8876104-106 (Printed as Exhibit 67) 887 

HSBC acc 8876128-136 (Printed as Exhibit 41) 760 

HSBC acc 8876223-280 Sealed Exhibit* 

HSBC acc 8876347 (Printed as Exhibit 24) 687 

HSBC acc 8876417-424 1792 

5 
1115 


76061.947

DOCUMENT LOCATOR LIST 

Bates Number or Document Description Pa2e Number 

HSBC acc 8876487-488 (Printed as Exhibit 45) 784 

HSBC acc 8876490-493 1800 

HSBC acc 8876504-505 1804 

HSBC acc 8876580-581 1806 

HSBC acc 8876612-613 (Printed as Exhibit 13) 637 

HSBC acc 8876645-646 (Printed as Exhibit 15) 644 

HSBC acc 8876670-671 1808 

HSBC acc 8876677-680 1810 

HSBC acc 8876711-713 1814 

HSBC acc 8876715-720 1817 

HSBC acc 8876784-787 (Printed as Exhibit 33) 716 

HSBC acc 8876818-822 1823 

HSBC acc 8876824-825 1828 

HSBC acc 8876861-863 (Printed as Exhibit 56) 841 

HSBC acc 8876884-887 1830 

HSBC acc 8876896-899 1834 

HSBC acc 8876901 1838 

HSBC acc 8876921-931 (Printed as Exhibit 62) 861 

HSBC acc 8877103-106 1839 

HSBC acc 8877136-137 1843 

HSBC acc 8877148-154 1845 

HSBC acc 8877213-214 (Printed as Exhibit 71a) 912 

HSBC acc 8877231-239 1852 

HSBC acc 8877797-798 (Printed as Exhibit 8) 605 

HSBC acc 8877800-807 (Printed as Exhibit 10) 620 

HSBC acc 8877877-885 1861 

HSBC acc 8878026-029 (Printed as Exhibit 59) 849 

HSBC acc 8878037-038 1870 

HSBC acc 8878214-216 (Printed as Exhibit 63) 872 

HSBC acc 8878838-840 (Printed as Exhibit 50d) 823 

HSBC acc 8903859-878 1872 

HSBC acc 8903992-000 Sealed Exhibit* 

HSBC acc 8966014-018 (Printed as Exhibit 29) 698 

HSBC acc 8966021-026 Sealed Exhibit* 

HSBC acc 8966027-038 Sealed Exhibit* 

HSBC acc 8966113, 118, 143 (Printed as Exhibit 69) 898 

HSBC acc 8966113-150 Sealed Exhibit* 

HSBC-PSI-PRaD-0000508-516 1892 

HSBC-PSI-PRaD-0024791-795 (Printed as Exhibit 95) 1062 

HSBC-PSI-PRaD-0030873-877 1895 

HSBC-PSI-PRaD-0030891-894 1900 

HSBC-PSI-PRaD-0065332-334 (Printed as Exhibit 4) 592 

6 
1116 


76061.948

DOCUMENT LOCATOR LIST 

Bates Number or Document Description Pa2e Number 

HSBC-PSI-PROD-0095869-870 1904 

HSBC-PSI-PROD-0095908-910 1906 

HSBC-PSI-PROD-0095912 1909 

HSBC-PSI-PROD-0095913 1910 

HSBC-PSI-PROD-0095914 1911 

HSBC-PSI -PROD-009 5916-922 1912 

HSBC-PSI-PROD-0096129-134 1917 

HSBC-PSI -PROD-009613 8-142 (Printed as Exhibit 40) 755 

HSBC-PSI-PROD-0096 147-148 1923 

HSBC-PSI-PROD-0096165-167 (Printed as Exhibit 57) 844 

HSBC-PSI -PROD-0096170-172 1925 

HSBC-PSI-PROD-0096180-181 Sealed Exhibit* 

HSBC-PSI-PROD-0096390-397 Sealed Exhibit* 

HSBC-PSI-PROD-0096398 1928 

HSBC-PSI -PROD-0096399-44I Sealed Exhibit* 

HSBC-PSI-PROD-0096628 and 649 (Printed as Ex.71d) 923 

HSBC-PSI-PROD-0096628-672 Sealed Exhibit* 

HSBC-PSI-PROD-OI02304-306 1930 

HSBC-PSI-PROD-O 1 0231 0-324 (Printed as Exhibit 85) 967 

HSBC-PSI-PROD-O 1 02340-342 1933 

HSBC-PSI-PROD-OI02415-425 1936 

HSBC-PSI-PROD-OI02615-620 1947 

HSBC-PSI-PROD-O 1 02626-636 1953 

HSBC-PSI-PROD-O 1 02642-645 1964 

HSBC-PSI-PROD-OI02646-653 1968 

HSBC-PSI-PROD-OI02737-781 1976 

HSBC-PSI-PROD-O I 02782-797 2021 

HSBC-PSI-PROD-O I 02813-837 2037 

HSBC-PSI-PROD-0117222-237 (Printed as Exhibit 86) 982 

HSBC-PSI-PROD-0197129-133 2062 

HSBC-PSI-PROD-0197872-873 2067 

HSBC-PSI-PROD-0197874-876 (Printed as Exhibit 36) 726 

HSBC-PSI-PROD-01979 19, 930-931, 940, 968-969, 890 976, 980 (Printed as Ex. 68) 

HSBC-PSI-PROD-0197919-989 Sealed Exhibit* 

HSBC-PSI-PROD-0198505-507 2069 

HSBC-PSI-PROD-O 198508-509 (Printed as Exhibit 27) 691 

HSBC-PSI-PROD-01985 10-512 2072 

HSBC-PSI-PRO D-O 198513 2075 

HSBC-PSI-PROD-O 198514-516 2076 

HSBC-PSI-PROD-0198539-540 2079 

HSBC-PSI-PROD-0198570 2081 

7 
1117 


76061.949

DOCUMENT LOCATOR LIST 

Bates Number or Document Description Pa2e Number 

HSBC-PSI-PROD-0198571-572 2082 

HSBC-PSI-PROD-0200315-341 Sealed Exhibit* 

OCC-PSI-00000075-195 Sealed Exhibit* 

OCC-PSI-00000230-259 Sealed Exhibit* 

OCC-PSI-00000295-301 Sealed Exhibit* 

OCC-PSI-00000317-322 Sealed Exhibit* 

OCC-PSI-00000341-45 Sealed Exhibit* 

OCC-PSI-00000391-394 Sealed Exhibit* 

OCC-PS1-00000434-436 Sealed Exhibit* 

OCC-PSI -00000445-44 7 Sealed Exhibit* 

OCC-PSI-00000501-512 2084 

OCC-PSI -00005890-904 (Printed as Exhibit 3 7b) 730 

OCC-PSI-00107432-443 Sealed Exhibit* 

OCC-PSI-OO 107444-462 Sealed Exhibit* 

OCC-PSI-00107505-51O Sealed Exhibit* 

OCC-PSI-00107522-528 Sealed Exhibit* 

OCC-PSI-00I07529-536 Sealed Exhibit* 

OCC-PSI-00107537-542 Sealed Exhibit* 

OCC-PSI-00107556-560 Sealed Exhibit* 

OCC-PSI-OO 1 07567 -571 Sealed Exhibit* 

OCC-PSI -00107594-596 Sealed Exhibit* 

OCC-PSI-00107597-602 Sealed Exhibit* 

OCC-PSI -00107603-606 Sealed Exhibit* 

OCC-PSI-OO 107607-6 1 1 Sealed Exhibit* 

OCC-PSI-00107615-617 Sealed Exhibit* 

OCC-PSI-OO 1 07618-620 Sealed Exhibit* 

OCC-PSI-00107624-625 Sealed Exhibit* 

OCC-PSI-00107628-630 Sealed Exhibit* 

OCC-PSI-00107631-633 Sealed Exhibit* 

OCC-PSI-OO 1 0763 7-654 Sealed Exhibit* 

OCC-PSI-00141530-53l (Printed as Exhibit 70d) 909 

OCC-PSI-00144350 (Printed as Exhibit 74) 927 

OCC-PSI-00150795 (Printed as Exhibit 78) 937 

OCC-PSI-00150796 2096 

OCC-PSI-00150798 (Printed as Exhibit 79) 939 

OCC-PSI-00150892 (Printed as Exhibit 80) 942 

OCC-PSI-OO 151506 (Printed as Exhibit 37a) 729 

OCC-PSI-00153253 2097 

OCC-PSI-00154l39 (Printed as Exhibit 83) 954 

OCC-PSI-OO 155690 2098 

OCC-PSI-001557l9 2099 

OCC-PSI-00156271 2101 

8 
1118 


76061.950

DOCUMENT LOCATOR LIST 

Bates Number or Document Description Page Number 

OCC-PSI-00162661 (Printed as Exhibit 5) 595 

OCC-PSI-00165898 (Printed as Exhibit 6) 597 

OCC-PSI-00165932 (Printed as Exhibit 7) 599 

OCC-PSI-00169771 2107 

OCC-PSI-00176030 2109 

OCC-PSI-00179654 2111 

OCC-PSI-OO 188404 2114 

OCC-PSI-OO 196439 2116 

OCC-PSI-00210878 2122 

OCC-PSI-00211658 2143 

OCC-PSI-00214516 (Printed as Exhibit 96a) 1067 

OCC-PSI-00214534 (Printed as Exhibit 96b) 1075 

OCC-PSI-00214618 2146 

OCC-PSI-00214806 2151 

OCC-PSI-00214880 (Printed as Exhibit 97a) 1073 

OCC-PSI-00214891 2152 

OCC-PS1-00215211 (printed as Exhibit 97b) 1071 

OCC-PSI-00217148 2155 

OCC-PSI-00217163 2158 

OCC-PSI-00217164 2160 

OCC-PSI-00217241 2162 

OCC-PSI-00218380 2164 

OCC-PS1-00219656 2168 

OCC-PS1-00221959 2173 

OCC-PSI-00223637 2176 

OCC-PSI-00226525 2208 

OCC-PSI-00226526 2209 

OCC-PSI-00226652 (Printed as Exhibit 94) 1059 

OCC-PSI-00226813 2220 

OCC-PSI-00227523 2226 

OCC-PSI -00239206 2232 

OCC-PSI -00241046 2235 

OCC-PSI-00246334 2240 

OCC-PSI -0024633 7 2244 

OCC-PSI -0024 7712 Sealed Exhibit* 

OCC-PSI-002482 1 5 2248 

OCC-PSI-00248782 2258 

OCC-PSI-00256833 2263 

OCC-PSI-00256916 2266 

OCC-PSI-00270034 Sealed Exhibit* 

OCC-PSI-00285742 2274 

OCC-PSI-00292367 2276 

9 
1119 


76061.951

DOCUMENT LOCATOR LIST 

Bates Number or Document Description Page Number 

OCC-PSI-00299323 2278 

OCC-PSI-00304077 Sealed Exhibit* 

OCC-PSI-00304783 2281 

OCC-PSI-0030770 I 2285 

OCC-PSI-00309434 Sealed Exhibit* 

OCC-PSI-00312153 2288 

OCC-PSI-00316956 2294 

OCC-PSI-00318438-439 (Printed as Exhibit 93) 1044 

OCC-PSI-00327917 2298 

OCC-PSI-00328384 2300 

OCC-PSI-0033 1923 2305 

OCC-PSI-0034345I 2306 

OCC-PSI-00343527 (Printed as Exhibit 75) 929 

OCC-PSI-00378989 2308 

OCC-PSI-0038 I 727 2310 

OCC-PSI-00388 I 10 Sealed Exhibit* 

OCC-PSI-00407498 2314 

OCC-PSI-00409095 2316 

OCC-PSI-00409214-216 (Printed as Exhibit 88) 1005 

OCC-PSI-00422079 Sealed Exhibit* 

OCC-PSI-00423650 Sealed Exhibit* 

OCC-PSI-00453499 2319 

OCC-PSI-00610498 2321 

OCC-PSI-00610597 2323 

OCC-PSI-006175 14 2332 

OCC-PSI-00620281 2337 

OCC-PSI-0063I 007 2344 

OCC-PSI-00633713 2346 

OCC-PSI-00652829 2351 

OCC-PSI-00672571 2354 

OCC-PSI-00672582 2357 

OCC-PSI-0067673I 2361 

OCC-PSI-0069846J 2363 

OCC-PSI-00704789 2366 

OCC-PSI-00725897 2368 

OCC-PSI-00727922 2371 

OCC-PSI-00783419 2373 

OCC-PSI-00787479 2377 

OCC-PSI-00808695 (Printed as Exhibit 89) 1017 

OCC-PSI-00808829 2379 

OCC-PSI-00808896 2385 

OCC-PSI-00811358 (Printed as Exhibit 90) 1024 

10 
1120 


76061.952

DOCUMENT LOCATOR LIST 

Bates Number or Document Description Page Number 

OCC-PSI-00823408 Sealed Exhibit 

OCC-PSI-00823520 2389 

OCC-PSI-008238 I 8 2391 

OCC-PSI-00835851 2412 

OCC-PSI-00835857 2419 

OCC-PSI-00846642-647 Sealed Exhibit* 

OCC-PSI-00851542-545 Sealed Exhibit* 

OCC-PSI-00860859-860 2426 

OCC-PSI -00863984-992 Sealed Exhibit* 

OCC-PSI-00864335-365 Sealed Exhibit* 

OCC-PSI-0087773 1-739 Sealed Exhibit* 

OCC-PSI-00880181-185 Sealed Exhibit* 

OCC-PSI-00885817-818 2428 

OCC-PSI -00885822-826 Sealed Exhibit* 

OCC-PSI-00885828-83J Sealed Exhibit* 

OCC-PSI-0088660 I 2430 

OCC-PSI -00887684-685 2431 

OCC-PSI-00888526 (Printed as Exhibit 91) 1037 

OCC-PSI-0089487I 2433 

OCC-PSI-00898845-857 2434 

OCC-PSI-0089920 I Sealed Exhibit* 

OCC-PSI-00899202-21O Sealed Exhibit* 

OCC-PSI-00899215-226 Sealed Exhibit* 

OCC-PSI-00899227-233 Sealed Exhibit* 

OCC-PSI-00899234-255 Sealed Exhibit* 

OCC-PSI-00899481-485 Sealed Exhibit* 

OCC-PSI-00899872-898 Sealed Exhibit* 

OCC-PSI-00903648-650 Sealed Exhibit* 

OCC-PSI -00904698-726 2447 

OCC-PSI-00905522-523 Sealed Exhibit* 

OCC-PSI-00907803-811 2476 

OCC-PSI-00917881-882 Sealed Exhibit* 

OCC-PSI-0091963 I 2485 

OCC-PSI-0092 I 759-760 2486 

OCC-PSI-00928614-626 Sealed Exhibit* 

OCC-PSI-00928756-758 (Printed as Exhibit 38) 745 

OCC-PSI-00928759-76I Sealed Exhibit* 

OCC-PSI -00929779-783 2488 

OCC-PSI-00938171-178 Sealed Exhibit* 

OCC-PSI-O 1258252 Sealed Exhibit* 

OCC-PSI-01263216 Sealed Exhibit* 

OCC-PSI-01263586 Sealed Exhibit* 

11 
1121 


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DOCUMENT LOCATOR LIST 

Bates Number or Document Description Page Number 

OCC-PSI-01274467 Sealed Exhibit* 

OCC-PSI-01274962 Sealed Exhibit* 

OCC-PSI -01298625 Sealed Exhibit* 

OCC-PSI-01298647 Sealed Exhibit* 

OCC-PSI-01358494-498 Sealed Exhibit* 

OCC-PSI-O 1358514-517 (Printed as Exhibit 18a) 654 

OCC-PSI -01358804-809 2493 

OCC-PSI-01416736 Sealed Exhibit* 

OCC-PSI-01416833 Sealed Exhibit* 

OCC-PSI-01434593 Sealed Exhibit* 

OCC-PSI-01434609 Sealed Exhibit* 

OCC-PSI-01437596 Sealed Exhibit* 

OCC-PSI-01438115 Sealed Exhibit* 

OCC-PSI-O 1768523 2498 

OCC-PSI-01768561 Sealed Exhibit* 

OCC-PSI-01768568 Sealed Exhibit* 

PSI-FinCEN-04-0063-296 Sealed Exhibit* 

PSI-HokurikuBank-O 1-000 1-0 16 (Printed as Exhibit 92) 1038 

PSI-HokurikuBank-02-000 1-002 (Printed as Exhibit 92) 1043 

PSI-HSBC-75-000 I (Printed as Exhibit 2b) 583 

PSI-HSBC-76-000 1-002 (Printed as Exhibit 2a) 581 

PSI-HSBC-80-000001-006 (Printed as Exhibit 101) 1100 

PSI-HSBC-81-00000 1-003 (Printed as Exhibit 101) 1106 

PSI-IBBL-OI-000I-003 (Printed as Exhibit 87a) 998 

PSI-OCC-37-0004-009 Sealed Exhibit* 

PSI -OCC-38-0001-002 Sealed Exhibit* 

PSI -OCC-45-00000 1-0 16 (Printed as Exhibit 100) 1084 

PSI-OFAC-OI-000I-015 Sealed Exhibit* 

PSI -SIBL-O 1-000 1-004 (Printed as Exhibit 87b) 1001 

* Sealed Exhibits retained in the files ofthe Subcommittee. 

12 
1122 


76061.954

Der Spiegel 

Serious Blow 

A small financial institution in London apparently served as Taliban's main bank 

Oct 8, 2001 by Christoph Von Pauly 

On the outside, Roger Ivett, 48, leads an inconspicuous life. The Brit lives 

together with his wife, a teacher, and their little son in a house in Harlington, 30 

miles north of London. Their neighbors only know that he works in the City and 

takes the train to work every day. 

What they do not know: his employer is the Taliban regime in Afghanistan. 

Afghan National Credit and Finance Ltd, a subsidiary of Bank Milli headquartered 

in ruined Kabul, belongs to the God-fearing warriors with long beards. 

Ivett and his colleague, Afghan Mohammed al-Jailaki, are the bank's directors, 

who maintain their office on the fourth floor of a dingy brick building in the north 

of London. While the world is on the verge of war against the Taliban regime, 

each morning Ivett turns the gold combination lock to the massive steal door that 

secures the entrance. 

An employee from a neighboring office explained that about two years ago, 

several mullahs stormed into the bank and demanded money. A couple of 

security guards were alerted and eventually pushed the bearded men out. 

The doorbell missing, a knock on the door comes from a man who looks like a 

bodyguard. Inside offers a bleak picture: on the table are stacks of computer 

printouts. Most cubicles in the dismal open office have not been used for quite 

some time. 

This may be related to the fact that the Bank of England, intelligence services, and 

Scotland Yard have long been interested in the Afghan National Credit companies. 

As of April 12, 2000, the UN asked its member countries to freeze the worldwide 

assets of Bank Milli, the parent company ofthe London bank, and several other 

Taliban companies. 
1123 


76061.955

Neither is a connection to Bin Laden excluded any longer. From records made 

available to Der Spiegel, it appears that the Afghan bank in London maintained 

close business relations to the Luxembourg Bank of Credit and Commerce 

International (BCCI), which in 1991 filed for bankruptcy as part of an international 

scandal. Until 1991, BCCI was the bank of Osama bin Laden, the most wanted 

terrorist in the world, so reported U.S. Senator John Kerry recently to the U.S. 

Senate Banking Committee. "When we shut it down, we dealt him a very serious 

economic blow," said Kerry, who then headed the BCCI investigations. 

Founded in 1972 by Arabs and Pakistanis, financial resources were channeled via 

BCCI for the Afghan opposition against the Russians. Among the profiteers 

included Osama bin Laden, who maintained several accounts at BCCI, according to 

testimony by the U.S. senator. 

BCCI went under but its partner bank, Milli, lived on. And the companies in 

London were not affected. Prompted by HM Treasury, the Bank of England only 

responded on May 3,2000. As evidenced by the annual report, assets in the 

amount of 6,288 pounds, about 20 million marks [about $11.9 million in 2000, 

$15.9 million in 2012], were frozen. On May 31,2000, Afghan National Credit 

finally had to give back its banking license. 

But the British action against Afghan National Credit last year was half-hearted. 

Last year's assets of the Taliban bank did not amount to 20 million marks, rather 

over 50 million marks [about $29.8 million in 2000, $39.8 million in 2012]. 

Only the frozen funds could be directly associated with the Taliban regime. The 

remaining millions can still be paid out or moved if a legal owner comes forward. 

Taliban banker, Ivett, and his colleagues continue thus to work as if nothing had 

happened. He did not want to discuss his bank's companies with Der Spiegel, 

questions for him were discernibly annoying. "Assume that the authorities are 

well informed about us," he said. 

Whose suspicion is directed against the Trading Company of Afghanistan, which 

supposedly deals just in animal hides. "There is activity currently being explored," 

said an insider close to the London Treasury. One of the company's directors is 

bank director, Ivett. 
1124 


76061.956

.','m$nni-

"Schwerer Schlag" 

Ein kleines Geldhaus in London diente offenbar als Hausbank der Taliban. 

Nach au6en fUhrt Roger Ivett, 48, 

ein unschcinbares Leben. Der 

Brite wohnt zusammen mit seiner Frau, einer Lehrerin, und dem kleinen Sohn in cinem Haus in Harlington, 30 Meilen nordlich von London. 

Seine Nachbarn wissen nur, class er als 

Banker in der City arbeitet und jeden 

Tag mit dem Zug zur Arbeit fahrL 

Was sic nieht wissen: Sein Arbeitgeber ist das Taliban-Regime in Afghanistan. Den gottesfurchtigen Kriegern 

mit den langen 

Barten gehort 

die Afghan Naund dningten die Bartigen schlieElich 

nach drau6en. 

WeT wegen der fehlenden Klingel an 

die Stahltur klopft, wlrd von elnem 

Mann empfangen, der wie ein Leib~ 

wachter aussieht. 1m Inneren bietct sich 

ein trostloses Bild; Auf den Tischen liegen Stapel von Computerausdruckcn. 

Die mcistcn Arbeitsplatze in dem tristen GroBraumburo wurden schon scit 

lingerer Zeit nicht mchr benutzt. 

Das mag damit zusammenhangen, 

dass sich die Bank of England, Ge~ 

heimdienste und Scotland Yard scit langerem fur die Geschafte der Afghan 

Sitz der Afghan National Credit in London: Mullah~ verlangten Geld 

tional Credit and Finance Limited, eine 

Tochtergesellschaft der Bank Milli mit 

Hauptsitz im zerstbrten Kabul. 

Ivett und sein Kollege, der Afghane 

Mohammed al-Jailaki, sind die Direktoren der Bank, die im vierten Stock cines schrnuddeligen Backstcinbaus im 

Norden Londons ihr Buro unterhalt. 

Obwah! die Welt am Rande eines Krieges gegen das Taliban-Regime steht, 

schlie6t Ivett jeden Morgen die massive Stahltilr auf und dreht an dem goldenen Zahlenschloss, das den Eingang 

siehert. 

Vor ehva zwei lahren, so crziihlt ein 

Angestellter aus dem Nachbarburo, 

stllrmten mehrere aufgebrachte Mullahs 

in die Bank und verlangten Geld. Ein 

paar Sicherheit<;leute wurden alarmiert 

National Credit interessieren. Schon 

am 12. April 2000 forderte die Uno ihre 

Mitgliedstaatcn auf, weltweit die Vermagenswerte der Bank Milli, der Muttergesellschaft der Londoner Bank, 50-

wie mehrerer anderer Taliban-Unternehmen cinzufrieren. 

Auch eine Verbindung direkt zu Bin 

Laden ist nicht mehr auszuschlieBen. 

Aus Unterlagen, die dem SPIEGEL vorliegen, geht hervor, dass die afghanische Bank in London enge Geschaftsbeziehungen zur Luxemburger Bank of 

Credit and Commerce International 

(BCCI) unterhielt, die 1991 im Rahmen 

cines internationalen Skandals Konkurs 

anmeldete. Die BCCI, so berichtete der 

US-Senator John Kerry erst kurzlich 

dem Bankkamitee des amerikanischcn 

j) E J;( S P 1 E G f L 41! 2 001 

Senats, war bis 1991 die Hausbank von 

Osama Bin Laden, dem meistgesuchten 

Terroristen der Welt. "AIs wir sie geschlossen haben, haben wiT ihm einen 

sehr schweren akonomischen Schlag 

verpasst", sagte Kerry, der damals die 

BCCl-Untersuchungen leitete. 

1972 von Arabem und einem Pakistaner gegrundet, wurden liber die 

BCCl die Finanzmitlel fur den afghanischen WideTstand gegen die Russen 

geleitet. Zu den Profiteuren gehbrte 

auch Osama Bin Laden, der nach Aussage des US-Senators gleich mehrere 

Kontcn bei der BCCI untcrhielt 

Die BCCI ging linter, ihre Partnerbank Milli aber lebte weiter. Und auch 

die Geschafte in London waren nicht 

beeintrachtigt. Auf Veranlassllng des 

britischen Finanzministeriums reagierte die Bank of England erst am 3. Mai 

2000. Ausweislich des Geschaftsberichts 

wurden bei der Afghan National Credit 

Vennbgenswerte in Hohe von 6,288 

Millionen Pfund, rund 20 Millionen 

Mark, eingefroren. Am 31. Mai 2000 

musste die Afghan National Credit 

schlie61ich ihre Banklizenz zurlickgebcn. 

Doch die Aktion der Briten gegen 

die Afghan National Credit im vergangenen Jahr war halbherzig. Denn die 

Aktiva der Taliban-Bank betrugcn im 

vergangenen Fruhjahr nlcht 20 Millio~ 

nen, sondem uber 50 Millionen Mark 

Es \VUrden namlich nur die Gelder 

eingefroren, die direkt dem Taliban-Re~ 

gime zugeordnet werden konnten. Die 

restlichen Millionen konnen weiterhin 

ausgezahlt oder bewegt werden, wenn 

sich ein rechtmaGiger Besitzer meldet_ 

Dcshalb gehen Taliban-Banker Ivett 

und seine Kollegen weiter zur Arbeit, als 

sei nichts geschehen. Zu den Geschaften 

seiner Bank wollte er sich gegenliber 

dem SPIEGEL nicht auEem, Fragen sind 

ihm erkennbar lastig. "Gehcn Sie davon aus, dass die Beharden i.J ber uns 

bestens informiert sind", sagte er. 

Deren Verdacht richtet sich anch ge~ 

gen die Trading Company of Afghanistan, die angeblich nur mit Tierhiiuten 

handelt. "Da wird zurzeit aktiv ennittelt", sagt ein Insider aus dem Londoner Finanzminlsterium. Einer der Di~ 

rektoren der Finna ist der Bankdirektor Ivett. CH1USTO.l'B P/lL'LY 
1125 


76061.957

UK Observer reports Taliban Banks Still Operating in London 

EUP20011007000099 London The Observer (Internet Version-WW\Il!) in English 07 Oct 

01 [Article by Antony Barnett and Conal Walsh: "Taliban Banks Still in UK"] 

Two banks owned by the Taliban government and blacklisted by the United Nations 

still have active operations in London, The Observer can reveal. 

The disclosures will embarrass the British authorities and Chancellor Gordon Brown 

who last week pledged to clean up the City's image as a haven for outlawed regimes 

and terrorists. 

Afghan National Credit and Finance, which runs its operations from the fourth floor 

of an office block on the edge of the City, still has control of more than 10 million pounds 

sterling of assets. 

A joint investigation with German magazine Der Spiegel has revealed the company 

is run by 48-year-old British 'bank officer' Roger Ivett, who lives in Dunstable, 

Bedfordshire, and 51-year-old Muhammed Yailaqi, an Afghan who lives in Stanmore, 

Middlesex. 

According to the company's latest accounts it is a "London subsidiary of Banke 

Millie Afghan Kabul, a nationalised company of the Islamic State of Afghanistan". 

Banke Millie was among seven corporations blacklisted by the UN in April 2000 as part 

of a sanctions regime against the Taliban. British authorities should have immediately 

frozen the assets of these institutions and any related companies. 

Yet the Bank of England froze only 6.2m pounds sterling of the company's 16.3m 

pounds sterling worth of assets. The Financial Services Authority, did however, 

remove its British banking licence in May 2000. 

Last year the company made a profit of more than 58,000 pounds sterling and Ivett 

and Yailaqi were paid a salary of more than 100,000 pounds sterling each. Both 

directors also received personal loans of more than 15,000 pounds sterling from the 

bank. There is no suggestion that either the directors or company have acted illegally. 

The group has an associate company in New York, the Afghan American Trading Co 

Inc. 

A review of the business last year states: "The continuing unsettled situation in 

Afghanistan has adversely affected business activity. The directors are hopeful 

however that the situation in Afghanistan may improve and that the level of business will 

increase as a resull." 

Despite repeated attempts to interview Ivett, he refused to explain the activities of 

the company. At one stage, an employee attempted to smash the camera of an 

Observer photographer. 
1126 


76061.958

Ivett said: "The authorities know all about us and I am not prepared to speak to the 

media at aiL" 

Ramon Lee, who runs a firm of accountants on the same floor as the Afghan bank, 

said the company had been in their offices for 'donkeys years'. He remembers one 

incident about two years ago when a group of men in Islamic robes came into the 

building demanding money from the bank but were ejected. 

Ivett is also a director of a company called the National Trading Company of 

Afghanistan which shares the same registered office. Its accounts reveal this company 

is owned by Da Afghanistan Bank, the central bank of Afghanistan, also blacklisted by 

the UN last year. Yet 18 months later, the company which appears to be in property -

is still open for business. Last year the firm received over 14,000 pounds sterling in 

rental from its property portfolio, although it ended up making a loss of 20,000 pounds 

sterling 

The firm, which has a bank account at the Park Royal branch of Barclays Bank, 

describes its main business activity as "an agent for merchants of Afghanistan". 

Last month Barclays was forced to close down one account belonging to an 

associate of Bin Ladin after The Observer revealed it was being used by a group linked 

to al-Qa'ida. 

As investigators track Bin Ladin's financial network across the globe it is becoming 

clear that the City of London has played an important role. 

Gordon Brown has frozen 61m pounds sterling of suspected Taliban assets in 

Britain. A spokesman for the Treasury confirmed that the authorities were "actively 

investigating" the National Trading Company of Afghanistan. 

[Description of Source: London The Observer (Internet Version-VVVWV) in English 

Sunday edition of The Guardian, the prominent center-left daily] 
1127 


760612.353

Bank Secrecy Act Pillar Violations 2007-2011 

Source: "Federal Banking Agency Bank Secrecy Act Compliance Examination: Consolidated Quarterly Report," 

(2007-2011), prepared by Financial Crimes Enforcement Network (FinCEN), PSI-FinCEN-04-0063-296. 

Prepared by U,S. Senate Permanent Subcommittee on Investigations) July 2012, 
1128 


76061.961

Confidential & Non-public acc Information 

( 

c 

From: LESLEY MIDZAIN/HBUS!HSBC 

Sent: 11/11/1008 11:27:02 AM 

To: SUSAN A WRIGHT/HGHQjHSBC@HSBC 

CC: DAVID W J BAGLEY/GMO/HSBC@HSBC 

Subject: Re: OFAC 

HSBC-BNU 0203SlO.txt 

It's not often that I receive instructions to ignore Mr Bagley's emalls ... ! am 

happy to obHge. 

Thanks Susan, 

lesl€y 

le5Jey Midz:ain 

EVP & Chief Compliance Officer 

HSBC Bank USA, NA 

Tel: 2125256410 

eel: 

.~~ Orlginal Message ----

From: Susan A WRIGHT 

Sent: 11/11/2008 03:35 PM GMT 

To: lesley Midzatn 

Cc: David W J BAGLEY 

Subject: Fw; OFAC 

lesley; 

__ =: Redacted by the Permanent 

Subcommittee on investigations 

Just a quick note on behalf of David. This note should I'lOt have been sent so 

please ignore. John Halliday and 1 are already in the middle of obtaIning 

and analysing this information. 

Regards Susan 

____ Forwarded by Susan A WRIGHT/HGHQjHSBC on 11/11/2008 15:33 --.--

David W J BAGlEY/GMO/HSBC 

Sent by: Marion 0 ROACH/HGHQjHSBC 

Nov 11200B 15:10 

Phone no. 79918645 

44 0207991 8645 

Mail Size: 80586 

Page 1 

aCC-PSI-0089789 

Confidential- FOIA Tneatment Requested by HSBC N. America Holdings, Inc. HSB02545196 

Confidential- FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC acc 0616010 
1129 


76061.962

Confidential & Non-public OCC Information 

( 

c 

HSBC-BNIJ 020351O.txt 

Lesley 

To 

Lesley Midzain!HBUS!HSBC@HSBC02 

cc 

Susan A WRIGHT/HGHO/HSBC@HSBC 

Subject 

OfAC 

Entity 

Thank you for your very dear responses. 

As you know, we have just completed and arE! currently collating the results of 

a Groupwlde Compliance review of compljance with our USDjOfAC policy. 

Whilst some of these apparent breaches of Group policy may be rather historic 

nevertheless! am determined t~at we should enforce our policy on a consistent 

and Groupwide basis. 

Given this, what! would !ike to do Is at Group level tract back relevant and 

apparently offending payments and estllblish root causes 50 as to satisFy 

ourselves that there can be nOJ or at very !east} far less repetition. It is 

of course unrealistic to expect that no payments will pass through to HBU5, and 

at least our move to transparency in the form ofserlal payments should allow 

these to be caught nevertheless I would prefer that payments were rejected at 

point of entry. 

In order to do this, and assuming I am not asking everyonE' to do something that 

is already in hand, I would be grateful if you would:· 

Provide Susan with details of the relevant payments so that we know whkh 

offices to track back to. 

Keep me informed as to how matters progress. 

Provide allY additional information that you thInk would be helpful to Susan and 

her team tracking this issue back. 

~egards 

Page 2 

OCC-PSI-0089789 

Confidential. FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB02545197 

Confidential- FOfA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 0616011 
1130 


76061.963

Confidential & Non-public OCC Information 

c( 

HSBC-BNJ_E 0203510.txl 

David Bagley 

----- Forwarded by Marion 0 ROACHjHGHQjHSBC on 07/11/200811:01 

lesley MidzainjHBUS/HSBC@HSBC02 

Nov 06200813:18 

Mall Size: 66889 

David, 

To 

david w j bagley 

cc 

Janet l Burak 

Subject 

Fw; OFAC analysis 

Entity 

The short story is that we have not had additional commun~cation 01"1 the full 

collection of 'at risk' items. There have been two specific: 'dosures' (one is 

reflected in the spreadsheets below; the other occurred Just two days ago), but 

nothing more comprehensive. Notet thought that the ace examination of peMI 

which wi!! include a separate and distinct exam of our OFAC-relate.d compliance, 

commences on llNOV08. 

In addition to the detail below, there is also a contextual point <'lbout 

relative volumes of payments which might be helpfuf, in order to compare the 

number of misses (total of 79, as of late~OCT, when the attached sheets were 

prepared} in t~e past 5 years: 

~ HBUS processe5 approximately 600,000 wire tranS'fers on a weekly basis. 

Approximately 5% {3D,OOO} generate possible matches which require review prior 

to releasing. 

- During the period from 9/03 through 9/08 HBUS rejected and reported 1}213 

transactions valued at $100 million. 

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I hope you find this helpful-I'd be happy to answer any questions you might 

have. 

Lesley 

lesley Midzain 

Executive Vice President & ChiefCompfiance Officer! HSBC BANK USA. N.A. 

452 5th Ave. 7th FI. 

New Ymk/ NY 10018 

Phone 212-525-6410 

Fax 212-52.5-5769 

Mobile 

Email les/ey.Midzain@U5.hsbc.com 

---- Forwacded by lesley Mid20in/HBU5/H5BC on 11/06/2008 o8:0B AM --.-

Lesley Mid,ain/HBUS/HSBC 

11/03/200802:21 PM 

To 

Janel L Burak(HBUS/HSBC 

Subject 

Fw: OFAC analysis 

Janet, 

I am emailing this, but also printing a hard copy of both the email and the 

"ttachment which! will hand to you. 

You asked for certain details about the OFAC Items that we've self-reported, 

and what corrective actions we've taken over the years. 

--= Re-dacted by the Permanent 

Sub(OmOliltcc on Investigations 

The attached document contains spreadsheets with that detail. There are three 

categories of items: 

. 'Cautionary' items· referring to the 12 items noted in OFAC's recent 

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letter. 

2. 'Closed' items· referring to 6 items about which OFAC has specifically 

advised that it has dosed the matter with no further action. Note that one 

such closure occurred ret:ent!y which took one of the items off the Pending list 

3. 'Pending' items· items that have been reported over the yeaTS which have 

not been .specifically dosed by OFAC and which Clre not included jn the 

Cautionary letter and for whlch we are therefore 'at risk' of enforcement by 

OFAC (at the time of filing the Report<lble Event, there were 61 such items. As 

noted above, one has since been closed by OFAq. 

These spreadsheets wHl be uS2d to track any disposition of existing or 

addition of new items as these occur. 

Each ofthese categories {Cautionary, Closed and Pending) has been analyzed to 

determine the reasons for the errors over each of the years (2003¥OB), and an 

additional spreadsheet provides this information In total (the "Total !tems 

Analysis" seet). 

Some items to note; FrJrthe Cautionary items, 8 ofthe 12 (75%) were 

attributed to human error; forthe Pending iterns, this rate is quite a bit 

lower at 22% (13 of 60), and refiects still a relatively low 29% across al~ 

~ Tota! Items, 

In Tota! Items, reasons attributed to Systems and to 'No Sanctloned Interest' 

are just as prevalent, with a recent increase in Systems¥felated causes, Recall 

that the automated fjlter used for OFAC scanning was replaced in .JUL07 and some 

of the issues have arisen subsequent to that, as gaps are identified asthe 

system is refined, 

fYI, 'No Sanctioned Interest' refers to incidents where the Information 

attached to a payment did not indude details sufficient to identIfy It as 

being suhject to sanction and so it was not captured by the fifter (eg, where 

we get a cover payment that does not include detal!s), Typically, we learn 

about these from other banks that have more information and stop the payrnent, 

or from OFACwho has been alerted from another source, 

You had also asked about actions taken to address issues. The document 

includes a final spreadsheet with this information (Corrective Actions Working 

Draft), identifying the number of items missed within each reason each year and 

the action(s) taken over the years. 

\s previously advised, further review and assessment 1s a!so being undertaken 

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In an effort to recommend additional ameliorative and preventative actions. 

The analysts contained in these spreadsheets will assist in this undertaking. 

[attachment "OFAC analysis.xls" deteted by Susan A WRIGHT/HGHO/HSBCl 

lesley Midzain 

Executive Vice President & Chief Compliance Officer I HSBC BANK USA, N.A. 

452 5th Ave. 7th Fl. 

New York, NY 10018 

Phone 212~525~6410 

fax 212-525-5769 

Mobile ••••• 

Email les!ey.Midzain@us.hsbc.com 

--"" Redacted by the Permanent 

Subcommittee on In\'estigatlop.s 

--_.- Forwarded by Marion 0 ROACH/HGHO/HSBC on 07/1112008 11:01--·--

"Javid W J BAGlEY/GMO/HSBC 

" Nov 06 Z008 14:34 

Phone no. 79918645 

440207991 864$ 

Mail Size: 2703 

Lesley, 

To 

lesley Midzain/HBUS/HSBC@H5BC02 

cc 

Janet 1 Burak/HBUS/HSBC@HSBC 

Subject 

Re: Fw: OFA.C analysis 

Entity 

Tha nks and I agree that the context helps. 

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HSBC-BNLE OZ03510.txt 

Were the 61 and 12 spread across various categories within the OFAC sanctions 

ie different countries, SONs etc or was there any pattern, 

Separately did the payments emanate from across the Group, and if not were 

particular Group offices involved, these were obviously not cover payments and 

so were any of them sent after the reiteration of the Group policy on OFAC, 

Regards 

---- forwarded by Marion 0 ROACH/HGHOjHSBC on 07/11/200B 11:01···--

Lesley Midzain/HBUS/HSBC@HSBC02 

Nov 06 2008 23:56 

Mail Size: 8764 

To 

David W J BAGLEY/GMO/HSBC@HSBC 

cc 

Janet L Burak/HBUS/H5BC@H5BC, Mary A Caskin/HBUS/HSBC@HSBC02, anne liddy 

Subject 

Re: Fw: OFAC analysis 

Entity 

David, 

Regarding patterns, there Is some concentration in jran and Sudan: 

Of the 61, there were 18 for Iran and also 18 for Sudan. Otherwise scattered 

among Cuba, Syria, Zimbabwe, Iraq and SDNs. 

Of the 12, Iran had 3/ Sudan 4. Remainderwere 2 for Cuba and 3 total from SDN 

list. 

Regarding Group members, since Group polky was issued JULOS, we have 

nonetheless received a fairiy notable number of payments that suggest HSBC 

banks have not been consistently applying the policy. We looked at the 

population that we have self-reported (the 79) and isolated those which were 

issued subsequent to the policy (approx: 57), which were contrary to sanction 

requirements and for which HSBC was the originating bank (ie, not including 

those where HSBC was beneficiary bank). 

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HSBC-BNU 0203510.txt 

We found 2.1 payments sent by an HSBC bank that resulted in a 'miss' of a 

payment that should have been stopped. Of these 21, about S fall Into the 

category or'na s<lnctioned interest'· On these, we'd need to do a deeper dive 

to determine if, eg, they were cover payments or what particular drcumst<'lnces 

arose. But it does appear that about 1/3 of the missed payments origlmlted 

from Group members_ Note that these are just from the population of misseswe haven't examined the the population of payments that we successfully stopped 

over the years to see the percentage originating from HSBC members. 

lesley 

lesley Midzain 

Executive Vice President & Chief Compliance Officer I HSBC BANK USA, N.A, 

452 5th Ave. 7th fl. 

New York, NY 10018 

OCC-PSI-0089790 

Phone 212-525-6410 

Fax 212~525-5769 

Mobile ••••• 

__ "" Redacted by (he Pcrm~l'·.(,.". 

Subcommittee on InH!$t!~atlons 

c ':mail LC!s!ey.Midzain@us.hsbc,com 

David W J BAGLEY/GMO/HSBC@HSBC 

11/05/200809:34 AM 

lesley, 

To 

Lesley Midzain/HBUS!HSBC@HSBC02 

cc 

Janet l Burak/HBU5/H5BC@HSBC 

Subject 

Re: Fw: OFAC analysis 

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HSBC-BNI_E 0203510.txt 

Thanks and' agree that the context helps. 

Were the 61 and 12 spread across various rat~gories within the OFAC sanctions 

ie different countries, SONs etc or was there any pattern, 

Separatefydid the payments emanate from across the Group J and if not were 

particular Group offices Involved, these W!:.'fe obviously not cover payments ~nd 

so were any of them sent after the reiteration of the Group policy on OFAC, 

Regards 

HSBC Holdings pic 

Registered Office: 8 Canada Square, london E14 SHOo United Kingdom 

Registered in Engl-and number 617987 .*. *.***.* **"' ........... ,. •••• " .......................................... .. 

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Confidential & Non·public acc Infonnation aCC·PSI·0089805 

( 

From: MIKE EBBS/HBU5/HSBC 

Sent: 1/25/2008 8:53:38 PM 

HSBC·OCC_E 0093860.txt 

To: "MARK VOIGT" <MARK.R.VOIGT@US.H5BC.COM>;MICHAELJ HAHN/HBUS/HSBC 

CC: DAVID DEW/HBUS/HSBC@HSBC;JANETl BURAK/HBUS/HSBC@HSBC;ANNELIDDY/HBus/HSBC@HSBC; 

MICHAEL B GAlLAGHER/HBUS/H5BC@HSBC;"CAROlYN WIND" <CAROlYN.M.WIND@U5.HSBC.COM>;"BOB 

SCHLIEPER" <ROBERT.5CHUEPER@US.H5BCCOM> 

Subject: Re: Myanmar-related payment - Missed by fjlter ("Yangon") 

Mark/Mike, 

What do we know about this? 

Status? 

Pis advise ....• mikeFrom: Carolyn M Wind 

Sent: 01/25/2008 07:43 PM EST 

To: Mike Ebbs 

Cc: DavId Dew; Janet Burak; Anne Liddy; Michael Gallagher 

Subject: Fw: Myanmar-related payment - Missed by filter {"Yangon"} 

Mike, 

Concerning the below, we must get this filter fix in immedi'ate!y. We are 

running too much risk that these misses will cause OFAC to start questioning 

the effectiveness of our controls. aFAC requires the bank to explain the cause 

of each miss. Having an effective OFAC compliance program 1s a mitigating 

factor when OFAC considers fines. Thanks in advance for your assistance on this 

matter. 

Regards, 

Carolyn 

From: Anne Uddy 

Sent: 01/25/2008 05:17 PM EST 

To: Rhonda HoUer 

Cc: Mike Ebbs; Janet layton; Michael HClhn; Mcnka Thomas; Barbara 

~oonan/H8Us/H5BC@HSI3C02; Stephen Tedeschi; Nancy Hedges; Elizabeth Protomastro; 

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HSBC-OCC_E 0093860.txt 

Mary Caskin; Carolyn Wind; Thomas tgiel 

Subject: Fw: Myanmar-related payment - Missed by filter ("Yangon") 

Rhonda, tnis is. the second payment involving Yangon that has- passed through our 

filter, in contravention of OFAC sanctions, whereby a second US flnandal 

institutIon has approrpriately stopped the payment and reported the item to 

OFAC. 

HBUS now faces a potential penalty of $30,000 for processing this payment. I 

understand that Fundtech release issues have delayed implementation of the fjx 

to resolve the GPS wrapping issue resulting in the filter not recognizing 

Yangon 35 a match. 

We cannot walt until 2/22/2008 to get this frxed. Can we pis discuss this at 

Tuesday's. GPS call. Thank you. 

From: Ellzabeth Protomastro 

Sent: 01/25/2008 04:46 PM EST 

To: Anne Uddy 

Cc: Mary Caskin; Donald W McPherson/HBUS/HSBC@HSBC02 

Subject: Fw: Myanmar-re!ated payment- Missed by filter {"Yangon"} 

Anne, wanted to alert you to the fact that BONY has stopped another payment for 

"Yangon" that went straight through our filter. 

We are working on getting all the facts. It appears to be the same filter 

problem tnat we are waiting to get fixed. 

----- Forwarded by Elizabeth Protomastro/HBUS/HSBC on 01/25/2008 04:39 PM -----

Camille Muzalew,ki/HBUs/HSBC@HSBC02 

01/25/200804:00 PM 

To 

Jo,e Matias/HBUS/HSBC@IlSBC02 

cc 

Donald W McPherson/HBUS/HSBC@HSBC02, Elizabeth Protomastro/HBUS/HSBC@Republic, 

Mary A Caskin/HBUS/HSBC@HSBC, Monica A Thomas/HBUS/HSBC@HSBC, Nancy 

Hedges/HBUS/HSBC@HSBCAMERICAS, Susan Cruz/HBUS!HSBC@HSBC 

Subject 

Re: Myanmar-related payment. 

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HSBC·OCC_E 0093860.txt 

Jose 

! have requested the data from HTSU, I will advise once I receive it, 

Thanks and regards, 

Camille Muralewskl 

Manager~Genera! Compliance I HSBC Bank USA, National Association 

One HSBC Center, Floor 24, Buffalo, New York 14203, USA 

Phone. 716-841-2440 

Fax. 716-841·2000 

__ = Redllcted bytllepcrm.ai'.,e;~~·1 Subcommittee on t'.~ 

Mobile. 

EmaiLcamil!e.rnuza!ewsKi@U5.hsbc.com 

Jose Matias/HBUS/HSBC 

01/25/200803:53 PM 

To 

Elizabeth Protomastro/HBUS/HSBC@Republic, Mary A Caskin/HBUSjHSBC@HSBC 

cc 

Camille Muzalew,ki/HBUS/HSBC, Monica A Thomas/HBUS(HSBC@HSBC, Donald W 

McPherson!HBUS/HSBC, susan cruz, Nancy Hedges/HBUS(HSBC@HSBCAMER1CAS 

Subject 

Myanmar-related payment, 

Elizabeth, 

The attached payment was stopped by Bank of New York due to the mention of 

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Yangon in the ordering field. The payment was scanned by the filter, but not 

stopp~d, No operator intervention took place as can be appreciated in the 

accompanying Audit Trail. Bony has requested purpose of the payment. In 

addition they have requested full detail of the relationship between ordering 

party and beneficiary, 

CamHle: Can you check the reason the payment was not stopped by the filter 

and directed to the OfAC Unit's queues, 

Jose A, Matias 

Assistant Vice President, OFAC Unit 

Global Payments and Cash Management 

HSBC Bank USA, NA 

90 Christiana Road 

Newark, Delaware 19720 

Tel: 302-327-2383 

'ax: 302-327-2363 

email: jose.matias@us.hsbc.com 

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I,--

HSBC~ 

Mr. Denni, P. Wood. Chief 

OFACCompljBIl~ 

Office ofFoTdgn Assets Control 

U.S, Department of the Treasury 

1500 Pennsylvania Avenue, N.W. 

Washington, D.C. 20220 

Dear Mr. Wood: 

February 4, 200& 

--= Redacted by the Permanent 

Subcommittee on Investigations 

Ref:: Disclo;.'i.,i'~ of Facts ..;.. Wire paym~n! ;j:!,;; 15,00D (Bllrm~) .- ~,-. ""--- ~.- . ·'~·~',·~1 

Please nott: [ne: details of the fo11owing ~~iuctjon proussed by HSaC Bank UC:A, NA. 

(HBUS) in po.~ble violatioc of government sanctions against BUITnl!: 

Amount: 

Valueda1B: 

Sending Bank: 

Odginator; 

Intennediary Dank; 

Bcneficiery Bank: 

Beneficiary, 

USD 15,DOO 

18 J,"2008 _r- HSBC Singapore __ fangOn 

UniteaOverseasBaDJcL;td. 

On lS-Jan-2008, 'the above transaction (Exhibit l)1.vmJ processed as B sttaight-through payment. 

i.e.. it did not stop in our OFAC filter. On 22-Jan-2008> Bnnk of New York (BoNY) notified 

HBDS via. SWIFT (fuhibit2) that it was holding the.:funds due to a possible Bunna interest and 

requested infonmdoD mi The origini~{)r'and be:l!<;f!ciary m welll.'> ~e.purpo-se Qf1he p;:.;:;-.:er;~ L: 

On 30-]an~2008) HBUS received infbrmetian on the tnmsRction from the remiUer bank, HSBC 

Singapore, and provided. that information 10 BONY via authenticated SWIFT (Exhibit 3). We 

stress that the infOl'Illlltion indicated that the payment dld Dat involve an SDN and was for tne 

benefit of non-U.S. persons. However, the lUlderlying transaction, from a buyer locatcdin 

Burma to a supplier in Singapore, was mcant to pay for the purcb~ of computer accessarie.'l and 

is prohibited under sanctions agaiom Bunna We confirmed today withOFAC Compliance that, 

bru:edupon. details provided, BONY mwtreject rmd rq>Ort tha b'ansaction in tompli.a.ncc. with 

sanctloos against Bllonll. 

Otu i':searchofthis hlciderltlias:detennincfl that our filter id-aniiiw!l pOl:r::ntial OFAC match,. . 

but a fonnatting issue cause:d the Hlter to misread the entry, thus permitting the paymw to go 

straight tbrougb. It ~ detennined th!l1. a conc.etenation ()fthc word "Yangon" into1he next Une of text causoo the filter10 misread ('Yangon'" nnd allowihe payment 10 be processed straight 

throngh. Corrective Q.ction required a technical 11)( to tha payments processing system and 

asnCBomk USA. N'lItt-Cl:!AJ A!U4tlD.tfort 

~.52 filth Aytnllt', Ne\l" Yoc!o; N~ Ycd: lDOIS 

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involved rewriting specifications so as to prevent fu~ errors. This fIx is presCtltly beit!g tested 

and expected to be; impl6JJlented by FebI1J.,aQ' 8) 2(]OS, 

An immedialeltemp::muy fix. Wll!l incoIpOIated Into the payments process to detect reterences to 

"Yrmgon" and "Bunna" until the pennanentsotutlon is implemented. 

As always,. it 1s our in1ention to he in fujI compliance with aU U.S. snhctiorl!l, and we regret that 

this item was not jdentified at our end. . 

As. an inlegrnl part ofm OFAC compliance prozram, RBUS mainta.inn interdic11Dn softwere to 

scan its USD funds. tnmsrer instructions. Thi.!l software scans funds. I:ransfer payments to detect 

the prt:$cncc of, or reference: to~ sanctioned countries IlDd Specially Des.ignato:::d Nutionalsf 

Entities. HBUS also maintains a so~ fiher to scan Dill' customet inforntati{'l;!i. files in order to 

• -'to (dctot,rniJle if :lc>:illnts ll'Iamtaine.:i at P.BUS,involve S~J3.Uy.y)esigtta~"\ Natlon;ll&,B:citlri!ls or 

"$ahct16nei.J CoUr:J~_es; Proc.'£il:l\ues anl in pla~e 1:0 're<~kj,'V". investIgate ~,cl ;""~Pblt I6tJF ~S.:-.· . ~'mat:bcd)) trerisact10ns Md//)t accounts, 

In closing, we contcod that the Bank's overall CompliaIlce progrnrn and its fO'\13 on automated 

processing, stafftminiDg, ondopen communication HDd cooperotion 'With OFAC~ attest to its 

good~fail.h efforts 10 comply with the regulations. 

If you need any further infonnation on the. above tronsacrlon,pJeas.e contact me at (212)525-

6692. 

co: 

" .. ;.' 

';;'",Ijn Whld, E.Y.P. 

SaodtaPeterson, S.V.P. 

Aone Liddy, S.V.P. Naru;yHodg",F.V.P. 

Mary Ann c.skln,F.V.P_ 

Very!ruiy yours, 

Elizabeth P.rotomastro~ VPJCompliance 

HSBC Bank U.S.A.) N',A. 

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Confidential. FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 0616178 
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::onfldentlal • FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB02545366 

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1509 - Objectives 

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Right-sized and joined up to serve Group's purpose 

- Legitimate and credible competitive positioning 

- Leveraging Group advantages with focus on international requirements of customers 

- Clearly defined business propositions and strategies 

o Seek LOB asset growth opportunities and manage liability mix o Maximize synergistic values with HBIO 

Achieve metrics targets 

15% ROE 

- Double digit PBT growth 

-' >5% Jaws 

- 50% Cost income ratio 

• 200S Jaws are calculated from 2006...09 CAGR 

2006 

ROE 8.7% 

CII Ratio 61.2% 

Jaws -12.0% 

2009 

ROE 15.3% 

CII Ratio 50.5% 

Jaws 7.0'Yo 

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1509 - Strategic Issues and Initiatives 

• Balance Sheet and Capital Management 

- HBUS ALCO currently undergoing revamp 

HBUS Finance conducting balance sheet optimization study 

Leverage ratio constraint unique to US 

- Current balance sheet has been liability driven given strong deposit gathering efforts 

• Role of Buffalo 

Lower cost utility center 

• Joining Up with HBIO 

- Establishing govemance and parameters to facilitate and control asset transfers 

- Exploring infrastructure synergies common platforms, Support services and poliCies 

• People 

- Building a culture. with a sense of urgency 

- Succession planning and talent management 

• $100mm* Cost Challenge for 2007 

..:. People 

- Property 

Automation, IT and Infrastructure 

" Run rate basis HSBCID 

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Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC DCC 0616241 

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Tactical Cost Reductions - Line by Line Expense Review 

G Expense Summary 

- Customer Groups 

• PFS $15M below plan (good savings from Project Earth) 

• CIBM $30M below plan (tighter controls around headcount) 

- People Costs 

, $21M below plan spread across HBUS/HMUS (including GSC recharges 

$15M below plan) 

o Tactical Initiatives Implemented: 

- Travel and Entertainment 

- Wireless 

- Approved Suppliers 

• Tactical Initiatives Under Review: 

- Interlintra-company charges 

- Pager cancellation 

- OHL web-based service - Corporate Card 

- FOR charges 

- External Training PoliCY 

Convey recommended reductions to 2008 AOP by line item 

HSBCID 

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1162 


76061.995

l;ontillential & Non-public OCC Information 

HSBC-OCc..E 0093229. txt From: JEANNE EBERSOlE/HBUS/HSBC sent: 1/17/2008 4:22:49 PM TO: OlRIS P OAVIES/HBUS/HSBC@HSBC;OAVID OEW/HBUS/HSBC@HSaClGERARD 

MATTIA/HBUS/HSBC@HSBC: 

JAHET l BURAK/HBUS/HSBC@HSBC;KEVIN NEWMAN/HBUS/HSBCJQHSBC;MARlON 

YOUNG/HBUS/HSBC@HSBC; 

PAUL J l.AWRENCe/HBUS/HSBC@HSBC CC: 

subJ'ect: Draft Materials for EXCO 

rlear All: 

OCC-PSI-0089814 

Attached is a draft of the non-hiring freeze note to be sent to all GCBs O. 1. 2 and the final headcount report for 2007 which we will discuss tomorrow at EXCO. 

~~:t si~:~y l~~~ug~ g~~~e~~~~~i:n;~; ~~e tMs~e:~~~~~~' ~~i ~e;:a~bl ~ n t~i~~~U~~ the unusual economic circumstances and cost challenges in t.he bus1nessJ the executive team has again agreed to curtail hiring to reduce the sa1ary run 

i :t.f mpg~:;~r th~~U i~i! 1 ~6t mg~e c~~~~i~:t~an:~e:e~~e~e ~htiu~i ~!~ge~r~e~~ude~i management of the ROP to reduce costs and maintain alignment with t.he p and L throughout the y~ar. pOsitions may be fil1ed as indicated below: 

~~~r co~1~~!n'go ag~1~~~~es5 including London and paul L,awrenc:e approvals 

:~ionH~:;~~~ ~dc~~~~~t~o~~dg:i~~e ~~tre~ ~~g~~1~ge~~l~:k~~ ~ia~~~ro~:~s~rng proposal processes will. be followed before an offer is extended. 

HBUS: 

Revenue generating roles: 

~~~~ect~!~inRe~ro~~~r~~~1¥d~~~9~~d 5~~~n~P B~~~~~~~d t~~~~ld" m~~:~~~Q~~~p b~e li ned separately?) 

~~~1~i~~nin~f Ji~f~~n~~n~~dgc;~~ui~d G~~p b~P~~~~:~ ~~:~a~~l~) approved by Ian 

~~,;r~~~~~e 19~~ri:a~MR. rO~i~~p~~g~:c~:~t~e a~~p~ge!ai g~5 t~~O~!~p~~t~~:c~cgn member and EVP HR prior to search initiation or continuation. 

Regards, 

Jeanne Ebersole EVP, Human Resources I HSBC BANK USA, N.A. 452 Fifth Avenue, New York, NY 10018 

phone.. 

Email. 212-525-7599 

jeanne. ebersol e@u5.hsbc.com 

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Confidential & Non-public OCC Information 

HSBC-DCc..E 0093229. txt 

Attachment: HUSI Hdct VS Forecast DecO? w-offshore..xls.zip 

THIS PAGE IS 

INTENTIONALL Y 

LEFT BLANK 

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76061.997

Confidential & Non-public OCC Infonnation 

HSSC-OCc..E OOBll.55. txt From' DAVID OEW/HBUS/HSBC 

Sent' 9114/2007 8:58:06 AA To: CAROLYN M WJ:ND/HBU$/HSBC(ilHSBC 

ce, JANET L BURAKjHSUS/HSBC(ilHSBq KATHRYN A HATEM/HBUS/HSBC(ilHSBC 

slJbject! HEADCOU/rr 

carolyn, 

Occ-PSI-0089814 

According to my records, cDmpliance's actual FiE was 199 at 31 Dec 06 and 198 at 31 Aug 07. Thank you for holding headcount flat during the. course of t:he 

~~;~ii~~:V~~ ~~~d~~~~~~r~~~t~~:~:s~r~ey~rb~n~~Yi~d1~:~e~O~~~!in~n of 204 

by year-end. 

i~i ~l!~~e~!~c::ll ~h~e o~!~O~~sl~~~1 ~~~ ~~s~~~t~~t a~~uFh~i~~e ai ~~Siie~s~ru does not e)(cee.d 1.99. 

Thanks for your support during th.ese challenging times. 

Regards~ 

David Dew SEVP, chief operating Officer HSBC Bank USA 

452 Fifth Avenue I lOth Floor I New York, NY 10018 

phone. 

Fax. 

Email. 

212-525-6951 

212-525-8688 

david.dewmus .hsbc.com 

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76061.998

Confidential & Non-public OCC Inf rmation OCC-PSI-0089815 

HSBC-OCc...E 0043711. txt 'rom: CAROLYN M WIND/HBUS/HSBC ;ent: 2/12/2008 ll:26:51 AM fo! . ANTHONY R GiBBS/HBUS/HSBC@HSaC02 . ;C: CURT x CUNNINGHAM/HBUS/HSBC@HSBC02;OENISE A REILLY/HBUS/HSBC@HSBC,KAREN K ;RDM/HBUS/HSBC@HSBC02; 

_ESLEY MIOZAIN/HBCA/HSBC@HSBC02 ;ubject; fl,e: organizational changes 

~nthony, 

~h~~ke t~~ ~~n d~~~~i~~aii~~ ~~ ~~aje:~~U~1t~e.&~ ~~t~~h~~e~a~i~~ti~eb~~eI "BUS FTE involved in this discussion. AS I mentioned on the. call. I·IBUS :ompliance has been required to manage down overall FTE while at the same time "'edeploying resources to priority needs. We also are in the midst of a "hiring 3ause" which means that approval from apilropriate EXeo members is required to 

~~!~, ~~c~p~~~~~~~~ o~ ncr!a~~ n~O;v:~f~t a a ~~~t~~n S~P~h; ~~~e °i:r:~ i o~:~~d to 

)ther affiliates. I look forward to you and Denise reach1ng a workable solution For both short term and longer term needs. 

:arolyn 

:arolyn II wind 

i~~IFfft~ll~~~e~ ~~. Director I HSBC BANK USA. N.A. 

"YI NY 10018 

~hone. 

~ax. 

Email. 

212-525-5503 212-382-5963 carolyn.m .wi nd0us. hsbc. com 

To 

Denise A Reilly/HBUS/HSBC@HSBC 

~~rolyn II wind/HBUS/HSBC@HSBC, Curt X cunningham/HBUS/HSBC@HSBC02. Karen K 

Grom/HBUS/HSBC<m<SBCOZ. Lesl ey Mi dzai nlHBcA/HsBC@HsBC02 subject . Re: organizational changes 

Good morning Denise, 

I am still confident we can find a coasian '.1.54 King Soloman solution here •...•.. 

your not.e is very helpful because I think it he1ps me understand that you and I need to catch up on some of the develOPlllents from the CPO project. over t~e 

g~j~~~~~i ~ :~j~~e:~dl ~~~~~g~i~~~:;io~~c:n~e l~~!c~n d;~~5f~~ I Pig~hf~~a~~1~11 be at a much better pace to ta.lk future. 

page 1 

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Confidential & Non-public DCC Infonnation DCC-PSI-0089815 

HSBC-Oo:..E 0043711. txt 

!m k~~e W~o~~~d i~ ~~~ ih:1f~n~~~;e~f~~s t~~f w~~~s m~~hY y~~ ~~t~~~t~Doked as I 

Best regards a.nd until we talk, have a good morning. 

A'nthony R. M. Gibbs Managing Director, chief operating officer Hsse North America Legal and compliartce phone (847) 564-6500 

senior EXecutive Assistant: Jennifer CZaplewski (847) 291-2059 

Integrity ... OUr Tradition and our Future 

privileged/confidential information may be contained in this message, If you are not the addressee indicated in this message (or' responsible for delivery of the messa.ge to such person). you may not copy or deliver this message to 

:~~~. ~n r~~f~ ~~f~: ~~~a~~o~Jei~:l ~~~e~~!~e ~esf~e o~n~r k~~~~Y e:f!~r t~~es not consent to Internet email for messages of this klnd. O~nn1ons," .. conclusions and other information in this message that do not relate to the orricial business of HSBC shall not be understood as neither given or endorsed by it. 

TO 

Anthony R Gi bbs/HBU5/HSBC@HSBC02 cc 

Midzai rt/~:~~~B~@rs~~6~~U~'~~~~~~~~~~~~/~s~g~~~~r/HBUS/HSBC@HSBCO2. Lesley 

subject 

Re: Organizational Changes 

AS you may anticipate , I disagree with the a'ttached. The proposed organization structure embeds specific HBOS AML operational functi ons that are not shared services but specific functions, similar to specific funct10ns that exist 

~~~~~g~~~~l t~~t~~~s~~~~}~~n~~e;:~~~ns T~~ ~~~:~~~g~. any comparable moves of 

Additionally. as indicated last week. noW that the build-out of compliance risk systems is complete there is excess capacity that was intended to be 

~~~~~l ~~~~ ~~~~9:~1~o~e~g:~e~r~~i i nl ~~~ :~k~~~~Jn~~e i ~~~ii~~~~~!~t~~~ 'this certainly warrants consideration to aVDid incremental cost, which is contrary to corporate direction. EXamination results and discussions with regulators have made it clear that 'the AML programs need to be further built out immediately. The challenge is th-at this needs to be done in the context of flat or below plan financial targets. 

The absence of detai'led, thorough discussion of shared services vs the 

~~~~f~~~!ti~~~V~h~~~:~r~h~t bha~~i ~c~~~e~v~in~~e i~~~n~:v~fa~p~nths o~ recommendat·ions (end Aug) is disappointing to say the least. All other CPO 

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lionTlaenlial & Non·public OCC Information OCC·PSI-0089815 

HSBC-OCt:..E 0043711. txt 

~:~~::~~:~t~~~ ~:~r~a~~rn~ei~y t~~;n~~1:~~l~s~/g~~c~~s f~~~;~s ve~~~:as this recommendation has had no follow-up discussion. To be clear, g{ven "he 

~~~s~rnr!~, l~f s~~: ~~~~~::l ~~ af O~b~~~ds~gg:s~t~~ ~~~~;~:d~~9 a o~a~~~ci~:s 

. ~h1 s Pi! o~!;!~~i iVf~ :r~ r~~~:;i g¥ ~~:;s f!~!~; ~~hu ~~~~s :~at~~~~~!i gVl ~ tf:! d~~ be determi ned. 

Denise A Reilly SVP compliance 7th Floor 452 5th Ave, NV 10018 

Pl'1one. 

Mobile. 

Email. 

To 

)'@Us.hsbc.com 

Denise A Reilly/HBUS/HSBC@HSBC CC 

_ "'" Redacted by the Perman.ent. Subcommittee on InvestigatloDS 

Grom/HBu~i~~~~~B~~~/~~~i'~S~~~~~iH~~'lH~J~~~~B~am/HBUS/HSBC@HSBC02. subject 

Karen K 

Re: Organizat:ional changes 

~~~!~ s~~'~~~U~Ssp!n~P~~~g~ijO~i~~d o~O~r~aiy b~~h tgei~f~~n~et~f~;f~~Y o~s J:CRM. 

I l1ave now been able to complete my research and give this more thought as I promised I would when we met Thursday. It is my conclusion that we need to continue with the alignment as originally planned and keep the five individual in our share.d services team for a couple key reasons. The tasks performed by the five team members are largely the funct10nal tasks that would be in a shared services function. I recognize there are some specialized tasks that may be more appropriat.e in AML. but there are also tasks in AML and.other J-INAH 

co~liance teams that will be rolled into the shared services function as 'this initiative evolves through the year and we move down the path of centra1izing general knowledge functions to take advantage of specialization and economies of scale. 

'~e~ ~~ ih~~! ~~;e~~~~t~~{ t~Pi~ m~:a~~o~ ~ e 9 ~~~~~~ z~~~~i 1 a~~aias~o: 1 !~~m:~; we do what we. do. p.e-a~ignment now would be done w1thout thoughtful consideration 

ais~~~t~~:r~~ ~~~;i; ~~~b~~!~e !~n;;y e~~~~;~~e mih/:~f!~~~e~:;~~~da~r~~e of org changes seems to maximized when reporting lilles are done fi rstt followed 

:, 1 mg~;r~:{~i ~~~h a~~~~S!~d a~~n~~~~o~:s~~;~~1~g~Tg~t~hh d:~~~~:~. appropri ate 

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760611.001

~onfidential & Non-public OCC Infonnation OCC-PSI-008981S 

HSBC-OCC_E 0043711. txt ultimately, the current alignment is critical to our success at meeting. the shared services goal set to us by Janet and the COOs whicf1 will be a material component of our score cards this year. I cannot see how we can achieve the g~~~t~!n~ :~~i~:~!~rables of the shared services wit:hout the organization as 

At the risk of sounding too corny, please know my motives are 100% to the success of the d~rtment and company and by nature I am not an empire builder 

~~e/ g~!~~Y~h1~~ ~~~ ~V~h~~g~~c~~1~~e ;~t~~~ ~~:~~n~r s O~i J~~;~~sts. I ~rspectives and tried my best to make the proposal below work, b-ut I feel very 

f~~~i~ifv~~at this is the only way for us to succeed a.s a team in this 

Please let me know if you have any questions or comments. Best regards, Anthony. 

Anthony R. M. Gi bbs 

~~~g~~~t~i r:~~~ ~~ ~~:f ~~dr~~!~q i ~~~! ce r 

phone (647) 554-6500 

senior EXecutive Assistant: Jennifer czapl ewski (847) 291-2059 

Integrity - our Tradition and our Future 

privileged/confidential information may be contained in this message. If you are not· the addressee indicated in this message (or responsible for delivery of the message to such person), you maY not COIJY or deliver this message to. anyone. In such cases, you should delete th15 messi!ge and kindly notify the sender by reply email. Please advise inlllediateg if¥ou or four employer does 

:~~ ~~~~nfn~r~~~~~~efn e~l! ~~~s:~:s~:~ d: no~s r~~~~~ ~gl~~~n~fff~~~iusions business of HSOC shall not be understood" as neither given or endorsed by it; 

g~n~Mo~e~~ ~ b~H~~S/HSBC@HSBC 

To 

Anthony R Gi bbs/H'US/H~BOOH5BC02 

cc 

carolyn M Wind/HBU5/HSBC®lsBC, Lesley Midzain/HBcA/HSBC@HSBC02, curt: X 

cunni ngh~j:~i/HSBC@HSBC02 1 Karen K Grom/HBU5/H58C@.HSSC02 

organizat"ional Changes 

As discussed at our meeting today tf1e following are the current HBUS Risk and support functions and their disposition. 

Armbrust ~ HNAH Iannicelli - HNAH Gibbs - HNAH pa.ge 4 

:onfidentIal. FOIA Treatment Requested by HSBC N. America Holdings, Inc_ HSB02545412 

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Confidential & Non-public OCC Infonnation 

Buscaglia - HNAH Dellaneve-Reuvain - HNAH 

carbone - AML Grasso - AMl Atc.hley system Kowa1ski - AML Info security 

HSBC-OCc....E 004371l. txt 

Moore _ PTA support .. to. be discussed if more appropriate to. move to craM support team (8,11 wong) 

Martino - has transferred ~ut and positioJ'l being re-dep1oyed to AML correspondent Banking 

Additional Positions Bran1ecki - HNAH seckage - HNAH 

Barkl. - HNAH 

OCC-PSI-0089815 

vasquez .. HNAH 

Adams - HNAH Guz1 er - HNAH Macgaffey .. HNA.H 

--"" Redacted by the Permahent 

Subcommittee on Inl'estigations 

Denise A Reilly svp compli ance 7th Floor 452 5th Ave, NY 10018 

Phone. 

Mobile. 

Email. 

page 5 

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I;onna nllal & Non-public OCC Information 

HSBC-BNLE 0592516. txt From: CAROLYN M WIND/HBUS/HSBC . sent: 2/1/2007 10:26:18 AM To: TERESA PESCE/HBUS/HSBC@HSBC cc: 

subject: Fw: M.IP overages' .. URGENT 

carolyn M. wind EVP, General cOmpliance 452 5th Avenue t " T7 NOI'I York, NOI'I York 10018 phone: 212-525-5503 / Fa>e: 212-382-5963 E-mail: carolyn.m.wind@Us.hsbc.collt . ----- Forwarded by carolyn M wind/HBus/HSBC on 02/01/2007 10:21 AM -----

carolyn M wind/HBUS/HSBC 01/31/2007 07:05 PM 

To 

David W J BAGLEY/HGHQ/HSBC, "Alan RAMSAY" <a1an,ramsayehsbcib.com> cc 

subject 

FW: MIP overages - UR.GENT 

From: Teresa Pasce Sent: 01/29/2007 01:01 PM To: Jeanne Ebersole 

OCC-PSI-008982C 

cc:: carolyn Wind; Gareth POWELLj Karen Gram; Kathryn iiatem; Robert Butcher:: oavid Gibbons subj act: Re: MIP overages - UkGEN'T 

page 1 

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Confidential & Non-public acc Information aCC-PSI-0089820 

HSSC-SNLE 0592516. txt 

Jeanne -

We have reviewed our numbers. While SOIDe anomalies need to be accounted for (i ncludin~ CIne HBIO empl~ee who sits on our books and whose enti re 

~r:~n:aj~~~m!~t~~a~e~o b~~~ g~n~e~\~~t s~ ar:n~~~~~~ e~e ; ~a~:k~~~e9~:~er changes at this late date. Each emplQYee 1

s target and stretch goals were 

:~~te!!S~~~s:n~o!v~~vi~ Jg~g ~g~'s~~~rf:;hm:Pi~itt~: ~~! ~:~ ~~i~~~~e~~d 

i~:l~ ~:i:~c~rs~!:t a!x:i~:~fo~~d c~m~~f~~~g~~ii~~~'ha~~e s~~~L t~~~~~~u~as amount of time shepl1erd1n~ examiners throughout the inst1tutl0n with exams in 

~;:ki ~~;d:nr ~~q~ pl :e!~~s B~k~eas:~t:~kT~:?sai~~~d~~~5~r!~~, J~i~~~i ng of the Written Agreemen,\:. The increased demand of our regulators has necessitated the review of more and more-transactions , requiring mandatory overtime in virtually every monitoring center. Group mandates pertaining to 

g:foy~~~efop;~~~J o~~/ r~~. pay~~~t:~u~~~~t ~u~f~gafh~e:~~cf~g us has increased uS workload 0 train, create systems, and assist in the actual off shoring. In a have met our financial challenges -.. we were tasked with coming in un er udget and did 50. And We did all of the above snort handed as the recruiting environment has been cnallenging to say the least. 1.n light of all the above. my managers have carefully and thol.lghtfu1ly reviewed their people and have provided an honest assessment. Indeed. if we are at 159% of target. assuming stretth is 200%. we are somewhere in the. middle, which is what I would expect. 

I remain a bit: puzzled as to What we are, or were, expected to achieve. If 

~:r~e:~ ~~~f~~edofo a~s:unou~j ~~e~a~h~~n~ew:e~~9~~th!~;ec~:~ !gl~o~ei~:~ 

~p:~~a~~ ~~~;:t!~~s fu~ 1 t~~ 1 ~~~ ~~ r mf~~~ 1 ~~:a~g~~~at T~6~e rarely 

expectations were compounde(t Ly the fact that no such c set last year, and I expec.t that our percentages this year are com to last. We are also challenged by the fact that our colleagues at HBIO, with whom bank employees regularly communicate. will receive fun payout as there is no corporate factor. Indeed, I had to bend over backward to justify taking a single point off the maximum of an HalO employee who reports directly to me -- the expectation ther-e seemingly you start at the top ana work backwards. 

TD further remove points at this time would be rather arbitrarr. 1.n an 

~~~~~~d~~i~~r:r~ag~l~~ ~~~k~;Ot~: ~~!e a!r~:~y ~~~~ ~~~!r s~~~eo~;';h~~~ned) this will be very bad for morale, especially considering how harCl we have worked as a whole. In a competitive market where we have seen several re.siSIRations in recent history for liigher pay, this is ill advised. Tnis is part1cularly true when one considers the over all dollar impact. I expect 

~~~~1ew~~et~: ~y C~j ~g~o~~i;e~~~l!~s. we~~~!d a!~~~~ l~o~~lb~v~~i~~e~~C~o v~~~ 

:s~:~ a ~ 9 ya~~~~ r~~~:fe e~~~;!!! ~:. ~~t a~rtnd~~~~~~ru ~ai~ s :~P loyees --

Thus, at this point, I believe our numbers are justified and should stand. 

Terry 

Teresa A. Pesce EVP/Kanaging Di rector Anti-Money laundering compliance page 2 

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Confidential & Non-public OCC Information 

HSBC North America Holdings 452 Fifth AvenUe 

~ ... York, NY 10018 ph - (212) 525-6099 I'.x- (212) 525-5769 

Je.nne _hersol e/HBUS/HSBC 

01/26/2007 10: 19 AM 

TO . 

HSBC-BNL.E 0592516. txt 

carolyn M Wind/HBUS/HSBC@HSBC, Teresa pesce/HBUS/HSBCmHSBC 

cc 

OCC-PSI-0089820 

Kathryn A Ha.em/HBUS/HSB<mHSBC, Gareth POWElL/HBUS/HSeC@HSBC, Karan K 

Grom/HBUS/HSBcmHFN . 

subject 

MIP overages - URGENT 

As a whole, the bank is over it 1 s 2006 Mrp ac.crua1 and so we've been doi!l9 some research to understand how t.he payouts stack up_ As you knows we had a blSJ 

~~s~h:i ~f n~e~~ ~n!~~m~~t! a~i ~~atna~vf~:l ~~r~D~~~t i:r u~~~~s r:~~~ a~onstructed 

~:~~~~~!~~! 1~~~~1~~!d r~~~!d i~nda~~~;t~~~~~· inP:~~~t: ~~ ~h:i t~d~~fdual 5 

must consistently outPl!.riorm. in an unusual w~y to get top payout. 

~~r~:ri~:!~~ i~:a~u~r~~fs;i ~~mg~~~~~e e:~~pf'~n:~e ~r~f 1 ~h~ti ~~e:~ ~~~out: 

~~~~e~i~~ :r:rf~~ ~~ ~~~~i~~g~ ~dl~:vV:~c~~~ ~~df~ra~ii goa~aioW:n~~~~ ~~at 

~s tg~~d~~~~ ~;t e:g~r~g~ ~fa~i 1 ~nd y~~ ~~~e p:~~u~~o~1a i~~:e~~~r~f;c ~!~~ o~~~ reduce awards ,f the MIP goals Were ambiguous or turned out to be very easily 

~~~~~~~~~andI~o~~~ig~~{O~et~a~~ t~~::;~ our people appropriately for their 

unfortunately, we are 11'1 a time crunch and this ne~s your immediate attention. 

Thanks 

.:Jeanne 

Jeanne G. Ebersole, SPHR Execut.ive vice president Human Resources HSBC Bank, USA. N.A. 452 Fifth Avenue, New York, NY 10018 Tel: 1-212-525-7599 Fax: 1-212-525-7576 jeanne.ebersol e@.us.hsbc.com This e-mail is confidential. It may also be legally privilege.d. rf you are not the addressee you may not COPYl forward, disclose or use any part of it. 

i~o~O~O~~V~y~:~:i~~~ ~~~f~e~~:g~e~~e~ri~~edf!~:f~ g~l~~~u~~ :~~aN: copies 

Page 3 

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-HSBC-OCc...E 02nll9.txt FrOm: KAREN K GROM!HBUS/HSBC Sent: 2/27/2007 8;42:58 PM To: CAROLYN WINDiDENISe REJ:LLYjTERESA PESCE 

CC: DAVID O' GIBBONS/HBUS/HSBCt'OHFN;OAVID OEW;OAVID AVOULjPATlUCIA MCCAULEY-FABRIZI. SARAH PANCZVKOWSKlj,AATHRYN HATEM Subject: HU5! compensation Review 

~~~~f~~t!ds~~a~r~j ~~:S:e~~1~~; ~~:~~a~!~icr~~~n~~ ~~\l~:~~d~1:e~s~~ 

~:r:~a;nAI~~~~ ~~h){~~hn C~~~~~;'i;:mR~~~~~~1 c!~~~nQ~l~~: I~:n~J1:eh~neGloria conversations with Anne flddy and Terry pesce. Pat Mccauley and Mic~ele coppa also participated in all of these conversat.ions to provide t.heir insigll't from an HR support perspective as well as a recru1t:ing perspective. 

In summary. nere are the main discoveries: 

Most of the leaders we met. wit.h have been contacted' personally by head-hunters Most of the leaders also 1t\dicated their employees are frequently contacte.d by head-hunters 

,.he offers from head-hunters are fn some cases double base salaries and double bonuses 

~~ep~an~ w~ ~h: ~~1~~~ch;.ng our employees have. deep pockets and are willing 

t-ISBC ¥s we~l thought at in the industry so this does assist our re.cruiting efforts. however othe.r banks offer more TDP days and better benefit.s Our competitors are willin~ to pay SUbstantially more in base sal arYl match our bonus and even guarantee first year maximums in order to ~et our folKS 

i~ ~~~ ~~:~: :: :~: ~!~t~ ~~~:~ i~: ;~~~k~~r~:~~~i~twhl~~t~sP~6~e.ntile) 

~~~~$~~nin:i~~n~~~s:~f~n:o~e~~rig~m~~fJ~i~~~~h~R· s experience and our 

~f~:1~e~~~ w!~h i ~~~f!;~~1~tftl:~k~~tf~r ~h~e aj~~~i pate 'that the rev; ew will 

some of the leaders we spoke with felt the bonus pay:outs are/will be an issue 

~r a~r a~~P~~f:~ed ~re~~e~mp~~;~f w~~: ~i:::~~ ~~hn~~er~e~a.~~~s w:~dan issue 

~~d~i~t~q~o t~:a~h~~~~oR~~Vi ronment" was an issue for some groups. Workspace has become smaller, having no storage or sharing desks in tight spaces is g~~!~¥z:f~~yees reason to question thei r va1ue to the department: and/or the 

David and I have determined the jobs which will be review~d based on OUr conversations with you and your mana.gement teams. We are committed to providing an update and final report by end of March. 

As David reviews the jobs, he may reach out to some. of you ·to get additional informat10n_ . 

. Karen K_ Grom Director, Human Resources HSac Corporate/alobal support (847) 559-2511 (office) (630) 22Z-6140 (cell) 

Assistant! Mary D. Brown (847) 564-6Z09 

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Confid ntial & Non-public acc Information 

HSBC-BNI_E 0391322. txt From: MICHAEL B GIILLAGHER/HBUS/HSBC 

sent: 10/31/2006 4: 16: 10 PM To: TONY MURPHY/HBUS/HSBC ce: 

subject: FW: Additional Compliance headcDunt needed 'to suppor't PCM 

add to discussion pile 

Michael B. Ga11agher EVP, Head GTB Corporates, NAFTA . 45Z 5th Avenue New york, NY 1OO1ij Tel: 21Z-525-56BO __ c __ Forwarded by Mich.el B G.llagher/HBUS/HSBC on 10/31/2006 04:15 PM -----

Charles G O.lBustO/HBUS/HSBC Tel: 302-636-2030 10/31/2006 04:07 PM 

TO 

Michael B Gallagher/HBuS/HSBC@HsBC cc 

"Tony MUrphy" <tony.murphy@Us.hsbc,cOM> 

Subject 

Re: FW~ Additional compliance Ileadcount needed to support p~ 

Michael. Gall.gher/HBuS/HSBC 10/31/06 02:22 PM 

To 

charles G oelBusto/HBUS/HSBdilHSBC cc 

"Tony Murphy" <tony.murphy@l.1s.hsbc,coDl> 

Subject 

Re: F\Y: Additional compliance head count needed to support PCM 

compliance should be reimbursed with one model, nat 2. Find out from finance which way to go and if all to direct we need to flag in 01 plan. 

From: Charles G oelBusto Sent: 10/31/2006 12;31 PM TO: Michael Gallagher Cc: 'sandra Peterson subject' Re: FW: Additional Compliance headcaunt needed to support PCM page 1 

aCC-PSI-0089822 

;onfidentiaJ- FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB02545477 

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Confidential & Non-public OCC Infonnation OCC-PSI-0089822 

HSBC-BNI_E 0.391322. txt 

We pay through an allocation today but I b~11eve Alan is looking for PCM to hick. up the bill directly for these neW headcount as this is s(llDethin~ that 

v~~e~~~t ei~66~r f~~~h~~e~. pr;~e:s~~e ; ~i ~~tw~~~~~f iny B~~~~e~e~o~o~~ce' s 

M1 chae 1 B Gall agher /HaUS/Hsec 10/31/06 09:44 ... 

TO 

charles G DelBusto/HBUs/HSBC. sandra Peterson/HBUS/HsBcmHsBc cc 

subject . FW: Additional compliance headcaunt need~d t(l 5UPP(lrt PO! 

do we fund ex; sti ng resources? Do we agree 4 is the right number? 

Michael B. Gallagher EVP. Head GTB corporates, NAFTA 452 5th Avenue New York, NY 10018 Tel: 212-525-5680 ----- Forward.d by Micha.1 a Ga11agher/HBUs/HSBC on 10/31/2006 09:43 AM -----

Alan T Ket 1 ey /HBUS/HSBC 

Tel: 212-525-6147 10/31(2006 09: 3 7 AM 

TO 

Michael B Ga11agher/HBuS/HsBctliiSac 

"c Teresa pesce!HBUS/HSBC®iSBC. Denise A ReillY/H8US/HSBceHSBC~ charles"G Oe 1 Busto/H8US/HSBC@HSBC SUbject 

Addltional Compliance headcount needed to support PCM 

Michael 

~~p ~~~~~:t:n~r~~~~~~l O~h~o~~ ~~~i ~~h~~e~~Si~m~& ~ct~! ~~: f ~~Sii~~~! i we are 

institutiQn portion (If the busine::;s is designated high risk by our Regulators whose expectations conti.nue to rise necessitating continual enhancemen'ts to our program. 

Current staffin9 levels are insufficient to handle the growing monitoring 

~~~~ii~~~qt~ ~~ad~~~t m~0t>!a¥~n~~~ ~~e p~~:t~~~~a~~~~ t~ll~~u~~'t~h~ an discussions we held earlier in the year. . 

POt Moni'toring of thi rd party payments is split between the automated processes page 2 

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Confidential & Non-public OCC Information OCC-PSI-0089822 

- "" Redacted by the Permanent 

Subcommittee on Investigations 

-HSBC-BNL.E 0391322, txt run through wire CAMP (covering high and cautionary risk clients) and manual 

~~i~~n~n~~~~!~i~,f~n~n~~r~~~~u~~sj:e~f{f~~;~' Increasin~ly the process 

wire CAMP alerts have increased from 11,000 alerts for April to 15,300 for August mainly' due to the impact of the cover-ta-serial conversion a This increase is despite an accelerating 1mclementation of 'rules' to exclude 

!~~~~~i~~~e~:~~~~s~rv~:tj~!~~~ ~~ t~i::cePtable. The top portion ~f the 

Future Wire CAMP alert volum-e is eKpected to trend upwards due to: 

~:a~~~t~~~R ~~~~;tct~~ ~~e2~vg~ ~~eS~~~r~~~~~r~!~~ger. Better KYC analYSis leading to ide.ntification of po1itic:al involvement in :~~~il~n~:ients requiring their reclass1fication as sees with attendant closer 

Feeds being built to facilitate the automated monitoring of ACH and demand . draft activity as recently mandated by the Regulators, New high risk clients being added to the customer base (e,g •• ••••• 

RtlkS,gn oT mo",foring into Medium Risk clients not currently covered by the systematic Wire CAMP process - 1:he desirability of this Expansion was alluded to by our examiners and is needed to cover a more significant proportion of wire activity flowing over our books. 

~~~al monitoring requi rements have also increased with recent examples being 

Non wire activity flowing over sec accounts. 

crea,t carS s~~f~!; ~~~~fa~da~~o~~~~o AfricanQ de Investimentos. Various stored value card initiatives. Based on dialog with the PCM teams we expect to see. more of these manual 

~~Ug~i ~ r~u~~:m~~spAT:io~' :~t h~h:t t~a~~~~:~Y c~:a~f~~~ r~e~~e~~~~r 'Is. actual account activ; ty. 

We also see a steady increase in new product development l applications of 

~~~!~~n9lJ~r~~~~!n~~ ~~fe~~~t ~~~~e e~~~~~l. a~!s~lr~n ~~~p~~P~¥h~i~~t draw compliance resources away from monitoring. 

In the past 12 months we have implemented an automated workflow system to 

!~~~~: ~~~~~~~~gri:f:~~i~~~l~n~e:~:dd:~~~~~gl: ~~~!~~ ~~~:~s o~a~~'es to 

~~t;:~~doio t~~o:irk:~ ~~s~~:~a~~h f~~f~:~:~ ~ga~e arie~ ~~!~~:dt r~~~~~~~~r to can handle 1,000 alerts a month - our t.eam is currently ~at1dl;ng an average of 3,800 per persDn and is becoming Dverwhelmed thus potentially placing the business and the bank at risk. 

~d~1~~~~~e4o~~c~~~d~do{~C~a~~l~n~~~:¥r;o c:~ :n~e:~~:if m~~i~~~~9 but an 

i~~~~:~rg~s a~~t ~!~~~ c:b~~~. t~~: ~~~~f~~fg~. below prav; des addi ti anal 

[attachment "2007 AML Resource Estimate.xls·· deleted by charles G Del BustO/HBUS/HSBC] 

'Your agreement to this proposal is rl!quested. 

Alan 'l'. Ketley senior vice president, Anti Maney Laundering page 3 

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Confidential & Non-public OCC Information 

Tel: 2125256147/ Fax: 212 38~S~~8~NI_E 0391322.txt 

THIS PAGElS 

INTENTIONALL Y 

LEFT BLANK 

page 4 

OCC-PSI-0089823 

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HSBC-BNLE 0565108. txt From: ALAN T KETLEY IHBUS/HSBC sent: 9/1712007 7:43:43 AM To: CHARLES G DElSUSTO/HBUS/HSBC@HSBC;GlllIAN E BACHSTEIN!HaUS/HSiIC CC! "ALAN WILLIAMSON" <ALAN.P.WILLIAMSONOOS.HSBC.COM> Subject: FW: Correspondent sl.lrvey 

charlie, Gl1lian 

OCC-PSI-0089827 

:~~:c~fd~'e~:pl1~n~'~e~~: i~e Df~;~i~ink! :b~~fi~ °rp~~V:i:a~~n:lfo~:~i~th of resources. 

I. hope you find the information beneficial. 

~~n ~L K~~~'iance 452 Fi fth Avenue, New york, NYlOO1B 

212-525-5147 212-382-7580 phone. 

Fax. 

Email. alan. t. ketley@us.hsbr:::.cont 

-~--- Forwarded by Alan T Ketley/HBus/HSBC en 09/17/2007 08:41 ..... -----

Alan T Ketley/HBllS/liSaC 

09/06/2007 10: 15 AM 

To 

Alan wi 1liamson cc 

"Judy stoldt" <~udy.p.stoldt@us.hsbc.cQI'Il>J "George TSugranes" <george. ~&~~~es@us. hs c. com> 

COrrespondent survey 

Alan 

Attached is the result of the conversations I. have had with our peers where I· have contacts. It is my intention to provide this to charlie. When we have our discussion about the KYC process that Michael requested. 

Some general themes: 

Every bank. that responded and provided information about monitoring s'taff has 

~~~ei~:d~~~\,a~ki~;Y m~~k~~n;~~~e lih~·; {~e~~t ~~:~l~~!~~e~e~a~l~r~~~e~r 

~l~t~~~Ra~!l~;at~~i ~i ~~t1~~~ ; ~ei~~n%~~~t:~~eFf~ ~~~~~nW~~h~{ a H:~3~i and Amex 3.63% . . 

~~ I iO~Ri{! t~f s K~~ 1 s~~~O~b e~~~o~~i! n~ s ~i:i ~s t;h~~ r~~ ~:~tsche' s , oaks very page 1 

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Confidential & Non-public OCC Information OCC-PSI-0089827 

HSSC-SNLE 0555108. txt 

~~~~~i i~:' EDO ROF process we a1so·'can get a high risk account opened in 24-48 hours (if all the correct information has been provided.) tchallenging' KYCS can also take mqnths though 1'111 not sure. where Charlie gets his figure of over" a year as a WO rst case. 

let me know if you have any thoughts on this before I share it with t.he business. 

Phone.. 212-525-6147 Fax. 212-382-7580 ""'ail • alan. t. ket 1 ey@us • hsbc. com 

- corbanking KYC support.xls.zip 

Attachment! corbanking KYC support.xls.z1p 

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HSBcm 

Mr. Dennis P. Wood, Chief 

OFAC Compliance 

Office of Foreign Assets Control 

U.S. Department of the Treasury 

1500 Pennsylvania Avenue, N.W. 

Washington, D.C. 20220 

Dear Mr. Wood: 

Ref: Self-Disclosure 

March 20, 2009 

HSBC Bank USA, N.A. (HBUS) has a Banknotes business which transacts with our affiliate in 

the United Kingdom, HSBC Bank pIc (HBEU). 

During an internal review, two purchases of U.S. dollars Were identified by the London branch of 

HBUS, conducted on 1215/2008 and 21512009, between HBEU and HBUS that involved Iran. 

HBEU purchased a total ofUSD 2,587 from The Embassy ofiran in the United IUngdom and 

subsequently resold the U.S. dollars to HBUS. The transactions were conducted through the 

Kensington branch ofHBEU located at 16 Princes Gate, London. 

We further note that, from 712212008 through 211212009, HBUS sold a total of Euros 459,124 to 

HBEU (31 transactions). Subsequently, the Eums were purchased from HBEU by The Embassy 

of Iran in the U.K. The funds Were used to meet salary obligations. 

As a result "fthis incident, HBEU has ceased this activity. 

As an integral part of its OFAC compliance prognun, HBUS maintains interdiction software to 

scan its USD funds transfer instructions. This software scans funds transfer payments to detect 

the presence of, or reference to, sanctioned countries and Specially Designated Nationals! 

Entities. HB US also maintains a software filter to scan our customer information files in order to 

determine if accounts maintained at HBUS involve Specially Designated NationalslEntities or 

sanctioned countries. Procedures are in place to review, investigate and report to OFAC 

"matched" transactions and/or accounts. 

In closing, we contend that the Bank's overall Compliance program and its focus on automated 

processing, staiftraining, and open communication and cooperation with OFAC, attest to its 

good-faith efforts to comply with the regulations. 

HSBC Bank USA, National Assoc::latlun 

4S2 Fiftb Avenue, New York, New Yorlc 10018 

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March 20, 2009 

P.ge2 

lfthere is any further information th.t we may provide to the above transaction, please do not 

hesitate to contact me at 212-525-6692 or via email.!elizabeth.protomastro@us.hsbc.com. 

Enclosures 

ce: Lesley Midzain 

Anne Liddy 

Mary Ann Caskin 

Denis O'Brien 

Very truly yours, 

Elizabeth Protomastro, Compliance 

HSBC Bank U.S.A., N.A. 

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Page 1 oflO 

CIBM - Institutional Banking _ "" Redaded by tbe Pcnnanent 

Subcommittee on Investigations Part One· Medium Risk 

OECD F ATF web site 

KYC Profile Reference Number: 

Institutional Client Name: 

A Basic Identification Details 

Address: 

CountryfT erritory: 

Tel.phone: 

Facsimile: 

WebSite: 

HSBC Entity 

Industry Sector 

Type of Client 

VVhat is the client's principallina 

(S) of business? (Please click 

here to see Explanatory Note 

22) 

CountrylTerritory in which the 

client is incorporated: 

Confirm that the cUent is 

regulated: 

By which body is the client 

regulated 

Certified copy of banking 

licence/certificate of 

incorporation is: 

Please provide explanation: 

(Please click. here to see 

Explanatory Note 20) 

AI Rejhi Banking and Investment Corporation 

Head OffICe, AI Akariya Building, Oleya Street 

POBox 26, Riyadh 11411 

Saudi Arabia 

956· 1 - 4601000 

966 - 1 - 4600922 

www.alraJhibank.com.sa 

United Arab Emirates 

Banks 

Privately held 

Operating through an extensive network of 382 

branches, it offers a wide range of retail, 

commercial and investment banking services in 

accordance with Islamic Shari'a principles. 

Saudi Arab\a 

Yes 

Saudi Arabian Monetary Agency [ SAMA J 

Not required 

Since it is a prime ftnancial Inst~ution from the Kingdom of 

Saudi Arabia, included In SAM A's list of licensed 

commercial banks and has been a longstanding 

relationship for HSBC Group, the requirement for a certified 

copy of banking license I certificate of incorporation has 

been waived. 

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Page2oflO 

Confirm that is is not a Shell We confinn it has a physicat presence and is not a Sheri 

Sank: Bank 

(A Shell Bank has no physical 

presence in any jurisdiction, and 

no affiliation to a regulated bank 

which does) 

Year in which the client was 1986 

established: 

Gllenrs rank in country: 3rd [Assets I 

Is the client traded on an Yes 

exchange? 

Which exchange? (Please click Saudi Stock Market 

here to see Explanatory Note 6) 

Date Relationship commenced 1990 

(ddimmlyyyy): 

B Ownership/Management 

Do the activities and 

or/reputation of any disclosed 

shareholder(s} increase the risk 

profile of the client: (Please click 

here to see Explanatory Note 1) 

Confirm that you have verified 

the ldentity of each principal 

owner, and confirm that an 

appropriate level of due 

diligence with regard to such 

owners has been performed: 

(Please click here to see 

Explanetory Note 2) 

Ves 

In view of the spotlight on this bank in western 

media post 9111, we have answered the above 

question as 'Ves'. However, we would like to add 

here that a Reute~s report dated 20 January 2005 

indicates that AI Rajhi Bank has been dismissed by 

US courts as defendant in a lawsun resuHing from 

9111 attacks. We also draw comfort from the fact 

that both the CEO HSBC Arnanah and DCH HBME 

know the AI Rajhi family well, and remain 

comfortable with their ownership in the bank. 

The AI Rajhi Group with substantial business 

interests in the Kingdom remains the dominant 

shareholder in the bank. The main owners of the 

bank include Sheikh Sulaiman Abdul Aziz AI Rajhi 

(23.16%), Sheikh Saleh Abdul Aziz AI Rajhi 

(13.67%), Sheikh Abdullah Abdul Aziz AI Rajhi 

(8.20%), New Founders of the bank (5.0%) and 

Employees Fund (2%). The Head of FI in the bank 

advised that New Founders are actually the four AI 

Rajhi brothers, who acquired these shares when the 

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Page 3 of 10 

bank was established through a merger in late 

1980's. He added that AI Rajhi brothers tog ther 

have a 52% shareholding, a~hough total AI Rajhi 

family stake in the bank is higher. The bank also 

has some public ownership through domestic stock 

exchange. 

Since this counterparty was classified by GHQ CMP 

as SCC, the relevant SCC fonns on two shareholders with ownership >10% were completed 

on a "best effort" basis, and submitted to GHQ 

CMP for review 1 sign-off as requested. 

[Note: As CEO Amanah and DCH HBME have 

known the AI Rajhi brothers for many years, and 

have met them on several occasions, we have not 

obtained the passport copies to verify their identity 

for SCC purposes J. 

Would any of the principal Yes 

owners/controllers of the client 

be classified as spedal category 

clients (SCC) ? 

Confirm that the Group SCC Yes form issued by Group 

Compliance has been completed 

on each prinCipal owner as 

appropriate (Please click here to 

see Explanatory Note 25) 

C Money Laundering Control Policy, Procedures and Controls 

Confirm that measures are taken 

by the client to ensure that they Yes 

do not provide financial services 

to listed terrorists andlor 

sanctioned names notified by 

competent Authorities (Please 

cliCK here to see Explanatory 

Nots 23) 

Please provide details: As GRM for Islamic banks, I visited this bank in 

Oelober 2004 and had the opportunity to discuss in 

detail the KYC I AML issues with Mr M Raju, Chief 

Manager International Banking Department, and 

James Wilkins, Head of Compliance. In our view, 

their KYC 1 AML procedures and controls are as 

good as any other bank in the Kingdom. 

The management appeared fully cognisant of the 

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Confirm that measures are taken 

by the client to ensure that they 

do not make funds available to 

listed terrorists and/or 

sanctioned names notified by 

competent Authorities (Please 

click here to see Explanatory 

Note 24) 

Please pro~jde details: 

Page 40f 10 

reputational risks associated with terrorism 

financing, and confinmed AI Rajhi Bank's strong 

commitment to combat it. They advised that the 

bank remains in full compliance with the SAMA 

Guidelines on Anti-Money Laundering! Combating 

Terrorist Financing, and their compliance is 

monitored through routine inspections from the 

regulatory authority. 

As stipulated by SAMA directives, the bank has 

streamlined procedures in place to establish the 

Identity of all customers (including the FI clients) 

satisfactorily before an account is opened. They 

perform necessary due diligence at relationship 

inception stage as part of their account opening 

process. 

There are automated systems in place to screen all 

new clients against the listed names. The bank also 

undertakes periodic reviews of the entire customer 

base to ensure that financial services are not 

provided to listed terrorists! sanctioned names' 

notified by the competent authorities. The existing 

accounts that do not bear scrutiny are closed 

Immediately. 

Yes 

As stated earlier, AI Rajhi Bank recognises money 

laundering as a significant reputatlonal risk. The 

management has confinmed that they monitor client 

payments, as required in SAMA! FATF guidelines 

to ensure that funds are not made avenable to 

Listed Terrorists 1 Specially Designated Names 

notified by the competent authoritles. The bank has 

a real-time payment monitoring system to screen 

payments against the listed names. As required by 

the regulatory authority, suspicious payments are 

investigated internally and, if required, reported to 

the Police 1 SAMA without alerting the customer. 

All inward remittances go through an automated 

screening process, and are paid through an account 

only. Under exceptional cases, which the bank 

advised are extremely rare, it may also pay in cash 

provided the client is well known to the senior 

management of the bank. 

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Does the client's country 

endorse "The 

Recommendations of the 

Financlal Action Task Force on 

Money laundering"? (even 

though ij may not be a member 

of FATF, see explanatory note 7 

and the DECO web site) 

Confirm that FATF principles 

regarding dient identification; 

anonymous accounts; client 

activity monitoring; a risk·based 

approach to 

products/geographies; employee 

training; and audits of controls 

are incorporated in the client's 

policy, procedures and controls: 

Page 5 of 10 

The Head of Compliance in AI Raihi Bank advised 

that they currently use Proactive Risk Manager 

software called 'Prison', which interfaces with the 

bank's main system. We were informed that NCB -

the largest commercial bank in Saudi Arabia - also 

currently relies on the same software. A US 

company had developed the original platform, and 

AI Rajhi Bank got it through their licensed lirm 'ACI 

Bahrain', The SONs I sanctioned names advised by 

SAMA, other competent authorities and those 

identified through their own research are fed into the 

system. The bank also enters the payment! 

transaction thresholds in the system, 

Yes 

SAMA endorses the FATF Recommendaffons and has the 

reputation of being among the toughest regulators In the 

region. 

During our meeting with the management, they con'firmed 

that the bank has Implemented KYC J AML procedures and 

controls in full oompliance with SAMA guidelines, which 

Incorporate the FATF pfindples regarding OIJstomer 

Identification, anonymous accounts. suspicious transacHcns 

and staff training. 

The management stJessed iIlat they do not provide banking 

services to new cuslomers without proper identification, As 

per the~ KYC policy, a copy of proper Identification is 

obtained and kept on file when a new account is opened, a major service Is rendered or a large transaction «(.e. 

>SAR10Dk) is carried out. They also require other 

Information relating to OIJstomer, including the street address, empfoyer I business details. 

As a pOlicy, AI Rejhi Bank dees not offer banking services to non~account holders except in the followIng 

circumstances: 

- payment of utility bills, Govemment dues, fines 

- encashment of a reasonable number of Tes J 

Drafts by tourists against proper identifIcation 

- encashment of Haj J Umrah cheques J Tes 

- Inward remittances provided they are paid 

through an account wiill ano!her Saudi bank 

- outward remittances for welk~n customers 

after checking customer identity, obtaining 

personal data of client and getting the required 

level of oomforl It is as per SAMA guidelines. 

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For amounts In excess of SAR 1 Oak threshold, 

the branch manage~s approval Is also ne d d 

after he has verified the source of funds. In 

addHion the bank has to provide full information 

on the client and transaction to the regulatory 

authority. 

Page 6 oflO 

For establishing a new correspondent banking relationship, 

the bank obtains information as per SAMA's checklist. It 

includes copies of the Memorandum of Understanding I 

Articles of Association, certifICate of incorporation 1 central 

bank license. information on principal Qwners afthe bank, 

background information on directors I senior management 

and lisl of authorised signatories. In addition the bank also 

obtains information an the prospective client's KYC I AML 

procedures through a questionnaire, which Includes all the 

key questions we have in the KYC Profile for High Risk 

Countries. Based on its own screening and due diligence 

process, SAMA may still advise the bank not to establish 

relationshIp with a particular institution. 

As regard to their relationship with correspondent banks in 

Sudan, the Head of FI confirmed that their main 

correspondent in that country is Bank of Khartoum, which 

also mainteins a GBP aCODun! wHh HSBC London. 

RelationshIp with other Sudanese banks is either inactive or 

insignificant. The management advised that AI Rajhi Bank's 

policy has been to primarily deal with the largest local bank 

In each country. They also informed that the bank is 

reviewing its entire correspondent banking relationship 

portfolio with a view to close the dormant I inactive 

accounts. 

The management confirmed that transactions wfth 

Sudanese banks mainly comprise of low value remittances 

from Sudanese expatriates working in the Kingdom. It may 

be noted that AI Rajhi Bank has been a dominant player In 

remittance business, prImarily due to its track record in 

providing efficient remittance services, extensive branch 

network, convenient timings and lower charges compared 

to most other banks. 

It may also be noted that regulatory guidelines require 

banks to oblain approval from SAMA prior to opening any 

SAR acoount.The banks also need to provide SAMA full 

details when entering into any other relationship with a 

correspondent bank. If there are some concerns, SAMA will 

ask them to obtain additional information. AI Rajhi Bank 

keeps a separate file on each correspondent bank\ which 

has an internally approved KYC 1 AML profile and an other 

important documents. These files are regularly checked by 

Internal auditors and SAMA inspectors to ensure that the 

required due diligence had been performed by the bank 

before establishing a correspondent banking relationship. 

The Head of FI also conftrmecl that it is the bank's policy not 

to open accounts for persons usJng fictitious names, and 

they have also implemented guidelines to monHar 

suspicious activity in accounts. They have a transaction 

monitoring system to detect unusual activity in the account 

and provide daily reports, which are reviewed by 

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Describe how the policy, 

procedures and controls are 

communicated and enforced 

effectively in the client's network 

of domestic and international 

offices: (Please click here to see 

Explanatory Note 3) 

Confirm specifically that client's 

policy prohibits relationships 

with, and payment processing 

for, Shell Banks: (Please click 

here to see Explanatory Note 4) 

D Client Visiting 

Page 7 oflO 

compliance. If there is SlIspicion about an account, the 

matter is immediately reported to the regulators and the 

account is put under survemanee. If it is established that the 

account was Indeed being used for money laundering 

pwposes, the rela1ionship is immediately extled. 

The bank relains in original Ionn the account opening 

documents, customer identification records and 

agreements relating to the operation of cutomer's accounts 

lor at least 10 years. 

As per the bank's AML guidelines, and confinned by the 

Head of FI, anft-money laundering training Is provided to all 

managers, controllers, operations and counter staff of the 

bank. 

The management also advised that AI Rajhi Bank is an 

obligatory member of SAMA's Financial Crimes Laundering 

Committee, which recommends the adoptlon of best 

practices and ways to strengthen the AML controls in the 

banking sector. 

The bank has confirmed that KYC I AML controls and 

procedures are applied across its network. There is an 

established AML Unit within Internal Audit, which has a 

dedicated AML Campliance Officer to coordinate the antimoney laundering activities within the bank, monitor 

unusual activities in customer accounts, scrutinise the 

accounts of clients under suspicion of money laundering 

and alert SAMA I other authorities If necessa",. He is also 

responsible to review and ensure the adequacy of AML 

pOlicies and procedures periodically. There are also regular 

external audits and routine inspections from SAMA to 

ensure that AML guidelines are strictly followed across the 

branches, 

Yes 

Confim that a visiUeontact will be Visited by Shariq Siddiqi (GRM) in October 2004 

made by the Global Relationship 

Manager, Regional Relationship 

Manager or a Product Specialist 

in the first year of the 

relationship: (Please click here 

to see Explanatory Note 5) 

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E Additional Local Regulatory Requirements 

If applicable: (Please click here N 1 A to see ExpJanatory Note 19) 

Global Relationship Manager 

Global Relationship Manager 

Has the IS one-way consent 

letter been sent out? (Please 

click here to see Explanatory 

Note 29) 

Date sent: 

Part Two· Transaction ActivIty 

A Transactional Details 

Shariq Siddiqi 

Yes 

08/2004 

Nature of accQunVrelationship (11ck Trade, Treasury, Swift BKE 

where appropriate}: 

Other, please state: Asset Management 

Is this a 8anknote Client? No 

Clienfs stated use/purpose of the It is an existing rel.tionship for HSBC. 

account/relationship: 

Page 8 of 10 

[ Note: The Banknotes relationshIp with HBUS London 

was exKed on the advice from CMP]. 

Confirm that the client will be the Yes 

only operator of the relationship. 

(Please click here to see 

Explanatory note 21) 

B Transactional Activity 

The Know Your Customer policy 

requires a listing of the client's 

approximate business actJvity with 

HSBC, and subsequent monitoring 

of actual business against it. 

(Please click here to see 

Explanatory Note 17) 

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Page 9 of 10 

Please Note that it is against policy to accept payment Instruction from Sheil Banks direct, or Ilia 

wlationships with us. 

Type ofTransaciion: 

Frequency: 

Volumelvalue: 

Export DC I BP I BC 

MM I FX Transactions 

Transaction Count (Unfts); 

Export DC I BP I Be - 83 p,e 

MM I FX Transactions - 222 p,a 

Tumover (USD Millions): 

Export DC I BP I BC - 7,6 p,a 

MM I FX Transactions - 276,9 p,a 

C AdditionallnfQrmatlon required for Banknote clients 

D Approval Section 

Name of Relationship Manager 

recommending: 

Ihsen Khelefl Associate 

I have reviewed the information provided above, in the context of HSBC's KYC policy and due 

diligence criteria, 1 am satisfied that the dient's money laundering deterrence policy, procedures 

and contrcls are of a suffictent standard for me to recommend this c1ient for banking bUsiness 

and thai transactions are consistent with the customer's known legitimate business activtty. 

Please click here to see Explanatory Note 18 

If approval is subject to certain N I A 

conditions, include details here: 

Date completed: 18 May 2005 

Date fur neKt review (mmlyyyy) 0512006 

Please click here to see 

Explanatory Note 28: 

Senior Manager/Regional Manager Sherlq Siddiqi, 18 May 2005 

Institutional Banking approving: 

Name and data: 

Head of Institutional Asad Zafar, Managing Director HSBC Amanah 

BanklnglRegional Sector Head 

concurring: (Only required fur High 

Risk countries, where one or more 

of the prIncipal owners/controllers 

are classified as an sec, or for 

Offshore BankslFinancial 

Institutions) 

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Name and date: Please click here 

10 see Explanatory Note 26 

Compliance officer (RMLCO in 

Asia Pacific) concurring: (~nly 

requIred for High Risk countries) 

Name and date: 

Please indicate if the profile has 

been declined or approved: 

Date form completed: 

F Author Dotails 

Document Edit history 

r= Revision No. 

10 

9 

8 I 7 I 6 

5 

4 

3 

2 

1 

0 

Page 10oflO 

Approved 

1610512005 

- e __ 

Editor Dateard time , l;;hariq Z SIDDIQI 0511812005 14:46:35 GDT 

Shariq Z SIDDIQI 051181200514:20:12 GOT 

Shariq Z SIDDIQI 051181200512:53:34 GOT 

Shariq Z SIDDIQI 0511712005 14:08:53 GOT 

Shariq Z SIDDIQI 051171200508:51:45 GOT 

Shariq Z SIDDIQI 051181200514:44:43 GDT 

Shariq Z SIDDIQI 051161200514:33:16 GDT 

Shariq Z SIDDIQI 051151200511:29:56 GDT 

Shariq Z SIDDIQI 051151200509:47:19 GDT 

~~:~~ Z SIDDIQI 051121200514:16:15 GDT 

ZSIDDIQI e __ 051121200509:19:13 GOT 

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Principal: CN=Stephen J ALLEN/OU=HBMD/O=HSBCMERIDIAN 

SECUREMAlL: . 

DATABASESIZE: 610.8 

Form: 

OurRet 

YourRef: 

DispJaySubject Re: AI- Rahji 

SenderTag: 

Body: 

Thanks Alan, anything that you can do is appreciated as, with the summer heat 

approaching, this client becomes very active and is commercially extremely 

important to us - if we can ever get to re-start our business with them that 

is! You may recall me te"lng you that we dealt with AI Rajhi for 30 years 

prior to being obliged to desist! 

regards 

Steve 

From: Alan T KefleylHBUSIHSBC on 21 Mar 200613:49 

To: stephen J ALLENlHBMD/HSBCMERIDIAN@HSBC 

cc: Gordon BROWNIIBEU/HSBC@HSBC 

bee: 

SUbject: Re: AL Rahji 

Steve 

Lynda did not share her thoughts with any of U6 so I'm afraid that this will need to await her retum, though I will see if any of our contacts in DC can 

make inquiries. I may also run it by the ace. 

Alan T. Ketley 

First Vice President, Anti Money Laundering 

Tel: 212 525 6147 

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Fax: 212 382 7580 

Stephen J ALLENIHBMDIHSBCMERIDIAN 

0312110607:39 AM 

AJan, 

To 

AI,n T KeUeyIHBUSIHSBC@HSBC 

cc 

Gordon BROlMlnBEUlHSBC@HSBC 

Subject 

Memo: Re: AL Rahji 

After our meeting in early Feb, Lynda volunteered to let me have a note of what 

Compliance would additionally wish to know from and regarding AI Rajhi that 

would provide sufficient comfort for us to resume the banknote relationship and 

shortly before her holiday, Lynda admitted to Gordon that she still owed us 

that note. 

You are correct in identifying them as a buyer only and we can approach them 

for the items that you noted but, as I recall, the principal open subject was 

whether they are still 'persona non grata' in the US as regards their potential 

involvement in terrorist financing and how we achieve comfort on that topic. 

You may recall that I advised the meeting that, according to AI Rajhi. their 

senior management had been advised by the US State Department that they were no 

longer considered to be under suspicion and I was wondering whether HBUS 

Compliance or Security may have a contac1. at State (perhaps through the due 

diligence process re taking over the Riggs embassy accounts) that could be 

explored to verify this statement? I didn't and don't regard the suggestion 

that we ask AI Rajhi to supply witten proof of this as a reasonable request to 

make. 

Steve 

From: AI,n T KetleylHBUSIHSBC on 20 Mar 2006 22:35 

To: Stephen J ALLENIHBMDIHSBCMERIDIAN@HSBC 

cc: Gordon BROlMlIIBEUlHSBC@HSBC 

bcc: 

Subject: AL Rahj 

Steve 

Gordon has been chasing me with regard to AJ Rahji and a note that Lynda was 

supposed to be sending you. She is now on vacation and note of the rest of us 

can recall what it was that she was going to ask you.l suspect that it would 

have included a request for the latest AML Policy & Procedures from AI Rahji as 

well as some information about who their customers are - the relationship used 

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to be based on us selling to them so I think we would want to know where the 

USD are going after they leave us. 

Do you recall what she had in mind? 

Alan T. Ketley 

First Vice President, Anti Money laundering 

Tel: 212 525 6147 

Fax: 212 382 7580 

--= Redacted by <he Permanent 

Subcommittet on Investigations 

Redacted by the 

Permaneat S b • 

u commlltee on Inl;estigations 

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From: ANGELA CASSELL-BUSHIHBUSlHSBC 

Sent: 121612007 9:41:131W 

To: CHRISTOPHER LOKlHBUSIHSBC@HSBC 

CC: 

Subject: Fw: ISLIWI BANK BANGLADESH LIMITED-Bangladesh 

Angela Cassell-Bush 

Comp~ance Officer I HSBC Bank USA 

90 Christiana Road New Castle, DE 19720 

Phone. 

Fax. 

Email. 

302-327.2017 

302-327-2128 

angela.cassell-bush@us.hsbc.com 

--- Forwarded by Angela Cassell·BushIHBUSIHSBC on 121061200709:40 IW -

Muhammad SHOHIDUZZAMANlIB DAKlHBAPIHSBC@HSBC 

121061200704:12 AM 

To 

Angel. Cassell-BushIHBUSIHSBC@HSBC02 

cc 

, Aftab HAIDER/IB DAKlHBAP/HSBC@HSBC, Anthony JulianIHBUS/HSBC@HSBC, Bruce 

SparkeIHBUSIHSBC@HSBC, Christopher LoklHBUSIHSBC@HSBC, Gillian E 

BachsteinIHBUSlHSBC@HSBC02, Hersel MehanVHBUSlHSBC@HSBC, Princely P 

MuroIHBUSIHSBC@HSBC02, PSRR@HSBC, Stephanie L NapierIHBUSIHSBC@HSBC Subject . 

Re: Fw: ISLAMI BANK BANGLADESH UMITED·Bangladesh 

Angela 

Aftab did respond to you on 11 December 2007. I will forward the response to 

you shortly. We have checked in internet and found that there is a concern 

called Gulf Paper Industries FactoI)' in the PJ Rajhi group (not Gulf Paper 

Mill Factory). As per our records there is no shareholding by Gulf Paper 

Industries Factory in Islami Bank. 

Please let me know what additional information you require from us. 

Regards 

Shohid 

Angela Cassell-BushIHBUSIHSBC@HSBC02 

HBUS 

121051200710:19 PM 

Mail Size: 38788 

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To 

Princely P Muro/HBUSlHSBC@HSBC02 

cc 

Bruce Sparke/HBUSlHSBC@HSBC, Gillian E BachsteinIHBUSlHSBC@HSBC02, Anthony 

JulianIHBUS/HSBC@HSBC, Christopher LoklHBUS/HSBC@HSBC, Muhammad 

SHOHIDUZZAMANlIB DAKlHBAP/HSBC@HSBC, Mab HAIDERIIB DAKlHBAP/HSBC@HSBC, 

Stephanie L NapierIHBUS/HSBC@HSBC,Hersel MehanVHBUS/HSBC@HSBC, PSRR@HSBC 

Subject 

Fw: ISLAMI BANK BANGLADESH LIMITED-Bangladesh 

Our Ref 

Your Ref 

Princely: 

Appended below are the last series of emalls sent to the Bangladesh Team 

(Shohid and Aftab) as of 11/09/2007 seeking clarification regarding the 

relationship between AI Rajahi Bank and ISLAMI BANK BANGLADESH 

LIMITED-Bangladesh. As of the time of this writing, I have received no response. 

My records reflect that The Gulf Paper Mail Factory is a subsidiary of the AI 

Rajahi Group of Companies, which is subsequently related to AI Rajahi Bank and 

Islami Bangladesh Bank, Umited.l believe that this is the same family. 

However, we would need for the GRM to confirm this information. 

Once we can get a satisfactory response to this email, I am able to resubmit 

this profile through the approval chain. Please refer to Chris Lok's comments 

appended below. Thanks, 

Regards, 

Angela Cassell~Bush 

Compliance Officer I HSBC Bank USA 

90 Christiana Road New Castle, DE 19720 

Phone. 

Fax. 

Email. 

302-327-2017 

302-327-2128 

angela.cassell-bush@us.hsbc.com 

-- FOlWarded by Angela Cassell-BushIHBUSlHSBC on 12/05/2007 11 :04 AM -

Angela Cassel~Bush/HBUSlHSBC 

11/09/200702:54 PM 

To 

Aftab HAIDER/IB DAKlHBAP/HSBC 

cc 

Gillian Bachstein/HBUSlHSBC@HSBC02, PSRR@HSBC, VIIIng Kin - Sg CHAN/CEO 

SIP/HBUSlHSBC@HSBC, Muhammad SHOHIDUZZAMANlIB DAKlHBAP/HSBC@HSBC, Hersel 

MehaniIHBUSlHSBC@HSBC, Kwok Ying FUNG/NBD SIP/HBUS/HSBC@HSBC, Christopher 

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LoklHBUSIHSBC@HSBC. Stephanie L NapierIHBUSlHSBC@HSBC 

Subject 

Fw: ISLAMI BANK BANGLADESH LIMITED-Bangladesh 

Aftab: In Shohid's absence, can you assist in clarifying the item in blue below? 

- Forwarded by Angela Cassen-Bush/HBUS/HSBC on 111091200702:36 PM -

Angela Cassel/-Bush/HBUS/HSBC 

111091200702:32 PM 

To 

Christopher Lok/HBUSfHSBC 

cc 

Benjamin J SARAM/NBD SIPIHBUSIHSBC@HSBC, Gillian E BachsteinIHBUSIHSBC@HSBC02, 

PSRR@HSBC, Wing Kin - Sg CHAN/CEO SIPIHBUSIHSBC@HSBC, Muhammad SHOHIDUZZAMANlIB 

DAKlHBAPIHSBC@HSBC, Hersel MehanilHBUSlHSBC@HSBC, Kwok Ying FUNGINBD 

SIP/HBUSIHSBC@HSBC 

Subject 

Re: ISLAM! BANK BANGLADESH LIMITED-Bangladesh 

Chris; 

Please refer to the official website of the Gulf Paper Mill Factory/Alrajhi 

Group; (http://YNww.alrajhigroup.comlenglish/paperlindex,html)which reflects 

Abdullah Abdul Azjz AI Rajhi as the Chairman. My records reflect that The Gulf 

Paper Mail Factory is a subsidiary of the AI Rajah Group of Companies, which is 

subsequently related to AI Rajah Bank and Islami Bangladesh Bank, Limited. I 

believe that this is the same family. 

However, I have copied the GRM Shohid on this email. Shohid can you please 

clarify this? 

Regards, 

Angela Cassell-Bush 

Compliance Officer I HSBC Bank USA 

90 Christiana Road New Castle, DE 19720 

Phone. 

Fax. 

Email. 

302-327-2017 

302-327-2128 

angala.cassall~bush@us.hsbc.com 

Christopher LoklHBUSIHSBC 

11/091200711 :39 AM 

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To 

Angela Cassell-Bush/HBUSlHSBC@HSBC 

cc 

Benjamin J SARAM/NBD SIPIHBUS/HSBC@HSBC, Gillian E Bachslein/HBUS/HSBC@HSBC02, 

PSRR@HSBC, Wing Kin - Sg CHAN/CED SIP/HBUS/HSBC@HSBC 

SUbject 

Re: ISLAMI BANK BANGLADESH LIMITED-Bangladesh 

Angel. 

Then this is different from whafs said in the profile. The last piece of 

Alrajhi's interest (7.56% held by Abdullah Abdul Aziz Al~RaJni) should have 

nothing to do with the Paper Inidustries (as KY. said, the paper industries 

factory is owned by a different AI Rajhl). I think you need to tidy up the 

profile first 

Chris 

Angela Cassel~Bush/HBUSlHSBC 

11/0912007 10:57 AM 

To 

Christopher LokIHBUS/HSBC@HSBC 

cc 

Benjamin J SARAM/NBD SIP/HBUS/HSBC@HSBC, Wing Kin - Sg CHAN/CED 

SIP/HBUS/HSBC@HSBC, Gillian E BachsteinIHBUS/HSBC@HSBC02, PSRR@HSBC 

Subject 

Re: ISLAMI BANK BANGlADESH LIMITED-Bangladesh 

Chris, 

In response to your inquiry, please note that there is a connection between 

ISLAMI BANK BANGLADESH LIMITED-Bangladesh and AI-Rajhi Bank (aka: AI Raijhi 

Banking and Investment Corporation). 

Based on the information that we have on file, the AJ- Rajhi family has been 

associated with Islami Bank 8ang1adesh Umited, since its inception. They have 

at least 37% direct ownership within ISlAM1 BANK BANGLADESH LIMITED through 

their ownership INithin the following companies; Arabsas Travel & Tourist 

Agency, 9.999%, Janab Yousif Abdullah Abdul A:zjz Al~Rajhi, 9.7936%; A1-Rajhi 

Company for Industry & Trade, 9.94%; Abdullah Abdul Azjz AI~Rajhi, 7.5~% 

This same family has major controlling interest within AI-Rajhi bank (aka AI 

Raijhi Banking and Investment Corporation). 

Hope this helps. Please let me know if this information is satisfactory. 

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Regards. 

Angela Cassell-Bush 

Compliance Officer I HSBC Bank USA 

90 Christiana Road New Castle, DE 19720 

Phone. 

Fax. 

Em"il. 

302-327-2017 

302-327-2128 

angela,casselJ~bush@us,hsbc.com 

Christopher Luk/HBUSlHSBC 

111081200710;17 AM 

To 

Kwok Ying FUNG/NBD SIP/HBUS/HSBC@HSBC 

cc 

Benjamin J SARAM/NBD SIP/HBUS/HSBC@HSBC, Wng Kin - Sg CHAN/CEO 

SIP/HBUSIHSBC@HSBC, Angela Cassell-BushIHBUSlHSBC@HSBC, Gillian E 

Bachstein/HBUSIHSBC@HSBC02 

Subject 

ISLAMI BANK BANGLADESH LIMITED 

KY 

Further to my email exchange with Ben. I like to confirm that I'll be happy to 

be the GRM ofthi5 banknotes pr06pectlPCM client. However I would like to ask 

Gillian and company to find out the possible link between this name and the 

A1rajhi Bank (an approved name for Banknotes business). 

Beth's statement about Alrajhi Trading Est is irrelevant as tIlats name we long 

ago taken out of our profile, That name is not related to the Alrajhi Bank. 

I've looked at the Alrajhi Bank profile and noted a chap by the same name who 

owns the papermlll (islamic), 

Chris 

Kwok Ying FUNGfNBD SIP/HBUSlHSBC 

111061200711;12 PM 

To 

Christopher LokIHBUS/HSBC@HSBC 

cc 

Wng Kin - Sg CHANICEO SIP/HBUSlHSBC@HSBC, Benjamin J SARAMINBD 

SIPIHBUSlHSBC@HSBC 

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Subject 

ISlAMl BANK BANGLADESH LIMITED 

Chris 

The foUowing mails are self-explanatory. Would you consider to be the RM 

approver of subject PCM-BN shared client? 

Regards. 

KY 

- Forwarded by Kwok Ying FUNGINBD SIPIHBUSIHSBC on 1110712007 12:00 PMBeth FisherlHBUSIHSBC 

07 Nov 200703:07 Mail Size: 15898 

To 

Angela Cassell-BushlHBUSlHSBC@HSBC 

cc 

Benjamin J SARAMINBD SIPIHBUSIHSBC@HSBC, Gillian E BachsteinIHBUSIHSBC@HSBC02, 

Kwok Ying FUNGINBD SIPIHBUSlHSBC@HSBC 

Subject 

Re: Fw: KYC BankNotes Profile is IB Denied for: ISLAMI BANK BANGLADESH LIMITED 

Our Ref 

YQurRef 

Additionally,l had mentioned to Gillian the past relationships with AI Rajhi. 

In particular, a couple/few years ago, HBUS exited the relationship with AI 

Rajhl Banking & Investment due to'Compliance concems. (I do not recall all 

the details). I do see that the relationship was re-activated. Gillian was 

going to cross-check the.AI Rejhl ownership of Islami Bank with our old KYes 

for AI Rajhi Banking & Investment and PJ Rajhi Trading Establishment. 

This is not just an RM issue, This is a KYC due diligence issue. 

Beth 

Angela Cassell-BushIHBUSlHSBC 

111061200701:41 PM 

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To 

Kwok ¥lng FUNG/NBD SIP/HBUSlHSBC@HSBC 

cc 

Gillian E Bachstein/HBUSIHSBC@HSBC02, Benjamin J SARAM/NBD SIP/HBUS/HSBC@HSBC, 

Beth FisherIHBUSlHSBC@HSBC 

Subject 

Re: Fw: KYC BankNotes Profile is IB Denied for: ISLAMI BANK BANGlADESH LIMITED 

Kwok: 

UnfortuRately, the KYO profile for ISLAMI,BANK BANGLADESH blMITED,has been,IB 

denied by 8eth Fisher because the client is not known to CIS. As it stands, we 

have not been able to identify the RM Approving person for this relationship. 1 

would suggest that you reach out to Chris Lok to see If he is willing'to be the 

the RM Approver. Once this is confirmed, let me know and I will resubmit this 

through the approval chain. 

Regards, 

,A,ngela CasselJ..Bush 

Compliance Officer I HSBC Bank USA 

90 Christiana Road New Castle, DE 19720 

Phone. 

Fax. 

Email. 

302-327-2017 

302-327-2128 

angela.cassell-bush@us.hsbc.com 

Kwok ¥lng FUNGINBD SIPIHBUS/HSBC 

1012412007 10:41 PM 

To 

Jarrett L PayneIHBUSIHSBC@HSBC, Angela Cassell-Bush/HBUS/HSBC@HSBC 

cc 

Benjamin J SARAMINBD SIP/HBUS/HSBC@HSBC 

Subject 

Fw: KYC BankNotes Profile is IB Denied for: ISLAMI BANK BANGLADESH LIMITED 

Dear Jarrett I Angela 

Our banknote profile was "18 Denied" by 8eth as she is not the RM. Could you 

please update fu e client profile with the correct RM? I understand the client 

profile right now is also "18 Denied", kindly advise us once you put the 

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profile back to approval process, Thank you. 

Best regards, 

KY 

-- FOlWOrded by Kwok Ying FUNG/NBD SIPIHBUS/HSBC on 10/25/2007 10:14 AMBeth Fisher/HBUS/HSBC 

24 Oct 2007 22:29 Mail Size: 1908 

To 

Kwok Ying FUNG/NBD SIP/HBUSlHSBC@HSBC 

co 

Subject 

KYC BankNotes Profile is IBDenleMor: ISLAMI BANKBANGI.ADIOSH-UMIT~D 

Our Ref 

Your Ref 

__ ;;;: Redacted by the Permanent 

Subcommittee on Investigations 

A BankNote Profile in BANGLADESH for HSBC Office Singapore, has been IB Denied 

(Reference 

Click on the attachment to link to the BankNote Profile. 

Confidential· FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB01124641 

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From: CHRISTOPHER LOKlHBUSlHSBC 

Sent 61312006 2:07:56 PM 

To: DANIEL JACKlHBUSIHSBC@HSBCAMERICAS 

CC: AlAN PWlLLlAMSONlHBUSlHSBC@HSBC02;DAVID M WlLENSIHBUSlHSBC@HSBC02;STEPHENJ 

ALLENIHBMD/HSBCMERIDIAN@HSBC; 

GARY C H YEUNGISVIP NBD RNHIHBUSlHSBC@HSBC;ROGER T K SOIHD NBD 

RNHIHBUSIHSBC@HSBC 

Subject: Re: Fw: Banknotes with AI Rahjl Banking in S.A. 

Dan 

This is an on-going debate that will never go away. My stance remains the 

same, i.e. until its proved we cannot simply rely on the Wall Street Journals' 

reports and unconfirmed allegations and 'punish' the client. 

Nevertheless we should ask Chris Pagett's group and do an independent review 

of this rrame';-tets-seeiheir-results first 

Steve - you like to have a word wTth your contact ? 

Chirs 

Daniel JackIHBUSIHSBC 

06/0312008 02:38 PM 

To 

Christopher LokIHBUSIHSBC@HSBC02, Stephen J ALLEN/HBMDIHSBCMERIDIAN@HSBC 

cc 

David M WllensIHBUSlHSBC@HSBC02, Aian P WllJiamsonIHBUSIHSBC@HSBC02 

Subject 

Fw: Banknotes with AI Rahji Banking in S.A. 

Chris I Steve, 

Yesterday Alan & I reviewed various KYC profiles pending CO approval for HRCs. 

We approved most of them, but the Banknote Profile for HK to deal with AI Rahp Banking is still pending. 

We realize they are a long-standing customer of Banknotes and other businesses 

in London. I noted some info frorn the KYC Profiles below. 

But there is stiU some concern in AMLJICRO regarding TF & reputational risk in 

dealing with them. 

Please review the info below (EDD ROFs & attachments from FIG) and provide 

comments to address the negative info, risk analysis and appropriateness of 

mitigants, and your support for maintaining the HBUS relationship. 

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Thanks and regards, 

Daniel Jack 

Vice President - Compliance Officer 

HSBC Bank USA, NA 

452 Fifth Avenue, 7th floor. New York. NY 10018 

Phone 212-525-8686 

Email daniel.jack@us.hsbc.com 

- Forwarded by Daniel JacklHBUS/HSBC on 06/0312008 02:25 PM -

Gloria StrazzalHBUS/HSBC 

06/031200810:38 AM 

To 

Dan;e.JaWFlBDS7F1SBC-@FlSBCU2.Alanf>VVilliiffiisorilflBDSIRSBC@FISBC02 

cc 

Anne LiddyIflBUSlHSBC@HSBC02. Denise A ReiIIyIHBUS/HSBC@HSBC02 

Subject 

Re: Banknotes with AI Rahji Banking in S.A. 

There -was (and may be in the future) a fair amount of press and government 

attention focused on this entity. I am not sure we would want to engage in 

even this limited activity for this entity but I forward some of the 

intelligence from our files on this bank. 

Copied into this email are the prior ROFs performed on the entity, the most 

recent of which was completed in December 2007. Also attached is a WSJ article 

from July 2007 and some emails from ICRO's electronic files (attached in the 

Word documents below). 

[attachment 'WSJ 7-02.doc.zip" deleted by Christopher LoklHBUSIHSBCj 

[attachment .. Email copies.doc.zip" deleted by Christopher LoklHBUSJHSBC] 

EDDROFs 

Email Note accompanY'ng latest EDD ROF; 

04 Dec 2007 11 :57 

From: FIG HBUS Tel: 

Title: Location: 

WorkGroup: Mail Size: 82760 

Sent by: Bob Powe'" 

To: Daniel JacklflBUS/HSBC@HSBC02 

cc: Gordon BROWNIIBEU/HSBC@HSBC@HSBC02 

FIG HBUS@HSBC 

Subject: Report of Findings - AI Rajhi Banking and Investment Corp (AI Rajhi 

Bank) - FlU 

CONFIDENTIAL 

~'FOR INFORMATIONAL PURPOSES ONLY 1 FOR INTERNAL USE ONLYINVESTIGATIVE CONTROL AND REPORTING OFFICE (ICRO) 

Confidential· FOIA Treatment Requested by HSBC N. America Holdings,lnc. HSB01135174 

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FINANCIAL INTEUIGENCE UNIT 

Research as of: 12104/07 UPDATE 

SUBJECT:.AJ Rajhi Banking and Investment Corp 

ENTITIES: AI Rajhi Banking and Investment Corp (AAA AI Rajhi Bank) 

REQUESTOR: Daniel Jack 

DEPARTMENT: Banknotes 

A report of findings in support of Enhanced Due Diligence was conducted for AI 

Rajhi Banlcing and Investment Corp. This department completed previous reports 

on this bank, most recently in October of 2006. The text of those previous 

reports is provided below for your reference. 

As our previous reports state, there have been numerous allegations of 

terroristsupport-against---Al-Rajhi Sa n k,-but the-ban k-has never-been-officially 

sanctioned. Since the previous report of findings, however I there was 

published a 'Wall Street Journal" article titled "U.S. Tracks Bank Favored By 

Extremists~ which offered a review of previously secret intelligence reports 

that state plainly that the Bush administration and US agencies have debated 

whether or not the bank should be sanctioned for what is perceived as a history 

of support of Muslim extremists. A brief summary ofttlis article is provided 

below, and the full article is appended for your reference. 

VVhile it is not clear that this newly released information will lead to any 

official sanctions against the bank, it is likely that there 'Hill continue to 

be references in ttle press to ttle allegations of terrorist support against the 

bank, and for this reason there remains a level of reputational risk attached 

to any relationship with AI Rajhi Bank that should be taken into conSideration. 

Only items impacting adverse'y on money laundering, terrorist financing or 

other substantive criminal activity concerns will be detailed in this report. 

AI Rajhi Banking and Investment Corp 

Most Current Ownership Breakdown Found: 

Partners of ARCCEC the predecessor 52% 

New Founders of the Bank 5% 

Employee's Fund 2% .. 

Public 41% 

(Bankers Almanac, Profile Upload: November 26, 2007) 

Most CUrrent Ust of Top Executives Found: 

Sulaiman Bin Abdulaziz AI Rajhi, Chairman & Managing Director 

Abdullah Sulaiman AI Rajhi, Chief Executive Officer 

Mr. Saeed Mohd .AJ Ghamdi, Deputy Chief Executive Officer 

Mr. Mohammed Fazal Haque, Acting Head Financial Institutions 

(Bankers .AJmanac, Profile Upload: November 26, 2007) 

Notable Information Regarding the Financial Institution, its Ownership or its 

Top Executives: 

A 'Wall Street Journal" article published in July 2007, titled "U.S. Tracks 

Bank Favored By Extremists," offered a review of previously undisclosed 

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intelligence reports by the Central Intelligence Agency and other US Agencies, 

detailing for the first time how much the U.S'. knew about the use of AI-Rajhi 

Bank: by alleged Muslim extremists and how U.S. officials debated over how to 

respond to this knowledge. The reports state that the spread of Muslim 

extremism is dependent upon the Saudi banking structure, and that the Bush 

administration has repeatedly debated whether to take action against AI Rajhi 

Bankln particular. Ultimately, the administration would choose to lobby Saudi 

officials quietly instead of instihJting official sanctions. (The Wall Street 

Joumal, Article-date: July 26, 2007) 

Key excerpts from the July 2007 article are as folloVJS: 

- "The US. intelligence reports, heretofore secret, describe how AI Rajhi Bank 

has maintained accounts and accepted donations fur Saudi charities that the 

U.S. and other nations have formally designated as fronts for al Qaeda or other 

terrorist groups." 

- "In addition, Mr. AI Rajhi and family members have been major donors to 

Islamic charities· that are suspected by Western intelligence- agencies-of 

funding terrorism, according to CIA reports and federal-court filings by the 

Justice Department." 

- "A 2003 CIA report claims that a year after Sept. 11, with a spotlight on 

Islamic charities, Mr. AI Rajhl ordered Al Rajhl Bank's board 'to explore 

financial instruments that would allow the bank's charitable contributions to 

avoid official Saudi scrutiny.'" 

- nA few weeks eanier, the report says, Mr. AI Rajhi 'transferred $1.1 billion 

to offshore accounts using commod'rty swaps and two Lebanese banks citing a 

concern that U.S. and Saudi authorities might freeze his assets.' The report 

was titled 'AI Rajhl Bank: Conduit for Extremist Finance,'" 

(The Wan Street Journal, Article-date: July 26, 2007) 

The article notes that US agencies have never obtained proof that bank 

executives knowingly facilitate terrorism, "despite what they describe as 

extensive' circumstantial evidence that some executives are aware the bank is 

used by extremists," But the article also included the fact that the 2003 CIA 

report concluded: "Senior AI Rajhi family members have long supported Islamic 

extremists and probably know that terrorists use their bank." (The Wall Street 

Joumal, Article-date: July 26, 2007) 

The article goes on to state that US officials considered various actions to 

take against the bank, including listing or threatening to list the bank as a 

supporter of terrorism. Ultimately. the Bush administration chose instead to 

appeal to bank officials privately. 

(The Wan Street Journal, Article-date: July 26, 2007) 

The article also provides a history of the bank's relationship with the Saudi 

Roya! Family, as well as a history of the accusations against the bank. We 

have appended the text of this article to this report, for your reference. (The 

wall Street Journal, Article-date: July 26, 2007) 

Information Found Regarding this Financiallnstirution, its Ovmership or its 

Top Executives that Warrants SCC Consideration: 

No additional information was found that would warrant additional SCC 

consideration. 

- Should you find any discrepancies between the ownership and/or executives 

named in this report and those named in your current, up~to-date KYC 

information, please let us know so .that we may check any differing names for 

items impacting adversely on money laundering, terrorist financing or other 

substantive criminal activity concerns. 

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Please feel free to contact me with any questions regarding this report. See 

below for text of the July 2007 'Wall Street Joumal" article as well as the 

text of previous reports on AI Rajhi Banking and Investment Corp. 

Bob Powers 

Financial Investigator 

Investigative Control and Reporting Office (lCRO) 

452 5th Avenue, Tower 7; New York, NY 10018 

Telephone: (212) 525-6069 

PRIOR EDD ROFs: 

CONFIDENTIAL 

_. FOR INFORMATIONAL PURP05ES ONLY-' 

FINANCIAL INTELLIGENCE GROUP (FIG) 

REPORT OF FINDINGS (UPDATE) 

Research as ot.10/16/06 

INVESTIGATOR: Michael Cohen 

SUBJECT: AI Rajhi Banking and Investment Corp. (AI Rajhi Bank) 

ENTI'TIES: AI Rajhi Banking and Investment Corp. (1\1 Rajhi Bank.) 

REQUESTOR: Gordon Brown 

DEPARTMENT: PCMI8anknotes 

An updated Report of Findings in support of Enhanced Due Diligence was 

conducted for the PJ Rajhi Banking and Investment Corp. This is an update to 

previous reports prepared for this bank. on 12104 and 10/03, which are also 

provided below for your reference. Only items impacting adversely on money 

laundering, terrorist financing or other substantive criminal activity concerns 

will be detailed in this updated report. 

UPDATE: 

AI Rajhi Banking and Investment Corp. (AI Rajhi Bank) 

Most Current OWnership Breakdown Found: 

Partners of the ARCCEC the predecessor (S2%) 

Pubtic (41%) 

New Founders of the Bank (5%) 

Employee's Fund (2%) , 

(Bankers' Almanac, Date Accessed: 10/16/06) 

No further information was found in our ordinary sources identifying the 

specific names of the individuals who make up the aforementioned shareholding 

entities. 

Most Current Ust of Top Executives Found: 

SUlaiman Bin Adulaziz AI Rajhi, Chairman and Managing Director 

Abdullah Sulaiman 1\1 Rajhi, Chief Executive Officer 

Fahad Abdullah AI Rajhl, General Manager, Treasury and Financial Institutions 

Cassim Docrat, AGM Head, Financiallnstib.1tions 

Syed Maqbul Qader, General Manager, Corporate Group 

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Rizwan Shakor, General Manager, Finance Group 

Kishore Dash, General Manager, Investments & Private Banking 

Anand Anchan, AGM Treasurer, Treasury Department 

Isamail Odeah, Head of Compliance 

Saeed Mohd AI Ghamdi. Genera! Manager, Retail Banking 

(Bankers' Almanac, Date Accessed: 10116/06) 

The following Hst of executives was found on a DUn & Bradstreet BUsiness 

Information Report: 

Suliman Bin Abdulaziz Al Rajhi, Chief Executive and Managing Director 

Saleh Bin Abdulaziz AI Rajhi, Chairman 

Mmed AI Hosan, Director 

Abdullah AI Suliman Bin Abdu!aziz AI Rajhi, General Manager 

Fahad Abdullah AJ Rajhi, Manager 

Salah Abdullah Abdulkhail, Deputy General Manager 

Abdulrahman Bin Oghail, Deputy General Manager 

Saleh AI Shalty, Branch Manager 

Nassar Bin Mohammed AI Subaiy, Deputy General Manager 

Ismail Hussein, Officer 

(Dun & Bradstreet Business Information Report, Load Date: 8124f06) 

A website for the bank lists the following individuals amongst its board of 

directors. World~Check also confirms their positions as follo'WS: 

Saleh Abdul Aliz AJ Rajhl: Director 

Saeed Orner Qasim Alesayi, Director 

Salah Ali Aba AI Khail, Director 

Mohamed Abdullah AI Rajhl, Director 

Naser Mohammed AI Subai'y, Director 

Mohammed Osman AI Bishar, Director 

Sulaiman Saleh AJ Rajhi, Director 

Mohammed Ibrahim Alissa, Director 

Mohammed Abdul Aliz AI Rajhi, Director 

Ali Mohamed AI Rajhi, Director 

Abdullah Abdul fVjz AI Rajhi, Director 

Abdullah Yahya AI Mouallimi, Director 

Ali Mmed AI Shudy, Director 

(Wo~d-Check. Date Accessed: 10/16/06) 

Notable Information Regarding the FinanciallnstiMion, its Ownership or its 

Top Executives, Subsequent to the Previous Report of Findings: 

It was recently reported that AI Rajhi Banking and Investment Corporation 

changed their name to AI RaJl1i Bank. The change took place in order to upgrade 

their bran d identity while paving the way for regional and international 

expansion ("Middle East Company News Wire," Load Date: 10/16/06). 

Specifically, the bank has a license to operate in Malyasia and has announced 

pjans to open dozens of branches there ("The Banker,~ 911/06). 

It was reported that civil suits were brought in U$. District Court on behalf 

of victims of the Sept. 11,2001 attacks against many Saudi Arabian financial 

institutions for having involvement in terrorist financing. A U.S. District 

Court judge overseeing the lawsuits, dismissed Saudi Arabia and AJ RaJhi 

Banking and Investment Corp., amongst others, as defendanfs in six civil 

lawsuits accusing it of providing "massive" financial and logistical support 

to the AI-Qaeda network (www.aljazeera.com. on Wor1d-Check, Date Accessed; 

tll9105). 

Sulaiman Abulaziz AI Rajhi, the bank's Chairman and Managing Director, is 

listed under the "terrorism" category on World-Check. The report says that he, 

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"financially supports terrorism and its main contributors" (World-Check, Date 

Accessed: 10/16/06). DetaUs of Sufaiman Abulaziz AI Rajhi's alleged links to 

terrorist financing are included in the prior Report of Findings from 1012003, 

which is attached below for your reference. 

It was also reported by World-Check that Abdullah Abdul Aziz AI Rajhi. a boi:lrd 

member, is a Politically Exposed Person (PEP) because of his political 

involvement as a member in the Northern Borders Provincial Council 

(World-Check, Date Accessed: 10/16/06). No further, specific information could 

be found in our ordinary sources that would confirm or detail Abdullah Abdul 

AzjzAl Rajhrs membership in a political party, therefore, you may wish to 

clarify this matter with the client. 

No additional information impacting adversely on money laundering, terrorist 

financing or other criminal activity concerns was found subsequent to the 

previous Report of Findings. 

Information Found Regarding this Financiallnstirution, its Owriership or its 

Top Executives that Warrants SCC Consideration: 

According to its KYC pro"fiie, AI Rajhl Banking and Investment Corp. is 

classified as a SCC type 2 - Connected Entity . 

....... Should you find any discrepancies between the ownership and/or executives 

named in this report and those named in your current, up-to-date KYC 

information, please let us know so that we may check any differing names for 

items impacting adversely on money laundering, terrorist "financing or other 

substantive criminal activity concerns. 

This report is confidential and is intended solely for the use of the HSBC 

business to which it is addressed and those who need to know the information 

'pursuant to that business' internal procedures. This report is not to be 

disseminated to any other person or entity. Our investigative findings are, in 

part, based upon information available to us through a variety of third-party 

providers at the time our search is performed. VlJhile every attempt is made to 

find all substantive information, we make no representation that the 

information provided to, or gathered by, us Is complete. This is not a credit 

report and should not be used as a credit report. The information contained 

herein is intended as a supplement to the Know Your Customer information 

gathered by the HSBC business unit and may not be considered when determining 

the creditworthiness of the customer (see Regulation B, 12 CFR 202.7), 

Please feel free to contact me with any questions. 

Sincerely, 

Michael Cohen 

Financial Intelligence Group (FIG) 

Update findings sent7/13i05 

Note 

13 Jul 2005 17:32 

From: FIG HBUS Tel: 

Title: location: 

WorkGroup: Mail Size: 12344 

Sent by: Bob Powers 

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760611.043

Subject: Report of Findings -.AI Rajhi Commercial Foreign Exchange, Jeddah ~ 

FIG 

CONFIDENTIAL 

_. FOR INFORMATIONAL PURPOSES ONLY --

FINANCIAL INTELUGENCE GROUP (FIG) 

REPORT OF FINDINGS (UPDATE) 

SUBJECT: .AI Rajhi Commercial For,?ign Exchange, Jeddah 

ENTITIES: AI Rajhi Commercial Foreign Exchange, Jeddah 

REQUESTOR: Kevin O'Donnell 

DEPARTMENT: AIM Support 

A report of findings in support ofenhanced"dUe diligence -.va"s tequested for AI 

Rajhi Commercial Foreign Exchange, Jeddah. The most recent update review of 

the AI Rajhi Trading Establishment in Saudi Arabia was sent in April, 2005. 

That update provided findings subsequent to the first report regarding AI Rajhi 

entities that was originally issued from this office in October of 2003. An 

update was conducted in December of 2004. Text of the more recent update will 

be pasted at bottom. The text of the origina! report will be included in the 

attached PDF file. This current report will address recent information specific 

to AI Rajhi Commercial Foreign Exchange, Jeddah. 

AI RaJhi Commercial Foreign Exchange, Jeddah 

According to "Bankers Almanac," AI Rajhi Commercial Foreign Exchange is located 

in Jeddah, Saudi Arabia. The bank has correspondent banking relationships with Land Bank of the Philippines and Social Investment Bank in Bangladesh. 

Our review found no profiles that would provide insight into the bank's 

operations. However. the bank's own website (www.bankalrajhLcom)namesMr. 

Abdul Rahman AA. Alrajhi, member of the prominent AI Rajhl family, as Vice 

Chairman, Chief Executive Manager, and President The chairman is not named on 

the website. 

In 2004 it was announced in numerous press reports that AI Rajhi Commercial 

Foreign Exchange would be one of eight Saudi money exchangers to merge into the 

new AI~Bi1ad Bank, YAlich was expected to launch by mid-200S with $800 mimon 

in capital. Another of the eight firms involved in the merger was reported to 

be AJ RaJhi Trading Establishment 

"Gulf News" reported on May 2, 2005 that shares in PJ Bilad Bank soared to 950 

Saudi Riyals ($253) on its first day of trading. 

Our review found no evidence of criminal activl1y sUrTo!Jnding Al Rajhi 

Commercial Foreign Exchange or its president Abdul Rahman N-Rajhi. 

Text of previous reports regarding AI Rajhl entities is pasted below and in the 

attached PDF document. 

Please feel free to contact me with any questions regarding this report 

Sincerely, 

Bob Powers 

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FIG Investigations 

Updat~ findings sent 4/12/05 

CONFIDENTIAL 

-- FOR INFORMATIONAL PURPOSES ONLY --

FINANCIAL INTELLIGENCE GROUP (FIG) 

REPORT OF FINDINGS (UPDATE) 

SUBJECT: AI Rajhi Trading Establishment 

ENnnES: AI Rajhi Trading Establishment 

REQUESTOR: Paul DiBenedetto 

DEPARTMENT: Client Services - Financial Institutions 

Accounts: AI Rajhi Trading Establishment, Banknotes - 000135704 

A report of findings in support of enhanced due diligence was requested for the 

AI Rajhi Trading Establishment in Saudi Arabia. A report conducted on AI Rajhi 

entities was originally issued from this office in October of2003. AIl update 

was conducted in December of 2004 for AI-Rajhl Banking and Investment Corp. 

Text of those previous reports will be pasted at bottom and attached. This 

current report will address recent information specific to AI Rajhi Trading 

Establishment. 

AJ Rajhi Trading Establishment 

AI Rajhi Trading Establishment has appeared in the news very infrequently in 

the time since the inmal report was conducted on AJ Rajhi en1ities in 2003. 

Dun and Bradstreet lists Sheikh Abdul Rahman S AI Rajhi as the 100% shareholder 

in AI Rajhl Trading Establishment. 

The most significant recent press report concerning AI Rajhi Trading was 

published in "Ethnic Newswatch" in August, 2004. This article reported that.oJ 

Rajhi Trading was one of eight fin ancial institutions to be merged in10 AI 

Bilad Bank, a new banking corporation expected to launch operations in 

mid-200S. AI Bilad will reportedly have a capital of $800 milllon. This press 

report refers to AI Rajhi Trading as a "Money Changer." 

ln April, 2005, the "EIU Rlskwire" reported that AI Bilad was still waiting to 

open. AI Bilad will be' the 11th commercial bank to base its operations in 

Saudi Arabia. 

~ indicated in a chart in our 2003 review of AI Rajhi Banking and Investment, 

the owner of AJ Rajhi Trading, Sheikh Abdul Rahman S AJ-Rajhi, is the son of 

Saleh Abdul Aziz AI-Rajhi, founder and director of AI-Rajhi Banking and 

Investment Corp. According to business records we've found, .oJ-Rajhi Trading 

is not a subsidiary company of AI-Rajhi Banking and Investment, but is 100% 

owned by Sheikh Abdul Rahman S AI RajhL 

A review of press found infrequent references to Sheikh Abdul Rahman S AI 

Rajhi, usually in reports on his various business dealings. 

No evidence of criminal activity relating specifically to AI Rajhi Trading 

Establishment or its owner could be found in our review. 

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760611.045

Text of previous reports regarding AI Rajhi entities is pasted below and in the 

attached PDF document. 

Please feei' free to contact me with any questions regarding this report. 

Sincerely, 

Bob Powers 

FIG Investigations 

Note 

13 Dec 2004 10:04 

From: steven Pichardo Tel: 212-525...£736 

Title: Associate Location: 452 5th Ave, Floor 07 

WorkGroup: COMP/ANTI-MONEY LAUNDERING Mail Size: 7097 

cc: MiChaeIEiliSIABUSlASBC@ASBC 

Gloria Strazza/HBUSfHSBC@HSBC 

Sally G LOMAS/HBMDIHSBCMERIDIAN@HSBC 

Daniel JacklHBUSIHSBC@HSBC 

Subject: Report of Findings - AI-Rajhi Banking & Investment Corp, - FIG 

CONFIDENTIAL 

-- FOR INFORMATIONAL PURPOSES ONLY--

FINANCIAL INTELLIGENCE GROUP (FIG) 

REPORT OF FINDINGS 

SUBJECT: AI-Rajhi Banking & Investment Corporation 

ENTITlES: Al-RaJl'ti Banking & Investment Corporation 

REQUESTOR; Sally Lomas 

DEPARMENT: Banknotes 

ACCOUNTS: A1-Rajhi Banking & Investment Corporation (Reference # 1000157) 

An enhanced due diligence was conducted on A1-Rajhi Banking & Investment 

Corporation. A report of findings was sent on this company in May 2004. The 

objective of this report is to procure additional information subsequent to the 

filing date of the initial report. 

AI-Rajhi Banking & Investment Corporation: 

In 2004, A1-Rajhi Banking & Investment Corporation (ARAJ) filed a suit against 

the Wall Street Journal (WSJ). ARAJ alleges that the WSJ de:famed the bank by 

accusing it of supporting of terrorism in article published on 216102. After 

30 months of active litigation, a settlement was reached, leading to !:he paper 

publishing a "clarification" and a letter from AI-Rajhl's chief exerutive. The 

clarification basically states that the article published by WSJ did not intend 

to imply an allegation that ARAJ supported terrorist activity, or had engaged 

. in the financing of terrorism, 

Under the terms of th at settfement"the WSJ paid no damages, nor was any order 

made prohibiting 'the paper from repeating "the same allegations in the future. 

tn aU, no charges stemming trom the aforementioned article have been levied 

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760611.046

against MAJ. Therefore, no substantially adverse information, subsequent to 

the previous report provided for this company, was found regarding ARAJ. 

If you have any questions, feel free to contact the undersigned. 

Sincerely, 

Steven Pichardo 

Financial Investigator (FIG) 

- Original Report of Findings by Peter Javier, complete with charts, is 

saved on the Shared Drive in the EflisM folder. The file name is EIDD AL 

RAJHL20041207153945.pdf---

Gloria Strazza 

Sr. Manager -ICRO 

452 Fifth Avenue, Tower 7 

NewYOfk-;-m-lOO'l & 

Mail Code: 31 

Tele: 212-525-8634 

Fax: 212-525-5769 

Daniel JacklHBUS/HSBC 

06/021200808:13 PM 

To 

Anne LiddyiHBUSlHSBC@HSBC02, Denise A Reilly/HBUSlHSBC@HSBC02, Gloria 

StrazzaIHBUS/HSBC@HSBC02 

cc 

AlBn P VVllliamson/HBUS/HSBC@HSBC02 

Subject 

Banknotes with AI Rahji Banking in S.A. 

AlI- to provide more info in response to Alan's note: 

k;, noted in the KYC Customer Profile, they are a long-standing Banknotes-London 

customer: 

"Initial date of activation was 1 January 2001, relationship exited and 

deactivated on 2 February 2005 due to TF issues (see Section VIII AML under 

Reputational Risk controls) as agreed With AML Compliance New York. However 

this bank had along-standing 25+ years relationship with Banknotes, London 

until that time. Also this cllent still has relationships with HSBC in the UK, 

UAE. France, Hong Kong and Italy. Approved as a London Banknotes customer 4 

December 2006 after TF issues were deared through AML Compliance New York." 

Now they want to deal with us in Hong Kong - mainly buying Asian currencies 

from us, as noted in the KYC Banknote Profile (for HK) now pending CO Approval: 

"Client is an existing customer of HBUS London office and would fike to set up 

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business relationship in Hong Kong. AI Rajhi is mainly interested in buying 

,A.sian currendes from Us, they have regular demand for the major Asian 

currencies including THB, PHP, lOR, INR and HKD which Bahrain Finance is their 

main current supplier. They sell currencies though Uleir nationwide retail 

network and those Asian overseas workers, tourists and business~men are the 

main buyers. They will utilize our services for their retail banknotes 

activities only. In the meantime1 client will become one of the counterparts 

to fiquidate our Middle East currencies surpluses that we purchase from other 

markets. The projected trading· volume are in original currency and the monthly 

average of purchase and sale was about USD3,000,000 and USD8,000,000 

respectively." 

Monthly Trade Volume Estimates: 

Currency: Sales by HSBC: Purchases by HSBC: 

USD Currency: 0 0 

other Major Currency: THAI BAHT 40,000,000 

Other Major Currency: HONG KONG DOLlAR 2,000,000 

Other Major Currency:13AtlDI RIYAL 30,000,000 0 

Thanks and regards, 

Daniel Jack 

Vice President - Compliance Officer 

HSBC Bank USA, NA 452 Fifth Avenue, 7th floor, New York, NY 10018 

Phone 212-525-8686 

Email daniel.jack@us.hsbc.com 

PJan P VVilliamsonfHBUStHSBC 

0610212008 06:45 PM 

To 

Anne UddyIHBUSlHSBC@HSBC02, Denise A Reilly/HBUSlHSBC@HSBC02, Gloria 

S\razzalHBUSlHSBC@HSBC02 

cc 

All 

Daniel JackIHBUSIHSBC@HSBC02 

Subject 

al R.h, 

I am being asked to approve a HK Banknotes profile for PJ Rahj. We will be 

dealing the same products from a different office, so from one point of view 

there is no expansion of risk, but I know [rom prior discussions Ulere is 

sensitivity around this name. Please let me know if you have any concerns. 

Thanks 

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Alan 

THIS PAGE IS 

INTENTIONALL Y 

LEFT BLANK 

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From: CHRISTOPHER LOKlHBUSlHSBC 

Sent: 7/1812008 8 :19:29 AM 

To: AlAN P W1LLlAMSON/HBUS/HSBC@HSBC02 

CC: DANIEL JACKlHBUS/HSBC@HSBC02;DAVID M IMLENSlHBUS/HSBC@HSBC02 

Subject: Re: Fw: Banknotes with AI Rahji Banking in S.A. 

Alan 

Let me try my best to answer these questions: 

Currently Alrajhi is sourcing their Asian currencies from the suppUers in the 

Middle East. These suppliers (the like of Bahrain Financing) get the money 

from Asia (like ourselves) hence its to A1rajhi's benefit to get the money 

directly from ourselves. 

The next question I'm not sure how I should answer it To HSBC, LON already 

has a relationship with Alrajhi. Adding HKG won't change Alrajhi's profile. 

Chris 

Alan P \l\filliamsonIHBUSlHSBC 

071171200808:41 PM 

To 

Chrtstopher LoklHBUS/HSBC@HSBC02, Daniel JacklHBUSlHSBC@HSBC02, David M 

Wlens/HBUS/HSBC@HSBC02 

cc 

Subject 

Re: Fw. Banknotes wfth AI Rahji Banking in S.A. 

Chris 

J discussed with Lesley. who asked two questions: 1} why does AI Rahji want to 

do business out of Hong Kong? and 2) is there anything the client could do to 

harm our reputation as a result of having the HK account that they can't do now? 

Thanks for your patience, 

Alan 

Stephen J ALLENlHBMD/HSBCMERIDIAN@HSBC 

06/11/2008 06:27 AM 

To 

Daniel JacklHBUS/HSBC@HSBC02 

cc 

Alan P Wlliamson/HBUSlHSBC@HSBC02, Christopher LoklHBUSlHSBC@HSBC02, David M 

WllensIHBUS/HSBC@HSBC02, Chrtstopher BAYLISSlIBEU/HSBC@HSBC 

Confidential· FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB01144096 

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760611.050

Subject 

Re: Fw: Banknotes with AI Rahji Banking in S.A. 

Dan, 

In response to your recent note and to Chris' request, I asked the Business 

Intelligence Division of Group Security to give their current view of AI Rajhi 

Banking and I have today had a meeting and received the attached note from Mark 

McGuigan. 

Mark also added in conversation that they were asked by others to look at AI 

Rajhi about 2 years ago and nothing in their most recent enquiries on our 

be"halfhas'changed-their view that there is no-reason-notto dO'business with 

this name. 

Unsurprisingly, I interpret this note as support for our desire to continue 

trading with this entity 

Regards, 

Steve 

Steve ALLEN 

Senior Vice President, Head of Banknotes I HSBC BANK USA NA, London Branch 

level 23, B, Canada Square, London E14 SHQ 

Phone 020 7992 4555 

Fax 02;;01i71i9~92i4~9ii9~3!!1 Mobile ~ 

Email steve.j.allen@hsbcgroup.com 

Mark P MCGUIGAN/HGHQ/HSBC 

HGHQ 

11/0612008 10:42 

Phone No. 799 13898 

+0044 (020) 7991 3898 

Mail Size: 4107 

To 

Stephen J ALLENlHBMD/HSBCMERlDIAN 

SUbject 

AI-Rajhi 

Entity 

HSBC Bank pic - HBEU 

_.... Redacted by the Permanent 

Subc:ommittee on Investigations 

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760611.051

Steve 

Further to our conversation this morning, I write to confirm the following: 

In the 1980s the bank complied with a request from the Saudi government to open 

an account to receive donations from the public to support the Afghan 

mujahideen. The Saudi government, in turn, was acting in response to U~ wishes 

in the matter ~ the mujahideen was engaged in active struggle against the 

Russians at that time, and so, in effect, participating in the Cold War by 

proxy. In compliance with Saudi govemment orders the account was frozen, then 

closed, by the end of 1991. 

In the 1990s the bank raised considerable sums for humanitarian relief of 

Muslims during the Bosnian war (some say the Bosnian genocide). We believe 

that these monies were, in fact, used exactly as intended Le. for charitable 

purposes, and not for any militaristic purpose. 

In 1999, two years before 9/11, the bank discovered that a junior member of 

staffwas an al~Oaeda activist He and 11 fellowsympathisers were sacked. The 

bank cooperated fully with the Saudi authorities post-9f11 in tracking persons 

suspected of abusing the bank's facilities for terrorist money-laundering 

purposes. The Saudi authorities have traditionally taken a tough line against 

AO, and have been supported Where appropriate by the al-Rajhi bank. The bank, 

and the family, are well-known to the Saudi Royal family, with Whom they are 

very cooperative. The issue of PEPs, therefore, is something of an 

"occupational hazar~" for senior bankers in the Saudi context. 

Aside from the observation that all banks are vulnerable to accusations of 

complicity in terrorist money-laundering, there does not appear to be any fresh 

evidence to suggest that al-Rajhi bank institutionally, is guilty of any such 

activities. Newspaper reports (and there is a history betNeen al-Rahj and the 

WSJ) add no hard evidence to the claims. The authorities have lodged no legal 

processes, nor instigated any sanctions against the bank, which one would 

reasonably anticipate ifthere were any evidence to support the allegations in 

the press. In sum, we can find no reason not to continue doing business with 

al-Rahji. 

Best regards 

Mark 

Mark McGuigan 

Head of Business Intelligence 

Hsac aank 

Security t Leve! 29 

8 Canada Square 

London 

E145HQ 

Tel: +44 (0)20 7991 3898 

Fax: +44 (0)20 7991 4592 

Daniel JacklHBUS/HSBC@HSBC02 

HBUS 

03/0612008 19:38 

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760611.052

From: CHRISTOPHER LOKlHBUS/HSBC 

Sent: 711812008 8:09:50 PM 

To: JOHN N H NG/NBD RNH/HBUSlHSBC@HSBC 

CC: GARY C H YEUNG/SVP NBD RNHlHBUSlHSBC@HSBC;ALEXF TSANGNP NBD 

RNH/HBUS/HSBC@HSBC 

Subject: Fw: 8anknotes with AI Rahji Banking in SA. 

You're in bUsiness now 

Chris 

- Forwarded by Christopher LoklHBUSlHSBC on 07lf812008 09:04 PMChristopher LokIHBUS/HSBC 

0711812008 09:05 PM 

Alan 

To 

Alan P Vlliliiamson/HBUS/HSBC 

cc 

Daniel JacklHBUS/HSBC@HSBC02, David M VllilensIHBUSIHSBC@HSBC02 

Subject 

Re: Fw: Banknotes with AI Rahji Banking in S.A. 

Gracias !!! 

Chris 

Alan P Vlliliiamson/HBUSlHSBC 

071181200807:28 PM 

Chris 

To 

Christopher LoklHBUS/HSBC@HSBC02 

cc 

Daniel JackIHBUSIHSBC@HSBC02, David M VllilenslHBUSlHSBC@HSBC02 

Subject 

Re: Fw: Banknotes with PJ Rahji Banking in SA. 

I just discussed with Lesley and approved. 

Alan 

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Christopher LokIHBUSIHSBC 

071181200809:19 AM 

Alan 

To 

Alan P WllliamsonIHBUSiHSBC@HSBC02 

cc 

Daniel JackIHBUS/HSBC@HSBC02, David M WllenslHBUSIHSBC@HSBC02 

Subject 

Re: Fw: Banknotes with J1J Rahjl Banking in S.A, 

Let me try my best to answer these questions: 

Currently Alrajhi is sourcing their Asian currencies from the suppliers in the 

Middle East. These supp~ers (the like of Bahrain Financing) get the money 

from Asia (like ourselves) hence its to A1rajhi's benefit to get the money 

directly from ourselves. 

The next question I'm not sure how I should answer it. To HSBC, LON already 

has a relationship with A1rajhi. Adding HKG won't change A1rajhi's profile. 

Chris 

Alan P Wllliamson/HBUSiHSBC 

071171200806:41 PM 

To 

Christopher LoklHBUSIHSBC@HSBC02, Daniel Jacl<lHBUSiHSBC@HSBC02, David M 

WllenslHBUSIHSBC@HSBC02 

cc 

Subject 

Re: Fw: Banknotes wtth AI Rahji Banking in SA. 

Chris 

1 discussed with Lesley. who asked two questions: 1) why does AI Rahji want to 

do business out of Hong Kong? and 2) is there anything the client CQuid do to 

harm our reputation as a result of having the HK account that they can't do noW? 

Thanks for your patience, 

Alan 

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760611.054

Stephen J ALLENlHBMD/HSBCMERIDIAN@HSBC 

06/11/200806:27 AM 

To 

Daniel JackIHBUS/HSBC@HSBC02 

cc 

Alan P WliiamsonIHBUSlHSBC@HSBC02, Christopher LoklHBUS/HSBC@HSBC02, David M 

WlensIHBUSlHSBC@HSBC02, Christopher BAYLISS/IBEUlHSBC@HSBC 

SUbject 

Re: Fw: Banknotes with AI Rahji Banking in SA 

Dan, 

In response to your recent note and to Chris' request, I asked the Business 

Intelligence Division of Group Security to give their current view of AI Rajhi 

Banking and I have today had a meeting and received the attached note from Mark 

McGuigan. 

Mark also added in conversation that they were asked by others to look at AI 

Rajhl about 2 years ago and nothing in their most recent enquiries on our 

behalf has changed their view that there is no reason not to do business ¥lith 

this name. 

Unsurprising!y.l interpret this note as support for our desire to continue 

trading with this entity 

Regards, 

Steve 

Steve ALLEN 

Senior Vice President, Head of Banknotes I HSBC BANK USA NA, London Branch 

Level 23, 8, Canada Square, London E14 5HQ 

Phone 0207992 4555 

Fax 020 7992 4993 

Mobile "iiii"'iiiJ!I~ Email steve.j.allen@hsbcgroup.com 

Mark P MCGUIGANlHGHQ/HSBC 

HGHQ 

11/061200810:42 

Phone No, 799 13898 

+0044 (020) 7991 3898 

Mail Size: 4107 

To 

Stephen J ALLENlHBMD/HSBCMERIDIAN 

cc 

- "'" Redacted by the Permanent 

Subcommittee OD Investigations 

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760611.055

Steve 

Subject 

AI-Rajhi 

Entity 

HSBC Bank pic - HBEU 

Further to our conversation this morning, I write to confirm the following: 

In the 19805 the bank complied with a request from the Saudi government to open 

an account to receive donations from the public to support the Afghan 

mujahideen. The Saudi government, in tum, was acting in response to US wishes 

in the matter ~ the mujahideen was engaged in active struggle against the 

Russians at that time, and S0, in effect, participating in the Cold War by 

proxy, In compliance with Saudi government orders the account Was frozen, then 

closed, by the end of 1991. 

In the 19905 the bank raised considerable sums for humanitarian relief of 

Mustims during the Bosnian war (some say the Bosnian genocide). We believe 

that these monies were, in fact, used exactly as intended Le. for charitable 

purposes, and not for any militaristic purpose. 

In 1999. two years before 9/11, the bank discovered that a junior member of 

staff was an al-Oaeda activist. He and 11 fellow sympathisers were sacked. The 

bank cooperated fully with the Saudi authorities post-9111 ilJ tracking persons 

suspected of abusing the bank's facilities for terrorist money-laundering 

purposes. The Saudi authorities have traditionally taken a tough line against 

AQ, and have been supported where appropriate by the al-Rajhl bank. The bank, 

and the family, are well-known to the Saudi Royal family, with whom they are 

very cooperative. The issue of PEPs, therefore, is something of an 

"occupational hazard" for senior bankers in the Saudi context. 

Aside from the observation that all bank$ are vulnerable to accusations of 

complicity in terrorist money-laundering, there does not a.ppear to be any fresh 

evidence to suggest that al-Rajhi bank institutionally, is guilty of any such 

activities. Newspaper reports (and there is a history between al-Rahji and the 

WSJ) add no hard evidence to the claims. The authorities have lodged no legal 

processes, nor instigated any sanctions against the bank, which one would 

reasonably anticipate jf there were any evidence to support the allegations in 

the press. In sum, we can find no reason not to continue doing business with 

al-Rahji. 

Best regards 

Mark 

Mark McGuigan 

Head of Business Intelligence 

HSBC Bank 

Security, Level 29 

8 Canada Square 

London 

E145HQ 

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760611.056

From: DENISE A REILL YIHBUSlHSBC 

Sent 10/29120025:00:50 PM 

To: GARY BeONlMGR PCM MEM/HBMElHSBC@HSBC 

CC: NANCY HEDGESlHBUS/HSBC@HSBCAMERICAS 

Subject: Re: IRAN- USD PAYMENTS 

Responses afe in blue, 

Gary BOON @ HSBC on 26 Ocl2002 13:37 

Note 

26 Oct 200213:37 

From: Gary BeON @ HSBC Tel: 

Title: Location: 

WorkGroup: 

Mail Size: 13226 

To: Denise A Reilly/HBUS/HSBC@HSBCAMERICAS 

cc: Nancy HedgeslHBUSIHSBC@HSBCAMERICAS 

Subject: IRAN- USD PAYMENTS 

Denise, further to our conference calli wish to clarify the position to date 

as follows:-

If H6EU receive an MT1 OO/MT103 from an Iranian Bank in USD then HBEU must 

forward 1tIe MT1OO/MT103 to HBUS for processing thus ensuring full details of 

the ordering and beneficiary parties are known. HBUS have spoken with OFAC and 

the MT1OOIMT103 and MT202 normal cover payment process has been deemed 

unacceptable despite HBUS being used to 'settle' the transaction, OFAC still 

require fun disclosure of the transaction. 

Full payment details must pass through HBUS and associated filtering 

processes. HBUS, in consultation with extemallegal counsel, has concluded 

that this is the recommended process in accordance with OFAC u-tum transaction 

criteria and full disdosure requirements. 

For control purposes wi1tlin HBUS Operations it is deemed 1tIat HBEU open a 

'Special nostro accounf in order for 1tIese transactions to be directed. Thus 

ensuring a separate 'WOrkflow that can be easily managedlcontrolled. Agreed. 

Although the payments could be formatted correctly the process will make each 

payment fall into OFAC workflow baskets for review and au1tl0risation. Al1tlough 

HBEU would be charged a STP charge per payment, 1tIere maybe additional 

headcountrequired, which in turn should be factored in to any proposition. The 

cost of additional headcount will be reimbur.;ed back to HBUS via inter-company 

charging. 

Denise, am I correct in saying that should HBEU settle the above HBUS would be 

in a position to potentially become Iran's USD Clearing Agent, HBEU would be 

their USD Correspondent Bank? Obviously subject to HBUS committee, who sits on 

this? The proposition 1tIat has been put forward to date is to process 

transactions on behalf of Bank Melfi. If1tle proposition is broader than that, 

then it should be included in the business rationale that we requested in our 

conference call earlier 1tIis week ror presentation to HBUS senior management. 

The committee that this will be presented to is 1tIe Senior Management Committee 

(SMC) comprised of1tle business heads of all key business and support units and 

the president of the bank. 

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I would be grateful for your response and to the answers to the following 

questions (remaining ols from my previous note). 

V\lhy do BONY and Citibank reject and return such payments even if OFAC 

compliant? We do not know the specific reasons why these institutions (or 

others) reject and return such payments, as it is an internal bank decision. 

My institution may decide that they choose to not do business with particular 

entities/countries based on internal management decisions and subsequentiy 

reject all such transactions. Do you know of others? We do not know of any 

others, 

ShOtJld a rejected. payment occur what would be your process, charge and 

turnaround times? If an item is rejected by the receiving bank, .HBEU's account 

will !;le re-crediteq sameday of receipt of return. 

Ive there any scenarios that we haven't considered that would cause HBUS 

problems? No additional scenarios have been identified. 

As you're aware HBEU and HSBC Iran are interested in finding a workable 

solution to this as they believe the opportunities/volumes exist to make this 

worthwhile. The GRM, Nigel Weir and I travel to Iran on Sunday and J can assure 

you that I will NOT be selling any USD solution as we are not yet in that 

position but I will seek to establish the volumes 'on the table' and how the 

existing competition are tackling this issue prior to the introduction of FAFT 

regulations, If possible, please also try to ascertain if a list of 

originatorsfbeneficiaries is available so that we may review the list 

beforehand. 

Thanks for your continued assistance. 

Gary 

--Forwarded by Gary BOON on 28110/2002 --

29Aug2002 

Note 

To: Nancy Hedges/HBUSIHSBC@HSBCAMERICAS 

Denise A ReillyIHBUSlHSBC@HSBCAMERICAS 

ce: Andrew P DroletIHBUSIHSBC@HSBCAMERICAS 

Nigel J WEIRIRM IB MEMIHBMElHSBC@HSBC 

John R WlLKINSON/HBEUIHSBC@HSBC 

Mike R BANYARDIHBEUIHSBC@HSBC 

bce: 

From: Gary BOON Tel: 7904 4669;44 2072 604669 

Subject: IRAN· USD PAYMENTS 

DeniseJNancy, as previously discussed, I have just met with the following 

individuals regarding the USD payments process:-

Malcolm Eastwood, Senior Manager, Multicurrency Payments Dept 

John Fowle, Business Development Manager, Multicurrency Payments Dept 

Paul Proctor, Compliance Manager, Institutional BankIng 

John Wilkinson, Relationship Manager, Institutional Banking - Middle East 

Michele Cros, Senior Manager, PCM Sales 

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John Chappenden, Senior Manager, Payments Co-ordination Unit 

Mike Banyard, Payments Product Manager 

I can now confirm that HBSC Bank pic, London does not have any processing or 

compliance issues in respect of USD payments from existing or new opportunities 

with Iranian Banks. We aim to ensure the payments are STP and our proposition 

wi" clearly provide formatting guidelines and OFAC rules etc to ensure that 

our Iranian dients fully understand, when or how, payments could be rejected. 

I now need confirmation from HBUS that your in agreement to processing 'U-TURN' 

payments both from an FTE and 'reputation risk' point of view before I attempt 

to sel! a USD clearing proposition. 

For consideration:-

Volumes - the only volumes available are from Bank Melli who have confirmed 

daily volumes to be approx. 25 TreasUfY and 90 Commercial. Of the commercial 

transactions, HBUS will probably ontyreceive 10% or 15% as MT100 type payments 

and the remainder as MT202 cover payments, as HBEU would have sent the MT100 

direct to the bene bank. 

Charges for HBEU from HBUS - Can you confirm whetherthe scenarios (sent last 

week), which are correctly formatted and would drop into your OFAC filters, 

would be charged as STP or repair. This will impact our pricing proposition. If 

repair, can you advise why? 

Wny do BONY and Citibank reject and return such payments even if OFAC 

compliant? Do you know of others? 

Was your previous request to open a 'special' account based on volumes only or 

do you have a special need to view these payments? Can't they just fall into 

the OFAC filters in line with your existing operation? 

It is the view from HBSC iran and London, Institutional Banking, that there are 

opportunities for USD payments business from all Iranian Banks. Volumes unknown. 

Are there any scenarios that we haven't considered that would cause HBUS 

problems? 

Are there any situations where these types of payments could be frozen or am I 

correct that Iran is not one of those countries (i.e Cuba). 

Should a rejected payment occur what would be your process, charge and 

bJmaround times? 

As agreed I will not do anything until you have confirmed that HBUS are happy 

to process these transactions. Follo"";ng your agreement I will draft a USD 

proposition, which I 'Nill seek sign off from all relevant parties. 

Hope that's covered it. 

Gary 

Gary Boon 

Manager, Sales 

Global Payment and Cash Management 

Phone: + 44 (0)20 7260 4669 

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Fax: <- -;;44.(0.)2.0.7.26.0.92.3.6. Mobile 11 

_ = Redacted by the Permanent 

SubcDmmittee on InvestigatiDns 

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GeL 040021: Payment screening 

Q 

23!1v:!ar12004 

Open printable version 

http://group,ghq,hsbc/intigroupihome,nsfIB 

yRefYUKCM5XCLGJ034450PM23032004? 

Open&print 

As part of the international effort to combat terrorism, Competent Authorities in numerous 

countries have published lists of names that are known to be, or are believed to be, 

involved'in terrorist" activity, "Competent-Amhoritiesinclude 'Central-banks, governmental 

bodies/agencies, and regulators. The Bank of England, the Hong Kong Monetary Authority 

and the United States Office of Foreign Assets Control (OFAC) are examples of such 

Competent Authorities. To support the above process, several jurisdictions have passed 

anti-terrorism laws, including a requirement that funds are not made available to names 

listed within that jurisdiction. 

In addition to the publication by Competent Authorities of lists of terrorists, sanctions 

against a number of countries and names are imposed, as notified by both the United 

Nations and also by a number of individual governments. 

Compliance with these sanctions and orders has to date relied upon manual processes to 

identify when relevant names are contained in payment instructions. 

In order to ensure that compliance with the restrictions associated with listed names and 

sanctions is achieved conSistently across the Group, an automated payment screening 

utility named WOLF has been developed, 

When installed in a payment processing workfiow in real time, WOLF will, before 

execution, search all fields of a payment message for matches with listed 

terrorist/sanctioned names. Once a potential match with a word or words contained in a 

payment is identified, the unexecuted payments must be reviewed to establish whether 

the match identified is actually a true match, with appropriate action taken if it is. 

WOLF is the Group solution for real-time pre-execution payment screening. Use of an 

alternative solution requires the sign off of a business case by Group Compliance and 

Group IT jointly. 

Global requirement for payment screening 

All Group companies must implement the capability to screen cross-border wire transfers: 

• For sanctions issued by the United Nations (UN) 

• For terrorist names listed by the UN 

• For terrorist names listed by Competent Authorities in USA, UK, EU and Hong Kong 

SAR. 

These will be maintained in WOLF centrally by Group Messaging Systems on a mandatory 

basis. 

In 2005/6, it is intended to broaden the scope of the real-time payment screening 

requirement to domestic payments to ensure comprehensive compliance. 

Local requirement for payment screening 

In addition to the globally applicable names, the compliance and payment operations 

fUnctions in Group companies must ensure that WOLF is loaded with any listed/sanctioned 

names with local applicability, as issued by Competent Authorities in their relevant 

jurisdiction. 

As a further control or risk mitigant, Group companies may also choose to load in WOLF 

those names that may be regarded locally as sensitive or high risk. 

Access to WOLF 

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Group companies wh se payments are processed through the TP SWIFT/Telex 

gateway 

WOLF capability is installed in the three regional TP sites: UK, USA and Hong Kong SAR. 

Group entities which use TP as their payment gateway are required to implement WOLF by 

31DEC04. Appropriate operational practices and procedures will need to be introduced, 

including how to manage the review process of potential matches. Guidance on 

implementation and the review process is included in the guidance note attached. 

Group companies whose payments are not processed through the TP gateway 

These companies should obtain the WOLF utility and implement it into their cross-bonder 

wire transfer payments system as soon as practicable, but by the 31MAROS at the latest, 

and introduce approprjate operational practices and procedures. 

Further information 

A guidance note is attached. This refersto the practical impact of real-time-payment 

screening and to appropriate contact persons for assistance and implementation. 

Yours faithfully 

A W Jebson 

Group Chief Operating Officer 

Guidance note 

This guidance is intended to assist the payment operations, IT and compliance functions to 

implement WOLF. 

Is it a mandatory requirement for all Group companies in all countries where the 

Group has a presence to screen payments in real-time, prior to execution, for 

terrorist/sanctions names? 

Yes, for cross-border payments/wire transfers. It is the intention to broaden the scope of 

the payment screening requirement to domestic payments/wire transfers in 2005/6. 

Is It a requirement for suclh screening to be automated? 

Yes. Given the number of listed names, particularly for terrorism, and the need to take 

into account name transpositions and close alternative spellings, it is no longer feasible for 

the screening to be perfonmed by a person on a manual baSis. WOLF (or, exceptionally, an 

alternative solution approved by Group Compliance and Group IT) must therefore be used. 

Which names are contained in the WOLF utility? 

The WOLF utility is fed by an extemal database provider with the lists issued or names 

notified by all Competent Authorities in respect of sanctions or terrorism. As ·both 

Sanctions issued by the UN, and terrorist names listed by the UN, USA, UK, EU and Hong 

Kong SAR have global applicability, these names will therefore be maintained in WOLF by 

Group Messaging Systems on a mandatory basis. 

How are names applicable in only one jurisdiction accommodated? 

In addition to the Group reqUirement, each Group company must request Group 

Messaging Systems to load in WOLF any names which apply locally, (I.e. being listed or 

notified in one jurisdiction for terrorism reasons or other reasons, and countries/names 

against which one jurisdiction exercises sanctions). 

Can other sensitive names be activated in WOLF or loaded in WOLF locally? 

Yes. Group companies may choose additionally to load in WOLF those names that may be 

regarded locally as sensitive or high risk, in order to mitigate operational risk. 

How often will WOLF be updated? 

The external database is updated frequently in response to changes issued by Competent 

Authorities, and is fed Into WOLF for centralised updating and spawning to sites which 

have called the WOLF utility in from Group Messaging Systems. 

What types of payment are to be screened? 

On launch of WOLF, as a minimum, all cross-border customer wire transfers (e.g. third 

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party telex payments and SWIFT MT 100 series). Under guidance from the local 

Compliance function, Group companies may choose to screen additional types of crossborder payments or SWIFT Message Types, pending communication of further 

requirements from Group Compliance. 

Which fields in the payment are to be screened? 

The Group recommendation is to screen all fields. The local compliance function may, 

however, request sign off from Group Compliance for certain fields to be removed from the 

screening process. Requests must include an explanation why the fields in question are of 

no value or risk from a screening point of view. 

What action should be taken when a potential match is alerted by WOLF and the 

payment is in a pending state for review? 

Outgoing international payments Initiated by HSBC 

If WOLF identifies a potential match', the unexecuted payment will be'placed in a work 

queue in the underlying payments system and will require case by case analysis by the 

payment department to establish whether the potential match is an actual match. 

Procedures wili need to be established in the department on how to undertake the 

analysis, and how to document, record and retrieve the rationale for regarding the match 

as false or positive. Use of such techniques as Lexis Nexus searching will assist the 

process, but there will inevitably be cases where it will be necessary to refer to the 

beneficiary bank to obtain confirmation that the beneficiary is not the listed name. 

If it is not an actual match, then the payment may be authorised for execution by rereleasing it into the payment process. If it is an actual match, then it will usually be 

necessary to liaise internally with Compliance or Security to establish what should be done 

with the funds which have not been paid away. External liaison with Competent Authorities 

requires documented procedures to be agreed between payment operations and 

Compliance. 

Please note that in the initial phase where screening is done in TP, it will be necessary in 

the case of true matches to reverse the debit entry in cases where such has been 

generated automatically by the underlying payments system. 

Incoming international payments received by HSBC 

,If WOLF identifies a potential match, the unexecuted payment will be placed in a work 

queue in the underlying payment system, and will require case by case analysis by the 

Payment Department, to establish whether the potential match is an actual match. Once 

again, procedures will need to be established on how to undertake the analYSiS, and how 

to document, record and retrieve the rationale for regarding the match as false or pcsitive. 

There will ineVitably be cases where it will be necessary to refer to the remitting bank to 

obtain confirmation that the remitter is not the listed name. 

If it is not an actual match, then the payment may be authorised for execution by rereleaSing it into the payment process. If it is an actual match, then it will usually be 

necessary to liase internally with Group Compliance or Group Security. External liaison 

with Competent Authorities requires documented procedures to be agreed between 

Payment Operations and Compliance. 

What percentage of the payment volume is expected to be placed into a pending 

state for review of a potential match? 

When fully tuned, 0.5% or less. 

How can recurrence of false matches be avoided? 

It is recommended that offline testing with historic payment data is undertaken at the very 

outset. Once it is established that a certain name, which is very similar to a listed terrorist 

/sanctioned name, is an acceptable name, then WOLF can be told not to 

trigger the payment to the work queue on subsequent occasions. This technique is 

referred to as the 'good guy list'. Please note, however, that in certain jurisdictions, the 

creation of such a list may have data protection legislation implications. 

What is our legal protection if the intra-day process of determining that a 

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potential match is not a real match and re-releasing the payment for execution 

results in a payment cut-off time being missed, and the payment being executed 

on the next w rking day, or several days after, thus causing a daim for inter st 

and/or consequential loss? 

It is an unavoidable consequence of real-time payment screening that a small number of 

payments will be delayed as described above. 

Over the years, temns and conditions for effecting payments have been drawn up at Group 

company level, rather than there being a single definitive set of Group-wide T&e. 

Additionally, within a Group company, there are often numerous sets of T&C for different 

payment product propositions. 

Accordingly, each Group company should request its local Legal Dept to examine the 

complete range of current TIlC for payment products and channels, and to recommend to 

Payment Operations, to Payments Il Cash Management, and to Compliance whether the 

current wording gives suffiCient protection in respect of real~time payment screening 

against sanctioned and terrorist names, or whether any changes are appropriate. 

The local Legal Dept should be requested to consider both claims for interest and 

consequential loss e.g. loss of a contract due to the delay. 

If changes are recommended, then a template wording which is to be supplied by Group 

Legal should be used as a starting point. 

What happens if a client claims that he/she is not bound by the listing of a 

terrorist name by a Competent Authority in another jurisdiction? 

The Group stance is that all Group companies must apply the listings of the Competent 

Authorities in USA, UK/EU and Hong Kong SAR in the effort against terrorism. The legal 

pOSition, iSI however, far from clear, and such claims will have to be handled on a case by 

case baSiS, with due consideration being given to the legal implications in the relevant 

jurisdiction. 

Can WOLF be switched off in extreme operational circumstances? 

Yes, but only very infrequently, and in accordarice with a formal documented protocol 

agreed with the local Compliance function. The protocol should define the procedures to be 

followed, and should include a "major incident panel" with a sufficient number of people to 

cover absences. it is a requirement that the payments which were allowed to execute without screening 

must be screened on an after the event basis, as soon as is practicable after normal 

payment operations conditions are restored. 

How do TP sites configure WOLF? 

Group sites should submit requests to configure WOLF to Group Messaging Systems, which 

will manage the take-on programme. The Contact person is Jon Curl, Group Messaging on 

(+44) 20 7991 8704, or by email to Jon H CURLlHBEUlHSBC. 

The installation in WOLF in TP is an initial short term tactical solution for international 

payments. It is intended to install WOLF in underlying international payment proceSSing 

systems, including HUB, rather than in TP, in 2005. 

How do sites which do not use TP obtain WOLF? 

Contact Jon Curl, at the above address. 

Is WOLF only useful for real-time payment screening? 

No. 

For real~time screening, it is essential to keep the number of names screened against to as 

Iowa number as possible to preserve operational performance and keep straight through 

processi ng rates h ig h. 

On a retrospective baSiS, however, all the names contained in WOLF and additional loaded 

names could be screened against transactions or client names. This would be useful in 

cases of ad hoc requests from regulatory/criminal authoritiesl or in customer base reviews 

undertaken for our own purposes. 

Further instructions and guidance on retrospective screening will be issued by Group 

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Compliance at a later date. 

Is the. WOLF initiative linked t the Customer Activity Monitoring Pr gramme 

(CAMP) initiative? 

No, not directly. WOLF is the screening of wire transfers in real-time, whereas CAMP is the 

monitoring of all account activity after the event. . 

Where should Business Case requests to use an alternative solution to WOLF be 

sent? 

These should be submitted to Group Compliance, John ALLISON/HGHO/HSBC, whose 

contact details appear below. 

(It is acknowledged that in a small number of Group sites, most notably HBUS, real-time 

payment screening has been undertaken for some years. These Sites should advise details 

of their current solutions to Group Compliance}. 

Where sh'ould requests to' remolle-fieldS from the screening process be sent? 

These should also be submitted to Group Compliance, John ALLlSON/HGHO/HSBC. whose 

contact details appear below. 

Further information 

In the first instance, reference should be made to the local Compliance/Money Laundering 

Control function for further information and assistance. 

Compliance/Money Laundering Control officers may obtain assistance on this initiative 

from John Allison, GHQ CMP on (+44) 2079918543, or by email to JQtm 

ALLISONfHGHOfHSBC. 

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Significant 

Global Payments System (GPS) Implementation Issues 

6 Aug 07 HVSI Audit Committee Update 

Summary 

GPS is a Group system intended to replace all of the Groups diverse electronic payment 

systems. HBUS' legacy payments system EP was essentially 'out of maintenance' and 

GFT was therefore seleCted asJhe pilot site. The project is sponsoJed~IQbal1ypl'Group 

COO and Head of Global Transaction Banking in GHQ. It is sponsored locally by HBUS 

Head of Global Transaction Banking 

On July 16 2007 HBUS Global Funds Transfer (GFT) operation experienced significant 

operational issues at implementation of Phase 3 ofGPS and full implementation ofa new 

payments filter (FircoSoft). Due to the increased sensitivity of the new filter, certain 

acronyms on the filter database caused the number of false positive alerts to increase 

from a median of 8,000 messages to 12,600 or, by S8 percent, on Day 1 of operations. 

The need to work through the backlog and consequent loss of systems availability time, 

materially reduced User productivity due to user familiarization! training and systems 

deficiency issues have resulted in GFT being unable to complete a full days work without 

a ~carry over' of a backlog since the conversion. The carry over, as at 27 July is, 

however, less than 150 payments daily estimated at 20 m dollars. In comparison, the 

volume of payments successfully cleared through the system on this same day was 

approximately 110,000 valued at 408 Bn. The backlog is largely eliminated. 

In the process of coping with the issues created above, payment duplications ofUSD 88.5 

million (in one lot of 0.5 m on 16 Jul and another of 88.00 m on 24 Jul) have resulted due 

to human error and these are in the process of being recovered. 

Background 

The main software engine was licensed from Fundtech, a third party vendor, amended to 

suit HSBC requirements, user tested over 1 S months and implemented in 3 phases. The 

Group OFAC filtering system and a third party Straight Through Processing (STP) 

engine completed the software suite being installed. Implementations of Phases I and 2 

for selected Group SWIFT and FED traffic during 18 Jun through 14 July were 

successful. 

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During the weekend of 14-15 July, all other traffic for GFT especially CHIPS were 

channeled through GPS and the new FircoSoft "OF AC filter" was fully implemented. Aa 

noted above, a large number of false positive alerts were dropped to the OF AC queue. 

The problem entries were successfully removed on July 17 and the OFAC queue 

subsequently dropped to a normalleve!. Also. effective July 17 a risk based decision was 

made to eliminate the verification step of all OF AC filter alerts on a temporary basis to 

accelerate the process of clearing the OF AC queue. This exception remains in place. (The 

OFAC filter is used for the interdiction of payments for OFAC, Legal Servicing and 

AML purposes, generically referred to as the Office of Foreign Aaset Control "OFAC 

filter". However, care needs to be'exercised iil lipdatihg the filtet database to efisure that 

common names do not produce undue false positive alerts.) 

The staffs both in Delaware and India worked very long hours to clear up the backlog but 

were largely unable to eliminate it till the 27 July. Extra resources were brought to bear 

but this was oflimited help due to the need for extensive training and payments 

experience needed. In addition, and despite extensive UAT and production acceptance 

testing. the staff proved to be up to a third less productive on the new system. The 

production acceptance tests that simulated a single day's work several times, however, 

consistently reported EP and GPS productivity to be comparable. The issue is seen 

attributable in equal measure to inadequate user familiarization! training and system 

deficiencies, but as to why these were not discovered in the tests is still being 

investigated. 

The backlog caused by the OFAC issue and the materially lowered productivity of the 

new system has resulted in continued carry over of payments. While the situation has 

improved markedly over the ten days after the conversion, as at 27 Jul. GFT continues to 

carry approximately one hundred payments forward to the following day, valued at about 

USD20 m. 

There have been a significant number of client complaints of non receipt of funds. These 

have been managed through communications through the client services unit in Delaware 

and other means of internal and external communications. The 'fallout' from this event 

will be felt for another few weeks in this respect. 

Action Taken and Way Forward 

The 'root cause' of this event was a deficiency of the change management process despite 

very stringent processes put in place to manage this by the GPS program at very senior 

levels. These worked for GPS and its direct interfaces more than adequately but clearly 

not all systems were adequately integrated into this change management process. Access 

to the OFAC database should have had additional controls in place to measure the impact 

of any changes to the filter on payments activity. 

No further updates are allowed, at present, to the filter without express authorization from 

both GPS project senior management and senior compliance management. Processes are 

2 

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being designed to ensure adequate control and 'line of sight' by Compliance and GFT is 

maintained on any future cbanges. 

The actions taken on productivity issues include deployment of experienced Fundtech 

and HSBC project management staff to assist in the familiarization of the payments 

operations staff on the new system, requesting for additional staff both in Delaware and 

Hyderabad who are now being trained, tuning the the S1P tool to automate more 

payments to 'go straight through' and the addressing of the systems deficiencies in a 

series of releases. 

HSBC IT and the vendors have been hard at work creating system changes and 

enhancements to add efficiency and correct issues within the system. A release of 

technology e-nh:ancements-was received on the 28-July; which IT is hopeful will eliminate 

seveml of the ongoing efficiency issues. A list of additional enhancements has been 

compiled and an additional release is expected during the the weekend of 4-5 Aug. 

At this point, a good estimate of the monetary impact ofthese issues is not available but 

this will be tracked and reported as data is collected. 

Ofthe payments duplications, 0.45 m of the 0.5 m have already been recovered and the 

88 m is in the process of being followed up. 

Summary 

This is a major systems conversion that ran into initial difficulties due to a change control 

issue outside the immediate visibility of the project. While GFT is close to 'business as 

usual' except for the outstanding client complaints, the lesson learnt is to ensure that 

future projects take a wider view of control of change management than practiced for 

GPS. Once the cause of the discrepancy between productivity measurements during test 

and live phases is established a recommendation to avoid this situation in future 

installations of GPS will be made. 

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From: DANIEL JACKlHBUS/HSBC 

Sent: 713012007 5:35:51 PM 

To: AlAN P WILLIAMSONIHBUSlHSBC@HSBC 

CC: 

Subject: Fw: 8N~LN wtth AI Rajhi Bank in Saudi Arabia 

Alan ~ FYI, as we briefly discussed ... 

Thanks and regards, 

Daniel Jack VP - AML Compliance I HSBC Bank USA, NA 

452 Fifth Avenue, 7th floor, New York, NY 10018 

Phone. 

Email, 

212-525-8686 

daniel.jack@us,hsbc.com 

-- FOlWarded by Daniel JacklHBUSIHSBC on 0713012007 06:32 PM -

Daniel JackIHBUSIHSBC 

071261200711:48AM 

To 

Aian T KetleylHBUSIHSBC 

cc 

Subject 

BN·LN with AI Rajhi Bank in Saudi Arabia 

Alan - Let me know if you need more info on Al RAJHI BANKING & INVESTMENT 

CORP. I assume this is "AI Rajhj Bank" referred to below. 

HBUS London sells them USD & EUR (No Purchases). 

USD Sales to them: 

in 2007: $9.6 Million, in Jun-07 only 

in 2006: None 

in 2005: $16.4 Million, in Jan-OS only 

in 2004: $50004 M~lion (whole year) 

fJs per Customer Profile Section I General Comment ~ Initial date of activation 

was 01/01/2001, relationship exited and deactivated on 02 February 2005 due to 

TF issues (see Section VIII Mt1L under Reputational Risk controls) as agreed 

with AML Compliance New York. However this bank had a long-standing 25+ years 

relationship with Banknoles, London until that time. Also this client still 

has relationships with HSBC in the UK, UAE, France, Hong Kong and Italy. 

Approved as a London Banknotes customer 4 Dece mber 2006 after TF issues were 

cleared through AML Compliance New York. 

As per BN Profile -

'" Banknote Activity Status: Active 

Initial Trade date: 06/1112007 

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CUrrencies traded: 

EURO, US DOLLAR 

Monthly Trade Volume Estimates: 

Currency: Sales by HSBC: Purchases by HSBC: 

USD Currency: 25,000,000 0 

Other Major Currency: EURO 8,000,000 

Other Major Currency: 0 ° Other Major Currency: 0 0 

Are there normal or seasonal variations in volume of activity: 

If yes, explain: YES. Ramadan/HajiSummer Tourism 

Please describe the reason for dealing in banknote transactions: A!~Rajhi Banking and 

Investment Corp. is one of the largest banking companies in Saudi Arabia. We 

have-previ'Ously-dealt with them~' mitfa1-date" 02101 f96-:-They"now1rade under 

Sharia law and the larger deals for USD will now be agreed 8gSt SAR exchange. 

They also have an extensive retail network of more than 450 branches. The bank 

does not operate on the wholesale banknote market and they do not supply money 

remitters with banknotes. They will utilize our services for their retail 

banknotes activities only. We anticipate that we will sell them new USD and 

EUR. There will be seasonal adjustments to our volumes due to Hajj and 

Ramadan, as well as the fluctuation of tourism out of the country particularly 

In the summer months when demand for USD is higher with Saudis and ex-pats 

leaving the country. 

Wlere will banknotes be shipped to: RIYADH and JEDDAH 

Wlere will banknotes be shipped from: RIYADH and JEDDAH 

Credit line required (unsecured Client)? 

If yes, indicate credit line amount: $10,150,000 

If yes , credit approval received: 

Please provide any relevant comments on Cfient's past performance and/or 

profitability for HSBC: 

Thanks and regards, 

Daniel Jack 

VP - AML Compliance I HSBC Bank USA, NA 

452 Fifth Avenue, 71lT floor, New York, NY 10018 

Phone. 

Email. 

212-525-8666 

daniel.jack@us.hsbc.com 

Alan T KetleylHBUSIHSBC 

071261200710:17 AM 

To 

Daniel JackIHBUSIHSBC@HSBC 

Subject 

Fw: Saudi's 

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Tell me about the BN trading we have with this name please. 

Alan T Kettey 

SVP AML Compliance 

452 Fillh Avenue. New York. NY10018 

Phone. 212-525-6147 

Fax. 212-382-7580 

EmaiLalan.t.ketJey@us.hsbc.com 

- Forwarded by Aian T Ketley/HBUSlHSBC on 07/26/200710:16 AM--

~Boss, Joseph" <Joseph.Boss@occ.treas.gov> 

07/261200708:24 AM 

To 

alan.t.ketley@us.hsbc.com 

cc 

"Boss, Joseph" <Joseph.Boss@occ.treas.gov> 

Subject 

Saudi's 

Alan, for your information and review. Please let me know ifthere is 

anything. This appeared on the front page oftoday's Wall Street Journal. 

Thanks, Joe . 

TERROR FINANCE 

U.S. Tracks Saudi Bank 

Favored by Extremists 

Oflidals Debated What 

To Do About PJ Rajhi. 

Intelligence Files Sh ow 

By GLENN R. SIMPSON 

July 26.2007; Page AI 

JIDDA, Saudi Arabia -In the 1940$, two Bedouin farm boys from the desert 

began changing money for the trickle of traders and religious pilgrims in this 

then-remote and barren kingdom, It was a business built on faith and trust, 

Sulaiman AI Rajhl once told an interviewer, and for many years he would hand 

gold bars to strangers boarding flights in Jidda and ask them to give the gold 

to his brother on their arrival in Riyadh. 

EXTREMISTS' ACCOUNTS 

The News: U.S. intelligence reports say Islamic extremists often use Saudi 

Arabia's AI Rajhi Bank to move money. The bank has denounced terrorism and 

denies any role in financing extremists. 

The Issue: A confrontation with PJ Rajhi would be politically difficult for 

Saudi monarchy, and U.S. isn't satisfied with its efforts to curb the financial 

infrastructure essential to terrorism. 

Result: US. has periodically debated taking action on its 0'Ml against the 

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From: DANIEL JACKiHBUS/HSBC 

Sent 6/312006 9:56:39 AM 

To: ALAN P WlLLlAMSONlHBUS/HSBC@HSBC02 

CC: 

Subject: Re: Banknotes with AI Rahji Banking in S.A. 

Alan, 

I believe the business owns the customer and the risk. 

They want to maintain the relationship in London and begin one in HK. 

Do you want me to forward this to Chris & Steve and ask for their comments? 

As-noted in the XYC Cl.istomer Profile, 1t was~re:approVe-aorfT2T04-'2006by Alan 

T Ketley, and then on 04/0112008 by you. --> 

I don't think you should CO deny - or even hesitate now ~ on this for HK, 

despite the negative info on TF & Rep risk. \r'Jhich is not new (e.g. WSJ in 

Jul-07, EDD in Dec-07). I understand why Denise/Anne/Gloria are not 

comfortable, but I respectfully do not think it is their decision to terminate 

the relationship (again). 

I will continue to monitor activity very closely. 

What do you think? 

Thanks and regards, 

Daniel Jack 

Vice President - Compliance Officer 

HSBC Bank USA. NA . 

452 Fifth Avenue, 7th Hoor, New York, NY 10018 

Phone 212-525-8686 

Email daniel.jack@us.hsbc.com 

Gloria Slrazza/HBUSlHSBC 

06/031200610:38 AM 

To 

Daniel JacklHBUS/HSBC@HSBC02,A1.n P WiIli.mson/HBUS/HSBC@HSBC02 

cc 

Anne Liddy/HBUS/HSBC@HSBC02, Denise A Reilly/HBUS/HSBC@HSBC02 

Subject 

Re: Banknotes with AI Rahji Banking in S.A, 

There was (and may be in the fuhlre) a fair amount of press and government 

attention focused on this entity. I am not sure we would want to engage in 

even this limited activity for this entity but I forward some of the 

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intelligence from our files on this bank. 

Copied into this email are the prior ROFs performed on the entity, the most 

recent of which \lVaS completed in December 2007. Also attached is a WSJ article 

from July 2007 and some emails from iCRO's electronic files (attached in the 

Word documents below). 

[attachment 'WSJ 7-ll2.doc.zip" deleted by Daniel JacklHBUSIHSBCj [attachment 

.. Email copies.doc.zip" deleted by Daniel JacklHBUS/HSBC] 

EDD ROFs 

Email Note accompanying latest EDD ROF: 

04 Dec 2007 11 :57 

From: FIG HBUS Tel: 

Title: Location: 

WorkGroup: Mail Size: 82760 

Sent by: Bob Powers 

To: Daniel JacklHBUSIHSBC@HSBC02 

cc: Gordon BROWNIiBEUlHSBC@HSBC@HSBC02 

FIG HBUS@HSBC 

Subject: Report of Findings - AI Rajhi Banking and Investment Corp (AI Rajhi 

Bank)· FlU 

CONFIDENTIAL 

--FOR INFORMATIONAL PURPOSES ONLY 1 FOR INTERNAL USE ONL Y--

INVESTIGATIVE CONTROL AND REPORTING OFFICE (ICRO) 

FINANCIAL INTELLIGENCE UNIT 

Research as of: 12104107 UPDATE 

SUBJECT: AI Rajhi Banking and Investment Corp 

ENTITIES: AI Rajhi Banking and Investment Corp (AKA AI Rajhi Bank) 

REQUESTOR: Daniel Jack 

DEPARTMENT: Banknotes 

A report of findings in support of Enhanced Due Diligence \lVaS conducted for AI 

Rajh.i Banking and Investment Corp. This department completed previous reports 

on this bank, most recently in October of 2006. The text of those previous 

reports is provided below for your reference. 

As our previous reports state, there have been numerous allegations of 

terrorist support against PJ Rajhi Bank, but the bank has never been officially 

sanctioned. Since the previous report of findings, however, there was 

published a 'Wall Street Journal" article titled "U.S. Tracks Bank Favored By 

Extremists" which offered a review of previously secret intelligence reports 

that state plainly that the Bush administration and US agencies have debated 

whether or not the bank should be sanctioned for what is perceived as a history 

or support of Muslim extremists. A brief summary of this article is provided 

below, and the full article is appended for your reference. 

'vVhile it is not clear that this newly released information >Mil lead to any 

official sanctions against the bank, it is likely that there >Mil continue to 

be references in the press to the allegations of terrorist support against the 

bank, and for this reason there remains a level of reputational risk attached 

to any relationship >Mth AI Rajhi Bank that should be taken into consideration. 

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From: DENISE A REILL Y/HBUS/HSBC 

Sent: 6/31200811:21:41 fW, 

To: ALAN P WILLIAMSON/HBUS/HSBC@HSBC02 

CC: ANNE LlDDY/HBUS/HSBC@HSBC02;DANIELJACKlHBUS/HSBC@HSBC02;GLORIA 

STRAZZNHBUS/HSBC@HSBC02 

Subject: Re: Banknotes with AI Rahji Banking in SA, 

Alan, 

,Also, as I recall when this was last approved Teny raised it to the Bank's 

executive management. 

Denise A Reilly 

SVP Compliance 

7th Floor 

452 5th Ave, NY 10018 

Phone. 

Mobile. 

Email. 

212-525-2606 

732-996-8672 

denise.a.reilly@us.hsbc.com 

Aian P VViliiamson/HBUSIHSBC 

06/0312008 12:00 PM 

Dan 

To 

Gloria strazza/HBUSlHSBC@HSBC02, Daniei JacklHBUS/HSBC@HSBC02 

cc 

Anne Liddy/HBUS/HSBC@HSBC02, Denise A ReiJIyIHBUSIHSBC@HSBC02 

Subject 

Re: 8anknotes with AI Rahjl Banking in S.A. 

Can you forward to relevant business heads and ask for their response back to 

you? 

Thx 

Aian 

-- Original Message --

From: Gloria S\razza 

Sent: 06/0312008 10:38 AM EDT 

To: Daniel Jack; Alan P VVilliamson 

Co: Anne Uddy; Denise ReiUy 

Subject: Re: Banknotes with AI Rahji Banking in S.A. 

There was (and may be in the future) a fair amount of press and government 

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attention focused on this entity. I am not sure we would want to engage in 

even this limited activity for this entity but I forward some of the 

intelligence from our files on this bank. 

Copied into this email are the prior ROFs performed on the entity, the most 

recent of which was completed in December 2007. Also attached is a WSJ article 

from July 2007 and some emails from ICRO's electronic files (attached in the 

Word documents below). 

[attachment 'WSJ 7-02.doc.zip" deleted by Alan P IMmamson/HBUSIHSBCj 

[attachment "Email copies.doc.zip" deleted by Alan P VlJiliiamson/HBUSIHSBCI 

Redacted by the 

Permanent Subcommittee on Invesligatiou 

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From: CHARLES G DELBUSTO/HBUSlHSBC 

Sent: 412412006 2:59:29 PM 

To: MICHAEL B GALLAGHERlHBUSIHSBC@HSBC 

CC: 

Subject: ING Wliteup 

May need to fax (let me know) it but here is the summary 

On May 21,2002, HSBC BANK USA, NA received a SWIFT MT202 from HSBC Bank pic 

London requesting execution of the following payment by debit to their 

account. 

Amount USD 3,000,000.00 

Valuedatec°. o21May02 

Originating Bank: _ 

BANCO INTERNACIONAL DE COMERCIO S.A 

20 DE MAYO Y AYESTARAN 

6 LA HABANA, CUBA 

Receive Bank: _ 

YORK 

Beneficiary Bank: 

Bank to Bank 

Information: 

BANCO BILBAO VlZCAYA ARGENTARIA, NEW 

1345 AVENUE OF THE AMERICAS 

NEW YORK,NY 10105 

BIDCCUHH 

BANCO INTERNACIONAL DE COMERCIO SA 

20 DE MAYO Y AYESTARAN 

6 LA HABANA, CUBA 

BANCO BILBAO VlZCAYAARGENTARIA 

29 AVENUE DE L'OPERA 

75001 PARIS, FRANCE 

__ "" Redacted by the Permanent 

Subcommittee on Investigations 

As this payment instruction made reference to CUBA, we advised by the Office of 

Foreign Assets Control (OFAC) to block said funds. According to Standard 

Operation Procedures, funds were placed in a blocked time deposit account 

earning interest at the regular TDA rate. 

Sometime later, we were contacted by Neil Wleeler, HSBC Bank pic, London, 

advising that their client and originator of the blocked payment. ING. was not 

happy with the Q.,HTent interest rate that HSBC Bank USA, NA, was paying on 

blocked funds. ~ no reference was made to ING on the payment instructions, 

HSBC Bank USA, N,A, received from HSBC Bank pIc London, proof of lNG's role 1n 

this payment was required by HSBC Bank USA, NA. 

Upon receipt of that proof, it was connnned to HSBC Bank pic London, that 

there was no deviation to our procedure and all blocked funds eam interest at 

the regular time deposit rate. ING continued to express their concern over the 

low interest rate and advised they would be seeking legal counsel. We, in tum, 

referred this matter to our CompliancelLegal Uaisons, Elizabeth Protomastro 

and John Holinka. Although we were in compliance with OFAC regulations, 

Elizabeth Protomastro found that some of our peer banks either tier interest 

rates or pay a slightly higher rate. John Holinka did not think it prudent to 

"provide different treatment for different blocked funds." As such, a 

decision was made to stand finn on the interest rate we were paying on blocked 

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funds. 

Correspondence regarding this issue continued as HSBC recerved letters dated 

March 21. 2003 from MACFRALANES, ING legal counse!.ln this letter, agreement 

was being sought to recognize ING as legal owner of Ihese funds and the party 

due these funds upon release from OFAC, as well as applying a higher interest 

rate to !he blocked funds. 

In anticipation of the continuance of this issue, HSBC Bank USA, N.A., in 

conjunction with the aforementioned information ascertained by Elizabeth 

Protomastro regarding interest paid by our peer banks, and information received 

from Branch Operations and Marketing in relation to interest paid on deposits, 

HBUS presented the following interest schedule to be applied to blocked funds. 

Principal 

$999,999.99 or below: 

$1,000,000.00 and above: 

Interest Current SAV2 Rate 

Effective Fed Fund Rate less .25BPs 

Both the current SAV2 Rate and Effective Fund Rate will be reviewed monthly 

and, if warranted, an interest rate change will be forwarded to 

Marketing. 

Michael Gallagher referred the question of applying a tiered interest rate on 

blocked funds dependent to the Bank Examiner, Mark Scapp. In an email dated 

February 19, 2003, from Mark Scapp, he advised, "Our downtown foJks did some 

research on your issue and here is what the feedback said: As long as the funds 

earn interest at a commercially reasonable rate, i.e:, at a rate currently 

offered other deposits or instruments of comparable size and maturity then the 

firm can use its discretion as to the setting of a rate," 

In consideration of the guidance received from Mark Scapp and our client 

relationship with lNG, it was decided to pay lNG the higher interest rate. In 

reference to this item, Rita Gonzalez stated" We should make very clear to lNG 

that this was a relationship effort which did reqUire contacting regulators and 

in no way should be perceived as HBUS trying to earn a profit at the expense of 

client, as suggested.~ 

Further to this action, Neil \lVheeler, HSBC Bank pic London, received a letter 

from ING Trade Finance dated December 9, 2003, referencing the issues related 

to the blocked funds and stated: 

" Today, we are accepting, as you did that: 

1 ") there is no dispute that if and when frozen funds are released to you by 

OFAC, that you will remit them to us (see penultimate paragraph on the 2nd page 

of DG Solicitor's letter of 1 November 2002); funds being in our name and our 

property in the books of your New-York branch; 

2°)that it would be inappropriate to you to enter in a loan scheme such was 

proposed by us using the frozen funds as security; 

3")whUst you have not been able to agree to the strucbJre we have suggested, 

you have at our request recently reviewed 1he Credit interest payable on these 

fund and the rate was doubled to Fed rate minus 25 basis points." 

On December 24, 2003, Neil \lVheeler issued a response to the December 9, 2003 

letter from ING Trade Finance. A summary of this response is as follows. 

- Confirmed Points 2 and 3 above. 

- Amended Point 1 to advise funds are held in a blocked time deposit account on 

the books ofHSBC Bank USA. 

- The time deposit account is not assigned a specific name but is identified by 

a case number. It is not held in the name of ING Bank (ING Bank did not appear 

on any of the fields on the transfer instruction). 

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- These funds will remain blocked until their release is authorized by 

OFAC license, either by a general license published by OFAC and 

incorporated into the regulations, or a specific license granted by OFAC 

on 

a case-by-case basis in response to an application filed by a specific 

individual or company having an interest in the blocked 

transaction. 

- It is possible that OFAC may not license the release of the funds until 

!he 

embargo program on Cuba is lifted. Final disposition of the funds at such 

time as OF AC licenses their release is a matter to be 

determined by OFAC. 

- From our experience with the OF AC licensing process, OF AC's general 

pmcttce-tras-beeli to dhect the bailk-(HBttStto-retum-1he-ftmdsio-the 

remitter or the remitting bank. However, there may be instances Where 

OFAC 

will direct the bank to forward the funds on to the beneficiary, We note 

that in certain instances, such as with blocked Iraqi assets, OFAC has 

uplifted the funds and used them for purposes other than satisfying the 

claims of the relevant account parties, 

wth the application of the new, higher interest rate, HSBC Bank USA, NA, 

considers this matter to be resolved. In accordance with consistent practices, 

the new interest schedule is applied to all funds blocked in accordance with 

regulations set forth by the Office of Foreign Assets Control. 

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From: TERESA PESCElHBUSlHSBC 

Sent: 1/512005 10:39:48 AM 

To: DANIEL JACKlHBUS/HS8C@HSBC 

CC: ALAN T KETlEY/HBUSlHSBC@HSBC 

Subject: Re: KYC Status of Profiles for Banknotes by Office: December 2004 

I expect to see an email from Susan Wright today. She tells me that HBME does 

not agree with Compliance and Will not be terminating the relationship from the 

Middle East, but she/David B. recommend that in light of US scrutiny, climate, 

and interest by law enforcement, we in the US sever the relationship from here. 

Daniel Jack on 05 Jan 2005 10:21 

Note 

05 Jan 2005 10:21 

From: Daniel Jac~ Tel: 212-525-8686 

Title: Vice President Location: 452 5th Ave, Floor 07 

WorkGroup: legal Compliance Mail Size: 144227 

To: Teresa PesceIHBUSIHSBC@HSBC 

cc: Alan T KetleyIHBUSlHSBC@HSBC 

SUbject: Re: KYC Status of Profiles for Banknotes by Office: December 2004 

Terry - OK. When do you expect to receive this recommendation from Group 

Compnance? 

We can then inform Chris lok in NY & Steve Allen in london ... 

Teresa Pesce on 04 Jan 2005 22:48 

Note 

04 Jan 2005 22:48 

From: Teresa Pesce Tel: 212-525-6099 

TItle: Executive Vice President location: 

WorkGroup: CaMP/ANTI-MONEY LAUNDERING 

To: Daniel JacklHBUSlHSBC@HSBC 

452 5th Ave, Floor 07 

Mail Size: 142125 

Subject Re: KYC starus of Profiles for Banknotes by Office: December 2004 

Please communicate that Group Compliance will be recommending terminating the 

AI Rahji relationship. 

Daniel Jack on 04 Jan 200518:57 

Note 

04 Jan 2005 18:57 

From: Daniel Jack Tel: 212-525-8686 

TJtle: Vice President location: 452 5th Ave, Floor 07 

WorkGroup: 

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Legal Compliance Mail Size: 

To: HBUS KYC Account Managers 

HBUS KYC Client Services 

HBUS KYC Banknote Traders 

HBUS KYC Regional Head of Banknotes 

HBUS KYC Functional Head of Business 

144791 

HBUS KYC Regional Head of Institutional Banking 

HBUS KYC Regional Money Laundering Control Officer 

cc: HBUS KYC System Admin 

Christine JENKINSIIBEU/HSBC@HSBC 

BeJhl.QGllElHBEUIeSaC@I:ISB.C 

Robyn SZETO/LGA SGH/HBAP/HSBC@HSBC 

Rosa P Y LEUNG/CMP APHlHBAP/HSBC@HSBC 

Alan T KeUeyIHBUS/HSBC@HSBC 

Ronald SchmicklHBUSlHSBC@HSBC 

Sandra PetersonIHBUS/HSBC@HSBC 

Subject: KYC Status of Profiles for Banknotes by Office: December 2004 

Following is a breakdown on the current status of aU KYC Profiles for clients 

with Banknotes Trading - by BN Office Globally: 

CUSTOMER PROFILES (refer to 2nd table below) 

Overall, there are 934 active Customer Profiles indicating Banknote trading 

relationships. 

Of these, 771 are Approved and 163 are Pending Approval. 

There are 6 customers that were recently denied by CO, IB or RM and are still 

"/lM Pending" (see 1st table below). 

BANKNOTE PROFILES (refer to 3rd table below) 

Overall, there are 924 active Banknote Profiles. 

Of these, 842 are Approved and 82 are Pending. 

A total of t A04 are Deactivated. 

Many pending 8anknotes Profiles cannot be Approved because their linked 

Customer Profile is not Approved yet. 

Please ensure KYC profiles for all inactive customers (>2 years) are 

deactivated in Notes and the Banknote trading system (G8S or VAX). 

Customer Profiles for the following (6) active customers were recently denied: 

Please work with PCM (as needed) and ensure they are updated & re-approved - or 

deactivated asap. 

Please ensure KYC Customer & Banknote Profiles are: 

approved for all new customers; and 

approved & updated for all existing customers globally, as per the risk-based 

review cycle (12 months for High Risk vs 18 months for others). 

Let me know if you have any questions. Thanks again for your continued 

commitment to KYC due diligence and documentation. 

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Bank Secrecy Act/Anti-Money 

Laundering Supervision 

Final Report 

May 18,2005 

OFFICE OF THE COMPTROLLER 

OF THE CURRENCY 

QUALITY MANAGEMENT DIVISION 

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TABLE OF CONTENTS 

Executive SummBIy ... . ...................................................... 3 

Scope and Objectives. .. .... 8 

Background .. .. .... 10 

Findings and Recommendations .............. 15 

Appendix. .. .... 24 

Comptroller's EngagernentMemo .. .. .............................. 25 

Sources That Guide OCC's BSNAML Supervision .. .. ........................... 27 

Committee on Bank Supervision BSNAML Operating Plan FY 2005-2006 ........... 30 

Scope and Methodology - Large and Mid-size Bank Sample .. .. ....... 34 

SummBIy of Report Conclusions ............ . .. ..... 36 

Sample Banks - Supporting Details . ..40 

Ri sk Identificati on Programs ... . ...... 53 

Abbreviations ... .. ............................... 63 

Matters Requiring Attention (MRA) ...... .. ....... 66 

Review Team Members , .... > ................................... 67 

-2-

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EXECUTIVE SUMMARY 

The purpose of this report is to provide the Comptroller with a general assessment of the quality 

of OCC' s BSN AML compliance supervision and to recommend improvements in the 

effectiveness of OCC's Bank Secrecy ActiAnti-Money Laundering (BSNAML) supervision and 

enforcement policies. The Comptroller detailed the following objectives in a May 20, 2004 

Engagement Memorandum included in the Appendix: 

• Perform a general assessment of the quality of OCC's BSNAML compliance supervision 

and determine whether there are other banks under OCC supervision that have failed to 

respond on a timely basis to OCC BSNAML supervisory actions. 

• As a result of the review, provide the Comptroller with any recommendations for 

improvements in the effectiveness ofOCC's BSNAML supervision and enforcement 

policy with regard to BSN AML violations. 

OCC actions are already underway addressing many findings and recommendations contained in 

this report. These actions are detailed in the Committee on Bank Supervision BSNAML 

Operating Plan that is included in the Appendix. Other findings contained in this report include 

recommendations for additional actions that the review team believes should be undertaken. 

Conclusions 

OCC's BSNAML overall policy guidance is generally adequate, except as follows: (1) More 

specific guidance in examination policy is needed with respect to transaction testing and (2) 

examination guidance is difficult to apply in the largest national banks. Enforcement policy 

guidance, prior to the November 2004 revisions, had not been effective. The policy was open to 

multiple interpretations. Written guidance relative to civil money penalties as a result of 

BSN AML violations is not adequate. 

The overall quality ofBSNAML supervision in OCC's two lines of business (large and 

midsize/community banks) has shown improvement, but remains marginally adequate. The 

initial period of review (2000-2003) revealed that the quality ofBSN AML supervision was 

inadequate. That review showed that banks failed 10 correct BSN AML program deficiencies in 

respollse to formal or informal supervisory activities in 40"10 of sample banks. 

Completion of the review team's update of OCC BSNAML supervisory efforts in sample banks 

through 03/31/05 reveals that the percentage of banks failing to correct their BSNAML program 

-3-

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760611.083

deficiencies has been reduced to 22%. This is the result of more recent supervisol)' efforts 

cond!'cted in 2004 and year-ta-date 2005. The reduced percentage from 40% to 22% also 

includes non-responsive banks from the initial sample that failed or converted charters (8%) and 

banks in which correction has been reported, but not yet testedlvalidated by OCC (5%). 

This report does not suggest that these banks are engaging in money laundering and/or terrorist 

financing, but the results of this review indicate that the BSAlAML program requirements 

outlined in 12 C.F.R. § 21.21 have not been fully met by 22% of the sample banks previously 

mentioned. Program deficiencies identified during this review are most frequently attributed to 

banks' failures to establish systems ofintemal controls, insufficient BSAlAML training for bank 

employees, and/or weaknesses in account monitoring or audit 

The following points support the review team's conclusions about the quality ofBSAlAML 

supervision in OCC's two lines of business. 

• In 22% of the sample as noted above, banks have been given multiple opportunities and 

extended periods of time to implement effective BSAlAML programs. OCe's initial 

supervisory actions have not always been severe enough to ensure timely correction of 

BSAI AML program deficiencies and subsequent follow-up actions have not always been 

timely or effective. Examples of this can be found in large banks, mid-size banks, and 

community banks. 

• Competing priorities and high demands for BSAI AML staff contribute to untimely or 

ineffective follow-up or delayed examination activities. Staffing deficiencies, related to 

shortfalls in the number of resources available, are most pronounced in large banks. 

While OCC completed a reorganization of compliance staff in 2004, which included 

examiners with BSAlAML expertise, limited resources in terms of both the number of 

staff and level of expertise continue to be problematic. 

• BSAI AML examination guidance is not consistently applied in all OCC lines of business. 

Transaction testing is not always effective and risk identification processes in 

examination preplanning are not consistently applied. 

It should be noted that conclusions from this sample are only based on what examiners identified 

and documented during their examinations. The review team did not conduct additional 

examinations of the sample banks; therefore no judgments were made as to whether examiners 

properly identified BSAlAML deficiencies during examinations. Because the community bank 

sample was designed to include banks with identified BSAlAML program deficiencies and not to 

represent a statistically sound sample, it would not be accurate to extrapolate the results of this 

review across the entire community bank population. It is also not accurate to conclude that this 

sample captures all community banks with BSAI AML program deficiencies, because the review 

team did not test examiners' accuracy in identifying and documenting BSAlAML program 

deficiencies. 

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Review findings and areas for OCC management consideration, 

Enforcement actions -12 CF.R. § 21.21 violations - Stronger supervisory action was 

warranted, andlor was warranted sooner, in eight of twenty-four community banks (33%), one of 

six mid-size banks sampled (17%) and one of six large banks sampled (17%), 

The community bank sample was limited to twenty-four banks in which 12 C,P,R, § 21,21 

violations had been cited, After completing all three phases of this project, the review team 

concludes that enforcement actions, or inactions, completed through March 2005 have been 

appropriate in all but four of the community banks sampled. However, in addition to these four 

banks, representing 17% of the community bank sample, stronger supervisory action was 

warranted sooner in an additional four community banks, While there is a strong policy 

presumption that Orders to Cease and Desist would be issued in these each of the community 

banks sampled, C & Ds were issued in only four banks (17%). Pormal Agreements were issued 

in another eight banks (33%), A S&S Order and a MOU were issued in two additional banks, In 

the remaining ten banks, either MRAs were included in the ROE, or no action was taken. 

It is also noteworthy that bank management has been slow in addressing BSAlAML program 

deficiencies and OCC has monitored deficiencies for an extended period of time in the mid-size 

bank and large bank mentioned previously, as well as in two additional mid-size banks and three 

additional large banks. 

Supervisory Review Committees - There is inconsistent treatment of banks with 12 C,F.R. § 

21.21 violations relative to presentations at Supervisory Review Committees. One benefit of 

SRC is to ensure consistency in supervision, particularly relative to potential enforcement action. 

In fact, Supervisory Review Committees are an important component of OCC's bank supervision 

quality control process. OCC's delegation of authority matrix for mid-size/community banks 

outlines requirements for presentation to SRC, The matrix requires SRC review of bank 

enforcement actions addressing BSA violations, The review team noted three community banks 

in which 12 C,F.R, § 21.21 violations were cited and the review team believes DSRC review 

was warranted, but the banks were not presented to DSRC, A fourth community bank was just 

recently presented to DSRC, but should have been presented sooner. In addition, nine 

community banks with 12 C.P,R, § 21.21 violations were not presented to WSRC and should 

have been, The review team also believes that supervision could have been strengthened by SRC 

review offive of the six mid-size banks sampled, and three of the six large banks sampled, for 

potential violations of 12 CPR § 21.21 to ensure OCC's consistent supervisory treatment of 

violations and enforcement actions. 

Examiners report that banks were not presented to District SRC for several reasons, In some 

cases, this is attributed to the technical or minor nature of violations, the banks' willingness to 

correct violations, the low BSAlAML risk associated with the banks, andlor documentation 

errors. In these cases, the review team agrees that SRC review was not warranted, and these 

banks have not been included in the statistics above, Por situations in which violations were 

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included in Reports of Examination but were not presented to District or Washington SRC, 

examiners indicate that they consulted with district compliance experts, compliance liaisons, 

andlor District or Washington legal staff. 

Follow-up activities and use of Matters Requiring Attention (MRA.) - The sample reveals that 

OCC follow-up relative to BSAlAML violations and/or MRAs was ineffective at times, however 

improvement is noted in the past one to two years, particularly in large and mid-size banks. 

With OCC's increased emphasis on BSAlAML supervision in 2004 and year-to-date 2005, 

follow-up has improved in all OCC lines of business. The review team did not find any recent 

examples of failure to follow-up on identified BSAI AML program deficiencies, however recent 

follow-up has not included testing/validation in two of the six sample mid-size banks. Weak or 

ineffective follow-up during some period was in evidence in 42% of the sample banks including 

eight community banks, four mid-size banks, and three large banks. To strengthen OCC followup, the review team recommends development of a tracking system for BSAI AML violations and 

Matters Requiring Attention for banks in all OCC lines of business. 

Staffing - Staffing levels, expertise and availability playa major role in the adequacy of 

BSAI AML supervision, especially in Large Banks. Staffing is an ongoing problem for certain 

banks. There is evidence of delayed or cancelled activities in large and mid-size banks due to 

insufficient andlor redirected staff to higher priority areas. 

BSAlAML examination procedMres and transactional testing - Full examination procedures are 

not routinely completed in large banks and BSAlAML examination procedures across other lines 

of business are not consistently applied. One-half of the large bank EICs sampled report that 

procedures are considered too extensive to complete within a three-year cycle based on current 

resident staffing and the complexity and geographic diversity of their banks. In these cases, EICs 

select offices or lines of business posing the greatest BSAlAML risk for examination. Also, 

BSAI AML examination procedures are not consistently applied. The review team noted this in 

50% of the large bank sample and in one mid-size bank sampled. FinCEN download analysis is 

not being used consistently in examination pre-planning to aid the selection process for 

transactional testing. 

Consolidation ofOCC'. BSAlAML guidance - There is a large quantity of guidance, issued 

through both fonnal publications and more infonnal methods, that is cumbersome to incorporate 

during the examination process. To help examiners with effective use of these sources, the 

review team suggests centralization of guidance in one place for ease of reference. 

Enhancements to the revised BSAlAML handbook - As OCC participates in the FFIEC 

initiative to update the BSAI AML handbook, the review team recommends the following 

enhancements: 

• Consideration should be given to how procedures address the continuous supervision 

methodology practiced in the largest national banks 

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• Examiners could also benefit from more direction on how their conclusions about 

BSN AML compliance link to conclusions addressing bank-wide compliance 

management systems, compliance and management ratings, and bank-wide risk 

assessments. 

General guidance on the sample selection methodology and expectations for BSNAML 

transactional testing should be clarified and/or expanded. 

Because proposed FFIEC revisions to the BSN AML handbook do not currently address these 

recommendations, OCC may need to develop supplemental guidance specific to this agency that 

addresses these recommendations. 

Improved guidance addressing BSAlAML enforcement policies, violations of 12 C.F.R § 

21.21, and civil money penalties - OCC's internal examiner guidance on citing violations of 12 

C.F.R. § 21.21, prior to November 2004 revisions, was open to multiple interpretations. 

Guidance contributed to examiner confusion and misleading and/or ineffective communications 

to banks. The November 2004 revisions are effective in providing more specific guidance. 

OCC's existing civil money penalty matrix is not well suited for assessing the severity of 

violations relative to BSNAML systems in banks. Existing civil money penalty guidance is 

directed toward individuals and not institutions. The review team recommends the development 

of a civil money penalty matrix directed toward institutions that would be more applicable to 

compliance-related violations of BSN AML. 

Risk identification - The OCC could strengthen BSN AML risk identification processes through 

the use of more sophisticated analytical tools and more consistent application of existing tools. 

Quality assurance - The review team suggests that OCC establish quality assurance for 

BSNAML supervision. 

Examiner expertise - Development and retention of examiner expertise relative to BSAlAML 

will remain key. Ensuring a sufficient number of examiners to meet BSN AML supervisory 

responsibilities is of equal importance. The reputation risk is high for both banks and for the 

OCC relative to BSNAML when prioritizing supervisory objectives/strategies, as is the ongoing 

need for examiner knowledge and expertise in fulfilling those objectives. The review team 

supports efforts that are already underway at OCC to address staffing. 

Compliance ratings - In order to effectively capture the risks associated with BSNAML, a 

review of the written definitions contained in the Compliance Rating System is warranted. 

Compliance ratings would be more meaningful and accurate if the definitions incorporated 

BSN AML compliance considerations. The five-point rating system, developed in 1980, is 

geared to more traditional consumer protection regulations, such as Regulation Z and Regulation 

B, but is silent relative to BSNAML compliance issues. Since the compliance rating system was 

developed as a FFIEC initiative, OCC cannot modify the ratings outside ofFFIEC. However, 

the review team encourages OCC efforts to work within the FFIEC framework to update these 

ratings to incorporate BSAlAML compliance considerations. 

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SCOPE AND OBJECTIVES 

On May 20, 2004, Comptroller of the Currency John D. Hawke, Jr. issued an engagement 

memorandum to Ronald A. Lindhart, Director of the Quality Management Division. The 

Comptroller outlined objectives for a review and evaluation of the OCC's Bank Secrecy Act and 

anti-money laundering (BSNAML) supervision at Riggs Bank, N.A., as well as a general 

assessment of the quality ofOCC's overall BSNAML compliance supervision. 

In an August 8, 2004 letter to Deputy Chief Counsel Daniel P. Stipano, U.S. Attorney Kenneth 

L. Wainstein requested that the OCC cease certain review activities relating to BSNAML 

violations at Riggs Bank, N.A. However, review and evaluation of objectives unrelated to Riggs 

Bank, N.A. continued. 

The review was conducted in three phases and the results of all phases are contained in this 

report. The objectives of each phase follow. 

Phase One Objective 

• As a result of the review, provide the Comptroller with any interim recommendations for 

improvements in the effectiveness of OCC's BSNAML supervision and enforcement 

policy with regard to BSNAML violations. This was completed September 15, 2004. 

Phase Two Objective 

• Perform a general assessment of the quality of OCC's BSN AML compliance supervision 

and determine whether there are other banks under OCC supervision that have failed to 

respond on a timely basis to OCC BSN AML supervisory actions. This was completed 

January 11,2005, based on a review covering supervision from 1999 to 2003. 

Phase Three Objective 

• Update the current status and draw conclusions relative to the effectiveness of the most 

recent OCC BSN AML supervisory actions and bank responses to those actions in the 

sample banks reviewed to meet the Phase Two objective. This review covers supervision 

from 2004 through March 31, 2005. 

In order to meet the Phase Two objective, the review team sampled select banks from each OCC 

line of business to assess the quality of supervision and to determine if banks have failed to 

respond to OCC's supervisory actions. 

The review team analyzed the supervisory record contained in OCC's Examiner View electronic 

system (EV) for twenty-four community banks. The community bank sample included banks in 

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which 12 C,F,R, § 2L21 violations had been identified since 2001 and/or repeat 12 CFR § 21,21 

violations had been identified since 1999, The review team supplemented the community bank 

review with phone calls and/or follow-up information requests to the respective supervisory 

offices, 

For the six mid-size banks and the six large banks sampled, the review team requested EICs of 

these banks to complete a questionnaire (contained in the Appendix) addressing BSAlAML 

supervision, These banks were selected in a combination of ways, In some cases, the 

supervisory office requested banks to be included in the sample, In other cases, the review team 

selected banks based on the significance of BSAI AML issues in the banks andlor tbe geographic 

location of the bank. The review team also conducted phone interviews with EICs and/or their 

designated staff to supplement information provided in the questionnaire, 

To complete the Phase Three objective, the review team again interviewed all large bank and 

mid-size bank EICs and their select staff members relative to the current status of their 

supervisory efforts, The review team provided each EIC witb a standard set of questions tbat 

were discussed during follow-up pbone interviews (contained in the Appendix), In some cases, 

at their option, the EICs also provided the review team with written answers to the questions, 

For community banks, the review team investigated detailed documentation contained in 

Examiner View for each of the twenty-four sample banks, The current status of supervisory 

efforts in each community bank was researched and documented, A spreadsheet containing 

summary conclusions resulting from the review of all sample banks is included in the Appendix, 

It should be noted that conclusions from this sample are only based on what examiners identified 

and documented during their examinations, The review team did not conduct additional 

examinations ofthe sample banks; therefore no judgments were made as to whether examiners 

properly identified BSAlAML deficiencies during examinations, Because the community bank 

sample was designed to include banks with identified BSAlAML program deficiencies and not to 

represent a statistically sound sample, it would not be accurate to extrapolate the results of this 

review across the entire community bank population, It is also not accurate to conclude that this 

sample captures all community banks with BSAlAML program defIciencies, because the review 

team did not test examiners' accuracy in identifying and documenting BSAlAML program 

deficiencies. 

The review team did not include a specific review for USA PATRIOT Act compliance in the 

sample banks, This was excluded for two reasons, The engagement memorandum from the 

Comptroller did not request this review. Secondly, much of the work relative to USA 

PATRIOT Act compliance was still underway in several of the sample banks when this review 

commenced. A review at this time would have been premature, 

At the conclusion of this review, members of the Committee on Bank Supervision and OCC's 

Acting Chief Counsel were invited to provide responsive written comments for inclusion in the 

Appendix of this report, No written comments were submitted. 

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BACKGROUND 

The cornerstone of the federal government's anti-money laundering (AML) efforts is the Bank 

Secrecy Act (BSA). Enacted in 1970, the BSA is primarily a recordkeeping and reporting statute 

that is designed to ensure that banks and other financial institutions provide relevant infonnation 

to law enforcement in a timely fashion. The BSA has been amended several times, most recently 

through passage of the USA PATRIOT Act. Both the Secretary of the Treasury, through the 

Financial Crimes Enforcement Network (FinCEN), and the federal banking agencies, have 

issued regulations implementing the BSA, including regulations requiring all banks to have a 

BSA compliance program, and to file reports such as suspicious activity reports (SARs) and 

currency transaction reports (CTRs). 

Primary responsibility for compliance with the BSA and the AML statutes rests with the nation's 

financial institutions themselves. The oce and.the other federal banking .gencies are charged 

with ensuring that the institutions under their supervision have strong AML programs in place to 

identify and report suspicious transactions to law enforcement, and that such reports are, in fact, 

made. OCC's supervisory processes seek to ensure that banks have systems and controls in place 

to prevent their involvement in money laundering, and that they provide the types of reports to 

law enforcement that the law enforcement agencies, in tum, need in order to investigate 

suspicious transactions that are reported. 

To .ccomplish those supervisory responsibilities, the OCC conducts regular examinations of 

national banks and federal branches and agencies of foreign banks in the United States. These 

examinations cover all aspects of the institution's operations, including compliance with the 

BSA, ExamilJ,ation resources are concentrated on those institutions. and areas within institutions, 

of highest risk. In cases of noncompliance, the OCC has broad investigative and enforcement 

authority to address the problem. 

OCC participates in a variety of interagency working groups th.t include representatives of the 

Treasury Department, law enforcement, and the other federal banking agencies. OCC also works 

with the FBI and other criminal investigative agencies, providing them with documents, 

infonn.tion, and expertise on a case-specific basis. In addition, when OCC is provided with lead 

information from a law enforcement agency, OCC uses that information to investigate furtber to 

ensure that BSA compliance systems are adequate. 

Legal Framework 

In 1970, Congress passed the "Currency and Foreign Transactions Reporting Act" otherwise 

known as the "Bank Secrecy Act" (BSA), which established requirements for recordkeeping and 

reporting by private individuals, banks and other financial institutions. The BSA was designed to 

help identify the source, volume and movement of currency and other monetary instruments into 

or out of the United States or being deposited in financial institutions. The statute sought to 

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achieve that objective by requiring individuals, banks and other financial institutions to create a 

paper trail by keeping records and filing reports of certain financial transactions and of unusual 

currency transfers. This information then enables law enforcement and regulatory agencies to 

pursue investigations of criminal, tax and regulatory violations. 

The BSA regulations require all financial institutions to submit various reports to the 

government The most common of these reports are: (I) FinCEN Form 104 (formerly IRS Form 

4789) - Currency Transaction Report (CTR) for each payment or transfer, by, through or to a 

financial institution, which involves a transaction in currency of more than $10,000; and (2) 

FinCEN Form 105 (formerly Customs Form 4790) - Report ofInternational Transportation of 

Currency or Monetary Instruments (CMIR) for each person who physically transports monetary 

instruments in an aggregate amount exceeding $10,000 into or out of the United States. Bank 

supervisors are not responsible for investigating or prosecuting violations of criminal law that 

may be indicated by the information contained in these reports; they are, however, charged with 

assuring that the requisite reports are filed timely and accurately. 

The Money Laundering Control Act of 1986 precludes circumvention of the BSA requirements 

by imposing criminal liability for a person or institution that knowingly assists in the laundering 

of money, orwho structures transactions to avoid reporting. It also directed banks to establish 

and maintain procedures reasonably designed to assure and monitor compliance with the 

reporting and recordkeeping requirements of the BSA. As a result, on January 27,1987, all 

federal bank regulatory agencies issued essentially similar regulations requiring banks to develop 

procedures for BSA compliance. The OCC's regulation requiring that every national bank 

maintain an effective BSA compliance program is set forth at 12 C.F.R. § 21.21 and is described 

in more detail below. 

Together, the BSA and the Money Laundering Control Act charge the bank regulatory agencies 

with: 

• overseeing banks' compliance with the regulations described, which direct banks to 

establish and maintain a BSA compliance program; 

• requiring that each examination includes a review of this program and describes any 

problems detected in the agencies' report of examination; 

• taking Cease & Desist actions if the agency determines that the bank has either failed to 

establish the required compliance program or has failed to correct any problem with the 

program which was previously cited by the agency. 

The Annunzio-Wylie Anti-Money Laundering Act, which was enacted in 1992, strengthened the 

sanctions for BSA violations and the role of the Treasury Department. It contained the following 

provisions: 

• a so-called "death penalty" sanction, which authorized the revocation of the charter of a 

bank convicted of money laundering or of a criminal violation of the BSA; 

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• an authorization for Treasury to require the filing of suspicious-transaction reports by 

financial institutions; 

• the grant of a "safe harbor" against civil liability to persons who report suspicious 

activity; and 

• an authorization for Treasury to issue regulations requiring all financial institutions, as 

defined in BSA regulations, to maintain "minimum standards" of an AML program. 

Two years later, Congress passed the Money Laundering Suppression Act, which primarily 

addressed Treasury's role in combating money laundering. This statute: 

• directedIre~ptto.reduJ:etbe.m.lmh.eultCIRJ'ilingsJl}'_30 percent and, tQ 

assist in this effort, it established a system of mandatory and discretionary exemptions for 

banks; 

• required Treasury to designate a single agency to receive SARs; 

• required Treasury to delegate CMP powers for BSA violations to the federal bank 

regulatory agencies subject to such terms and conditions as Treasury may require; 

• required nonbank financial institutions to register with Treasury; and 

• created a safe harbor from penalties for banks that use mandatory and discretionary 

exemptions in accordance with Treasury directives. 

Finally, in 2001, as a result of the 9/11 terrorist attacks, Congress passed the USA PATRIOT 

Act. Among other things, the PATRIOT Act augmented the existing BSA framework by 

prohibiting banks from engaging in business with foreign shen banks, requiring banks to enhance 

their due diligence procedures concerning foreign correspondent and private banking accounts, 

and strengthening their customer identification procedures. The PATRIOT Act also: 

provides the Secretary ofthe Treasury with the authority to impose special measures on 

jurisdictions, institutions, or transactions that are of"primary money-laundering 

concern"~ 

• facilitates records access and requires banks to respond to regulatory requests for 

information within 120 hours; 

• requires regulatory agencies to evaluate an institution's A1v1L record when considering 

bank mergers, acquisitions, and other applications for business combinations~ 

• expands the AML program requirements to all financial institutions; and 

• increases the civil and criminal penalties for money laundering. 

The OCC and the other federat banking agencies have issued two virtually identical regulations 

designed to ensure compliance with the BSA. The OCC's BSA compliance regulation, 12 C.F.R. 

§ 21.21, requires every national bank to have a written program, approved by the board of 

directors, and reflected in the minutes of the bank. The program must be reasonably designed to 

assure and monitor compliance with the BSA and must, at a minimum: 

(I) provide for a system of internal controls to assure ongoing compliance; 

(2) provide for independent testing for compliance; 

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(3) designate an individual responsible for coordinating and monitoring day-to-<lay 

compliance; and 

(4) provide training for appropriate personnel. 

In addition, the implementing regulation for section 326 of the PATRIDT Act requires that every 

bank adopt a customer identification program as part of its BSA compliance program. 

The DCC's SARregulation, 12 c.P.R. § 21.11, requires every national bank to file a SAR when 

they detect certain known or suspected violations offederallaw or suspicious transactions 

related to a money laundering activity or a violation of the BSA. This regulation mandates a 

SA.Il filing for any potential cri",,,,, .. (l)..imlOl¥inginsider abuse regardless oflbe dollar amount; 

(2) where there is an identifiable suspect and the transaction involves $5,000 or more; and (3) 

where there is no identifiable suspect and the transaction involves $25,000 or more. Additionally, 

the regulation requires a SAR filing in the case of suspicious activity that is indicative of 

potential money laundering or BSA violations and the transaction involves $5,000 or more. 

Supervision and Enforcement 

The DCC' s core mission is the supervision of national banks and their subsidiaries, federal 

branches and agencies of foreign banks!, national trust companies, bank data software vendors, 

and data processing service providers. The supervisory process also consists of activities to 

identify, analyze, and respond to emerging systemic risks and trends that could affect an 

individual national bank or the entire national banking system. 

The Committee on Bank Supervision establishes and oversees areas of emphasis for the DCC's 

supervisory activities. The comntittee is comprised of three senior bank supervision officials: the 

Chief National Bank Examiner and the senior deputy comptrollers for Large Bank Supervision 

and Mid-size/Community Bank Supervision. 

The Senior Deputy Comptroller for Large Bank Supervision is responsible for supervising the 25 

largest and most complex national banking companies, using teams of dedicated onsite 

examiners. The Senior Deputy Comptroller for Mid-size/Community Bank Supervision is 

responsible for supervising the 24 banking companies in the DCC's ntid-size bank program, as 

well as all community banks, credit card banks, and federal branches and agencies. 

Effective bank supervision requires clear communications between the DCC and the bank's 

senior management and board of directors. A Report of Examination documents the DCC's 

findings and conclusions with respect to its supervisory review of a bank. Dnce problems or 

weaknesses are identified and communicated to the bank, as a matter requiring attention (MRA), 

the bank's senior management and board of directors are expected to promptly COlTect them. The 

I federa1 branches and agencies are branches and agencies licensed by the oce and opernted by foreign banking 

organizations. Federal agencies are offices that engage in the business ofbanking but do not accept deposits or 

exercise fiduciary powers. 

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actions that a bank takes, or agrees to take, to correct deficiencies documented in its Report of 

Examination are important factors in determining whether more forceful action is needed. 

Enforcement actions fall into two broad categories: informal and formal. In general, informal 

actions are used when the identified problems are of limited scope and magnitude and bank 

management is regarded as both committed and capable of correcting them. These enforcement 

actions provide a bank with more explicit guidance and direction than is normally contained in a 

Report of Examination. Informal actions include commitment letters, memoranda of 

understanding and matters requiring board attention in examination reports.' These generally are 

not public actions. 

Unlike most informal actions, formal enforcement actions are authorized by statute, are generally 

more severe, and are disclosed to the public. Formal actions against a bank include Cease & 

Desist (C&D) orders, formal written agreements and Civil Money Penalties (CMPs). C&D 

orders and formal agreements are generally entered into consensually by the DCC and the bank 

and require the bank to take certain actions to correct identified deficiencies. The DCC may also 

take formal action against officers, directors and other individuals associated with an institution 

(institution-affiliated parties). Possible actions against institution-affiliated parties include 

removal and prohibition from participation in the banking industry, CMPs and C&D orders. 

In the BSA area, the DCC's CMP authority is concurrent with that ofFinCEN. In cases 

involving systemic noncompliance with the BSA, in addition to taking its own actions, the DCC 

refers the matter to FinCEN. 

Suoervision Review Committees 

The senior deputy comptrollers for Large Bank Supervision and for Mid-size/Community Bank 

Supervision have the primary responsibility to use the DCC's enforcement authority under 12 

USC § 1818 as necessary to accomplish the DCC's supervisory objectives. In many cases they 

have delegated the authority to initiate, negotiate, execute, modify, and terminate enforcement 

actions. Generally, the EIC is responsible for initially recommending the use of an enforcement 

action. District and Large Bank deputy comptrollers are responsible for deciding most 

enforcement action recommendations against banks under their supervision. 

To assist with these decisions, the senior deputy comptrollers appoint a Washington Supervision 

Review Committee (WSRC). In addition, each district deputy comptroller appoints a District 

Supervision Review Committee (DSRC). The supervision review committees' (SRC) role is to 

help ensure that DCC bank supervision and enforcement policies are applied effectively and 

consistently, and to advise the senior deputy comptrollers or the deputy comptrollers by 

providing recommendations on supervisory strategies and enforcement actions. 

2 Informal and fonnal enforcement actions are defined in the Appendix of this Report. 

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FINDINGS AND RECOMMENDATIONS 

DCC's BSAlAML overall policy guidance is generally adequate, except as follows: More 

specific guidance in examination policy is needed with respect to transaction testing and 

examination guidance is difficult to apply in the largest national banks. Enforcement policy 

guidance, prior to November 2004 revisions, had not been effective. The policy was inconsistent 

with statutory guidance and was open to multiple interpretations. Written guidance relative to 

civil money penalties as a result of BSAI AML violations is not adequate. 

The overall quality ofBSAlAML supervision in DCC's two lines of business (large and 

midsize/community banks) has shown improvement, but remains marginally adequate. The 

initial period of review (2000-2003) revealed that the quality ofBSAlAML supervision was 

inadequate. That review showed that banks failed to correct BSAlAML program deficiencies in 

response to formal or informal supervisory activities in 40% of sample banks. 

Completion of the Phase Three objective reveals that the percentage of banks failing to correct 

their BSAlAML program deficiencies has been reduced to 22%. This is the result of more recent 

supervisory efforts conducted in 2004 and year-ta-date 2005. The reduced percentage from 40% 

to 22% also includes non-responsive banks from the initial sample that failed or converted 

charters (8%) and banks in which correction has been reported, but not yet tested/validated by 

OCC(5%). 

This report does not suggest that these banks are engaging in money laundering and/or terrorist 

financing, but the results of this review indicate that the BSAI AML program requirements 

outlined in 12 C.F.R. § 21.21 have not been fully met by 22% of the sample banks previously 

mentioned. Program deficiencies identified during this review are most frequently attributed to 

banks' failures to establish systems ofinternal controls, insufficient BSAlAML training for bank 

employees, and/or weaknesses in account monitoring or audit. 

The following points support the review team's conclusions about the quality ofBSAlAML 

supervision in OCC's two lines of business. 

• In 22% of the sample as noted above, banks have been given multiple opportunities and 

extended periods of time to implement effective BSAlAML programs. OCC's initial 

supervisory actions have not always been severe enough to ensure timely correction of 

BSAI AML program deficiencies and subsequent follow-up actions have not always been 

timely or effective. Examples of this can be found in large banks, mid-size banks, and 

community banks. 

• Competing priorities and high demands for BSAI AML staff contribute to untimely or 

ineffective follow-up or delayed examination activities. Staffing deficiencies, related to 

shortfalls in the number of resources available, are most pronounced in large banks. EICs 

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in 83% of the large banks sampled and 50% of the mid-size banks sampled report 

difficulties with staffing. While OCC completed a reorganization of compliance staff in 

2004, which included examiners with BSN AML expertise, limited resources in terms of 

both the number of staff and level of expertise continue to be problematic. 

• BSN AML examination guidance is not consistently applied in all OCC lines of business. 

Transaction testing is not always effective and risk identification processes in 

"",ami nation preplanning are not consistently applied. 

OCC actions are already underway addressing many findings and recommendations contained in 

this report These actions are.detailedin the Committee_onBank.BupeMMon BSA/AMl 

Operating Plan that is included in the Appendix. Other findings contained in this report include 

recommendations for additional actions that the review team believes should be undertaken. 

The review tearn has identified the following six priority areas for consideration. 

1. The review team's analysis ofBSAlAML supervision in a select sample of banks from each 

oee line of business reveals weaknesses deserving co"ective attention. There are banks 

supervised by the oee with significant BSAI AML program deficiencies that have not been 

fully addressed Some oee actions are already underway to address supervisory weaknesses, 

but further work is needed 

Key areas discussed below include: 

• Enforcement actions - 12 C.F.R. § 21.21 vi\llations, 

• Follow-up activities and use of Matters Requiring Attention (MRAs), 

• Staffing, and 

• BSN AML examination procedures and transactional testing. 

Enforcement actions - 12 C.F.R. § 21.21 violations 

Stronger supervisory action was warranted, and/or was warranted sooner, in eight of twentyfour community banks (33%), one of six mid-size banks sampled (/7%) and one of six large 

banks sampled (17%). 

The community bank sample was limited to twenty-four banks in which 12 C.F.R. § 21.21 

violations had been cited. After completing the phase three objective of this project, the review 

team concludes that enforcement actions, or inactions, taken through March 2005 have been 

appropriate in all but four of the community banks sampled. However, in addition to these four 

banks, representing 17% of the community bank sample, strenger supervisory action was 

warranted sooner in an additional four community banh While there is a strong policy 

presumption that Orders to Cease and Desist would be issued in these each of the community 

banks sampled, C & Ds were issued in only four banks (17%). Formal Agreements were issued 

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in another eight banks (33%). A S&S Order and a MOU were issued in two additional banks. In 

the remaining ten banks, either MRAs were included in the ROE, or no action was taken. 

It is also noteworthy that bank management has been slow in addressing BSAlAML program 

deficiencies and OCC has monitored deficiencies for an extended period of time in the mid-size 

bank and large bank mentioned previously, as well as in two additional mid-size banks and three 

additional large banks. 

There is inconsistent treatment o/bankswith 12 C.F.R § 21.21 violations relative to 

presentations at Supervisory Review Committees. One benefit of SRC is to ensure consistency in 

supervision, particulady relative to potentiaLenfrucement.action......ln.fapeodsory.Re;ci.ew 

Committees are an important component ofOCC's bank supervision quality control process. 

OCC's delegation of authority matrix for mid-size/community banks outlines requirements for 

presentation to SRC. The matrix requires SRC review of bank enforcement actions addressing 

BSA violations. The review team noted three community banks in which 12 C.F.R. § 21.21 

violations were cited and the review team believes DSRC review was warranted, but the banks 

were not presented to DSRC. A fourth community bank was just recently presented to DSRC, 

but should have been presented sooner. In addition, nine community banks with 12 C.F.R. § 

21.21 violations were not presented to WSRC and should have been. The review team also 

believes that supervision could have been strengthened by SRC review of five of the six mid-size 

banks sampled, and three of the six large banks sampled, for potential violations of 12 CFR § 

21.21 to ensure oce's consistent supervisory treatment of violations and enforcement actions. 

Examiners report that banks were not presented to District SRC for several reasons. In five 

community banks sampled (21%), the violations were reported in EV but not in Reports of 

Examination. This was attributed to the technical or minor nature of violations, the banks' 

willingness to correct violations, the low BSAlAML risk associated with the banks, and/or 

documentation errors. In these cases, the review team agrees that SRC review was not 

warranted, and these banks have not been included in the statistics above. For situations in 

which violations were included in Reports of Examination but were not presented to District or 

Washington SRC, examiners indicate that they consulted with district compliance experts, 

compliance liaisons, and/or District or Washington legal staff and were advised that 

presentations were not needed because additional supervisory actions were not warranted or 

would not be taken. 

Follow-up activities and use of Matters Requiring Attention (MRAs) 

The sample reveals that aCC/ollow-up relative to BSA/AAfL violations and/or MRAs war 

ineffective at times, however improvement is noted in the past one to two years, particularly in 

large and mid-size banks. With OCC's increased emphasis on BSAI AML supervision in 2004 

and year-to-<late 2005, follow-up has improved in all OCC lines of business. The review tearn 

did not fmd any recent examples of failure to follow-up on identifIed BSAlAML program 

deficiencies, however recent follow-up has not included testing/validation in two of the six 

sample mid-size banks. Weak or ineffective follow-up during some period was in evidence in 

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42% of the sample banks including eight community banks, four mid-size banks, and three large 

banks. 

To strengthen OCC follow-up, the review team recommends development of a tracking system 

for BSAlAML violations and Matters Requiring Attention for banks in all OCC lines of 

business. The tracking system should also monitor banks with "weak" BSA compliance 

management systems. Follow-up could also be more effective with clear guidelines surrounding 

use ofMRAs. The use ofMRA comments to address BSAlAML issues in Reports of 

Examination is not consistent among banks. (See Appendix for details.) This is true even 

within specific lines of business. While BSA violations and MRAs in community and mid-size 

banks are (QJJrine1y enteredintoEV the review team.fuundJhatrn.~~oLclased.QlJ1 

in EV. This generally happened because follow-up was lacking, or despite follow-up activities, 

the issue remained outstanding or the examiner failed to closeout the item in EY. Also, MRAs 

addressing BSAlAML should clearly be labeled as such. The review team found items in EV 

that were categorized as compliance management, when the deficiency was specific to 

BSAIAML. 

Staffing levels, expertise and availability play a major role in the adequacy of BSA/AML 

supervision, especially in Large Banks. Staffing is an ongoing problem for certain banks. There 

is evidence of delayed or cancelled activities due to insufficient and/or redirected staff to higher 

priority areas (other banks with higher BSAlAML risk or officeslbusiness lines within the same 

bank with higher BSAlAML risk). This is particularly evident in large and mid-size banks. 

BSAI AML examination procedures and transactional testing 

Full examination procedures are not routinely completed in large banks and BSA/AML 

examination procedures across other lines of business are not conslstently applied One-half of 

the large bank ETCs sampled report that procedures are considered too extensive to complete 

within a three-year cycle based on current staffing and the complexity and geographic diversity 

of their banks. In these cases, EICs select offices or lines of business posing the greatest 

BSAlAML risk for examination. 

BSAI AML examination procedures are not consistently applied; most notably in the areas of 

testing and validation. The review team noted inconsistent use of examination procedures in 

50% of the large bank sample and in one mid-size bank sampled. Applying risk-based 

supervision, ETCs typically determine what procedures to use during examinations. Also, based 

on documentation reviewed and phone interviews conducted by the review team, FinCEN 

download analysis is not being used consistently in examination pre-planning to aid the selection 

process for transactional testing. 

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2. BSA/AML examination and enforcement policies need to address some areas and haw, 

recently addressed other areas to provide more examiner guidance and to ensure accuracy and 

consistency in examiner application. 

Key areas discussed below include: 

• Consolidation ofOCC's BSAlAML guidance, 

• Enhancements to the revised BSAI AML handbook, and 

• Improved guidance addressing BSAlAML enforcement policies, violations of 12 C.F.R. § 

21.21, and civil money penalties. 

There is a large quantity of guidance, issued through both formal publications and more 

informal methods, that is cumbersome to incorporate during the examination process. The 

guidance takes a variety of forms, including handbooks, interpretations, PPMs, Advisories, and 

Bulletins, as well as informal memos and e-mails.Toillustrate. the Appendix contains a detailed 

listing of guidance relating to BSAI AML. 

To help examiners with effective use of these sources, the review tearn suggests centralization of 

guidance in one place for ease of reference. Guidance could be indexed and available to 

examiners through one resource or one intranet location. Doing so is increasingly important with 

the 2004 compliance structure realignment as it may add challenges to the communication of 

relevant compliance policy, procedures, and expectations. Since the commencement of this 

review, acc has created a new intranet website titled "Combating Money Laundering and 

Terrorist Financing." This site contains links to OCC's internet site including several 

information sources such as policies, regulations, other agencies, and enforcement actions, The 

site is more comprehensive than previous acc web sites dedicated to BSAI AML, however it 

does not contain non-public guidance that may be used internally by examiners. The updated 

BSAlAML handbook (discussed below) may also result in consolidation. of some guidance 

reflecting changes since the existing handbook was issued in 2000. 

Enhancements to the revised BSAlAML handbook 

As acc participates ill the FFlEC initiative to update the BSAIAML handbook, the review team 

recommends the following enhancements: 

• Consideration should be given to how procedures address the continuous superviSion 

methodology practiced in the largest national banks. Currently, examination procedures 

are tailored to a holistic assessment of BSAlAML compliance during a single 

examination event. These procedures are difficult to apply in the largest banks under 

continuous supervision. Revised procedures need to provide guidance that will direct 

examiners to aggregate information from targeted reviews, as well as any general system 

reviews, to assess and opine on the quality of institutions' bank-wide baseline BSAI AML 

systems. Examiners in acC's largest banks report that they are unable to fully complete 

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examination procedures, using a risk-based supervisory approach, within the three-year 

supervisory cycle to draw conclusions about the quality ofBSAlAML systems bankwide. The extensiveness of bank operations, coupled with staffing constraints, make 

application of existing procedures difficult. Currently, examiners in the largest banks 

apply procedures to the highest risk offices andlor lines of business, but are unable to 

apply the procedures to all areas of the bank. The review team recommends that the 

policy revision working group seek large bank examiner input to address these 

difficulties. Draft revisions to the handbook procedures (in process through FFIEC) do 

not offer specific guidance for drawing overall conclusions based on results from several 

targeted examinations. The handbook revisions are also not responsive to concerns 

associated with BSA/~tintlO1IS S1JPerylsioninJhe_lar.gest..nationaLb~ 

• Examiners cauld also benefit from more direction on how their conclusions abaut 

BSAlAJ.1L compliance link to conclusions addressing bank-wide compliance management 

systems, compliance and management ratings, and bank-wide risk assessments. The draft 

handbook revisions do not address this recommendation. Because the BSAlAML 

handbook is under revision as a FFIEC initiative, DCC may need to develop 

supplemental guidance specific to this agency that addresses how BSAI AML risk factors 

into bank-wide compliance management systems, ratings, and risk assessments. 

• General guidance on the sample selection methodology and erpectations for BSAIAML 

transactional testing shauld be clarified andlor expanded Currently, due to the limited 

guidance, the size and methodology of sample selection varies significantly. While it is 

not DCC' s role to detect money laundering through transaction testing, such testing is 

warranted to validate banks' compliance with 12 C.F.R. § 21.21. More guidance in this 

regard is needed. FFIEC draft handbook revisions do not provide specific guidance as to 

when transactional testing is required, bow to sample, or the size of required samples. 

Improved guidance addressing BSAlAML enforcement policies violations of 12 C.F.R. § 21.21 

and civil money penalties 

Enforcement policies, prior to November 2004 revisions, did not lend themselves well to 

compliance issues, and specifically not to BSAIAML compliance problems. DCC's enforcement 

policies (Enforcement Action Policy PPM 5310-3-REV 7-30-01 and CMP Policy PPM 5000-7-

REV 6-16-93) were written with a focus on traditional safety/soundness issues and issues of 

potential insolvency. 

• acC's guidance on citing violations of 12 C.F.R § 21.21 was open to multiple 

interpretations. Inconsistent interpretations contributed to misleading andlor ineffective 

communications to banks. 

• Prior to revisions, there were mixed messages in guidance conveyed to examiners relative 

to the conditions that require DCC to take formal enforcement action. DCC guidance, 

including Question and Answer documents for examiners issued by DCC's compliance 

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policy division, and in place prior to November 2004, stated: "a strong presumption 

exists for issuing a Cease and Desist (C&D) order whenever a national bank is cited for a 

violation of 12 CFR § 21.21." The guidance discussed situations in which 12 CFR § 

21.21 violations should be cited and examples in which accompanying C&Ds were 

appropriate. Examples included situations in which banks lacked a BSA compliance 

program that covered one or more of the required program elements (internal controls, 

training, audit, responsible personnel), failed to implement a written BSA compliance 

program, exhibited significant BSA compliance program deficiencies, coupled with 

aggravating factors, or failed to correct previously cited BSA program deficiencies. The 

wording of the examiner guidance has been changed to state "there is a statutory mandate 

that the occ issue a r&D whenever a hank is cited for a vjolatiOILOfllCFR~n 

This change is consistent with 12 U.S.C. § 1818(s). 12 U.S.C. § 1818(s) states thatifthe 

appropriate Federal banking agency determines that an institution (A) has failed to 

establish and maintain the procedures reasonably designed to assure and monitor the 

compliance, or (B) has failed to correct any problem with the procedures maintained by 

the depository institution which was previously reported to the depository institution by 

such agency, the agency shall issue an order, requiring such institution to cease and desist 

from its violation of this subsection or regulations prescribed under this subsection. The 

review team found inconsistent treatment of 12 C.F.R. § 21.21 violations. 

• OCe's civil money penalty matrix is not well suited for assessing the severity of 

violations relative to BSA/ AML systems in banks. Existing civil money penalty 

guidance is directed toward individuals and not institutions. To address violations 

relative to BSA/AML program deficiencies, an institutional matrix is more appropriate. 

A 1980 FFIEC policy statement on CMPs outlines assessment factor considerations 

which can continue to provide the basis upon which OCC develops an institutional matrix 

to supplement the existing CMP matrix. 

The review team endorses OCC actions that amended enforcement policies and guidance relative 

to 12 C.F.R. § 21.21. The November 2004 revisions include additional guidance addressing 

circumstances in which a violation should be cited and reflect the statutory mandate that a C&D 

order will be issued whenever a bank is cited for a violation of 12 C.F.R. § 21.21. 

However, additional actions are needed to address BSA/ AML violations by supplementing 

existing guidance relative to civil money penalties. The review team recommends the . 

development of a civil money penalty matrix directed toward institutions that would be more 

applicable to compliance-related violations ofBSA/AML. 

3. There are opportunities for improvement in OCC's BSAlAML risk identification process. 

The acc could strengthen BSAJAML risk identification processes through the use of more 

sophisticated analytical tools and more consistent application of existing tools. While it is not 

OCC's role to detect money laundering, more emphasis on the quantification of high-risk 

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products, services, and customers within OCC supervised banks could help identify banks with 

deficient BSNAML programs. A higher level of computer-assisted analysis of the large number 

ofCTRs in FinCEN's database is warranted. 

There are two Risk Identification Programs currently in use within the Western and Central 

Districts that warrant replication across all OCc's business lines. These programs are significant 

in the quality oftools that they provide to the field examiner in quantifYing potential money 

laundering risk at specific banks, as well as in specific accounts. These tools could also assist 

OCC management in quantifYing money laundering risk in all OCC lines of business. 

While these two programs are profilOOj~Append.ixJ!ljb~rt. the review team 

acknowledges that there may be other tools or programs in use throughout the OCe. To capture 

any and all best practices relative to BSN AML risk identification, the review team recommends 

that the OCC inventory such programs andlor tools used throughout the country and replicate or 

share those that are of greatest impact. 

In addition, the review team supports two additional initiatives that may enhance the OCC's 

BSNAML risk assessment capabilities. These include FinCEN's BSA Direct Initiative and 

OCC's development of a database of bank-filed SARS. FinCEN's BSA Direct Initiative is an 

effort to explore better ways to provide more user-friendly access to the FinCEN database. 

OCC's SAR data mart, in the very early stages of development, has the potential, in a macro 

sense, to identifY trends in BSN AML SAR filings, to identifY geographic pockets of reported 

suspicious activity, and to detect emerging risks. 

4. The review team suggests that OCC establish quality assurance for BSA/ AML supert'ision. 

This area represenrs high reputation risk for the banking industry as well as for the OCC, and a 

process to assure the quality and consistency ofOCC superviSion is warranted Quality 

assurance reviews could help ensure that: 

• Examination findings support overall conclusions, 

• Conclusions address minimum standards and expectations for BSN AML risk 

management systems, 

• OCC supervisory approval processes are not overly-reliant on subject matter experts or 

do not unintentionally filter substantive issues from overall risk assessments, 

• OCC is consistent in the treatment of 12 e.F.R. § 21.21 violations, 

• Supervisory strategies are reasonable and include adequate follow-up on OCC concerns, 

and 

• Adequate tracking systems are in place for follow-up on violations and Matters Requiring 

Attention. 

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5. DeVelopment and retention of examiner expertise relative to BSAI AML will remain key. 

Ensuring a sufficient number of examiners to meet BSAlAML supervisory responsibilities is 

of equal importance. 

The reputation risk is highfor both banks andfor the acc relative to BSAIAML when 

prioritizing supervisory objectives/strategies, as is the ongoing needfor examiner knowledge and 

expertise in fulfilling those objectives. The review team suppons etrons that are already 

underway at DCC to address staffing. In addition to funher development and reallocation of 

existing staff, the review team encourages effons to ensure that DCC employs a sufficient 

number of examiners to meet BSAI AML supervision requirements. 

Strategic selection of participants in the Examiner Specialized Skills Program - ESSP (for 

BSAlAML only) is a critical step in ensuring OCC's effective supervision ofBSAlAML. For 

this reason, the review team suggests acc managers encourage employees with strong 

performance records and ongoing potential for significant work in higher risk banks and higher 

risk geographic locations to apply for the ESSP program. Also, OCC examiners receive only 

rudimentary training through a BSAI AML module in pre-commissioned examiner training. 

Specialized BSAlAML training at the commissioned level is voluntary, not mandatory. Because 

of this, the review team suggests that management continue to periodically reassess the adequacy 

of trained staff and dispersion of this staff. 

Bi-monthly "knowledge sharing calls" are currently used to disseminate new information to 

ESSP participants and to supplement existing training programs. For larger audiences, acC's 

large bank roundtables have proven effective in other risk areas for sharing updated information 

and developing expertise. To supplement formal training, the ESSP program, and "knowledge 

sharing calls," roundtables for BSAI AML in various bank lines of business could be an effective 

addition. 

6. In order to effectively capture the risks associated with BSAiAML, a review of the written 

definitions contained in the Compliance Rating System is warranted 

Compliance ratings would be more meaningful and accurate if the definitions incorporated 

BSAlAML compliance considerations, The five-point rating system, developed in 1980, is 

geared to more traditional consumer protection regulations, such as Regulation Z and Regulation 

B, but is silent relative to BSAI AML compliance issues. Since the compliance rating system was 

developed as a FFIEC initiative, acc cannot modify the ratings outside ofFFIEC. However, 

the review team encourages DCC effons to work within the FFIEC framework to update these 

ratings to incorporate BSAlAML compliance considerations. BSAlAML handbook revisions, 

underway as an FFIEC initiative, make no reference to the compliance rating system. 

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APPENDIX 

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c) 

Comptroller of the Currency 

Administrator of National Banks 

Washington, DC 20219 

MEMORANDUM 

To: Ronald A. Lindhart, Director, Quality Management Division 

From: John D. Hawke, Jr., Comptroller of the Currency 

Date: May 20, 2004 

Subject: Engagement Memorandum: Retrospective ofBSAI AML violations at Riggs Bank, N. A., 

McLean, Virginia 

Ron, I am directing the Quality Management Division (QMD) to immediately commence a 

review and evaluation of the OCC's Bank Secrecy Act and anti-money laundering (BSAIAML) 

supervision of Riggs Bank, N. A. ("Bank"), McLean, Virginia. 

QMD should review the record of OCC supervisory activities going back for as long a period as 

you determine to be appropriate, but in any case at least until the beginning of 1997. You should 

evaluate the quality and effectiveness of these activities and their compliance with OCC policies 

and guidelines relating to BSAI AML examinations. Further, you should assess the extent and 

effectiveness ofOCC's coordination and intemction with other regulators and with law 

enforcement. You should also assess the quality, completeness and timeliness of the bank's 

responses to comments, criticisms and advice given by OCC examiners, and the bank's 

disposition to take needed corrective actions. I want your full and frank assessment as to 

whether our examination team took appropriate and timely actions to address any shortcomings 

they found in the bank's processes and in its responses to matters noted by the examiners. You 

should also seek to determine whether there were any inappropriate influences that may have 

affected our supervisory activities in this case. 

In addition to your review of the Riggs case, I would like QMD to make a more general 

assessment of the quality of our BSAI AML compliance supervision and to determine whether 

there are other banks under our supervision that have failed to respond on a timely basis to our 

BSAI AML supervisory actions. 

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Finally, I would like you to provide me with any recommendations you might have, as the result 

of your reviews, for improvements in the effectiveness of our BSAlAML supervision and for our 

enforcement policy with regard to BSAlAML violations. 

I want to stress the importance I attach to your presenting me with your frank and unvarnished 

judgments and conclusions in this matter. 

Your review tearn should consist of representatives from each area of the Committee on Bank 

Supervision as well as representatives from the Chief Counsel's Office. All relevant supervisory 

records and working papers should be reviewed. Interviews should be conducted with: 

• Those who had a significant bank supervisory role in the BSAI AML supervision of the 

bank, 

• Officials from other federal agencies with significant jurisdictional interests, and 

• Bank officials responsible for BSAI AML compliance. 

Please submit the final report to me by September I, 2004, with copies to the Committee on 

Bank Supervision and the Chief Counsel, and provide me with interim updates during our 

regular bi-weekly meetings. 

cc: Committee on Bank Supervision 

Chief Counsel 

Chief of Staff 

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SOURCES THAT GUIDE OCC'S BSA/AML SUPERVISION 

Handbooks 

Compliance Overview 

Compliance Management Systems 

(August 1996) 

Bank Secrecy Act I Anti-Money Laundering 

Community Bank Supervision 

(August 1996) 

(SeptemberlDecember 2000) 

(July 2(03) 

Pertinent Memoranda & eMail 

- Sharpe Memo 

Hammaker eMail 

Hammaker, et al Memo 

BrittonIRoeder Memo 

Compliance Board 

Iaedicke eMail 

Frequency and Scope of Compliance Exams 

Add'l BSN AML Targets & Procedures 

Exams of Private Banking, AM, and Trust 

OIG Follow-up 

New Exam Procedures 

USAP A Exams in Large Banks 

PPMs 

5000'-7 (Rev) 

5310-3 (Rev) 

Civil Money Penalties 

Enforcement Action Policy 

OCC Advisories (excluding FinCEN Advisories and Bulletins) 

2000-03 

- 2001-12 

- 2002-04 

2004-07 

Common BSA Compliance Deficiencies 

USA Patriot Act AML Provisions 

Detecting Terrorist Financing 

Money Service Businesses 

OCC Bulletins (excluding NPR, Interim Rules, and Final Rules) 

2000-19 

2001-7 

- 2001-9 

- 2003-27 

2003-43 

200348 

2004-01 

2004-03 

2004-26 

2004-34 

Suspicious Activity Report 

Basel paper 

Foreign Official Corruption Guidance 

Revised Suspicious· Activity Report 

BSA Examination Procedures 

Revised Currency Transaction Report Form 

Notice of Expiration of Exceptions 

FAQ - Customer Identification Program Rule 

Embassy Accounts 

Cu stomer ID Program Exam Procedures 

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(Iune 2000) 

(Feb 2001) 

(July 2001) 

(April 2002) 

(April 2002) 

(July 2004) 

(Iune 1993) 

(Iuly 2001 updated 

November 2004) 

(April 2000) 

(October 2001) 

(May 2002) 

(June 2004) 

(June 2000) 

(February 2(01) 

(February 2001) 

(June 2003) 

(October 2003) 

(December 2003) 

(January 2004) 

(January 2004) 

(June 2004) 

(July 2004) 

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Examiner Training 

Consumer Compliance School - Basic (Two courses: Classroom/Self Study) 

Anti-money Laundering and Terrorist Financing 

- FinCEN Database Training 

Fraud Investigation Training On-Line 

Fraud Investigation Symposium 

BSA Compliance Bulletin Board 

Postings under the following headings (dating to the mid-1990s) that guide BSNAML 

compliance supervision: 

OCC 

OCC 

FinCEN 

FFIEC 

FFIEC 

AML Programs BSA Programs 12 CFR 21.21 Violations (includes "Citing Violations 

of 12 CFR 21.21 and 12 CFR 21.l1") 

Cash Sales of Monetary Instruments 

Correspondent Bank Relationships and Broker Relationships 

CTR and Exemptions 

Due Diligence 

Employee Screening 

OFAC 

Private Investment Companies 

Suspicious Activity 

USA PATRIOT Act 

Wire Transfer 

Other 

Publications 

Customer Due Diligence for Banks Basel Committee on Banking Supervision 

(January 2001) 

- Guidance on Enhanced Scrutiny For Transactions That May Involve Proceeds of Foreign 

Official Corruption Departments of Treasury and State, and Federal Bank Regulators 

(January 2001) 

Guidance on Accepting Accounts for Foreign Governments Foreign Embassies and Foreign 

Political Figures Federal Bank Regulators (June 2004) 

Money Laundering: A Banker's Guide to Avoiding Problems OCC 

(December 2002) 

Money Laundering Red Flags OCC 

(Undated) 

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Laws and Regulations 

12 U.S.c. 1818(5) 

31 U.S.C. S311 et seq 

12 CFR 21. 11 

12 CFR21.21 

31 CRF 103 

Compliance with Recordkeeping and Reporting Requirements 

Reports ofCuTTency and Foreign Transactions 

Reports of Suspicious Activity 

Procedures for Monitoring BSA Compliance 

Financial Recordkeeping and Reporting ofCuTTeney and Foreign 

Transactions 

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COMMITTEE ON BANK SUPERVISION 

BSA/AML OPERATING PLAN - FY 2005 - 2006 

This Plan outlines the OCC's supervisory objectives for Bank Secrecy Act (BSA), Anti-Money 

Laundering (AML) and USA PATRIOT Act (USPA) related activities for FY 2005-2006. The 

plan supplements the fiscal 2005 Bank Supervision Operating Plan and is in response to the 

significant reputation risk that money laundering and terrorist financing activities pose to the 

national banking system and to the acc. 

BSAlAML Supervisory Objectives 

L Adopt and implem£nt comprehensive BSAlAMVUSPA supervisory strategies and 

activities in all of the OCC's lilies of business. 

Midsize alld COl7l1lUlllity Ballks: 

• Each district will review their community bank portfolios to identify potential high-risk 

banks. Examinations for each of those banks will be completed by March 31,2005. 

Compliance with the USPA will be incorporated into these exams. 

• Each ADC will ensure that the timing, scope and coverage for BSNAMLIUSPA activities 

are appropriate, adequate, and in accordance with risk assessments. Consistent with statutory 

requirements, a review ofBSA compliance, including transaction testing of higher risk 

accounts will be incorporated into each supervisory cycle, using the OCC Community Bank 

Handbook core procedures. Initial reviews for compliance with USPA will be completed for 

all non high-risk community banks by December 31, 2006. 

• ADCs or their designee will communicate with bank management to make them aware of our 

heightened supervisory attention to this area and our expectations. 

• We will conduct BSNAMLIUSPA horizontal reviews for all midsize banks, using a tiered 

risk approach. Exams that were planned as part of the BSA Targeting Program for 2005 will 

be incorporated into these examinations. 

• Exams for the highest risk midsize banks will be completed in FY 2005. 

• We will complete exams for the remaining midsize banks by the end ofFY 2006. Consistent 

with statutory requirements, a review ofBSA compliance will be incorporated into each 

supervisory cycle, using the BSN AML Handbook procedures. 

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Large Banks: 

• We will complete USPA exams for all large banks by December 31, 2004. 

• We will review and validate the pianned 2005 BSAJAMLIUSPA supervisory strategies for 

each large bank by November 30,2004. Transaction testing and compliance reviews for 

BSAJAMLIUSPA activities will be conducted at each large bank for identified high-risk 

areas and activities. Exams that were planned as part of the BSA Targeting Program for 2005 

will be incorporated into these examinations. 

• We will communicate with bank management to make them aware of our heightened 

supervisory attention to this area and our expectations. 

II. Adopt and implement processes to enhance the quality and consistency of our 

BSAlAMVUSPA supervision. 

Compliance Policy 

We will revise and issue an updated BSA Handbook in cooperation with the other FFIEC 

agencies by June 2005. The revised handbook will incorporate appropriate levels of 

transaction testing, include and expand upon new areas of emphasis, and incorporate 

provisions of the USPA. 

• We will work with Enforcement & Compliance (E&C) and Community and Consumer Law 

to issue by November 2004, a revised enforcement policy that clarifies areas where a 

statutory mandate for a formal enforcement action exists and directs that violations should be 

cited in cases where a significant BSA deficiency is noted or where a bank has failed to 

correct significant prior criticisms or has a history of program deficiencies. 

• Compliance Policy, Operational Risk, MlCBS and LB S will reinforce the policy that BSA 

deficiencies should be cited in Reports of Examination. 

• We will develop guidance for examiners on how to incorporate BSAJAML findings into the 

compliance rating system. 

Midsize and Community Banks 

We will use a team approach for conducting examinations at our six highest risk community 

banks and horizontal reviews at our midsize banks to leverage resources and ensure 

consistency, 

• Exam conclusionS for all high-risk community banks will be reviewed by a subgroup of the 

OCC's National Anti-Money Laundering Group (NAMLG) for adequacy, consistency, and 

adherence to OCC policies. 

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o We will establish an experienced team of 4-6 district BSNAML experts under the leadership 

of the Midsize Bank Compliance Lead Expert to review strategies in identified high-risk 

Midsize banks and also review the findings for each examination that includes 

BSNAMLIUSPA. 

o We will conduct a teleconference with all midsize and community bank supervisory staff in 

October 2004 to explain and reinforce our policies and expectations on BSA supervision. 

Presenters will include staff from Compliance Policy, SPSU, and Legal. 

Large Banks 

o We will establish a team to review and validate each large bank supervisory strategy for 

BSNAMLIUSPA. 

• We will establish a group with representatives from Large Bank Supervision, Compliance 

Policy, and E&C to review all BSNAMLIUSPA exam conclusions to ensure that OCC 

policies are being followed and applied consistently. 

• We will conduct meetings with all Large Bank Supervision ErCs prior to FYE 04 to explain 

and reinforce our policies and expectations on BSA supervision. Compliance Policy and 

Legal will participate in these meetings. 

IlL Take steps to enhance and strengthen the OCC's BSAI AM! expertise and to provide a 

more visible point of contact for BSA-related issues. 

Compliance Policy 

o We will create and fill a Director for BSNAML Compliance by December 31, 2004. 

• Compliance Policy will post and, if qualified applicants apply, fill two current vacancies with 

an emphasis on BSN AML skills by December 31, 2004. 

• We will continue to sponsor an ESSP program for BSA. 

o We will work with IT and the Chief of Staff's office to create and implement a one-stop 

location on the OCC's internal and external websites for BSA-related information during the 

fourth quarter ofCY 2004. 

o MlCBS and LBS will work with Continuing Education to add Certified Anti-Money 

Laundering Specialist (CAMS) to the list of OCC recognized and sponsored industry 

certifications during FY 2005. 

• We will work with Banking Relations to conduct in early calendar year 2005, a banker 

teleconference on BSA. 

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MidsizelCo1ll17lUnity Banks 

• We will use upcoming examinations of high-risk banks as training opportunities to the extent 

feasible. 

• We will continue to develop expertise through participation in the BSA ESSP program. 

• We will work with Financial Management to expand during FY 2005 the contractor pool to 

include BSNAML experts. 

Large Banks 

• We will review and revise, as needed, planned staffing assignments for all large bank BSA 

examinations before calendar year-end 2004 to ensure that planned exams are adequately 

staffed. 

• We will designate by calendar year-end 2004, a BSNAML point person for each large bank 

to serve as a point of contact on BSA issues. 

• We will continue to develop expertise through participation in the BSA ESSP program. 

IV. Improve and strengthen the oec's BSA-related mIlnagement infornwtion and risk 

identification systems. 

CB S units will work collectively with ITS to develop and implement nationally an enhanced 

risk assessment process by fiscal year-end 200S. This process will provide improVed 

screening and identification ofBSAI AMUUSPA risk factoTS. 

• Operational Risk will work with COMPL, Large Banks, E&C and ITS to develop and 

implement by fiscal-year end 2005, filters and screening tools for the national bank SARs 

database to help identify potential high-risk banks for BSAI AML and other fraud-related 

risks. 

• CBS units will work collectively to develop and implement processes by November 2004 to 

capture and report infolmation required under the FinCEN MOU. 

• Supervisory Information and Large Bank Supervision will develop and implement by March 

3 1,2005, processes to systemically capture BSAlAML criticisms in ROEs to track cases 

where no follow-up action has been taken. 

Compliance Policy and E&C will work with FinCEN and other agencies to provide better 

access to BSA information for use in the exam process. 

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SCOPE AND METHODOLOGY - LARGE AND MID-SIZE BANK SAMPLE 

To develop a baseline level of knowledge and to begin assessing the quality of BSA/AML 

compliance supervision, as part of the Phase Two objective, the review team developed a 

survey/self assessment questionnaire that asked EICs and Functional EICs in large and mid-size 

banks to respond to the following questions: 

l. Provide a general description of your bank's BSA/AML compliance program (12 CFR § 

21.21) processes/function. In particular, discuss how the bank monitors, identifies, and 

reports suspicious activity, including if their monitoring includes cash, wire transfer, and 

monetary instruments. 

2. What was the supervisory strategy for BSA/AML during the prior supervisory cycle? 

Discuss timing, scope, resources (including experience level of examiner leading the 

BSA/AML review), and workdays. 

Did you alter your strategy during the cycle? If so, please briefly discuss 

reasons/outcome. 

3. Describe (andlor supply copy of) your current supervisory strategy for BSA/AML. 

Highligbt primary differences from that described in #2 above. Also, if applicable, 

describe significant changes in OCC staff andlor the bank's corporate structure .that may 

have an impact on OCC's supervision of BSA/AML. 

Will you be able to accomplish your objectives and strategy? If no - reasons? 

4. Please provide details/summaries of acc issues with the company's BSA/AML 

practices, violations of law, or related controls during the last 3 years. 

5. How dolhave you factored your conclusions about BSA/AML into the bank's risk 

assessments, quality of risk management, quantity or risk, and CAMELSETCC ratings? 

6. Provide a copy of the most recent risk assessment that includes an assessment of 

BSA/AML risk. !frisk assessments do NOT include BSA/AML risk - what process do 

you use to quantify BSA/ AML related risks? 

7. What additional information would be useful to this team in reviewing acc supervisory 

activities related to the bank's BSA/AML functions? 

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To complete the Phase Three objective, the review team asked EICs and Functional EICs in large 

and mid-size banks to respond to the following questions: 

L What BSAJAML supervisory activities have been conducted in the past year? 

2. What were the scope and findings from those activities? 

3. What, if any, action has the bank taken in response to our supervisory concerns in the 

past year? 

4. How have you tested the effectiveness of any responsive actions? 

5. What additional supervisory actions, if any, have you taken? 

6. Who was involved in the decision making process for additional supervisory actions? 

7. What other information might be relevant to our discussion so that the review team can 

gain a clear understanding ofBSAJ AML supervision at your bank? 

8. If you have had to delay planned BSAJAML supervisory activities in the last two years, 

what specifically led to the delay? If staff was redirected, to what project/bank/activity 

was staff redirected? What is the current status of your resources relative to BSAJ AML 

supervision? 

9. If you are not able to complete the full BSAJAML Comptroller's Handbook procedures 

within the three-year supervisory cycle, what procedures did you complete and in what 

areas? What was your rationale for deciding what procedures to complete and what areas 

to not complete? 

10. Please describe how you use MRAs and/or MRBAs in your BSAJ AML supervisory 

efforts. Wauld your answer differ if the question addressed supervisory efforts in other 

risk areas? 

11. How did OCC's 2004 compliance reorganization impact your BSAJAML supervisory 

efforts? 

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SUMMARY OF REPORT CONCLUSIONS 

UZ:n' UZ~K UZ!'" "';.BI< UZ:' LGBK MB MB MB MB MB MB 

.. #. ., #3 .. #5 .. nfortement Adiona 

anks where SI:ronjl;Cf supervisory aotion W8I warranted X 

or where stroalet action wu W8mmted "Sooner 

GBK and}tJB where BSA deficienoies lite oontiDulnR 

& OCC has monitored then: dcfioienciell forClrtended tleriodJ X X X X X X X 

SAlAMLSuDerrision 

anb failed to cotrcet defigiencies 1999-2{lO3 X X X X X X X 

anb failed to correct defiCiencies 2004 ~ pnlSettt X X X X X 

MB 114-! #5 Cort'ection not yet v&lidated 

oI_~ 

OnOW~Ul! wu not time! or WM not effective X X X X 

durin ,OUlIil period between 2000 and 2004 

SRCPNCc$sn 

!Banks where sunervision UUI" have been strene:thened by 

SRCrevicw X X X X X X X 

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LGBK LG':' "!:" LG .... "!:' LGBK MB MB MB MB MB MB 

#1 .. .. #, #1 ... "" .. I"formal discu&siom atOll the 5U zvieoryclminandlorin 

SRCt resulted in llQlions !eas aevere than whet was 

initiaU co6aideredorreoon:unended. X X X 

Stamne: levels. txpertbe .vallabutty 

PngoinR problems with IItaffinj:! X X X X X X X X 

xaminafum Guldanu 

SAlAM[. examination guidanoe not consistentl aPJ)lied X X X 

B EICII report exam proeedurea too extensive to com lete X X X 

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~=~~~A~~=M~"_:_&.-t_M-rm-+_~-r~-+~~+-4--+-1_M_'~:_~4MO_"_'''~I.-t'_:_'~'_I5~I~_M_~.~fl7 fl. m' Me ~1 ~2 m fl4 

rwherelll.rn!lg«8Ction_ 

~~. 

C8111.flf3Convllliedto 

... 

CB*'4Li"uidaled 

~_klng."SRC 

anksshCll!dhavtlbwl. 

I\IlhIdtt>WSRC butMft'1I<> 

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CBCBCBCBCBCBCBCBB CB 

III HZ JD N fi #6 In III *' 111.11 

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CB CB CD CB 

/Ill fll #14 illS 

CB 

'" CB CB CB 

ItlO Int Itll 

CB 

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SAMPLE BANKS - SUPPORTING DETAILS 

What follows are detailed findings from the large, mid-size, and community bank samples. 

Large Banks 

LB#1 

acc supervisory activities are generally appropriate except for the absence of recent 

testing. Supervisory activities are limited by staffing shortages. 

• Examiners note concerns with bank's suspicious activity monitoring systems. This 

system has been in development for an extended period. 

• Examinations focus on high-risk areas. Underlying testing of the overall ESA program 

has not been completed since 1999. Even considering acc's risk-based supervision, 

examiners report that completion of the entire procedures is not possible in a 3~year 

cycle. 

• Follow up to examination issues is conducted quarterly as part of the continuous 

supervision cycle. 

• acc resident staff has been requested to assist in other high-risk banks in the upcoming 

year. Updated 3-year strategy calls for 5 FTEs that cannot be funded with current 

resident staffing levels. 

LB#2 

• Bank has been responsive to acc supervisory activities. 

acc supervisory strategy and activities are appropriate, though limited by staffing 

shortages. Numerous targets are pushed back, cancelled or replaced with other required 

activities due to insufficient staffing. Several areas have not been fully examined or risk 

assessed due to insufficient staffing. 

• acc follow-up is effective. 

• Examiners report that full BSN AML exam procedures are difficult to apply across 

targets and business lines. 

LB#3 

• Historically, acc follow up was slow, but follow-up on examination issues is now 

conducted quarterly. 

• Bank has been slow to thoroughly address BSA deficiencies. 

Significant issues were raised in the limited scope 03/30/04 examination. While stronger 

supervisory action was taken in other similarly situated banks in the sample, the ErC 

followed proper reporting channels, discussing the possibility of citing a 12 C.F .R. § 

21.21 violation with the Deputy Comptroller. Formal action was not deemed appropriate. 

The ErC indicated that the Large Bank DC spoke with the Deputy Chief Counsel about 

the findings and jointly decided to not pursue a 21.21 violation. Bank was not presented 

toWSRC. 

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• Recently, OCC compliance resident staff was added as part of the compliance restructure. 

LB#4 

LB#5 

Previously, a compliance liaison was assigned to the bank. This recently assigned 

resident resource has been unavailable due to higher priority work. 

The bank did not fully address BSA deficiencies between 1999 and 2002. 

OCC provided bank management with an extended period of time to correct deficiencies 

and stronger supervisory action was warranted. BSA compliance management was 

considered satisfactory during a 3Q99 examination, although significant suspicious 

activity monitoring deficiencies were identified. 

OCC follow-up between 1999 and 2002 was ineffective in ensuring deficiencies were 

addressed timely. Also, follow-up in 2003 did not include testing. 

BSAI AML exam is currently in process. The FEIC has not found any significant BSA 

deficiencies. 

• Bank has been given an extended period to correct BSAI AML program deficiencies. 

Significant deficiencies were identified as early as 2000, including repeat audit issues. 

Similar deficiencies were noted in subsequent exams, Consideration has been given to 

citing a 12 CFR § 21.21 violation and bank has been put on notice that failure to correct 

deficiencies will result in stronger OCC action. Bank has recently been more responsive 

to OCC criticisms and corrective actions are well underway. 

• Significant deficiencies were identified in 2000 with limited OCC testing and follow-up. 

More recent follow-up has been timely and comprehensive. 

• Bank has not gone to WSRC. While not required by policy since a 21.21 violation was 

not cited, review by WSRC could have helped ensure consistent treatment of banks with 

significant BSAlAML program deficiencies. 

• Resident examiner resources for BSAI AML supervision are inadequate based on strategy 

proj ections. 

LB#6 

• Bank has not been fully responsive to BSA deficiencies. Significant issues were raised in 

1999 and a violation of 12 C.F.R. § 21.21 was considered. EIC followed proper reporting 

channels in the decision to not cite the violation. The decision never went before a SRC 

committee. While not required by policy, SRC review could have helped ensure 

consistent supervisory treatment of BSAlAML program deficiencies. Further issues, 

which could have resulted in 12 C.F.R. § 21.21 violations, were also cited subsequently. 

• An examination is currently under review for citation of the violation. Examiners have 

recommended citing 12 CFR § 21.21 and issuing a C&D. 

• Follow up to examination issues is completed quarterly. 

• Reviews have focused on the highest risk areas. These reviews Were used to make a 

corporate wide assessment. Examiners report that full examination procedures are 

considered too extensive to complete within a three-year cycle considering staffing, even 

when applying a ri sk-based supervisory approach. Workday usage is far below that of 

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other Large Banks without a significant reduction in risk. There was only one OCC 

compliance FTE assigned to the bank until recently. EIC has been able to fund 

examinations with outside help, but OCC staffing is an issue of concern. 

• Bank was presented to WSRC after the most recent J Q04 exam. 

Mid-Size Banks 

MB#J 

• Bank has not been fully responsive to BSA deficiencies. Significant issues were identified 

in the 2002 examination. Corrective actions were to be completed by 12/31/03, but were 

delayed to 12/31/04. The bank's slow response is attributed to changing operating 

systems in 2003. In fact, the bank did not actually implement their new suspicious activity 

operating system until 02/04 and it is still limited to monitoring cash transactions only. 

• An examination is currently in process and examiners report that issues are continuing for 

lower risk areas. High-risk areas have been corrected. Discussions have been held with 

bank management regarding the escalation of issues if they have not been addressed. 

Based on the protracted timeframe in which BSA deficiencies have been outstanding, 

stronger OCC action may be warranted, depending upon the outcome of the exam in 

process. 

• Quarterly follow up has been completed since the 2002 examination but was limited to 

meeting with bank management to follow-up on activities and has not included 

testinglvalidation of any of the MRA items. Given the extent of deficiencies, risk profile, 

and compliance rating, follow-up was insufficient. 

MB#2 

Serious deficiencies in the BSA compliance program. were noted in 2003 ROE that 

warranted consideration of a 21.21 violation and enforcement action. At a minimum} a 

review of the deficiencies by DSRC and WSRC for their consideration and input could 

have ensured uniform OCC treatment ofBSA program deficiencies relative to citing 

21.21 violations and taking enforcement action. 

• Bank has been slow to complete plan and address MRAs. MRA items have still not been 

fully addressed. 

• New BSAICompliance Officer appears to be making progress on addressing deficiencies. 

• Exam in process was delayed because the EIC of the prior examination was unavailable. 

EIC was still unavailable for the rescheduled examination, which began in 1105. Staffing 

has been problematic. 

• Follow up has occurred quarterly since last examination. 

MB#3 

• Bank has not fully complied with the Commitment Letter, as audit deficiencies remain 

uncorrected. However, significant improvements in the BSA program have been made in 

the past year. 

• The adequacy and effectiveness ofOCC supervisory activities prior to 2003 is suspect. 

BSAI AML supervision prior to 2003 failed to identify any significant issues. There were 

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no BSA supervisory activities in 2002, and it is unclear when BSA had been reviewed 

prior to that time. The scope of the 2003 exam was reduced and BSA was not fully 

examined, since internal audit was deemed inadequate. Because of this, it is difficult to 

determine if stronger enforcement action was warranted or if a 12 CFR § 21.21 violation 

occurred. The reduced-scope 2003 exam resulted in BSA/AML inclusion in the 

compliance Commitment Letter. 

• Monthly follow-up has occurred since 4/04 and an exam is currently in process. 

MB#4 

There is no evidence of difficulties with examination staffing. 

The bank was presented to mid-size bank's SRC, but not WSRC, as a result of the 2003 

exam. 

• Bank has been slow to correct BSA/AML deficiencies and acc follow-up has been 

ineffective. The bank has been given an extended period of time to correct deficiencies 

and acc has nottested/validated corrective actions. While bank is reporting corrective 

actions, MRAs remain open, pending acc testing. 

• Examiners did not use appropriate examination procedures during the 2003 exam. 

Community bank procedures were incorrectly used, and record keeping provisions were 

omitted. The significance ofBSA deficiencies may have gone undetected based on the 

examination scope, methodology, and inexperienced acc examination staff. Without a 

comprehensive exam, it is not clear if enforcement action was warranted. 

Staffing concerns may impact the quality of future supervision. Full scope BSA!AML 

exam scheduled for 4/05 lacks sufficient staffing·and may be cancelled. 

• While not required by policy, the bank has not been presented to any SRC for review to 

ensure consistent treatment ofBSA program deficiencies. 

MB#5 

Significant deficiencies were noted in the 2003 examination. Examiners developed a 

basic framework that supported the decision not to cite a direct violation of 12 C.F.R. § 

21.21. It is unclear, however, if the previous deficiencies identified in the 2000 

examination and discussed with bank management (but not included in the RaE) were 

still in existence in 2003. 

• EIC followed proper reporting channels that existed at that time (discussed with the 

district lead compliance expert) in deciding not to cite a 21.21 violation; While not 

technically in noncompliance with acc policy, based on the significance of BSA 

program deficiencies and to ensure consistent supervisory treatment, a SRC review would 

have been beneficial in determining the appropriateness of a 21.21 violation cite and 

enforcement action. 

• Bank management did not prepare an adequate action plan initially, which has delayed 

adequate corrective actions. 

acc's compliance liaison is in regular contact with the bank to follow up on corrective 

actions. Staffing interruptions have impacted ability to conduct follow up examinations. 

• Bank management has been notified that if corrective actions are not implemented or if 

other BSA! AML issues arise, more serious action would be taken. 

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MB#6 

• Bank's BSA program deficiencies date back to at least 2002. Bank has not been fully 

responsive to OCC supervisory actions. However, exam currently underway indicates 

that the bank has made progress. 

• OCC supervision has not been effective. Formal enforcement action was warranted 

against this bank as early as 2002, and again in 2003. Ongoing BSA program 

deficiencies have only been addressed through MRAs in reports of examination. No 

violations· were cited in 2003, and only 12 CFR § 21.11 violations were cited in 2002. In 

both years, 12 CFR § 21.21 violations were warranted for different BSA deficiencies. 

While the bank had made progress in addressing 2002 deficiencies, the issues were not 

fully addressed by 2003, and new deficiencies emerged. 

• Follow-up has been timely, but the effectiveness is in question based on OCC's failure to 

take stronger action. 

• Bank was presented to DSRC as a result of the 2002 exam, but not WSRC. Because 

DSRC decided against enforcement action and a 21.21 violation was not cited, OCC 

policy did not technically require a WSRC presentation. Bank was not presented to 

either DSRC or WSRC in 2003. Presentation to DSRC and WSRC in both years could 

have helped ensure consistent supervisory treatment ofBSA program deficiencies. 

An exam is currently underway. While examiners initially recommended a 12 CFR § 

21.21 violation, it was determined that additional exam work was necessary. That work 

is nearing completion and examiners have now determined that the BSA program is 

adequate and they will not cite the violation. 

There is no evidence of staffing deficiencies. 

Community Banks 

The following sample includes twenty-four banks in which 12 C.F.R. § 21.21 violations were 

cited in EV and/or Reports Of Examination. 

Banks in which Consent Orders to Cease and Desist were issued: 

Northeastern District: 

CB#1 

Bank failed to correct BSA/AML deficiencies in response to various enforcement 

actions. 

Decision to remove 1999 Safety/Soundness Notice of Deficiency in 2001 was based on 

bank commitments rather than effective and timely OCC follow-up that should have 

included testing and validation of corrective actions. 

The MOU issued in 2002 was ineffective and was replaced with a C&D in 2004. 

Stronger action was warranted sooner. While not required by policy, since a 12 CFR § 

21.21 violation was not cited in 2002, there is no evidence that the bank was presented 

to Washington SRC after the S&S Notice of Deficiency was lifted in 2001 and until the 

C&D was issued in early 2004. Earlier review by SRC would have been beneficial, 

based on the bank's lack of effective response to various administrative actions. 

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There is no evidence of difficulties with OCC examination staffing. 

Southern District: 

CB#2 

Bank was not responsive to OCe's supervisory concerns for several years prior to the 

2002 examination. 

OCe's actions, including the C&D, were timely and appropriate. However, a 12 CFR § 

21.21 violation should have been cited in the 03131102 examination. 

OCe's follow-up was timely and continued to point out bank's lack ofresponsivetiess to 

OCe's concerns. 

There is no evidence of staffing deficiencies. 

Western District: 

CB#3 

Bank was not responsive to OCC's supervisory activities for approximately six years, 

until OCC placed a Consent Order on the bank. Approximately one year after 

termination of the Consent Order, BSA deficiencies re-surfaced prior to bank's 

conversion to state charter. 

OCC was slow to initiate formal administrative action against this bank, compromising 

the effectiveness of supervision. 

OCC follow-up was timely after the Consent Order was issued, however testing and 

validation was not completed. (partially because the bank was expected to convert to a 

state charter earlier than it did.) In light of re-emerging BSAI AML problems less than 

one year after the Consent Order was terminated, follow-up is considered ineffective. 

There is no evidence of difficulties with OCC examination staffing. 

Appropriate examination guidance was followed, with exceptions as follows: 

Batik was not presented to Washington SRC as required by policy. 

Transaction testing was limited in 2004 and did not cover all key risk areas. 

A 12 CFR § 21.21 violation was again warranted as a result of the 2004 examination, 

but it was not cited. 

Credit Card: 

CB #4 ('bank liquidated 2003) 

Bank failed to implement an effective BSA program. 

OCe's supervisory actions, including the C&D was timely and appropriate. 

OCe's follow-up was timely. 

There is no evidence of OCC staffing deficiencies. 

Appropriate examination guidance was followed. 

Presented to Washington SRC 

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Banks in which other enrorcement actions were taken: 

Northeastern District: 

CB#5 

Formal Agreement 

Bank was slow to respond to acC's supervisory activities, despite placing the bank 

under a Formal Agreement Weakoesses persisted for at least three years in BSAIAML, 

as well as other areas within the bank 

The bank warranted a C&D, per policy based on repeat violations and bank's slow 

responsiveness. 

2002 Report of Examination should have included a violation of 12 CFR § 21.21. 

acc follow-up was timely. However, BSAlAML weaknesses re-surfaced after initial 

reviews indicated that problems had been corrected. This raises questions as to the 

effectiveness of follow-up. 

There is no evidence of difficulties with acc examination staffing. 

Bank was not presented to Washington SRC, as required. 

Northeastern District: 

CB#6 

Formal Agreement 

Bank was slow to address OCC's supervisory concerns regarding BSA from as early as 

the 1996 and 1999 examinations, when 12 CFR § 21.21 violations were initially cited. 

acc initiated a formal administrative action against this bank to address the BSA issues 

in early 2003, which led to improvement from the bank. 

acC's actions did not comply with policy in that enforcement action was not taken until 

the third exam in which a 12 CFR § 21.21 violation was cited. When taken, the action 

was a Formal Agreement and not a C&D as required by policy. 

acc's follow-up on identified BSA issues prior to the 2002 examination is not 

documented in EV. However, follow-up once the FA was signed has been appropriate. 

There is no documentation indicating that acc examination staffing was insufficient 

Appropriate examination guidance was followed - with one exception: 

There is no documentation available in EV to support that DSRC and WSRC were 

involved prior to the 2003 examination, despite 12 CFR § 21.21 violations in the prior 

nvo examinations. 

Central District: 

CB#7 

Formal Agreement 

• Bank was slow to respond to acC's second Formal Agreement, in which the BSA article 

was carried forward from a prior FA. A C&D was warranted after the 04130/01 

examination. Bank was responsive by mid-2003. 

• acc follow-up was timely and comprehensive. 

• There is no evidence of difficulties with acc examination staffing. 

• Bank was not presented to Washington SRC. 

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Central District: 

CB#8 

Safety/Soundness arder 

Bank was slow to respond to acc's supervisory concerns Censuring the BSA program 

was fully and properly implemented.) Issues were raised beginning in 1999 and 

continued until the 06130/02 examination. 

acC's initial enforcement action Cthe S&S order) was timely and appropriate. 

acc's follow-up to the 1999 examination (in 09/00) was not effective and sent the bank 

mixed messages. There is no evidence of any validation or testing ofBSA program from 

1999 until the 2001 examination. 

acc's review at the 2001 examination was appropriate and included testing and 

validation of the bank's BSA program. 

acc's follow-up on the 2001 BSA examination deficiencies is not evidenced in EV, 

however the bank successfully implemented a comprehensive BSA program between the 

2001 and 2002 examinations. 

acc's review at the 2003 examination was appropriate and included testing and 

validation of the bank's BSA program. 

Appropriate examination guidance was generally followed, except for follow-up on 

deficiencies between 1999 and 2001, which lacked testing/validation. 

Both DSRC and WSRC were involved in decision to issue S&S order. 

Both DSRC and WSRC remain involved in supervisory decisions. 

Southern District: 

CB #9 Co bank failed 2004) 

Formal Agreement 

• Bank corrected BSAlAML deficiencies in response to enforcement action. 

• While the bankwanranted a C&D per policy, it was responsive to the BSA articles of the 

Formal Agreement. 

• There is no evidence of difficulties with acc examination staffing. 

• Follow-up was not timely between the 2002 and 2003 exams. 

• Bank was submitted to DSRC as required by policy, then transferred to SPSU in HQ and 

monitored by WSRC. 

Southern District: 

CB#IO 

Formal Agreement 

• Bank was responsive to OCC~s supervisory concerns. 

• acc's actions, including the FA and personal C&D, were timely imd appropriate. 

• acc's follow-up was timely and effective. 

• There is no evidence of oce examination staffing difficulties. 

• Appropriate examination guidance was followed. 

• Bank was presented to both DSRC and WSRC for approval. 

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Western District: 

CB#ll 

Formal Agreement 

• While bank warranted a C&D per policy, it was responsive to the Formal Agreement 

• OCC follow-up was timely and comprehensive. 

• There is no evidence of difficulties with OCC examination staffing. 

• Bank was not presented to Washington SRC, as required. 

Western District: 

CB#12 

Memorandum of Understanding 

While the bank warranted a C&D per written policy, the bank was responsive to the 

MOU and OCC's supervisory concerns regarding BSA issues. 

• OCC's supervisory activities relative to BSA were appropriate. 

• OCC's follow-up was timely. 

• There is no evidence of difficulties with OCC examination staffing. 

• Appropriate examination guidance was followed, with one exception: 

• Bank was not presented to Washington SRC. 

Western District: 

CB #13 

Formal Agreement 

• While bank warranted a C&D per policy, it was responsive to the Formal Agreement 

• FA was removed early, despite recurring deficiencies relative to suspicious activity 

reporting and monitoring that continued through the most recent exam in late 2004. 

• OCC follow-up was timely and comprehensive. 

• There is no evidence of difficulties with OCC examination staffing. 

• Bank was not presented to Washington SRC, as required. 

Western District: 

CB#14 

Formal Agreement 

• Bank initially failed to fully implement an effective BSA program (2000 to 2003); 

however, once enforcement action was taken (late 2003), the bank quickly responded to 

acc's supervisory concerns, 

• While the bank warranted a C&D per policy, OCe's supervisory activities, including 

placing a Formal Agreement on the bank, were effective. 

• OCC's follow-up was timely and effective. 

• There is no evidence of difficulties with OCC examination staffing. 

• Appropriate examination guidance was followed, with one exception: 

E&C concurred with DSRC decision outside of WSRC. 

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Banks in which no enforcement actions were taken: 

(Some Reports Of Examination included Matters Requiring Attention as noted below.) 

(None of these banks were presented to District or Washington SRC.) 

Central District: 

CB#15 

• Bank was responsive to OCC without enforcement action. 

• Enforcement action was not warranted, as repeat criticism was based on BSA training 

program documentation deficiencies. 

• OCC follow-up was timely. 

• There is no evidence of difficulties with OCC examination staffing. 

• Bank was not presented to DSRC or WSRC, as required. However, the 12 CFR § 21.21 

violations were not based on substantive BSA program deficiencies. 

Central District: 

CB#16 

MRAs 

• Bank was responsive to OCC's supervisory activities. 

• OCC's supervisory activities were appropriate. 

• Decision to NOT present to DSRC was appropriate - as violation was technical; no 

additional supervisory action was warranted. 

• A violation of 12 CFR § 21.21 was captured in EV only -not the ROE (as required by 

policy existing at that time); technical in nature and easily corrected through the bank's 

normal course of business. 

• There is no evidence ofOCC examination staffing deficiencies. 

• Appropriate examination guidance was followed. 

Central District: 

CB#17 

MRAs 

• Bank was responsive to OCC's supervisory activities. 

• Per OCC policy, stronger supervisory action was warranted. Also, a violation of 12 CFR 

§ 21.21 should have been cited in the ROE in 2001. BSA program weaknesses were 

substantive and a violation had previously been cited in 1995. While bank management 

was highly responsive and the institution was deemed to be low risk, a violation did 

occur. 

• There is no evidence of difficulties with examination staffing, however onsite follow-up 

to include testing and validation did not occur until 18 months after problems were 

identified. 

• To ensure consistent supervisory treatment ofBSA program deficiencies, the bank should 

have been presented to DSRCIWSRC for decisions relative to citing a 12 CFR § 21.21 

violation in the ROE and taking enforcement action versus including MRAs in the ROE. 

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Southern District: 

CB#18 

PolicylBSA officer not Board approved - reported in EV only 

Bank has been slow to institute an effective BSA compliance program. Initially 

considered only technical violations ofl2 CFR § 21.21 in 2001, and treated as MRAs in 

2002; deficiencies have escalated and are now significant. 

Recent OCC's supendsory activities and decision to take enforcement action are 

appropriate. 

OCC's follow-up was timely. 

There is no evidence ofOCC staffing deficiencies. 

While appropriate examination guidance was followed, earlier review by DSRC could 

have helped ensure consistent supervisory treatment of banks with BSA program 

deficiencies. DSRC was not consulted relative to the 12 CFR § 21.21 violation until the 

10104 examination. 

Southern District: 

CB#19 

BSA officer not Board approved - reported in EV only 

• Bank was responsive to OCC's supervisory activities. 

• OCC supervisory actions were appropriate. 

• There is no evidence of difficulties with examination staffing. 

• Violation of 12 CFR § 21.21 was technical in nature and appropriately should not have 

been included in a report of examination or presented to DSCRlWSRC for decision. 

Southern District: 

CB#20 

MRAs 

• Bank was slow to institute an effective, independent BSA compliance program. 

Weaknesses identified as early as 2001 were not addressed until after the 2004 exam. 

• OCC's initial action in 2001, outlining aMRA and giving bank management an 

opportunity to address weaknesses, was appropriate. 

• OCC did not take appropriate action as a result of the 06/30102 examination. At that 

examination, a 12 CFR § 21.21 violation should have been cited, and enforcement action 

should have been taken. Bank was allowed to let deficiencies linger because OCC action 

was not as severe as it should have been. 

• Better communication of issues by OCC in later reports of examination was warranted. 

• OCC's follow-up was timely, but not effective. 

• There is no documentation indicating that OCC examination staffing was insufficient. 

• Appropriate examination guidance was followed, except as follows: 

• Per conversation with examiner and ADe, initiany~ issues were discussed with the 

district compliance cadre lead, who suggested citing an MRA. 

• Bank was never presented to DSRe, initially, or once repeat criticisms were 

discovered. 

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Southern District: 

CB #21 

MRAs 

• Bank was initially responsive to OCC's supervisory criticisms ofBSA deficiencies 

identified as early as 1997. However, since that time OCC supervisory efforts have 

mostly been directed toward highly problematic safety/soundness issues. BSA program 

deficiencies re-emerged when BSA was again targeted for examination in 2003. 

• Enforcement action (C&D) did not address BSA deficiencies until 2003, despite a threat 

of enforcement action in the 1997 ROE. At that time, MRAs were included in the ROE, 

but no enforcement action was taken. The status ofBSA deficiencies between 1997 and 

2003 is somewhat unclear, but improvement was documented by OCC in late 1997. Per 

policy, stronger OCC supervisory action relative to BSA was appropriate in 1997. 

Stronger action was implemented in 7-03. 

• There is no evidence of difficulties with examination staffing. 

• Bank was presented to SRC in early 1998, but not relative to BSA issues. It does not 

appear that the decisions relative to BSA in the 1997 exam were presented to SRC, as 

required. 

• In light ofre-emerging BSA deficiencies, follow-up activities relative to BSA may not 

have been effective between 1997 and 2003. However, bank problems are extensive and 

a deficient BSA program is only one of many problems. 

Western District: 

CB #22 

No independent testing ofBSA - reported only in EV 

• Bank was responsive to OCC's supervisory activities. 

• OCC's supervisory activities were appropriate. 

• A violation of 12 CFR § 21.21 was captured in EV (as required by policy existing at that 

time); technical in nature and easily corrected through the bank's normal course of 

business. 

• There is no evidence of OCC staffing deficiencies. 

• Decision to NOT present to DSRCIWSRC was appropriate - as violation was technical; 

no additional supervisory action was warranted. 

Western District: 

CB #23 

No independent testing of BSA - reported only in EV 

Bank was responsive to OCC's supervisory activities. 

· oce's supervisory activities were appropriate. 

• A violation of 12 CFR § 21.21 was captured in EV (as required by policy existing at that 

time); technical in nature and easily corrected through the bank's Donnal course of 

business. 

• There is no evidence of difficulties with examination staffing. 

• Decision to NOT present to DSRClWSRC was appropriate - as violation was technical; 

no additional supervisory action was warranted. 

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Western District: 

CB #24 

No independent audit 

• Bank was responsive to OCC's supervisory activities. 

• OCe's supervisory activities and follow-up were appropriate. 

• A violation of 12 CFR § 21.21 was cited in the ROE and captured in EV; technical in 

nature and easily corrected through the bank's normal course of business. 

• There is no evidence of OCC staffing deficiencies. 

• Decision to NOT present to DSRCIWSRC was appropriate - as violation was technical 

and bank was willing to correct immediately; no additional supervisory action was 

warranted. 

Community Banks included in the sample with repeat violations of 12 C.F.R. § 21.21: 

Northeastern District: 

CB#I-C&D 

CB #5 - Formal Agreement 

Central District: 

CB #8 - S&S Order 

CB #15 - No action taken 

Southern District: 

CB#21-MRAs 

Western District: 

CB #3 -C&D 

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RISK IDENTIFICATION PROGRAMS 

Money Laundering Risk Summary and Tracking Form - Western District 

The Money Laundering Risk Summary and Tracking Form is a tool for the examiner to quantify 

potential money laundering risks within their respective banks, This form provides an outline for 

examiners to consistently identify: high-risk areas within the bank, high-risk products and 

services, and high-risk customers, Examiners complete the Risk Summary by identifying the 

extent to which the bank is exposed to potential money laundering by answering questions "yes" 

or "no" and by either verifying or estimating the number of accounts and the aggregate deposit 

dollar volumes, The gathering of this information assists examiners in identifying areas of risk 

and areas to sample or test during a BSN AML examination, Dnce the areas of potential risk 

have been identified, the DCC's examination resources can be focused on evaluating the 

effectiveness of bank policies and control systems implemented to address those risks, 

This form has been used in the Western District and is available on the Western District BSA 

Intranet site, The form also allows for development of a database on a District-wide basis to 

capture AML risk levels throughout the District and to identify high-risk banks and resource 

needs, 

AML Risk Assessment Program and Use of FinCEN Database - Central District 

Each District currently places different emphasis on the use of FinCEN tools as part of its AML 

Risk Assessment Process, Districts also provide varying degrees of support to field examiners 

through CTRJSAR download and analyses programs, The process of CTRJSAR download, 

aggregation, and analysis is a critical element, which through data manipulation can identify high 

risk and suspect accounts out of tens of thousands of potential accounts, This provides 

examiners with a review of cash activity, independent from bank provided information, and can 

validate either the absence of high-risk accounts with cash activity, or identify unusual activity 

that needs further review and transactional testing, Currently, the DCC is underutilizing this 

valuable resource of FinCEN data, or in other cases, raw data is used but the appropriate 

resources or training are not provided for the manipulation of data and ultimate analysis, 

There is a prototype AML Analysis Program developed and used in the Central District for all 

DCC lines of business which uses downloads ofFinCEN data, including CTRs, SARs and 

Exemption Records, and provides data manipulation and analysis through a Microsoft Access 

program, This program is supported by a small number of compliance specialists, who are 

trained in the FinCEN database downloads and in Microsoft Access, The program provides a 

Risk Assessment Memo for each BSA examination, The purpose of the Central District AML 

Program is to: 

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• Provide examiners with information to focus AML transactional reviews on identified 

high-risk accounts, that may lead to identification of suspicious activity, money 

laundering, or non-compliance with BSA; 

• Increase exam efficiency by focusing on higher risk or potentially suspicious 

accounts; and 

• Provide a way to track high-risk accounts in the District, 

To reap the fullest benefits of such a program, which handles vast amounts of information and 

complex analyses, it is recommended that there be centralization at the District level or 

geographic region for all DCC lines of business, with possible oversight through an AML 

Committee, A close link between the analyst and the field examiner is a key element to the 

success of such a program, During a bank examination there needs to be flexibility for 

additional FinCEN searches to follow the trails that examiners uncover on-site, 

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Western District 

Money Laundering Risk Summary 

Bank: I I City, State I 

and County: Ch;rt.1 I As of I 

Date: 

Total Assets: I I EICName: I Field Office: ~I 

Determine the extent of activity occurring within certain ~ 

!!!2§ oftbe bank: 3 YIN ~ Aggregate 

Accounts- Dollar Volume 

ill 

Wire Transfer Department: (Wire volumes are average daily yolume) I-- Domestic Wires only 

Payable UponProperID (pUPID) Activity: 

International Wires 

High Risk Location (sending and receiving).: 

. See Ac.ivis!)rv Letter 2ooo-S and CCP BSA website for a list of high-risk. countries.. 

g!ilr!~.a1!!!s gov!www/g~!1Ilnarcotic5 1!l!l122i narc tmS!d!mgnm!&ab!$Ha~ 

Trust Department: 

Charitable Trusts and Foundations (Foreign & Domestic) 

Customer Directed (non..ruscretionary) Accounts 

Custodial Accounts 

Investment Advisory Accounts 

Rovocable Trusts 

Foreign Grantor or beneficiaries 

Loans or Closely held corpotations 

Private Banking Department: I-- Domestic Customers only 

International Customers 

Geographic focus: 

) Examiners-For a defmition of terms used in this Risk Summary Form. please refer to the "Glossary ofTenns" 

accessed through the Risk Summary Form instructions (Western District BSA Intranet Site). 

4 Please note that the aggregate number and aggregate doUar volumes are the accounts outstanding on the as~f date. 

except as otherwise noted. (Wire transfer, monetary instruments, undisclosed counter-party> and e-cash are based on 

avemge daily tmnsaction volume.) 

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Estimated 

or 

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International Department: 

Geogrnphic focus: 

Correspondent Accounts with Foreign Banks: 

Geogrnphic focus: 

Brokernge Department I Opemtions: 

Investment Advisory I Management: 

IntemationalBmnchFacility: (if yes, locations) 

I--

Determine the extent of activity occurring from certain ~ ~ Estimated 

products and services: YIN ~ ~ Or Accounts (2) ill ,Y:erified 

Issuance of travelers checks, official bank checks. and money orders 

{Moneta!! innrumeut volume is based on averaK,t dail! vglume) 

Loans secured by cash collateral 

Payable Through Accounts (identify which countries) 

-

Special Use (Concentmtion) Accounts ( i.e. intm-day, suspense, etc.) 

Cash :Management Services (ie. sweep accounts) (Av!:l'3&e 11&11 votum~) 

Sman cards, e-<:ash (Issuance of electronic products that permit the rapid 

movement of eunency) CD!is vomme is bum on aV~OU:,e !lm)I volume) 

Determine the extent that certain types of customers have YIN ~ ~ Estimated 

deposit relationships with the bank: ~ 

Number of ~ Or 

ill Verified 

NODwtraditional ftnancial entities: 

Casa de Cambios lcurrency exchanges (est. number) 

Money transmitters (includes services incidental to other retail 

business) 

Check Cashing Businesses /Facilities (includes services incidental 

to other retail business) 

Cash-intensive businesses: 

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Convenience Stores 

Truck Stops 

Liquor Stores 

Restawants 

Foreign (Off·shore) Olrporations with transaction accounts: 

List Countries: 

Charitable Organizations (Foreign & Domestic): 

Non-Resident Alien Transaction Accounts (personal): 

Car and Truck Dealerships (new and used) 

Boat and Ailplane Dealerships 

Jewelry Store (retail) and Jewelly, gem, and precious metal deale", 

(wholesale) 

Travel agencies 

Import 'export compatties 

Casinos 

Stock Brokerage firms (Broker dealers) 

Tele-mari;;eters 

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CTR/SAR data and Optional Examiner feedback: 

Estimated Currency Tnmsaction Report (CTR) volume CTR Volume (12 months) SAR Volume (12 months) 

(by D!lIllber) for the previous 12 months (column 1). 

Estimated Suspicious Activity Report (SAR) volume 

(by D!lIllber) for prior 12 months (column 2). 

Examiners comments regarding the Compliance and 

Reputation risk associated with BSAJAML (High. 

Medium, or Law), We also encourage conunents on the 

guality Qfthe bank'§ BSAlAML risk ,m.mmgs:ment 

~ 

OptionaJr Feedbackl suggestions on ways to improve 

this Risk Assessment fonn, and our analysis of 

BSAJAML Compliance and Reputation risk: 

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AML Risk Assessment Program 

of AML Program - Central District 

of AML Risk Assessment Program 

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Model of AML Program 

Phase I - Role of Administrative Assistant 

I. 

Quarterly, emails Field Office Analysts, 

M;idsize Comp~iance EI<;s and La~ge Bank 

Compliance Teams requesting list of BSA 

exams scheduled ~or following quarter. 

II. 

For each bank with a BSA exam scheduled 

in the following quarter the AA downloads 

CTRs and SARs from FinCEN's 

CBRS database. 

Ill. 

AA creates file for each bank with 

downloaded. CTRs.and SARs - files are 

stored on a shared 0:\ Drive in·a folder all 

members of the group can access. 

IV. AA assigns a' compli:mce specialist to each 

scheduled BSA exam fOf the analysis process 

and em ails the group to inform :them 

CTRISAR are on the 0;\ Drive. 

At the end of each quarter the AA burns a CD 

with the preceding quarter's AML analyses. 

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Model of AML Program 

Phase II - Role of Compliance Specialist Team 

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Model of AML Program 

Other Research Available 

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ADC 

BSA 

C&D 

CBS 

CMP 

CTR 

DC 

DSRC 

E&C 

EIC 

ESSP 

EV 

FA 

FDIC 

FDICIA 

FEIC 

FFIEC 

FinCEN 

ABBREVIATIONS 

Assistant Deputy Comptroller 

The Annunzio-Wylie Anti-Money Laundering Act, enacted in 1992 

Bank Secrecy Act; universal name used for the "Currency and Foreign Transactions 

Reporting Act" passed in 1970 

Cease and Des}"st Order, a formal enforcement action 

Committee on Bank Supervision 

Civil Money Penalties~ a formal enforcement action 

Currency Transaction Report 

Deputy Comptroller 

District Supervisory Review Committee 

Enforcement and Compliance; a division of the Chief Counsel's Office 

Examiner-in-Charge 

Examiner Specialized Skills Program 

Examiner View; now called SIS-EV (Supervisory Information System-Examiner 

View). The official electronic file for entities supervised by the 

Midsize/Community Bank line of business. 

Fonnal Agreement; a formal enforcement action 

Federal Deposit Insurance Corporation 

Federal Deposit Insurance Corporation Improvement Act of 1991 

Functional Examiner-in-Charge - responsible for a functional area of a bank 

Federal Financial Institutions Examinations Council 

Financial Crimes Enforcement Network 

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FIRREA 

FIE 

ITS 

LBS 

MJCBS 

MOlT 

MRA 

MRBA 

NAMLG 

OCC 

PCA 

RAS 

ROE 

SAR 

SDC 

SIS-LB 

SPSU 

SO 

S&S 

WSRC 

Financial Institutions Reform, Recovery, and Enforcement Act of 1989 

Full-time Equivalent 

Information Technology Services 

Large Bank Supervision 

Midsize/Community Bank Supervision 

Memorandum of Understanding; an informal enforcement action 

Matters Requiring Attention; an informal enforcement action 

(See next page for details.) 

Matters Requiring Board Attention~ an informal enforcement action 

(See next page for details) . 

National Anti-Money Laundering Group 

Office of the Comptroller of the Currency 

Prompt Corrective Action 

OCe's Risk Assessment System 

Report of Examination 

Suspicious Activity Report 

Senior Deputy Comptroller 

Supervisory Information Systems - Large Banks; The official electronic file for 

entities supervised by the Large Bank line of business. 

Special Supervision division in oce headquarters that oversees supervision of the 

most critical problem national banks. 

Supervisory Office 

Safety and Soundness Order; a formal enforcement action 

Washington Supervisory Review Committee 

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USAPA USA PATRIOT Act, enacted in 2001, as a result of the 9111 terrorist attacks 

THIS PAGE IS 

INTENTIONALL Y 

LEFT BLANK 

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MATTERS REQUIRING ATTENTION (MRA) 

The Bank Supervision Process, Large Bank Supervision, Community Bank Supervision, and 

Examination Planning and Control booklets ofthe Comptroller's Handbook provide guidance on 

examining and communication methods used by the OCC as part of the bank supervision 

process. 

The Bank S~rvision Process Handbook dated April, 1996 defines Matters Requiring Board 

Attention (MRBA) asb~n~PI"ctices that: ...... .. . .... . 

I) Deviate from sound fundamental principles and are likely to result in financial deterioration 

if not addressed; or 

2) Result in substantive noncompliance with laws. 

The Examiner View User's Guide dated November, 2004 defines Matters Requiring Attention 

(l\1RA) as bank practices that: 

1) Deviate from sound fundamental principles and arc likely to result in financial deterioration 

if not addressed; or 

2) Result in substantive noncompliance with laws. 

The Bank Supervision Process, Large Bank Supervision, and Examination Planning and Control 

booklets state: "As part of the bank supervision process, examiners must clearly and concisely 

communicate significant deficiencies and unwarranted risks to the bank. In situations in which 

examiners find significant weaknesses or unwarranted risks, examiners should discuss 

thoroughly these issues with bank management, allowing bank management an opportunity to 

resolve differences, commit to corrective action, or correct the weakness. The significant issues 

along with the board's commitment for corrective action should be detailed in the Matters 

Requiring Board Attention (MRBA) section of the report of examination (ROE). 

The Community Bank Supervision booklet states: "Examiners should detail significant 

deficiencies, along with the corrective action to which the board or management has committed, 

in the report of examination's Matters Requiring Attention (MRA) page or in other written 

communications." 

Collectively, in practice, examiners typically use either term (1\1RA or :MRBA) when discussing 

bank practices, unwarranted risks, or significant issues that require attention and corrective 

action. The review team found that EV is used in the midsiZe/community bank line ofbusiness 

for tracking MRAs. The EV electronic system tracks acc follow-up activities and is used to 

document bank responsive actions to MRAs. In large banks, EICs use a variety of methods to 

track MRAs and to document OCC follow-up activities. In all lines of business, EICs have 

discretion as to what 'MRAs are conveyed in the Report of Examination versus communicated 

informally through discussions with bank management and supplemental memorandum provided 

to the bank. 

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REVIEW TEAM MEMBERS 

Project Leaders: 

Linda Robertson - National Bank Examiner 

Certified Quality Manager 

Senior Program Administrator 

Quality Management 

Sue Thompson National Bank Examiner 

Certified Quality Manager 

Senior Program Administrator 

Quality Management 

Review Team Members: 

Kevin Corazza Senior National Bank Examiner 

Mid-size Banks 

Stan Crisp National Bank Examiner 

Chartered Financial Analyst 

Capital Markets Expert 

Large Banks 

Lauri Henderson - National Bank Examiner 

Chartered Financial Analyst 

Greg Isaacs -

Steven KeyCertified Regulatory Compliance Manager 

Compliance Specialist 

Large Banks 

National Bank Examiner 

Credit Risk SplXialist 

Credit Risk 

Senior Attorney 

Bank Activities and Structure 

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Ken Kohrs ~ 

Jane Otto~ 

Gary Porter~ 

National Bank Examiner 

Certified Regulatory Compliance Manager 

Compliance Speciali 51 

Southern District 

National Bank Examiner 

Fraud Specialist 

Central District 

National Bank Examiner 

Certified Quality Auditor 

Program Accountability 

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2006 London Banknotes Review Murin!! - 24th. July 2006 

Stephen J Allen (SA) Chrurperson 

Gordon Brown (GB) KYC * 

Richard Burdett (RE) Trader 

Francesea Cain (FC) CIBM Central Comphance* 

Kevin DIcken (KD) Trader 

Lee Foster (LF) Banknotes Vault 

David lIIing (01) Head Trader 

Alan Ketley (AK) US Comphance via conference call 

Jonathan Mcmull (JM) General Compliance & AML * _ Ciara Q"Connell (CQ} rninutes .. , 

Andrew Rizcala (AR) us Compliance via conference call 

Ronald Schrllid: (RS) AML Compliance via conference call 

Tina TIPPIng (TT) ISS Compliance 

Andrew Winterbum (AW) Trader 

* copy ofmmutcs 

Issues Covered 

1. Compliance 

2. KYC 

3, High Risk and sec Reviews 

SA commented on the recent OCC exam. As yet BN have not had the fonnal report 

but, the \\'ind-up meeting appeared to go reasonably well and BN took forward 10 

haying confirmation of a satisfacto(y exam. 

1. Compliance 

US Compliance 

AK comments: 

Terry Pesce has been negotJatmg WIth Joe Boss (OCC) as to whether there: IS a need 

or a reqUIrement, from the OCC's perspective, that BN London performs a 

retrospectiYe reyicw of every London profile. AK thinks that Terry is trying to 

propose; if required, a retrospective review can be carried out v,,·ithin a 12 month 

period for IIR and "'itbin 24 month penod for LR which 1S essentially what \ve would 

othermse expect to do anyway AK ,\ill keep BN updated 

AK relates on recent news that FFICEC - umbrella organisation of the regulators in 

US ~ will be issumg a re'i:lsed \erS10n of its exam gUldelines pOSSIbly as soon as the 

end of next week It is tmclear \\'hether it \\,111 have any specific language in It about 

banknotes It is held out to include additIonal mforrnation on ACH on trade senices. 

AK updates SA on potential replacements for Linda Cassel - interviews are in 

process. For nov .. ! the CO approvers \vtll continue to be Terry and Ann Liddy. AK and 

AR have also been reyiewing some of the profiles to try to prevent back~log. SA 

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comments that wIth the OCC exam completed, prospects \\,111 be the focus and we 

anticipate to push through a back-log of prospective clients but will be mindful that 

\vith the departure of Linda there may be some delay with appro\'a1s, AK adds that all 

should be mmdful of the letter and the spirit of the OCC's comments and suggestIOns, 

thIS wlll aid in the approyal process 

Dan Jack IS currently on annual leave and will he back in the office next week. 

Fe comments' 

FC descnbed the recent personnel changes to CIBM compliance including Christme 

Jenkins (C1) move to aid Joe Bro\\TIlee, the MLRO. The team has therefore been 

restructured: FC has come lnJo head up the team with Beth Logue (!3Ll as deputy and_ 

the primary point of contact for L:."l" B:."l" A.ML matters and \vill attend future meetings. 

In terms of co\·er, FC and BL will work In tandem. 

With regard to the UK regulatory enYironment, discussions are focused on the UK 

requirement to take a risk-based approach to AML risk. Discussions are undef\vay 

over what CIBM should do and GB pointed out that a lot of it has already heen done 

for the US requirements point o[,'iew so we should be looking to see how CIBM can 

find a way of leveraging the \vork that has already been done in order to fulfil as 

much as of the CK reqUIrements as needs to be done in terms of documentation the 

answer to \'-'hich is as yet unclear. AK mentions that he has been asked to obtain a 

copy of A\1L Operational RIsk sconngs that were done in US for BN and Metals and 

will hopefully send this Qut by the end of the day 

FC confirms to SA that. in regard to ClBMs monthly reviews of BN profiles, Beth 

Logue wJ!! manage the process 

JM comments, 

UK regulatory regime, non A\1L side, the second level IS all but complete and there is 

stIli no mention ofBN tradmg 

SA updates JM on the re-issue of FIM, baslcally that it is stIll an on-gomg lssue and 

the re-release date has stJIl not been set. 

Potential restructure or GTB should not have any impact on a general compliance 

pcrspectiYe. SA updates the group regarding the GTB restructure namely that Ian 

Stewart's reporting line has changed, he is now reporting to the Group COO instead 

of Stewart Gulhver, so technically no longer CIBM and currently waiting to hear If 

this has any effect for BN. For tIme being BN continues to be part of GTE. 

GB comments' 

The majority of the time of the 2nd quarter was taken up preparing profiles for the 

OCC examination. I ~I quarter identified the profiles that were most likely to be looked 

at and came up with a list of 5S profiles and enlisted the help of US and HK 

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cOlUlterparts to review the customer profile. A total of 74 profiles were worked on 

including those of the examinallon. updating for example, patriot certificate details, 

requiring cross referencmg with DSU. Smce the OCC exam, BN have incorporated 

suggestIOns and adhered 10 comments made by the OCC above all ",:ilh profiles that 

are in process, especially those that are gettmg ready [or appwnu, and new 

customers For example. III section 8, DN are now adding to the profile a bnef 

descnption of the purpose of the relationship that BN has with the customer. 

leveraging off call reports and asking for trader's input. Also, histonc information is 

being cut do\\n. Information that is no longer relevant or infonnation that can be 

construed as simply 'cuttmg & pastlOg' is being re~read and \\here needed 

summarised. In short, renewers are being more subjective and judgemental with 

infonnation AK adds that though it is understood that infonnatiOn for profiles is 

taken from various sources at dIffering times, the more ali the infom1ation flows the 

easJ.er it is. ,~hen 11 comes to .the.approval.PJocc_SS and for anyon~. to review them GR 

responds by saying that there lS a great historical record \\11hin the file and in some 

cases this is bemg conslderable reduced, as much of it '\'as relevant at lhe time but has 

since become immaterial 

Many of the OCC comments stemmed from trader's call reports, where traders have 

written a lot of detailed lOformation. Therefore GB has been added to the recipients 

list ,"vhen call reports are added to CV, meaning he can look at all nev.' call reports 

when they comc in so he can question traders, ifneeds be, straight away. 

AK concludes by adding that a reasonable portion of the examined profiles came back 

\\"ith no comments and that the quality of customer files was much better than when 

the OCC last nsited 

3. High Risk Couolly and sec Reviews 

A.W. comments: 

Egypt 

_ IS only customer and tV"'eakmg pricmg and ofTering bettcr insurance 

coverage resulted In an mcrease In bUSiness. lhough the majonty of business comes 

from other banks ill the Middle East and some of It still comes from 10 

Amman (a former ellent o[l·IBUS). BN IS now gettmg more Middle East currency, 

especially Kuwaiti from them - ~ mllhon 'vas purchased this mommg for example 

India 

........ is an see Volumes have gone up and this is mainly due to 

better tourism. TC (India) recently reported that they have purchased LKP foreign 

exchange company so that should hopefully increase the numbers even more for the 

next penod 

Jordan 

Although we are still tryllli".g.to.r.elli-g.ai.n bank, the only currently actIve 

commercial bank now is 

AK inqUIres after the effects, If any, of the recent troubles in Lebanon and Israel on 

Jordon. A W guesses there may be a slight increase in volumes over the coming 

months but thinks the majority of the troubles will he reflected either through Cyprus 

or Israel themselves There was an inquiry last week on how BN purchases Lebanese 

pounds; obviously there are a lot of the refugees fleeing \,;th \",hatever they can pick 

--= Redacted by the Pumanent 

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up. AK comments on the recent fact that Syna has opened up their boarder wIth 

Lebanon and Syria is 'persona non grata' from a US perspective and Jordan IS nght 

next door A \V responds that there has been dJalogue with the Jordanian Banks in the 

pa..<;t with regard to S)Tia so they are well aware ofBN standIng 

AK reminds everyone to be sensitIve about the Syria issue 

Kenya 

This has been a relatively steady market and UN has re-gained __ the largest 

mdlgenous Kenyan bank and theIr flows are starting to corne through us as opposed to 

going through. BN had slight problems with_Tanzanian branch but they 

ha\'e been very helpful In sorting Jt out. There is competition In the area parttcularly 

from other London correspondents and South African banks. 

Kuwait 

Business has not gone too well here mainly as Bahram seem to be handling a lot of 

the busmess for the Kuwatti banks and this may be increasing Bahrain's figures but 

has not been positiyeJy affecting Kuwait's 

Qatar 

Currently have one counter-part) here which Is_Bank although we have Kye 

approval for Bank Again, BClhrain arc sen'ing Qatar locally because 

Bahrain offer a much cheaper logistic movement then BN can, so figures are qUIte 

modest 

Tanzania 

_ is the only clIent here but hare recently had and_ 

KYC approved FollOWing AW's \"lSi{ last month we should hopefully see some 

improved volumes in the ncxt quarter 

Uganda 

Currently there arc three cbents here, ••••• I!II •••••• ~.II!I 

Bank IS the most act1\'e, they ha\e a large account \\;th a money changer In Uganda 

who is located at the airport as well as around the country SQ they tend to see the 

majonty of the ForeIgn Exchange that flO\ys through the branches. It seems l'ganda is 

becorrung more of a touns! destinatIOn and there was recently a large article In the 

Times confirming this. 

D.l. comments. 

.. ••• ciiliiieiint.i.nIiBilahr~ain and they are an Sec. • are malTI specialists for 

in the whole region so haye a of customers not only in 

Bahrain but in neighbounng countries as well A very good relationship has been 

fostered with.over the last three or four years and they have a S10 million credit 

line which is ver~y unusual for an see but is evidence of ho\\' highly HSBC regard 

them. Business is Increasing on both the selling and buying front On the selling side 

BN sells them most of the surplus Middle East currencies which as AW mentioned 

earher is Increasing due to taking a Jot more Middle Eastern surpluses from _ 

_ in Egypt and on the buying side, business has increased by 56% compared to the 

previous quarter that is mainly due to BN improving pricing and allo\\ing them to 

ship to BN more frequently 

--= Redacted by the Permanent 

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Belarus 

Both selling and prrcmg haye seen an mcrease though the marketmg trip that \vas 

made Il1 Feb/March 06 established that a lIttle busrness was lost, mainly to Austrian 

Ollilks. After adJustments to pncing and offenng the customers a much better sernce 

than previously, BN has been able 10 plck up business again. Unfortunately, last week 

It was discovered that Lufthansa are changing the aircraft they use to ship money to 

Belarus and this potentially could mean all busmess is lost as valuable cargo will not 

be permitted on the neVol plane. Other alternatives are being looked into and hopefully 

business will continue 

Channel Islands 

The onlv client here IS an SCC, BN have been working closely 

}~ith_over th~ last Y~J!r ~Q. increa<;e their buslnes? .. 1hey .. anO! nm\' aggre:s?.!..\,.~!l_ 

going after _business in Jersey, doubling the amount of outlets they have on 

the island that offer retail foreign exchange for example. They have also changed to 

using HSBC rates as opposed to and BN have aided them with their IT so 

that the rates cun be sent everyday 

IVOl), Coast 

There has been a 101 of unrest here recently so much so that BN has been told _ 

IllIIIi.iiill~\\'ho ru-e BN last remaining carrier for money into Ivory Coast, are 

senously conSIdering pullmg out It is getting increasmgly difficult to get money into 

Ivory Coast, two couriers haye 10 accompany shipments \vhich increases the price and 

therefore these costs are passed onl0 the customer. The main competItion is from the 

French banl. \\'ho have a contract with _ Paris that makes them the only 

people who ~an ~'aluable cargo [r?m Paris and aDtt,~e~m:,~PI,tlsllat~a,H""S~BIC.B.N relationship WIth_Paris has proved ImpOSSI ble. BN ~: 

Bank as a chent l!1 May 05 which has helped to increase our 

Libya 

We have to tender for each mdIyidual shipment and BN is competing each time with 

_and on occasions though 5 good deals have been picked up In 

the last quarter totalling $554 million. Each deal is either for $100 million or €lOO 

nullion After losing out to-"we ha,,·e negotiated better terms \vlth_to 

deln·er the money and offer better pnces 

Russia 

Russian business thnves on instability, rumours, weakness/strength of the $ and the 

Russian populatIOn tend to scmtimse the exchange rates_ anytime they get an inkling 

the Central Bank are going to change the Rouble rate Russians sell their or buy 

dollars The last quarter had a lot of rumours and commt-'TIts from the Russian Central 

Bank that the Rouble was going to be trading under 20 per dollar: it 'was trading at 

almost 27 prior to that There was almost panic, \\ith RUSSIans selling their $ and 

buying Roubles The yolume fibTtlreS jumped up hugely 10 the month; BN bought 

nearly $2 billion In the quarter from Russia against $625 million last year. This is the 

biggest amount of busmess conducted 10 Russia for three years ~ when _Ban k was 

rumoured to be in trouble. Selling side also Increased, t\\'o of BN major counterparts 

have developed much biggenvholesale networks which has taken business away from 

~vho are the mam banknote bank In RUSSia - BN are not trading ",·jth them but 

KYC has been subrrutted for approval _ have around a 40% share in the 

business in RUSSIa and this is therefore a c~ab!e amount of business that BN IS 

nus sing out on 

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- Subcommittee on In"estigations 

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Saudi Arabia 

The business is fairly stable, volumes decreased $3 million on the quarter last year but 

we are experiencing a lot of competition from Commerz who are shipping directly 

from NY into Saudi and they are offering nearly 50% cheaper prices than BN quote, 

so work has had to be done to offer better prices to re-gain volume in this business, 

We onlY have 1\vo customers here: Saudi American Bank and National Commercial 

but we ~ontinue to press for the re~instatement of AI Rahji but there remain ongoing 

KYC issues. 

Ukraine 

Delta Airlines in Jun~ntroduced a new flight from NY direct to Kiev and prior to this 

BN were losing a lot of business with a major wholesaler in the Ukraine,. Bank, 

but.hID'e managedJ:n persuada clients to use thi£earjier flighLand haye.already_picked. 

up more business. Hopefuny BN \~111 see bigger increases, while _ and 

_remain the biggest compe1J.tors, 

UAE 

1II11!1.1I1I •• is the see client here. Market share has hao;; had to reduce pricing as _has pricing by 50%. Though fairly stable market 

•••• ~~ are the two major counterparts in this region 

and BN continue to see a very good share of their business, mainly on the buying side 

but have increased business selling to them. BN have started selling them their surplus 

United Arab Dirhams since negotiating better terms for them and going fonvard 

should see increases. On the buying side, BN offer them a very good sen'ice which 

outdoes that of competitors resulting in more business. 

UK 

~oompetitor to BN in the wholesale market and we only trade with 

one another when either party is short of a currency. 

Operating outlets in approximately 105 HSBC branches. Business increased in the last 

quarter which was mainly due to tourism - natural v,rith the Easter period and now 

into summer, saw increase in sales from 32 million to 46 million but overall year on 

year, business with going down 

-

Another major competitor in particular markets, especially in Africa. They come to 

BN only for certain currencies, they are not particularly flexible in how they do 

business. Have seen an increase on our buying side as BN buys more Scandinavian 

currencies from them, this is simply down to other wholesalers not purchasing them. 

TIlls is the biggest client in UK who operates a number of Bureaux particularly at 

Stansted and Gatwick airports. Seasonal increase is dO\\l1 to tourism but BN has 

recently worked closely with ..-and are now their main supplier of currencies and 

offer direct delivery to Stansted and G'dtwick. 

__ =- Redaded by the Permanent 

Subcommittee on Investiptions 

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They are a RU5SJall 3lfime based at_airport. They operate ma,stve cargo 

planes all over the \vorld. The main purpose of the relatIonship IS [or them to use cash 

to pay for fuel and services m varying cauntnes. Typical!y, orders are approXImately 

$200 000 per week. They are In the process of mergmg with their competitor which 

\\ill hopefully mean Increases In busmess for us. 

KD comments: 

Georgia 

Only selling to Georgian banks at present; afI)thing that they want to sen is small and 

not profitable 

Sales have gone do\\TI 2005 - 2006. This IS d-~~ to com.Piie.tiilt·;III~nlllilfrlilomiii'_i~nna but 

could also be that has lost business to I I 

These sales figures have gone up. They are a relatively new client to BN and KD 

guesses tbat the figures ,,,ill continue to increase. NY has lost business from _ 

_ to _but BN has gained it through_ 

Latvia 

Sales haye Increased whereas purchases are qUIte aycrage. Purchases are unlikely to 

increase by much but more posItive outlook on the sales sIde 

Purchases have gone dO\'\l1, Latvia has opened up and whereas we previously had a 

lot of the market. we are now seemg a lot more competItion On the selling sIde, BN 

has a strong relatlOnship, with a good stock of many currencies and knows 

they can get new Euros from KD. KD -visited the client this year and met with the new 

dealer. 

Similar scenario here a"i wltb •••• lost out on purchasing Side. Unfortunately 

the seHmg SIde has also decreased. 

This client use BN as a last resort, for example If the Viennese are closed. There 15 

unlilely to be any big movements W11h this chent. BN gets approximately 10% of 

__ business per year 

RB comments· 

Azcl-baijan 

Increase in sales for both ••• II!!I! ..... II!I., and ~~"111.!1"'~~!1 This is mainly down to BN using an earlier flight out of London which 

means that both banks can pay and order on the same day as opposed to previous day. 

The actual volumes of cash In A/.erbaijan have not increa.;;ed at aJl more that BN can 

now service Azerbaijan better than competitors 

Kazakhstan 

• are a new customer so no real comparison For the rest, there has been a decrease 

in sales. Pnncipally, in the last five or SIX months the local currency has [Own 

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stronger against th~ dollar which has cooled some o[the demand for dollars. Last year 

experienced extra-ordinary growth on the back of a credit boom in the cOWltry which, 

to some extent. has been ehllausted. 10 London has emerged as 

another competitor here, resu!tmg In BN haying to meet them on price. Volumes have 

pIcked up although at a reduced turnover for BN have taken _ 

though their business wIth us was small. 

Kyrgyzstan 

i~!ii~.1!!1 relatively small figures. though up compared to last year. They 

would tend to selI BN their surpluses three to four times a year. These would be old 

banknotes that they can not use Of sell internally or to neighbouring countries. 

Lebanon 

Has seen a do\\ntum in .. buslOess. for AL .and _. _ 

_ SAL, this is perhaps down to BN being more stringent than other counterparts 

with regard to counterfeIt notes so BN is tended to be used as a surplus requirement 

rather than a general counterpart 

---= Redacted by the Permanent 

Subcommittee on In"estigJltions 

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cc; Pierre Betzu/HBUS/HSBC@HSBC 

FIG HBUS@HSBC 

Subject Fw; Report of Findings ~ AJ Rajhl Commercial Foreign Exchange, 

Jeddah - FIG 

Original AJ Rajhl report is attached 

--------~------- Forwarded by Bob Powers/HBUS/HSBC on 07113/2005 05:34 PM 

FIG HBUS on 13 Ju1200517;32 

Note 

13 Jul 2005 17;32 

From: FIG HBUS Tel: 

Title: Location: 

WorkGroup: Mail Size: 12344 

Sent by; Bob Powers 

To: AIM support@HSBC 

cc: Pierre 8etzu/HBUSfHSBC@HS8C 

FIG H8US@HSBC 

Subject: Report of Findings ~ AI Rajhi Commercial Foreign Exchange, JeddahFIG 

CONFIDENTIAL 

... FOR INFORMATIONAL PURPOSES ONLY'" 

FINANCIAL INTELLIGENCE GROUP (FIG) 

REPORT OF FINDINGS (UPDATE) 

SUBJECT: AJ Rajhi Commercial Foreign Exchange, Jeddah 

ENTITIES: AI Rajhl Commercial Foreign Exchange, Jeddah 

REQUESTOR: Kevin O'Donnell 

DEPARTMENT; AIM Support 

A report of findings in support of enhanced due diligence was requested for AI 

RaJhi Commercial Foreign Exchange, Jeddah. The most recent update review of 

the AI Rajhi Trading Establishment in Saudi habia was sent in April, 2005. 

That update provided findings subsequent to the first report regarding AI Rajhi 

entities that was originally Issued from this office in October of 2003, An 

update was conducted in December of 2004. Text of the more recent update will 

be pasted at bottom. The text of the original report will be included in the 

attached PDF file. This current report will address recent information specific 

to Al RaJhl Commercial Foreign Exchange, Jeddah. 

/4J Rajhi Commercial Foreign Exchange, Jeddah 

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According to "Bankers Almanac," AI Rajhi Commercia! Foreign Exchange is located 

In Jeddah, Saudi Arabia. The bank has correspondent banking relationships with 

Land Bank ofthe Philippines and Social Investment Bank in Bangladesh. 

OUf review found no profiles that would provide insight into the bank's 

operations. However, the bank's own website (www.bankalrajhLcom) names Me 

Abdul Rahman A.A. Alrajhi, member of the prominent AI Rajhi family, as Vice 

Chairman, Chief Executive Manager, and President The chairman is not named on 

the website, 

In 2004 it was announced in numerous press reports that AI Rajhi Commercial 

Foreign Exchange would be one of eight SaUdi money exchangers to merge into the 

new AI-8ilad Bank, wflich was expected to launch by mid-2005 with $800 million 

in capital. Another of the eight firms involved in the merger was reported to 

--oe--ArRajhi Trading Establfstiinent.- - -- -- ----

"Gulf News" reported on May 2, 2005 that shares in AI Silad Bank soared to 950 

Saudi Riyals ($253) on its first day of trading. 

Our review found no evidence of criminal activity surrounding AI Rajhl 

Commercial Foreign Exchange or its president Abdul Rahman AI-RajhL 

Text of previous reports regarding AI Rajhi entities is pasted below and in the 

attached PDF document. 

Please feel free to contact me with any questions regarding this report 

Sincerely, 

Bob Powers 

FIG lnvestigations 

CONFIDENTIAL 

... FOR INFORMATIONAL PURPOSES ONLY'" 

FINANCIAL INTELLIGENCE GROUP (FIG) 

REPORT OF FINDINGS (UPDATE) 

SUBJECT: AI Rajhi Trading Establishment 

ENTlTIES: Al Rajhi Trading Establishment 

REQUESTOR: Paul DiBenedetto 

DEPARTMENT: Client Services - Financial Institutions 

Accounts: AI Rajhi Trading Establishment, Banknotes - 000135704 

A report of findmgs in support of enhanced due d!ligence was requested for the 

AI Rajhi Trading Establishment in Saudi Arabia. A report conducted on AI Rajhi 

entltles was ofiginaUy issued from this office in October of 2003 An update 

was conducted in December of 2004, Text of those previous reports will be 

pasted at bottom and attached, This current report win address recent 

information specific to Al Rajhi Trading Establishment 

N Rajhi Trading Establishment 

Confidential· FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB03110810 

Confidential· FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 2725168 
1325 


760611.158

AI Rajhl Trading Establishment has appeared in the news very infrequently in 

the time since the imtial report was conducted on AI R8Jhi entities in 2003. 

No eVidence of criminal activity relating specifically to AI Rajhi Trading 

Establishment could be found in our review. 

The most significant report concerning AI Rajhi Trading was published in 

"Ethnic Newswatch" in August, 2004. This artlcle reported that AI Rajhi 

Trading was one of eight financial institutions to be merged into AJ BHad 

Bank, a new banking corporation expected to launch operations in mjd~2005. At 

BHad wilt have a capita! of $800 million. 

In April, 2005, the "EIU Riskwire" reported that AJ SHad was still waiting to 

open. AI Bilad will be Saudi Arabia's 11th commercial bank:. 

Text of previous reports regarding AI Rajhi entities is pasted below and in the 

attached PDF document. 

Please feel free to contact me WIth any questions regarding this report. 

Sincerely, 

Bob Powers 

FIG Investigations 

Note 

13 Dec 2004 10:04 

From: Steven Pichardo Tel: 212-525-6736 

Title: Associate Location: 452 5th Ave, Floor 07 

WorkGroup: COMP/ANTI-MONEY LAUNDERING Mail Size: 7164 

To: Susan SALASIIBEU/HSBC@HSBC 

cc: Michael E!11s/HBUS/HSBC@HSBC 

Gloria StrazzaJHBUS/HSBC@HSBC 

Sally G LOMAS/HBMD/HSBCMERIDIAN@HSBC 

Danie! JacklHBUS/HSBC@HSBC 

Subject: Report of Findings A1-Rajhi Banking & Investment Corp. - FIG 

CONFIDENTIAL 

... FOR INFORMATIONAL PURPOSES ONLY'" 

FINANCIAL INTELLIGENCE GROUP (FIG) 

REPORT OF FINDINGS 

SUBJECT: Al-Rajhi Banking & Investment Corporation 

ENTITIES: A!~Rajhi Banking & Investment Corporation 

REQUESTOR: Sally Lomas 

Confidential - FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB03110811 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 2725169 
1326 


760611.159

From: PAUL PLESSER/HBUS/HSBC 

Sent 2/22/2005 11.04;28 AM 

To: ALAN T KETLEY/HBUS/HSBC@HSBC 

CC 

Subject: Fw' Al Rahjl Trading/AI Rahji Banking 

so i guess we are ok to continue trading? 

-_. __ •...... _ .• __ .- Forwarded by Paul PlesserfHBUS/HSBC on 02/22/2005 11-04 AM _._ .. __ .. _-_ ... _-

From: Georges Atallah on 22 Feb 2005 10:56 

To: -- Va-ul PlesseflHBUSfHSBC@HSBC 

CG. Alba Khoury 

Sobhi Tabbara 

Subject Re: AI Rahjl Trading/AI Rahjl Bankmg 

Paul 

For us is business as usual. Alba spoke to Edmond Carton and Sobhi Tabbara 

and they were not informed of any decision regarding AI RajhL Also no 

instructions from IPS comphance 

From: Paul Plesser 

Sent 02/2212005 08;19 AM 

To: Georges AtaUah 

Cc: Nazem Elsabeh 

Subject Fw' AI Rahji Trading/AI Rahj! Banking 

Georges, 

As you know, Nazem E!sabeh deals FX vvith AI Rahji Trading. I have been trying 

to get some clarity on this Issue since the original note was circulated at the 

end of January, Alan Ketley has told me that you would be able to help. 

Is this account being closed or are we stili allowed to trade FX with them? 

Thank:s. 

Paul 

-------++-- For.varded by Paul Plesser/HBUS/HSBC on 02/22/2005 08.18 

AM .• --~ •• --.. ~.--.. --

From' Joseph A Belfatto on 31 Jan 2005 07:29 

To: Patrick McDonald/HBUS1HSBC@HSBC 

Paul Plesser/HBUS/HSBC@HSBC 

Albert Yu/HBUS/HSBC@HSBC 

Mark A Baker/HBUS/HSBC@HSBC 

Karl FruechUHBUS/HSBC@HSBC 

Mary-Jo Cohane/HBUS/HSBC@HSBC 

Debra J LDDGE/HBUS/HSBC@HSBC 

Thomas Del Zoppo/HBUS/HSBC@HSBC 

Grant Thompson/HBUS/HSBC@HSBC 

Confidential· FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB03497530 

Confidential- FOIA Treatment Requested by HSBC Bank, USA, NA HSBC OCC 3111888 
1327 


760611.160

Subject Fw: AI Rahji Trading/A! Rahj! Banking 

Please note .. 

--- Forwarded by Joseph A Be!fatto/HBUSfHSBC on 01/3112005 07:29 AM ----

Joseph M Petri/HBUS/HSBC 

01/30/200501 '33 PM 

To 

Robert Feeney/HBUS/HSBC@HSBC, John A PaganuccifHBUSfHSBC@HSBC, Ethie 

TenselfHBUS/HSBC@HSBC, Peter G MerritVHBUS/HSBC@HSBC, Brad 

Meredith/HBCAlHSBC@HSBC02, Joseph A Belfatto/HBUSfHSBC@HSBC, Benjamin 

Welsh/HBUS/HSBC@HSBC, Andrew S LombaraiHBUSiHSBC@HSBC, Tony 

-MurphyiHBUS/HSBC@HSBC, Daniel MineivaiHBUS/HSBC@HSBC, Fe-mando P 

PEREZlHBMXlHSBC@HSBC, Jose-Luis Guerrero/HBUS/HSBC@HSBC 

cc 

Subject 

Fw: AI Rahj! Trading/A! Rahji Banking 

FYI. 

-------- Forwarded by Joseph M Petrl/HBUS/HSBC on 01/30/2005 

Teresa Pesce on 28 Jan 2005 11,01 

Note 

28 Jan 2005 11 :01 

From: Teresa Pesce Tel: 212-525-6099 

Title: Executive Vice President Location: 

WorkGroup: CaMP/ANTI-MONEY LAUNDERING 

To. Micllae! B Gallagller/HBUS/HSBC@HSBC 

Cilristopher LokJHBUS/HSBC@HSBC 

Peter G MerritVHBUS/HSBC@HSBC 

cc: Tony MurphyiHBUSiHSBC@HSBC 

Joseph M Petri/HBUS/HSBC@HSBC 

Carolyn M WindiHBUS/HSBC@HSBC 

Camillus P HughesiHBUSiHSBC@HSBC 

Alan T KetieyiHBUSiHSBC@HSBC 

William M WongiHBUSiHSBC@HSBC 

Susan A WRIGHTIHGHQIHSBC@HSBC 

Subject" AI Rahjl Trading/AI Rahji Banking 

AlI452 5th Ave, Floor 07 

Mall Size: 3172 

As some of you may know, the above named clients have been under evaluatlOn by 

US and Group Compliance based, among other things, on relationships maintained 

With entIties/countries on the OFAC list Additionally, US law enforcement has 

placed these entities under scrutiny. After much consideration, Group 

Compliance has recommended that the US businesses sever ties WIth these chents 

based on the current regulatory environment and the (nterest of US law 

Confidential· FDIA Treatment Requested by HSSC N. America Holdings, Inc, HSB03497531 

Confidential· FDIA Treatment Requested by HSSC Sank, USA, NA HSBC DCC 3111889 
1328 


760611.161

enforcement. Accordingly, 1 wiH not approve customer profiles for or 

transactions With these entities. Please make appropriate arrangements. I am 

available to answer any questIons you might have. 

RegardsTerry 

Confidential. FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSS03497532 

Confidential· FOIA Treatment Requested by HSBC Bank, USA, N.A. HSsC OCC 3111890 
1329 


760611.162

From: GEORGE TSUGRANESIHBUSIHSBC 

Sent: 311512005 2:43:07 PM 

To: NANAYO RYANIHBUSIHS8C@HSBC 

CC: SHARYN MALONElHBUSIHSBC@HSBC;ALAN T KETlEYIHBUSIHSBC@HSBC;W1lLlAM 

WEHMEYERlHBUSIHSBC@HSBC 

Subject Hokuriku Bank Cil Activity 

Nan -' attached is a spreadsheet of cash letter deposIT activity on Hokuriku 

Bank.. Over the last few months deposits totalling over $2 million have been 

deposited through cash letter deposits . .AJthough forms have been provided for 

each deposit (wfth one exception) the explanation for each deposit states that 

the companies are all in the used car sales business and the purpose is 

~funds"_ 

Can you reach out to the bank and ask that adequate KYC is on file for each 

name listed on the spreadsheet, 'Nhether the customer activity is consistent' 

with the KYe, and also who is their customer base (Ioca! clients, people buying 

caTS for export, etc.) and why US dollar travelers checks would be used for 

payment. 

regards, 

George 

Attachment Hokuriku CL.:xls 

Confidential- FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB0349961B 

r.nnflrl .. nti~I_l=nld Tr .. "tm .. nt R .. nll",<:t",rl hv ~~Rr. R"nk II~A N A HSBC OCC 3113976 

760611.163

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760611.164

From: WILLIAM WEHMEYERlHBUSIHSBC 

Sent: 11129/2005 4:37.56 PM 

To: MARK BALAWENDERlHBUSIHSBC@HSBC 

CC: GEORGE TSUGRANES/HBUS/HSBC@HSBC;ALAN T KETLEY/HBUSIHSBC@HS8C 

Subject Fw: Brook!yn cash letter 

MarK, 

Here are some statistics we obtained from M!S earlier in the year. The period 

is from December 2004 to January 2005 the total dollar amount processed was 

USD39,297,815,252.59. Fee! free to call me with any questions, 

Regards, 

William 

---- Forwarded by William Wehmeyer/HBUSfHSBC on 11/29/05 04:15 PM ----

George TsugranesfHBUSfHSBC 

11129/0503:17 PM 

To 

William WehmeyerIHBUS/HSBC@HSBC 

cc 

Subject 

Fw: Brooklyn cash letter 

Bill -can you dig up cash letter 'figures that involves the corps and banks and 

forward to Mark Balawender. Jf there is a report on items for PCM etc (Angelo 

Focarazzo rpts etc) lise those figures 

regards, 

George 

-- Forwarded by George Tsugranes/HBUS/HSBC on 11J29105 03:15 PM -~---

Alan T Ketley/HBUS/HSBC 

11/28/0508:36 AM 

George 

To 

George Tsugranes/HBUSfHSBC@HSBC 

cc 

Subject 

Fw: Brooklyn cash letter 

Can you give Mark the cash letter figures we have for lNhat Brooklyn processes. 

Confidential· FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB03566414 

Confidential· FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC acc 3180772 
1332 


760611.165

Thanks 

Alan 

-~~---------~- - Forwarded by Alan T KetleyfHBUS/HSBC on 11/28/2005 08:28 

From' Mark Balawender on 25 Nov 2005 13,41 

To: Alan T Ketley/HBUS/HSBC@HSBC 

cc: Karin O'NeiU1HBUS/HSBC@HSBC 

Carol A "SetterfHBtJSfHSBC@HSBC 

Subject: Re: Brooklyn cash letter 

Alan, 

After a few phone informal calls, there are some more ways In for large check 

deposits and I do not believe there are any formal or documented checks in 

place that would identify potential unlicensed money service business 

actIvity. Generally, it IS heads down volume procesing. Money Centers process 

the currency for their customers, replace it with a cash in tIcket and forward 

the checks on to Proof for processing without a formal review. Large 

pre~encoded or unencoded courier deposits (induding those from the Money 

Center) to Proof or MICR also receive no formal review. Given the 

volume/deadline driven/processing nature of the departments above, I am not 

sure what we can do. Historically, I do not think this has been seen as a big 

risk. We should probably discuss the risks and potentia! rewards of such any 

such reviews with Denise and Terry to see how they view the risk. I would 

anticipate a rather strong push-back from Dps and the branChes, if AML 

Compliance were to suggest additional processes, I will see what! can gather 

on the Money Center, Proof and MICR customers across the state and their 

related check. volumes and doHars. \/\!hen I get the lists, can you assist with 

scrubbing out the CIBM customers? I would have no way of identifying them 

AJso, I wouldn't really worry aboutVVholesa!e Lock.box as they have to get 

irWOIce/payee information and the checks should receive more individual 

scrutiny. 

Lastly, I misspoke, It is 5 checks and a 'fan' reVIew of deposits in the 

branches, as below. 

Services: DEPOSIT & PAYMENT PROCESSING - DEPOSIT PROCESSING (REV 9/1996) 40.1 

Services Section 40-1 

DEPOSIT & PAYMENT PROCESSING - DEPOSIT PROCESSING (REV 911996) 40.1 

REQUIREMENTS 

Checks payable to a corporation, organizatIon, estate, etc. may only be 

accepted for deposit to the respective corporation, organization, estate, etc. 

account. 

Checks being deposited should be reviewed on the back. for endorsement and on 

the front to verify that the name is the same as payee and matches the name on 

the depOSIt ticket. ThiS should be completed indiVIdually, for deposits 

Confidential - FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB03566415 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC acc 3180773 
1333 


760611.166

containing up to five (5) checks. Scan through larger quantities of checks by 

fanning the batch. 

Second endorsed checks may be deposited upon approval, however, the last 

endorsement must match the name on the deposit ticket. 

Alan T KetleylHBUS/HSBC 

11/23/200503:41 PM 

To 

Marl( BalawenderfHBUS1HSBC@HSBC" 

Subject 

Re. Brooklyn cash letter 

Mark 

You have misunderstood my intent ~ probably due to my poor way of explaining it. 

Correspondents 1 know about ~ for who else do Brooklyn clear checks? 

Alan 

From: Mark Balawender on 23 Nov 200514:03 

To: Alan T KetleyJHBUSfHSBC@HSBC 

Subject. Re' Brooklyn cash letter 

Alan, 

I am told by Float Management that the best list of Incleanng correspondents 

was generated from Judy and George in response to the correspondent banking 

audit. Is there a time that is good for you to briefiy discuss? 

Thanks. 

Alan T KetleylHBUS/HSBC 

11118/200504:02 PM 

To 

Confidential- FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB03566416 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 3180774 
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760611.167

"Mark Balawender" <mark.balawender@us.hsbc.com> 

Subject 

Brooklyn cash letter 

Mark 

Is there a way to identify for vvhich non-PCM clients the Brooklyn check 

pro-cesS-log area handles-·cash letter? 

We have strong momtoring procedures in place for PCM clients but! don't know 

what's in place for other clients 

Thanks 

Alan 

Attachment: CASHLETTER.xls 

Confidential - FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB03566417 

Confidential- FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 3180775 

760611.168

NC# ACCOUNT NAME 

Redacted by the 

J;'ermanent Subcommittee on Investigai ion. 

Iledac:ted by the 

J;'ermanent Subcommittee on Investigations 
1336 


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Confidential· FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 3180777 

760611.170

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Confidential· FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 3180779 

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Confidential - FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB03566427 

Confidential- FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 3180785 
1345 


760611.178

Redacted 

by 

Permanent Subcommittee 

on Investigations 

HSBC OCC 3180786 - HSBC OCC 3180797 
1346 


760611.179

From: ALAN T KETLEYfHBUSJHSBC 

Sent: 12114/2005 8:13:10 AM 

To: GILLIAN E BACHSTEINIHBUSIHSBC@HSBC 

CC: 

Subject Fw: KYC Profiles - Impact of CO Denial 

Gillian 

As promised yesterday - these were the 'headline names' way back when but I 

know things are much better now. 

Alan 

--- Forwarded by Alan T Ketley/HBUSfHSBC on 12/14105 08:12 AM 

Alan T KetleyfHBUS/HSBC 

021021Q5 03 24 PM 

To 

__ "'" Redacted by the Permanent 

Subcommiltee on Investigations 

Daniel JacklHBUS/HSBC@HSBC, George Tsugranes/HBUS/HSBC@HSBC 

cc 

GUYS 

Lynda J Cassell/HBUS/HSBC@HSBC 

Subject 

Fw: KYC Profiles -Impact of CO Denial 

Can you check up on the status of these profiles please, I'd like to know where 

we stand on these CO Denieds 

Thanks 

Alan 

~~------------- Forwarded by Alan T Ket!eyfHBUSfHSBC on 02/02/2005 03:22 

PM-----------------------

Alan T Ketley on 06 Dec 200415:31 

Note 

06 Dec 2004 15:31 

From: Alan T Ketley Tel: 212-525-6147 

Title· First Vice President Location: 452 5th Avenue, Floor 7 

WorkGroup: CaMP/ANTI-MONEY LAUNDERING Mail Size: 7618 

To: Christopher LoklHBUS/HSBC@HSBC 

Stephen J ALLENIHBMDIHSBCMERIDIAN@HSBC 

Gyanen Kumar/HBUS/HSBC@HSBC 

Roger T K SOISVP NBD RNHIHBUSIHSBC@HSBC 

Confidential - FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB03570665 

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Kauko I Aro/HBUS/HSBC@HSBC 

Sally G LOMAS/HBMD/HSBCMERIDIAN@HSBC 

Vl!ng Kin - Hk CHAN/NBD RNHIHBUS/HSBC@HSBC 

Sharyn Malone/HBUS/HSBC@HSBC 

George Lusz:czyk/HBUS/HSBC@HSBC 

Masao M FUJIIITKY/HBAP/HSBC@HSBC 

cc: Rita GonzalezfHBUSfHSBC@HSBC 

Michael B Galiagher/HBUS/HSBC@HSBC 

Daniel JacklHBUS/HSBC@HSBC 

George T sugranes/HBUS/HSBC@HSBC 

Teresa Pesce/HBUS/HSBC@HSBC 

Suzanne K Matthews/HBUSfHSBC@HSBC 

Sandra Peterson/HBUSfHSBC@HSBC 

Lynda-TCasseTIlRBUS7RSBC@HSBC 

Subject: KYC Profiles - Impact of CO Denial 

Ladles and Gentlemen 

A review of the Lotus Notes KYC system has shown up an anomaly In the way we 

handle customers who may be 'CO Denied' If a new customer is CO Denied then 

they are not able to transact with us until the profile is approved but if a 

current customer !s CO Denied then transacting has continued without 

interruption. 

This e-mail notification addresses both current customers 'NIlo have been CO 

Denied as weI! as any customer that may be CO Denied in the future 

With im~edjate effect, CO Denial must be handled as follo\oVS: 

PCM customers must be given 10 days notice that we wi!! cease processing their 

payments (inbound and outbound) unless a dispensation is obtained from the AML 

Director and an updated profile is approved by the AML Director within that 1 0 

day period. 

Banknote customers must be given 10 days notice of tradmg termination unless a 

dispensation IS obtained from the AML Director and an updated profile is 

approved by the AML Director within that 10 day period. 

For current customers that 10 day clock. will commence on December 7 (so 

December 17 will be the final day we will transact with them unless a 

dispensatIon is obtained). 

All current customers affected by this are listed below and have been subject 

to enhanced monitoring so we do not feel that the bank IS at nsk beyond the 

obvious Inconsistency in the treatment of customers. 

--= Redacted by the PcrmJ.'lnent I 

SubcommitteeQn Investigations 

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If you have any questions about this please let me know. 

Regards 

Aian 

--"" Redacted by the Pennanent 

Subcommittee on Investigations 

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From: ALAN T KETLEYIHBUSIHSBC 

Sent: 3120/2006 5:31.20 PM 

To: BETH FISHERlHBUSIHSBC@HSBC 

CC: 

Subject: Re; AI-Rajhi 

Beth 

I gather than Banknotes wants to revive the relationship but has not yet done 

so. 

Do you know what the facility is supporting? 

Alan T. Ketley 

First Vice President, Anti Money Laundering 

Tel· 212 525 6147 

Fax: 212 382 7580 

Beth Fisher/HBUS/HSBC 

0312010604:51 PM 

Alan, 

To 

~an T KetleyIHBUSIHSBC@HSBC 

Subject 

A1-Rajhi 

I thought we exited this name! I am surprised to find a facillty. In fact, 

the LN KYC was de-activated a year ago. 

I wJll ask: London CRM to cancel if your understanding is the same as mine. 

AL·RAJHI BANKING & INVESTMENT CORPORATION 

Thank. you. 

Beth Fisher 

RM, CIB-Financials 

HSBC Securrties (USA) Inc. 

Tel 212·525·6644 

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From: BETH FISHER/HBUSIHSBC 

Sent 3121/2006 3:53,51 PM 

To: DOROTHY A GULMANIHBUSIHSBC@HSBC 

CC. ALAN T KETLEYIHBUSIHSBC@HSBC;CHRISTOPHER J HEUSLER/HBUSIHSBC@HSBC;MANWEI 

HUANGIHBUSIHSBC@HSBC; 

ROBERT ABREUIHBUSIHSBC@HSBC 

Subject Re: Updated TSOfTCS2 spreadsheet 

RE: 

-.- AL-RAJHI BANKING & INVESTMENT CORPORATION 

FYI, this was an HBUS London Banknotes (only) relationship 'W'hich was exited a 

year ago due to AML Compliance concerns Unfortunately, no one canceled the 

TCS2 facility ~~ a USD50M TSL line, I have asked GHQ CRM London to cancel the 

1irre-,-Tm-s-5"-NOtoNGER an HBUS rel!ltiDnshtp':'We must remove'this 'banK fro or 

our list. 

Thanks, 

Beth Fisher 

RM, CIB-Flnanclals 

HSBC Securities (USA) Inc 

Tel. 212-525-6644 

Dorothy A Gu!man/HBUS/HSBC 

Tel: 212-525-2550 

031211200601 :08 PM 

To 

_ edacted by the pcrman,ent. 

--- ~ubcommittee on InHshgatJons 

Alan T KetleyIHBUSIHSBC@HSBC, Robert AbreuIHBUSIHSBC@HSBC, Beth 

FisherJHBUSfHSBC@HSBC, Manwei Huang/HBUSfHSBC@HSBC 

cc 

Christopher J Heusler/HBUS/HSBC@HSBC 

Subject 

Updated TSOfTCS2 spreadsheet 

I am back. Here is the updated spreadsheet showing KYC's in AIM and Lotus 

Notes. You should know that most of the AIM accounts that! looked had did NOT 

have the KYC information. These accounts are part ofthe 2003 conversion that 

dragged the names over but no real information. ! think we are still waiting 

for something sort of dlspensatron on those .. 

[attachment "t50 tcs2 2006 review.xls" deleted by Beth Flsher/HBUS/HSBC] 

Dorothy 

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From: MICHAEL ELLiS/HBUS/HSBC 

Sent: 5/15/2006 4 :08:42 PM 

To: PIERRE NASSER/HBUS/HSBC@HSBC 

CC: STEPHANIE L NAPIERlHBUS/HSBC@HSBC;MUHAMMAD SHOHIDUZZAMANIIB 

DAKlHBAP/HSBC@HSBC;AFTABHAIDERlIB DAKlHBAP/HSBC@HSBC; 

GEORGE TSUGRANES/HBUS/HSBC@HSBC,ALAN T KETLEY/HBUS/HSBC@HSBC;FIG HBUS@HSBC 

Subject: Report of Findings - lslami Bank Bangladesh Ltd - FIG 

Pierre, 

I am sending the below report on behalf of one of our new investigators, 

Katllleen Dischner, who does not have access to Lotus Notes yet. Please fee! 

free to contact me with any questions. 

Thanks, 

Mike 

CONFIDENTIAL 

"'FOR INFORMATIONAL PURPOSES ONLY 1 FOR INTERNAL USE ONLY'" 

INVESTIGATIVE CONTROL AND REPORTING OFFICE (ICRO) 

FINANCIAL INTELLiGENCE UNIT 

REPORT OF FINDINGS (UPDATE) 

(Research as of 05/11/06) 

INVESTIGATOR: Kathleen Dischner 

SUBJECT: Islam! Bank Bangladesh 

ENTITIES: Islami Bank Bangladesh 

REQUESTOR: Pjerre Nasser 

DEPARTMENT: Banknotes 

AIl updated Report of Findings in support of Enhanced Due Diligence was 

conducted for Islami Bank Bangladesh, located in the HSBC-designated high-risk 

country of Bangladesh. This is an update to a previous report prepared for 

this bank on 4/19/2005, which is also provided below for your reference. Only 

items impacting adversely on money laundering, terrorist financing or other 

substantive criminal activity concerns wlU be detailed in this updated report. 

UPDATEISLAMI BANK BANGLADESH L TO 

Most Current Ownership Breakdown Found (5% or higher): 

The Banker's Almanac provides the following shareholder list for Islami Bank: 

AI RaJhi Company for Industry & Trade, R!yadh AI-Khobara (9.9369'%) 

Islamic Development Bank, Jeddah (7.5025%) 

Kuwait Finance House KSC, Safat (5.25%) 

The Public institution for Socia! Security, 6.46% 

Arabsas Travel & Tourist Agency, 9,99. 

Abdullah Abdul Aziz AI~Rajhi, 7.58%. 

Kuwait Awqaf Public Foundation, 4.3%) 

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Other shareholders with less than 2% ownership. 

('NVM'.bankersalmanac.com, accessed 5110/2005) 

Most Current List of Top Executives Found: 

Kazi Harun~Ar~Rashed, Chairman 

Abdur Raquib, Executive President & Chief Executive Officer 

M. A. Mannan, Executive Vice President International Banking VYing/Foreign 

Exchange 

Md Fariduddin Ahmed, Executive Vice-President of Operations 

www.bankersalmanac.com.accessed5/10/2006 

"P1-eas-e note th'at we were unabte to confiTmin-ourcrrdinary-suurces-either Mus' 

ad Abdullah A1-Rajhl or Moulana Zainul Abedln's positions wrth Islami Bank, as 

indicated in its KYC profile. 

Notable Information Regarding the Financial Institution, its OwnershIp or its 

Top Executives: 

On March 2nd, 2006, Abdur Rahman, chief of the JamaatuJ Mujahideen of 

Bangladesh (JMB), and his second-in-command, Bangia Bhai, were arrested for 

being responsible for the terrorist bomb blasts of August 17,2005 in 

Bangladesh. The police found three different checkbooks in Rahman's Sylhet 

hideout, one oftne accounts being WIth the Islami Bank Lal Digh!rparh Branch 

in Sylhet. Around 400,000 taka (approximately US $ 5,908) was reportedly 

transferred from the bank's Savar and Gazrpur branches. ("BBC Monitoring 

International Reports," Load Date March 9th, 2006) Bangladesh Bank, the 

central bank, launcned an investigation as to whether JMB militants maintained 

these Islami Bank accounts, and found suspicious transactions in the Savar and 

Gazipur branches it inspected. According to Bangladesh Bank, the Islami Bank 

branches reportedly vrolated some of the regulations specified in the 

Anti-Money Laundering Act and faHed to report these dubious transactions to 

the central bank, as required by law. ("BBC MonItoring International 

Reports,~ Load Date: March 15,2006.) Bangladesh Bank fined the Islami Bank 

Bangladesn Tk 100,000 (approximately US$1,477) on charge of "surreptitious 

transactions connected with militancy," and also asked bank authorities to take 

measures against tile 20 officers for their alleged involvement. The Islami 

Bank denied involvement in terrorist financing, but did admit that certain 

officials violated some of the country's money-laundering provisions, and 

therefore suspended five officers and gave warnings to 15 others. ("Indo-P.slan 

NelNS Service,~ Load Date: April 6th, 2006.) 

It is reported in various articles that this is the third time that Islami Bank 

Bangladesh has been fined tor covering up militants' transactions. ("World 

Market Analysis,H Load Date: Apnl 6, 2006, and "BBC Monitoring South AsiaPolitical," Load Date: April?, 2006.) No further information was found in 

our regular sources concerning this matter. 

Kuwait Finance House, wflich owns 5.25% of Islami Bank Bangladesh, is listed on 

World-Cneck as a Politically Exposed Person (PEP) due to the fact that the 

government of Kuwait owns 49% of its equity. 

Issufo Sanha, Executive Director of the Islamic Development Bank of Saudi 

Arabia (which owns 7,5025% of lslami Bank Bang!adesll), is !isted on World-Check 

as a Politically Exposed Person (PEP). He was named the Minister of Economic 

Affairs in April 2005. He was also the former Minister of Industry, Tourism, 

and Trade (2004-05). 

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Aissa Abdeltaoui, Executive Director of the Islamic Development Bank, is also 

listed on World-Check as a Politically Exposed Person (PEP), due to the fact 

that he 'NaS the former Minister of Water Resources of Saudi Arabia, 

Ibrahim AI-Mofleh, Executive Director of the Islamic Development Bank, is also 

listed on World-Check as a Polltically Exposed Person (PEP), as he was the 

Director General for the Saudi Fund for Development. 

In June of 2005, M Abdullah, an "official" of Islam! Bank, was arrested for 

embezzling Tk 2,238.000 lakh (approximately US$33,057) from the district branch 

of the bank. M Abdullah plead guilty to these charges. ("Untied News of 

Bangladesh," Load Date: June 1,2005.) Our sources do not indicate whether M 

.A.i?qul~~h _i~.~till ~l!1plo~~d at_~h~M~.~nk. 

In March 2006, Setaur Rahman, a branch manager of the Islami Bank, and one of 

his associates were sued for misappropriating TK 2,500,000 (approximately 

US$36,927). In 1996 he had reportedly opened a false account in the name of 

Anwaer Hossain. (No further information was found regarding the identity of 

this individual.) The Anti-Corruption Commission found the bank official and 

his associate, whose name was not provided, guilty. ("United News of 

Bangladesh," Load Date: March 9th, 2006.) 

Information Found Regarding this Financial Institution, its O'Mlershlp or its 

Top Executives that Warrants SCC Consideration. 

You may wish to consider the Islami Bank Bangladesh for SCC status, due to one 

of its shareholders, the KUW'ait FInance House, along with several officers from 

another shareholder, the Islamic Development Bank (!ssufo Sanha, Ibrahim 

Al-Mofieh, and Aissa Abdellaoui), being categorized as Politically Exposed 

Persons on World-Check, as detailed above. 

*** Should you find any discrepancies betvw'een the ownership and/or executives 

named in this report and those named in your current, up-to-date KYC 

information, please let us know so that we may check any differing names for 

items impacting adversely on money laundering, terrorist financing or other 

substantive criminal activity concerns. 

This report is confidential and is intended solely for the use of the HSBC 

business to which it is addressed and those who need to know the information 

pursuant to that business' internal procedures. This report is not to be 

disseminated to any other person or entity. Our investigative findings are, in 

part, based upon information avallable to us through a variety of third-party 

providers at the time our search is performed. VlJhile every attempt is made to 

find all substantive mformation, we make no representatlon that the 

information provided to, Of gathered by us, is complete, 

Please feel free to contact me vvith any questions regarding this report. 

Kathleen Dischner 

Text of Previous Report of Findings Dated 4/1912005: 

FINANCIAL INTELLIGENCE GROUP (FIG) 

REPORT OF FINDINGS 

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SUBJECT: Islami Bank Ltd. -Bangladesh 

ENTITIES: Islami Bank Ltd. -Bangladesh 

REQUESTOR: Rhonda Lee Thomas CC· Nanayo Ryan, Alan T Ketley 

DEPARTMENT: Client Services -Financiallnst!tutions 

ACCOUNTS: NIA 

A request was made for a Report of Findings in support of Enhanced Due 

Diligence for 

Islami Bank Ltd. as the bank is located in an HSBC-designated high-risk 

country. This account should be considered for SCC status due to the bank's 

Ctl-alrm-an "boeing· a former Chalrm"an "i3h"o Secrefary of B"an"£lladesh Naffon~d Board·of 

Revenue (deta!ls below). 

Islam1 Bank Limited 

In a Bankers' Almanac entry dated February 14, 2005, Islami Bank Bangladesh 

Ltd. is listed under the address of PO Box 233, Islam! Bank Tower, 40 DHkusha 

Commercial Area, Dhaka 1000, Bangladesh. The JsJami Bank is described as a 

private bank and member of the International Association of Islamic Banks. The 

Bankers' Almanac also reports that the Islam! Bank Bangladesh Ltd. is ranked 

1 ,553rd in the world and 2nd in Bangladesh, and that the bank currently has 143 

branches nation-wide and 4,77 4 employees. 

According to A Gale Group company brief, dated Apn118, 2005, Islami Bank 

Bangladesh Limited was established on March 13, 1983 This Bank is the first of 

its kind In South-East Asia. It is committed to conducting aU banking and 

investment activities on the basis of interest-free profit-loss sharing system. 

With the active co-operation and participation of Islamic Development Bank 

(lOB) and some other Islamic banks, financial institutions, government bodies 

and eminent personalities of the Middle East and the Gulf countries, Islam! 

Bank Bangladesh Limited has by now earned the unique position of a leading 

private commercial bank in Bangladesh. 

The Bankers' Almanac listing dated February 14,2005 reports the following 

executives for Islami Bank Ltd.: 

Shah Abdul Hannan, Chairman, Abdur Raquib, Executive President & Chief 

Executive Officer, Md Velayet Hossain, Deputy Executive President, Md 

Fariduddin Ahmed, Executive Vice-Pres!dent Audit & Inspection, Md Shahjahan 

Chowdhury, Executive Vice~President Asset Management, Md Setaur Rahman, 

Executive Vice-President Project Investment Division -1, A T M Harun~ur-Rashjd 

ChOWdhUry, Executive Vice~President Operatlons Wing, M, A. Mannan, Senior Vice 

PreSident International Banking Wing & Foreign Exchange, A W Shamsuzzuha, 

Vice-President International Banking \l\ting & Documentary Credits, Md Siddiqur 

Rahman, Senior Principal Officer Correspondent Banking, Abu Zafar Md Sheikuf 

Islam, Vice~President Information Technology, 

Md Nurallslam Kilalifa, Senior Vice President Human Resources, Md Shouquat Ali, 

Executive Vice-President Legal, Md Nurul Islam, Executive Vlce~President Rural 

Development 

Chairman of Islami Bank Shah Abdul Hannan appears to be an important political 

and social figure in Bangladesh. A December 26, 1999 article from THE 

INDEPENDENT, reported the following: 

"Former secretary and Islamic thinker Shah Abdul Hannan has calJed upon the 

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Muslims to be moderate shunning the path of extremism. "Is!am directs its 

followers to be moderate. But the Muslims are now resorting to extremism in 

many cases though teachings of the Holy Quran does not approve it," he said 

while speaking at a discussion organized in the crty yesterday by the Islami 

Bank Bangladesh Ltd." 

In several articles Shah Abdu! Hannan discussed the need to stem administrative 

corruption. He is named in at least eight articles as a former high~ranking 

secretary. It appears that he was chairman of the National Board of Revenue for 

severa! years. An Agence France Presse article dated February 16, 1998 reported 

the foHowing: 

«A senior official of Bang!adesh's National Board of Revenue has resigned after 

b~_tn..9'p~~s§~J~_d .t:!y_a.[] jn:fl.IJ~D.tlgsLmJ~j?tf::'!r an~t a !Q~aJ ~~?ine~s .grIJuRJ9 d!9P_~ 

tax evasion case, newspapers reported Monday. Several hundred customs officers 

in the southeastern port city of Chittagong demonstrated there in protest at 

the resignation of Shah Abdul Hannan Hannan resigned as board chairman and as 

secretary of the finance ministry's internal resources drvision in a surpnse 

move two months before his scheduled retirement." 

No further information could be found regarding the details of Mr. Hannan's 

resignation or on his former post as chairman and secretary ofthe National 

Board of Revenue. 

One MA Mannan (whose name matches that of Islami Bank's Senior Vice President 

International BankIng Wing & Foreign Exchange) IS listed In World-Check as a 

politically exposed person due to his former position as Cabinet Minister in 

Bangladesh. The listmg, which was entered on 11/06/2000 and updated on 

08/06/2004, has the following information: "Former Minister of Labour & 

Employment, former Member of Parliament. In May 2002, he was reportedly charged 

with corruption for allegedly illegally spending the government money." No 

further information could be found on Mr. Mannan's alleged corruption charges 

and the individual named in the World-Check listing could not be confirmed to 

be the same individual as the Islami Bank executive of the same name. 

One Islam Nurul (whose name matches that of Islami Bank's Executive 

Vice-President Rural Development), has a World-Check entry that reports him as 

listed on the UK Disqualified Directors Registrar-10/24/20D2-10/23/2D10. NQ 

further information could be found on this individual listed on World-Check and 

he could not be confirmed to be the same indIvidual as the executive of Islam! 

Bank: named Islam Nurul. 

One Islam Nurul is also listed on World-Check as a politIcally exposed person 

due to his former position as Chief of Naval Staff in Bangladesh. The 

World-Check listing reports the following: "Former Naval Chief. August 2003-

reportedly charged with co-accused, Seikh Hasina Wajed In connection with 

milltary purchases of the DW 2DDOh frigate from South Korea's Daewood 

Corporation between 1996 and 2001, during Sheikh Hasina's tenure as Prime 

Minister, causing loss to the state (nearly $88 mIllion)." No further 

information could be found on this individual listed on World-Check and he 

could not be confirmed to be the same individual as tile executive of lsi ami 

Bank named Islam Nuru! 

No tax liens, bankruptcy, civil or criminal filings were found for any ofthe 

executives listed under Islami Bank: 

No further information was found linking any of the executives listed under 

Islami Bank to corruption or criminal activity. 

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The Banker's Almanac provides the following shareholder list for Islam! Bank: 

AI Rajhi Company for Industry & Trade, Riyadh AI-Khobara (9<9369%), 

Islamic Development Bank, Jeddah (7.5025%), Kuwait Finance House KSC, Safat 

(S.2S%), The Public Institution for Social Security, 6.46%; Arabsas Travel & 

Tourist Agency, 9.99. Abdullah Abdul A..ziz AI-Rajhi, 7.58% 

A search for the AI-Rajhi Company pulled up several World-Check listings for 

pohticaJty exposed persons due to one of the Company's o'NTler's position as a 

member of the Northern Borders Provincial Counc!! of Saudi Arabia. This 

individual is named as Abdullah Abdul A..ziz AI-Rakhi, and he is also a 7.58%. 

shareholder in Islami Bank. According ta World-Check, Mr. A1-Rajhi was 

appointed to the Council by Royal decree on June 24, 2001. 

This office issued a report of findings on AI Rajhi Banking and Investment 

Corporation in October of 2003. In this report it was stated that Abdullah 

Abdul Aziz AI Rajhi was the chairman of PJ Rajhi Company for Industry and 

Trade, and that he was on the board of directors for AI Rajhl Banking and 

Investment Corporation. It is unclear whether he remains chairman of PJ Rajhl 

Company for Industry and Trade, but recent documentation indicates that he 

stH! sits on the board of PJ Rajhi Banking and Investment Corporation. Please 

refer to the chart labeled "Exhibit A" in the attached "'.PDF file. As several 

reports have previously been provided for AI Rajhi related entities, we are 

providmg these below for your reference. 

No information was found linking any of !slami Bank's shareholders listed above 

to criminal activity. 

The following civil case was retrieved in a search for Islami Bank, although it 

could not be confirmed that the 1slam! Bank that is named as a defendant below 

is the same entity as the subject of this Report of Findings: 

CASE NAME: IMPAK INC v. FROST NATIONAL BANK ET AL 

PLAINTIFF: IMPAK INC 

DEFENDANT: ED INDEX GARMENTS LIMIT, FROST NATIONAL BANK 

SH LIMITED ISLAMI BANK BANG LADE 

FILING DATE: 115119S7 

CASE NUMBER: 19S7CI00014 

COURT: 57TH JUDICIAL DISTRICT 

CASE TYPE: INJUNCTION 

STATUS: DISPOSED 

COUNTY: BEXAR 

STATE: TEXAS 

No further tax liens, bankruptcy, civil or crimmal filings were found for 

Islam! Bank. 

No information was found linking Islami Bank to corruption Of criminal activity 

Feel free to contact me If you have any questions regarding this report. 

Sincerely, 

Maria Shkolnik 

FIG hwestlgator 

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From: FIG HBUS Tel: 

Title: Location: 

WorkGroup: Mail Size: 241871 

Sent by. Bob Powers 

Subject Report of Findings - AI-Rajhi Trading Establishment - F!G 

CONFIDENTIAL 

••• FOR INFORMATIONAL PURPOSES ONLY'" 

FINANCIAL INTELLIGENCE GROUP (FIG) 

REPORT OF FINDINGS (UPDATE) 

SUBJECT: PJ Rajhl Trading Estab!ishment 

ENTITIES: Al Rajhl Trading Establishment 

REQUESTOR; Paul DiBenedetto 

DEPARTMENT: Cilent Services - Financial Institutions 

Accounts: Al Rajhl Trading Establishment, Banknotes -••••• 

_"" Redacted by the Permanent Subci:lmmittee on Investigations 

A report of findings in support of enhanced due diligence was requested for the 

AI Rajhl Trading Establishment in Saudi Arabia. A report conducted on AI Rajhl 

entities was originally issued from this office in October of 2003. An update 

was conducted in December of 2004 for AI-RaJhi Banking and Investment Corp. 

Text of those previous reports will be pasted at bottom and attached. This 

current report wi!! address recent information speCific to AI Rajhl Trading 

Establishment. 

AI Rajhl Trading Establishment 

AI Rajhi Trading Establishment has appeared in the news very infrequently in 

the time since the initial report was conducted on AI RaJhl entities in 2003. 

Dun and Bradstreet lists Sheikh Abdul Rahman S AI Rajhl as the 100% shareholder 

in AI Rajhi Trading Establishment. 

The most significant recent press report concerning Al Rajhl Trading was 

published In "Ethnic Newswatch" in August, 2004. This article reported that AI 

Rajhi Trading was one of eight financial institutions to be merged into AI 

Bilad Bank, a new banking corporation expected to launch operations In 

mid-2005. Al Silad will reportedly have a capital of $800 million. This press 

report refers to AI Rajhi Trading as a "Money Changer." 

In April, 2005, the "EfU Riskwire" reported that AI BHad was still waiting to 

open. AI Bilad wil! be the 11th commercial bank to base its operations In 

Saudi Arabia. 

As indicated in a chart in our 2003 review of A! Rajhi Banking and Investment, 

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the owner of AI Rajhi Trading, Sheikh Abdul Rahman S Al~RaJhi, is the son of 

Saleh Abdul Aziz A1~Rajhi, founder and director of A1-Rajhi Banking and 

Investment Corp. According to business records we've found, A1-Rajhi Trading 

is not a subsidiary company of A/-Rajhi Banking and Investment, but is 100% 

owned by Sheikh Abdul Rahman SAl Rajh! 

A review of press found infrequent references to Sheikh Abdu! Rahman SAl 

Rajhi, usually in reports on his various business dealings. 

No evidence of criminal activity relating specifically to At Rajhi Trading 

Establishment or its owner could be found in our review. 

Text of previous reports regarding At Rajhi entities is pasted below and in the 

attached PDF document. 

Please feel free to contact me with any questions regarding this report. 

Sincerely, 

Bob Powers 

FIG Investigations 

CONFIDENTIAL 

••• FOR INFORMATIONAL PURPOSES ONLY"· 

FINANCIAL INTELLIGENCE GROUP (FIG) 

REPORT OF FINDINGS (UPDATE) 

SUBJECT: A1-RaJhi Banking & Investment Corporation 

ENTiTlES: AI~Rajhi Banking & Investment Corporation 

REQUESTOR: Sally Lomas 

DEPARMENT: Banknotes 

_= Redacted by the Permam~nt 

Subcommittee on Im·estigations 

ACCOUNTS: AI-Rajhi Banking & Investment Corporation (Reference #_ An enhanced due diligence was conducted on A/~Rajhi Banking & Investment 

Corporation. A report of findings was sent on thJs company in May 2004. The 

objective of this report is to procure additional information subsequent to the 

filing date of the initial report. 

AJ-Rajhi Banking & Investment Corporation: 

In 2004, AI~Rajhj Banking & Investment CorporatIOn (ARAJ) filed a suit against 

the Wan Street Journal (WSJ). ARAJ alleges that the WSJ defamed the bank by 

accusing it of supporting of terrorism in article published on 2/6/02. After 

30 montlls of active litigation, a settlement was reached, leading to the paper 

publlshing a uclarification~ and a letter from AJ-Rajhl's chief executive. The 

clarification basically states that the article PlJblished by WSJ did not intend 

to imply an allegation thatARAJ supported terrorist activity, or had engaged 

in the financing of terrorism. 

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760611.192

Under the terms of that settlement the WSJ paid no damages, nor was any order 

made prohibiting the paper from repeating the same allegations in the future. 

In aU, no charges stemming from the aforementioned article have been levied 

against ARAJ. Therefore, no substantially adverse information, subsequent to 

the previous report provided for this company, was found regarding ARAJ. 

If you have any questions, feel free to contact the undersigned. 

Sincerely, 

Steven Pichardo 

Financial Investigator (FIG) 

From: Pierre Nasser on 11 Apr 200612:08 

To: FIG HBUS@HSBC 

cc. Stephanie L Napier/HBUSfHSBC@HSBC 

Muhammad SHOHIDUZZAMANIIB DAKlHBAPIHSBC@HSBC 

Aftab HAIDER/IB DAKlHBAPIHSBC@HSBC 

Subject: Fw: Islami Bank Bangladesh Ltd - EDD Report - New Management 

Please add these names in addition to the recent requested EDD report of Mar 17 

2006. 

Mr Mohammad Abdul Mannan, Executive Vice President, Islam! Bank Bangladesh 

Limited 

Mr Abdur Raquib, Executive President, Islami Bank Bangladesh Limited 

Regards 

Pierre Nasser 

Payment Services Regulatory Risk Unit 

Tel: 302-836~2711 

Fax: 302 636-2211 

E-mail: Pierre.Nasser@ushsbc.com 

--- Forwarded by Pierre Nasser/HBUS/HSBC on 04/11106 12.04 PM ---

Pierre Nasser/HBUS/HSBC 

03117/0611.31 AM 

To 

FIG HBUS 

cc 

Stephanie L Napier/HBUS/HSBC@HSBC, PSRR@HSBC 

Subject 

lslami Bank. Bangladesh Ltd EDD Report ~ New Management 

Please perform an EDD report on Islami Bank: Bangladesh Ltd, specifically on the 

new management team: 

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Kazi Harun~ar~Rashed~Chairman 

Mus'ad ,li.bdul!ah A1~RajhiNice Chairman 

Moulana Zainul Abedin~Vlce Chairman 

Mominullslam Patwary~Chairman of the Executive Committee 

Regards 

Pierre Nasser 

Payment Services Regulatory Risk Unit 

Tel: 302-B36·2711 

Fax: 302 636·2211 

E+mail: Pierre.Nasser@us.hsbc.com 

Confidential. FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB03627343 

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760611.194

From: TERESA PESCE/HBUSIHSBC 

Sent: 513012006 7:51 :41 AM 

To: ALAN T KETLEYIHBUSIHSBC@HSBC 

Subject: Re: U-Turns 

Alan - we have no choice. JPMC won't take them. 

Sent from my BlackBerry VVireless Handheld 

From: AJan T Ketley 

Sent: 0513012006 08:28 AM 

To: Gary BOON; Alan KERR 

Cc: Pal!avi KEMPAIAH; Teresa Pesce; Denise Reilly; Sandra Peterson 

Subject: Re: U-Turns 

Gary, Alan 

! tried calling you (Gary) but understand that you are out of the office untIl 

June 1. 

I'm unclear why you 'WOuld be seeking to have HBUS handle this activity at no 

notice and am uncomfortable making arrangements for such sensitive activity in 

this fashion. 

As requested in my note below, I would like to receive copies of the types of 

payment orders that you propose to send to us (my fax is 212 382 7580) in order 

that we can reviewthem. 

Given that you intend passing us as many U~Turns in a day as we would handle in 

a busy month I'd like to see this activity pass over a dedicated account and 

for Delaware to have the opportunity to set aside appropriate resources to 

handle this activity. For that reason! have copied Sandra Peterson. 

I would like to invoke some of the protocols set out in the attached document 

so that this activity may be suhably monitored and controlled 

Please advise who in HBME wlll be available to discuss this Issue with HBUS and 

confirm that activity Will not start to flow until we have appropriate controls 

in place. 

Alan T. Ketley 

First Vice President, Anti Money Laundering 

Tel: 212 525 6147 

Fax: 212 382 7580 

Gary BOONIHBMEIHSBC 

0512812006 01 :35 AM 

To 

Alan T KelleyIHBUSIHSBC@HSBC 

cc 

Alan KERRlHBMEIHSBC@HSBC 

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Subject 

Re: U-Turns 

Alan, as you've seen HBME is now in a situation where we now have to route the 

Iranian Payments through HBUS and our underst~nding from David is that this is 

now ok to do. 

After consultation.....-ith David, Alan and I contacted JPMC and advised them of 

the Group's decision to route payments using the serial method but we cannot do 

this for Iranian related payments as they have to be processed as cover 

payments (as per Group Compliance) to comply with the U-Turn process. However 

in our drive to be 100% transparent (and to follow the directive on the last 

GCL re Serial Payments) HBME would complete field 72 on cover payments 

(MT202's) with the wording "Ira man transaction in compliance WIth OFAC 

sanctions". Following JPMC's refusal to process these specific Instructions we 

seek your urgent assistance to get these payments processed asap through HSBC 

USA 

We now have a requirement that wef from Tuesday 30th May - HBME need to process 

these payments through HBUS. It seems a good idea that we talk about this 

urgently - can we call you today? Please advise appropriate number. 

Alan, I was going to copy Sandra Peterson but I leave this to you. We have 40 

payments a day on average of which a majority are order a Group entity with 

about 10 a day from Bank Kesharvarzi, Iran - the only alc remaining open with 

HBME with this kid of volume. 

The good news is that we've a weekend and a bank holiday, the bad news is that 

we have to do this wef Tuesday as we have no other route open to usl 

Gary 

Alan T KetleylHBUSIHSBC 

HBUS 

05/26/2006 10:33 PM 

Mail SIze: 3000 

To 

Alan KERRfHBMElHSBC@HSBC, Gary BOON/HBME/HSBC@HSBC 

Subject 

U-Turns 

Entity 

HSBC Bank Middle East Limited 

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760611.196

Alan, Gary 

I have received thru Terry Pesce a copy of your (Alan) correspondence 'h'ith JPM 

Chase and David Bagley about your 'imminent move to serial + cover payments 

with field 72 completed.' 

I have asked around and we're not sure what you mean by this. My view would be 

that the move to serial payments would render a cover payment unnecessary; none 

of us has been able to figure out what the reference to field 72 means even 

though David seems to be aware. 

Can you send me an example of two of the type of payment structure you have in 

mind so we can evaluate it properly; I'd also !ike you to send me examples of 

the types of payments that you have currently (as discussed previously). 

! do not see a date on which JPM Chase wi!! stop handling these items for you -

please advise on this score so we can explore establishing the necessary 

infrastrUcture. 

Thanks 

Alan T. Ketley 

First Vice President, Anti Money Laundering 

Tel: 212 525 6147 

Fax: 212 382 7580 

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From: SALMAN HUSSAINIHBMEIHSBC 

Sent: 61221200612:08·40 PM 

To· ALAN T KETLEYIHBUSIHSBC 

CC: DAVID B ILLINGIHBMDIHSBCMERIDIAN:EMRAN.ALlREZA@HSBC.COM:SHARIQZ 

SIDDIQIIHBMElHSBC:HAMMAD ZAIDIIHBUSIHSBC: 

STEPHEN D LOFFREDOIHBUSIHSBC@HSBC:GARY BOONIHBMElHSBC 

Subject: Al Rajhi Banking & Investment Corp. (AI Rajhl Bank), Saudi Arabia 

Dear Alan 

! am sending you this email seeking your assistance to address any issues 

pertaining to AI Rajhi Bank in order to obtain compliance approval, I am also 

copying the parties involved in the relationship. 

- Shariq Siddiqi, GRM Amanah Finance, Dubai 

- David B HUng, Banknotes HBEU, London 

Emran,AJj Reza, Amanah Finance, London 

fJ.:; J understand from talking to all parties that we had an excellent 

relationship 'wVith AI Rajhi Bank until year 2004, banknote (David llIing) 

stopped domg business while being the largest revenue generator in the Middle 

East. Amanah Finance in London (Emran ,AJi Reza) still trade \Nith Al Rajhi Bank 

under the Murabaha agreement. From my side, I would like to use the Islamic 

Overnight Investment that Hammad Zaidi and Stephen Lofferdo are working on as 

an intro to this bank, The amount of potential business/revenue is quite 

substantia! and if their Shana'a board approved it, this means that other 

Islamic banks in the region wi!! follow. 

Any issues compliance have that! or the rest of the players can assist. Your 

feedback and assistance is highly appreciated. 

Best regards, 

Salman Hussain 

Regional Sales Manager 

Global Transaction Banking 

HSBC Bank ME Ltd. 

P.O. Box 57 

Manama, Kingdom of Bahrain 

Tel.: +973 17569599 

Mobile: 

Fax.: +973 17564343 

Email.salman.hussain@hsbc.com 

HSBC Bank Middle East Limited 

: --= Redacted by the Permanent 

Subcommittee on InYestigations 

Registered Office: HSBC House, Esplanade, St Heller, Jersey, JE4 BUB 

~:.~i:.t!r;~*~~~~~:I.~~~~5:~**.H***_***********"_""*_* 

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From: ALAN T KETLEYIHBUSIHSBC 

Sent: 612212006 12:38:30 PM 

To: SALMAN HUSSAINIHBMEIHSBC@HSBC 

CC. DAVID B ILLINGIHBMD/HSBCMERIDIAN@HSBC;EMRAN.ALlREZA@HSBC.COM;GARY 

BOONIHBMElHSBC@HSBC;HAMMADZAIDIIHBUS/HSBC@HSBC; 

SHARIQ Z SIDDIQIIHBMElHSBC@HSBC;STEPHEN D LOFFREDOIHBUSIHSBC@HSBC.LYNDAJ 

CASSELLlHBUSIHSBC@HSBC. 

STEPHEN J ALLENIHBMDIHSBCMERIDIAN@HSBC 

Subject: Fw: A1Rajhl Banking & Investment Corp., Saudi Arabia 

Salman 

Good evening. 

This must be tile week for AI Rajhi as yours is the second e-mail about the bank 

that I have received. 

HBUS exited the relationship in 2004 primarily for Compliance reasons. Earlier 

this year, Banknotes London expressed their desire to re-establish the 

relationship and there has been a fair amount of discussion about whether Of 

how to do this. 

I'm attaching the last correspondence that we have on the subject identifying 

certain questions that need to be addressed before any Compllance decision can 

be made about resuming the relationship. For your information, Banknotes London 

has been fully embroiled in (preparing for and now in the midst o~ an DCC exam 

so are unlikely to have been able to pursue these questions. 

The concems about this name in the US have been rather long standing and we 

wi!! need to get extremely comfortable With AI Rajhi before we would be wimng 

to re-establish a re!atfonship 

Regards 

Alan T. Ketley 

First Vice President, Anti Money Laundering 

Tel: 212 525 6147 

Fax: 212 382 7580 

---- Forwarded by Alan T Ketley/HBUS/HSBC on 06/2212006 01 :16 PM--

Lynda J Casse!!/HBUS/HSBC 

04110/200612:03 PM 

To 

Stephen J ALLEN/HBMD/HSBCMERtDIAN@HSBC 

GG 

Gordon BROWNIIBEU/HSBC@HSBC, Alan T Ketley/HBUS/HSBC@HSBC,Anne 

Uddy/HBUS/HSBC@HSBC, Teresa Pesce/HBUS/HSBC@HSBC 

Subject 

AlRajhi Banking & Investment Corp., Saudi Arabia 

Upon review of available information on Al Rajhi Banking and Investment Corp. 

HBUS' AML Compliance would need the following information included in the KYC 

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760611.199

Proille for consideration: 

Address AML procedural areas noted in February 8th e-mail (see below) 

Confirm with client the countries that they do business with. If any of these 

countries are OFAC sanctioned, the client wm need to provide information as 

to how they ensure that none of the products/services offered by HBUS are 

utilized in these cases. 

Detail the client's intended use of USD banknotes, e.g, percentage to client's 

bank branches versus commercial enterprises (subsidiaries/affiliates). Usage 

by ctJstomer type, e.g. construction I currency exchanges houses. 

Comment on how the client monitors unusual usage of bank note activity and 

whethertheyvvi!! discontinue doing business with their customer for 

unexplained activity. 

Would want confirmation that the institution would advise of changes in 

market(s) I customer types of USD Banknote business. 

This profile 'NIl! require review and consideration by Terry Pesce 

If you have any questions or need clarification to any of the above, please 

feel free to contact me. 

Ijel 

Lynda J Cassel! 

1st Vice President, Sr. AML Pollcy Advisor 

HSBC USANA 

452 Fifth Ave 7th Floor 

New York, NY 10018 

Telephone; (212) 525-6026 

Fax: (212) 525-5769 

Forwarded by Lynda J CasseH/HBUS/HSBC on 04/101200610:56 AM 

Lynda J CasselUHBUS/HSBC 

021081200605:46 PM 

To 

Gordon BROWN/IBEU/HSBC 

cc 

AJan T KetleyIHBUSIHSBC@HSBC, Ciara O'CONNELUIBEUIHSBC@HSBC, Daniel 

Jacl<JHBUS/HSBC@HSBC, Susan SALASIIBEU/HSBC@HSBC, Teresa Pesce/HBUS/HSBC@HSBC, 

Stephen J ALLENIHBMDIHSBCMERIDIAN@HSBC, Christopher LoklHBUSIHSBC@HSBC 

Subject 

Re: AML Procedures: AlRajhi Banking & Investment Corp., Saudi Arabia 

Gordon, in accordance to our previous conversation, the AML compliance decision 

to do business vvith AI Rajhi lies with Terry Pesce and as suggested, Stephen 

should speak to Terry regarding his desire to enter into a Banknotes 

relationship. (understand that he is in NYC and I vvil! reach out to Terry's 

Assistant on Thursday morning to see if what time she has available to meet 

with Stephen to discuss this and the upcoming OCC exam of Banknotes in London. 

In regards to AJ Rajhl's AML Policy and Procedures, I find them comprehensive 

covering many of the areas that our own AML Policy and procedures cover. Their 

high risk client base generally mirrors our high risk type clients. There is 

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760611.200

little that I could suggest to improve on content. 

If a relationship would come under consideration, I would be curious as to 

whether they have successfully implemented their automated monitoring process, 

(which was to be implemented in November 2005). Also, if a relationship would 

be considered we would need to have more information regarding their handling 

of unlicensed money remitters. There is a comment in their procedures 

(18.4.11) "monitoring of all transactions to that unlicensed money changers are 

not remitting funds outside the Kingdom". This comment 'NOuld require further 

clarification. 

Lynda J Cassell 

1st Vice President, Sr AML Policy Advisor 

HSBC USA NA 

452 Fifth Ave 7th Floor 

New York, NY 10018 

Telephone; (212) 525-6026 

Fax: (212) 525-5769 

Gordon BROWN/lBEU/HSBC 

02/06/06 11 :50 AM 

To 

Lynda J Cassell/HBUS/HSBC@HSBC 

cc 

Susan SALASIIBEUIHSBC@HSBC, Ciara O'CONNELUIBEUIHSBC@HSBC, Daniel 

JacklHBUSIHSBC@HSBC,Alan T Ke1IeyIHBUSIHSBC@HSBC 

Subject 

AML Procedures: Alrajhi Banking & Investment Corp., SaUdi Nabia 

Lynda, 

Attached is the subject bank's AML Pollcies and Procedures as of December 

2005. Please contact me with comments or questions. 

Regards, 

Gordon 

[attachment "A!raJhi AML Procedures Dec 2005 pdf' deleted by Lynda J 

CasselllHBUSIHSBCj 

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From: ANNE LlDDYIHBUSIHSBC 

Sent: 612212006 4:34:59 PM 

To: ALAN T KETLEYIHBUSIHSBC@HSBC 

Subject: Re: You TUm Payments 

Amusing. Also - before it was about 40. Yesterday 10. Now 25ish. 8M I am 

going to set up a mtg 'With Terry and Denise (as our financier) to discuss 

resourcing for OFAC. It is out of hand. 

From: PJan T Ketley 

Sent: 0612212006 05:31 PM 

To: Anne Uddy; Grace C Santiago-Darvlsh 

Subject Fw: You Turn Payments 

Too funny! 

PJan T. Ketley 

First Vice President, Anti Money Laundering 

Tel: 212 5256147 

Fax: 212 382 7580 

---- Forwarded by Alan T Ketley/HBUSlHSBC on 06/2212006 05:29 PM ----

Bob ShettylHBUSIHSBC 

061221200609:00 AM 

To 

Alan T Ketley/HBUS/HSBC@HSBC 

cc 

Subject 

Fw: You Turn Payments 

~~~~S~h-e~tty-----------

Global Payments & Cash Management 

HSBC Bank USA, 

2125252601 

--- Forwarded by Bob Shetty/HBUS/HSBC on 06/22/2006 08:57 AM ---

Gary BOONIHBME/HSBC 

06/221200607:24 AM 

To 

Bob ShettyIHBUS/HSBC@HSBC 

cc 

Richard C Boyle/HBUSIHSBC@HSBC 

Subject 

Re: You Turn Payments 

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760611.202

Bob, you better call me as I'm fuUy aware of this and in fact its already been 

in effect since 30 May. Unsure activity statement adds value and too be honest 

no one Vv'ill thank: me for sending you this if you use it to increase HBME 

charges. 

If you need volumes - these have already been provided to Compliance Alan 

Ketley - its about 10 a day but some days could be 25 ish. 

Gary 

Bob Shetly/HBUS/HSBC 

0612212006 03:13 PM 

Mall Size: 6652 

To 

Gary BOON/HBME/HSBC@HSBC 

cc 

Patrick K Byme/HBUS/HSBC, Richard C Boy!efHBUSfHSBC 

Subject 

Re: You Turn Payments 

Entity 

HSBC Bank Middle East Limited 

Gary, it appears th!s activity has been referred to us and is being implemented 

with urgency and we are now doing the due process. Shall appreciate your help. 

My fax number IS 212 525 5699. Thanks. 

This E-mail is confidential. It may also be legally privileged. If you are 

not the addressee you may not copy, forward, disclose or use any part of it. 

If you have received this message in error, please delete it and all copies 

from your system and notify the sender immediately by return E~maiL Internet 

communications cannot be guaranteed to be timely, secure, error or virus-free. 

~~;*:*:~~:: .. ~~,,::~,,~~+~:~::~;:~~}:i!~~!*~~X~:~~~:~,,~!*~~~!~.:~~~~~ 

From: Gary BOON 

Sent: 06/22/2006 12:08 AM 

To: Bob Shetty 

Cc: Patrick Byrne; Richard Boyle 

Subject Re: You Turn Payments 

Bob, can you give me any reasons why you need them? I don't have them anyway -

I'U have to search around to find them first. 

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760611.203

Gary 

Bob ShettylHBUSIHSBC 

HBUS 

061211200611:00 PM 

Mail Size: 2538 

Gary, 

To 

Gary BOONIHBMEIHSBC@HSBC 

cc 

Patrick K Byme/HBUS/HSBC@HSBC, Richard C BoylefHBUS/HSBC@HSBC 

Subject 

You Tum Payments 

EntIty 

HSBC Bank Middle East Limited 

Greetings. I am advised that HBME volumes relating to the above activity will 

now be migrated from the current service providers to HBUS. May I request you 

therefore to please provide me a copy of their recent blUing statement by 

return email? Many thanks for your cooperation. 

Best Regards 

Bob $hetty 

Global Payments & Cash Management 

HSBC Bank USA, 

2125252601 

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760611.204

From: SHARYN MALDNElHBUS/HSBC 

Sent: 8/3/2006 4:07:56 PM 

To: STEPHANIE L NAPIER/HBUS/HSBC@HSBC;AFAF ABDELSAYED/HBUS/HSBC@HSBC 

CC: GILLIAN E BACHSTEINlHBUS/HSBC@HSBC;PRINCELY P MURO/HBUS/HSBC@HSBC;HERSEL 

MEHANI/HBUS/HSBC@HSBC; 

ALAN T KETLEY/HBUSIHSBC@HSBC;GEORGE TSUGRANESIHBUSIHSBC@HSBC;ROBERT A 

MCARTHURlHBUSIHSBC@HSBC; 

SANDRA PETERSONIHBUSIHSBC@HSBC;ANTHONY JULIANIHBUSIHSBC@HSBC;NANCY 

HEDGESIHBUSIHSBC@HSBC; 

GEORGE DALLYIHBUSIHSBC@HSBC;ANN HAGANIHBUSIHSBC@HSBC;ANDREWP 

DROLETIHBUSIHSBC@HSBC 

Subject Social Investment Bank, Bangladesh 

To aU, 

Based on the attached U.S. Treasury announcement designating "the Philippine & 

Indonesian branch offices of the Saudi-based International Islamic Relief .-------------, 

Organization (1IRO) for facilitating fundraising for al Qaida and affiliated __ = Redacted by the Permanent 

terrorist groups", we have today (8/3/06) placed a debit block on Social Subcommittee on Investigations 

Investment Bank account # 

IIRO holds a 8.62% stake in Social Investment Bank(SIS), Bangladesh who is a US 

PCM client of HBUS since Oct. 2003. Their value to US PCM is $44k annualized, 

split between BOP income & NIL Also, SIB holds USD accounts 'Nith Amex & 

Stanchart N.Y, 

" Name of Principals or Beneficial Owners: (List all shareholders with 10% or 

more ownership. If Corporate Client not publicly traded, Special Category 

Client or High Risk Country, then list all shareholders with 5% or more 

ownership): 

,. % of ownership: 

Infl Islamic Relief Organization (tiRO) 

Social Trust Fund 

Publicly Traded; Widely Held - None with 5% or > holdings 8.62 

8.19 

83.19 

After speaking with Compliance, we have placed a debit block on outgoing 

payments subject to the receipt of a response from Sf, Management of SIB, and 

HSBC, Dhaka. stephanie Napier is managing the block, therefore GFT Risk 

should only accept authorization to release from either Stephanie or myself. 

If you have any questions, please let stephanie or I !mow, 

hp-l5 

August 3, 2006 

Treasury Designates Director, Branches of Charity Bankrolling AI Qaida Netvolork 

The U.S. Department of the Treasury today designated the Philippine and 

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760611.205

Indonesian branch offices of the Saudi-based !nternationallslamic ReHef 

Organization (IIRO) for facilitating fundraising for al Qaida and affiliated 

terrorist groups. Treasury additionally designated Abd AI Hamid Sulaiman 

A1-Mujil, the Executive Director of the Eastern Province Branch of IIRO in the 

Kingdom of Saudi Arabia. 

"Abd AI Hamid Sulaiman A1-Mujil, a high-ranking IIRO official in Saudi Arabia, 

has used his position to bankroll the at aaida network In Southeast Asia. 

AI-Mujl! has a long record of supporting Islamic militant groups, and he has 

maintained a cell of regular financial donors in the Middle East who support 

extremist causes," said Stuart Levey, Treasury's Under Secretary for Terrorism 

and FinanciallnteUigence (TF1) "Today we are holding him to account." 

The tiRO was established in 1978 and, according to its website, the 

organization has branch offices in over 20 countries in Africa, Europe, Asia. 

and the Middle East 

"It is particularly shameful vvhen groups that hold themselVes out as charitable 

or religious organizations defraud their donors and divert funds In support of 

violent terrorist groups," said Levey. 'We have long been concerned about these 

IIRO offices; we are now taking public action to sever this link in the al 

aaida network's funding chain." 

Today's action was taken pursuant to Executive Order 13224, which is aimed at 

detecting and disrupting financial flows to terrorists. Under this authority, 

U.S. persons are prohibited from engaging in transactions with the designees, 

and any assets they may have under U.S. jurisdiction are frozen. 

IDENTIFIER INFORMATION 

Abd.AJ Hamid Sulaiman .AJ-Mujil 

Abd.AJ Hamid Sulaiman AI-Mujl! (Al-Mujll) is the Executive Director of the IIRO 

Eastern Province (IlRO-EP) branch office in the Kingdom of Saudi Arabia . 

.AJ-Mujil has been called the "million dollar man" for supporting Islam!c 

militant groups. 

A1-Mujil provided donor funds directly to al aaida and is identified as a major 

fundraiser for the Abu Sayyaf Group (ASG) and Jemaah Islamiyah (JI). 80th ASG 

and J! are al aaida-associated terrorist groups in Southeast Asia designated 

pursuant to the authorities of E.O. 13224. These terrorist groups are also on 

the United Nations 1267 Committee's consolidated list of individuals and 

entities associated with the TaHban, al Qaida and/or Usama Bin Ladin 

tn 2004, .AJ-Mujil invited a Philippines-based JI supporter to Saudi Arabia 

under the cover of traveling for the hajj (the Muslim pilgrimage), and planned 

to provide him with cash to carry back to the Philippines to support 

organizations including JI. 

AI-Mujl! was also present in Afghanistan m the late 1990s and personally knew 

Usama Bin Ladin and deceased at Qaida co-founder Abdallah Allam. AI-Mujl! 

traveled continuously to meet 'With members of Bin Ladm's organization in Arab 

countries. In the 1990s, .AJ-Mujil established a relationship with senior al 

Qaida operational planner Khalid Shaykh Muhammad. 

AI-Mujil has a long history of providing support to terrorist organizations. He 

has contributed direct financial assistance to ASG leaders, including Abdurajak 

Janjalani (deceased). 

The Indonesian and Philippines branches of BRO have received support from 

IIRO-EP, which in tum is controlled by AI-MujiL Indeed, he is often 

responsible for authorizing payment transfers for IIRO Philippines (J/RO-PHL) 

and IIRO Indonesia (IIRO-IDN). 

Name: 

Abd aI-Hamid Sulaiman AI-Mujil 

AKAs: 

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Or. Abd af~Hamid A!~Muja! 

Dr. Abd Abdul-Hamid bin Sulaiman AJ-Mu'ji! 

Dr. Abd AI-Hamid AI-Mu'ajjal 

Abd al~Hamjd Mu'jil 

A.S, Mujel 

OOB: 

Abu Abdallah 

Nationality: 

Saudi Arabian 

International Islamic Relief Organization, PhHippines Branch Offices 

The llRO~PHL is a source of funding for the al Qaida-affiliated ASG IIRO-PHL 

has served as a liaison for the ASG vvHh other Islamic extremist groups. A 

former ASG member in the Phl!ippmes familiar Vilith lIRO operations in the 

country reported that a limited amount of foreign lIRO funding goes to 

legitimate projects and the rest is directed to terrorist operations 

The Philippine branches of the IIRO were founded sometime in the late 1980s or 

early 1990s by Muhammad Jamal Khamah, who is Usama bin Laden's brother-in-law 

and has been identjfjed as a senior al Qaida member. HRO-PHL's director, Abd 

ai-Had! Daguit, is a trusted associate of Khalifah. 

W1i1e working as the director of IIRO-PHL, Khalifah maintained close 

connections with al Qajda through his relations with senior a! Qaida 

supporters, inctuding Specially Designated Global Terrorist (SOGT) Wa'eJ Hamza 

Julaidan. At the time Khalifah directed the IIRO-PHL, he employed an ASG 

intelligence officer as the provincial director of the IIRO-PHL in the 

Tawi-Tawi region of the Southern Philippines until that officer's death in 

1994. 

In the mid 1990s, a major ASG supporter, Mahmud Abd ,AJ-Jali[ Afif, served as 

the director of the lJRO-PHL and used the organization to funnel money to 

terrorist groups including the ASG. Afifwas implicated in the assassination of 

Father Salvatore Carzeda in San Jose Gusu, Zamboanga City, Philippines on June 

20,1992. 

AKAs: 

International Islamic Relief Agency 

Intemational Relief Organization 

Islamic Relief Organization 

Islamic World Relief 

International Islamic Aid Organization 

Islamic Salvation Committee 

IIRO 

The Human Relief Committee of the Muslim World League 

World Islamic Relief Organization 

.AJ Igatha .AJ~!slamiya 

Hayat al-Aghatha al~lslamia al-.AJamiya 

Hayat al~lgatha 

Hayat AI-'Igatha 

Ighatha 

19atha 

Jgassa 

Jgasa 

Ig8se 

Egassa 

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760611.207

Address. 

International Islamic Relief Organization, Philippines Offices 

201 Heart Tower Building 

108 Valero Street 

Salcedo Village, Makati City 

Manila, Philippines 

Other Locations: 

Zamboanga City, Philippines 

Taw! Ta""';, PhHippines 

Marawi City, Philippines 

BasHan, Philippines 

Cotabato Crty, Philippines 

International Islamic Relief Organization, Indonesia Branch Office 

The IIRO Indonesia director has channeled money to two indonesia-based, 

JI-Bffiliated foundations. Information from 2006 sho'NS that IIRO-IDN supports 

JI by providing assistance WIth recruitment, transportatron, logistics, and 

safe-havens, As of late 2002, IlRO-ION allegedly financed the establishment of 

training facilities for use by al Qaida associates. 

AKAs: 

lnternationallslamrc Relief Agency 

Intemational Relief Organization 

Islamic Relief Organization 

Islamic World Relief 

Intemationallslamic Aid Organization 

Islamic Salvation Committee 

IiRO 

The Human Relief Committee of the Muslim World LeagueWor!d Islamic Relief 

Organization 

Allgatha Al~lslamiya 

Hayat al·Aghatha al+lslamia al-Alamiya 

Hayat al·lgatha 

Hayat AI-'Igatha 

/ghatha 

Igatha 

Igassa 

Igasa 

Igase 

Egassa 

Address: 

!nternationallslamic Relief Organization, Indonesia Office 

Jalan Raya Cipinang Jaya No. 90 

East Jakarta, 13410, Indonesia 

P.O. Box 3654 

Jak.arta, Indonesia 54021 

-30-

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760611.208

From: ANDREW RIZKALlA/HBUS/HSBC 

Sent: 81712006 8:01 :39 AM 

To: GEORGE TSUGRANES/HBUS/HSBC@HSBC 

CC: ALAN T KETLEY/HBUS/HSBC@HSBC 

Subject' Re: Fw: Social Invst Bank Bangladesh 

I remain firm to my first opinion, the aCGount should be close in an orderly 

fasnion. We still don't know ifthere is a nominee shareholder interest to 

IIRO, the U.S, Govt has designated IIRO for supporting terrorism, so even the 

small shareholder o'Mlership entities them to profits and divtdends from Soc 

Invst Bank to reinvest where?? Any decision Social takes to remove IIRO 

should be on their O'Ml decision, irrespective of what HBUS does, the reason 

below sounds Ilke a cope out and in no way should H8US be bound by any decision 

management of that institution makes. 

Hershel says momtor the aCGounts for 6 months, Will he be doing the 

monitoring?? 

AIldrew W. Rlzkalla, CAMS, CFE, CRCM 

VP, AML Compliance 

HSBC USA, NA 

452 Fifth Avenue 7th Floor 

New York, NY 10018 

Tel. No. (212) 525-6346 

Fax No. (212) 525-6550 

George Tsugranes/HBUSfHSBC 

08/07/200608:27 AM 

To 

Alan T Kelley/HBUS/HSBC@HSBC 

cc 

Andrew Rizka!1a/HBUS/HS8C@HSBC 

Subject 

Re: Fw: Socia! lnvst Bank Bangladesh 

Although the Philippine and Indonesia branch offices were cited, the Treasury 

action also cited Abd AI Hamid Sulaiman Al~Mujll 'Who is a high ranking lIRO 

official. So although only the 2 branches were cited, haVing a top official in 

the organization mentioned should be cause for concern involving IIRO, As this 

organization has a 9.0 % stake and does not involve itself in the day to day 

operations or mgmt - 000 is to say that they won't sooner Of later or start 

moving funds through this acct 

Also, the support attached is "luke warm~ in my opinion. 

regards, 

George 

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760611.209

Alan T KetleylHBUSIHSBC 

0810710608:12 AM 

To 

"George Tsugranes" <george.tsugranes@us_hsbc.com>, "Andrew Rizkalla" 

<andrew.rizkaUa@us.hsbc.com> 

cc 

Subject 

Fw: Sodallnvst Bank Bangladesh 

Thoughts? 

Alan T. Ketley 

First Vice President, Ant! Money Laundering 

Tel: 212 525 6147 

Fax: 2123827580 

~-~~ Forwarded by Alan T KetleylHBUSIHSBC on 0810712006 08:10 AM--

Hersel MehanilHBUS/HSBC 

08/06/2006 05:43 PM 

To 

Alan T Ketley/HBUS/HSBC, George Tsugranes/HBUSfHSBC@HSBC, Sharyn 

MaloneIHBUSIHSBC@HSBC, Stephanie L NapierfHBUS/HSBC@HSBC 

Subject 

Fw' Socia! lnvst Bank Bangladesh 

Dear aU 

CEO email from Dhaka is selfexplanatory . 

My decision is to maintain the aect and monitor activities for SIX month 

Dhaka banking system is closely monitored by the RM and also GRM 

Steve comments and RM feedback Indicate that the bank is aware of the present 

situation and they have no directors on their board from fiR and this should 

allow us to document that EDD was sWiftly Performed and will continue to be 

performed as long as the ITT has share in this bk ! am visiting all these bank 

next month 

We need to discuss jf possible early tom the execution of payments held on 

friday and whether to dose and release these funds as indicated in the email 

. Again l\Nish to support Dhaka in maintaining the acct. 

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760611.210

Cc 

HSteve BANNER 

From: Steve BANNER 

Sent: 0810612006 09:06 AM 

To: Hemel Mehani 

Cc: Sharyn Malone; Alan T Ketley; George Tsugranes; Stephanie Napier; 

Htekhar ALAM; Muhammad SHOHIDUZZAMAN Subject: Fw: Social1nvst Bank 

Bangladesh 

Hersel, 

I refer to your note sent on Friday. 1 attach a self explanatory note from 

Shohid, who has (along with tftekhar) been fo[/owing up on this matter with 

SIBL's management 

Based on the feedback from SIBL, IIRQ's role remains that of a minority 

shareholder that does not seek to engage in the management of the bank. We have 

no reason to disbelieve SIBL's statements. There are therefore no grounds for 

me to recommend an account closure or account freeze. 

I appreciate, however, that HBUS may feel compelled to act firmly in the light 

of OFAC's position. This is obviously a decision that rests with HBUS and I can 

confirm that we will not object to such an action. That said, we would much 

prefer it ifS1Bl is anowed to withdraw the balances held Vv'ith HBUS before you 

freeze or close the account. From our perspective there appears to be no 

justification for depriving SIBl of their funds and to do so would open HSBC to 

unwanted reputation a! damage I regulatory scrutiny locally, 

SIBL will, of course, wish to receive some written explanation ofvvhy their 

account has been frozen I closed. This letter wi!! need to emanate from HBUS 

and we need to be conscious that It may be used by SIBl management to force 

BRa to sen their shares. No doubt you will consult your lawyers on this 

matter but we believe it would be prudent if you were to avoid speclfical!y 

mentioning liRa in any such correspondence and more generically state something 

along the lines that ''the account has been frozen or closed in accordance with 

HBUS' interpretation of OFAC regulations, by which we are bound", 

If you let us know in advance that you are gOing to freeze! close the account 

we can start preparing the ground work Vvith SIBL ahead of your action. 

Please let me know if you want to discuss. 

Steve 

---- Forwarded by Steve BANNER/CEO OAKlHBAPIHSBC on 0810612006 06:19 PM 

Muhammad SHOHIDUZZAMANIIB DAKlHBAPIHSBC 

IB DAKlHBAP 

081061200605:45 PM 

Phone No, 88029660536 x 255 

Mail Size: 29029 

To 

Steve BANNERICEO DAKlHBAPIHSBC@HSBC 

cc 

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760611.211

Steve 

Iftekhar ALAMIIB DAKlHBAP/HSBC@HSBC 

Subject 

Fw: Sociallnvst Bank Bangladesh 

Our Ref 

Your Ref 

Iftekhar and I paid a visit to Social Investment Bank (SIBL) this afternoon and 

discussed the matter With the following executives: 

01. Mr K, M . Ashaduzzaman, Managing Director (MD) 

02. Mr. Abu Sadek Md. Sohel, Deputy Managing Director (DMO) 

03, Mr. Mahamud Hassan, Senior Vice President and Company Secretary (CS) 

I briefly described the background of the present issues and asked for their 

feedback and views. The MD advised/confirmed us the fonowing: 

-The present shares holding of IIRO still remains at the previous 8.62% 

-Apart from subscribing the shares IIRQ has never took part in any activities 

of SIBl, IIRQ did not even take possession of the shares certificates issued in 

their favour. The shares are in the custody of S18l. IIRO has never been a 

member of SIBl's board of Directors. ~MD advised that there was scope of 

removing director/sponsor of the bank in the memorandum and Artic!es of 

association of the bank (supported by the Banking Companies Act), if the 

director/shareholders were involved in such acts which were 

"contrary/derogatory to the objective or interest of the bank or Shariah." He 

unofficially advised that if any involvement of any executive/director/sponsor 

of IIRO transpires in closing down their nostro accounts or any such actions 

then the management will present the case as "contrary to the interest of the 

bank" to the board of directors and recommend taking action as per the above 

provision of the M&A. He also requested us to provide details of the US 

Treasury's findings (if possible) so that he could peruse the case in the 

upcoming AGM of the Bank due in November 06. -MD asked us notto freeze their 

account so that they could continue to route their USD clearing activities 

through the account. 

In view of the above, we are of the opinion that since IIRO is not involved in 

the operation of SIBl, there is no issues of concern locally. But since the 

matter has been raised by the US treasury, HBUS should take appropriate measure 

after careful examination of all the present and potential aspects, 

FYI, presently SIBl is maintaining two nostro accounts W'1th HBUS and INM. We do 

not have any credit relationship with this bank. 

Regards 

Shohid 

Forwarded by Muhammad SHOHIDUZZAMANIIB DAKlHBAP/HSBC on OB/06/2006 03:10 

PM--

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760611.212

Herse! Mehani/HBUS/HSBC 

HBUS 

08/04/200607:35 PM 

Mal! Size; 24719 

To 

Muhammad SHOHIDUZZAMAN/IB DAKlHBAP/HSBC@HSBC 

cc 

Steve BANNER/CEO DAKlHBAP/HSBC@HSBC, Sharyn MaloneIHBUSIHSBC@HSBC,Alan T 

KetJey/HBUS/HSBC@HSBC, George Tsugranes/HBUS/HSBC@HSBC, Stephanie L 

NapierIHBUS/HSBC@HSBC, Iftekhar ALAMIIB DAKlHBAP/HSBC@HSBC 

Subject 

Sodallnvst Bank Bangladesh 

Our Ref 

Your Ref 

Dear Shohid 

I just finished updating Ifekhar on Social Invest Bank, He Will call you to 

discuss this issue. Tomorrow he win speak to Sr. Management ofthe bank to 

obtam their reaction to the announcement. Of specific interest to HBUS will be 

the actions they are taking and the exact role in management and day to day 

operations that IIRO has in the bank. 

Compliance in NY has asked that I obtain from Mr. Steve Banner hIs input and 

commellts as well, and whether we have a valid case to keep this account on 

our books 

As mdicated be!owthe OFAC has added this name to their SON list 

We have blocked an outgoing payments for value Friday and all further payments 

until further notice. 

Quote 

The fallowing entities have been added to OFAC's SON list 

INTERNATIONAL ISLAMIC RELIEF ORGANIZATION INDONESIA BRANCH OFFICE (a.k.a. AL 

IGATHAAL·ISLAMIYA; a.k.a. EGASSA; a.k.a. HAYAT AL·AGHATHAAL·ISLAMIA 

AL·ALAMIYA; a.k.a. HAYAT AL·IGATHA; a.k.a HAYAT AL.'IGATHA; a.k.a.IGASA; 

a.k.a. IGASE; a.k.a.1GASSA; a.lc.a. lGATHA; a.k.a.IGHATHA; a.k.a. IIRO; a,k.a. 

INTERNATIONAL ISLAMIC AID ORGANIZATION; a.k.a.INTERNATIONAL ISLAMIC RELIEF 

AGENCY; a.k.a. INTERNATIONAL RELIEF ORGANIZATION; a.k.a. ISLAMIC RELIEF 

ORGANIZATION; a.k.a.ISLAMIC SALVATION COMMITTEE; a.k.a.ISLAMIC WORLD RELIEF; 

a.k.a. THE HUMAN RELIEF COMMITTEE OF THE MUSLIM WORLD LEAGUE; a.k.a. WORLD 

ISLAMIC RELIEF ORGANIZATION), Jalan Raya Cipinang Jaya No. 90, East Jakarta, 

Java 13410, Indonesia; P.O. Box 3654, Jakarta, Java 54021, Indonesia [SDGTJ 

INTERNATIONAL ISLAMIC RELIEF ORGANIZATION PHILIPPINES BRANCH OFFICE (a.k a. AL 

IGATHAAL·ISLAMIYA; a.k.a. EGASSA; a.k.a. HAYAT AL·AGHATHAAL·/SLAMIA 

AL·ALAMIYA; a.k.a. HAYAT AL·IGATHA; a.k.a. HAYAT AL.'IGATHA; a.k.a.IGASA; 

a.k.a. IGASE; a.k.3. IGASSA; a.k.a. lGATHA; a.k.a. !GHATHA; a,k.a.IlRO; aKa. 

INTERNATIONAL ISLAMIC AID ORGANIZATION; a.k.a.INTERNATIONAL ISLAMIC RELIEF 

AGENCY; a.k.a. INTERNATIONAL RELIEF ORGANIZATION; a.k.a. ISLAMIC RELIEF 

ORGANIZATION; a.k.a. ISLAMIC SALVATION COMMITTEE; a.k.a. ISLAMIC WORLD RELIEF; 

a.k.a. THE HUMAN RELIEF COMMITTEE OF THE MUSLIM WORLD LEAGUE; a.k.a. WORLD 

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ISl.A.MIC RELIEF ORGANfZATION), Marawi City, Philippines; Zamboanga City, 

Philippines; Tawi Ta'Ni, Philippines; Basilan, Philippines; Cotabato City, 

Philippines; 201 Heart Tower Building, 108 Valero Street, Salcedo ViUage, 

Makati City, Metropolitan Manila, Philippines [SDGT] 

Herse! Mehani 

Senior Vice President 

Globa! Payments and Cash Management 

Forwarded by Hersel MehanifHBUSfHSBC on 08/04/200609:03 AM ---

Hernel Mehani/HBUS/HSBC 

Tel: 212-525'<;239 

08/04/2006 08:54 AM 

To 

minar03@_ 

cc 

Subject 

Just to confirm our discussions this afternoon regarding IIRO's designation by 

the US Department of Treasury as a supporter of Al Qaida. 

__ "" Redacted by the Permanent 

Subcommittee on In\'Cstigal 

Herse! \ViI! be speaking with HSBC Dhaka and Social Investment to obtain their 

reaction to the announcement. Of specific interest to HBUS will be the actions 

they are taking and the exact role in management and day to day operations that 

IIRO has in the bank. 

Notwithstanding that Bangladesh is close on Friday we 'Nill require an answer by 

start of business on Monday and will evaluate our options at that time. 

With immediate effect outbound payments are to be blocked. 

We will continue to allow inbound payments to be credited to Social 

Investment's account. 

Hersel Mehani 

Senior Vice President 

Global Payments and Cash Management 

-- Forwarded by Hersel Mehanl/HBUSfHSBC on 08104/2006 09:03 AM ---

Hersel Mehani/HBUS/HSBC 

Tel: 212-525-6239 

08/04/2006 08:58 AM 

To 

minar03@hotmal!.com 

Subject 

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760611.214

From: ALAN T KETLEY/HBUS/HSBC 

Sent: 81712006 8:47:40 AM 

To: HERSEL MEHANIIHBUS/HSBC@HSBC;SHARYNMALONE/HBUS/HSBC@HSBC 

CC: "ANDREW RIZKALLA" <ANDREWRIZKALLA@US.HSBC.COM>;"GEORGE TSUGRANES" 

<GEORGE.TSUGRANES@US.HSBC.COM>:PRINCELY P MURO/HBUS/HSBC@HSBC 

Subject: Socia! Investment Bank 

HerseJ, Sharyn 

After reviewing the information provided by HSBC Dhaka my provisional deCISion 

is that this relationship be allowed to continue, It will need to be designated 

as an sec Category 4 (reputational risk) 'With immediate effect and wi1l be 

subject to closer monitoring as a result (George - an ALT of S50,000 should be 

applied). 

J am not willing to commit to the 6 months suggested by Hersel and we win 

review activity and determine what further action may be required as events 

warrant In this regard, the timing of Hersel's upcoming visit is fortuitous 

and give the bank some more time to react to the Treasury announcement. We will 

have some specific questions for Horse! to ask the bank when he visits them 

next month (George/Andrew please draft appropriate questions). We wilt review 

the status of the account in the fight of the information Hersel brings back 

with him as weI! as any news received in the interim. 

By copy of this note would George please confirm that the names contained in 

the Treasury announcement last week are now in our payment filter. 

JlRO's shareholding is a minOrity holding and information received indicates 

that they exert neither management control nor have board representation VVhHe 

this entity clearly represents a heightened reputational risk to the bank, j 

believe that with the knowledge we have today and the controls that are being 

implemented we have mitigated that risk adequately. 

I see that an EDD RoF is pending and have asked FIG if they can hasten Its 

production. 

The block on outbound payments that was imposed on Thursday may be lifted (and 

teh account returned to norma! operation) as soon as George confirms that tlle 

names are in the filter. 

Alan T. Ketley 

First Vice President, Anti Money Laundering 

Tel: 212 525 6147 

Fax: 212 382 7580 

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760611.215

From: TERESA PESCElHBUSIHSBC 

Sent: 8111120069:46:45 AM 

To: ALAN T KETLEYIHBUSIHSBC@HSBC;ANDREWRIZKALUIIHBUSIHSBC@HSBC 

CC: 

Subject: Fw: Report of Findings - Socia! Investment Bank limited - Bangladesh - FIG 

This makes me very uncomfortable. Can we talk. to the business about this? 

Teresa A. Pesce 

EVP/Managing Director 

Anti-Money Laundering Compl1ance 

HSBC North America Holdings 

452 Fifth Avenue 

New York, NY 10018 

ph - (212) 525-6099 

fax- (212) 525-5769 

-- Forwarded by Teresa Pesce/HBUS/HSBC on 08/1112006 10:44 ANI ---

FIG HBUS 

Sent by: Michael Ems 

081101200606:27 PM 

To 

George Tsugranes/HBUS/HSBC@HSBC, Alan T KetleyfHBUS/HSBC@HSBC 

cc 

Gillian E Bachstein/HBUSfHSBC@HSBC, Melissa Oggenfuss/HBUSJHSBC@HSBC, Pierre 

NasserfHBUS/HSBC@HSBC, PSRR@HSBC,Andrew RizkallaJHBUS/HSBC@HSBC, Gloria 

StrazzafHBUSfHSBC@HSBC, Teresa Pesce/HBUS/HSBC@HSBC, FIG HBUS@HSBC, Kathleen 

Dischner/HBUS/HSBC@HSBC 

Subject 

Report of Findings - Socia! Investment BanI< Limited - Bangladesh - FIG 

CONFIDENTIAL 

--FOR INFORMATIONAL PURPOSES ONLY I FOR INTERNAL USE ONLY'" 

George and Alan, 

Please find below an updated Report of Findings for Social Investment Bank 

Limited of Bangladesh, prepared by one of our FIG Investigators, Kathleen 

Dischner. As you wi!! read in this updated Report of Findings and the two 

prior ones attached below, there are several concerns pertaining to terrorist 

financing in regards to Social Investment Bank Limited's largest single 

shareholder, the Intemationallslamic Relief Organization (lIRO). We 

especially recommend that you consider the following information in evaluating 

the reputational risk posed by a continued account relationship with Sodal 

Investment Bank Limited: 

On August 3, 2006, the U.S, Treasury Department designated the Philippine and 

Indonesian branch offices of the Saudi-based llRO as Specially Designated 

Global Terrorists (SDGD. The Treasury Department also designated Abd AI Hamid 

Sulaiman AI-Mujil, the Executive Director of IIRO's Eastern Province Branch in 

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760611.216

Saudi Arabia, as a SDGT. 

According to Bankers' Almanac and Social Investment Bank's KYC profile, the 

Saudi-based IIRO owns an 8.62% stake in the bank, and is its largest single 

shareholder. 

p.s documented in the Reports of Findings below, prior to the SDGT designation 

of IIRO's Philippine and Indonesian branches, there have been numerous 

allegations of the organization's involvement in terrorist financing over the 

years. In fact, it appears that the IIRO is rarely mentioned in the press 

without it also being alleged that the group is a source of terrorist 

financing. 

Please feel free to contact me 'Mth any questions. 

Michael Ellis 

Manager, AVP - Financial Intelligence Group 

Investigauve Control & Reporting Office 

452 5th Avenue, Tower 7 

New York, NY 10018 

Telephone: (212) 525-8931 

Fax: (212) 525-5769 

Mail Code: 31 

INVESTIGATIVE CONTROL AND REPORTING OFFICE (ICRO) 

FINANCIAL INTELLIGENCE UNIT 

REPORT OF FINDINGS (UPDATE) 

(Research as of 08/04/06) 

INVESTIGATOR: Kathleen Dischner 

FINANCIAL INTELLIGENCE GROUP (FIG) 

REPORT OF FINDINGS 

SUBJECT: Social Investment Bank Limited 

ENTITIES: Social Investment Bank limited 

REQUESTOR: Rhonda Lee, Nanayo Ryan, George Tsugranes, Alan Ketley, Daniel Jack 

DEPARTMENT: PCMfBanknotes 

A Report of Findings in support of Enhanced Due Diligence was conducted for the 

Soda! Investment Bank Limited located in the HSBC-designated hjgh-risk country 

of Bangladesh. ThiS is an update to a previous report prepared for this bank 

on 3/2005, which is provided below for your reference. Only items impacting 

adversely on money laundering, terrorist financing or other substantive 

criminal activity com:erns will be detailed in this updated report. 

UPDATE: 

Socia! Investment Bank Limited 

Most Current O'Mlership Breakdown Found (5% or higher): 

Banker's Almanac indicates that the International Islamic Relief Organization 

owns 8.62% of the Social Investment Bank Limited. 

Most Current List of Top Executives Found: 

Dr Md Afza! Haque, Chairman 

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760611.217

Alhaj Mohd Afzal Hossain, Vice-Chairman 

K M Ashaduzzaman, Managing Director 

Abu Shadek Sahel, Deputy Managing Director 

Shafiqul Islam, Senior Vice-President 

Notable Information Regarding the Financial Institution, its Ownership or its 

Top Executives: 

An article in ''The Los Angeles Times" on January 15, 2006 reports that US 

officials have cited such organizations as tile International Islamic Rehef 

Organization, the majority shareholder of the Social Investment Bank, as 

"engaging in highly suspect activities overseas." A "National Review" article 

from December 14, 2005 reports that the Egyptian magazine "Rose aI-Youssef," 

describes the !lRO as ''firmly entrenched with Osama bin Laden's AI-Oaeda 

organization.~ 

World-Check identi~es the International Islamic Relief Organization 

(Indonesia) under Category 2: Terrorism. It is listed on the USA OFAC listSDGT (Specially Designated Global Terrorist). It \-vas identified as providing 

assistance to Jemaa Islamiyah jn terms of recruitment, transportation, 

logistics, and safe-havens. (Jemaah Islamiyah is a militant Islamic terrorist 

organization dedicated to the establishment of a fundamentallst Islamic 

theocracy in Soutileast Asia. Financial links betvveen Jemaah Islamiyah and other 

terrorist groups, such as Abu Sayyaf and al-Qaeda, have reportedly been found 

to exist http://en.wlkipedia.org). The IIRO also allegedly financed training 

facilities for AI-Qaida associates. (World-Check entry dated 8/3/06, citing 

U,S. Treasury Department press release at 

http://W.-I;W.treas.gov/press/releases/hp45.htm ). 

World-Check identifies the International Islamic Relief Organization 

(Philippines) under Category 2: Terrorism. It IS listed on USA OFAC under SDGT 

(Specially Designated Global Terrorist). It was reportedly founded in the late 

1980's or early 1990's, by a senior Al-Oaida member and brother in Jaw of Osama 

Bin Laden. The Director, Abd al-Hadl Daguit, is allegedly a close associate of 

the founder. (World-Check: entry dated 8/3/06). The organization is allegedly 

used as a source of funding for Abu Sayyaf Group. (The ASG is reportedly 

primarily a small, violent Muslim terrorist group operating in the southem 

Philippines. Some ASG leaders a!legedly fought in Afghanistan during the Soviet 

war and are students and proponents of radical Islamic teachings. Terrorist 

Group Profiles - http://1ibrary.nps.navy.mH/home/tgp/asc.htm). 

A separate World-Check entry also identifies the International Islamlc Relief 

Organization, with locations listed as Virginia, Saudi Arabia, and the 

Philippines, under Category 2: Terrorism. The description indicates the 

following: 

"Headed by Mohammed Khalifa, Osama bin Laden's brother-in-law. Member of the 

Board and the Executive Committee - Sheikh Hani Ahmad Zaki Yamani. Suspected of 

giving financial support to Islamic fundamentalist groups in Mindanao, 

Phi!1ppines (on behalf 00 and could be !Inked to Osama bin Laden. Reportedly 

funded organizations til at aid and abetterrorism including Al-Qaida, Hamas and 

Islamic Jihad. Allegedly linked to the 1993 World Trade Centre Bombings, 

involved in plots to assassinate Bill Clinton and the Pope and the planned 

destruction of the Un coIn Tunnel and Brooklyn Bridge. Sister organization 

Sana-Bell, Inc allegedly gives financial support to Islamic groups - suspected 

of laundering money for Al-Oaida and other terrorist organizations - Hnked to 

SAAR Network, The Golclen Chain, the Saudi evangelical charity the Muslim World 

League ~ offices world-wide. Dec 2002 - reported to be 1 of 10 charities being 

sued by the families of the 11 Sep 2001 World Trade Centre victims. Allegedly 

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active in Afghanistan during the Taliban regime and considered a major sponsor 

of terrorist training camps there." 

World-Check identifies a Shafiqu! Islam under the Category 2 of Terrorism. He 

is reportedly a suspected Jama'atul Mujahidden Bangladesh (JMB) suicide squad 

member. However, we could not confirm that he is the same individual....mo is 

also a Senior Vice-President at the Social Investment Bank Limited. It appears 

that he may not be the individual listed on Wond-Check, as he was reportedly 

arrested in February 2006. (Wortd-Check entry dated: 2113106, citing 'The 

Independent" of Bangladesh). 

Information Found Regarding this Financial Institution, its CMtnership or its 

Top Executives that Warrants SCC Consideration: 

The International Islamic Relief Organization is the majority shareholder of 

the Social Investment BanI< Limited. The IlRO allegedly has connections to 

terrorist organizations such as,AJ Qaeda, and its Indonesian and Philippine 

branches have been designated by OFAC as SDGTs. 

"h Should you find any discrepancies between the ownership and/or executives 

named in this report and those named in your current, up-to-date KYC 

information, please let us know so that we may check any differing names for 

items impacting adversely on money laundering, terrorist financing or other 

substantive crimina! activity concerns. 

This report is confidential and is intended solely for the use of the HSBC 

business to which it is addressed and those who need to know the information 

pursuant to that business' intemal procedures. This report is not to be 

disseminated to any other person or entity. Our inves~gative findings are, in 

part, based upon information available to us through a variety of third-party 

providers atthe time our search is performed. While every attempt is made to 

find aU substantive information, we make no representation that the 

information provided to, or gathered by, us is complete. This is not a credit 

report and should not be used as a credit report. The information contained 

herein is intended as a supplement to the Know Your Customer information 

gathered by the HSBC business unIt and may not be considered ....men determimng 

the creditv.lorthiness ofthe customer (see Regulation B, 12 CFR 202.7) 

Please feel free to contact me with any questions regarding this report. 

Kathleen Dischner 

Note 

10 Mar 2005 18:02 

From: FIG HBUS Tel: 

Title: Location: 

WorkGroup: Mail Size: 30784 

Sent by: Bob Powers 

To: Rhonda Lee-ThomaslHBUS/HSBC@HSBC 

Nanayo RyanfHBUSfHSBC@HSBC 

Gloria Strazza/HBUS/HSBC@HSBC 

cc: Teresa PescelHBUS/HSBC@HSBC 

Alan T KetleyIHBUSIHSBC@HSBC 

Lynda J Cassell/HBUS/HSBC@HSBC 

FIG HBUS@HSBC 

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Subject Report of Findings - Social Investment Bank Ltd - FIG (UPDATE) 

CONFIDENTIAL 

~. FOR INFORMATIONAL PURPOSES ONLY'" 

FINANCIAL INTELLIGENCE GROUP (FIG) 

REPORT OF FINDINGS (UPDATE) 

SUBJECT: Social Investment Bank. Ltd 

ENTITIES; Suciallnvestment Bank Ltd 

REOUESTOR: Rhonda Lee-Thomas, Nanayo Ryan 

DEPARTMENT: Banknotes 

ACCOUNTS: Social Investment Bank Ltd Acet#_ 

__ "" Redacted by the Permanent 

Subcommittee on Investigations 

A report of findings in support of enhanced due diligence for Social Investment 

Bank Ltd was conducted in November of 2003, The text of that report has been 

pasted below, P-s oftoday, March 10, 2005, we have conducted an update review 

for this bank to determine if there have been any reports of criminal activity 

surrounding this corporation, or any notable news or changes, Slnce November of 

2003, Our findings are as follows: 

Recommendation 

In consideration of the below-mentioned allegations of terrorist financing 

against SociallrlVestment Bank's largest shareholder, the International Islamic 

Relief Organization, we strongly recommend that a relationship with Social 

Investment Bank not be approved until the matter is discussed with Senior 

Compliance Management 

Intemationa! Islamic Relief Organization (lIRO) 

Of primary concern in the November, 2003 report was the issue of Social 

Investment BanKs majority shareholder, the International Islamic Relief 

Organization (1IRO), and tile IIRO's aUeged connections to terrorist 

organizations such as AI Qaeda, 

According to the Bankers Almanac profile published on Lexis-Nexis on February 

14, 2005, the IIRo remains the largest shareholder of the Social Investment 

Bank, with an 8,62% stake in the bank. The Bankers Almanac profile provides a 

very speci1ic breakdown of the shareholders, naming dozens of individual 

shareholders who ho!d a smaller than 1 % stake in the banlc Of all the 

shareholders named, tile IIRo is the only shareholder that claims a 5%-or-larger 

stake in Soeial1nvestment Bank Ltd. 

As the November, 2003 report made clear, the International Islamic Relief 

Organization is alleged to have provided funding to terrorist groups such as Al 

Oaeda in the past. The group endorses Wahhabism, a strictinterpretation of 

Sunni Islam that values martyrdom, Wahhabism is the school of Islam that Osama 

Bin Laden is reported to have practiced, While the group has avoided any 

official sanctions from a governing body, they are still v.tidely reported as 

being suspected of terronst financing. Based on the frequency with which the 

group is connected to terrorist financing in the press, it is likely that their 

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activities will always be under scrutiny, and future government sanctions 

against the group are highly probable. 

As recently as February, 2005, the Associated Press reported that the US 

expressed concern when the IIRO took part in Tsunami rellef efforts in 

Indonesia. The assistant secretary for terrorist financing at the US Treasury 

Department was quoted in the article as saying t."at the IIRO's presence could 

lead to extremist ideologies gaining a foothold in the region and establishing 

a foundation for terrorist activity. 

Reporting on the !lRO's Tsunami rellef efforts on February 25, 2005, the 

"Associated Press" stated that the IIRO is alleged to have acted as a cover for 

AJ-Oaeda operations in the Philippines. "The Manila Standard" reported on 

January 22, 2005 that Filipino law enforcement has adopted measures to cut off 

funding to an alleged new Islamic fundamentalist group that trains its members 

in terrorism and has already plotted a bombing in Manila, which was foiled by 

police Filipino officials believe funding for the group, and other 

fundamentalist groups in the region, comes from AJ-Oaeda linked organizations. 

The only such organization named specifically in the artide was the 

lntemationallslamlc Relief OrganIzation, which is aUeged to provide funding 

for Islamic Fundamentalist groups in the Philippines by channeling the funds to 

local Islamic non-governmental organizations. 

The World-Check profile on the IIRO classifies the group as a terrorist entity, 

based on reports that the IIRO has funded groups that are acknowledged by the 

federal government and the United Nauons as having aided and abetted 

terrorism. 

On January 10,2005, It was reported that the IIRO had merged with the Muslim 

World League. World-Check's profile on the Muslim World League dassifies the 

group as a terrorist entity. Wand-Check. claims that the group was initially 

funded by Osama Bin Laden and, like the !lRO, is aUeged to have funded groups 

that ajd and abet terrorism. Additionally, partial funding to the groups 

responsible for the 1993 Wor!d Trade Center bombing has reportedfy been traced 

back to both the liRO and the Muslim World League. 

In conclusion, the !lRO is rarely mentioned in the press without it also being 

alleged that the group is a source oftetTorist financing. Even the frequent 

reports on the group's charity activities and relief efforts make mention of 

the group's link to terrorism. These allegations have yet to lead to 

government sanctions against the group, and none of the reports found have made 

mention of Social Investment Bank Ltd in any manner, 

Socia! !nvestment Bank Ltd 

Social Investment Bank. Ltd maintains headquarters at 15 Di!kusha Commercial 

Area, Dhaka 1000, Bangladesh. According to the Bankers Almanac profile 

published on February 14, 2005, the bank. is ranked 12th in its country and 

2,257 in the world. In 2003, the bank reported $359.9 million in total assets, 

Kama!uddin Ahmed is the current Chairman ofthe bank, 'Nlth Kaz:i Anwarul Mahbub 

listed as the bank's Managing Director. The bank's correspondent banklng 

relationships do not extend far beyond its relationships '/>lith the global 

branches of Standard Chartered Bank and American Express Bank Ltd. Its 

relationships WIth these two corporations does extend the bank's presence into 

most of the global banking regions, but It should be noted that Social 

Investment Bank Ltd does not appear to have correspondent relationships with 

many of the other major global banking corporations. 

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Our review found no evidence of criminal activity directly related to Sodal 

Investment Bank Ltd or its management. Socral Investment Bank Ltd does not 

appear on Worid-Check. 

The Bankers Almanac profile of Social Investment Bank Ltd published on February 

14, 2005 on Lexis~Nexis reports that the InternationallsJamic Relief 

Organization (IIRO) is the bank's largest shareholder 'Nith an 8.62% stake in 

the bank. As detailed above, the !lRO is alleged to have provided funding for 

numerous terrorist organizations, including Al Qaeda. 

See below for November, 2003 report of findings. Feel free to contact me with 

any questions regarding this report. 

Bob Powers 

FIG Investigations 

Prior Report of Findings from November 2003: 

Rhonda, 

I am providing a copy of our Report of Findings for SOCIAL INVESTMENT BANK 

LTD., as you requested, which includes my Remarks/Recommendations and a Summary 

prepared by Laura Spadanuta, and investigator for the FIG. If you have any 

questions, please do not hesitate to contact Laura or myself.. 

FINANCIAL INTELliGENCE GROUP (FIG) 

REPORT OF FINDINGS 

SUBJECT: Social Investment Bank Ltd. 

REMARKS I RECOMMENDATIONS 

Although the allegations presented in this report, primarily against the 

Intemationallslamic Relief Organization (lIRO) and the Lajnat ai-Birr AJ 

Islamiah, are highly adverse, no U.S. or foreIgn govemment law enforcement or 

regulatory body has stated, unconditionally, that these organization are under 

sanction. The reputational risk is significant, however, and the possibHity 

that further investigations by U,S. authorities may ultimately uncover 

substantiating proof of a connection to terrorism. The risk of future 

sanctions and the reputational risk based on the allegations noted in this 

report should be measured against the current risks involved in our 

relationship when ultimately deciding a course of action. 

Kind Regards, 

Peter Javier 

Director, FIG 

SUMMARY OF FINDINGS 

INVESTIGATOR: Laura Spadanuta 

ENTITIES: International Islamic Relief Organization, Islamic Charitable 

Society Lajnat ai-Birr AI Islam, Dr. M.A. Mannan, Mohammad .A.zam, Late Abdul 

Majid, Abdul Matin Khan, Rukhsana Habibultah, Late Munshi Fazlur Rahman, 

Mohammad Ismail 

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REQUESTOR: Rhonda Lee-Thomas 

An ALE search was requested for the shareholders of Social Investment Bank 

Ltd. Enhanced due diligence was performed on the shareholders 'Whose names 

appeared on the FIG databases and on the World-Check database. 

International Islamic Relief Organization (IIRO) 

IIRO is a Saudi-Arabian charity. The Muslim World League, 'Which is an 

organization dedicated to spreading Wahhabism that is funded by the Saudi 

government, is the parent organization of the IIRO. It has been reported that 

the IJRO claims on its website to have a relationship with the United Nations 

High Commissioner for Refugees. 

The IIRO was na med in the 2002 lawsUIt brought fOMard on behalf of family 

members of victims of the September 11,2001 terrorist attacks. The IIRO was 

accused of having "played key roles in laundering of funds to terrorist for the 

1998 African embassy bombings" and having been involved in the "financing and 

aiding and abetting of terrorists in the 1993 World Trade Center bombing.~ The 

BRO has also reportedly funded al-Qaeda directly, as well as several of its 

satellite groups. Osama bin Laden's brother-In-law, Mohammed Jamal Khalifa, 

headed the Philippine branch of the IIRO in the 1990's. The Philippine 

govemment has charged that the group contributed to terrorist causes there. 

IIRO opened its U.S. branch (under the name International Relief Organization) 

in 1991 at the 555 Grove S1. complex in Herndon, Virginia that was raided in 

March 2002 by the F .B.!. in a counter-terrorism investigation. Several other 

Islamic chanties were also raided in the same complex. Money received by the 

International Relief Organization by the Saudi government was used to set up 

Sana Bel! Inc., 'Which was responsible for investing the money. Sana Bel! Inc. 

was accused of giving $3.7 milHon to BMllnc. from 1992-1998. BMI Inc. was a 

New Jersey investment company that adhered to Islamic principles. One of SMI's 

chief investors, Yasin Qadi, was designated by the U.S. and the U.N. as a 

"specially designated terrorise for his support of a!·Qaeda and Hamas. 

Another of SMI's major investors was Hamas leader Mousa Abu Marzook. SMI's 

founder, Soliman S, Slheiri, was indicted in 2003 by the U.S. government for 

immigration violations. 

Furthermore, !sraeli forces reportedly found a large collection of documents in 

the West BanI<. with the IIRO logo and a list of aid recipients including the 

highlighted names of families of suicide bombers. Additionally, rt has been 

reported that the IIRO has sent at least $280,000 to the Tull<.arm Zakat 

Committee, a Hamas-affiliated organization in the West BanI<.. lIRO has also 

been linked to several other organizations that have been accused ofterrorist 

financing, including Al-Shama! Islamic Bank (.....nich was supported by Osama bin 

Laden), and the SAAR Foundation, .....nich is related to the al-Rajhi family (who 

have also been named in the September 11 families !avvsuit). 

It has been further reported that the Success Foundation is the successor to 

the U.S. office of the lIRO. The Success Foundation was directed by Abdur 

Rahman Alamoudi, a Muslim-American activist who was indicted on October 23, 

2003 on money laundering, tax, immigration and customs-fraud charges. Mr. 

A1amoudi is also being investigated for his connections to the bin Mahfouz 

family and Yaqub Mirza, which have been accused of supporting terrorists. 

Islamic Charitable Society Lajnat A-BIrr A1 Islam 

Lajnat al~Birr A1lslamiah was established in 1987. It has been stated that 

Lajnat ai-Birr A1lslamiah was the original name of the Benevolence 

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760611.223

International foundation, and that it originaHy had offices in Saudi Arabia 

and Pakistan. According the U.S. govemment, among the purposes of Lajnat was 

to "raise funds in Saudi Arabia to provide support to the Mujahadeen then 

fighting in Afghanistan,n as wen as to provide ~cover for fighters to travel 

in and out of Pakistan and obtain immigration status." Benevolence 

Intemational has been tied to terrorism and its director, Enaam Amaout, was 

indicted in 2002 with conspiring to defraud his group's donors by secretly 

providing financial and logistical help to al~Qaeda for a decade. The 

indictment alleged that the group was originally Lajnat al-Blrr AI Islam, 

although the defense !avvyers claimed that the groups are separate. 

Additionally it has been alleged that Lajnat ai-Birr took over a "health 

project" for Makhtab al-Khidemat, the precursor to a!~Qaeda, wlch was active 

in the 1980's. 

MIS Rabbani Trading Co. 

Rabbani Trading Co. appears to be a trading company headquartered in Duba!, 

UAE. No adverse information was found regarding the company. There is a 

Mohammad Rabbani of Afghanistan who has been designated as a terrorist by the 

U.N. and the U.K., but there is no evidence that he is linked to the company. 

Dr. M.A. Mannan, Ph. D. 

Or. M.A. Mannan was the chairman and founder of Social Investment Bank Ltd. He 

was fired in 2000 after fault was found with his bankirJg procedure. It was 

alleged that he created an obstacle to the team of Bangladesh Bank during their 

visitto Social Investment Bank Ltd. AdditionaHy, he was accused of 

interfering with bank administrative work and with harassing a bank employee. 

AddiUonally, an individual named M.A. Mannan was also the Bangladeshi minister 

of Labor and Employment. He was charged in a 2002 government white paper with 

iIIega! spending of government money. Because M.A. Mannall appears to be a 

common name in Bangladesh, it is unclear whether the two individuals are olle 

and the same. The Social Investment Bank Ltd, has not been mentioned in any 

articles about the Mannan WO was Labor Minister, which might imply that they 

are separate individuals. 

Mohammad Azam 

There is a Mohammad Azam of Kashmir who is reportedly a leader of the terrorist 

organization Lashkar-e-Toiba. It is importantto note that Mohammad Azam is a 

fairly common name and there is no evidence linking the terrorist to Socia! 

Investment Bank Ltd. 

Late Abdul Majid 

There has been an Abdul Majid from Sillgapore that is reported to have been 

arrested by the Singapore government for terrorism-related activities. No 

adverse information was found regarding a ~Late Abdul Majid." 

Rukhsana Habibullah 

Nothing adverse was found regarding any individual named Rukhsana HabibuHah. 

AIl individual by the name uHabibullah" from Singapore is believed to have been 

arrested by the Singapore government on terrorism-related charges. There is no 

evidence that this individual is related to Rukhsana HabibuUah. 

Late Munshi Fazlur Rahman 

AIl individual named Fazlur Rahman from Pakistan was reportedly a pro-Taliban 

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760611.224

cleric. He was placed under house arrest from 2001 through 2002. There is no 

evidence that his name was actually "Late Munshi Fazlur Rahman." 

Mohammed Ismail 

A Mohammed Ismai! of Connecticut was indicted by the U.S. Attorney's Office for 

dealing in firearms. This individual does not appear connected to the Socia! 

Investment Bank Ltd. 

In conclusion, it is of significant concem that the leading shareholder of 

Social Investment Bank Ltd. (at 8.620/0), International Islamic Relief 

Organization, has been accused in both the Philippines and in America of 

funding terrorist groups. The group is currentty under investigation by the 

F.B.I. Another of the bank's shareholders, Lajnat ai-Birr AI Islam (at 1.54%) 

has also been connected to terrorist groups. Additionally, the bank's founder 

and chairman was let go on allegations of interference and harassment. Other 

adverse connections to individuals with the names of the bank shareholders 

could not be confirmed and were quite possibly merely cases of two individuals 

having the same name. Finally, it is important to note that Social Investment 

Bank Ltd. is located in Bangladesh, \oVhlch was ranked as the world's most 

corrupt nation by Transparency International. 

From: George Tsugranes on 21 Ju1200613:05 

To: FIG HBUS@HSBC 

cc. GiIHan E Bachstein/HBUS/HSBC@HSBC 

Mehssa Oggenfuss/HBUS/HSBC@HSBC 

Pierre Nasser/HBUSfHSBC@HSBC 

PSRR@HSBC 

Andrew RizkallalHBUSIHSBC@HSBC 

Subject Re: SociaJ Investment Bank Limited Bangladesh 

Please ex:pedite a rpt of findings as this bank scared a 33. 

Shannon ~ I changed the scoring template as the allegations have been out there 

for a few years and we have not designated this bank an SCC. We should ask the 

RM/GRM for an update on the allegations as part of this review. 

regards, 

George 

Shannon M Jones/HBUS/HSBC 

0712110612:15 PM 

To 

George Tsugranes/HBUS/HSBC@HSBC 

cc 

PSRR@HSBC, Gillian E Bachstein!HBUS/HSBC@HSBC, Pierre Nasser/HBUSfHSBC@HSBC, 

Melissa Oggenfuss/HBUSJHSBC@HSBC 

Subject 

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760611.225

Social Investment Bank. Limited ~ Bangladesh 

George 

We are reviewing and updating the KYC profile of the above subject client The 

last Report of Finding was presented on 03/18/05. 

I have attached a ROF for your review. 

Please advise any questions or conCerns regarding this request. 

Regards 

Shannon Jones 

Payment Services Regulatory Risk Group 

Compliance Officer 

Tel: 302-636-2103 

Fax: 212-642-4065 

Attachment; ROF Social Investment Bank.xls 

Attachment: Social Investment Bank Umited{ROF)v.2.xts 

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760611.226

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concern (2 Dr 4 pomts; may be added as a busmess uM judgement linking them to AI-Qaeda, Osama Bin Laden and ternosm financing 

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760611.227

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48 

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1395 


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760611.229

From: ALAN T KETLEY/HBUS/HSBC 

Sent: 11/1412006 2:59:42 PM 

To: BETH FISHERlHBUS/HSBC@HSBC 

CC: 

Subject: Re: KYC Approval needed for: AL RAJH! BANKING & INVESTMENT CORP 

It was exited once (2004?) ~ Banknotes London is looking to reopen the 

relationship. 

The profile had better be bullet proof. 

AJan T. Ketley 

Senior Vice President, Anti Money Laundering 

Tel: 212 525 6147 I Fax: 212 382 7580 

Beth Fisher/HBUS/HSBC 

1111412006 02.4B PM 

To 

Christopher LoklHBUS/HSBC@HSBC 

cc 

Alan T Ketley/HBUS/HSBC@HSBC, Daniel JacklHBUS/HSBC@HSBC 

Subject 

Re: KYC Approval needed for: AL RAJHI BANKING & INVESTMENT CORP 

I thought this was an HSBC exit name. 

Beth 

Christopher LoklHBUS/HSBC 

Tel: 212-5252062 

11/14/200602-18 PM 

To 

Beth Fisher/HBUS/HSBC@HSBC 

cc 

Subject 

KYC Approval needed for: AL RAJHI BANKING & INVESTMENT CORP 

A KYC Customer Profile in SAUDI ARABIA is ready for your approval (Reference 

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760611.230

#1000157). 

Click on the attachmentto open the Profile. 

THIS PAGE IS 

INTENTIONALL Y 

LEFT BLANK 

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760611.231

From: STEPHEN J ALLEN/HBMD/HSBCMERIDIAN 

Sent: 11/17/2006 9:22.35 AM 

To: BETH FISHERlHBUS/HSBC@HSBCAMERICAS;ALAN T KETLEY/HBUS/HSBC@HSBC 

CC: 

Subject Fw: AI Rajhi Bank KYC & AML Policy 

Beth/Alan, 

I now have the follo'vVing additional info from Salman for your kind attention. 

Steve 

----- FOl"Narded by Stephen J ALLENfHBMD/HSBCMERIDIAN on 17/11/2006 14:19 ---

Salman HUSSAIN/HBME/HSBC 

HBME 

17111/2006 13:56 

Phone No. 0097317569599 

Mall Size: 16093 

To 

David B ILLING/HBMD/HSBCMERIDIAN, Gordon BROWN/IBEU/HSBC, Stephen J 

ALLEN/HBMD/HSBCMERIDIAN@HSBC 

cc 

Ciara O'CONNELUIBEU/HSBC, Shariq Z SIDDIQI/HBMElHSBC, John L SCOTT/HBEU/HSBC, 

Hammad ZaldllHBUS/HSBC, Stephen D Loffredo/HBUSfHSBC@HSBC 

Subject 

Fw: AI Rajhi Bank KYC & AML Policy 

Entity 

HS8C Bank Middle East Limited 

Dear David, Gordon and Stephen, 

Further to my phone call with David last week after meeting AI Rajhi Bank in 

Riyadh. I was given a deadline by Mr. Cassim Doerat, Head of F! until end of 

Nov. to respond to them weather we wi!! be able to resume the banknote 

business or not. Mr. Docrat indicated that HSBC Amanah business will be at risk 

and they will cancel any dealings With HSBC. 

Mr. Docrat understand Compliance Dept. requirements and suggested we request 

further information from Moody (Attn. Mr. Anwar Hasson) or S&P. He also 

indicated that JP MOrgan Chase, their main US$ clearer had done the same and 

accordingly an DID limit of $290mm established by JPMC for N Rajhi. 

! can't stress on the fact that we do want to do business with this institution 

from PCM side. We do stand a good chance to win a US$ clearing account thru 

offering Islamic Overnight Investment Product and the US$ check clearing thru 

Check 21. 

Kindly let me know If you do require any further assistance to obtain 

compliance approval. 

Best regards, 

Confidential- FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB03666138 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 3280496 
1399 


760611.232

Salman Hussain 

Regional Sates Manager 

Global Transaction Banking 

HSBC Bank ME Ltd. 

P.O. Box 57 

Manama, Kmgdom of Bahrain 

Tel.: +973 17569599 

Mobile: 

Fax.: +973 17569888 

Email salman.hussain@hsbc.com 

__ = Redfietd:-'v (he Permanent 

Subcommit-tee on Investigations 

---- Forwarded by Salman HUSSAIN/HBME/HSBC on 17111/0604:25 PM -----

Salman HUSSAIN 

HBME 

19 Sep 200610:10 

0097317569599 

Mail Size: 11765 

To: Gordon BRO\!VN/IBEU/HSBC 

cc: Shariq Z SIDDIQI/HBMElHSBC 

Gary BOONlHBME/HSBC 

Dear Gordon, 

Subject Fw: AI Rajhi Bank KYC & AML Policy 

Our Ref: 

Your Ref: 

Entity: HSBC Bank Middle East Limited 

Am forwarding AI Rajhi email Just in case you did not receive it and also 

copymg Shariq, GRM for his info. ! believe by AI Rajhi responding to the 

Questions is a step ahead in our efforts to re-establish thiS relationship. 

J would be grateful if you could forward their reply to compliance to get their 

bleSSing and clearance. Please do keep me posted and let me know If you do 

require any further assistance. 

Best regards. 

Salman Hussam 

Regional Sales Manager 

Global Transaction Banking 

HSBC Bank ME Ltd. 

P.O. Box 57 

Manama, Kingdom of Bahrain 

Tel.: +973 17569599 

Moblle: 

Fax.: +973 17564343 

Email.salman.hussain@hsbc.com 

Confidential· FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB03666139 

Confidential· FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 3280497 
1400 


760611.233

-- Forwarded by Salman HUSSAIN/HBME/HSBC on 09/19/2006 08:04 AM 

"Mohd. Fazal Haque" <mfazal@alrajhibank,com.sa> 

17 Sep 2006 14:42 

To: Salman_HUSSA!N/HBMElHSBC@notesemea.com 

cc: Gordon.BRO\IVN@mhub1.com 

"Ismail A. Odeh" <Odehia@alrajhibank.com.sa> 

Saleh A1zumale <saleh_a@alrajhibank.com.sa> 

"Kottilapurth B. Sudarsan" <sudarsan_kb@alrajhibank.com.sa> 

Cassim Docrat <docratc@alrajhibank.com.sa> 

Dear Salman, 

Subject: FW: AI Rajhi Bank KYC & AML Policy 

Our Ref: 

Your Ref: 

Entity: HSBC Bank Middle East Limited 

I refer to your e-mail dated 17th August about KYC and AML questionnaire sent 

to us. Below is our reply on the questionnaire. 

Thanks and best regards, 

Mohammad Fazal Haque 

Senior Manager (Europe and Trade Finance) 

Financial institutions 

AL RAJHI BANK 

P.O. Box 28 

Rlyadh-11411 Saudi Arabia 

Tel: 966-1-2116303 Fax: 966-1-4601519 

E-mall.mfazal@alrajhibank.com.sa 

1. Please confirm the countries outside of Saudi Arabia that you do business 

with: 

AH our correspondent banks names are available in the B,mkers Almanac. 

2. If any of tnese countries are OF AC-sanctlOned, please provide Information as 

to how you ensure that none of the products/services offered by HBUS are 

utilized in these cases. 

We apply strict due diligence and KYC procedures to high risk countries. 

3. Please detail your intended use of any USD banknotes that may be purchased 

Confidential· FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB03666140 

Confidential· FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 3280498 
1401 


760611.234

from the international market e.g. percentage supplied to your own branches 

compared to commercial enterprises (subsidiaries/affiliates/corporate etc), 

Usage by customer type, e,g.construction and petroleum companies J currency 

exchanges houses, 

All USD banknotes we purchase is for our own branches use. We have over 

450 branches all over the kingdom and as it is weI! known we have a big 

population of around 7 million foreign workers in the kingdom who mostly prefer 

USD when traveling back to their countries on vacation or even ....men remitting 

money to their families back in their native countries. Also during summer time 

we have a high demand from tourist traveling for their vacations. 

4, Kindly comment on how unusual usage of banknote activity is monitored and 

whether your good bank wi!! discontlOue doing business with a customer for 

unexplained activity 

Unusual customer activity is monitored through our AML monitoring system 

(PR!SM-ACI) by establishing rules which generate daily alerts in line with FATF 

recommendations, 

5, We should also like confirmation that you would adVise us of changes in 

market(s) I customer types of USD Banknote business' 

We can confirm that we wi!! advise changes in market (s) I customer types of 

USD Banknotes business whenever It occurs. 

6. We are interested to know whether you have successfully implemented the 

automated monitoring process, (which we were previously advised would be 

implemented in November 2005: 

We are now using PRISM a system developed by ACI 

7. We should like to have more informaUon regarding your handling of 

unlicensed money remitters' 

We do not deal 'Nith any unlicensed money remitters as required by local laws. 

8. Further clarification is requested on comments made in your good bank's AML 

procedures relating to "monitoring of all transactions so that unlicensed money 

changers are not remitting funds outside the Kingdom" 

As stated above we do not deal with ANY unlicensed money remitters. We monitor 

aU customer transactions using a rules based approaChed. The rules are derived 

from central bank AMI guidelines and FATF standards. 

This Email and any files transmitted may contain confidential 

and/or privileged information and is intended solely for the 

addressee(s) named. If you have received this information in error, 

or are being posted by accident, please notify the sender by return 

Email, do not redistribute this email message, delete it 

immediately and keep no copies of it. AI! opinions and/or views 

expressed in this emaH are solely those of the author and do not 

necessarily represent those of Al-Rajhl Bank. Any purchase order, 

purchase advice or legal commitment is only valid once backed by 

the signed hardcopy by the authorized person from Al-Rajhi Bank. 

Confidential - FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB03666141 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 3280499 
1402 


760611.235

From: STEPHEN J ALLENIHBMD/HSBCMERIDIAN 

Sent 11/1712006 9:37:00 AM 

To: BETH FISHERlHBUS/HSBC@HSBCAMERICAS 

CC: ALAN T KETLEY/HBUSIHSBC@HSBC;CHRISTOPHER J HEUSLERlHBUSIHSBC@HSBC 

Subject: Re: AI Rajhi Bank1ng 

Beth, 

I quite understand your position and 1......,11 try another tack. 

Steve 

Beth Fisher/HBUS/HSBC 

HBUS 

1711112006 14 :23 

Mail Size: 7422 

Steve, 

To 

Stephen J ALLEN/HBMDIHSBCMERIDIAN@HSBC 

cc 

Alan T Ketley/HBUS/HSBC@HSBC, Christopher J Heusier/HBUSlHSBC@HSBC 

Subject 

Re: AI Rajhi Banking 

Entity 

HSBC Bank USA. London Branch (Treasury and Capital Markets - TCM) 

I am not trying to be difficult. but I do not personally feel comfortable IB 

approving this name. I do not know this bank. Additionally, severa! years 

ago, when HBUS had relationships with 2 different AI Rajhi names, management 

would ask me questions about the customer every time the name appeared in the 

US newspapers. J do not know this bank personally and am therefore not 

qualified to render an opmion; l cannot answer questions if/when the AJrajhi 

name appears in US ne'NS media 

Therefore, please ask another officer to IS approve. ! am IS-Denied the KYC, 

so that my name can be removed as RM. 

Thank you. 

Seth 

Stephen J ALLEN/HBMD/HSBCMERIDIAN 

Tel: 799 24555; +44 (0) 20 7992 4555 

Confidential - FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB03666146 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A, HSBC acc 3280504 
1403 


760611.236

11/1712006 08:53 AM 

To 

Beth FisherIHBUSIHSBC@HSBCAMERICAS, Alan T KeUeyIHBUSIHSBC@HSBC 

cc 

Subject 

AI Rajhi Banking 

Beth/Alan, 

Salman Hussain, the PCM Regional Sales Manager at HBME in Bahrain, who has 

recently visited the subject, has called to say that AI Rajhi has now run out 

of patience waiting for us to re~start our banknote trading relationship and 

unless we can complete the kyc formalities and advise them accordingly by the 

end of November, they will terminate all product relationships with the HSBC 

Group ~ which I believe to be substantia!. 

Their main point of contention is that they fee! that they were exonerated by 

all US legal processes from TF suspicion some time ago and yet we have still 

not been able to fe-start trading with them. Gordon finished our latest attempt 

at the profile on Tuesday and you 'Ni1l find the kyc profile to be currently in 

the 'IB Pending' inbox. Could I please ask you both to expedite your reviews so 

that we can attempt to prevent the loss of an important client to the Group? 

thanks and regards 

Steve 

Confidential· FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB03666147 

Confidential· FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 3280505 
1404 


760611.237

From: SALMAN HUSSAIN/HBME/HSBC 

Sent: 11/20/2006 5:35:28 PM 

To: ALAN T KETLEY/HBUS/HSBC@HSBC 

CC: GORDON BROWN/IBEU/HSBC@HSBC;JOHN L SCOTI/HBMElHSBC@HSBC;SHARIQ Z 

SIDDIQI/HBME/HSBC@HSBC; 

STEPHEN J ALLEN/HBMD/HSBCMERIDIAN@HSBC 

Subject Re: Fw: AI Rajhi Bank KYC & AML Policy 

Thanks Alan, 

The enhancments to the PRIS system was done in No\!, 05 for AML and KYC. 

Estimated revenue 'Nil! be a minimum of $1 OOk per annum. 

Regards, 

Salman Hussain 

Regional Sales Manager 

Global Transaction Banking 

HSBC Bank ME 

P.O. Box 57 

Manama, Kingdom of Bahrain 

Tel: +973 17569599 

Fax: +973 17569888 

Mobile: .jIi~iiiiiil. Email: salman.hussain@hsbc.com 

HSBC Bank Middle East Limited 

Registered Office: HSBC House, Esplanade, St Helier, Jersey, JE4 BUB 

Registered Number 85600 

From: Alan T Ketley 

Sent: 20/11/2006 19:15 

To: Salman HUSSAIN 

Cc: Gordon BROWN; John L SCOTT; Shanq Z SIDDIQI; Stephen J ALLEN 

Subject: Re: Fw: AI Rajhi Bank KYC & AML Policy 

Salman 

Thanks for this information ~ one point of clarification. Page 23 of their AML 

Polley states 'The bank is currently working on enhancing its automated AML 

solution ..... It is targeted for compietion by November 2005". Was this 

deadline achieved? 

--= Redacted by the Permanent 

Subtommittee on Investigations 

\i\t1at revenue projections do you have associated with the US$ clearing and Check 

21 'cash letter'? 

Thanks 

Confidential· FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB03666587 

Confidential· FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 3280945 
1405 


760611.238

Alan T. Ketley 

Senior Vice President, Anti Money Laundering 

Tel: 212 525 6147/ Fax: 212 382 7580 

THIS PAGE IS 

INTENTIONALL Y 

LEFT BLANK 

Confidential - FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB03666588 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 3280946 
1406 


760611.239

From: AlAN T KETLEY/HBUS/HSBC 

Sent: 11/2212006 1 :17:08 PM 

To: EMMA E V IAWSON/HGHQ/HSBC@HSBC 

CC: 

Subject Re: Fw: A1Rajhi Banking & Investment Corp., Saudi Arabia 

Your timing is uncanny and I suspect not entirely unrelated to correspondence 

last week from Banknotes and PCM. 

! have reviewed the new documentation provided by the client and discussed it 

with Terry - she has indicated a desire to discuss with David. 

Will keep you posted. 

Alan T. Ketley 

Senior Vice President, Anti Money Laundering 

Tel: 212 525 6147 1 Fax: 212 382 7580 

Emma E V LAWSON/HGHQ/HSBC 

11/221200612:51 PM 

Alan 

To 

Alan T Ketley/HBUS/HSBC@HSBC 

cc 

Subject 

Re: Fw: A1Rajhi Banking & Investment Corp., Saudi Arabia 

Can we pick this up again please. Has progress been made. 

Thanks and regards Emma 

Alan T Ketley/HBUS/HSBC 

HBUS 

20/0612008 16:21 

Mail Size: 3309 

To 

Emma E V IAWSON/HGHQ/HSBC@HSBC 

cc 

Teresa Pesce/HBUS/HSBC@HSBC 

Subject 

Re: Fw: AlRajhi BanlOng & Investment Corp., Saudi Arabia 

Entity 

HSBC Holdings pic - HGHQ 

Confidential· FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB03667415 

Confidential· FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 3281773 
1407 


760611.240

Emma 

We have not received an answer to these questions but Steve and his KYC staff 

have been fully engaged on an ecc exam for the past few months. The exam will 

end on June 30 so ! expect they will revisit the subjectthen. 

Alan T. Ketley 

First Vice President, Anti Money Laundering 

Te!: 212 525 6147 

Fax: 212 382 7580 

Emma E V LAWSONIHGHQIHSBC 

0612012006 03:39 AM 

Alan 

To 

Alan T KetleyIHBUSIHSBC@HSBC 

cc 

Teresa Pesce/HBUSIHSBC 

Subject 

Fw' A1Rajhi Banking & Investment Corp., Saudi Arabia 

I understand you asked Steve Allen for further KYC/EDD. Has this progressed? 

Please advise. 

Thanks and regards Emma Lawson 

--- Forwarded by Emma E V LAWSQNIHGHQIHSBC on 2010612006 08:37 ----

Alan T KetleylHBUSIHSBC 

HBUS 

181041200622:04 

Mail Size. 14754 

To 

Susan A WRIGHTIHGHQIHSBC@HSBC 

cc 

Teresa Pesce/HBUS/HSBC@HSBC 

Subject 

Fw: A1Rajhi Banking & Investment Corp., Saudi Arabia 

Entity 

HSBC Holdmgs pic ~ HGHQ 

Confidential- FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB03667416 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC DCC 3281774 
1408 


760611.241

From: ELIZABETH PROTOMASTROIHBUSIHSBC 

Sent: 12118120061 :58.01 PM 

To: DONNA S M CHANICMP APHIHBAPIHSBC@HSBC 

CC: GRACE C SANTIAGO-DARVISHIHBUSIHSBC@HSBC;ALAN T KETLEYIHBUSIHSBC@HSBC 

Subject: Fw: TT NSC_ HKPI"'14DEC06 

Yes, Donna, you should provide that explanatJon to your client. The client 

should also be 'informed that he must contact the Office of Foreign Assets 

Control ("OFAC") and apply for a license to try to obtain release and return of 

the funds 

He may call OFAC at (800)540-6322 Of access the license application via the 

link pasted below. 

http://ustreas.gov/offices/enforcement/ofacflegal/forms/Hcense.pdf 

Below is the link to the OF AC web site for information on the current sanctions 

program. 

http://ustreas.gov/offices/enforcementlofaclindex.html 

Let us know if you have any further questions. 

Forwarded by Elizabeth ProtomaslrofHBUS/HSBC on 12/1812006 01:48 PM -----

Alan T KetleylHBUSIHSBC 

1211812006 07:54 AM 

To 

Elizabeth ProtomastroJHBUS/HSBC, "Grace C Santiago·Darvish" 

<:grace.c.santiago-darvish@us.hsbc.com> 

cc 

Ladies 

Donna S MChan 

Subject 

Fw: TT NSC770937i1 HKP10320-14DEC06 

Would you be so kind as to reply to Donna. 

Thanks 

Alan 

From: Donna S MCHAN 

Sent: 1211712006 09.44 PM 

To: Alan T Ketley 

Cc: Lily L Y HO; Charissa B CHEN 

Subject: TT NSC770937II HKP10320-14DEC06 

Dear Alan. 

RE TT NSC_ DATED 13DEC06 FOR USD15,350.21 

Redacted by the Permanent 

Subcommittee on Investigations 

Confidential· FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB03672903 

Confidential· FOIA Treatment Requested by HSBC Sank, USA, N.A. HSBC acc 3287261 
1409 


760611.242

The above payment has been blocked. After examining the outgoing cable, we've 

noticed that the Payment details quoted "AIR TICKETS MOSCOW HAVANA MOSCOW 3PAX" 

which we reckon is the possible reason for the incident. 

The following message was from HBUS: 

IIIlIlQuotelll1ll 

Please be advised that this payment indicates an interest in Cuba as such, we 

are obligated by the office of foreign assets control to block this payment and 

place these funds In a time deposit account. Any further action in regards to 

these funds are not at the discretion of HSBC Bank USA. 

ItIIIIUnquotelll1ll 

You would like to seek your advise on whether we could issue letter to remitter 

by quoting tlle above reason for the blocked payment. 

Thanks and Regards, 

Donna Chan 

Compliance Manager - Anti·Money Laundenng 

Confidential· FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB03672904 

Confidential· FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBG OGG 3287262 
1410 


760611.243

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Confidential - FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB03727824 

Confidential- FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC acc 3342182 
1411 


760611.244

From: GEORGE TSUGRANES/HBUS/HSBC 

Senl:3/2/2007 2:47:11 PM 

To: ALAN T KETLEY/HBUS/HSBC@HSBC 

CC: 

Subject Pouch exam 

Alan - 2006 clients with volumes. 

Spreadsheet of activity for 11/06 and 12106 - all accts are being checked to 

ensure activity is reflected on KYC 

Day 1 letter and comments noted: 

The day 1 letter with comemnts will be tab 1 

regards, 

George 

Attachment: PCM CashLetter volumes 200S.xls 

Attachment: PCM Cash Letter activity NovthruDec2006.xis 

Attachment: Pouch Request Letter.doc 

Confidential· FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB03737668 

Confidential· FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 3352026 

760611.245

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1415 


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Redacted by the 

Permanent Subcommittee on Investigations 

Confidential· FDIA Treatment Requested by HSBC N. America Holdings, Inc. HSB03737672 

Confidential· FDIA Treatment Requested by HSBC Bank, USA, N.A. HSBC DCC 3352030 

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From: "BOSS, JOSEPH" <JOSEPH.BOSS@OCC.TREAS.GOV> 

Sent: 7/26/2007 7:24:48 AM 

To: ALAN.T.KETLEY@US.HSBC.COM 

CC: "BOSS, JOSEPH" <JOSEPH.BOSS@OCC.TREAS.GOV> 

Subject Saudi's 

Alan, for your information and review. Please let me know ifthere is 

anything, This appeared on the front page of today's WaD Street Journal. 

Thanks, Joe 

TERROR FINANCE 

U.S. Tracks Saudi Bank 

Favored by Extremists 

Officials Debated \lVhat 

To Do About AI Rajhi, 

Intelligence Files Show 

By GLENN R. SIMPSON 

July26, 2007; Page At 

JIDDA, Saudi Arabia In the 1940s, two Bedouin farm boys from the desert 

began changing money for the trickle of traders and religious pilgrims in this 

thenMrernote and barren kingdom. It was a business built on faith and trust, 

Sulaiman AI Rajhi once told an intelViewer, and for many years he would hand 

gold bars to strangers boarding flights in Jidda and ask them to give the gold 

to his brother on their arrival in Riyadh. 

EXTREMISTS' ACCOUNTS 

The News: U.S. intelligence reports say Islamic extremists often use Saudi 

Arabia's AI Rajhi Bank to move money. The bank has denounced terrorism and 

denies any role in financing extremists. 

The Issue: A confrontation with AI Rajhl would be politically difficult for 

Saudi monarchy, and U.S. isn't satisfied with its efforts to curb the financial 

infrastructure essential to terrorism. 

Result U.S. has periodically debated taking action on its own against the 

bank, but chosen instead to lobby the Saudis quietly about its concerns. 

Today, Mr. AI Rajhi is a reclusive octogenarian whose fortune is estimated at 

$12 billion. And AI Rajhi Bank grew into the kingdom's largest Islamic bank, 

with 500 branches in Saudi Arabia and more spread across the Muslim world. 

Fo!lolNlng the Sept 11, 2001, attacks, the bank also set off an intense debate 

within the U.S. govemment over whether to take strong action against its 

alleged role in extremist finance, Confidential reports by the Central 

Intelligence Agency and other U,S. agencies, reviewed by The Wall Street 

Journal, detail for the first time how much the U.S, leamed about the use of 

AI Rajhl Bank by alleged extremists, and how U.S. officials agonized over what 

to do about it. 

After 9/11, the Saudi monarchy pledged its full support in the fight against 

global terrorism. And following violent attacks inside the kingdom in the next 

two years, the Saudis did launch major strikes against militants operating on 

their soil, But the Saudi government has been far been less willing to tackle 

the financial infrastructure essential to terrorism. U.S, intelligence reports 

state that Islamic banks, while mostly doing ordinary commerCe, also are 

institutions that extremism relies upon in its global spread. 

PG a result, the Bush administration repeatedly debated proposals for taking 

strong action itself against AI Rajhi Bank, in particular, according to former 

U,S. officials and previously undisclosed government documents. Ultimately, the 

U.S, always chose instead to lobby Saudi officialdom quietly about its concerns. 

The U.S. intelligence reports, heretofore secret, describe how AI Rajhi Bank 

has maintained accounts and accepted donations for Saudi charities that the 

U.S. and other nations have formally designated as fronts for al Qaeda or other 

terrorist groups. 

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In addition, Mr. AI Rajhi and family members have been major donors to Islamic 

charities that are suspected by Western intelligence agencies of funding 

terrorism, according to CIA reports and federal~court filings by the Justice 

Department. 

A 2003 CIA report claims that a year after Sept. 11, with a spotlight on 

Islamic charities, Mr. PJ Rajhl ordered AI Rajhi Bank's board ''to explore 

financial instruments that would allow the bank's charitable contributions to avoid official Saudi scrutiny," 

A few weeks eartier, the report says, Mr. PJ Rajhl ''transferred $1,1 billion to 

offshore accounts - using commodity swaps and two Lebanese banks - citing a 

concern that U,S, and Saudi authorities might freeze his assets," The report 

was tttled "PJ Rajhi Bank: Conduit for Extremist Finance," 

AI Rajhi Bank and the AI Rajhl family deny any role in financing extremists, 

They have denounced terrorist acts as un~lslamic, The bank declined to address 

speciiic allegations made in American intelligence and law-enforcement records, 

citing dient confidentiality. 

RELATED DOCUMENTS 

«Picture (Metafile»> 

AI~Rajhi bank became a target for U,S, terrorism sanctions less than two months 

after Sept. 11,2001. 

No action was taken, but in mid~2003, the Central Intelligence Agency concluded 

that the AI~Rajhi family and their bank were financing terrorists, probably 

knowingly, This is the summary page 

<http:tlonline,wsj,comlpublic/resources/documentslinfo-enlargePic07 .htm!> 1 

from the agency's report. 

The bank sued The Wall Street Journal Europe for libel in 2002 over a report 

that it was under scrutiny in connection with terrorism funding, but dropped 

the case in 2004 and The Wall Street Journal published the bank's statement 

<http://online.wsj.coml.rticle/SB109813521879148492.html> 2. 

The CIA's report and other U.S, intelligence on AI-Rajhi remained secret, and 

in 2005 a federal judge threw out a ia'NSuit against the bank by victims of Al 

Qaeda, saying there was no evidence AI-Rajhi provided anything but routine 

banking services to terrorists. Read the order, 

<http://w.;j.comlp ublic/reso u rcesfdocumentsl4 casey 0 rde rjan 1620 05.p df> 3 

The PJ~Rajhi family and tile ruling AI-Saud family of Saudi Arabia have been at 

odds for decades, in part because of the accidental death of an infant PJ~Rajhi 

family member in a botched police rescue attempt during a kidnapping. Saudi 

dissidents in London issued a communique recounting the incident 

<http://w.;j.comlpubliclresources/documents/5Communique1994No23.pdf> 4tilat was 

highly critical of Saudi authorities. The document was made available by the 

Investigative Project on Terrorism, a Washington-based nonprofit group, 

This 1992 State Department cable 

<http://'NSj.comlpublic/resources/documents/CablestatedocC167,pdP 5 from tile 

U.S. ambassador in Riyadh discusses the Saudi press coverage ofthe AI Rajhi 

bank's purported role in the BCCI scandal. 

One of the AI Rajhi bank's major longtime clients is the Intemationallslamic 

Relief Organization of Jeddah, Saudi Arabia, a powerful charity backed by some 

of the country's wealtiliest businessmen. This fundraising solidtation 

<http://wsj.comlpublic/resources/documentsJiirodonationform2007 .pdf> 6 is from 

the IIRO's March 2007 newsletter. The group strongly denounces terrorism on its 

Web site <http://wNv.tJirosa.orgfen/> 7. 

U,S, intelligence has alleged connections between al Oaeda and the IIRO since 

1996, and the Treasury Department now alleges 

<http://w.;j.com/public/resourcesJdocuments/6I1RODesignation2006.pdf> 8 the IIRO 

has been deeply penetrated by al Oaeda. The group denies supporting terrorism 

in this statement 

<http://wsj.comlpublic/resources/documentsl7iirodefensemarch2007color.pdf> 9 

from its most ~ecent neWSletter. The group also claims it no longer sends money 

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overseas, and that its accounts are frozen by Saudi banks. Yet its most recent 

fundraising letter 

<http://wsj.comlpubliclresources/documents/8Pagesfromiirosamarch2007color2,pdf> 

10 solicits donations to AI Rajhi bank and touts a variety of ongoing projects 

in overseas conflict zones, 

In 2004, IIRO funded a medical facility in Fallujah Y6Jile that centra! Iraqi 

town was under the control of Iraqi insurgents, The U.s. Marine Corps blew up 

the clinic, and says all three of the city's hospitals were being used by 

insurgents as fighting positions. See the PowerPoint slides 

<http://wsj.comlpublic/resourcesJdocuments/90perationAiFahr2004.ppt> 11. 

In 2002, the bank sued The Wall Street Joumal Europe after an article said 

Saud] authorities were monitoring some AI Rajhi Bank accounts at U,S. request, 

in a bid to prevent them from being used, wittingly or unwittingly, for 

funneling money to terrorist groups. The bank dropped the suit in 2005 and the 

Joumal published a statement saying its article hadn't reported any allegation 

that the bank supported or financed terrorism. 

Also in 2005, a U.S. judge dismissed Al Rajhi Bank from a lawsuit filed by 

relatives of Sept 11 victims. The ruling said banks couldn't be held liable 

for providing routine selVices to people who tumed out to be terrorists, In a 

statement in response to questions about suspected terrorists among its 

clients, the bank noted that "AI Rajhl Bank has a very large branch network, 

and a very large retail customer base." 

U.S. law-enforcement and intelligence agencies acknowledge it is possible that 

extremists use the bank's far-flung branches and money-transfer selVices 

without bank officials' knowledge. The U.S. has never obtained proof that the 

bank or its owners knowingly facilitate terrorism, according to documents and 

former officials, despite Y6Jat they describe as extensive circumstantial 

evidence that some executives are aware the bank is used by extremists. The 

200'3 CIA report concluded: "Senior Al Rajhl family members have long supported 

Islamic extremists and probably know that terrorists use their bank." 

Most major banks around the world are bound by a patchwork of treaties and 

agreements that, in effect, require them to know their customers and report any 

suspicious activities to regulators. The rules are designed to fight terrorism, 

money laundering and narcotics trafficking, It's generally ackno'NIedged that 

Saudi banks are bound by these rules, although experts differ on Y6Jen 

compliance became mandatory. 

The top counterterrorism official at the U.S. Treasury Department, while 

declining to comment on Al Rajhi Bank specifically, says Saudi officials 

haven't met a promise to create a commisslon to oversee Saudi charities, many 

of which bank \"lith Al RajhL 'They are also not holding people responsible for 

sending money abroad for jihad," says the Treasury official, Stuart Levey, "It 

just doesn't happen." 

The Saudi govemment maintains it has been working diligently with the U.S. and 

others to counter terrorism. It cites its arrests of several alleged terrorist 

fund-raisers in recent years. The Saudis didn't respond to specific questions 

about their efforts to counter terrorist 'finance Of oversee banks. 

A VVhite House statement said that "the Saudis continue to be a strong partner 

in the War on Terror. ... We have made significant progress on numerous frontsincluding the freezing of assets and the shutdown of known condults of 

[terrorist] funding." A CIA spokesman said "publishing details of how our 

government seeks to track extremist financing" could undermine those efforts. 

For the ruling Saud family, any confrontation with the AI Rajhis could be 

politically treacherous. To stay in power, the Sauds rely on the tolerance of 

clerical and business elites, many of whom view the royal family as corrupt. 

The wealthy AI Rajhis are a clan long at odds with the royal family. And U.S. 

intelligence files show the Al Rajhis also have close ties to another group 

critical of the royals: Saudi Arabia's conservative clerics. 

The AI Rajhi empire includes hotels, housing developments, commodities trading, 

shipping, aviation leasing and poultry. Its core is the bank, with more than 

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500 branches in Saudi Arabia and other offices abroad, from Pakistan to 

Malaysia, For 2006, the publicly held institution reported $1,9 billion in 

profit and $26 billion in assets. 

Sulaiman AI Rajhl grew up in the Nejd desert, the birthplace of a severe form 

of Islam, called Wahhabism, that forbids birthday parties, musical instruments 

and photographing people. In the 1940s, he and a brother, Saleh, went to the 

Saudi capital city. "From literally nothing - making change on what were then 

the dirt streets of Riyadh - Sulaiman and Saleh al Rajhl built the AI Rajhl 

Bank," Sulaiman's lawyers told a U,S. court in New York in 2005. 

Sulaiman described the business in a rare interview wrth Euromoney magazine in 

1983. VVith two other brothers, he and Saleh began changing money for pilgrims 

taking camel caravans across the desert to the holy cities of Mecca and Medina. 

V\n1en throngs of migrant workers came to Saudi Arabia during the 1970s oil boom, 

the AI Rajhis helped them send their eamings home to places like Indonesia and 

Pakistan. 

In 1963, the brothers won permission to open Saudi Arabia's first Islamic bank, 

one that would observe religious tenets such as a ban on interest. 

But relations with the ruling family frayed. The govemment~controlled press in 

1992 publicized Al Rajhl Bank's tangential role in an intemational scandal of 

that era, that ofthe bank called BCCI, U.S. diplomats reported. Then in 1994, 

an infant relative of the Al Rajhis died in a kidnapping. Official press 

accounts said the kidnappers slit the child's throat, but Saudi dissidents 

claimed police shot the child. Mr. AI Rajhi blamed the royal family, the CIA 

report says. 

Although Al Rajhi Bank continued 10 make a show of support for the Sauds -

annual reports had flowery tributes to the royal family -- the bank began 

refusing to make loans to the Sauds or to finance their projects, U,S. 

diplomats said at the time. 

Wth its Islamic procedures, the bank was a magnet for the clerical 

establishment, which grew rich from alms amid the oil boom. As the clerics' 

charities spread, they became entwined W'ith AI Rajhi Bank and the conservative 

Al Rajhl family's own extensive financial support for Islamic causes. 

There is no reliable estimate of how much the AI Rajhis have given to promote 

Islam over the years, but an endowment holding much of Saleh Al Rajhi's wealth 

gives an indication of the scale. Its Web site details nearly $50 million in 

direct donations within the kingdom to Islamic causes and at least $12 million 

in donations abroad. The overseas money went to aid embattled Muslims in 

Kosovo, Chechnya and the Palestinian territories and to finance Islamic 

instruction. 

There are indications not aU the giving was for such purposes. The AI Rajhi 

name appeared on a list of regular financial contributors to al Oaeda that was 

discovered in Sarajevo, Bosnia, in 2002. The list was authenticated for the 

Federal Bureau of Investigation that year by America's top judicial witness 

against al Oaeda, a onetime at Oaeda business manager named Jamal AI Fadl, who 

is in the federal witness-protection program. He called the contributor list 

the "golden chain." 

A 2003 German police report said Sulaiman AI Rajhl and other family members had 

contributed more than $200,000 in 1993 to a charity that financed weapons for 

Islamic militants in Bosnia, in addition to providing humanitarian aid. 

The 2003 CIA report tells of efforts by two AI Rajhi brothers to keep some 

giving secret. It says that Sulaiman and Saleh transferred $4 mimon to 

parties in Germany and Pakistan in December 1996 using "a unique computer code 

10 send funds at regular intervals to unspecified recipients, suggesting they 

were trying to conceal the transactions and that the money may have been 

intended for illegitimate ends." 

The report says extremists "ordered operatives in Afghanistan, Indonesia, 

Pakistan, Saudi Arabia, Turkey, and Yemen" to use AI Rajhi Bank. Mamduh Mahmud 

Salim, convicted mastermind of the 1998 embassy bombings in Kenya and Tanzania, 

was carrying records of an AI Rajhi account (number 00142414) when arrested in 

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Germany in 1998, German police found.ln 2000, the CIA report says, AI Rajhi Bank couriers "delivered money 

to the 

Indonesian insurgent group Kompak to fund weapons purchases and bomb-making 

activities." 

A U.S, intelligence memo dated Nov. 16,2001, says a money courier for Osama 

bin Laden's second-in-command, Ayman al-Zawahri, traveled on a visa that the 

bank had obtained for him. The memo adds, however: "Reporting does not indicate 

whether bank management was witting" of the courier's terrorist connections. 

AI Rajhi Bank maintained at least 24 accounts and handled unusual transactions 

for AI-Ham main foundation - a charity that Treasury officials say has acted 

as a front for al Oaeda in 13 countries - until the Saudi government ordered 

the charity shut down in late 2004, according to intelligence and 

law-enforcement reports. The United Nations has designated top officials of 

AI-Haramain foundation as terrorists, and most of its offices now are closed. 

According to a federal indictment in Oregon, a top AI-Haramain official in 2000 

carried $130,000 in $1,000 traveler's checks from PortJand to Riyadh and 

deposited them with AI Rajhi - funds the indictment says were for the ultimate 

benefit of al Oaeda fighters in Chechnya. The indicted official, Soliman 

AI-Buthe, now works for the city of Riyadh. In an interview, he confirmed 

carrying the checks and depositing them VoJith AI Rajhi Bank but said that they 

weren't for al Oaeda and that he did nothing wrong. 

«PichJre (Metafile)>> 

A Jidda-based charity called the International Islamic Relief Organization, or 

IIRO, arranges for donors to send their donations directly to the AI Rajhi 

Bank. The IlRO's chairman, Adnan Khalil Basha, says the charity is "absolutely 

apolitical" and has elaborate spending contro!s to prevent illicit diversions. 

The charity says it works with AI Rajhi Bank simply because its fees are low 

and its service is best. 

However, the U.N. has labeled two of the IIRO's branches and some of its 

officials as at Oaeda supporters. In 2004, the lIRO solicited donations through 

AI Rajhi Bank for the Iraqi city of Fallujah, then largely under the control of 

insurgents and the base of the late Abu Musab al Zarqawi, who led a! Oaeda in 

Mesopotamia. The IIRO's workers oversaw construction of a trauma clinic in an 

insurgent-controlled area of Fa!lujah. The U.S. saw the clinic as a haven for 

insurgent fighters, and Marines destroyed it in November 2004. That was "a big 

tragedy for us," says the IIRO's cnairman, Mr. Basha. 

He denies the charity had any involvement VoJith the Iraqi insurgency. Charity 

officials complain that the U.S. has produced no evidence of their alleged ties 

to terrorism. 

Two years eartier, federal agents raided the Virginia offices of a network of 

charities funded by Sulaiman AI Rajhi that worked closely with the IIRO and 

that - according to Justice Department court filings - provided funds to 

Palestinian terrorists. No charges have been filed. 

A year after the 9111 attacks, U.S. authorities began to lament the lack of 

Saudi action in taking down terrorists' financial infrastructure. A November 

2002 CiA report said the Saudi government "has made little independent effort 

to uncover terrorist financiers, investigate individual donors, and tighten the 

regulation of Islamic charities," largely because of "domestic political 

considerations." 

The report advised against a noisy confrontation: "A key factor for continued 

successful counterterrorism initiatives with the Saudis, whose society is by 

tradition private, closed, and conservative, will be to ensure that their 

cooperation with the United States is handled discreetly and kept as much as 

possible out of the public eye." 

The U.S. began to rethink that approach after an al Oaeda attack in Riyadh in 

May 2003 that killed 26 people, including nine Americans. Deputies from the 

National Security Council, CIA, Treasury and State departments debated a 

proposal for legal and political action against AI Rajhi Bank, including the 

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possibility of covert operations such as interfering with the bank's internal 

operations, according to Bush administration documents and former U,S. 

officials. 

One idea kicked around was "listing or threatening to list" At Rajhi Bank as a 

supporter ofterrorism. Such a listing can be done if recommended by a 

committee representing the Treasury, State and Defense departments and the CIA 

and NSC, and signed by the president. The designation bars U.S. companies from 

doing business with the named entity. A U.S. designation also normally is 

forwarded to the U.N., and if that body puts the name on its own 

terrorist-supporter list, all member states are obliged to freeze the entity's 

assets. 

Other ideas U.S. officials discussed included enlisting friendly countries to 

step up scrutiny and regulatory action against the AI Rajhis. The CIA report 

said that "a successful effort against the AI Rajhis would encourage efforts 

against other donors, or at a minimum, would discourage private funding of N 

Oaeda." 

Ultimately, the Bush administration again chose merely to continue privately 

exerting pressure on the Saudis to stiffen their oversight. 

This message originated from the Intemet. Its originator mayor 

may not be who they daim to be and the information contained in 

the message and any attachments mayor may not be accurate .............. * .... _ .... _ .. * ........ -· .. _ .... * .. "' ............ • .................. " ................ ** .............. - C.htm 

Attachment: C.htm 

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From: GLORIA STRAZZAlHBUSIHSBC 

Sent: 712612007 12:11 :28 PM 

To: ALAN T KETLEYIHBUS/HSBC@HSBC 

CC: "ALAN V'.1LLlAMSON" <ALANP.V'.1LLlAMSON@US.HSBC.COM>;"ANNELlDDY" 

<ANNE.LlOOY@US.HSBC.COM>;MONIQUE CODJOE/HBUS/HSBC@HSBC 

Subject: Re: Fw: Saudi's 

Alan --

If this is the article that you mentioned to me this morning - then we have 

seen it and are already working on it. 

We will provide updates to aiL 

Gloria Strazza 

FVP - Sr. Manager - !eRe 

452 Fifth Avenue, Tower 7 

New York, NY 10018 

Mail Code: 31 

Tele: 212-525-8634 

Fax: 212-525-5769 

Alan T Ketley/HBUS/HSBC 

07/26/200708:31 AM 

To 

"Gloria Strazza" <gloria.strazza@us.hsbc.com> 

cc 

"Anne Uddy" <anneJiddy@us.hsbc.com>, "Alan Williamson" 

<alan.p.wiUiamson@us.hsbc.com> 

Subject 

Fw: Saudi's 

Gloria 

Can you run the names in this article against our databases so we can give Joe 

Boss an answer. 

Thanks 

Alan T Ketley 

SVP AML Compliance 

452 Fifth Avenue, New York, NY10018 

Phone. 212-525-6147 

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Fax. 212-382-7580 

Email.alan.t.ketiey@u5.hsbc.com 

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"Boss, Joseph" <Joseph,BosS@occ.treas.gov> 

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"Boss, Joseph" <Joseph,8oss@occ.treas.gov> 

Subject 

Saudi's 

Alan, for your information and review. Please let me know ifthere is 

anything. This appeared on the front page oftoday's Wall Street Journal, 

Thanks, Joe 

TERROR FINANCE 

U.S. Tracks Saudi Bank 

Favored by Elrtremists 

Officials Debated VVhat 

To Do About AI Rajhi, 

Intelligence Files Show 

By GLENN R. SIMPSON 

July 26,2007; Page A1 

JIDDA, Saudi Arabia -In the 19405, two Bedouin farm boys from the desert 

began changing money for the trickle aftraders and religious pilgrims in this 

then-femote and barren kingdom. It was a business built on faith and trust, 

Sulaiman AI Rajhi once told an interviewer, and for many years he would hand 

gold bars to strangers boarding flights in Jidda and ask them to give the gold 

to his brother on their arrival in Riyadh. 

EXTREMISTS' ACCOUNTS 

The Ne'NS: U.S. intelligence reports say Islamic extremists often use Saudi 

Arabia's AI Rajhi Bank to move money. The bank has denounced terrorism and 

denies any role in financing extremists. 

The Issue: A confrontation with AI Rajhi would be politically difficult for 

Saudi monarchy, and U.S. isn't satisfied with its efforts to curb the financial 

infrastructure essential to terrorism. 

Result: U.S. has periodically debated taking action on its own against the 

bank, but chosen instead to lobby the Saudis quietly about its concerns. 

Today, Mr. AI Rajhi is a reclusive octogenarian whose fortune is estimated at 

$12 billion. And AI Rajhi Bank grew into the kingdom's largest Islamic bank, 

with 500 branches in Saudi Arabia and more spread across the Muslim world. 

Following the Sept. 11,2001, attacks, the bank also set off an intense debate 

within the U.S. government over whether to take strong action against its 

alleged role in extremist finance. Confidential reports by the Central 

Intelligence Agency and other U.S. agencies, reviewed by The Wal! Street 

Journal, detail for the first time how much the U.S.leamed about the use of 

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AI Rajhi Bank by alleged extremists, and how U.S. officials agonized over what 

to do about it. 

Atter 9/11, the Saudi monarchy pledged its full support in the fight against 

globa! terrorism. And following violent attacks inside the kingdom in the next 

two years, the Saudis did launch major strikes against militants operating on 

their soil. But the Saudi government has been far been less willing to tackle 

the financial infrastructure essential to terrorism. U.S. intelligence reports 

state that !slamic banks, while mostly doing ordinary commerce, also are 

institutions that extremism relies upon in its global spread. 

Ps a result, the Bush administration repeatedly debated proposals for taking 

strong action itself against AI Rajhi Bank, in particular, according to former 

U.S. officials and previously undisclosed government documents. Ultimately, the 

U.S. always chose instead to lobby Saudi officialdom quietly about its 

concerns. 

The U.S. intelligence reports, heretofore secret, describe how AI Rajhl Bank 

has maintained accounts and accepted donations for Saudi charities that the 

U.S. and other nations have formally designated as fronts for al Qaeda or other 

terrorist groups. 

In addition, Me AI Rajhl and family members have been major donors to Islamic 

charities that are suspected by Western intelligence agencies of funding 

terrorism, according to CIA reports and federal~court filings by the Justice 

Department. 

A 2003 CIA report claims that a year after Sept. 11, with a spotlight on 

Islamic charities, Mr. AI Rajhi ordered AI Rajhl Bank's board ''to explore 

financial instruments that would allow the bank's charitable contributions to 

avoid official Saudi scrutiny." 

A few weeks earlier, the report says, Mr. AI Rajhi "transferred $1.1 billion to 

offshore accounts - using commodity swaps and two Lebanese banks - citing a 

concern that U.S. and Saudi authorities might freeze his assets." The report 

was titled "AI Rajhi Bank: Conduit for Extremist Finance." 

AI Rajhi Bank and the PJ Rajhi family deny any role in financing extremists. 

They have denounced terrorist acts as un~!slamic. The bank declined to address 

specific aUegations made in American intelligence and law-enforcement records, 

citing client confidentiality. 

RELATED DOCUMENTS 

AI~Rajhi bank became a target for U.S. terrorism sanctions less than two months 

after Sept 11,2001. 

No action was taken, but in mid-2003, the Centra! Intelligence Agency concluded 

that the AI·Rajhl family and their bank were financing terrorists, probably 

knowingly. This is the summary page1 from the agency's report. 

The bank sued The Wall street Journal Europe for libel in 2002 over a report 

that it was under scrutiny in connection with terrorism funding, but dropped 

the case in 2004 and The Wall Street Jou'rna! published the bank's statement2. 

The CIA's report and other U.S. intelligence on AI-Rajhi remained secret, and 

in 2005 a federal judge threw out a lawsuit against the bank by victims of AI 

Qaeda, saying there was no evidence .AJ~Rajhi provided anything but routine 

banking services to terrorists. Read the order.3 

The AI-Rajhi family and the ruling .AJ-Saud family of Saudi Arabia have been at 

odds for decades, in part because of the accidental death of an infant AI·Rajhi 

family member in a botched police rescue attempt during a kidnapping. Saudi 

dissidents in London issued a communique recounting the incident4 that was 

highly critical of Saudi authorities. The document was made available by the 

Investigative Project on Terrorism, a WaShington-based nonprofit group. 

This 1992 State Department cable5 from the U.S. ambassador in Riyadh discusses 

the Saudi press coverage of the .AJ Rajhl bank's purported role in the BCCI 

scandal. 

One of the AI Rajhi bank's major longtime clients is the Intemationallslamic 

Relief Organization of Jeddah, Saudi Arabia, a powerful charity backed by some 

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of the country's wealthiest businessmen, This fundraising solicitationS is from 

the IIRO's March 2007 ne-..wletter, The group strongly denounces terrorism on its 

Web site? 

U.S. intelligence has alleged connections between a! Oaeda and the IIRO since 

1996, and the Treasury Department now aUeges8 the IIRO has been deeply 

penetrated by al Oaeda. The group denies supporting terrorism in this statement 

9 from its most recent ne'NSletter. The group also claims it no longer sends 

money overseas, and that its accounts are frozen by Saudi banks. Yet its most 

recent fundraising letter1 0 solicits donations to fJJ Rajhl bank and touts a 

variety of ongoing projects in overseas conflict zones. 

In 2004, IIRO funded a medical facility in Fallujah while that central Iraqi 

town was under the control of Iraqi insurgents. The U.S. Marine Corps blew up 

the clinic, and says all three of the cfty's hospitals were being used by 

insurgents as fighting positions, See the PowerPoint slides11. 

In 2002, the bank sued The Wall Street Journal Europe after an article said 

Saudi authorities were monitoring some AI Rajhl Bank accounts at U.S. request, 

in a bid to prevent them from being used, wittingly or unwittingly, for 

funneling money to terrorist groups. The bank dropped the suit in 2005 and the 

Joumal published a statement saying its article hadn't reported any allegation 

that the bank supported or financed terrorism. 

Also in 2005, a U.S. judge dismissed AI Rajhl Bank from a la-..wuit filed by 

relatives of Sept 11 victims. The ruling said banks couldn't be held liable 

for providing routine services to people who turned out to be terrorists. In a 

statement in response to questions about suspected terrorists among its 

clients, the bank noted that "AI Rajhi Bank has a very large branch network, 

and a very large retail customer base." 

U.S. law~enforcement and intelligence agencies acknowledge it is possible that 

extremists use the bank's far-flung branches and money-transfer services 

without bank officials' knowledge. The U.S. has never obtained proof that the 

bank or its owners knowingly facilitate terrorism, according to documents and 

former officials, despite what they describe as extensive circumstantial 

evidence that some execuUves are aware the bank is used by extremists. The 

2003 CIA report concluded: "Senior AI Rajhi family members have long supported 

Islamic extremists and probably know that terrorists use their bank." 

Most major banks around the world are bound by a patchwork of treaties and 

agreements that, in effect, require them to know their customers and report any 

suspicious activities to regulators. The rules are designed to fight terrorism, 

money laundering and narcotics trafficking, It's generally acknowledged that 

Saudi banks are bound by these rules, although experts differ on when 

compliance became mandatory. 

The top counterterrorism official at the U.S. Treasury Department, while 

declining to comment on AI Rajhi Bank specifically, says Saudi officials 

haven't met a promise to create a commisslon to oversee Saudi charities, many 

of which bank with fJJ RajhL "They are also not holding people responsible for 

sending money abroad for Fhad," says the Treasury official, Stuart Levey_ "It 

just doesn't happen." 

The Saudi government maintains it has been working diligently with the U.s. and 

others to counter terrorism. It cites its arrests of several alleged terrorist 

fund-raisers in recent years. The Saudis didn't respond to specific questions 

about their efforts to counter terrorist finance or oversee banks. 

A VVhite House statement said that ''the Saudis continue to be a strong partner 

in the War on Terror. ... We have made significant progress on numerous fronts -

including the freezing of assets and the shutdown of known conduits of 

[terrorist] funding." A CIA spokesman said "publishing details of how our 

government seeks to track extremist financing" could undermine those efforts. 

For the ruling Saud family, any confrontation with the AI Rajhis could be 

politically treacherous. To stay in power, the Sauds rely on the tolerance of 

clerical and business elites, many of whom view the royal family as corrupt. 

The wealthy Al Rajhis are a clan long at odds with the royal family. And U.S. 

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intelligence files show the AI Rajhis also have close ties to another group 

crttical of the royals; Saudi Arabia's conservative clerics. 

The AI Rajhl empire includes hotels, housing developments, commodities trading, 

shipping, aviation leasing and poultry. Its core is the bank. with more than 

500 branches in Saudi Arabia and other offices abroad, from Pakistan to 

Malaysia. For 2006, the publicly held institution reported $1,9 billion in 

profit and $28 billion in assets. 

Sulaiman AI Rajhl grew up in the Nejd desert, the birthplace of a severe form 

of Islam, called Wahhabism, that forbids birthday parties, musical instruments 

and photographing people. In the 1940s, he and a brother, Saleh, went to the 

Saudi capital city. "From literally nothing - making change on what were then 

the dirt streets of Riyadh - Sulaiman and Saleh 211 Rajhl built the AI Rajhi 

Bank," Sulaiman's lawyers told a U.S. court in New York in 2005. 

Sulaiman described the business in a rare interview with Euromoney magazine in 

1963. With wo other brothers, he and Saleh began changing money for pilgrims 

taking camel caravans across the desert to the holy dties of Mecca and Medina. 

\Nhen throngs of migrant workers came to Saudi Arabia during the 1970s oil boom, 

the AI Rajhis helped them send their earnings home to places like Indonesia and 

Pakistan. 

In 1963, the brothers won permission to open Saudi Arabia's first Islamic bank, 

one that would observe religious tenets such as a ban on interest. 

But relations with the ruling family frayed. The government~contro!led press in 

1992 publicized AI Rajhi Bank's tangential role in an international scandal of 

that era, that of the bank called BCCI, U.S. diplomats reported. Then in 1994, 

an infant relative of the AI Rajhis died in a kidnapping. Official press 

accounts said the kidnappers slit the child's throat, but Saudi dissidents 

claimed police shot the child. Mr. AI Rajhi blamed the royal family, the CIA 

report says. 

Although AI Rajhi Bank continued to make a show of support for the Sauds -

annual reports had flowery tributes to the royal family ~- the bank began 

refusing to make loans to the Sauds or to finance their projects, U.S. 

diplomats said at the time. 

Wth its Islamic procedures, the bank was a magnet for the clerical 

establishment, ....nich grew rich from alms amid the oil boom. As the clerics' 

charities spread, they became entwined with AI Rajhi Bank and the conservative 

AI Rajhi family's own extensive financial support for Islamic causes. 

There is no reliable estimate of how much the AI Rajhis have given to promote 

Islam over the years, but an endowment holding much of Saleh AI Rajhi's wealth 

gives an indication ofthe scale, Its Web site details nearly $50 million in 

direct donations within the kingdom to Islamic causes and at least $12 million 

in donations abroad. The overseas money went to aid embattled Muslims in 

Kosovo, Chechnya and the Palestinian territories and to finance Islamic 

instruction. 

There are indications not all the giving was for such purposes. The AI Rajhl 

name appeared on a list of regular financial contributors to 211 Oaeda that was 

discovered in Sarajevo, Bosnia, in 2002. The list was authenticated for the 

Federal Bureau of Investigation that year by America's top judicial witness 

against 211 Oaeda, a onetime 211 Oaeda business manager named Jamal AI Fadl,....no 

is in the federal wJtness-protection program. He called the contnbutor list 

the "golden chain." 

A 2003 German police report said Sulaiman AI Raihl and other family members had 

contributed more th?!n $200,000 in 1993 to a charity that financed weapons for 

Islamic militants in Bosnia, in addition to providing hUmanitarian aid, 

The 2003 CIA report tells of efforts by two AI Rajhl brothers to keep some 

giving secret. It says that Sulaiman and Saleh transferred $4 million to 

parties in Germany and Pakistan in December 1998 using "a unique computer code 

to send funds at regular intervals to unspecified recipients, suggasting they 

were trying to conceal the transactions and that the money may have been 

intended fOf illegitimate ends." 

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The report says extremists "ordered operatives in Afghanistan, Indonesia, 

Pakistan, Saudi Arabia, Turkey, and Yemen"to use AI Rajhi Bank. Mamduh Mahmud 

Salim, convicted mastermind of the 1998 embassy bombings in Kenya and Tanzania, 

was carrying records of an Al Rajhi account (number 001424/4) when arrested in 

Germany in 1998, German police found, 

In 2000, the CIA report says, AI Rajhl Bank couriers "delivered money to the 

Indonesian insurgent group Kompak to fund weapons purchases and bomb~making 

activities," 

A U.S. intelligence memo dated Nov. 16, 2001, says a money courier for Osama 

bin Laden's second-in-command, Ayman al-Zawahri, traveled on a visa that the 

bank had obtained for him. The memo adds, however: "Reporting does not indicate 

whether bank management was witting" of the courier's terrorist connections. 

AI Rajhl Bank maintained at least 24 accounts and handled unusual transactions 

for Aj~Haramain foundation - a charity that Treasury officials say has acted 

as a front for at Oaeda in 13 countries - until the Saudi government ordered 

the charity shut down in late 2004, according to intelligence and 

law-enforcement reports, The United Nations has designated top officials of 

AI-Ham main foundation as terrorists, and most of its offices now are closed, 

According to a federal indictment in Oregon, a top AI-Harama!n official in 2000 

carried $130,000 in $1,000 traveler's checks from Portland to Riyadh and 

deposited them with AI Rajhi ~- funds the indictment says were for the ultimate 

benefit of al Oaeda fighters in Chechnya, The indicted official, Soliman 

AI-Buthe, now works for the ctty of Riyadh. In an interview, he confirmed 

carrying the checks and depositing them 'Nith AI Rajhi Bank but said that they 

weren't for al Oaeda and that he did nothing wrong. 

A Jidda-based charity called the Intemationallslamic Relief Organization, or 

I!RO, arranges for donors to send their donations directly to the AI Rajhi 

Bank, The IIRO's chairman, Adnan Khalil Basha, says the charity is "absolutely 

apolitical" and has elaborate spending controls to prevent illicit diversions. 

The charity says it works with Al Rajhi Bank simply because its fees are low 

and its service is best. 

However, the U.N. has labeled two of the IIRO's branches and some of its 

officials as a! Oaeda supporters, In 2004, the I1RO solicited donations through 

AI Rajhl Bank for the Iraqi city of Fallujah, then largely under the control of 

insurgents and the base of the late Abu Musab al Zarqawi, who led al Oaeda in 

Mesopotamia. The BRO's workers oversaw construction of a trauma clinic in an 

insurgent~contro!led area of Fallujah, The U,S. saw the clinic as a haven for 

insurgent fighters, and Marines destroyed it in November 2004. That was "a big 

tragedy for us," says the IIRO's chairman, Mr. Basha. 

He denies the charity had any involvement'Nith the Iraqi insurgency. Charity 

officials complain that the U,S, has produced no evidence of their alleged ties 

to terrorism, 

Two years earlier, federal agents raided the Virginia offices of a network of 

charities funded by Sulaiman AI Rajhi that worked closely'Nith the IIRO and 

that -- according to Justice Department court filings - provided funds to 

Palestinian terrorists. No charges have been filed. 

A year after the 9/11 attacks, U.S. authorities began to lament the lack of 

Saudi action in taking down terrorists' financial infrastructure, A November 

2002 CIA report said the Saudi government "has made little independent effort 

to uncover terrorist financiers, investigate individual donors, and tighten the 

regulation of Islamic charities," largely because of "domestic political 

considerations," 

The report advised against a noisy confrontation: "A key factor for continued 

successful counterterrorism initiatives with the Saudis, whose society is by 

tradition private, closed, and conservative, will be to ensure that their 

cooperation with the United States is handled discreetly and kept as much as 

possible out of the public eye," 

The U,S, began to rethink that approach aiter an al Oaeda attack in Riyadh in 

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May 2003 that killed 26 people, including nine Americans. Deputies from the 

National Security Council, CIA, Treasury and State departments debated a 

proposal for legal and political action against AI Rajhl Bank, including the 

possibility of covert operations such as interfering with the bank's internal 

operations, according to Bush administration documents and former U.S. 

officials. 

One idea kicked around was "listing or threatening to list" AI Rajhi Bank as a 

supporter ofterrorism. Such a listing can be done if recommended by a 

committee representing the Treasury, State and Defense departments and the CIA 

and NSC, and signed by the president. The designation bars U.s. companies from 

doing bUsiness with the named entity. A U.S. designation also normally is 

forwarded to the U.N., and if that body puts the name on its own 

terrorjst~supporter n~t, all member states are obliged to freeze the entity's 

assets. 

Other ideas U.S. officials discussed included enlisting friendly countries to 

step up scrutiny and regulatory action against the AI Rajhis. The CIA report 

said that "a successful effort against the ,AJ Rajhis would encourage efforts 

against other donors, or at a minimum, would discourage private funding of AI 

Oaeda." 

Ultimately, the Bush administration again chose merely to continue prtvately 

exerting pressure on the Saudis to stiffen their oversight. 

This message originated from the Internet. Its originator mayor 

may not be who they claim to be and the information contained in 

~!:~*:!:*~*:'~!~~Y .. !!~~ .. ~~ .. ~*:~1!*~~~*~:*~~Y*~S~~~ .. ~urate. 

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HSBc-occ....e 0523653. txt From: oeBRA L BONOSCONI/HBU5/HSBC sent: 10/23/2009 3:29:51 AM To: ANTHONY R'Gi:)'lBSi/HBU5/HSBC@HsBC02 CC: 

subj ect: comments 

Anthony, I want to clarify and explain a couple of the issues David and I discussed to better prepare you for the discussion with him. 

There are two issues that the DCC raised during the discussion with curt and 

Lesley and I believe that these two issues were somehow interpreted as one. 

1. Reporting line of the FIU Director to the AML Director. 

There 1s no standard model for this and regulatory agencies do not have the 

~~h~~ia 6~ ~~~a~ ~t~~e"t:~.l~~g~~uf~O~!ds~u~~~~~auf~dif ~~~r~n!~e~hethe following circumstances: a. significant gaps in the reporting lines that cause risk (e.g decentralized process, too many 1 aye.rs to senior management) ~ 

b. FlU director is not sufficiently knowledgeable or experienced. I don't think this is case but certainly worth checl<1ng into. 

Its my understanding that the ace wants the AML Director to have better access to the Board, which is ok but that should not impact the reporting line of the 

;~~u~~r~~~~~i: t~~~: ~~iraw~s d~H~C\!s~~asi: dmu!~e~n a~~r~r~gfs t~:~ h=eek 

and we are in full agreement on this issue. Tltere should be no problem with my having a dotted line to him as long as there are sufficient policy dictates (or governance) around FIU functions. Again, there is no standard structure for 

this but the key is having sufficient policy dictates. 'We could suggest that 

TRAC validate that the FIU oirector is acting in accordance with AML Director 

policy requirements (which it would do anyway) as an added control. 

~~stfr:~l~~~~t~~~;u~fmi l~~sio (i~T 11 ~~~~s a!~~ul~r~i~e b~n~fd~a~~ ;i~~Pliance compliance review function that tests and vaHdates the AML program functions. 

The USA PATRIOT Act requi res that we have an independent testi n9 function and we comply with that with Group Audi.t. 

The TRAC function is to test and validate the AML prosram in a "first alert'" 

function. This is designed to address issues tha Wlthout that first review, 

could be identified and recorded as an audit find Tlte TRAC process of 

~~sfin~ .. ig~~~ ~~ S~n~o~~a l~~~;~~~~ Zlf~ition resul~~d};o~~~O~eef~~)g which is the case !?er Group Audit. Actually the OCC views TRAC as far more effective and qua11fied than Group Audit whic~ is very likey driving this push to change the reporting line. However. if that is the case, the acc should 

address this as a audit issue, not a restructuring event. oavid and I are both 

very adamant about thi s. The only reason why they could require the restructuring is under the following condi ti ons: 

b. a conflict of interest (audit reports to the AML Director, or Risk 

Management) . c. a violation of law (USA PATRIOT Act requi res that the AML program have complete independence from the AML program functi on). 

so, the big question is: 

why change the reporting line of the FlU Direttor as this' has nothing to do 

wi th the independent test; n9 function. Again, two separate issues. If there 

is a concern about the viab,lity of the Group Audit function, then it shOUld be 

addressed as such. 

Page 1 

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Recommendations: I think they would be appeased if we did' the following: 

Reporti ng Li nes 1. create robust communication requirements for the FIU Director and the AML Director. Maintain the dotted line but add sO~e strong language to the process to ensure that each understands the role of the other. 2. create strong policy guidelines for the FIU Director to comply with all AML Di rector po li c; es . 3. Requi re that thi 5 process be tested to ensure that the FIU D1 rector; 5 in 

,compliance with those policies. 4. Have the AML oi rector report to either the soard or the Audit committee. 

6~;~e~; ;~~~!Jyw~~~tihf~P!~~~o~~~. I know Wyn wants this. The regulators would 

TRAC/Audit Irene was asked to put together a document outlining the 

recommendation for TRAC reporting lines. This is her document. I fully 

support this recommendation but ,t is my understanding that Janet does not. 

~~s:~~t~~r a~~' E~~~9De B[!a~a~~~o~r~Jr~~¥~:~n J~~a~t~a~~~l f:i ~~~~uss 

~~~h~ s~~\~~ ~~~m~ g:~d;~;irucr.:~i ~~S~~a~\,~~~~ ~~;uT~~n ; g~i~e~~gcin~n the FIU reporting to the coo CO!llPliance. The regulators are adamant that 'the 

independence issue can not be resolved through the implementation of controls, 

~~~i~~~to~f;'~~~=hi~~ ~~~l~~e~e~~~~ql~~~~~; Having said that, we discussed 

TRAC report di rectly to the SEVP Compliance; FlU report to someone other th"" the coo compliance; TRAC report djrectly to the Audit com"';ttee; 

Make TRAC a branch of Audit; and 

TRAC report to Risk. 

It is recommended that TRAC report di rectly to the Audit committee of the HNAH 

Board of Directors in a manner similar to HNAH's other independent testing function, Internal Audit. This WDuld include hiring/firing decisions, rProval 

~~h~nh~~ro~fs~c~s;~;~~~~in~~nd 1 i~~pew;~t~~~ dg~i~~S w~g1d a~~~~v:~ a the 

administrative line reporting re~ationship to the coo cameliance. 111i$ reportin~ WDuld include practical maners such as schedullng days off, approval of trairnng requests "nd other administrative reporting that would reqUire daily oversight and involvement. This reporting arrangement would ~reserve 

TRAC's independence while also providing on the scene guidance and direction 

where necessary. 

This seems the best option for the following reasons: 

~ The TRAC unit was initially established in response to regulatory pressure to move compliance testing to a aedicated team of experts. Additionally, TRAC personnel benef,t by bein9 immersed in the compliance cul ture afforded by the compl iance org""i zat,on, and thus! it makes sense to keep TRAC in compllan~e rather than move it to Audit or R1Sk. 

.. In order to preserve the model for testing and monitor;n~ being advanced across the Grouping implemented b~ Group, and to mainta,n indep;!ndence from the advice and guidance role of Compllance, TRAC should remain in the 

non-advi SOry reporting structure of COmpliance (i .e., in the Shared serv; ces Unit that fucuses on operational functions and expertise. 

FFIEC guidelines mandate that the ~ersons conducting the BSA/AML 

testing should report directly to the Boara of Directors or to a designated page 2 

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board committee. 

HSBC-OC<:'-E 0523653. txt 

--"" Redacted by the Permanent 

Subcommittee on 'nvestigatioru 

,," Based on recent FRB and occ examinations, it has al ready been agreed that the Head of mAC will report to the Audit committee the compliance Risk 

Mitigation Program (CRMP) annual risk assessment and annual plan in addition to quarterly updates on the status, results and trends of the annual plan execution. This reporting line addition would add minimal additional impact to the Audit committee since TRAC would a1 ready be on the quarterly agenda. 

Internal Audit is in agreement and supportive with this reporting re1 ationship. 

Lastly, I put together a spreadsheet: that lists the areas where we have either 

had increased risk since Lesley took over as AML Director or where she has not addressed the risks identified to her by qualified staff. Brian schwan will be 

forwarding that to you later this morning as I'll be flying home. 

;~aff~~~S~~~! t i~e~~r~f~a~e~~:!~s agav~e~~~e m~~6s~o g~~~ ~~~:a~~iY ad~F~s~:a~r~r to we.re not adequately addresse.d, we are nOW experiencing significant risk. 

Norkom: wilen this project initially rolled out, I requested multiple times to include a qualified, experienced Project Manager to assist compliance in 

ensuring that th e project was implemented appropriately. I made these 

requests for 3 reasons: 

tmpl!rn~~M~~~~~f1:K~ir~~n~~n!~ ~~a~~ n~~ ~~~~~~ii ~~a~o~~t~~~~g a s~~~~g PM. 

~~de~e a~a~~ s~~~it~ ~~~u~~~~~i~~~i~~ S~y~~m~rk;e 'gc~ei ~r~~~~~~ti~i ~o~~~ ~g out very closely and any gaps in the process will likely escalate ~nto a MRBA 

(Matter Requiring Board Attention) or worse. . 3. The Horkom project was approved by Group as a dispensation and it is 

critical that We get it right. 'The cost is reaching into the $12 million 

doll ar range and much is at stake. 

I made numerous requests to Cam (Which he then escalated to Lesley? and shl did not address this until April. she selected and HBlO person .1 •• 1. ,ho 

has very limited pr.0lect management experience (previous position was Fair 

Lending). A1thoug has made every effort to function in this ro;w, it is 

clear too everyone t at~has neither the knowledge or eJ<j>ertise to manage a 

~~~n ~~e~i ~e~~ ~~ ~~he~uf~: e~ Me~mev:"t~~~e~~1i' e 

1 

i~~~e~ 5 t~~i ~r~e~~l~t the fault of _ the causes of the delays could have been made more transparent by a more experienced PM. It also sends a poor message to the 

regulators that we did not .assign this critical position to someone with 

experience in this area. We had a very contentious discussion with the occ two weeks ago and they are not comfortable with our reasons fur the delays. 

Failure to implement this project in accordance with our deadline will very likely result in increased regulatory criticis". 

~F~i; not aware of our OFAC issues (we have alreadY received a pre-penalty letter) until I began inquiring about the OFAC program Review Project that 

Lesley commissioned in ;lune '09. We have had numerous misses that have been 

reported by other banks (not a good thing). David came to DC in Spstember to meet with OFAC officials on this issue. Just and FYI: OFAC has seriously upgraded its enforcement process and the fine levels have been increased. We are at serious risk of being fined by OFAC now. 

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__ "" Redacted by the Pennanent 

Subcommittee on In\'estigations 

HSBC-OCc....E 0523653. txt In addition, OFAC (SWIFT) has required that all banks upgrage the filtering functions of their OFAC screening tools to include the MTZ02 cov by Nov 20th 

~~~m t~i~e~~la~o;~iW~! 1if¥"t~~e~ei~.aa~a}W~!~ to be significant concerns 

Lesley asked to lead the project. __ has experience (as you know) for screening the HBIO functions but no exper1ence in banking products and services. T11ey are far more complex and rislcy. This project has been 

underway since June and the findi!:l9s that have surfaced are no different than 

those already identified previously'. so, we have a project that has taken' far long~r than it should have and finnings that do not vary significantly from 

preVlOUS rev, e\Vs. ' 

The bottom line is, our OFAC process is in disarray and in Qreat risk of being noncom~liant. We nave multiple systems, inconsisterit practlces, limited 

made 

commun1cat;on a recommendation between the 

to hire 

various 

additional ftmctlons, staff 

and to no 

handle oversight tne massive 

function. volu~ ~ 

~~a~~t~n~r~~n:f~ ~~~~e~1~~l~~~s L~~~~~e~~da~~~~v~a~es p~~1~u~i.¥ sb~it~n~elp with the volume, it does not address thlu:!!lll; cause of the problem. I am far more concerned about the comments tl1at_ made to me last week however. 

_advised me that Lesley only wanted to perform a "narrow sco~" review to ''aOilress the bleeding". SUPllosedly this is "phase 1" but she d1d not know 

anything about phase n. T111S is not the way to manage a major risk area. I mentioned this to David and he is equally concern"d. 

Recommendation: we need to hi re an experienced systems manager to be solely dedicated to OFAC systems (we currently have 3 operating now). John Zirbes is 

currently our only systems person and he is also res~onsible for Atchley and 

~~~~:. to m~~~~e~f~ ~¥t~~l t~~~~. Als~lv~h~~~~a~~ ~a~:a~~hw~e~~~n~~~i~~ve 

~~c~f~~~p~~~~~f ~~~m~~n:~dt~h~i~l~h~~~ i:~/¥~~~f ~aW~' Lesley has 

!!I!!!!!!I!I!!!!!IIIJ (curr""!lY the systems person at _ has approached me numerous tlmes TOr a job. _would be idea1 for thisarnrn: would allow us to have a "turn key" systems person that would better allow for us to comply with the 

~~gf/~~o~1'ad!~~eaddT~fo~~u~f~~~~ ~~~~ .. ee this as a positive effort to 

Gotta run to catch my plane. There are many other simnar issues where Lesley has provided no leadership, a lack of understanding of the risks (or mitigating el ements), and a bl atant re1uctance 'to 1; sten to recommendations by expenenced AML staff. 

This should hel~ but 'sending the spreadsheet which also includes the ICRO 

issue. please feel free to contact Brian schwan if you need clarification on the soreadsheet. He's a great guy and will be happy to help you. I'm landing at 3ET so feel Tree to call me on my cell at 202 8416089. Thanks.\ 

Debra L Bonosconi HSBe NOrth America I sr. \(p - 0; rector, Financial Intelligence unit 113.0 Connecticut Ave IIW. 12th Floor 

Washington, DC 20036 

phone. 

MObile. 

Email. 

202-496-8766 

debra.l .bonosconi @Us. hsbc. com 

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From: BOB MARTIN/HBUS/HSBC Sent: 10/3/2008 3: 53: 53 PM 

HSBC-BNl_E 0782429. txt 

To: "MARK MARTINELLI" <MAR!<.MARTINELLI@U5.HSBC.COM> 

subject: FW: OFAC "cautionary Letter" received today 

Fyi 

----- original Message ----- From: Matthew J W KING 

Sent: 10/03/2008 06:25 PM GDT TO: Bob MARTIN 

Fyi subject: FW: OFAC "cautionary Letter" recei ved today 

----- Or; ginal Message -----

From: oavid W J BAGLEY 

Sent: 03/10/2008 18: 17 GOT TO: Ri chard E T BENNETT 

Cc: Matthew J W KING 

subject: FW: OFAC "cautionary Letter" received today 

R; chard, 

i~i ~e i~5 a!~o~ ~:v~o;~~bf e~a~~t ai~e~h~e~~d' e t~fg:~ ~~:m f~h~~e~o~7ia~!!dP~~:~~e~f interference from me. 

will advise further and recognise the need to report in RMM and GAe, 

Regards 

----- Forwarded by David W J BAGLEY/GMO/HSBC on 03/10/2008 18:13 -----

Lesl ey Mi dzai n/HBU5/HSBC@HSBC02 

Oct 03 2008 17:06 

Mail size: 56806 

Redacted Materia! 

To 

Janet L Burak, david w j bagley cc 

anne 1 i ddy 

subject page 1 

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HSBC-BNI_E 0782429. txt FW: OFAC "cautionary Letter" received today 

Entity 

Janet, David, 

i~ e~i~p S~:~~~t:t~:~~:~n r~~~r~6o~ :naa~~~ o~~~t 1 etter from OFAC for 12 fa; 1 u res 

I am giving you an immediate heads up because: 1. We have experienced addi1:ional failures since Feb 2008 and were in fact 

~~5tTh~s~~~di~ ~g~d~~~~~~ ~i~~~~~;~go~~r ~~~~:~n~figF~g;;h~~g1~dVisi1:s PcM in November. 

3. This is an area of continued sensitivity. 

We will be filin~ a RED and ~rov;ding more information at our ear1iest 

~g~i~~U~~~i: 5 i ~~e~d~~~e~e~~~ ;; ~~Ob! t~~~ ~~:ke~: nCihf;b~:i:t~~O~; iiu~~~ei~~ hi gh pri or; ty. 

Regards, 

Lesl ey 

Lesley Midzain Executive vice president & chief Compliance officer t HSBC BANK USA, N.A. 452 5th Ave. 7th Fl. NeW York, NY 10018 

phone 212-525-6410 Fax 212-525-5769 Mobile 917-892-4967 Email Lesley.Midzain@u5.hsbc.com 

----- Forwarded by Lesl ey Midza; n/HBuS/HSBC on 10/03/2008 11: 56 AM -----

El; zabeth protomastrO/HBUS/HSBC 10/03/2008 11: 59 AM 

To 

Les1 ey Mi dzai n/HBUS/HSBC@HSBC02 I Thomas Kai ser /HBU5/H5BC@HSBC02. Em; 1 ; 0 

R.U;Z/HBUS/H5BC@HS8C02, Anne L iddy/HBU5/HSBC@HS8C02, Nancy 

Hedges/HBUS/HSBC@HSBC02. Mary A caski n/HBUs/HSBC@HSBC02 

cc 

subject 

OFAC "cautionary Letter" received today 

Attached please find a cautionary letter received from OFAC addressing 12 wire payment transactions that HBUS I?rocessed in potential violation of sanctions. OFAC has dec1 ded not to serve fl nes on these transact; cns but has expressed concern that HBUS di d not stop these transactions. 

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KSBC-BNI_E 0782429. txt 

Attachment: OFAC Letter 9-29-2008. ti f .zip 

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To: 

Ce: 

Janet Burak, Regional Compliance Officer 

David Bagley, Head of Group Compliance 

Paull. Lawrence, Chief Executive Officer, HUSI 

Mark Martinelli, EVP & Chief Auditor, HUSI 

-- "'" Redacted by the Permanent 

SubcommiUee on Investigations 

From: Lesley Midzain, EVP & Chief Compliance Officer, HUSI 

Date: 24MAR09 

Report: Compliance Report for I Q09 - HUSI Businesses 

Summary 

The overall AML & General Compliance risk in Global Transaction Banking (GTB) is high and 

the risk is stable. Systems. controls and monitoring process are satisfactory. Enhancements have 

been recommended by the acc that are being addressed with the NORKOM initiative. Current 

Staff is capable and knowledgeable and we are reassessing PTE requirements as recommended 

by theOCC. 

The remaining businesses overall compliance risk continues to remain moderate and the 

direction of risk is stable. HSBC continues to monitor the risks and continues to enhance our 

controls where deemed necessary to adequately maintain a proactive environment and address 

risk accordingly. Additionally. we will continue to monitor the increase in regulatory changes, 

assess impact to our businesses and implement solutions effectively and efficiently. 

1. Issnes Arising 

(a) NEW IssuES 

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• HBUS Banlmotes - OFAC with HSBC Bank Pic ("RBEU") & Iranian 

Embassy in UK (IRIS 6458): On 02FEB09, the HBUS Banknote Vault Manager 

in London was informed by Travelex in the UK (a customer) that as requested by 

HBEU, Trayelex shipped cash from the HBUS inyentory at the Trayelex yault 

facility to the HBEU Kensington branch to sell to the embassies of various 

countries, including Iran. HBUS Compliance worked with HBED Compliance 

and HBUS Banknotes in London to obtain information on accounts and 

transactions between HBEU and the Iranian Embassy in UK. On 12FEB09, the 

Manager of the HBEU branch in Kensington Commercial Centre in London 

spoke to the Embassy of Iran and informed them that HSBC would not be able to 

buy or sell any USD cash for any of their accounts. The same day HBUS 

Compliance called OFAC to inform them the HBEU branch in London had been 

purchasing USD and other currencies from HBUS London and selling to the 

Iranian Embassy. During MAR09 HBUS Compliance submitted a letter to OFAC 

to fonnally disclose the incident in London with customer and transaction details. 

2 

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Redacted 

by 

Permanent Subcommittee 

on Investigations 

HSBC OCC 3406983 - HSBC OCC 3406996 
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Meeting Minutes 

Com.pliance Ris]{ Management Committee Meeting 

November 13, 2006 

Members: Martin Glynn (Chair) 

Janet Burak 

Guests: 

Robert Dutclter 

Thomas Kaiser (S.Kos represented) 

David Dew 

Michael Gallagher 

Mark Hershey (L.Gloo represented) 

James Kauffman (absent) 

Margaret Moog 

Tony Murphy 

Teresa Pesce 

Linda Recupero 

Carolyn Wind 

Denise Reilly (Sec'y) 

Sandy Derickson 

Camillus Hughes 

LmryZ.1I 

StuartTait 

John Hudson 

--= Redacted by the Permanent 

Subcommittee on Investigations 

Minutes of Prior Meeting 

Status of Action Items: 

Wealth Management (Alrelllnd) to provide an update 011 initiatives by year-end. 

Stntus. Update on Wealth Management inttiatives will be provided to the Risk 

Management Cc.mmmee, 

• Operations (T.Kaiser) to provide an update on email retention initiati~ within six 

mooths, by March 2007, 

Status; Pending 

Status: 

o C. Wind advised thllt a meeting was held with j,Ebersoic, SEVP Human 

ResOUfce:!l and it was agreed that all incentive plans which are 

commission/revenue based will require senior compliance review aRd sign-off. 

o J.Eber~le will revert back to C,Wind with recommendations on identifying 

unusualleve\.!l of compensation under such incentive plans, 

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__ == Redacted by the Permanent 

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Alt'CLStfthn 

T.P~sce provided a status ofregulatcry Examinations 

o The OCC examination ofGm is complete and three Matters Requiring Attelltion 

(MRA's) hllve been identified. TIle MRA themes are the need for additional 

resources to dOCllment findings and the need for increased Ilutomation. 

o The second part of the DCC Retail Bank examination is. scbeduled to start 

13NDV2006, 

o The FRB first day letter fur the examination of Miami has been received. 

T.Pesce advised the Committee ofissues related to messages processed in the US on 

behnlf of offshore entities that are not scanned against th.e OFAC filter. Plans are 

underway to implement OF AC scanning for messages sent by the Americas through the 

global messaging gateway in the US in 2007. Issues related to messages processed for 

HSBC UK Cards through US systems remain outstanding, 

2007 Compliance Objectives 

• C.Wind presented the draft 2007 Compliance Objectives for Committee review. It W83 

noted that the Objectives are similar to 2006, with tbe exception that the CIBM item had 

been removed. 

__ ::; Redacted by the Permanent 

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From: DENISE A RE1U,. Y/HBUS/HSSC 

Sent: 61712O!l5 8:46:58 No! 

To: GRACE C SANTlAGO..QARVISHIHaUSfHSBC@HSBC 

~::~~@U~~~~~~,~Ji:::·~.t::g~~MASTROU <ELlZABETH.PROTOMASTRO@U5,HSBC.COM> 

SUbject RI!: ~re payments tom HSBC BankPlC suspended· usn t,900,000 anti USD 160,000 (Iran) 

Pat sftould also indude the HBEU Operel1011s area on his correspontience.1 

11llnk MalClllm Eeslwllod is Ihe mam!lger, but Nancy Hedges can conlitm. 

Grace C Sa.n!ia~D-OorYlsh on 07 Jun 2005 09:15 

Nole 

07 JUn200509:15 

From: Cra.ce C sanUagl)-Darvish Tel: 212-525-5455 

Trtle: Fin;:tVicePresident locallon: 

VVorkGroup: COMPfANTI-MONEY LAUND~RJNG Mail Si2:e: 32058 

TI): Denise A RemyIHBUSfHSBC@HSBC 

cc: Anne UticlylHBVSlHSBC@HSBC 

"Teresa Pesce" <teresa~esce@us.hsbc.com> 

~Bizabeth Protornastro" <elizllbelh.protomaslro@lls.hsbc.cDITI:> 

Suhj\'!ct: Re: Wire fU!IyrJ1enls tom HSBC Bank pte sU$pended. USC 1,900,000 and 

USD160,OOO(lran} 

Dl)'I'lise, 

Eliza'bt!!h wlll be IIl1lsing wilh Pat Bum In Delaware SI) that he can $entl II 

~essae~ to all HSBC locations remlnoinglhe offices of the undellying 

mlnrmalJon We fequlfe related to U-turns. We, in Complil!nl;e nave ooficetl Ihal 

olherlol;atirms cvwld b'1 more fortJ\comlng aboullfisdO$lng orlg., and bene. ' 

inrormiltlon. 

For lnsfanctt, we have. b~n to~d t\:lday.by Pl~ that, the ultimate. bene-Hda!)' ''is 

B NOI5lIfO Deptv.ithln Credit SUIsse Zurichwilich deals....nlh CrfOr entries under 

thefef:lfTCV1~ 

How does "this indi~te 10 to us who the underlying originator entl ul1lmale 

beneficlilryis1 

We certalnJy are open to enysugge!dlons. thank YOlJ. 

From: Denise A A,eilly on 06 Jurl 2(l{)S 19:15 

To; AMe liddyIHBUS/HSBC@HSBC 

01;; "Telesa Pesce- <teresa.pesee@lls..hsbt:.eom> 

"~ac;e C Sanoogo-DalVish~ <grace.c;.$an6a~o-dllroliW@us.hsbc com> 

"E~nbeth Prolomastro- <ellzabelh.protomaelJo@us.hsbc.com:> -

Sllhject: Re: Wire payments tom HSBC Bank PlC Sln;pended. USD 1,900,000 and 

USD160,OOO(lran) 

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Is !he payments area ga;\hering sufklerrt info before coming to GraceJEjizs.heth 

oris Iherean opportunity forfurthertralntng?.hJsta Ihoughlto try and 

!essenthI!:COtilp1ii!.n~U!'ne. 

From: Anne Uddy Sent 0610512(105 05:28 PM 

To: Teresa Pesce 

Cc; Elizab~ Protomaslro; Grace C Santlago.Darvish; Denise ReUly 

Subject: Fw:Wire PIIIytnents from HSBC B"nk PLC suspended ~ USD 1,900,000 and 

\JSD 160,000 (Iran) 

Terry -I IIrttjust forwardillgyoulhe attached oorrespondnece as an Iyl "nd to 

Ii'll you know thet Ii!IsI monlll thai of lIle SO odd paymeob s!QPped in llur /Ilter 

and forwarded to ElizabethfGl'ilce for further revIew approl( 44 Involved 

reference 10 Iran· quite II lot Elizabeth and Grace have SPetlt quIte a lot of 

lime batk and fwth on gllU1ering payment info in order to ~s"ertain lI1el 

PBymentsarftlW6ntin ractUtufnsandlhereforeokloprot:ess. 

From; EJizabeth Protomaslro 

Sent 05106/2005 02:33 PM 

To: stephen COOPER; Jera~ R WALKER 

Co: John AlUSON; Susan A WRJGHT; Graoe C Santlago-Darvish; Anthony 1 

MARSDEN; Barbara Sherman; Patrick Byrne; Anne Uddy; Rod MOXLEY 

Subject: Re: Wire payments from HS8C Bank PLC 6uspendl3d - USC 1,900,000 and 

\JSD 1SO,OOO{lran) 

Rod advisee! thilt! dire,,! further questions to you in his absence. 

We dQneed PLCto go bade. to lIS. remitter, either directtyorlhrough the GRM, 

for Intormation as. to the name alld addrcslI of the o~inalor and the ultimate 

beneticiaryoftheYfirepOlyrmmt. We alt>o need to (;{Jnftrm the purpose of the 

underlying payment. Noll' that this request is in line with the agreement 

reached in the past between HaUS and Pte (copy attached) stating the. u-turn 

payments would ba fully (fl$c!olied as 10 !he originalor and benenciary, 

This practice is especia!1y relevant bearing in mind the r~nt article 

appearing on Bloomberg.com and !he focus ora buslnesslnvolvlng Iran. We need 

full disclosure on thes.e payments to ensure that the underlying tran!l.llction is 

not prohibited. Far example, if the ~yment were tll involve a U.s. person as 

the originator or berwficisry, or were to iovolve an SON, it WIluld be 

prohibited. 

Thank you foryour cooperation in obtatnirlg!he required information, 

Rod MOXLEY on OS Jun 2005 12;43 

N'~ 

06 Jun 2005 12:"'~ 

From: Rod MOXtEY Till; 7991:l664 

442079913654 

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'Title: LoeatilO'n: 

WorkGroup: Mall Size: 20"t24 

Anne LlddylHBUSlHSBC@HSBC 

stephen COOPEruHBEUIHSBC@HSec 

Jeremy R WALKEPJH8E1JJHSBC@HSBC SlJbject Re; INire p.!l.ylTlef1h./Jom HSBC Bank ptC stlspeaded ~ USD 1,900,000 and 

USO 160,000 (Iran) 

Elizabeth, 

Our knDwiedge oflJ'1~e transactions 16 predomimmtl'l1h!lt whlcl1 h;n;. already 

baen quoted 1n your emails. However, due to their beIng authenticided MT202 

me~sElges v.i,1h referen~e5 i.ndlcann.g FX transaction numbers, we bel£e'le that 

they are fo(algn Il'xchangll' lIansa.ctions belWll'Bn the banQ named and .also 

salisfylng lJ..lum requirements. 

If you remain unCDmJmt:a.bJe wilh lhe informatlOl'l supplied, please advise and we 

wUl revert promplfy !tlthe remlfter or the Group Re1aflOnshlp Manager lor 

further gUidance, Foryour Information, I am awav!rom the- office Dn bu!IHJe5.!i 

!urtne next coupJe ofdll)'9 and would be gra1elu1 if you could dln::cl:any 

:=;c~~erles to JerefTT)' Walker or st-e Cooper, wao ..,.111 deal with in m'l 

Regards: 

R,d 

E1izabe1h Protom<!tSlroJHBUSlHSBC on 05 Jun 200516:31 

N,", 

OS Jun2.00515:31 

From; ElIZ21MIt1 ProtolM$troIHBUS/HSBC MaUSlz:e:15&80 

To: Roo MOXLEYIHBEUIHSBC@HSBC 

cc:John 

SIJsaf1A 

GraceC 

Anthony 

Barbara 

Patrick K BymeJHBUSlHSBC@HSBC 

Tel: 212~525-S6!J2 

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Mne liddy/HBUSIl1SBC@HSBC 

stephen COOPERlHBEIJ/HSSC@HSBG 

Jeremy R WALKER/HBEWHSBC@HSBC 

bee: 

SUbject Re: Wire payments from HSBC Bank PlC suspended - uso 1,900,000 and 

USD160,DOO(lran) 

The wire. paym8llts are baing conducrted on behalf of the banks named, i.e., lIlere 

is no other und"er1y1ng originator and benefldary. They orc foreign exch,mge 

payments between Ihebanks named. lsthiscorre-m? 

Rod MOXlEY on 06 Jun 200511:15 

Note 

06J1JI'l200511;15 

Flom: Rod MOXLEY Tel: 79913664 

442079913664 

liII-e: Lo~lion: 

WorkGroup: Mail Size: to·UB 

Stlsan A \lVRIGHTIHGHQlHS8C@HSBC 

Grooe C Santiago-OarviahIHBUSlHSBC@HSaC 

Anlll ony T MARSDENlHSE 

Barbara 

Patrick 

Elizabeth, 

Thanks for your email. 

!nfOfJMtiOl1 that you require is as follows; 

I) Origin<l\lJr 01 firot payment is Bank. Tejarat, 130 Talegltanl15994 

NejatouHahie, Teheran, Iran, beneJitiary Persia International BanK, 6 

Lolhbury, London. 

Seecmd payment Mg!nator Is Melli Bank, 1 lOll don Wall, London I\l1d iJ>o:nefie!ary 

Credit Suisse Zllrieh. Switzerland, 

~ both p<lyments did not 6nilUse in USA lJI1d ware regarded as booa fide lJ·turn 

trannctions, the)' were released Ihrough cur 'Wolf filler. 

We have set up ease references MPAYDB[J9-0BJun05 and MPAY09Ss.-o6Jun(l5 

respectivEly for lhese payments arod will be grateful ifyotl ccu!d Quole In 

Mure correspondence. 

ii) VIJe I.Indel"'6tand thai both payments were related to foreign exchange 

Irar1sBctions. 

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Trust that Ifrig, answers your queIfes. 

Re~nis. 

R,d 

Elizabeth Protomastro!HSUS/HSBC on 03 Jun 200516:43 

Note 

03 Jun200516;43 

~rom: EliDlbelh Prott:ltnBwolH9USlHSBC 

MalISz~:3437 

To: John AlUSONIHGHQlHSBC@HSBC 

cc: Susan A 1/IoRIGHT/HGHQIHSBC@HSBC 

Tel: 212-525-5692 

Subjeet lIIJire paymeots /rom HSec Bank PLC suspended ~ USD 1,900,000 and USD 160,000 (!ran) 

The following paymen15 hllve been S.uspend!!(1 while we request fl"om PLC (1} the 

name BOO aGdrws of the origmator and Ule befle~ry and (2) the purpose of 

\he payment Our Funds! Trunfer group II SeJ1d!ng H messllQa viII SINIFr. WfIl are 

providing this nolice for vourinfo~tIon as \he payme.nt i& being delayed. 

You moq amo be IIble to lI'I/PediM this process on YDUr end. 

As you -are Ilware from prior cflseus&iGll6, payments. need 10 be fully disclosed as 

to oriJ;jlnaior and beneficiary partles in order lo avoid these delays In processing. 

ThankyOtJ. 

J..Jurl-20115 

IRN-. 

Deb1t~HSB:C Bank Ple 

Credit; Benk 01 New York 

3rdparty: Cl'edil:SuisseZurich 

4th party: PetSia Intftrnalional Bank, London 

ORG: B!mkTejarat, Tehran,lnm 

USD1.900,OOO 

'"""'-'005 IRN 

Debit: HSBC Bank PlC 

Credll: Bank of New York 

__ "'" Redacted by the Permanent 

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3rd party; Credit Suisse Zu ri"h 

ORG: twlelft Bank PlC, Landon USD160,OilO 

THIS PAGE IS 

INTENTIONALL Y 

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From: ANNE LIODY/HBUS/HSBC Sel1t! 6/7/Z005 4:07:38 PM To: TERESA PESCE 

HSBC-OCCE 0570015. txt 

subjet:T.: FW; wire. payments from HSBC BanI( PLC suspended - USD 1~900,OOO and USD 160,000 (Iran) 

From: Anthony T IMRSDEN Sent: 06/07/2005 10:37 AM To: Roel MOXLEY Ct:: Jeremy R WALKER; John ALLISON; susan A WRIGHT; Barbara sherman; patrick Byrne; Anne Liddy; Elizabeth Protomastro; Grat:e C Sant;ago-oarvish; stephen COOPER subject: Re: wire payments from HSBC 8ank PLC suspended - USD 1,900,000 and USD 160,000 (Iran) 

All. 

As you win see from the correspondence below I have now obtained the information required to re1ease the payment for USD160,OOQ.00 

This was at:hieved by speaking with both Bank Melli and HSBC New York. 

An authenticat.ed SWIFT message has been c.reatea and is being s"ent to HSBC New York attn Elizabeth protomastro with 'the details qlJot.ed below. 

For information purposes only we have also received a 'SWIFT rnessa$e froll! Bank 

~:l~!t~~~~~n t~e~~~~~~~9 H~:~c~!!a~~~k ~~e a~~~~e m~~s~fiis a~~d r~~liS~!~~r~U~~~d!O to 

clIJrselves in London. 

~il~e~~ i~d £il~e~~d~~e c~~;~~~~~g w~:~k I T;~~~f~ede~~~~~:~ {~fo~~tt~~~O, 000.00 

----- I"orwarded by Anthony T MARSDEN!HBEU!HSSC on 07 Jun 2005 15:24 ----- .Eliz:abe'th protomastrO/HBUS/HSBC on 07 Jun 2005 14:54 

Note 

07 Jun ZOOS 14:54 From: Eli:t.abeth protomast.ro!HBus/HSBC Tel: 212-525-6692 Mail size: 68262 

To: Anthony T MARSDEN/HBEU/HSBC~SBC 

c.c; Grace C sant.iago-Darvish/HBUS/HSBC@HSBC bet:: 

SUbject: Re: Wire payments from HSBC Bank: PLC sIJ5pended - USD 1,900,000 and USD 160.000 (I ran) 

This explanation is fine. but for purposes of olJr audit trail, HBEU l1eeds to send a SW.IFT t:ontaining this information to our Funds Transfer area. I will advise Funds Transfer to expec::t the SWIFT message. upon receipt, we will process t.he 'tWo wi re t.ransfers. 

Thank you. 

Al1thony T MARSDEN on 07 lun 2005 09:49 lIIote 

07 Jun 2005 09::49 

I"rom: Anthony T MARSDEN Tel; 799 10187 44 20 799 10187 Title: Location: WorkGroup: Mail siz.e: £0902 

Subject: Re: Wire payments from HSsC sank PLC slISpeMdl!d - t.JSD 1,900,000 anti USD 160.000 (Iran) 

Grace, 

~ have contacted a:al1k Melli London again who are both the relhiner and bellefidary of the payment 

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HSBC-OCCE 0570016. txt 

~b~~~e~e~hes~~~i~~ ~~c:~~~t N~~~ko M:1Wuh~1~:n~~hl~~e~nd s~~~~e ~~~ i~n~~bh and to avoid costs Bank Melli London arQ t!"a.nsferring funds from London nonto account to swi~:z.@rland to COVI!.!" other NostrO account. 

As advised by Bank Me''; no other bank/benl!..f-ic;iary is involved in this transf~r 

Rl!:gards 

Tony 

GracI!: C santiago-carvish/HBUS/HSBC on 07 Jun 2005 13:51 

Notl!: 

07 Jun 2005 13: 51 From: Grace C santiago-Darvish/HsUS/HSBC Mail siLl!:: 602:62 

TO: Anthony T MARSDEN/HBEU/HSBC(1!HSBC cc: Eli zabeth Protomastro/HBUS/HSBC@.HSBC stephen COOPER/HBEU/HSBC®-ISBC Jeremy R WALKER/HBEU!HSBOOHSIK John ALLISON/HGHQ/HSBC@HsBC Susan A WRIGHT/HGHQ/HSec@tiSBC earbara sherman!HBUS/HSBC@HSBC patri ck K Byrne!HBUS!HSBC@HSBC Anne Liddy /HBUS/HSSC@HSBC Fl.od MOXLEY/HBEU/HSBC@HSBC bee: 

Tel: 21:2:-525-5455 

SUbject: Re: Wire paymerlts from H5BC Bank PLC suspended ~ USD 1,900,000 and USD 160,000 (Iran) 

What ;s the pur~sce of this cred'it SU15sce Nostn." Dept. under ref: urCV1? Is this used as a clearing acc;ount? 

~nhli~~~:~ai~D~l~~e~e~~!.proVide the answers HBUS reQ.l.lire5, please s~e text 

Anrhony T MARSDEN on 07 Jun 2005 08:40 Note 

07 J11n ZOOS 08:40 

From: Anthony T MAR.SDEN Tl!:l! 799 10187 44 20 799 10187 Title: Location: workGroup: Mail Size: 52407 

Jeremy R WALKER/HBEU/HS8C@Hsac 

John ALLISON/HGHQ/HSBC@HSBC 

Susan A WRIGHT/HGHQ/H5BC@HSBC 

Grace C santiago-oarvis.h/HBUS/HSBC@HSSC 

Barbara sherman/IiBUS/HSBC@H5BC Patrick K Byrne!HBUS/HSBC@H5BC Anne L iddY/HBUS/HSSC@HSBC Rod MOXLEY /H8EU/HSBC@HSBC subject: Re: wire payments from HSBC Bank PLC suspended - USD 1,900,000 and USD 160,000 (It'an) 

Elizabet:h, 

We have been adl,lised by Bank Melli London that on the payment for u50160,000.00 the ultimate benl!:ficiary is a NoSt('o Dept within credit Sl,Iisse Zl,Idch which deals with cr/Dr entries under the ref: UTevl 

HOpe. 'this now I!:nable the paYlIIl!:nt t.o be released 

R.egards 

Tony Marsden 

Elizabeth protomastro/HBUS/HS6C on 06 JUn. 200S. 19:33 

No'te 

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06 Jun 2005 19:3.3 From: E.lizabeth Pmtomasvo/HBUS/HS6C Mail size: S01l3 

To: St.ephen COOPER!H6EU/HSSC@HSBC Jeremy R WAlKER/HSfU/HSSCfGHS5C .cc: John AI..LISON/HGflQ/HSBC@HSBC susan A WRIGHT/HGHQ/HS8C@HSBC Grace C 5antiago-oarvish/HSUS/HS6C@Hsse Allthony T MARSDEN/HBEU/HSBC@HSSC Barbara sherrnan/H8US/HSSC@HS8C Pat.rick K syrne/HSUS/HSBC@HS8C Anne L i ddY/HBUS/HSBC@HSBe Rod MOXLEY /H8EU/HSSC@HSBC bee: 

Tel: 212-52S-6692 

subject: Re: wire p~y(llents from HSBC Bank. PLt suspended - usn 1,900,000 and USD 160,000 (1 ran) 

Rod advised that 1 direct further questions t.o you in his absence. 

We do need PLC t.o go back to its remit:ter, either directly or t.hrough the GRM, 

for il'lformation as to the name and address of the originat.or and the u1t:imat.e beneficiary of the wire payment. We aho need to confirm the purpose of the underlying payment. Note that this request is in line with 'the agreelllent. 

~:~;~~~s i :a~~d b:siu~i~1~c~~~~d a~~ ~~Ct~~O~~i ;{~:~~d~n~tg~~:~i ~~!r~~turn 

This practice is especially relevant be.a.rin9 in mind tne recent article ap~earin9 on Bloomberg.colII and the focus on hlJsiness involving Iran. We need 

~~t.l p~~{~~~~~~ on F~~e!~~:,~~nn ~he e~!~:n~h:!r~~o u~~e~i~! n~ ~~~~s~~;!~~ !~ the originator or beneficiary, or were. to involve an SClN, iT. would be prOhibited. 

Thank you for your co-operation in obtaining the required informa.tion. 

Rod MOXLEY on O£ J un 2005 12: 4 3 

Note 

06 )un 2005 12:43 

Frotl\: Rod MOXLEY Tel: 799 13664 44 20 7991 3664 Tlt:le: Location: WorkGrolJp: Mail Size: 20124 

Susan A WR:!GHT/HGHOiHSBC@HSBC Grace C Santiago-Daryish/HBUS/HSBC@.HSBC Mt.hony T MARSOEN/HSEU!IiS8C@HSBC Barbara sherman/HBU5/HSBC@HS6C patrick !( eyrne!HBUS!HSBC@HS6C Anne I. i day /HBUS/HSBCOHSBC Stephen COOPER!HSEU/IiSBC@HSSC .) eremy R WAlKER!H6EU/HSSC@HSBC subject: Re: wire payments from HSSC Bank FIle suspended - uso 1,900,000 and U~b 160,000 (Iran) 

e.lizabeth, 

g~~n k~~~!:~g11l o~o~e~~{l~~sa~~~~~r ~s d~;e~~m~h:~;l~ef~~t. a~~~~~t~~!t!~r:i~fi2 rnessages with referellces indicating fX 'transaction nUl'llbers, we believe that they are foreign exchange transacnons between 'the banks named and also sni sfying u-turn r.equi rements. 

~11°~e~~~i~r~~~~i~o~~a~~: ~!~~ t.~~~ ~~f~h~a~~~~p S~~~!ii~~s~{~a~~n:~~~sfo~nd we 

~~~t~h~ ~~!~a~~~pl:Q~ld~;S i~~dr:~~dnb/ g;:~:~~ rf~o~h~o~r:i~i r~~t:b~~ness further queries to Jeremy wa1ker or St.eve cooper, who wil1 deal with in my a.bsencE!. 

'u!.gards 

ROd 

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HSBC-OCC_E 0S70016. tXt; 

ElizabHh prot:omastrO/HElUS/HSBC on 06 :lun 2005 16:31 

NOte 

06 Jun Z005 16: 31 From: Elizab,nh Protomastro/H6US/HSBC Tel: 212-5:Z5-66'9Z Mail Size: 15880 

To: Rod MOXlEY/HBEU/HSBC@HSBC cc: John ALlISON/HGHQ/KSBC@.HSaC Susan A WRIGHT/HGHQ/HsaC@Hsac Grace C Santiago-oarvi Sh!HBUS/HSBC@HSSC Anthony T MARSDEN/HBEU/HSBC@H5BC Barbara sherman/HBuS/H5Bc@H5ac Patrick K Byrne!HSUS/HSBC@HSBC Anne: l i ddy /HBUS/HSeC@HSsc stephen COOPER!HBEU/HSBC@HSSC Jeremy R WALKER/HBEU!HSBC@HSBC bee 

Subject: Re: wire payments from HSBC Bank. PLC suspended USD 1,900,000 and USD 160,000 (Iran) 

The wire payments are being conducted on bekaH' of the bank.s named, i.e., there 

~~~~ni~hg~~~~~r~~!n~a~k~g~~~~~~ a~~ ~hi~f~~~~;~t? They are foreign exchange 

Rod MOXLEY on 06 Jun 2005 11:15 ~ote. 

D6 Jun 2005 11:15 

From: Rod MOXLEY Te1: 799 13664 

44 20 7991 3664 Title: location: WorkGroup: Mail si:;:e: 10418 

Susan A WRIGHT/HGHQ/HSBC@Hsac Grace c Santiago~Darvish/HSUS/HSB:C@:HSBC 

Anthony T MAASDEN/HBEU/HSBC@HSBC 

8arbara sherrnan/HBUS/HSBC@HSBC patrick K Byrne!HBUS/HSBC@HSBC Anne L iddY/HBUS/HS5C@.HSBC Stephen COOPER/HBEU/HSe:C@IiSBC Jeremy R WALKER/HSEU/HSBC@HSBC subject: Re: wire payments from HS6C Bank PlC suspende,d ~ uso 1,900,000 and USD 160,000 (Iran) 

Elizabeth, 

Thanks for your email. 

tnformation that you require is as follows; 

i) originator of first payment is flank Tejarat 1 130 Taleghafli 15994 Nejatoullahie, Teheran, Iran, be:neficiary PerS1a International Bank, 6 Lothbury, London. Second payment originator is Melli Bank, 1 london Wan, London and beneficiary credit suisse zurich, switzerland. 

~a~~i~t~~~~nihe~i ~e~~t r:l~:!!~e t~~O~~~ ~~ ~~1~ fi~~~~;d as bona fi de U~turn 

We have set up case references MPAVO/:l09-06)IJnOS and MPAY0958-06Jurt05 respectively for these payments and will be grateful if you could quote in future correspondence. 

ii) We understand that both. payments were rela-r:ed to foreign exc.hange transactions. 

Trust that this answers your QUeries. 

Regards 

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HSBC-OC<=-E 0570016. txt: 

Rod 

Elizabeth Protomastro/HBU5/HSBC on 03 Jun 2005 16;43 

Note 

03 Jun 2005 16:43 

From: El~i~~e~~z:~o~~~~st:ro/HeUS/HSBC Tel: 212-525-6692 

To: John ALLISON/HGHQ/H5BC@HSBC 

cc; susan A WRIGHT /HGHo./HSBC@HSBC 

Rod MOXLCY /HBEU/HsaC@HS.BC 

Grace c san'tiago-Darvish/HBUS/f1SBC@HSBC Rod MOXLEY /HBEU/HSBC@HSBC AIlthony T MAftSOEN/HBEU/HSBC@H5SC 

Barbara sherman/HSIJS/HSBC@HSBC 

:~~~i ~~ d~y%~~~~~~~~'~~~~@HSBC bce: 

i~8~o~a= (~~~~/ayment:s fro", HSec Bank PL.C suspended - USD 1,900,000 and USD 

The following payrnent:s have been suspended while we request from PLC (1) the 

~h:e p':;~~~~~e$~u~~ FC~dS o;~i~~f~~r g~g~p t~~ ~:~df~~i :r~e;~~g~2~ia t~~I~~PO!~ ~~e provld111g th1S notlce for you~ lnfo~mation as the payment 1S being delayed. You may also be able to expedlte thlS process on your end. 

AS yo'! .;re aware from pri~r disclls~ion~, payml!l".Its need to be fully disclosed as 

~~o~~~~i~~:or and beneficnry part1l'!.$ In order to avoid thl!se delays in 

Thank you. 

Debi: i~l'rs HSSC Bank PLC credi t: SanlC; ot New York 

3rd party: Credit Suisse zurich ORG: Me 11 i Ban k PLC, London uso 160.000 

\t:tacnmen1:: U-Turn Conditions.doe.zip 

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From: ANNE lIDDY/HBUSlHSBC 

Sent:71251200S12:12:26P1\11 

To; GRACE C SANTlAGO·DARV!SHIH8U5IH56C@HSBC 

CO; TERESA PESCElHSUSlHSBC®HSDC;DEN!SE. A RE1LLY/HBUS/HSBC@HSBC 

Subject: Re: Fw: OFAC GCL. 

Grilce,! am ha~ing my monthly !neetfng tCII;'.orrow w!Ih Jot1n Allison and Susan 

Wrlghtand intend to discuSllo!h1o GCI. wftf11hem. I will misalhe polnb you 

makeinyu.uremall, Also !Wilfltlogelabetferundcrstandingfrolflihemrethm 

new procedtirl!l ror HBEU (and elfecllve 911105 for HBME) to relliew 1111 !fanlan 

transactions for OFAC com~llanCl!l (ie-: are they U lumli' or nat}. I win 81$0 ra~e v.,th them tmllling ~ we need to make sure that the. people al HSEU and 

HBME clearly undeshnd OFAC and .any repurcussiofl$, as we" as hem ICI identify a 

trueU tUIll. I wiUletyOlJ, Terry and ~nisll know what Info I get rtomthem 

lomorrav.'. 

G:r11l~ C Sanliagl}-Darvlsh Ofl 26 Jul 20051.3:06 

Note 

2S Jul:(00513:06 

From; Grace C S!mtrago-OuMsh Tel: 212-525-5455 

TItle; F!I"5IVicePreSldent L~ation: 

V>/orkGroup: COMPIANT\·MONEY LAUNDERING Mail Size; 272900 

To: Teresa PesceIHBUS/HSBC@HSBC 

cc: Denlss A Reilly/HBUSJHSBC@HSBC 

Anne UddylHBUSlHSBC@HSI3C 

SUbject: Rill; Fw: OFAC GCL 

T.erry, 

I qulekly rea.:llh~ atlollchmenls. I believe that the the Surme/Myanmar attat:hment 

below may nead 10 be cl8rffie.d for the IiBI buflel OFAC tUlTenOy only blatks. I!, few Burmese entities, the ones Ustad on !he attached brochure, under Annex, 

TreuUryandtheOeptofstatere6ervelheriehttodeslgllateseniororrtcials 

and other go~. arllitie6(BS penKf. 10f the. attached brOt;hurVExectrtill1! Order), yet ICI date, these agettcles have not added any o1har SDNs besides lhe 

ones !isledJl,l1y 2003, 

I also noted that not all sanctioned programs were summarized. Liberia, North 

Korea, Syria and Zimbabwe were nat covered under II summery, nl)f are I,an and 

Ubyatoalesseraxtenllothi-sthelntertl? 

Current Sanctioned Burmese entities:: 

MYANMA ECONOMIC BANK (a,k.a. MYAN~ ECONOMIC BANK), 

~6::~~~EIGN TRADE BANK (a,k.a. MYANMAR FOREIGN TRADE BANK) SWlFTI.E!!C: 

MYANMAINVESTMENT AND COMMERCIAL BANK (a.Ie ..... MICB: a.k,a. MYANMAR INVESTMENT 

AND COMMERCIAL BANK), 

S\I\IlFT/BIC: MYANt.1MM1IBURMA? STATE ?EACEAND DEVElOPMENT COUNCIL OF BURMA 

Teresa Pesta on26JkJl2D05 11:53 N," 

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2G JiJl2C0511:53 

From: Teresa Pe'Sce Tel: 212-525-6099 

TItle: Ex"ecutive Vice Pr.esident loca.tlOll: 452 5th Ave, Floor 07 

VVorkGroup: COMFl/ANTI-MONEY lA.UNDERlNG Mail size: 198663 

To: Denise A ReWyIHBUSlHSBC@H6BC 

Arlne UddyfHBUSlHSBC@HSaC 

Grnce C SanHago.OslVishIHBUSiHSBC@HSBC 

Subject Fw:: OFAC GCl 

FYJ 

----Forwarded by Telllsa P"esceIHBUSrHSBC on 071261200511 :49 I'M--__ 

From: Jamts B Kallffman@HF'Non26 JuI200511:44 

To: -Arllhony Gibbs' <arglbbs@hrJusBhold.com> 

'Curt Cunningham" o:;cxcunningham@household.com> 

le!lleymidzain@h~bc.ca 

"T eTesa Pescew -<teresa,pe$ce@Us.h!;bc.eom> 

Subject Fw: OFAC GCL 

FYI- Terry, VoIl1uld you plellSeforwBrdto Del'lise?Thanks. 

From: Marion 0 ROACH 

Sent 07/ZS/2i)05 09:S(AA'! 

To; Mansour A Al80SAILY/SABBJHSBC@HSBC;Fernando BUSNELLOfHBBAAiSBC@HSBC; 

Pui MUI1 PM CHAN/eM? APHlH8APIHSBC@HSBc;eMsCOUlDRE'(fHBEUJt\SBC@HSBC; R<lml'ln 

GARClNHBMXlHSBC@H$BC;James Kauffman; Warren G LEAM1NGIRLA lGA 

MEMlHBMElHSBC@HSBC;CarolynMWmdI'HBUSI11S8C@HSBC; Alan RAMSAYflBEU/HS8C@HS8C; 

Brian AnwoDOIKUVHDPMfHSBC@HSBC; Ifor Hl./ahesIHBBMlHSBC@HSBC 

Ce: John F ROOT/HGHQIHSBC@HSBC 

SUbject QfAC Gel 

A GCl will be issued shortly (In our re~ed policy towards s!ln~tions, in 

poncuIBr US sanctions adrniolmered by the US Office of FOIeign Ass.ets Control 

(OFAC) of the US Department of the Treasury. A (;Opy of Ihe cLlffe-n! draft Is 

anad'led. 

I recognise that there has not been any significsntt:onsLlltation with Areas btJt 

the policy was detem!ined 1n conGuUation 'With Group CEO and is viewed as. 

nece$sary and urgentto protect the Group's reputation. 

one key change in !hepoticy is the follolMng: 

IMthimmlldiete IlriectaU Group Offices Qndudlf1g those Offices incorporated 

or oJ)ertltiO!;J outside !he US) mu!it refuse to partidpllte in any transactions, 

aclivities or make 1m,! paymerrts denominated in USD Which if carried OIJt bl' II. U$ 

pe~on would be Plohtbtled by any OFAC sanctions (save for Ihe specJtic 'U-turn 

e.-emplion" relating Ie lranian sanctiona { •.• l)" 

Please re-fammarise yourselveS with COH 28 on Sllnct/ons, GHQ CMP have 

summarised the US QFP.C sanctions 811 tnay apply to four pau1h:IJIBIty sensitive 

Jurtsdlctions: Cuba, !ran, Sudan, and Surma (Myanmar). The counhy summaries 

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are enllelCed hete.to. Al&o annell;ed hereto Is a sample transal:rtion wh!ch would 

net be perl'fitl.ed unde.r fhe feme<! Group policy. 

AlI/nn!an paymemt$ denoml!1l1ted in USC, iI'IcJuding those ll'Iaoe under the ·U-turn 

exemption" provkled for In the OFAC Iranian S;2nctions, must frcm 1 September 

2005 be referred to HSME DUB -HS8C Middle East Management OffioQ; Oubal 

lntemet City, POBox 66, Dubain, UAE. Tel. No. +1971} (4} 390 4722, M'lo'NIll 

establish a dedleatedteam 10 pre-ween proposed Iranian payments for Compliance with the Iranian sanctiOl1S. Onoe the team end related procedures 

are established, HSME DUB w!U Issull more deloils to Group Offices tiS to how 

payments should be processed. Unlll this date, Group Offices are required to 

fefer a!llranian Payments n deftoed In "\he GeL to HBEU rorscreerrlng for OFAC 

compliance. 

The Gel conlirms the use of WOLF (the pl'I)'ments filter) to identify payments 

pCltelllially callElht by lite aFAr; sanct/OtJs. WOLF III already available In major 

payment Qilleways Elnd pursuant to the fe<!'Jirements MGCL Cl'OO21, but where 

local dearing systems exist OTioc!!! payment gateways are involved It may be 

necessary to Implement WOLF to screen payments passing through such Iccal 

payment sygtems. The Gel requires confirmaUon that local payments are baing 

screened pursuant tothe GCL A rdlWant list of nallle$ will be added 08ntr.dly 

to WOLF by Group Messaging. Itshoufd be ooted Ihatin so tar as UgOVerTlS 

OFAC the requirements ofthe Gct only apply to transacUons in USD. Fur1ner, 

offices will have 1lIl right to freeze payments outsIde the US, and Group Ofllt:es 

ere tnstead required to reject pa~menbl;. 

V\lh.ere Gompliance with IhE! GCllNllulc1 result in II breaclt of local law, regulation 

orklc.al c:onlractua! arrangemenls (e.g. 'blocking dlrectlves" such as the EU's) 

then \he pasiUon will l1eed to be eonr.idered In association with local legal and Comp!ianoe functlonll. Any required approach ether than fun ccmpllance 

with the Gct will require GHQ CMP ¢Olicurrence. Examples of contractual 

arrangements which ¥.if! need to be reviewed might include committed 108/\ 

facllilles and dOCtlmentary credits. where oompliant documents are received. In 

caGes of dQUbtlegal advice should be taken. It is important, first, 10 

determIne to how 1Il1d to .....nst extent your aaa of responslb!Ulf 1$ atreded by 

the revfsed Group policy, andllten for you to establish procedures for 

Complianee ~Ih Ihlll policy. TI1e US OFAC sanctions are complex- snd diHer rrom 

one country to the next. PlB'IIS!:! refer any questions to me or John RoO/: Ih GHQ 

eM? 

Regilfds 

D'IIvjdBagley 

Alta.c:hment t1 fburma.pdf 

Attachment: OFAC GCl 25JUl05 - DRAFT.doc 

Attsdiment OFAC - SUDAN.do~ 

Attetllment OFAC - CUBA.do\: 

Attachmenl: OFAC -IRAN,doc 

Anaollnen!; OFAC .. BURMA.doc 

Attachment Example of B. Prohibited usn Pllymentinto Sudan,d~ 

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DRAFT GCL- COMPLIANC,E WITH SANCfIONS 

Prepared byDa\1i.d Bagley- 21 July lOO5-{)7-15 

INTRODUCTION 

GSM 5.6 requires- that aU Group Offices comply with aI! anti-terrorism IIIld crUne legislation 

and with all t«\nomtc and trade sanctions to the exten1 applicable pUmJlIIlt to 10tallaw'S and 

regulatiOn. 

In addition. however, Group Compliance (GHQ CMP) is required by1he Ilbo"e sectiol1 of 

GSM to mue a circular advising all tele\'ant Group Offices when any legislation or sanctions 

bavee.\.1ra-tenitori.nl effett, 

OFAC SANCflONS 

The Office ofForcign Assets Control (OFAC) is a departmffltofthe US Department oftbe 

Treasury, III.'Id is responsible fot the administration and enforcement of economic and trade 

sancriolls based On US foreign policy. These- sanctions target foreign countries, suspec~ed 

terrorists, drug: trBffitkers IIlId those Imgaged in the proliferation of'weapons of mass 

de;!itructl.OlI, 

The OFAC s.mctions consisl of both country le\"el sanctions (which include sanctions against 

Cuba, irlUl, Zimbab",-e, North Korea, Mymunar and Sudan) D:!i wen as sanctions against 

indivjduals (Specially Designated Nationals (SDNs). There are. varia.tions in ea(;h ofthe 

statutes estllblishing the counlIy le\'eI sanctions such that there is no uniform approach (e,g, 

the Iran sanctions contain an exemption 'which is not applicable to other counlIy-level 

sanctions), 

REVISED POLICY 

With immedillt~ clTcdaU Group Offices (including those Otlites intorporoted tn' 

operating outside the US) mustnfuse t-o participate in any tl'Unsacoous, activities 01' 

mnke nny pDyments denominated in USD whith if carried otltby a US penon would. be 

prohibited bynny OFAC santtiQns (save f(lrthe specifit "U-turn e:r.empthmn rclating to 

IraDian SRnctiom; disnwed below). \¥hen considering transactions [or compliance willi 

Ihese snnctions the transaaian as a ,¥hole should be considered, This requires. lnat ,",we any 

tranllllctlOllS involve the uso of cover payments (MT202,'s) then [illY linked message (e.g. an 

MT103) should be considered togethu >\-ith the cover payment. 

GHQ CMP already maintains a database which indudes details of all sanctions affecting 

Group Offices. including ihe OF AC sancLions. A link to the principal provisions of the 

current OFAC COlllltry sanc1ions is attru:rnd as foUows:-

htlp:llcnmplianeg ghq hsbd!!!J!GoIlufpmtal mUyiewNlBvDqcRcU!>Mi254EC6CD7DmOO2S6fBsoo4N,lO.Jm' 

iJeJSiUJ>C.tions%2ClSlllnIFIrI'V%20r1ULOSlOOf 

In addition, fur1her advice, instruttions and guidance ""ith regard 10 the principal provisions 

of the OFAC sanctions will be issued by GHQ CMF to loe:al Compliance functions to 

coincide wilh this OCL, wi.lli II view 1Q- enabling those local ComplillDce funC'!ions to pro"\'ide 

advice ,lilh regard to the practicol application of this GCL. 

Group Office:; snould bowe\'et ensure that they continue to update rele\'ant proc;edl)res in 

response to details of any future Ilffiendmenls or additions EO applicable sanctions, inclUding 

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OFAC sanctions., i:!isued by GHQ CMP in acccrdance. with GSM 5.6. The guidance in this 

GCLshoLlld also be read in conjunction ,· .. itn GCUl4OO74 US OFAC Sanctions, which 

discusses, among other thiogs, how OF AC sanctions may npply to US ciLizens or permanent 

resident aliens, el'M when outside the US. 

It is acknowledged that tf.Jmpliance wIth sanctions with extra-territolw reach including 

OF AC sAnctions, may be unlawful under local b.-M. Wbere compll.a.nce with thts Gel.. 

would result in 8 breac:h (lfloal Jaw 01" regulation or wstin2 binding cnnb'DctuaJ 

aIT'llllgements the position should be considered in liaison with IJJeal Compliance Hnd 

Legal ftmctiom and GHQ CMP. Any dIspensation from tbe tenus oftbis GeL require 

GHQ CMP CODcurrence. 

IRANIAN SANCTIONS 

'Ibe OF AC sanctions [Ipplicable to Iran are unique in including the specific exempLiOil for 

Pllyments which qualjfy lIS a 'U-turn' paymen11lS defined. U-tum payments can be 

summarised as being "cover payments in\'olving Iran that are by order of a third rountIy bHnk 

for payment to another third country bank - provided that they do not directly credit or debit 

an Iranim Account". Iranian Accounl$!Ire defined as '"aceoWltS ofpm.ons located in Iran or 

the Government ofInm contained oolbe booi.:s ofa United Stales depository institution". In 

this cont!Xt a third country bank must be non-US and non-Iman and nil Iranian Account 

generally includlZ an account for a non~Inmian subsidiary in which an Iranian company tw a 

30% or greater interest A more cornplele definition is contained in the guidance to be issued 

by GHQ CMP. 

Forthe purpos~ ofthis GeL, 'Iranian Payments' mean payments mnde to or from an account 

maintained by any lrarrian person (which includes any Iranian national, any individuaJ 

resident in, or entity doing business in, Iran, or any entity incorpora1ed or formed in Iran and 

subsidiaries. of any Iranian entity), or an Iranian gcwemment body (including goverrunen1a!-

owned enlities) whether directly or indirectly. 

In ... iew. hO\\\h'er. oflne complexity oflhe flilleyatH provisions yo,"eminy the Iraninn 

SllflctiOIlS and the U~lum e:-;:emption all Irnni:u'l P!lymet'lls denomlmued in USD must with 

effect from I" Selltember 2005. or any rtW'ljer dole noli lied by HBME DUB, be muted 

through HBME DUB - HSBC Middle East Monagemenl Office. Dubas Internel City. P 0 

B01( 66, Duhru, UAE. TeL NCI. +j971J (4) 390 4722, \\110 .... ill establish a dl:Ciicaled tenmto 

pre-screen proposed Iranlnn Pll)ments for Complia.nce wilh!he lrMinn sanclions and process 

complinnl payments ~in dedicaled correspondent accounts. This will require Group Offices 

whClmsbt(l oontinue to make lrnnian Payments to open USD accounts with HBMEDUB. 

All requests to opm accounts should be sent t(l the attention of A1nn Kerr or Ahsan 1U7..a, 

~: ~~;~~E~~~r:I~~:ee ;;.d=:~~r~:l~P S~:=b=,1:11h~:r::::ents mllst be referred to Rod MCI"ldey, Tel. No. -t [44} (0) 2079913664 (email Rod 

MOXLBYIHBEU!HSBC), and may only be proee3Sed once confirmation has b~ given that 

the payment ~ compliant under the U~tum (or other) exemptinll. 

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OTIIER SANCI'IONS WITH EXTRA-TERRITORIAL EFFECT 

GHQ CMP maintain a [ull and CUl'l"ent list of sanctions which affect Group Offices. Trus list 

is accl:Ssible through the Group Compliance Imrnnet via !he fallo~\1ng link aT via local Compliance functions 

h!tp:f1comWi!IIJce./lbg.W;bcIgrocpmploonlllml7frarn-e?n:adftllDl 

Although. certain sanctions only apply loeally, UN sanctions should be vlewed as haying 

Group-\\;de application. SundiOl1S issued by the European Union bind EU persons 

(indh'iduals who are nationa.Js ofmembt.r st.aIes end companies incorporated or domiciled in 

member slates) globally tIS well as those persons located ar operating in member stales.. 

Group Offices should use WOLF or any alterna1ive approved syslems to load any additional 

names covered by local or olher exira4emtoriaJ sanctions applicable 10 Ihose offices. 

IMPLEMENTATION 

It is recognised that the use of automated payment screening systems is neceS"sary [or the 

effecth'e identiftcatian of pllyments pOTentially subject to reJeYlIIlt sanctions, including OF AC 

snnctions. GCL 0400Z1 "payment Screening" required Illl Group Offices whose pa)ments: 

are not processed through one ofllie Group's 3 regional TP sites to install the Group's 

s.oiutitln WOLF by 31 March ZOOS. The names !oaded..centrnlly by Group Messaging 

Systems , .... iII besuppJemenled by 8 August 2005 to include II full list ofOFAC country and 

SDN names, thus ensuring that afl cross-border USD payments Group-wide \'rill be 

pre-screened for OF AC compliance. Group Offices should satisfy themselves that they are 

fully compliant with the requirements of GeL 040021 and notify GBQ eMP immediately of 

any deviation. 

Where there are local USD clearing systems (e.g. Hong Kong nnd UAE), releYfmt offices 

must ensure that WOLF is capable ofscreening. allloca\ payments consistent with the 

m{uireme:nls oftrus GCL iII onler to ensure thllt non-compliant payments are rejected. Those 

Group Offices with local usn clearing systems mllSt confinn to GHQ CMP by 

1 November zoos that they lire screening all local USD payments. 

In addition,. Group Offices should lake alle.ast the following sleps where rele\'an\:-

ElISure that they have adeguate procedures to identify proposed transactions and aC1ivities 

other than payments which may be prohibited by OfAC sanctions before the proposed 

transactions are enleted into. This would include in~couniry book Itansfe~ over USD 

accollflts. This may require the issuance of staff circlIiars, arn~nrlments to desk: instruction 

books l!nd local procedures manuals, 

Once th~ SDN and tounlry names are loaded into WOLF it is likefy that the number of 

pa}ments idf,lfltified as potential matches to the OF AC s.ancrions will increase. Group 

Offices need to enSLlre that they <Ire sufficiently resourced to consider imy potential 

matches for c!earanc~ orrejection iIS approprinte. 

Where proposed transactions or paym~ts are identified that would bretJch th~ OFAC 

smtrions, non-US Group Offices should decline the transaction and refuse to make any 

pa.}ments returning the funds to Ihe remitter. US Offices are norma1ly required ll:I blod: 

or freeze payments. 

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Consider, in conjunclion 'with loca! Legal or Comp.liance function!:, whelher any 

ammdments or additions should be m.ade to product or service terms md conditions or 

nny advance notification should be given to customers to clarify lhe bank's right and 

intention to reject to accept rele'T'llI\! illStructions Or requests. 

• Where Group Offices are in doubt as to whether a transaction or p3yJllent is affected by 

any sanctioo, but pl:lf1icularly OFAC sanctioi'lS, lhey should consult lheir local 

Compliance function "no may in tum rcf~ to GHQ CMP. 

It snollid be noCed that the policy contained in this GeL where it reta1e& to OFAC 

sandions only applies 10 transactions or payments denominated in USD, save for those 

US Offices which are required to apply OF AC sanctions to all transactions regardless of 

the currem;y of denomina1km, 

Note the specific arrangements required in relation to payments which may be subject to 

the OF AC sanctions applicable to lran. 

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HSBC-BNI....E 0074397. txt 

From: ALAN T KETLEY/HBUS/HSBC 

Sent: 8/25/2005 12:14:17 PM To: DENISE A REILLY/HBUSjHSBC@.HSBC 

cc: 

subject: Fw: GCLOS0047 compliance with OFAC sanctions 

fyi 

;~-=======:==:====:===_,:~~~:~ed by Alan T Ketley/HBUS/HSBC on 08/25/2005 01:15 

Mark SMITH on 25" Aug 2005 11: 5"6 

Managerial Letter 25 Aug 2005 11:56 

From: Mark SMITH Tel! 7992 1140 

44 20 7992 1140 Title: Locat;on: WorkGroup: Mail size: 14526 Sent by: Linda MORRIS 

To: Aimee T Sentmat/HBUS/HSBC@!-ISBC 

Al an KE:RR/HBME/HSBC@HSBC 

Arun HARI/SABS/HSBC@HSBC Be; 9 Sao B 5 PARK/SVP CIS SEL/HBAP/HSBC@HSBC 

Bruce M CANNON/HBBR/HSBC@HSBC 

Bruno LAlANNE/MGR CSA MARjHBAP/HSBC@HSaC 

cha r1 es ] FARRUGIA/HBMT /HSBC@HSBC 

chri s IGNATOWICZ/IBEU/HSBC@HSBC 

ch ri s P DAVIES/HBUS/HSBC@HSBC 

chri s R BENTLEY /HBEU/HSBC@HSBC chri stian Kol b/o292296/TrinkausjoE@Trinkaus: Chr; stopher H C AU/eMB MMO/HBAP/HSBC@HSBC 

CK KONG/HO CIB TAI/HBAP /HSBC@HSBC 

Dim; tri 5 POlITIS/HMLG/HSBC@HS8C 

~~~~ \~N6~~~~~C~~m@~~~HBAP /HSBC@HSBC 

Husey; n ozkaya/HBTR/HSBC@HSBCTR 

] i m MahaffY/HBCA/HSBC@HSBC02 ]ohan NYVENE/MGR CIB VNM/HBAP/HSBC@HSBC 

Jorge CRISTOFFANINI/HBCL/HSBC@HSBC 

Jose Manuel Dominguez/HBMX/HSBC@HSBC 

]un; e R VELOSO/MNL/HBAP/HSBC@HSBC 

Luke MCFARLANE/HBEU/HSBC@HSBC 

Mahbub ur RAHMAN/CMB OAK/HBAP/HSBC@HSBC 

Marcelo l DEGROSSI/HBAR/HSBC@HSSC 

Mark COWREUR/BUS/HBFR/HSBC@HSBC 

Mark KENNEOY/HOQ/HBFR/HSBC@HSBC 

Marti n TRlCAUO/HBME/HSBC@HSBC 

Me rvyn FONG/IHO/HBAP /HSBC@HSBC 

M; chael BAIRD/AUH/HBAU/HSBC@HSBC 

panadda MANOLEEHAKUL/CIB BKH/HBAP/HSBC@H5BC 

Pat ri ck NOLAN/HBEU/HSBC@HSBC 

Per olov SYNNEMAR/HBEU/HSBC@HSBC 

phi 1 ip T WOOO/NZM/HBAP/H5BC@HSBC 

phil1 i p DAWE/CEO MAR/HBAP /HSBC@HSBC 

pi e r re FRANCON/HBME/HSBC@HSBC 

Ravi ninder SINGH/CIB INM/HBAP/HSBC@HSBC 

Rob MCCALL/HIBM/H5BC@HIBM Robert MONTANARI/TKY /HBAP /HSBC@HSBC 

Rosdi Amin R YAAKue/CIB BS8/HBAP/HSBC@HSBC 

Rose W M LEE/HD CIB AHH/HBAP/HSBC@HSBC 

Sa 1 aam MIR/cIB KRI/HBAP /HSBC@HSBC 

se.; tj an ERMEKBAEV / AMA/HBKZ/HSBC@HSBC 

Simon N COOPER/SGH/HBAP/HS8C@HSBC 

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HSBC-BNI_E 0074397. txt 

Stuart P MIlNE/CIB ASP/HBAP/HSBC@HSBC 

Susan S M YUEN/SM CIB MYH/HBMY /HSBC@HSBC 

Trevine 5 A FERNANDOPULLEjSCM eBA CBH/HBAP/HSBC@HSBC 

vadi m UDAlOV /HSEU/HSSC@HSBC 

vj aces 1 av STOVICEK/HBEU/HSBC@HSBC 

wai Leng lEONG/HO CIB AOC/HBAP/HSBC@HSBC 

wi 11; am We lton/HSBM/HSBC@HSBC 

Vuen Tin NG/DGM CIB/CIB/HASE@HSBC 

cc: John AllISON/HGHQ/HsBc@HSec 

John F ROOT/HGHQjHSBC@HSBC 

Paul PROCTOR/HBEU/HSBC@HSBC 

Geoff ARMSTRONG/HBEU/HSBC@HSBC 

Amy M C CHAN/IBH CIB/HBAP /HSBC@HSBC 

lily l Y HO/CMP APH/HBAP/HSBC@HSBC 

Alan KERR/HSME/HSBC@HSBC 

Alan T Ketley/HBUS/HSBCitlHsBC 

~~~~~1 e \~o~7~~~G7~~B~~~{~~AP/HSBC@HSBC Ni ge 1 J WEIR/HBEU/HSBC@HSBC 

Davi d BURNETT /HBMO/HSBCMERIDIAN@HSBC 

Caroline A TOSEjHBEU/HSBC@HSBC Dav; d W J BAGLEY jHGHQ/HSBC@HSBC 

Charli e lAUGHTON-SCOn/HGHQ/HS8C@HSBC 

Ti m REIO/HGHQ/HSBC@HSBC 

John R ROSS/MDBK/HSBC@HSBC 

Ri chard J MOSELEY /MDBK/HSBC@HSBC 

John 5 GUBERT/HGHQ/HSBC@HSBC 

James J Y MADSEN/HBEU/HSBC@HSBC 

our Ref: ML050103 Your Ref: subject: GCL050047 - Compliance with OFAC sanctions 

You will be aware of the above Gel which implements a revised policy with 

~:¥~~~~c~O_OFAC sanctions. The Gel is provided as a llnk here for ease of 

http: fig cOlla . ghg hsbc/i nt/group/home. nsf IByRef/uKcM6EOEM8114S06AM2807200S?QpeO 

We are keen to ensure that we are communicating with our clients in a consistent and clear manner. Some clarification on aspects of the Gel have been sought by Group offices. Group Compliance support this ML and we have 

~~ida~~~e~~t~~S f~~~t~~ :~~hp~~B o~a t~i~b~~bj~c~)~ rrt~~ e~:~e 8~~~~e s~h~~a~:i 1 is 

widely distributed amongst your teams. 

GCl 

The revised policy ;s specific to OFAC sanctions only. Compliance with all other axistin~ local or global sanctions continues as at present. A link to GHQ CMP Sanctlons is provided here to provide you with further detail on OFAC sanctions which are particular to individual countries -

http;/!compJiance.gha.hsbc(grDcowp/porta] . nsf/frame? readform&Ref=UKAP-6E3CT27856 ABOEH 

The revised policy applies to all transactions denominated in USb (for avoidance of doubt, not just pa:yment~), including any transaction that, during its existence or at its concluslon, could result in a USO settlement. Please note that certain limited exemptions exist within the OFAC sanctions. 

~~:r;C~o~~~~~~et~;~~lt~~O~~Lo~f~h~s~esult in a breach of local law or regulation 01'" an existing binding contractual arrangement the situation should 

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HSBC-BNLE 0074397. txt be referred to local Compliance and Legal for guidance. Similarly, where customer di scussi ons on affected transactions are at an advanced stage af negotiation, revised po1icy compliance should be discussed with the same local departments. 

It is possible clients may have obtained some form of OFAC exemption, in which case we may be able to undertake related transactions. please refer to local Compliance and Legal units for guidance. Where transactions or payments that would breach the OFAC sanctions are identified, non-US Group offices should decline the transaction and refuse to make any payments t returning the. funds to the rem; tter. Thi sis diffe rent from us offi ces who are normally requ; red to block or freeze payments. With regards to Iran, transactions in USD are ~ermitted where any resultant payment would be capable of taking advantage of the U-turn exemption. The U-turn exemption is uniQue to OFAC sanctions applicable to Iran (see the GCl link above) and you should again refer any queries to local Compliance and Legal units. 

country sancti ons 

All impacted usn transactions, including filtered payments, will need to be assessed on a case by case basis at the outset ie. before any action is taken, 

~~~l ~~i~~e s~~~i:~fy o~e~~~n~i;~; ~:~i~~:ts s(~~~~)~s ;~~l ~~~~~i o~~ :~~h c~~~~;iY and local compliance guidance should be sought as necessary. 

An overriding observation ;s that the revised policy will most significantly impact the cuban and Sudan correspondent bank relationships of the Group. 

North Korea 

~~~ ~~hi~i~:~. 3 :~ch~~; ~~!~t~~~~~~~s tcii~~o~~r~~e K~~~~~n~~~i ~~~s~_nih~~~t~~~e to do so, for some time but have not been able to elicit a response from the banks concerned. The GCl applies in full. 

Zimbabwe 

There is no OFAC countrh sanction in ~lace (only a~ainst specially Designated 

~~~~i~~! s t; ~~N~~d:~~a~e~ :~~~~~ n¥o~os~~~. ap~~!~~a~~i o~;D a~~~n~fc~~~~~e ~ay subject to local regulatory requirements'and offices should continue t.o ensure the Group could not be criticised. due to its ;nvolvement in any transaction, even where no regulation has technically been breached. 

Myanmar 

T~e f~ll~P ~~~ ~h~~~O~~~t~~l ~~!~~S~~~~n~1;~s Mb:~:~r i~n~~ t1 ~si i a~~i\, GC~i~hP~~:s Head offices of the 2 banks to advise them of the revised Group PO~iCy and will deal with consequential issues. Amy may be approached t.o provide an update on these relationships. 

Iran 

We have a representative office inTehran and extensive relat.ionships with a number of Iranian institutions. Group Compliance has re-affirmed that OFAC sanctions as currently exist, including the U-turn exemption, continue to apply to all transactions. These sanctions are particularly complex, hence the GCl introduction of a cent.ralised payment. processing team based in oubai (wef 

Isept05) and prior to t.hat all Iranian p.ayments must be referred to a HBEU contact point. Details of both arrangements are provided in the. GCl (see the 

Gel 1 ink above). 

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HSBC-BNI_E 0074397. txt sudan 

The Group has a number of SWIFT key and account relationships. The GCl applies in full. Geoff Armstrong, Global Head of Financials, is liaising with the Head offices of the affected banks to advise them of the revised Group policy and dea1 with consequential issues. Geoff will provide an update to Group offices who maintain relationships with Sudanese banks and he may be approached as required. 

cuba 

The Group has a number of SWI~ key and account relationships. The GCl a~p1ies 

~fff~!! • of G~h:f a~~:~i~~ngan~!O~~l a~~f~e °ih:~ n~fc~~~ s ~e~~s!~a~~~~g ;~f~ c~ :n~ead deal with consequential issues. Geoff will provide an update to Group offices who maintain relationships with Cuban banks and he may be approached as requ; red. 

Relationship Approach 

ige a~~~~~:~ ~i~ !~~s ~oe~og~~s~eg~~i~~~s a(a~dt~~~t~~a~~i~_~~~~t;~~m~~ th regards 

tran sacti ons) may continue to be undertaken. However I for a number of reasons ego operational simplicity, where the remaining non-USD business is uneconomic or where the client concludes they will have to conduct their business with an alternative provider, the ultimate outcome may be the closure of certain relationships~ verbal discussions with affected clients would be preferable. Any written correspondence seeki ng to cl arify the Group' s revi sed pol; cy shaul d be cleared with local compliance. 

For sudan and cuba, most. of our business ;s conducted in USD and the discussions already init.iated with the affected banks will dictate the extent of our ongoing relationship. Geoff ArmsLrong's update will provide further gu; dance on these 2 count:ri es. 

A number of corporate and institutional clients will be impacted by the revised policy, in particular those for whom we act as the conduit for USD payments int%ut of the above countries. We are already aware of certain affected clients and dea'in~ with the circumstances as diplomatically as possible, 

~~~~~e~~mb!~~~~~ a!a~~l gf i~~~~ i~~y s~:u~~~~~~c~~~h fihe g~!~~~~:nd~~r~o~~l;~; onshi p 

communication being as outlined above. GTE co11eagues have been alerted to the 

!~P~~~si~t~~~ ~e~!~~~ ~0!~C~0~~1bl~hi~eb:in~a~~~~~:~edi!~ ~~~i~ii:~~hb:~:~ so 

please not.e that any 9ispensation fl"'om the terms of "the GCL requires Group 

Compliance concurrence. 

please note that it is encumbent upon all executives La have a sufficient understanding of local and extra-territorial anti-terrorism and crime legislation and economic and trade sanctions to ensure that the Group's reputation is protected. I Front line' relationship managers must be especially alert to the full scope of transactions that may. ultimately, lead to a 

~~~e~!~~~a~i~~~~ O~o~F~~e si~~i!~7s i ~n1 sb:ck~~~i ed:e~a~~~~ l~~~~e~o~gl i~~~e 1 h~~ an itnportant role to play. 

As the GCl states, Group offices should contac;t local compliance and legal functions in the first instance if you have any questions with regard to the ~ractical application of the GCL. That said~ if you have issues that you think Gi~gal1~~:~ applicability for CIS please contact John ROSS, Senior Manager, 

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Mark smith chi ef operating off; cer Global CIB 

HSBC-BNI_E 0074397. txt 

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HSBC USA INC., HSBC BANK USA, NA, HSBC NATIONAL BANK USA, and 

HSBC TRUST COMPANY (DELAWARE) NA 

MINUTES OF THE AUDIT COMMITTEE MEETING 

October 24, 2007 

The Audit Committee of the Board of Directors met on October 24, 2007 at 7:30 a,m, in New York City, 

The following persons were prescnt. 

Audit Committee 

Sal H. Alfiero, Chairman 

James H. Cleave 

Richard A, Jalkut 

Peter Kimmelman 

HSBC USA Inc., HSBC Bank USA, NA, HSBC National Bank USA and HSBC Trust Company 

(Delaware) NA 

Paul Lawrence. President & Chief Executive Officer and Head of crSM North America 

Janet Burak. Senior Executive Vice President, General Counsel & Secretary 

David Dew, Senior Executive Vice President & Chief Operating Officer 

Michael Forde, Associate General Counsel 

Mark Martinelli, Audit Committee Secretary & Executive Vice President, Group Audit USA 

Gerard Mattia, Senior Executive Vice President & Chief Financial Officer 

Patrick Schwartz, Corporate Secretary, HNAH, HBIO & HBUS 

Joseph Simpson., Executive Vice President, Finance 

George Wendler, Senior Executive Vice President, ChiefCredit/Risk Officer, HBUS 

KPMG 

Michael Ohlweiler 

John Regan 

Attended for a portion of the meeting 

Martyn Brush, Chief Operating Officer, CmM 

John DeLuca, Executive Vice President and Deputy Chief Risk Officer, RUSI 

Mark Hershey, Senior EXecutive Vice President & Chief Credit Officer, CMB & PFS 

Margo Hickman, Vice President Corporate Insurance & Risk Management 

Donald Howard, Executive Vice President, Credit Risk Review 

Philip Tremble, Chief Credit Officer, CmM & Private Banking 

Carolyn Wind, Executive Vice President & Managing Director Compliancel AML 

Mr. Alficro called the meeting to order at 7:30 a.m. and Mr. Martinelli recorded the minutes. 

APPROVAL OF MINUTES 

The minutes of the August 6, 2007 Audit Conunittee meeting and the September II, 2007 Audit 

Committee teleconference meeting were approved along with the teleconference minutes from the Joint 

Executive & Audit Committee meeting held on September 17,2007. 

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Redacted 

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on Investigations 

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COMPLIANCEIAML 

Ms. Wind presented the Quarterly Compliance Report. She noted that with respect to the two AML 

MRAs noted in the oce's Annual Assessment Report of Exarnination. Project Teams have been formed 

and good progress is being made against plans and committed target dates. Additionally, Compliance has 

implemented formal tracking and management reporting of all AML related MRAs cited by the acc during 200612007. 

Ms. Wind concluded by noting that Compliance continues to experience challenges in recruiting and 

retaining staff citing. Recent turnover in the GIB (Embassy Banking) AML team. Responding to 

Committee questions. Ms. Wind responded that temporary resourcing has been placed in GIB. 

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OPERATIONAL/TECHNOLOGY RISK 

Mr. Dew reported on issues related to the recent GPS implementation. He noted that reconciliation issues 

arising from the GPS implementation are being addressed by additional resoufcing. Mr. Dew also stated 

that there have been new duplicate payments in September that appear to be driven by system issues. 

System fixes will be implemented shortly. Mr. Dew noted that the likelibood ofa loss from these items is 

unlikely. Mr. Dew responded to various Committee questions about the GPS issues and the timing of the 

corrective actions, 

Redacted 

by 

Permanent Subcommittee 

on Investi2ations 

Confidential - FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB03902452 

Confidential- FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 3516810 
1476 


760611.309

Redacted 

by 

Permanent Subcommittee 

on Investigations 

HSBC OCC 3516811 
1477 


760611.310

Redacted 

by 

Permanent Subcommittee 

on Investigations 

ALL OTHER BUSINESS 

There being no further business, Mr, Alfiero called the Committee into Executive Session, which was 

partly attended by KPMG. The Executive Session also covered GIBlEmbassy Banking. 

Mr. Alfiero adjourned the meeting at 11:05 a.m. 

APPROVED: 

Sal H. Alfiero 

Chairman 

Confidential - FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB03902454 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 3516812 
1478 


760611.311

From: LESLEY MIDZAINlHBUSlHSBC 

Sent: 111912009 6:36:12 PM 

To: DENISE A REILLYIHBUSIHSBC@HSBC02 

CC: CAMILLUS P HUGHESIHBUSIHSBC@HSBC02;DENIS E O'BRIENIHBUSlHSBC@HSBC02;RICHARD 

ANNICHARICOIHBUSIHSBC@HSBC02 

Subject: Re: Fw: HBMX Banknotes business ~ HSBC Mexico Press Release and Q&A 

Thanks Denise! 

We'll want to make sure that we have the right contact points at HSBC dealing 

with regulatorsfagents. Sounds like we do. 

Look forward to hearing more tomorrow. 

Lesley 

Lesley Midzain 

Executive Vice President & Chief Compliance Officer I HSBC BANK USA, N.A. 

452 5th Ave. 7th FI. 

New York, NY 10018 

Phone 212-525-6410 

Fax 212-525-5769 

Mobile 917-892-4967 

__ lied"'''' by lb. rerm_ at• 

Sa ......... itt •• 0II1 ..... III.- Email Les!ey.Midzain@us.hsbc.com 

Denise A Reillyrt-iBUSfHSBC 

011t 912009 06:05 PM 

To 

Lesley MidzainIHBUSIHSBC@HSBC02 

cc 

Camillus P HugheslHBUSIHSBC@HSBC02, Denis E O'brienIHBUSlHSBC@HSBC02, Richard 

Mnicharico/HBUS/HSBC@HSBC02 

SUbject 

Re: Fw: HBMX Banknotes business - HSBC Mexico Press Release and Q&A 

Lesley, 

A meeting was held last week with Gyanen Kumar, Denis O'Brien, Richie 

Annicharico, Dan Jack and an agent from ICE (US Immigration & Customs 

Enforcement) which falls under the Dept of Homeland Security. 1 believe this 

is the same meeting referred to by Gyanen in the correspondence below. A 

followMup meeting was agreed to post-Gyanen's trip to Mexico and it is set for 

this Wednesday. Denis, Richie and I also had a follow-up conversation on 

Thursday with Rita Gonzalez who is the FI relationship manager. Cam has been 

verbally updated on the conversations and all individuals have a copy of the 

press release. 

We will review the details of the conversations with you tomorrow morning. 

Denise 

Confidential - FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB04019448 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC acc 3633806 
1479 


760611.312

Denise A Reilly 

SVP Compliance 

7th Floor 

452 5th Ave, NY 10016 

Phone. 

Mobile. 

Email. 

212-525-2606 

denise.a.reilly@us.hsbc.com 

Lesley Midzain/HBUS/t-ISBC 

01/191200904:44 PM 

To 

Camillus P Hughes/HBUS/HSBC@HSBC02, Denis E O'brien/HBUS/HSBC@HSBC02 

cc 

denise a reilly 

Subject 

Fw: HBMX Banknotes business ~ HSBC Mexico Press Release and a&A 

Cam or Denis, 

Any other context that you've heard on this? We need to assess 'NtIat 

regulators' concerns/views might be and provide guidance to those who might 

receive such inquiries. 

Also the bottom of the chain suggests that we exited two BN relationships in 

relation to this (although maintained them on PCM side). 

I also have an email w;th the HBMXpressrelease and related information, so 

will send that also. 

We can discuss Tuesday. 

Lesley Midzain 

Executive Vice President & Chief Compliance Officer I HSBC BANK USA, N.A. 

452 5th Ave. 7th FI. 

New York, NY 10018 

Phone 212~525-6410 

Fax 21;;2-ii5i25i1-~57~6ii9 .. Mobile ,. 

Email Lesley.Midzain@us.hsbc.com 

Forwarded by Lesley Mjdzain/HBUS/HSBC on 01119/2009 04:40 PM 

Janet L BurakfHBUS/HSBC 

01/16/200905;46 PM 

_ "" R-edaded by the Permanent 

Subcommittee on Investigations 

Confidential - FOIA Treatment Requested by HSBC N, America Holdings, Inc. HSB04019449 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A, HSBC acc 3633807 
1480 


760611.313

10 

Chris P DAVIESIHBUSiHSBC@HSBC02 

cc 

Juanita GutierrezIHBUSIHSBC@HSBC02,J Denis DTooleIHBUSIHSBC@HSBC02, Lesley 

MidzainIHBUSIHSBC@HSBC02 

Subject 

Re: HBMX Banknotes business - HSBC Mexico Press Release and O&A 

Chris, 

Thank you for this information. I have copied Lesley Midzain on this email.as 

Compliance would deal with FinCen, and we need to make sure nothing is done 

which may jeopardize US relationships there. 

Have a great weekend! 

Best regards, 

Janet 

--- Original MessageFrom: Chris P DAVIES 

Sent: 0111612009 09:57 AM CST 

To: Janet Burak 

Cc: Juanita Gutierrez; J Denis OToole 

Subject: Fw: HBMX Banknotes business - HSBC Mexico Press Release and Q&A 

Janet: 

k:. disc'd at Exec, please note re HBMX cash decision - attached is the HBMX 

press release. 

This is for internal info only, and any agency interest we get should be routed 

to Juanita, who can direct onwards to HBMX for comment. 

Rgds 

Christopher P. Davies 

SEVP 

Head of Commercial Banking North America 

HSBC Bank USA, NA 

452 5th Avenue, T-4 

New York, NY 10018 

212-525-3900 

-- Forwarded by Chris P DAVIESIHBUSIHSBC on 011161200910:54 AM--

Juanita GutierrezlHBUS/HSBC 

011131200905:38 PM 

To 

Chrts P DAVIESlHBUSIHSBC@HSBC02 

cc 

Chrtstopher LoklHBUS/HSBC@HSBC02, Gyanen KumarIHBUSIHSBC@HSBC02, Michael B 

GaHagherIHBUSIHSBC@HSBC02, Paul J LAWRENCElHBUSIHSBC@HSBC02, Diane Soucy 

Confidential - FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB04019450 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 3633808 
1481 


760611.314

Bergan/HBUS/HSBC@HSBC02,J Denis OToole/HBUS/HSBC@HSBC02 

Subject 

HBMX Banknotes business ~ HSBC Mexico Press Release and Q&A 

ChrisAttached please find: (1) the English language (unofficial translation J for 

internal use only), (2) Spanish Language press release and (3) English language 

Q&A. These documents have been shared 'Nith us by Roy Caple, head of HSBC public 

relations fOf latin American and the Caribbean. This will assist in guiding 

any conversations with FINCEN. 

I would suggest that the appropriate person in our banknotes business reach out 

to Denis O'Toole's office to ensure government affairs provides proper guidance 

in responding to inquiries related to this topic from U.S, governmental I 

regulatory bodies based on the attached information. I have copied Denis on 

this e-mail traffic for his information. 

I hope this information is helpful. Additionally, I have included the contact 

information for Roy Caple in case government affairs and/or our banknotes 

executives would like to have an additional conversation directly with Roy 

related to this matter. rgds, 

[attachment "MexDoliarUnofficiaIReleaseEngUsh.doc.zip" deleted by Janet L 

BuraklHBUS/HSBCj 

[attachment "MexicoDollarRelease.doc.zip" deleted by Janet L BuraklHBUS/HSBC] 

[attachment "MexQ&AEnglish.doc.zip" deleted by Janet L BuraklHBUS/HSBCl 

Roy Caple 

Director Ejecutivo de Asuntos Publicos 

Head of Public Affairs 

HSBC Mexico, Latin America and the Caribbean 

Paseo de la Reforma 347 Of 21 

Col. Cuauhtemoc 

Mexico, OF 06600 

Tel (52-55) 5721-6060 

Regards, 

Juanita Gutierrez 

Dir, Public Relations I HSBC Bank USA, N.A. 

452 Fifth Avenue, 13th Floor 

New York, New York 10018 

Phone. 212-525-6282 

Fax. 212j

-.52.5.-6ii8.7.5. Mobile. 

Email.juanita.gutierrez@us.hsbc.com 

_ = Redacted by the Permanent 

SuboommiHee on Innstigations 

Confidential- FOIA Treatment Requested by HSBC N. America Holdings, Inc, HSB04019451 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 3633809 
1482 


760611.315

Chris P DAVIESIHBUSIHSBC 

011121200907:14 PM 

To 

Gyanen KumarIHBUSIHSBC@HSBC02@HSBC 

cc 

Christopher LoklHBUSIHSBC@HSBC02, Michael B GaliagherIHBUSIHSBC@HSBC02, Paul J 

LAWRENCElHBUSlHSBC@HSBC02, "Samantha Roman" <samantha.roman@us.hsbc,com>, 

"Juanita Gutierrez~ <juanita,gutierrez@us.hsbc,com> 

Subject 

Re: HBMX Banknotes business 

Thanks gyanen. \.I\otlo is fineen? 

The decision on retail activity was one taken by hbmx alone and we will need to 

liaise with them on phrasing a reactive statement in that regard. 

Hbmx's decision should not be linked with our (global banknotes) stance on 

wsale bUsiness with any particular counterparties Ih'ho happen to be in mx. 

Juanita - pse see me early tomorrow so we can work on this 'With the banknotes 

team and hbmx. 

Gyanen! chris 1- please do not discuss externally until we have spoken. 

Rgds 

--Original Message --

From: Gyanen Kumar 

Sent: 0111212009 05:46 PM EST 

To: Chris P DAVIES 

Cc: Christopher Lok; Michael Gallagher; Paul J LAWRENCE 

Subject: Re: HBMX Banknotes business 

Chris, 

This is FYI. 

I received a call from FINCEN seeking clarification on HBMX's change in USD 

banknote acceptance policy and how it affects our banknote business. FINCEN 

mentioned that Federal Reserve Bank of New York (FRBNY) was also curious about 

this announcement. 

I know that FRBNY is quite sensitive to USD banknote activity in various 

markets. I would not be surprised if the FR8NY puts a call into someone at HBUS 

seeking clarification about HBMX's policy change towards USD banknotes in 

Mexico. In light of North American Free Trade Agreement, we should be prepared 

with an explanation if we get a call from FRBNY. H8MX cites cost as the main 

reason for this policy change. 

Regards, 

Confidential· FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB04019452 

Confidential· FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 3633810 
1483 


760611.316

Gyanen Kumar 

2125252833 

Christopher LoklHBUS/HSBC@HSBC02 

01/071200911 :49 AM 

To 

Chris P DAVIESIHBUS/HSBC@HSBC 

cc 

Michael B Galiagher/HBUS/HSBC@HSBC02, Paul J LAWRENCElHBUS/HSBC@HSBC02,Gyanen 

Kumar/HBUS/HSBC@HSBCAMERICAS 

Subject 

Re: HBMX Banknotes bUsiness 

Chris 

Noted. Gyanen Kumar is visiting Mexico next week & will be speaking to HBMX. 

Afterwards Gyanen will be speaking to the two counterparts. 

Chris 

Chris P DAVIES/HBUSlHSBC 

01/071200911:44 AM 

Chris: 

To 

Christopher LoklHBUS/HSBC@HSBC02 

cc 

Michael B Galiagher/HBUS/HSBC@HSBC02, Paul J LAWRENCElHBUS/HSBC@HSBC02 

Subject 

HBMX Banknotes business 

We discussed the above last week. I have now spoken with HBMX and GBM Americas 

FIG and it is appropriate that we discontlnue our Banknotes activities with the 

2 names concerned. Please proceed to disengage in an orderly manner and brief 

HBMX (Mario Langarica) on next steps. 

We are to continue our PCM activities and I have discussed separately with 

Michael. 

Regards, 

Christopher P. Davies 

Confidential - FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB04019453 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 3633811 
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760611.317

SEVP 

Head of Commercial Banking North America 

HSBC Bank USA, NA 

452 5th Avenue, T~4 

NewYDrl<, NY 10018 

212-525-3900 

Confidential· FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB04019454 

Confidential· FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 3633812 
1485 


760611.318

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Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 3800290 

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Current HNAH AML Environment 

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AML Director's Initial Observations 

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NOTE: SAR Metrics provided in "HNAH Risk Dashboard -

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Confidential - F01A Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 3800292 

760611.321

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- BuildAMLOffice - Build Financial Intelligence Unit 

Continuously assess resource needs based on: 

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1492 


760611.325

From: SUSAN HOGGARTHIHBUSIHSBC 

Sent: 21912006 4:30:08 PM 

To: PHILIP MUSACCHIOIHBUSIHSBC@HSBC 

CC: JEFF CLOUSIHBUSIHSBC@HSBC:TERESA PESCEIHBUSIHSBC@HSBC;TERRY 

WESTRENIHBUSIHSBC@HSBC 

Subject: Re: Bearer Shares - More Info 

Phil 

During the exam, the ace was very specific on their requirements (and that they 

were making this a requirement across the board). I don't see them accepting 

this approach, in particular when they specifically advised us that the 

bene1icia! ownership Jetters were not adequate. 

I will have a conversation with the examiner, but please don't have any 

expectations 1t1at the position will change, 

Susan Hoggarth, SVP 

Chief AML Officer, Private Bank Americas 

HSBC USA Inc. 

452 Fifth Avenue, New York, NY 

Telephone: 212-525-6447 Fax: 212-642·1809 

Philip Musacchio/HBUSlHSBC 

02109106 04:07 PM 

To 

Susan H09garthIHBUSIHSBC@HSBC 

cc 

Jeff ClousIHBUSIHSBC@HSBC, Teresa PesceIHBUSIHSBC@HSBC, TerTY 

WestrenIHBUSIHSBC@HSBC 

Subject 

Re: Bearer Shares - More Info 

Yes but I was assuming you would speak to the ace and share the information 

that Jeff has revealed and agree the same approach with them. 

Regards, 

PhilM. 

Philip J Musacchio 

Private Bank Americas 

Phone: 212-525-3289 

Fax: 212-525-6997 

e-mail: philip.musacchio@hsbcpb.com 

Confidential - FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB05202102 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 4816460 
1493 


760611.326

Susan Hoggarth/HBUS/HSBC 

02109/06 04:04 PM 

To 

Philip MusacohioIHBUS/HSBC@HSBC 

cc 

Jeff Clous/HBUSIHSBC@HSBC, Terry Weslren/HBUSlHSBC@HSBC, Teresa 

Pesce/HBUS/HSBC@HSBC 

Subject 

Re: Bearer Shares ~ More Info 

Phil 

That may work for Miami, but tt won't work for the acc in NY and California. 

The acc has specifically advised us that the Beneficial Ownership letters are 

not sufficient We have been advised that the shares need to be held either by 

ourselves or an accepted third party. 

Sue 

Susan Hoggarth, SVP 

Chief AML Officer, Private Bank Americas 

HSBC USA Inc. 

452 Fifth Avenue, New York, NY 

Telephone: 212-525-6447 Fax: 212-642-1809 

Philip Musacchio/HBUS/HSBC 

02109/0603:14 PM 

To 

Jeff ClouslHBUS/HSBC@HSBC 

cc 

Susan HoggarthIHBUS/HSBC@HSBC, Terry Westren/HBUSIHSBC 

Subject 

Re: Bearer Shares ~ More Info 

This is a much better and reasonable approach which we prefer to adopt. Now it 

is just a matter of finding a home for the bearer shares. 

Regards, 

Phil M. 

Confidential- FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB05202103 

Confidential- FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC acc 4816461 
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760611.327

Phijip J Musacchio 

Private Bank Americas 

Phone: 212-525-3289 

Fax: 212-525-£997 

e-mail: philip.musacchio@hsbcpb.com 

Jeff ClouslHBUSIHSBC 

0210910601:51 PM 

To 

Terry Westren, Philip MusacchioIHBUSlHSBC@HSBC, Susan HoggarthIHBUSIHSBC@HSBC 

Subject 

Bearer Shares - More Info 

A local law firm in Miami has researched the issue of "custody" of Bearer 

Shares with the Federal Reserve Bank of Atlanta and they expect management of a 

bank maintaining Bearer Share Accounts to conduct a risk assessment of the bank' 

s Bearer Share Account client base and to assign risk classifications to each 

Bearer Share Account and to implement appropriate activity monitoring 

procedures based upon the results of the risk analysis. In addition, Feden~1 

Reserve Bank of Atlanta expects implementation of one of the following two 

procedures: 

placement of bearer shares in custody or safe keeping pursuant to an 

arrangement that will prevent transfer without notification of the bank 

maintaining the Bearer Share Account, or 

periodic certification by the beneficial owners of the Bearer Share Accounts 

that ownership has not changed, the frequency of which may be based upon the 

bank's risk assessments of the Bearer Share Accounts, 

Regards, 

Jeff Clous, SVP 

IPS Operations 

1441 Brickel! Avenue, 16th Hoor, Miami, Rorida 33131 

(305) 539-4810 (Phone) (305) 374 6466 (Fax) 

Confidential- FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB05202104 

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1495 


760611.328

From: TERESA PESCElHBUSlHSBC 

Sent: 4/1812006 10:27:50 AM 

To: SUSAN A WRiGHT/HGHO/HSBC@HSBC 

CC: 

SUbject: Re: AI Rajhi 

Itstil! makes me nervous. Alan has gone Qutto Steve Allen for more KYC/EDD. 

Teresa A. Pesce 

EVPfManaging Director 

Anti-Money Laundering Compliance 

HSBC North America Holdings 

452 Fifth Avenue 

New York, NY 10018 

ph - (212) 525-6099 

fax- (212) 525-5769 

Susan A WRIGHTIHGHO/HSBC 

Sent by: Ana T NUNN 

04/18/2006 10:32 AM 

To 

Teresa Pesce/HBUS/HSBC@HSBCAMERICAS,Alan T Ketley/HBUS/HSBC@HSBC 

cc 

Subject 

AI Rajhi 

! just wondered what the position is with regard to the possibility of a Bank 

Note relationship in London with the above. Alan you mentioned this when I was 

in New York, 

Regards Susan Wright 

Confidential· FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB05212669 

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1496 


760611.329

From: ANNE LlDDY/HBUSlHSBC 

Sent: 9/1112006 4:02:57 PM 

To: TERESA PESCElHBUS/HSBC@HSBC 

SUbject: Fw: HBME IMre payment USD 566.00 (IRAN-Bank Sader.t) - Reject & Report to OFAC 

Fyi - we rcvd a payment this morning from Duba! involving Bank Saderat so 

Elizabeth and Grace reached out to OFAC for guidance. 

From: Elizabeth Protomastro 

Sent: 09/1112006 01 :16 PM 

To: Lionel Payan 

Cc: Dubai Special Payment TEAM; Ian EDEN; Gary BOON; Harsha ARUKGODA; Kersi 

PATEL; Siamak AL-KHAJA; Jairaj VInAL; Shahnaz Amin ABDULHAQ; Anne Uddy; Grace 

C Santiago-Darvish; Donald McPherson; Nancy Hedges; Andrew Drolet; Jose Matias 

Subject: HBME Wire payment USD 586.00 (IRAN-Bank Saderat) - Reject & Report 

to OFAC 

We have been instructed by Dan, OFAC, that the follo-Mng payment must be 

rejected under in compliance with sanctions against Iran due to the involvement 

of Bank Saderat. Per the new amendment to the Iran sanctions, even u-turn 

payments involving Bank Saderat must be rejected. 

Thank you, 

-

11-Sep-2006 Debij: HBME, J.~!!!I ••••• 

Credit: HSBC Bank Istanbul, 

ORG: HSBCHK 

USD 566.00 

--c: Redacted by the Pennanent 

Subcommittee on Investigations 

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From: MICHAEL ELLiSIHBUSIHSBC 

Sent: 311912007 2:08:53 PM 

To: RICHARD ANNICHARICOIHBUSIHSBC@HSBC 

CC: 

Subject Fw: Report of Findings - AI Rajhi Banking & Investment Corp. - FIG 

Michael Ellis 

Manager, AVP - FinanciallntelUgence Group 

Investigative Control & Reporting Office 

452 5th Avenue, Tower 7 

New York, NY 10018 

Telephone: (212) 525-8931 

Fax: (212) 525-5769 

Mail Code: 31 

Forwarded by Michael Ellis/HBUSfHSBC on 03/191200703:04 PM -

FIG HBUS on 24 Oct 2006 16:52 

Note 

24 Oct 2006 16:52 

From: FIG HBUS Tel: 

Title: Location: 

WorkGroup: Mail Size: 

Sent by: Michael Ellis 

To: Gordon BROWNIIBEUIHSBC@HSBC 

cc: Susan SALASIIBEUIHSBC@HSBC 

Daniel JackJHBUSIHSBC@HSBC 

Alan T KetleyIHBUSIHSBC@HSBC 

Andrew RizkallalHBUSIHSBC@HSBC 

Gloria StrazzalHBUSIHSBC@HSBC 

Teresa Pesce/HBUS/HSBC@HSBC 

FIG HBUS@HSBC 

1273825 

Subject: Report of Findings - AI Rajhi Banking & Investment Corp. - FIG 

Gordon, 

Please find below our updated Report of Findings on AI Rajhi Banking & 

Investment Corp., along with prior related Reports of Findings and 

correspondence. We note that as per the correspondence included below, in 

August 2005 Terry Pesce had cited regulatory scrutiny of account relationships 

involving jlJ·Rajhi entities. We have therefore copied her on this updated 

report and recommend that you discuss any potential reactivation of a banknotes 

relationship 'wVith AI Rajhi Banking & Investment Corp. with her and Alan Ketley, 

prior to any such reactivation. 

Please let me know if you have any questions regarding this report. 

Thank you, 

Mich ael Ellis 

Manager, AVP - Financial Intelligence Group 

Investigative Control &; Reporting Office 

452 5th Avenue, Tower 7 

New York, NY 10018 

Confidential· FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB07903340 

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Telephone: (212) 525-8931 

Fax: (212) 525-5769 

Mail Code: 31 

CONFIDENTIAL 

_. FOR INFORMATIONAL PURPOSES ONLY··· 

FINANCIAL INTELLIGENCE GROUP (FIG) 

REPORT OF FINDINGS (UPDATE) 

Research as of: 10116/06 

INVESnGATOR: Michael Cohen 

SUBJECT: AI Rajhi Banking and Investment Corp. (AI Rajhi Bank) 

ENTITIES: AI Rajhi Banking and Investment Corp. (Al Rajhi Bank) 

REQUESTOR: Gordon Bro'vVll 

DEPARTMENT: Banknotes 

An updated Report of Findings in support of Enhanced Due Diligence was 

conducted for the AI Rajhi Banking and Investment Corp. This is an update to 

previous reports prepared for this bank on 12/04 and 10/03, which are also 

provided below for your reference. Only items impacting adversely on money 

laundering, terrorist financing or other substantive criminal activity concerns 

will be detailed in this updated report. 

We have also attached below reports on a summary investigaUon that we had 

previously conducted regarding 9/11 related !!tigation. AI~Rajhi Banklng and 

Investment Corp. and several members of the AI-Rajhi family were named as 

defendants in this litigation, thus we are providing this summary for your 

reference. In addition, we have provided previous related Reports of Findings 

on AI Rajhi Commercial Foreign Exchange and AI Rajhi Trading Establishment from 

July and April 2005 respectively. 

UPDATE: 

AI Rajhi Banking and Investment Corp. (AI Rajhi Bank.) 

Most CUrrent O'Mlership Breakdown Found: 

Parblers of the ARCCEC the predecessor (52%) 

public (41%) 

New Founders of the Bank (5%) 

Employee's Fund (2%) 

(Bankers' Almanac, Date Accessed: 10!16/06) 

No further information was found in our ordinary sources identifying the 

specific names of the individuals who make up the aforementioned shareholding 

entities. 

Most Current Ust of Top Executives Found: 

Sulaiman Bin Adulaziz At Rajhi, Chairman and Managing Director 

Abdullah Sulaiman AI Rajhi, Chief Executive Officer 

Fahad Abdullah AI Rajhi, Genera! Manager, Treasury and Financial Institutions 

Cassim Docrat, AGM Head, Financial Institutions 

Syed Maqbu! Qader, Genera! Manager, Corporate Group 

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Rizwan Shakor, General Manager, Finance Group 

Kishore Dash, General Manager, Investments &.Private Banking 

Mand Mchan, AGM Treasurer, Treasury Department 

Isamail Odeah, Head of Compliance 

Saeed Mohd AI Ghamdi, General Manager, Retail Banking 

(Bankers' Almanac, Date Accessed: 10/16/06) 

The following list of executives was found on a Dun & Bradstreet Business 

Information Report: 

Suliman Bin Abdulaziz AI Rajhi, Chief &ecutive and Managing Director 

Saleh Bin Abdulaziz AI Rajhl, Chairman 

Ahmed AI Hosan, Director 

Abdullah AI Suliman Bin Abdulaziz AI Rajhl, General Manager 

Fahad Abdullah AI Rajhi, Manager 

Salah Abdullah Abdulkhail, Deputy General Manager 

Abdulrahman Bin Oghail, Deputy General Manager 

Saleh AI Shaity, Branch Manager 

Nassar Bin Mohammed AI Subaiy, Deputy General Manager 

Ismail Hussein, Officer 

(Dun & Bradstreet Business Information Report, Load Date: 8/24/06) 

A website for the bank lists the following individuals amongst its board of 

directors. World-Check also confirms their positions as follows: 

Saleh Abdul Aziz AI Rajhl, Director 

Saeed Orner Qasim A1esayi, Director 

Salah Ali Aba AI Khail, Director 

Mohamed Abdullah AI Rajhi, Director 

Naser Mohammed AI Subai'y, Director 

Mohammed Osman AI Bishar, Director 

Sulaiman Saleh AI Rajhl, Director 

Mohammed Ibrahim Alissa, Director 

Mohammed Abdul Aziz AI Rajhi, Director 

Ali Mohamed AI Rajhi, Director 

Abdullah Abdul Aziz AI Rajhi, Director 

Abdullah Yahya AI Mouallimi, Director 

Ali Ahmed AI Shudy, Director 

(Wond-Check, Date Accessed: 10/16/06) 

Notable Information Regarding the Financial Institution, its Ownership or its 

Top Executives, Subsequent to the Previous Report of Findings: 

It was recently reported that AI Rajhl Banking and Investment Corporation 

changed their name to AI Rajhi Bank. The change took place in order to upgrade 

their brand identity while paving the way for regional and international 

expansion ("Middle East Company News Wire," Load Date: 10116/06). 

Specifically, the bank has a license to operate in Malyasia and has announced 

plans to open dozens of branches there ("The Banker," 9/1(06). 

It was reported that civil suits were brought in U.S. District Court on behalf 

of victims of the Sept 11,2001 attacks against many Saudi Arabian financial 

institutions for having involvement in terrorist financing. A U,S, District 

Court judge overseeing the lawsuits, dismissed Saudi Arabia and AI Rajhi 

Banking and Investment Corp., amongst others, as defendant's in six civil 

lawsuits accusing it of providing Hmassive" financial and logistical support 

to the AI~Qaeda network (www.aljazeera.com. on Wond-Check, Date Accessed: 

1/19/05). Please see the below attached summaries of 9111 related litigation 

for further details on AI Rajhi Banking and Investment Corp.'s involvement in 

such litigation. 

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Su!aiman Abulaziz AI Rajhi, the bank's Chairman and Managing Director, is 

listed under the "terrorism~ category on World-Check. The report says that he, 

"financially supports terrorism and its main contributors n (World-Check, Date 

Accessed: 10116/06). Details of Sulaiman Abulaziz AI Rajhi's alleged links to 

terrorist financing are in-eluded in the prior Report of Findings from 1012003, 

which is attached below for your reference. 

It was also reported by Wor!d~eheck that Abdullah Abdul ~iz AJ Rajhl (a member 

of AI Rajhi Bank's Board of Directors as per the bank's own website and 

Wor!d~Check) is a Politically Exposed Person (PEP) because of his political 

involvement as a member in the Northern Borders Provincial Council (World-Check 

, Date Accessed: 10/16/06). No further, specific information could be found in 

our ordinary sources that would confirm or detail Abdullah Abdul Aziz AI Rajhi' 

s membership in a political party, therefore, you may wish to clarify this 

matter with the client. 

No additional information impacting adversely on money laundering, terrorist 

financing or other crimina! activity concerns was found subsequent to the 

previous Reports of Findings. 

Information Found Regarding this Financial Institution, its O'Nnership or its 

Top Executives that Warrants SCC Consideration: 

According to its Kye profile, AI Rajhl Banking and Investment Corp. is 

classified as a sec type 2 - Connected Entity. 

""* Should you find any discrepancies between the ownership and/or executives 

named in this report and those named in your current, up-ta-date KYC 

information, please let us know so that we may check any differing names for 

items impacting adversely on money laundering, terrorist financing or other 

substantive criminal activity concerns. 

This report is confidential and is intended solely for the use of the HSBC 

business to lNhich it is addressed and those 1Nh0 need to know the information 

pursuant to that business' internal procedures. This report is not to be 

disseminated to any other person or entity. Our investigative findings are, in 

part, based upon information available to us through a variety of third-party 

providers at the iime our search is performed'. VVhile every attempt is made to 

find aU substantive information, we make no representation that the 

information provided to, or gathered by, us is complete. This is not a credit 

report and should not be used as a credit report. The information contained 

herein is intended as a supplement to the Know Your Customer information 

ga!hered by the HSBC business unit and may not be considered when determining 

the creditworthiness of !he customer (see Regulation B, 12 CFR 202.7). 

Please feel free to contact me with any questions. 

Sincerely, 

Michael Cohen 

Financial Intelligence Graup (FIG) 

Note 

10 Aug 200512:12 

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WorkGroup: COMPIANTI:MONEY LAUNDERING , - M:ail Size: 

To: Susan SALASIIBEUIHSBC@fjSBC 

cc: Michael EllisIHBUSIHS8C@HSBC 

Gloria StrazzaIHBUSIHSBC@HSBC 

Sally G LOMASIHBMDIHSBCMERIDIAN@HSBC 

Daniel JacklHBUSIHSBC@HSBC 

Subject: Report of Findings - AI-Rajhi Banking & Investment Corp. - FIG 

CONFIDENTIAL 

••• FOR INFORMATIONAL PURPOSES ONLY'" 

FINANCIAL INTELLIGENCE GROUP (FIG) 

REPORT OF FINDINGS 

SUBJECT: A1-Rajhi Banking & Investment Corporation 

ENTITlES: AI-Rajhi Banking & Investment Corporation 

REQUESTOR: Sally Lomas 

DEPARMENT: Banknotes 

7164 

_. Redacted by the Permanent 

511bcommittH on Investigations 

ACCOUNTS: AI-Rajhl Banking & Investment Corporation (Reference #_ An enhanced due diligence was conducted on A1-Rajhi Banking & Investment 

Corporation. A report of findings was sent on this company in May 2004. The 

objective of this report is to procure additional information subsequent to the 

filing date of the initial report. 

AI-Rajhi Banking & Investment Corporation: 

In 2004, A1-Rajhi Banking & Investment Corporation (ARAJ) filed a suit against 

the Wall Street Journal (WSJ). ARAJ alleges that the WSJ defamed the bank by 

accusing It of supporting of terrorism in article published on 2/6102. After 

30 months of active litigation, a settlement was reached, leading to the paper 

publishing a ~clarification" and a letter from AI-Rajhl's chief executive. The 

clarification basically states that the article published by WSJ did not intend 

to imply an allegation that ARAJ supported terrorist activity, or had engaged 

in the financing of terrorism. 

Under the terms of that settlement the WSJ paid no damages, nor was any order 

made prohibiting the paper from repeating the same allegations in the future. 

In all, no charges stemming from the aforementioned article have been levied 

against MAJ. Therefore, no substantially adverse information, subsequent to 

the previous report provided for this company, was found regarding ARAJ. 

If you have any questions, fee! rree to contact the undersigned. 

Sincerely, 

Steven Pichardo 

Financial Investigator (FIG) 

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HSBC-BNI_E. 006572S.txt frolt: DENISE A REILLY /WBUS/HSBC Sent: 8/29/2001 6: ll: 49 PM To: ALAN WIU(INSON/HO H1'V ASP/HBAP/HSBC@HSaCjQUENiIN R AYLWARD/IoIDBK/HsBcOtisac CC: CAROLYN M WIND/H8US/HSBC@HSBCAMERlCAS;MATTHEW j W KING/HGHQ/HSBC@.HSBC,El1ZABETH PROTOMASTRO/HBUS/HSBC@HSBCAMERICASi 

JOHN L RICHARDS/HSBt/HSBCAPAC@HS'BC 

Subject: Bank Melli 

The attached document reflects the procedures tha:t have been developed, with 

Qua1ity 

~~:u,~~~~~ ~~~ ~~~~:~~r~fi1'~i c~~~si~ 'm!~t s~~~r;e~~~~1:~~l!n~a~~f~e through 

Qualificatl0ns. requirements. ASSYming t~at; transactions sent to HBUS meet: the u-turn all transactions will be processed s.ameday of receipt. 

~he~~~~:Y o~f F~~~g~e:~s~~ss~g~~~~~r!ndeo~!1~f~h~e:~!~aal\'1i~lI!his D~~ectQr of determine their- pos1tion regarding this business. In anticipation of that 

~~~!1~~~ ;:~~~~~ ~~~ ~id t~m~~~~. ,gri:!~t~l~~e/;v;~~n~c~~~ d~f~:~n~i:nd if 

you 

conference can be call to discus!. Plea$e confirm your availability and a number where contacted. 

Attachlllent; M~lli .doc.zip 

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U-TURN PAYMENT PROCESSING FOR BANK MELLI VIA HBEU 

~US.~ pro~ess payments ~or, B~ M~~i a~ t~ originator of transactions via 

HBI;:U.As,BiJ,k Mi:yi .will app..ar,'!8tli.prigin3!~r;all !t~saeti<>'." Will be subjecl: to OFAC review~n the EP paym~nt syste~ 

Assumptions! 

• Aseparato processing account Will be established under the name of"HBEU 

Special Aooount" ou HBUS books. Only Bank Melli originated transactions 

will pass through this account. 

• Additionally, the account number of "EmEU Special Account" will be entered 

into the OF AC filter as a "token" ao thnt every transaction for this account 

will be stopped in the OF AC queue fur review and approval before 

prottSsing. 

HBUS will be reimbursed for 3 FTE to be hired due to extra proeess burden of 

OFAC review for an estimated 400 transactions a day (methodology and 

pricing to be established). 

• The ''U-Turn'' transactions will be formatted in accordance with SWIFf 

MT202 standards and will mclude Bank Melli as the originator as noted 

below: 

BanK. Mel!! sends an MT202 to HBEU to debit their account and make a U.S. payme:ntwlth. fuQ detaUs: 

Originator's Bank: 

DebIt Party: 

Credit Party: 

Intennedlary Bank: 

Beneficiary Bank: 

Beneficiary: 

Reference: 

§lEf.k 

Bank Melli 

Bank Mem't; account with HBEU 

HBEl1s nostro account with HBUS 

any U.S. bank vis.Fedw!re I CHIPS 

any foreign bank whld'l is not Iranian, not 

HBEU and not a foreign branch of a U.S. 

bank 

party Benk MeHi is remittJng funds to 

(optional) 

HBEU sends an MT202 to HBUS to debU HBEU's acCClJnt with HBUS: 

Originator's Bank: 

Debit Party: 

Ctedit Party: 

Intennediary Bank.: 

Beneflclary Bank: 

Benenclary: 

Reference: 

Bank MelJi 

HBEU'! nostro account with HBUS 

any U.S. bank via Fedwirel CHIFIS 

(not applicable) 

any toreign bank whlch Is not Iranian, not HaEU and not a foreign branch of a U.S, 

bank 

party Bank MelU Is remitting funds to 

(op~ona~ 

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OF AC Filter Rn'iew Process: 

1. Upon receipt ofinstroctions from HBEU1 payment will be executed as STP (straight 

through processing) or repair, If repair. any required corrections will be done in 

accordance with standard operating procedures, 

2. Payment will b. stopped in the EP OFAC Filter fur IDalIlIal review. 'I'bO<e will be 

two reviews and two itpprov:als required before the payment can be processed,. as 

described in items (3) and (4). 

3. The first reviewer will examine the payment for compliance witb the "V-turn') 

exception under the Iranian Transactions R.egulatiom. i.e,. the wire transfer mIlSt be: 

(1) By 21 foreign bank which is not an Iranian entity 

(2) From its own account at a domestic bank 

(3) To an account held by. domestic bank 

(4) For a second fureign bank whicb is not an IrBllian entity. 

4. lithe first reviewer confirms that payment is not prohibited. by OFAC sanctions) ie., 

it is pemriUed under the lC[J·turn" exception to the Iranian Transactions Regulation!!, 

the payment will be released to be verified by the second reviewer. If tho reviewer 

determines that paym6D.t does not meet the U-turn requirement.. it 'Will be rejected 

back to HBEU in accordance with the Iranian Transactions Regulations and reported 

to OFAC '" required. 

S. If the second. reviewer verifies and confirtos that the payment meets the U-turn 

exception, helshe will re1east: the payment for final processing via Book Transfer, 

CfDPS. or Fedwire. If the second reviewer detem:rincs that the payment does not 

meet with criteria for a U~tum exception. it will be rejected back. to HBEU in 

nccordance- with the Iranian Transactions Regulations and reported to OFAC as required, 

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HSBC-OCCE 0196444. txt 

From: ALAN P WILLIAMSON/HBUS/HSBC 

Sent: 8/28/2007 5:28:08 PM To: CHARLES G DELBUSTO/HBUS/HSBC@HSBC;ALAN T KETLEY /HBUS/HSBC@HSBC;CHRIS P DAVIES/HBUS/HSBC@HSBC; 

CHRISTINE B JOOSTEN/HBUS/HSBC@HSBC;MICHAEL B GALLAGHER/HBUS/HSBC@HSBC CC: 

subject: Re: Fw! Addressing negative information 

Michael, charlie 

Thanks for including me in this dialogue. Can we also include the burden on compliance and business which comes out of the monitoring process? I believe if that could be made more focussed it would free resources required to get the cycle time down and reduce our regulatory exposure. 

Alan Williamson 

charl es G Del Busto/HBUS/HSBC 

08/28/2007 06:1B PM 

To 

Mi chael B Gall agher/HBUS/HSBC@HSBC 

cc 

Alan T Ketley/HBUS/HSBC@HSBC, "Alan Williamson" 

<alan.p.williamson@us.hsbc.com>, Chris P DAVIES/HBUS/HSBC@HSBC, Christine B Joosten/HBus/HSBC@HSBC subject 

Re: PH: Addressing negative information 

Comments on timing below 

Charles del Busto 

Global Transaction Banking 

(T) 302 327 2100 

(F) 302 327 2128 

Mi chael B Gallagher/HBUs/HsBc 

08/28/2007 04:43 PM 

To 

Alan T KetleY/HBU5/HSBC@HSBC, Charles G DelBusto/HBUS!HsBC 

cc 

"Alan Williamson" <alan.p.williarnson@us.hsbc.colT1>. chris P DAVIES/HBUS/HSBC@HSBC, chri stine B Joosten/HBUS/HSBC@HSBC 

subj ect 

Re: FW: Addressing negative informationLink 

page 1 

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HSBC-OCLE 0196444. txt 

Alan, please see below 

charlie, please confi rm what have written below is correct 

Mi chael B. Gallagher Executive Vice president Global Transaction Banking 452 5th Avenue New York, NY 10018 Tel: 212-525-5680 

A 1 an T Ketley /HBUS/HSBC 08/28/2007 04: 38 PM 

To 

Mi chae 1 B Ga 11 agher /HBUS/HSBC@HSBC cc 

"Alan williamson" <alan.p.williamson@.us.hsbc.com>, charles G Del BustO!HBUS/HSBC@HSBC, chri 5 P DAVIES!HBUS!HSBC@HSBC, Chri sti ne B 

Joosten!HBus/HSBC@HSBC subject 

Re: FW: Addressing negative informationLink 

I've reached out to some peers to find out the answers to these questions but am unlikely to get anything without sharing our m~n story. 

Can you give me answers to 1, 2 and 4 so I can reciprocate - I only see HRCs so don't know how long it takes PCM to complete standard risk KYCs. 

Thanks 

N~nA~L K~~~;r;ance 452 Fifth Avenue, New york, NYl0018 

phone. 

Fax. 

Email. 

212 525-6147 212-382-7580 alan. t. ketley@Us.hsbc.com 

To 

Alan T Ketley!HBUS/HSBc@HsBC cc 

"Alan williamson" <alan.p.williamson@us.hsbc.com>, charles G page Z 

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HSBC-OCCE 0196444. txt Del Busto/HBUS/HSBC@HSBC, Chri 5 P DAVIES/HBUS/HSBC@HSBC, Chri sti ne Joosten/HBus/HSBC subject 

Re! FW: Addressing negative informationLink 

It is clear we would benefit from a meeting to either reaffirm or reset the stage. My sense ; 5 that burden is too hi gh and we need to be c1 ear on whether or not we operate in line with street and if not, at what cost/benefit. Our OFAC discoveries of late have been an eye-opener. I have also asked for a six 

~~~~a t~~ i ~::t rf~~ eda~~ ~~e wfil)W ~e~ ~~ ~~r;~c~~~ ~i~~;S~n~ s 9~~k~h~i ~a~a~~~ i~ng. waul d be useful ; f your team di d same with he; r industry peer contacts. Questions would be: 

1. how many correspondent accounts do you have I wouldn't give this answer, see 2 2. how many KYC staff to support our ratio; 5 1 exec per 120 accounts 3. approval process flow (steps) 4. time duration from start to complete. I am not sure we want to answer this, because I suspect ours take "too long. Charlie, any thoughts on average, high and low? 3 months on average, high 1S over -a year, low a couple of weeks 

I'll ask chri sti ne to coordi nate somethi ng over the next 2 weeks. 

MBG 

Michael B. Gallagher Executive Vice president Global Transaction Banking 452 5~h Avenue New York, NY 10018 Tel: 212-525-5680 

Alan T Ketl ey/HBUS/HSBC 

08/27/2007 OS: 15 PM 

TO 

Mi chael B Gall agher/HBUS/HSBC@HSBC 

cc 

charles G DelBusto/HBUS/HSBC@HSBC, Chris P DAVIES/HBUS/HSBC@HsBC, "Alan 

wi 11 i amson" <al an. p. wi 11 ; amson@us.hsbc.com> subject 

Re: FW: Addressing negative informationLink 

Michael 

I discussed your note with Alan Williamson (to whom I now report) and we will page 3 

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HSBC-OC<=-E 0196444. txt: be pleased to sit down and discuss this with you. The occ examiner's 

1~~~~~:i~~~ ~aif V{i¥ 5 c~ ~a~~~ fif~ c~~~~e~t a~~~js a~grb~5!~9r~~:edel~t~~: profi 1 e ~~~n~\~O~~j~lidd~~is~~"t~~"'Si~~~rm~1~\~~~.~ave picked on the 20 year old 

Feedback you can ~et from recent hires will be very helpful and we'd like to hear about it. W.,le t ere's always the risk of comparing apples and oranges t I understand that files approx 250 SARs a month in its correspondent banking area wh, files about 40 - we run about 3-4. 

~~~nA~L K~~~~'i ance 452 Fifth Avenue, New York, NYlOO18 

Phone. 

Fax. 

Email. 

212-525-6147 212-382-7580 a 1 an. t. ketl ey@us.hsbc.com 

Michael B Gallagher/HBuS/HSBC 08/27/2007 03: 58 PM 

To 

Alan T KetleY/HBUS/HSBC@HSBC cc 

__ "" Redact('" 

SUbCfll1 

Charles G DelBusto/HBUS/HSBC, chris P DAVIES/HBUS/HSBC@HSBC, Denise A Reill y /HBUS/HSBC subj ect FW: Address; ng negative i nformat; on 

Alan, 

My sense is that we need to have a formal sit-down and re-agree wha"t does and does not need to be ; nc 1 uded/addressed in our fi 1 es. For exampl eli n the cases that you cite below, was it the activity "that was the issue (meaning they really expect comment on 20 year and 5 year old news) or was it just that we had included it but not followed up? If the second, then the issue would be t make clear what is included. 

On a broader note ; have met today with Gi 11 i an and charl i e and am concerned that the overall process we follow ;s not nearly as efficient as it needs to 

~~FA~r. i~k~e i ;s~~d i~u~~a~ ~:n~~l~~ pi~~ s mg~! n~e~s~~i~~a~h~~ ~~~ ~~~~e~~O~~i~g 

~~~E~~~Yb~~d:~ ~~i~~erfj;k~ !~c;lT~~~ ~~i~g~u~:~~i ~~d ~:i1~~~a~n i~~~o~~h~~5 we never got to whil e be; ng exce11 ent on the fi rst batch. I have therefore asked 

;~~~1!~ ~~ndd~~ief recent hires from_and on their processes to see 

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Michael B. Gallagher Executive vi ce pres; dent Global Transaction Banking 452 5th Avenue New york, NY 10018 Tel: 212-525-5680 

HSBC -OCCE 0196444. txt 

----- Forwarded by Mi chael B Gall agher/HBUS/HSBC on 08/27/2007 03: 49 PM ----- Charl es G Del BustO/HBUS/HSBC 08/27/2007 03: 38 PM 

To 

Michael B Gall agher/HBuS/HSBC@HSBC cc 

subj ect Fw: Addressing negative information 

charl es del BUsto Global Transaction Banking eT) 302 327 2100 (F) 302 327 2128 ----- Forwarded by charles G DelBusto/HBUS/HSBC on 08/27/2007 03:37 PM -----

~~n7 /2~6~16~mU~~HSBC 

TO 

PSRR@HSBC 

cc 

"George Tsugranes fl <george. tsug raneS@U5. hsbc. com>, Gi 11 i an E 

Bachstein/HBUs/HSBC, charles G DelBusto/HBUS/HSBC@HSBC, "Judy stoldt" <judy. p. stol dt@us.hsbc.com> subject 

Addressing negative information 

All. 

On Friday we met with the OCC where We heard their initial findings from their return vi si t to CB about the; r fi 1 es. 

Most of the sample files reviewed by the acc were deemed satisfactory but two spec; fi c fi 1 es were ci ted as be; ng inadequate both for the same reason. whil e neither of these files ;s a PCM file, I think the examiner's observation is valuable nonetheless. tn one case a current EOD ROF conta; ned a comment about seven of the bank IS 

staff being arrested and charged with fraud in 1986. The RoF went on to explain 

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HSBC-OCCE 0196444. txt that nothing further was found about this event. The business unit involved had siQned off on the EDD ROF but did not specifically address this adverse news. Whl1e the OCC was not hugely concerned given that the event was over 20 years ago, they stated the; r expectation t:hat the business unit si!;Jn off should mention the adverse news and include verbiage as to why it dld not impact the customer's risk rating. The other case ;s more serious and involves a major 910bal bank that had some significant fraud problems at the head office level 1n the 2000-2002 time frame. Our customer was a standard risk subsidiary. The ALE report that was in 

~~~e~~~~er-~h;l i~~u~~ ~ifh C~h~o~~~dbg~f~~~t~i~h~r: ~:~Q~~ ~~i ~!gg! n~~ i~;tfil e ~~r~hib~~o~l ~h~~aih~h~~~ ~~~~e~a~:~; ~1;n f~~~S!~~~~~r of; i~dih~~e~hO~~~ 1 ih:e 

issues were well known and understood by HBUS, we are reminded by the Dee that all negative information uncovered during the. course of our due diligence must be addressed. 

As a consequence of these observati ons. the ace has requi red that we perform further sampling of the remediation. 

please take these. cases to heart and incorporate the type of analysis expected by the examiners as part of your normal process. 

~~~n A~L K~~~1 i ance 452 Fifth Avenue, New York, NY10018 

212-525-6147 212-382-7580 . phone. 

Fax. 

Email. al an. t. ketl ey@us.hsbc.com 

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HSBC-BNI_E 0389617. txt From: I~ICHAEL B GALLAGHER/HBUS/HSBC sent: 9/25/2006 8:37:35 PM To: TERESA PESCE/HBUS/HSBC subject: FW; Additional monitoring r@SQurces 

Terry, 

Did we leave this that you were to discuss with martin? sorry, if I am not recalling exactly where We left it. 

Mbg 

From: Alan T Ketley Sent: 09/01/2006 03: 19 PM To: Michael Gallagher subject: ~w: Additional monitoring resources 

Michael 

I understand that was discussed when you met with Anne and Terry, I also reviewed it with charlie. 

what I 5 tne next step? 

Alan T. Ketley senior vice president, Anti Money Laundering Tel: 212 525 6147 / FaX: 212 382 7580 ----- Forwarded by Alan T KetleY/HBUS/HSBC on 09/01/2006 03:15 PM -----

Alan T Ketley/HBUS/HSBC 07/28/2006 08:41 AM 

To 

Michael B Gallagher/HBUS!HSBC co 

charl es G Del Bus1:o/HBUS/HSBC@HSBC, sandra Pe1:erson/HBUS/HSBC@HSBC, Teresa pesce/HBUS/~SBC@HSBC, Deni se A Rei lly/HBUS/HSBC@HSBC subJect 

Re: Fw: Additional monitoring resources 

Michael 

~i~~~i ~G~iv~~~~urces are allocated back to business units in a fashion that is 

our budget process requires that we remain flat in terms of expenses from year to year but the GCl has resulted in a significant and growing increase in alert volume. When we met the other week you indicated your willingness to fund some adds 1:0 S1:aff in compliance and 1:here are a couple of ways tha1: we could achieve it - either a charge back from compliance or a portion of your budget that is allocated to these compliance heads. With your agreement in principle we can have our respective budget people work out the deta1ls. 

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HS8C-BNI_E Uj~~517. txt 

The additional serial payments will be ongoing so I see this as an ongoing need. 

Many thanks 

A1an T. Ketley 

~~f~t2r~C52~r6il~ent, Anti Money Laundering 

Fax: 212 382 7,80 

Michael B Gallagher/HBUS/HSBC 07/26/2006 11: 3 6 AM 

To 

A 1an T Ket 1 ey /HBUS/HSBC cc 

Teresa pesce/HsUS/HSBC@HSBC, char1es G De1Busto/HBUS/HSBC, sandra Pete r son/HBUS/HSBC@HSBC subject 

Re: Fw: Additional monitoring resources 

Just so I am clear, can you clarify how, if at al1~ PCM "pays' for resources 

~~d:, i o~n$o~o~ ~~~i a~~~l ~ n b06?i~~~ri~t~o~idO~~~~~t i io d~~~~~~~d' f~~ 5~~? request 

Michae1 B. Gal1agher 

EVP, Head GTB corporate5, NAFTA 

4,2 5th Avenue New York, NY 10018 Te1: 212-525-5680 

Alan T Ket 1 ey /HBUS/HSBC Tel: 212-525-6147 07/24/2006 08: 47 AM 

To 

Mi chae 1 B Gallagher /HBUS/HSBC@HSBC cc 

subject 

FW: Additional monitoring resources 

Mi chael 

Have you had a chance to loak at thi 5? 

Alan T. Ketley 

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HSBC-BNI_~ 0389617. txt 

~~1~t2i~ c~2~r~il~ent J Anti Money Launderi ng Fax: 212 382 7580 ----- Forwarded by Alan T KetleY/HBUS/HSBC on 07/24/2006 08:41 AM -----

Alan T KetleY/HBusjHSBC 07 j10/2006 04: 01 PM 

M; chael 

To 

Michael B Gallagher/HBUS/HSBC cc 

sub~ect 

Add1tional monitoring resources 

when we met a couple of weeks ago you indicated a preparedness to fund a couple of compliance head count to monitor the additional volumes of MTI03s. we1re working on how best to staff up to deal with the additional volumes and whether to have heads in Delaware or India. we're also awaiting some information from GHQ about the various dispensations that have been issued to Group members so we will know when the additional MTI03 volumes will hit - I'll share this list with you when I receive it. 

On the funding issue - can we charge you back for 2 Delaware resources (on the basi 5 that it may be more but cheaper resources that are based in Indi a)? 

Thanks 

Alan T. Ketley First Vice president:, Anti Money Laundering Tel: 212 525 6147 Fax: 212 382 7580 

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From: ROB MUTH/HGHQ/HSBC 

Sent: 7/19/2007 1:01:37 AM 

HSBC-BNI_E 0396753 

To: MICHAEL B GAlLAGHER/HBUS/HSBC@HSBC Cc: 

subject: Re: HBUS GPS Day 2 and 3 update 

Michael 

Good response •.•• I'm glad you I re keeping your wits about you and keeping it in perspective ..... I knew we'd turn a "sales guy" into a first class executive those many years ago when you were hi red! ! ! 

Regards I 

Rob 

~~/8~/~og7 Ggl; ~~her /HBUS/HSBC 

Mail Size: 9452 

To 

Davi d DeW/HBUS/HSBC@HSBC, carolyn M WindjHBUS/HSBC@HSBC 

cc 

Bandul a Wi j es; nghe/HBUS/HSBC@HSBC, Mi ke Ebbs/HBUS/HSBC@HSBC, James P 

Burke/HBuS/HSBC@HSBC, Sandra peterson/HBUS/HSBC@HSBC, Rob Muth/HGHQ/HSBC@HSBC, 

Andrew P LONG/IBEU/HSBC@HSBC, Douglas MACLEAN/IBEU/HSBC@HsBC, Deborah E 

Talamo/HBEU/HSBC@HSBC, John P ARMSTRONG/HGHQ/HSBC@HSBC, Alan 

swan/HBUS/HSBC@HSBC, Anne Liddy/HBUS/HSBC@HSBC, Janet L Burak/HBUS/HSBC@HSBC, 

William M Wong/HBUS/HSBC@HSBC, David W J BAGLEY/HGHQ/HSBC@HSBC, Denise A 

Reilly/HBUS/HSBC@HSBC, John HUDSON/HBUS/HSBC@HSBC, paul J 

LAWRENCE/HBUS/HSBC@HSBC, stephen A Tedeschi/HBUS/HSBC, charles G 

oelSusto/HBUS!HSBC, uCharlene Miller" <charlene.miller@us.hsbc.com>, Nancy 

Hedges/HBUS/HSBC 

subject 

oavid, 

Re: HBUS GPS Day 2 and 3 Update 

Entity 

HSBC Holdings plc - HGHQ 

We are not yet out of the woods t but at the same time we had some encouraging positives today. We did close chips and fed without extension i both firsts for the week. We also seem to be on our way to a successful close far earlier than in either of the two prior days. This should put us in a position to deal with a good portion of cumulative carryover tomorrow. while teething pains continue, as we would expect in any beta site, largest contributor to inability to complete all items today (inclusive of carryover) was significant delay in system opening in each of the two prior days. Assuming we get availability between 12 and 1 tonight we will be materially advahtaged. 

We are 1 earning as we go, and with a new system to the group we have to expect the unexpected. We are learning for ourselves and on behalf of group colleagues that will follow. I am more encouraged now than i have been since the beginning of the conversion. Timing of availability today will be the key. Ni~ht staff in delaware and india are ready to go as soon as we see system availabllity. 

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Mi chael HSBC-BNLE 0396753 

From: Davi d Dew Sent: 07/18/2007 11:16 PM EDT 

2~~ ~~~d~l~ ~1j~singhe; Mi ke Ebbs; James Burke; Mi chael Gallagher; sandra peterson; Rob Muth; Andrew P LONG; Douglas MA.CLEAN; Deborah E Talamo; John P 

ARMSTRONG; Alan swan; Anne Liddy; Janet Burak; William M Wong; David W J BAGLEY; Denise Reilly; John HUDSON; Paul J LAWRENCE subject: Re: HBUS GPS Day 2 and 3 update 

I appreciate that everyone ;s working incredibl¥ hard but having not participated in any of the GPS meetings since mldday today, I have to sa¥ that an initial read of this email gives cause for significant concern. It ralses as many questions as it answers and I am sure simi 1 ar concerns must be ad sing in the minds of the regulators. In particular, it is not clear that we are making progress in resolving o/s issues. I think we will need a clear list of issues and action taken. Let's discuss tomorrow. 

From: Caro 1 yn M wi nd Sent: 07/18/2007 10: 33 PM EDT To: william Johnson; Nelson Hurt; Anthony Dilorenzo Cc: Bandula wijesinghe; Mike Ebbs; David Dew; James Burke; Michael Gallagher; sandra peterson; Rob r>1uth; Andrew P LONG; Douglas MACLEAN; Deborah E 

Talamo; John P ARMSTRONG; Alan swan; Anne LiddYi Janet Burakj william M Wong; David W J BAGLEY'; Denise Reilly; John HUDSON Subject: HBUS GPS Day 2 and 3 Update 

summary of HBUS GPS Implementation update on Day 2 and 3 Cll/18 July 07) of operations for OCC/FED - Update 

This is an update to the interim report provided on 17 July on Day 1 and part of Day 2 of GPS operati ons. 

~~~o~~~~~~. o~~~u;e~6~~fl ~~1:fg~ I l~o~_~v:~~ hi~~i ~~~~eaU~~~~S~~~!y 4~d C~~~~y messages valued at: approximately USD 600 Mn were dropped during the sunday night issues with the CHIPS link. These have been identified and will be manually processed to credit/debit "the HSBC beneficiaries. The root cause has 

~~~~e~~ig~i~~~ ~he t~ii~e~~~S f~~~;f~~~ ~~o~r~~~ua~i~~d:hf~~ ~~e p~~~:~~s~ lost 

recurrence is expected shortly. However. it: has been determi ned "that recurrence of the issue shaul a be rare. 

Tuesday the 17th saw a volume of approximately 98,000 payments of which approximately 92,000 were processed successfully by the end of "the' day. 

In the morning, payments operations experienced some software issues that affected the accounting interface to HBUS back office systems. These were tracked down to five messages that were carried forward. The interface was recovered once these messages were removed from the system. The outage was approximately two hours and did not: affect the daily payment operations unduly, to "the extent that payment balances were available in the payment engine itself to a 11 ow effective execution. No ot:her software issues were i dent; fi ed duri ng the processing day. 

The backlog of entries that resulted from the OFAC issue reported previously moved further Idownst:ream J from a processing point of view to Repair/ Verify queues. AS reported before, CHIPS/FED extensions were obtained but: some 6,400 messages were 'refiled' with the processing date of 18 July valued at Page 2 

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HSBC-BNI_E 0396753 approximately 6 Bn dollars. Some user errors due to lack of familiarity of the system and one incorrect rule on an active HSBC account caused significant re repal rs. These have now been largely addressed on the 18 tho 

A batch processing issue arose during the night related to mail advices which were therefore not sent. Additionally the issue caused an estimated one and a half hour delay in batch run completion. The cause of the issue has been identified. senior management has determined that this is not a time critical matter and therefore the fix can be implemented within the next two days. 

The system was closed down at 1. 00 AM on the 18 th and was brought back up around 4.45 AM for the processing on the 18 tho The processing on the 18 th was 

f~~! n tg~n~; C~hP~~u~r edh~i ~h 1 ~h~ ~:d~~~~ g~ s~~d t~~S~i~:S a~~ii abi ~e t~r~~g~~s~vihe messages given that the system was not available till 4.45 AM. (TYpically processing starts at 9 PM). 

There were no software issues experi enced on the 18 th. The day saw a vol ume of approximately 106,000 payments and some 103,000, including some from the carry over payments, were processed successfully by the end of the day. As many large dollar payments as Rrac"tical were released during the day. However, due to the 

~~oc~e~oIJ1~~~s~~~~ ~:y c:~~i~~i~~;~~~d8f~~Op~~~~~~~~g v~~u~~e aIg a~h~o~~m~~l~o~ CHIPS extensions were sought. At the time of writing, efforts are underway to close the system earlier than the previous "two days to allow for a processing day as close to normal as possible. Expected system availability is at midnight. 

A further upda1:e will be provided by end of day of the 19 July. 

Regards, 

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HSBC-BNI_E 0396878 

From: MICHAEL B GALLAGHER/H8US/HSBC 

Sent: 7/29/2007 3:14:34 PM 

To: "BANDULA ~iIJESINGHE" <BANDULA.WIJ ESINGHE@US. HSBC. CO~l> 

CC: CHARLES G DELBUSTO/HBUS/HSBC;MIKE EBBS/HBUS/HSBC; STEPHEN A 

TEDESCHI/HBUS/HSBC; "SANDRA PETERSON" <SANDRA. PETERSON@US.HSBC.COM>; 

DEBORAH E TALAMO/HBEU/HSBC 

subject: R'i: Fw: draft strawman 

Bandul., 

i~i 5 a~~~~~~~. i ~ :D~~df~p~~e~i a~;m~~! ~o~~~~~~e 0*° a lin~e~~r a~~~e~:ea~O~~p~~f=~ ly if there are factual mistakes. Bandula, this may be useful in respect to the draft note you sent for review, as 'they seem to cover si mi 1 ar ground. 

charlie - we need to close my draft of with end of day stats, but not later than 6:30 or 50, such that asia has pre-open. 

From: And rew P LONG 

Sent: 07/29/2007 04:15 PM GDT 

To: Michael Gallagher 

subject: Re: FW: draft strawman 

Mi nor suggested editor; a 1 amendments. 

Andrew 

Dear Group colleagues. 

~~1 a 116~~. Y~hi ~r~e~W~l~b~~B~a~~~~~d~~~~e~ ~~~ b~~~n~~ ~~~~~~e (~~~~d~nO~dnday, tecKnology, respond to competitive. and resulatory requirements. and serve our ilobal clients with a consistent and unifled "joined up" system. The us was the 

K~~~t o~!~e t~~ ~~x~ i ~~~r ~i ~~ ~~~~iri~:n~Orb!i i~~~s th~~n~~~e f~he t~~s~~m a{~ Hong 

effectively bedded down and fully dep1oyed, we will have one of the best payments i nfrast ructures in the industry. Unfortunatel y, that is not the case at present. 

The genesis of the significant problems experienced over the last two weeks was the coincidental addition of several regulatory scans within the OFAC (office of Foreign Asset control) filters on the day prior to system launch. which interacted in an unanticipated manner and resulted in a tripling of the manual 

~~~~ e~v nP~~~~~S ~f T~~o~~~s~~~ ~~~~k ~~rko~~m~h~a~a~~~~~~ ~~~m~i f~si~~l ~s o~n~ay India. The backlog that resulted as well as the impact of a second day of excessive reviews (problem not fixed until late day 2) created a volume of failed items that was anticipated to take several days to clear. 

In addition to the anticlpated challenges of clearing the backlog, several neVJ issues arose wlth the new system as such volumes of carryovers had not been anti ci pated and not all of the software requi red technology to create effi ci ent sol uti ons was not exi stent. Many payments coul d not be II ro 11 ed over" into subsequent days and therefore the payments teams were requi red to cancel 

~~~~~~tfl o~r~~~l dhb~9~~. P~hi~ I p~~~e~~n~~l ~y si~~~ft~~n~h~6n~~~~~e o~h~e~g~:a ~nd page 1 

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HSBC-BNI_E 0396878 time, such that the processing of each days new volumes was daily in jeopardy. 

~~r~~~~n d~;r~a~~~~~~ J tfulf~ea0~;~a~hit mf~i1~~~n~n d~ii~~~n~a~n u~~! l~o~~: vs 

The result has been that while we have closed with the Federal Reserve and CHIPS on ti me fa r all but the fi rst two days 1 do; ng so has meant we fai 1 ed each day on same day items, and were unable to complete all backlog items as each day created additions to the backlo!} pool. Throughout the past two weeks. in add; ti on to focus; ng an c1 ear; n9 i m ti a 1 and subsequent backlog items I we have 

f~~~~d~~~i~n ~f mi~~ a~e~f s~~i~~ ~f5~h~ 5 t~~~e ~n~h~i g~~ki~~~cio~i ~~a~~i e, caused a process called "refile" (moving today items ta tomorrow queues) which was time consuming and negatively impact normal close of day, batch runs and reconci 11 ati ons, the resul t of thi s was late di stributi on of dai ly ·statements. especially to our Asian offices and clien1:s. 

As of the close of Friday we carried over less than 200 payments (out: of 109.000 today items) and have .a "team of peopl e comi ng in on sunday to cl ear these ;n advance of Monday opening. 

In terms of ongoi ng and next steps. IT and our vendor have been hard at work creat; ng system changes and enhancements to add e.ffi ci ency and correct issues 

~~ t~!~u~~~y ~y~~i~h ~: ~!!~ ~~c~~~~, a a~Jl ~~~~mi~g t~~~~e;~~~l~l g~1 ; ~~~a~~e~ilfs el i mi nate several of our ongo; ng effi ci ency i S5ues. Ali st of add; ti ona 1 

!~~k~~d~e~~C~a~o~ii~g C~~h!~~~m:~~s w!o~)~eb~ ~~r~~~if~ o~~~ ~:~ e~~:t~~~ followi ng 

The next big issue will be coping with the significant increase in customer service inquiries that result from our ongoing challenges. Thanks to the great 

i~~~e~0~~c~1 a~~dU~l i~~i ei~~~!s a~~~~d b~~~ ~~~l1.~w~~sih~~r w~e~i~h~ ~~~~i ~~~!c~~~. Your client interac"tion and su~port has paid enormous dividends in thus far lessening the volume of potential issues. Having said that, we recognize that some very 5i~nificant client issues have occurred, and fully expect more will emerge as cl1ents reconcile, hear from their clie.nts etc., and generally lose pati ence. 

We are enhancing our customer service capacity and working with global 

colleagues to leverage Group resources to assist in this process and will provide updates as to the number of inquires and scope of issues. At this point we do not have a good estimate of the monetary impact of these issues. however we will track and report on them as we begin to collect. data. 

In sum, this has been an enormously challenging experience for all our staff, 

~~ r t~!~~a~eh~ i ~ ~a~~ed~e~l~ ~~~~e~m~~~t~~~~1 e~h~ndl ~ ~~tdu ~~~i ~~u~~d u~p~~e~i~~~te 

h~~e}~it th~~ ~~~e e~~ni s i i n s~~~h~t~~a u~h~~d w:o~~~ nga~~ t~oY~h~ hi~~of~~~i ~f are 

servi ce and support you and your clients have come to expect from us. 

please do not hesitate to escalate directly to me significant client issues so that we can ensure that we are properly prioritizing our efforts in the coming 

days. 

Michael Gallagher 

Michael B. Gallagher Executi ve vi ce Pres; dent Global Transaction Banking 452 5th Avenue New York, NY 10018 page 2 

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Tel: 212-525-5680 HSBC-BNLE 0396878 

THIS PAGE IS 

INTENTION ALL Y 

LEFT BLANK 

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760611.353

00 

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(-.J OpR - Key Risk Indicator lKRI) Details 

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(~~'l(jarr~t 2%~'" 

~~if~~~~].V&JIlli\m1i{f,ft>:&:,!gh'J~JI~~,[,~~~Ei.ft6j,"!:1 

1llr~~Bni% oftnresho!d Of 3% of alerts 

i.I, ~ ,-

&~Fseara~~'Oe:w21se!ect 1121~~~;;-'~JI100% of threshold or4% otaferts 

l~~~~~~!ILe.s!ey.MJd:?aii1f(zrus'.hsbc com'CtiftCun·fliQgli;:Hji@Us.hsbC::Coiji./::·>,.'-;~_;~ 

Page 1 of1 

KRI Details ver#7 

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760611.355

From: GYANEN KUMAR/HBUS/HSBC 

Sent: 6/11/2007 4:32:00 PM To; US BANKNOTE DEPT SALES TEAM 

HSBC-BNCE 0025463 

CC: "HANAN OFER" <HANAN .OFER@US.HSBC,COM>;"DAVID WILENS" 

<DAVID.M. W!LENS@U5.HSBC.COM>; "ALAN T KETLE.Y>! <ALAN. T. KETLEY@US.HSBC.COM>; 

"CHRISTOPHER LOK" <CHRISTOPHER. LOK@US.HSBC.COM> 

subject: Re: Cas a De cambia puebla 

~~~~~~rn~~~i ~~:t I O~~v!1:di~~u~~edUih~~dw~i~i ~h~S cf~~~~i~{ r~!~~. cep stands unti 1 

Feel free to speak to me if you have any question. 

Thanks 

Gyane.n 

From: Gyanen Kumar 

Sent: 05/30/2007 10: 57 PM EDT 

To: US Banknote Dept sales Team Cc: Hanan Ofer; David Wilens; Alan T Ket.ley; christopher Lok subject: Casa Oe cambia puebla 

With immediate effect we are suspending all activity with the subject client. 

I will speak to you in the morning with more details. 

please treat this matter as confidential .. 

Thanks r' Gyanen 

'---

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HSBC-OCCE 0203248 

From: ALAN P WILLIAMSON/HBUS/HSBC 

Sent: 11/12/2007 11: 52:45 AM 

To: LEOPOLDO R 6ARROSO/HBMXjHSBC@HSBC 

CC: DANIEL JACK/HBUS/HSBC@HSBC02;GEORGE TSUGRANES/HBUSjHSBC@HSBC 

subject: Re: HSBC & Casa de cambia puebla in Mexico - Negative press 

will do 

Leopo 1 do R BARROSO/HBMX/HSBC 

11/12/2007 11: 50 AM 

Alan, 

To 

Alan P wi 11 i amsan/HBUS/HSBC@HSBC 

cc 

Dani el Jack/HBUS/HSBC@HSBC02, George Tsugranes/HBUS/HSBC@HSBC 

subj ect . 

Re: HSBC & Casa de cambia Puebla in Mexico - Negative Press 

I would prefer if eMP performs the search, and if a customer is found to inform and Lake actions with the business specifically for the particular case. 

Regards 

Leopolda 

Alan p williamson/HBUS/HSBC 

12/11/2007 10:38 a.m.' 

To 

Leapol do R BARROSO/HBMX/HSBC@HSBC 

cc 

Leopo ldo 

Dani el Jack/HBU5/HSBC@HSBC02, George Tsugranes/HBUS/HSBC@HSBC 

subj ect 

Re: HSBC & casa de cambia Puebla in Mexico - Negatlve PreSs 

Thanks for this, we will forward to the internal compliance group that performs such searches. To clarify, it is your understanding that we cannot share the 1 etter with the bus; ness? 

Alan 

Leopo 1 do R BARROso/HBMX/HSBC 

11/12/2007 11: 26 AM 

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Dan; el, 

HS6C-OCCE 0203248 

To 

Dani el Jack/HBUS/HSBC@HSBC02 cc 

Alan P will i amson/HBUs/HS6C@HSBC, George Tsugranes/HBUS/HSBC@HsBC 

subj ect Re: HSBC & Casa de cambia p'uebla in Mexico Negative Press 

I could not respond earlier as I was away from the office; however for practical purposes HBMX received a seizure warrant 'issued by the Mexican Attorney General of all "(CP" accounts, and other presumed related Rart;es (91 

total) I linked to Money Laundering counts. As at last Friday, HBMX froze all related aCCOUn1:5 (8l customers), ceasing any banking relationship. 

I am enclosing a copy of the seizure official Letter so That you can verify any relationship with probable involved parties in HBUS, this letter is inscribed as extremely confidential i please, limit disclosure only to CMP staff. 

will talk to you tomorrow. 

Rega rds Leopo 1 do 

(- [attachment "offi ci a LLetter. pdf" del eted by Alan p will i amson!HBUs/HsBcl 

"-

Dani el Jaci(/HBUS/HSBC 09/11/2007 03:43 p.m. 

TO 

Leopol do R BARROSO/HBMX/HSBC@HSBC cc 

A 1 an p wi 11 i amson/HBUS/HSBC@HSBC, George Tsugranes/HBuS/HSBC@HSBC subject 

HSBC & Casa de cambio puebla in Mexico - Negative Press 

Leopoldo, 

How are you? 

We have reviewed this article today, which mentions ccp in Mexico. You may want t.o review your accounts and overall relationship in HBMX with them in light of reputational and AML-related risk. 

could you please call us on Tuesday next week (13-Nov-07) at 12:00 noon NY time, so we can briefly discuss this? 

please let us know if you have any more information regarding this MSB. 

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HSBC-OCCE 0203248 

Mexico raids money laundering ring that bought drug smuggling planes in us 

The Associated Press published: November 8, 2007 Mex; can pol i ce captured a man on Thursday that they i dentifi ed as the head of finances for the huge sinaloa drug cartel. working in conjunction with u.s. authorities, Mexican police arrested pedro Alatorre Damy and raided a currency exchange business, targeting a ring they said used laundered money to buy airplanes to smuggle drugs, the Attorney General's office said in a news release. 

~~~~~~~d ~~m~~xi~~ ~~ ~~ ~~e~e t~~i:~ i ~~ ~~~~~ ~~~r:z~r'~~;~~~i~~et~~ 1 U~$2. 7 mi 11 i on (€l. B4 mi 11 ion). accord; ng to the publ i c safety Department. He is bi:!ing held on 5:U5Ricion of money laundering. police in Mi:!xico generally have 48 hours to lodge formal charges against suspects. A total of 74 people allegedly participated in the targeted money laundering 

~~~g bfw~~~~e a~1:~~~~1~ g~~~ ~~~g s~i~~a i~ ~~~t~~~~e~e~1~ciei n t20~~? wiihP~~~~s 5 metric tons (5.5 u.s. tons) of cocaine aboard, while a smal1er aircraft all egedly acqui red by the group crashed earl; er thi 5 year wi th over 3 metri c tons (3.3 u.s. tons) of cocaine aboard. Later, police raided the Casa de cambio Puebla money exchange business at the Mexi co ci ty i nternati anal ai rport I and detai ned three employees on suspi ci on of money laundering. 

The sinaloa cartel, formed by an alliance of drug lords, i"s one of two main trafficking organizations which have engaged in a bloody battle for control of ? shipping routes to the U.S. market. 

\"-

Thanks and regards t 

Daniel Jack VP - AML compliance for Global Banknotes & Metals HSBC Bank USA, NA 452 Fifth Avenue, 7th floor, New York, NY 10018 

phone. 

Email. 212-525-8686 

dani el. jack@us.hsbc.com 

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HSBC Bank pic Memo 

To Date 

Denise Reilly 14 November 2002 

Geoff Armstrong 

From Sender's Reference 

Maloobn Eastwood 

CC 

Pat Conroy 

Marilyn Spearing 

Quentin Aylward 

Rod Moxley 

Paul Proctor 

Steve Webster 

Nigel Weir 

Jobn Chappenden 

Subjeot Receiver's Reference 

COMPLIANCE- OFAC ISSUES IN GENERAL AND 

SPECIFIC TO IRAN 

To Facsimile No. I From Facsimile No. Total No. of pages 

020 7260 9796 

This note forms a discussion paper formulated following various conversations that have 

taken place over the last few weeks. As the custodian of HBEUs payments operation I 

currently feel tbat 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. 

As a result there is a need to firstly clarify both the OF AC and HBUS position with regard 

to these payments and then to determine!conununicate the way fOlward to the RM and 

PCM Sales teams. 

I would emphasise that in no way we are seeking to avoid the OFAC filtering/sequestration 

arrangements here. Indeed whilst HBEU are not bound by these requirements the FATF 

principles which are scheduled to become legislation early next year and our own 

payments filter which is currently being built will take us cIoser to the US model. I merely 

wish to establish which way OFAC are looking to deal with the sequeslration issue so that 

we can plan compliance and avoid substantial potential losses which can result from the 

~'incorrect" processing of these payments. 

BACKGROUND CASES 

The above comments are prompted by two high profile OFAC related cases seen in the last 

few months. 

The fIrst is a case involved Ing Bank sending a payment for USD 3M to BBVA from and 

to the account of the same Cuban Bank beneficiary. HBEU forworded this payment to 

HBUS via the Serial Payment route. The HBUS filter identified the Cuban bene and the 

funds were sequestrated by OFAG. The result of all this is that we are in the closing stages 

of correspondence between HEED and Ing lawyers pending a Court case between our two 

banks. Ing are contending that HEEU should not have sent tllis payment via a Serial 

method and that we should have converted the message to generate a cover payment which 

would not have then been sequestrated by OF AC. We are defending our action vigorously 

and have a strong case built around the fact that we "paid as instructed". Pludence dictates 

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( 

'--. 

that we have- found it necessary to raise a general provision of GBP 2M to cover a potential 

negative result if and when this goes to Court 

Continued 

2 

Compliance - OFAC Issues In General And Specific To Iran 

The second case involves Iran and Bank Markazi when a payment for USD 7.5M was 

frozen again because the payment was sent via a Serial Route and the OFAC fllter 

identified it as being subject to OFAC rules. Following assertions by HBEU that there was 

no commercial transaction involved (this was the Iranian Central Bank paying itself at 

another European banIe ie a Money Market transaction) these funds were released but only 

after a couple of steepness nights for all of us in London. I have subsequently been 

advised that this sequestration may have been the result of a clerical errQr by HBUS but 

this has not been confumed to me. Nevertheless HBEU are left settling Standard 

Chartered's interest claim for late receipt and with an underlying feeling of lll1certHmty 

with regard to the Iranian payment issue and the subject of U Tum Payments (we believe 

that the above payment should have been treated as U Tum) and had thought that this 

practice was established in the US as a valid payment method specific to Iran. 

COMPLIANCE WITH OFAC ISSUES GENERALLY 

HBEDs historical practice has been to send these types of payments where the U Tum 

principal applies (ie funds are generally moving from an European bank to another 

European bank for the credit of an OFAC regulated entity) via the Cover Payment method. 

This means that t.l:lc payment instruction received by HBUS contains no mention of the 

country or entity involved. My understanding is that this has been accepted practice for 

lIlany years and that HBEU IBL hold accounts, some in USD for FIs domiciled in these 

countries ie Cuban, Iraman etc. 

There is also evidence (the lng Bank case being a case in point) that some other European 

FIs are using HBEU to transact business with these banks} primarily because the benes 

hold accounts with HEED but also because they use us as a form of "Filter' for payments 

being made to the US. Whether we should be supporting this latter business guing forward 

is higbly questionable particularly in the light of the F ATF regulations. Indeed Ing Bank 

will be asked to close their account shortly. I feel that there is a need for HBEU IBL to 

txamine the accounts of these OFAC regulated customers to see if there are other 

examples of other banks with accounts in our books using us for tIns purpose. 

My understanding is that OF ACs tolerance of the Cover Payment method is lessening and 

that there is some pressure being applied to follow the Serial Payment route for all 

transactions (Denise can you confirm!). Clearly if this is reality this will have major 

implications for HBEU both from a payments processing and lBL relationship stand point. 

We therefore need to seek clarification of }lBUS!OFACs stance so that we can determine 

our future payments strategy. Certainly the FATF requirements, whilst not specifying 

Serial instead of Cover do point toward the principle of "transparency\! which the Serial 

Payment method would support. 

Continued 

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Compliance - OFAC Issues In General And Specific To Iran 

IRANIAN PAYMENTS 

Turning specifically to Iran we bave seen the various papers on the subject of U Tum 

Payments and I believe that we have a reasonable understanding of what these are. The 

above Markazi situation has put uncertainty in my mind on the validity of this payment 

method and also highlighted the fact that HBUS have yet to formally "sign off' the process 

described in your last note. Our conversation suggests that HBUS are now looking at 

another .. u Tum plus" option and I would like to understand what this means for us as 

payment processors. 

I believe that we need to resolve this issue as a matter of some urgency if we are to avoid 

incidents like the one highlighted above. The Iranian banks continue to send us what I 

describe as conditional payment instructions whicb for HBEU require an element of 

amendment by ourselves. This introduces operationallisk and under FATF principles we 

should not be amending these payment instructions. Acceptance of these items over many 

years means that we are bound by the precedents currently in place, and I believe that we 

need to break these precedents by 

1. Establishing with HBUS and OFAC the validity of the U Turn Payment 

principles for Iranian payments. Whether this be by U Turn or U Turn plus I 

would liI{e these to be signed off by HHUS as soon as possible and ceTtainly by 

no later than 31112102. 

2. To agree a "template" payment instruction for these U Turn Payments which 

can be used by PCM Sales and the RiW team and sent to the Iranian Banks 

stipulating that payments must be formatted in this way, confirming that we 

will be sending these via the Serial method and that any deviation from this 

template will be at the Iranian Banks own risI{. We would also have to state 

that the validity of this template would be subject to any change in OFAC 

legislation in the US. In this way we can give ourselves a level of protection 

from claims relating to capital or interest which may arise from funds being 

sequestrated or delayed as a result of OFAC seizure. 

If we cannot achieve this in the short term then I will have to recommend to 

my General:Manager a view that processing these payments is "unsafe' and 

that these items should be filtered out and cancelled. This would have severe 

repercussions for our Groups relationship within the Iranian FIs. 

FUTURE BUSINESS STRATEGY 

I believe that there is a need, based upon your responses, presumably formulated in 

conjunction with your colleagues from Compliance for HBBU to consider its business 

strategy for the continuation/development of its business with OFAC regulated countries. 

Whilst I am told that there are significant business opportunities particularly with countries 

such as Iran there are also substantial Reputational and Operational Risks, not to mention 

Financial losses associated with it. 

Continued 

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\... 

Compliance - OFAC Issues In General And Specific To Iran 

Whilst I am not suggesting that we should discontinue these established relationships there 

is a need) in the light of the charging reguiatory climate for us to review our position and 

ensure that we have a correct balance between risk and reward. 

I apologise for writing at some length but there has been much happening on this front 

recently and I thought it appropriate to try and pull all of the somewhat fragmented 

information together and to share our concerns with you.. 

The only certainty from all of this is that we cannot delay and prevaricate in this matter for 

too much longer. We have seen potential losses in excess of USD 10M in the last couple 

of months and itisnow time forHBUS to define exactly what is and what is not acceptable 

to them. 

Your views and those of your colleagues in Compliance would be much appreciated. 

Regards. 

Malcolm 

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( HSBC-BNI_E 0378354 From: RICHARD C BOYLE/HBUS/HSBC 

Sent: 1/9/2006 12: 09: 42 PM 

To: MICHAEL B GALLAGHER/HBUS/HSBC@HSBC 

CC: 

subject: Fw: OFAC- compliance with sanctions Gel 

Mi chael 

I sent this to her on Friday as she was desparate for a meeting she was having with compliance tommorrow. Her fee1ing is that this is better coming from Group than us. I a9ree but after the ABN incident, I don't think we can conti nue to do nothl ng as we have been. 

I'll send the Q&o. and conversion guide next. 

Richard C Boyle Global payments and cash Management HSBC Bank USA 1 NA 

Tel 212 525 6492 

Fax 212 525 5699 ----- Forwarded by Ri chard C Boyle/HBUS/HSBC on 01/09/2006 12:06 PM -----

Ri chard C Boyl e/HBUS/HSBC 

01/06/2006 12: 15 PM 

To 

Mi ehe 1 e CROS/HBEU/HSBC 

cc 

Bob shetty/HBUS/HSBC@HSBC subject 

Re: OFAC- compliance with sanctions Gel 

Michele 

This is somethin~ we were drafting to show Michael {who has not seen this and does not know we re working on it). please donTt share it. I'm sending it to you for background. when we do send it to him it will be with a recommendation that he send it to the CEO's with a date to convert to serial or take the cover payments to another clearer. Bob says this is not group protocol and Michael probably won't do it. 

I'll send the Q &A vl ad 1 S worki ng on and the conversi on gui de next. 

Rich 

On December 19, 2005 1 US Federal and state regulators imposed fines totalling US$ 80 mi 1. on ABN AMRO Bank New York. The regul ators have assessed these 

fines based on II findings of unsafe and unsound practicesj on findings of systemic defects in ABN AMROfS internal cOlltrols to ensure com~liance with u.s. 

anti-money laundering laws and regulations, which resulted in failures to 

~~~ii~f~~t:da ~ KZ~;'a~~~c~{~~~t th~~P~i~ i~~edc0~~~ 1:;a~i~i ~~s f~ ~~! ~~s ~~~~c~~Np~~~~ Release dtd Dec 19. 2005). 

Further information related to this issue can be found at. the following website: 

http://www . fi neen. gov /abnamro. html 

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c 

HSBC-BNI_E 0378364 

ABN AMRO Dubai used the; r usa nostro with ABN AMRO New York to process USD 

payments originated through "special procedures" that were executed in violation of us sanction laws (OFAC). specifically, ABN AMRO Dubai used cover payments as a method of masking Iranian and Libyan financial institutions as the or; gi nators of USD wi re transfers. Thi 5 was based upon an ill i ci t process· 

i~~~;~~s a~dt~~by~~ ~~~k~U~h!t m~~~~e~~~~r~~~~t rn~~~~~ {~~tfi~~; ~~~~ti~~e o~rQcess was spec; fi call y desi gned to ci rcumvent OFAC sancti ons. 

~g~i ~~c~ft a r~T~~~~O;~o~~t~ill b~ eh~ia ~~~~~~~f~l ~ ~~~c~~~n~~a~~~~ti~~s U i ~ USD 

!~~tA~;~ f t~~d ~~~be B~~kl w~~~e Y~~k t~~tgr~~~~ fo~~edd~~ t~i~t~~ 1 i~e a~!~d~nP~~~i ~y correspondent banking business as was union Bank of california sank. 

~h~~~~;~~y ~~~i g~~t~~h~ ~~~k. be~he t~~~~o a~:i ~~{, :a~~~e d~r~~1~~d ~~~n~a~~ase and desi st order prohi bi ti ng cover payments. 

In this connection T we would like to refer you to GHQ Gel 050047 dated July 28 , 2005 which states inter alia 

Rev; sed pol i cy with immediate effect, all Group offices (including those offices incorporated or operating outside the us) must refuse to part;c1pate in any transactions and activities, or make any payments denominated in USD, which, if carried out by a us person, would be prohibited by any OFAC sanctions (except for the specific 'U-turn exemption' relating to Iranian sanctions discussed belovO. 

when consi deri ng transacti ons for compl i ance wi th these saneti ons t the transaction as a whole should be considered. This requires that where any transactions involve the use of cover' payments (MT202s) any linked message (e.g. an MTI03) should be considered together with the cover payment. 

~~~i y~~~n~h~h~iA~ n s~~~~i~n~h~n~r~~~ 1 i ~o~C~!~al ~s t~~ ~~a~~a~t~~~. ci ti zen" in 

For purposes of full transparency in front of us regulators we urge you to the execute your commercial USD payments as serial payments in which all payment 

party details are advised through HSBC Bank USA, your USD correspondent. Thi s wi 11 allow our automated transacti on moni tori n9 system to appropri ately analyze all group transactions for suspicious act;vlty that would otherwise be hidden with the cover payment method. This system goes beyond simple OFAC checking to detect repetitive transaction trends indicative of money launde.ring or terrorist financing. This will assure regulators we are doing everything possible to comply with their requirements. 

In the past t there have been valid, customer sensitive reason:; for using the cover payment method for customer rem; ttances. These have 1 argel y been addressed with improvements to the us clearing system hours and enhancements we have made to our payments process; ng. Attached is a Q &A that shoul d address any customer concerns. 

Also attached is a list of transactions processed by your bank that we believe are cover payments. This should help identify the specific area in your operations whose procedures and systems should be modified to comply. -This report will be provided monthly to allow you to track progress on conversion •. 

Richard C Boyle page 2 

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c 

HSBC-BNI_E 0378364 Global payments and cash Management HSBC Bank USA, NA 

Tel 212 525 6492 

Fax 212 525 5699 

Michel e CROS/HBEU/HSBC 

01/06/2006 11: 11 AM 

To 

Bob shetty/HBUS/HSBC@HSBCAMERlCAS, Richard C Boyl e/HBUs/HSBC@HSBC, Mi chael B 

Gall agher/HBUS/HSBC@H5BCAMERICAS 

cc 

James J Y MADSEN/HBEU/HSBC@HSBC, Gary BOON/HBME/HSBC@HSBC, John 

ALLISON/HGHQ/HSBC@HSBC, David W J BAGLEY/HGHQ/HSBC@HSBC 

subj ect OFAC- compliance with sanctions Gel 

Gentl emen, 

could you provide some urgent assistance to help us confirm to group compliance that there would be no commercial penalty to shift to serial payment methodology for either HBUS or any other group companies. Group compliance is having a closer look at the above Gel, with more specific reference 'to the recently published details of the ABN AMRO Enforcement Action. They are consider whether it. is appropriate. for us to move to use of serial payment methodology. Group compliance needs to give opinion to Group CEO by next. friday. Appreciate your urgent reply. 

Regards 

Mi thel e 

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To: Curt X Cunningham, Anthony Gibbs 

From: Carolyn M \Vind, Teresa Pesce 

Date: Mareh 7, 2005 

Report: Monthly Private Banking Compliance Report For February 2005 

1. Introduction 

2. Compliance Incidents 

(3) New Reportable Events: 

(b) New Issues Arising 

(c) Update of Previous Reportable Events 

(d) Update orPreviolls Issues Arising 

January 26, 2005 2005 Comphance Report GUld3nce 

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t 

Redacted by the 

~manent Subcommittee on Investigations 

Personal Holding Company Bearer Share Certifications: Ten accounts remain frozen due to missing 

Beneficial Ownership Letters. Relationship Managers have been notified that they have 30 days to obtain 

these documents or the accounts \yill be closed. 

3. Compliance Related Audit Issues 

I Redacted by the , 

~ ~ent Subcommittee on InvestigationsJ 

4. Regulatory Reporting - See Attached Updated Regulatory Reporting Spreadsheet 

5. Compliance Initiatives 

• HPBI (Miami); 

1. Complex Relationships - Officers have been requested to provide detailed memos regarding the largest 

relationships. There were a total of 44 relationships, totalling 761 accounts. Memos properly document 

relationship between multiple accounts, purpose of eac·h account, etc. 

2. Updating of KYC Forms for "most active" clients Officers have been requested to review and update 

KYC Forms for "most active" clients (those ""lth over $10 million in activity during prior year), A total 

of 93 accounts reviewed, 

Both of the above mentioned reviews have been added to the annual review schedule. 

Redacted by the ," 

Permanent Subcommittee on Investigations 

Jm\U..try 26, 2005 2005 Compliance Report Guidance 

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Redacted by the 

Permanent Subcommittee on Investigations 

6. Compliance TestfReview Update 

Redacted by the 

Permanent Subcommittee on Investigations 

7. Significant Leglslative Action 

8. Customer Complaints 

January 26, :W05 2005 Complwnce Repon GUldance 

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Redacted by the 

l'ermanent Subcommittee on Investigations 

9. AML Update 

Suspicious Activity Report ("SARs") Statistics February 2005: 

Redacted by the 

Permanent Subcommittee on Investigatic 

10. Resource/Training 

January 26, 2005 

a. Compliance Staff Training 

Compliance-staff have attended vanous AML and Industry conferences. 

h. Business Unit Training Conducted by Compliance 

• Business units continue to deploy the 2004 HBUS AML Video training program. As of the 

end of FEB05 the overall completion rate was 92%. All the business units arc working 

towards reachmg the goal of 100% by 31:MAR05. 

Regulation W (23N23B) and Anti tying training programs are in the process of being rolled 

out to applicable business unit staff. 

c. Resource Update 

General Compliance: There arc three open positions as follows: 

• IPB NY Compliance team had onc resignation dunng the month. Recroitmg efforts have 

been irntiated to fill this positIOn. Efforts continue to fill the open DPB NY position 

Efforts continue to fill the open California compliance position 

• AML Compliance: There arc five open position as follows: 

There are currently three open positions for New York (1\\'0 ~ IPB, one - DPB). It is 

anticipated that all positions will be fIlled by the end of 1Q05. 

• There are tv>'O open positions for Miami. Management is actively recruiting for the first 

opening. Expect to fill pOSItion by early 2Q05. 

2005 Comphance Rt.-'POrt GUldance 

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January 26, 2005 2005 Compliance Report GUIdance 

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Redacted Material - Bank Examination Privilege 

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CAROLYN M. WIND 

__ .. Redacted by the Permanent 

Subcommittee on fnvestiglltions 

Jeanne G. Ebersole January 22, 200B 

Executive V.P. w Human Resources 

HSBC Bank USA, NA 

Delivered 8y Hand 

Dear Jeanne: 

! was to!d on November 30, 2007 that I was being terminated effective 

the fact that the Board had lost confidence in me. 

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Sincerely, 

Carolyn Wind 

-_ "" Redacted by the Permanent 

Subcommittee on Investigations 

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From.; Ramor. GAHCU\ 

Sent: 'rue No'J 2217:31'58 2(}()5 

it): John r ROOT 

Subject H2, Marro: Re, H8t-,~X .. COM?t!I',!'!CE ISSUES 

Importance: Normai 

At"'.aefifTItHits.: Doc Li'ik,Mtm 

john, 

tt:lJllOl) 

A!: 11n~minnCII 1'1 :I'm! Rlrlvtr<11'.'11~ l'lMic ilWill'C ot ~ mlmher nfconljl!lllnc,", i,~l!(:<; 

q...IInu$lIis l'e.:;eUl, \.J"l t1~ier..,.i~ii 1c HBMX, I! !Jl';)j be iiM\ a m,JlHbef of 

:!~$¢ are :llft'~!i' r,",1.~w:l ~¢ YOll J."A/c~ i~ tll<C: )l;cce~t ofb:i:~ ~:~ob:d, hu! 

II "'Qui!! b~ I~]pllli !(J gaD 3n u:utcrstal1cmg 01 W:'lIOrc \1IG an:: witl) NgJrd 10 

(t.e kAkmwl.,\' i'~<n::rXictmrd lmd a m~cling v.lllh CNfsV. T,ir.rc ,lppc:m· to bc: ,Qn1C dis:]'.!!!;; ollthz 

part ofC'h'DV tbat v.e: hnld. wilh ,he in;~ressiil'n J~la! Wf wo-uB C0i'i!lnue (o') 

h(~td .. 1l jiH hf flU SC'C~ "'\l;n!r!I!'!:d by HfiMX \~-F'ir. GHQ Per1tl!ps n)~ M"i(lU~ 

iouri '1!"sm~ Inert ""11$ some $CI'siliv~ty )(' Ihis. J,)anKlllariy ~)vcn tint 

Hlv~';: SCC~ W.;l,;!(j. ilt;;l,Jd.: loq:,l ~r;,til1dar;.; ill..:.! (<vl<1tl~, i lJ,~~' tr~t we .1;:1 

l(lifl:!Hy eDlt<;i<:kr '!.~ P,1]'<: <)fil'lpk<'llc!-rr.~tjln J-i8!I.U.-s ~CC (:H,I<1!11er !nw. tJ~11 r 

~aI not ilwae Ihat we re~<Jrly recein' delJ.ils oW:e!: 6::hlil~ nor .. :ere we 

l;w\:'l"ec m thc~r .. PF"" .... ; 

Tn~ C'N'PV 1m ('nly vt:1b"ily r,p..eIi Ihi~ i~sul'd, f>iEV d1lfli not \\,;;111 l .... iX secs infclT.!::iiol'l i::~ !...c:u!o::, 

Ii JI)j!c')rs :1'..:\1 \'eliil$l.crc~j; c..1:r.it l!an;.:ac!'OIBi j'~, M will be r,.'-":':;5~il .)1, tbz UK 'Arn,r! ~~!"!cr tl1C ;~~ti!lg Cfl~ r::!e\~l.lt :rJ:"OSdgC~ plmca th..'"\}~£h t~ 

L51ml, Hthls:s lIlt cas: UX'!l we.' mav stitlll;l\'c an iSSIlCd:"PO:HU;.'1)l on 

110\\; uuch l:l1Crven!io[l is 1hcor.::fka:ty p,y..sib!e. on ,I:e p,"ll cftb~ us. ;f~. I 

"'Q!\1er if y!l'~ could cbc-:k !his ,...!t~ R.!..<!l<"!~ ll.''ld.!'.l! Hmo. 

Whir! tmmil,:ltOu; iU'e rvutcillUrvl..tgb It!" US ,.kIT lhc ira;}5.a(liu)l.~ are 

(l~":'~'\"~~ rOt ~ 1'r~(l1['IJ('lfil $\'({'no fa, !¢tl;r'r.a!1~r'O:, !'} !he UK, >\ !O.!J, !11e 

~o".l!d pass~bl'Y eXlSl u'aen: mis 1i'"-Ilru::JCtiC'tlS como b!: i1XJl!T«i by IT mird 

~8r1J' 

i was aw;!!'C' L~l cn:dit '<ird 5tlltalll:'lItS <I:' ~lIn l'C:illH ~Hifl:co;i in 1:1C US, 

but f W{;l'\d!-r ~~(h·!r w= lli::\'e Ii d:::i1nile d.:;:e by which tll:s \~ ill Ct:t1~, 

Cm:ir \;,jnJ }lai"lI:t;(l~"~ ~}ril)lt:,.l)u M~.\~I;.I HSMX C\Jm~Jidm,C u .. i~c(et1 dlili 

P.8~bo!{! W~ h8\'ilti! remote !!;:ce~5 10 HBMX M!~ in Whir1. We hJ"::x:e!!i.:l,dy !~k!. 

them to stop. The IS!.UC lS tl'l!!l H811-L'\. mlf'm)aMn"" rou:ccll!lrousll It",: U:, ~nd 

!l(\'\~~hu)c ... uuld hJ.\'( (CHill'!;;' a\:";~~.i.! VUI' jl\lvj)~ .. \i~1J ,bthi.;:ikJ in UK 

ll)('rt: ~ .. t~'Parell!jy il CSYl11311 fsl:mcts brallcfl i'lO'" mu<:h iuiQ,\<kdgt do we have 

of!hi~ O~::-"tlOJ.j 

Confidential - FOIA Treatment Requested by HSBC 8ank~ USA, N.A. HSBC acc 8873261 
1541 


760611.374

There It a C3yman lsi:mn br~n[il for HDMX. Stu there is a ~s~riclion by 

Mo:ic"ij Ld'i'i ;0 0I-")i';'~COii<r'" (i:' l'Jailu;mb lit usn, cX0Cpi fu; :llu.;e "t~i.1';'g 

[" jhe Ne:do'! b'Dmer, ~S;tll !l1::"1~1p.rr: fC'mlt~ Hal1("~ in!"nli'lt'OJl9,l r:!c-c,rlto:i 

IC OlX'lllllls bra-nch where dx:qucs ~C:{)!.llm III Nationals ca-uici 'Ln CJu>:I1Cq in 

lJSC!. 

11 i~ "l!>{) kl"Hy.l'flll,~l these usn JIXOlJn~~ w~re i~sn<"!rl ,,1<:('1 t(lll~n Mc"k,l\l 

N"li'-'!l.i\j~, 

lIFlMX iI,i~ Tr~pfl~l~ihilit." for f';'~ll!lll;l M:' rl'(:olleClioll '-'"tl<:. lJta! 1hi$15 11 ;oea] 

inCOl"pfjr,aliGfl., ("oul'] j'Chi cordirm h~1J iJ'j( j~ <J IO ... d;.~ :!;curp(mlltO 

::::1::)' &; ::-ul::;::cd~t:s lor P'':'l!;l\l:n p;:s~ l!;r.lUgh t!~': US." TP g:\l~'"':~\Y 

Tnere ap~Jl's IC· ~ II Prtllllrr hl!-cmall(lll<tl op:-r.Jl1c.ll ill Me;>;IC'!), 

'{"U C,lil 'lKd .• , i,:' St-.ir<lZ. tal my ,mdcf$t.iu..dmg of ;1;.,;; f'tt;mc(' ~mcrn;ilic,nal 

C't<~~lJ'-,!!k! n.:[,-rrd PWgUHlHl!t w,):~ thai r~j$t!n? rdJllions;}ip:; todd tlt 

~ay, rererred from Frii.nCCio M~l.ko. bt;l wl1~:ll .ft(;l\: \J,'~3 g;.:nuinc hl!t·Jll.kli 

>::c;rulc;:~ic.n wi.:h "Mcxiw(i.c .. :>Cl",cb.;;dy mo...,i:~$. (h::n) i'lnd ;::llhc b~i~ t11m the 

(l;'ietT'ill ",~~ ,n 

reh~lion 11} all e~i5jm~ -:=usunner. There apv-e31"!O \0 be !>(l-ll'" J;UJ.;~1:5n()H thm 

F:~l',Ce:ire in ~he: pl1',c(k(: cf~t;1:En; .,. .:"t.!~ !'\ ~r~b 1t) M('~;i;,.o 

Pr'(:mlt.:~ Nk:>:ico ;~ :J.::>killg •. bl: v\l'~~ibili\y [or"p.;uJ'1@: ilIl $.C-~'U\ Ilt ,n Hm,,:X !errd{~!:' i:·cr.: :mc:t)~TtCl!t;t')' t{l :;'~l nml H::'B!' Dl~~mn:r. ·n'.:':' m:":nd1:;::~ ,!~l~'r.~r 

",:is EP. Ot!r ufll1e-~!ancllj!~" was irnl Ul1~ ore-duCt wa<; Itf}m~ If.< oe QlJerea;r; an 

,ldd![\onJJ sel,\·jce Iv dlr~,:i;.' lllown ESDC cusloricrs -Will1 ci\isring 

r-eb<t!(}!".shir~· 

RILlwJ ",a~ wildt <n~'1[r !.lllhe 10.(\ thil~ Jl'J:'iey enlJ.lS} Jllf~h\ 'ye ~O"lrmy1;ltinJ-; 

t~ cre!Uto~, <If:! !",:~, -c-m<.:e !'1 Me .. ;icc· \t11!~t ,!l!S. 

wdl rcqnirc a (iSM J.1 ?rQCC~$ II may be: wDrthc;1CdQl1g witll Y.ark l.:tyicor 

pn:;iscly wliallS intf;r •• il:d ";;11-.::;, he g;:i; bek til :hc t:·ffi~':. 

Andrea "Wij:6~or Kill lin c·ma;! \0 fC"m~lIIdo BHsncil(1 ",tid my·xifln which is 

~'iu.;s:ing ::0<. ~'f .. )"rt:ll"t-:'''l~ rilr HBm jn cp:r. a fC"P. oIT";cc: a:, BTIl;-;~, 

All5enllr.s ~,~1 Mui;;<"I-l'l5 [ltl nhenl1'!li>:e \(1 HI(: relerr;!i process No further 

qUil!ries~tfiyed 

11 ')P)1f:~j-<, -h.1.1 \II-e Me like-I.\' !fI he noea in re:Il!)Gn [O!l !;);:k or KYC jbr 

I.rahi ~-lIJU i!!,'l:kl~ i~ llih >VlIl>:l.hHl~ ~,rll-i:.!th "'0:: <In: ""'410;:, 

! :ruume '.' .. e h~l'~ ~ Cros~-bord'!r M.~!!--..rlbg G\li~ l-!;!'lpl~!e c('!r-phled fer 

]\.k",!ca. and Ulal ~hi\ rcqture5 n\>lne~ 10 be merna 1(' (he ACn (r wi!! bl': 

Ilelpful if~\ll:i -tou!d :hc~k ;Ili,i satisfy yvumlfthat it is IJP-!t>--dalc. 

JIoprar,:,!'l(!Y 'h".rt<l1"1'- ~ignmr;>;tf :,q .... ; U,'ifl) 11'~<lro 'n ,he !l~C nrCAMP !!Ild 

tile movtnr. oi'mO!lC'{ iaJnderim~ miQ:nJilticll cfa~:Soboruc[ ~ ~~ lius 5!XllL"!:,in:.; 

Confidential ~ FOIA Treatment Requested by HS8C Sank, USA, N.A. HSBC acc 8873262 
1542 


760611.375

Di!i!j' ::<' .. -:5<lctic~:s rrcmHof.!.;l.'1 which lZ- :1::: l':!:l.i:, o:ltlbn; lwli-::ali':m for HBMX 

af(" Intnsicm:alO ate>!l rlk.ljl!~ ~flIllC me m~cr.; !alhe UK lhmugflOlll 

lUI,:,,;,>yi!.c.fIliOl)lulOl'.li.-.s CunheCI CIT';':;, $.;cl.mry F"1<l5.:iiilii ~w1kail0', 

e~'Yp(s. ;hc IC~.I !:!~,'!:frllg :his !~.~"elm,; A~!-erw~~d!.llle <:!!-:rts iWl!d by 

tl1c.oct1:C110l1 f)I'(!CC~~ an: aCpii:{l'tj by CA!'.1P. trIuS rcs.KiHig 1:\ Tile Dr( 

rnere SN-n\; lc be ~0[1~ sll!!~e~!ilJtll.i.\~l ; .. ,>w\X>ido, win j bdli.,",'e hils i~ tak!1l 

ill=' .he 3~iriur Al'>1:L- p(1s;t:"n. m,,=y t~ m;:.'¥"ine; vll, \;; \1:;$ ::.cm::thi;)k: "f ""'men ;'01,1 

hitl.it' "'\yk"('u,,i('of'!'?, 

k!~: F ROOT.r;>{GHQiHSEC' 

llfllntJlj~OY'5Br;m 

T" 

Ramon GARCiAF~Bi\--;XlHSBCtq'HSBC 

" 

Sui>jecl 

Memo' P-c HgMX COM?U/,N(,F !S-';;UF.S 

Sl.1bjcct Re: HGMX ~ COMFU/u.'lCE ISS.UES 

jolll" 

Confidential ~ FOIA Treatment Requested by HS8C Bank, USA, N.A. HSBC acc 8873263 
1543 


760611.376

John F ROOTII-IGHQ.'"HSBC 

llVllfU(l$ 07:44 u.m. 

T" 

R..)rnOH GARClAtHBMX/;:]SBC\f;US,BC 

" 

S..tii;:;Cl 

1-:\8~fX:· COMPUA~CE ISSUES 

Regards, 

·--FQfW<lnkdby JohnFROCJTJHGHQt'HSRCofi 16 NOlo'~10511:43-­

D;:v1C W .1 9!'.GlEY.'HGHQlHSBC en l5 No" ZUO.s 15:27 

M-:mo 

!} N{JV20051~:27 

!'I"' .. m: fu'f!1 W I 9 . .lt.OLEYIEGHQIHS!3-C Tel: 799) %45 

'142:fJI'J,}J8I'>-4:, 

Mail Si7..e: 49<l2 

Sct)! b)': ,...".ri(m Q ROACll 

To;;: Joh\\ F' RQOTlHGlIQlBsnc;'i:i\HSBC 

c:: 

Qe.c: 

Suhjert< HBMX" (,OMPl.lANC'E !SSIJES 

As] 1l~llli"ncd.lo yo\!. Rfch.trd WJtS, If.ooC oware of a iMllbC:T or ,omplian~ issu.e;. 

du.."nt hi.l; f«>;:l(\. bet bri!Ofvmt (() HBMX. Illl'la)' bl': tltal! I\llI:~~htt oft!~~ 

i17C alrc:liCy m-. .... n IQ you llndim in Ih:! pr'lXcssofbeir,¥ 1csol'11cd., ~IJI it 

wO'lltd be l:\«l?fu: tt.:. gain ;mlil'.:kf:§: .... odi~ cfwllC-:re ... .: lire ,yitl> rcgs.d I", the 

f~J{!:'!\"it'.g~.l'!!~:. 

Ri1;.h;;rd h;;;;!;, i'iI~.eti"5 w~hCNEV. Thl:'re ~J.'!;e(l.'" Iv bC;:(lffi" dtsqllle1 olllhe 

~!1l)fCNBV !h.'1\ \l'e hold, will'orhi: impression {hat we w"ul:i Cl)ntill1X 10 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC acc 8873254 
1544 


760611.377

bold,,: Hsi ~f aU SC;C:; :J1al~it~incd cy HBMX wil1)in. GHQ. Pcrha:?£ (or <obvious 

~a! ~1\P;:,m I!to;~ Will SQ'nc $.~ll~iti~l!r (0 thls pnl1lCuiarly gh'l!n lttlt 

!OOs!; sees """O!lld fllclud~' iuca! p(llHkhulS Ikld l)C>1ablc:.[.. I know th.u \V~ did 

b.iliall, a:m~irler us ptll1 ofjmp~emeI11 .. lj::~1 HBM:'{'s sec cU!J~lllcr b:ll~'!. btl! ! 

was 1101 ~W2re lhat \lie rcgu~art)' recelFe dcul~ ofthcir dc-Jails for V1t:.n: we 

iTIV(}haiiul1l<;:irnpplu"llI 

n aooea~ tl1.:l! whlhr creon card lr!ll!:.'K:"!ionsotlC, CIT wi!! be processl:!d on 

110(': 'UK W:11rl J~-"fr tit.: fGUliitf; trf Ill' rcle~~:nt llI:;ss.\~f'S l-!<iS:;.cs 'hru.ugb 1h; 

US fbI. !tItus IS Il~ !;!:!~ Hlt:l! w-e m.llV s~H11~'e,ln in\!': *~~~t'n\;:In 

how I\wo;;h interl.'entlclI is 1I1eN,e:1iCllHy'po~sftlk on the pun of the US i.:g. 1 

wOilde;ifrou eQuid d·.cck !hi:; wi:h Ralno);,tud.'orHBlO. 

1 W'JS 311,are Ih:tl credil card st:f[c!l1cnls 3.:'f still being poo(erl ill ihe US, 

!>t;l: 1l'.":l11i:::'~ ~'he~het we have;: d:fin.i':e dz.1t~:; which uris ""m (;¢!l.$:C. 

Th~rc i5 IIwll1cnt1y :l Caymuu hi;pth vlaT~!..h· till ..... I\\'.~! IuNWh~tlg:c' do). , .... :: ! ... ,'\': 

oflhj~ o~"'1lti¢':t. 

HBM"'-\ has IC5.\JVH5ibilily f.lf Panama. My j\~.co:ICCl.jon ',.,,<is ilia: ihi:;.;$ a 10c,,1 

inw1X'rstiul!. ceulcl },'Jll tont!!ll her. trij i~;'I k'IC,~!1y iflC!l1'p':l!'a,(f! 

entity do lr'all50lKticl:to; lor f'tITl/ln\:a pass IhroUSh l:lC USA Til ~meW'lly 

Thtn: ll\.lpe1i1'S H'l be a Premi~r I~ernat!On~! optl'<'.!roll in .'-.{e)(it~. You C1l\ 

cited: \"ijh $nlf;ll, but my unacr.ol3gdill.g .,f,he Premier imem;}lionel 

CrD~~·i;;vid;:r R~f;)r;;ll rros<.mlln.~ WOli :h~t ::-xis:nllE rdatkm.!<hip!O t:Dl1ld be. 

say, I"'!f~l'I'I:~ frQm France to ~1e,;ic<:J. bill wht:;r(.lh~rc wasJI £C'nllillc mleoded 

Cll1!Ilel:tRlIJ ~ri!h Mexico (i.e. sOIl~oody mo-~<iI.lt1. tJlewl Wlli on lbc hil~i~ \llIlI !!~ 

refelT'J: W'l.!; in r:~a:ion kl aa ex:sting ctlStome"r. There :l).1pc:lIT w b: s:ome 

S'.!~t'S!!on tllii.1 fral"lCf!: a~ in The rr:ocfil!~ t}f~n<:li[1g walk.in rert'rmls to 

"'knCel. 

Ri~lwd W~! rn~d~ J[W~r.;: cf ,I'c lpc! Iha1 J~rsC!' (H 91B) might llc cOHl;:tnpla!:ng 

It.: cr.:ltll(.\!l cia n::l" ornc," in Mc-.. ico. wM~ lilt; will fC--qWK Ii GSM 3.1 

prD~'i.S it :1'2Y be ·,',.O"I"Jl dled;ing 'NiH~ Mark T~y!Gt?!'t'(;i5C!y '!'tro! t-s m!enc!cc 

~'hcn he gt:1S bill.'k_ 11)!he: otll(:c, 

[12P-:;IeJ.T$lha! we:m likely to I;'(' finto j!'ll'tlat;e.<!'1 to a lack .,tXYC (or 

crOOit Cllrd holders ~ IS lhls sQmelttir~ or~'pidl we:lre aware. 

1 :!Issume we haw a CrosS-·b'JrO-ef Markelinf!, GU!de lelllplJ}1~ ('ompb:lcd fbr 

Mexico. and lhat this req\lire5 m:li\ers i,O be r~r,:n;;d 10 ltv:: ACO. h ""iii be 

!",Iy;,il ifYQu<;;oJukl drc-.;k <in': $;uls!y }'cursdftfull: 1! is U)rtD-dCt(, 

APJl~I\1Jv lrrcre are sl~nmC\lllt iss-ues wiln ~RDnl to till: u'c of CAMP and 

ih: mOt'iug ofrnot'l::j' 1.u:rkn.\1t i:lrOtm;;;~i~n er~ts·oord:r, i~ this SC'l11et!:illg 

Wllltt, 11;'1$ ~e:n dl$Cu~~d. 

There $e~ to be ;~me s-cgg!'Sllcn tb! Le~'U\dc. '~'!lD [n-:!iih'o! has it~'l.\ like!) 

up lhe ~nlor A.\olL fIC'I~il!on, GUy be moving: on, Is thIs- so:nctitillg (lfwhicn you 

J~h';-l:lliy k.ilU",l"'g~, 

All cdettit !'nix ofi~~ues with whkhI am sure ilamoll-can kip. 

Confidential - FOIA Treatment Requested by HS8C Bank, USA, N.A. HSBC OCC 8873265 
1545 


760611.378

THIS PAGE IS 

INTENTIONALL Y 

LEFT BLANK 

Confidential- FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC ecc 8873266 
1546 


760611.379

--= Redacted by the Permanent 

Subcommittee on Investigations 

CORPORATE, Ii\rY£S'iME.NTB,ij"'iW~GA~l) MARKET5fPiUVATE} 

AUDIT COMMITTEE: ZIHH 

AGENTJA frRM: 

1. ISSULS Allli;INC 

(i:i) NEW ISSUES 

PLEASE PROVIDE UPDATE 

(i) HSBC M(:::Iico SA ("HB:\fI") 

t C'NBV YinI.' - rllilure to w,ce' Me:xican money laun.:lcrii1:t 

deter.~n~e r~~!.lt~:11:t'!l~ (~Q06}: On -8 Dec:::mber 20OS. il 

fin!: totaling MXN 84!,464 (USD 76,01.!) W.3$ imposed by 

(NBY for f9ih.!!"e to meet Me:-jca.'1 ~ney bundering 

dN'?rre:nc') reqmrements tbU(\\'.'i!'!g a.11 inspection "isit m 

Septembf!r 2004. TIle CNBV repot't W;l..$ issue--J in March 

20GS and, amongst f\ rium~r of iss\Je$, the flndings 

induded not considering the risl; exp0S'llre of the customer 

to determine the nppropriarc visitilllOn process, not 

implen'll':l1ung procedwes to update annuuiiy the files of 

hi~hvrlst CllstODlt!fS and r,)ji1.ica!iy e\pt,)sed pe","ons. not 

d-efinirlg in~erniJ.l c.riteria to determine W:;ion)efS" fi::.l, 

c'~po:mrc and 0 ,je.i41Y in fonn.llisirlg the CommuilicMioll 

a. ....d Control C{};n.,. ..... Jttee. TIus COlt"u"Tilt1cc was eSlabhshed }il 

J,:un;r.ry 2C'05, afler 1.r.e eNSV ir,spcctior-L. as u. ~i..ilt of 

r.ey!s~d ?t.1ex.ic~.11 reg''':!:l!ions :ssued in 2004 unO. is 

re:::pcn.<:ib!e for ~endir:g S.!..Rs to the ('t.lBV through {hc 

Compliance Officer and for issuing mor:ey laundering 

d~tcrre.nce l-'Olicf'!S. All the rccommenuati·:ms cc-ntalned in 

the CNBV TI?PQrt hfr..,.e been impJ(!"mented. HBMI's Leg:!! 

Confidential ~ FOIA Tieatment Requested by HSBC Bank~ USA, N.A. HSBC OCC 8873286 
1547 


760611.380

Redacted Materia! 

__ = Redacted by the Permanent 

Subcommittee on Investigations 

depnrtment prorQo;es to chr::.l!eng,e Imposl!ion of the flOe. 

PHASE PROVIDE UPDATE IN R£u TEXT 

3. REGULATORY EXAMf,','ATlONS 

Confidential .. FOIA Treatment Requested by HSBC Bankl USA, N.A. HS8C ecc 8873287 
1548 


760611.381

(c) 

__ = Redacted by the Permanent 

Subcommittee on Investigations 

Confidential - FOIA Tieatment Requested by HSBC BanK, USA, N.A. HSBC ace 8873288 
1549 


760611.382

--- "'- Redacted by the Permanent 

Subcommittee on Investigations 

PLEASE ALSO COMPLETE THE RESOlJRCING TABLE BELOW. 

NOTE THA.T WE NOW P..EQU!RE THE F!GURES TO BE SPLIT BY 

BUSINESS LINE. 

Tlit:- busine:'5: (;.8..;;6 5.-ubiliitidi It) ilitfe-ilSt' jilt' GBM CUOlpli.mu:;e rteadJ:ounl ·b:. 

Ol1e FIT remains: under ftwi<'!w. 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8873289 
1550 


760611.383

Fn;I1f1: JOMI'I F "001" 

Sane Mer. Jan 26 1i9:21 :00 2004 

To: Oa;'id W J BAGLEY 

Subj9ct: MLO REGUlATORY R.EPORT 

!mPQrmnc;e: NQrmal 

At::achm~rrts: j~r';lie_O.~if 

lJavid. 

Below j:il"<i<ise tone: Rai'i"oOo,'s .... lews 01 tile tiiv recMt r~ul;l~"ry rupert:; en SIt;:;:';; money-:aunooring 

dot~i'i'Snce p,"'agtamrt.e {.:an tngliS-ti trfllit~tion ofwhicl'l Mt; Mar'; t;.;;;nl to y"Oi.J ;()p.:;;mtSI}:). 

John Ror.t 

To; ~SU!i.[J"A WR.!GHT~!":OOc oom" ..::$u!;anA \'\Rlt:;HT@mrun1C('Jm> 

~john f.rom@hsOc 1XIm'" "'Jol1I'L;: _ROOTiHGHClIli58C@'Tloooserrx;<l.CDm> 

bc;:c: 

S.ubject; 

Y~!ol.t::.lJ<1Y I LO::i<,;f:r.lyO;!U L.m) 1,t!~vrL.::. iI,(.m. Un: 3"',I}..iw,; Cowmi.:s:sl,.w. L~'J~LJiIl9 

thoi!!' two "U\.~r~¢tj"¢l'""~ C.I'. MLO '~o.nt're.~:'!, pT.,.,-:ti-t:E"d ir ,Je!~1!""~~ al"d !Htr:!U,o;t 

20D". 

Bct_h r;op0l'"1;.'!' ~T"!I baltT'1 ;o,.1re"'cly i-, I".!"1!Inii:<,,1 .. ri:::n. 'j h(\[,of' t,.., h~ ... e 1;.h>em 

l:eauy b}, Lbe end cf. L<"<l"'y ()[" tOrllcrrolol JUQr/':tng. l tUTI .:Ilrendy prep .... r:ing ,0. 

C:Qrr.pl~t'!! tim",·"t;1!;>le: tc" ~ddr~i!i!> all the iss'.!''':; ob::;'?,I:ved by -:he 

Comrr.jssion. 

Tilt:: iiL:>\. l.epllrL i10 IWJr~ ay;;'t!.H • .iv~ th<lJl t.he ~~(';OllU, in Lell1l<:> 

of the m)utDer of "[hey are making. In my "'ie"', the 1':I"",t 

tmport'llnt i~r;u!,:5 al"~ t:C>1Jilrd t.c< the 0f'e:ri'l.ti~r. of .s]'.'>t.ems t:::> detect 

$ll!:!pic:io'J!)' t.ra!1t!aCt_lofl5. and th~ adecu;tcy of t.he e:xi:!lt~nt l-I..LD h~:JdboQk 

Confidential· FOIA Tieatment Requested by HSBC Bank, USA, N.A. HSBC ecc 8873393 
1551 


760611.384

at.d· cir:ou13rs. Tii-'::: fir3J; po::.nt- 'is'''not '" n-ew"o)"l-e:"'a:nd I th:nk it is bt;:ipg 

!.:Id:-~.'!:!:ed 1;~' th-e ('.hJ-!? ,~y.:::t.em imo:'le;1le:;t.~t:).'.;';:. '!'h~ -!\"eccl1'~ cn-:'1 i.:'l :tein',; 

attenaend 51.nee some lllcnths <ltyo and it 101).Ll. be sc..£,\:~d by sUi:;fJi1:tin-g a 

tI-r!,," t.1l·0 

handJ."IoQCoI';. t:~t,ich "'ill be :c<aady by the Jl?'.at. doadl:.n"'.)' 

Tr.c 5ee:::.:;nd ;';~p'0;:t. i:"! ll. bette;:; one, ~.Lthot.gh t.nc e!m',' ir:~.'n$t;: i~ 

tbl' 5y::;1;;e::,:. i:S;5ue. ",Iso found deiic!O!f'lc.le!l in !11-e~ .l.ilt-eQL"et,i:;m 

;.rr.icl: ... .t.", to ;::0 hZAP \~ox <:-;;,mph:r - fo"£ ;>er:;">l,~ll c\:O;t;uncrs ~n 

5 ~l.l1; r,f 61) 1:11"'3" '::h'!lt v~:re :::-.... v1~\~ed rh~ CNH'iI ,j;?t~cted th~t the 

"prL'>.tc$si·';l:1" tLel,j. .:. . .,. Ii".':';,s: .. ,{j; :;,";,=: n~-:;-j.">er:;.on>'1L 

2(1, the :tlBV dld JlO~ fOlW-j evidence: of (lrymiciliary 

O:SV is S.13·:; :>.;)::i<.! pc:.nts t\",aot ',;e. pla:1 t.:. car.t.est, !ik~ 

wlter:e thl;Y r .. o'\T1c!1-e$ enploye~s. obtained neg~t,;i.-~e -.elOultl'> 

.an t·rrs] e-¥.a;n. !,;y p;:il~t. 1.& t.h.a"t" ..,t,;plc'i'~-a3 ind&~d. fail.ad il". 

SC:1l1'1. g\1e~ti:m"". reg;Jtrl:r,g l.e.chnil.=al UlS\)~S I).ike tlHl. til1';e.trame 

thE Ds"k 1".6:;' to l:"~'P'~;::'t- u:iu~t:;l;.l tr3tJ:!!:a,::t:~c.,r;.s.j 7th:.,:h (Ine. aiL.plcylO!@ i:s ,",at 

'l!'U1'],Dosoed to k:-.o'l'I. Or, the; they .'Il1~lH·:J::~d cOl"re:ct.l.y to :all tt>6 

yoJ;;,stl.;:,ns l:"'l.,1;~d t<:' ';;CT", 

j:t"'g/u:ds., 

La Inro:nnac.i1)n r::ontenlda en t1=s!:e C:yt:reo El.ectr6nic<::- es co.ntidencial. 

PUl:.d~ t&Jr.t.ier. :.'Ie pJ:iI.'"11"g.h~ legaLnante, Si ;Jst{!d ri·:) ~s e1 d,"::p:::ip<lta.:do I:st~d 

;10 Dlled'., 

c:opiar, t";::--'J'TI"iaI:'~ abri:- ;:.. usa;: ~ualquie:r parte de eL :5i oJs1;.;;:c. hi>. rticibidn 

e~';;e lTI~n!;;-aJP.; 

p~r €<rrc.t:, po~ favcr b::':!'"relo as:.. ~om(). t.cedas :,H> cop:;;.ae de 61..1. aistema }' 

;-)otifi'1u<o .. 1 !'~Tl!iten';: .... 

inmeJl':;\."'1lI"':ltI2 pOl: el Clo:rr>d'(' .,:le~ ... \:t"6Tli·x·, 

Nn I'tlprt,.. 'J~T!!l'".t"i"A\·"''' "311" l~<l rr>mJ1nir~r:inn"~ rl'" 1nr'PT'"II'>t" !'lP?n DpnrhlT_-'l<';, 

:lo~';;!"H<l1i. lii.H;<::! d>: e.r:!l:H 0 \'.l..l~!!I", 

:<":1 rem:it'l':'!i:e 1'1" A.cP,cpt.?l cbli,ga{;j6n l"(»)'" "IH.~'1:'l:_"'r errc, u ~rr1i$lO('l ql.l$ ~e q""'rf~r:en 

,.;<..~rnQ Z:"'~'.llt<ld<..~. 

Til", informa.tt,:;." CCl"'t.a:'n€'d in f:bis B.-!'l;,j 1 j ~ CO!lfide)"ltl ;,1. It m'!l:\:' 

dJSQ be: lc:-gally ~xi~·i:~~:.;i. If y',)\l <'!II:- not the aclures,.;tee 'j>;JlJ m~y r,,-'~ 

CI)PY, fo!'wa=o;I, ths-:-ll)s~ t:'! U.'3!'" any par7 .or It. If you :;-,ev-e re~-ei'IFe-d 

;;b.i>;: '"~"~"oI'i!"" in error, vip.ase dele!:\:! .;.\: ",nd ~.11 copi"",.. !'.tom y<.lur 

~y"',_em /!Inti I1l,.ltlfl' th>::' '3''HI~er iIlIl'lt;!oiately by l-e-t,<Irn f:-/fll'..il. 

r;lt~rl'''"t ['Ol"Jm1r.~['at.l0l'\S C9:rt!lot he ~Hlral't~ed to be t11l1,,"1'J', <;r->r'\1:'p, 

error or ':'he: .gendo'::!r doe!.' not ac(.·ept liability £.:;n; CI",i' 

whio:::h c.o:J::.1.:!H! a!:J e r-e~·Hlt.> 

Confidential· FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC acc 8873394 
1552 


760611.385

From: Crot-..sm THOMSON 

.8!o!"!t: Tue Oct 28 23:26'05 2000 

To: Matihew J W KiNG 

Co:: Davj(/ IN J BAGLE''.': Emi!sOtl..AlONS~ilsbc+-com_r...:.:; Le-r.'ls J P'IJllSCN: 

AIfrOOQ,BOlANOS@h$bc,r.ommx 

Subject: F .... '" H8MX ~ Projecto Res\sufsclon 

~lI1portance: Normal 

Att!!c.hfM.nt6~ il'f'l:.'lge_O gif; (}o(; lIok.htm: ~it)Uta jlJnta de ci@rre ProjR~t - ENG,dlX; 

! attach ior your information the seif explanatory correspondence relating to ihe -above, wnich outlines the 

res'Jtis eli the reaml projeci audit compieI:ld by GAq. 

The attadlmsirts trlat W-SfS ind .. ut:d in my sr;;ai! io Emi!son t'l3\o"G beer. removed ;1; they lift'; b. S~rJ::;h, 

-altMtlQ:-: !i1 t!1eir place If. an Eng!i~h trnr.Sl.'rticn of t~e cICsmg meeting rn!m .. 1es. 

Grnham Thomson 

Head of GfOlJP Audit L<1tin America &. iile Caribbean 

Tei 1'52) 555721 8238 

___ ;;(~r\Y-d'-tioJci by {viI'tamT"';OJ\.i..'WNIHFH • .n:r.-lSfiC (II' -;S/1i),'20US 0<1.52 p.rt, 

Emll-.on ALQNSOfHBw:JHSBC 'Z9,'~OJ20(lB 04:"6 To Grel'lr.t THO"'SONlH[)/.A:X/li~mc@HSGC04 

p,m L\.lls PENA KE-3ELiP'6M:-'J:-1S9C@!"!S!:lCQ4,Jotm"t 

RENDALUHB/"i)\J\-<SBC@t1SBC04,GOrisR 

8ENTl.EYfHBMX.lHSBC@HSBC04, LeYI1!> J P W!<LSONlGAA 

A.PHrHBAPihSaC@H5BC03, , .. t .. ~-doARANA· 

<:l.sol1arOO.ARANAYCt.sbcxom iil)(;:-

S.ubje Re" HSW,X,· PtO;/ecto Resiat.racloi1 

Granam, 

Ths!nk. yOIl fO! the u~ tc d-ate. It is disappo!nti!)::J the resu!t or th~ audit ~s!eSSl"OOl't 

I am more concerned as this is no{ whal i wa:r. assured b1' H8M)( man.o.gement in the iast H6MX EXCO 

when the matter was re:vi:lwe(t 

Confidential- FOIA Treatment Requested by HS8C Bank, USA, N.A. HSBC OCC 8873463 
1553 


760611.386

lookiniJ for .. 03i'd to see the fina! audit report 

Rd; 

Graham THOMSON 

-- Original Mes'SaQl':!-

Cell LuU,\ Pr;N"A KEC;;;L, Jc;hn R REJ:JDJti.L; Chr~.!'l }t BEN'l'L£Yl [...elol;U:: .J P WILSON 

Emi1$On 

The alJ(:ljt()~ ir'I completing ttl.eir r~\flew of Ptut';;.e 1 of It'~ ProJoot grfX1ed ~ I;:onfrof risk as AMBER fur 

renons litlit11d In trle a!t.8:CI'I&(l aoend~. T'ftllo d&ialled I~< .... hich <'116 also attached and wllJ trm the core 

of the audIt repon, have been reviewed and e'Jreed oy th'it b!.!Slr1~s unlts. They nad. not In '\tlelr f1r.e:!fcrrn 

!;)eel'! s:'!J~ off b~' Ihe projec.t sPOOSOf', ... Eohn Rendal1. Atlached !s 9: repy cHl"Ee cbs.lng l"!1eetino mi!"lt.Jt~5. 

The key issues mat were identmeo in me auo~ and whit::h are being OKidressed t:y management inclooe 

.. 10';,0 piOgfiiSS wit'; ;a~atir;g PEPs'SCCs 800 ott;m- hig.'1 dsk custQl''ilfiii;, witt; snIT';; 40% of 'l:<a KYC 

reoord~ of PEP!if$CC Clll>tOl'Tler segrMnt 8S Bl 2QAUGOB (internal d~e.Ql1ne) not yet ,""m@'d!ated, Thes.e 

.3C¢(JunlS are now in thtl plUl::66S oi c!OSUIS by H8MX LtiRal. 

Johr: Rel'.rlsH in ~po:'lding to ~he audll ccnd!JSicr., expressed his frustmtion at t~ s!c' .... progres.s. 

ac...,jeved by U PI'O!e'ct team. He enC[uiN!-d hOw things couki be tn'Ipro'ied al'Jd was ao\li~ th~t perMp!i 

the- h15torioaJ ;e:;vurres assigned to -oomp;ete lhe tCi;;~ had Me,' Uilderils.tmat:6-d. TI)is. resouriJe swe is 

on~ ofUle H1gh R1sl:: :PDs ralSild by the ;;.uOit()o"S. 

S€'parstG!y it hs,'6 boon repo!1e<! that chld:s done by CV.P on visit r.aport; c.Qmp/eted by bi"M~n staff, 

which a.re a key compooent in K'iC procedures lor PEPs soa Idghel risk Gustomers, continue to reve'tJi <.In 

I.m:::ccept3ble level of "m3nufac:wred- vIsit reports. Tha 30curacy ofltese visit rel=-"Otis will be k.ey in 

rem.ullating the Cl'Jyman Isla.l"ld (el) posHlon ao:; thA HBMX CEO has dl'ltennina:d that aU CI cu~tomers 

should ba tfi3"atea as hlQii risk. Thl~ situation was dlsclissed !n fi' funher meetiflg i'.at I held wllti Luis Fens 

and Joh(1 Rendall on Moocay, ¥men it was oonflrmM trlat management would. be ap;:lI~'!nQ' B zero 

t<:>ler9!1ce. pol!cy to:! ,:JIfI9r,de~. 

The scope of \he audit did not extllnO to rCYi9W!ng Cl custornor KYO, Tne KYC for account& opened for C! 

cuslomDlS wlJ' be varified centr6liy and i£!'T"IOdialod ;n Pt..:me .2 of Project, :laspr.a t;lcsa cusroIT'ms prior to 

tho! CEO'$ ~mt'tar9¢ on new !;l!.l .. i!'l¢~$, bei~ able tQ COl'\"lplo$~ account Opet"lil'l~ ~t rYliliny I)f ~ b"'n,~h~ 

Flna being :)utlJect to Ihe same GNuv requite-merits tf5, 005i"Vre \;us1omero. it is is antlclpated ttls1 the 

KYC f01' approximaooly 1,000 CI.t510mar$ C!BSsmed in ttle CI "red" segmant for 'l'l'hir.h fi!As em b9il"ljJ 

Confidential - F01A Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8873464 
1554 


760611.387

Currently the business {)INner and compllanca Elf6 sHU ljiscussinQ witt, GMO eM? Ihe pro('!IIct parameters 

lJliti ;i1I'€llli b,;; <'I~pliOO ,Ii I)fllih~ (;U!ltiflt ~r'l',[)dfyQ <:lIt!..! (~\;;Ju"l(;h 11m CI ~,(OOu(;{. a is Ilr'tili!1:an~ that i.htsa 

dis{:us$lO~$ r~dt ir. pr.:J,ct~! product pa'1lmctef!i as the Cl PO~D is an impo!'!.ent SOl-roo Df !r.mds tor I-/&M.l( and it is hoped Ihe rep!acmnent produtt Wtn be sllortly submitted to UlO new producl'i committoo 

and then relaur:-<:h(!ld. 

! sti61H for-.v,,(d a 1;"j:Iy o(tt-E: fc;.agoing emait wnt', only a cop''' of!:.., dosing me~tlflg mirmla (in English) 10 

Matthew King and DaVld Bagl8Y. Eklfore-doing SQ, pte~ advisaifyou haw any c:ouunenl:s you wish to 

ad". 

Please let me krow if you require any clarification on the foregoing 

Regards 

Graham Thomson , 

HP.'iJO of Group A1Jd~ L .. Ii~ All1fl'ri~ &. thl:! Cwl1bP.-an 

TAl (52) 55 5n1 6236 

[attachment "Ag9nda df.l Ckum Proyecto de Res'[Juracidn \l4.doch delP.t~J by Emilsoo 

ALONSOiHBMXlHSBCl 

[attachment -Apendic.e l.J,;l3- -d~!ated by Cmi!son ALONSOMOMX/HSDCJ 

[attachment "IP~$ Rcstallraci6n 4 Totales.dod' dolctcd try EmUson N.,ONSQlHBMX/HSBCj 

I.;~hment "'l'~lnuts funis :'..::r C~rn'l ...,4.doc" d~0tM hy Emilsor. AlONSolHeMX/Hs8CJ 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8873465 
1555 


760611.388

Frcm: Wsrren G LE.t.M1NG 

Sent: Tuo Dec. 2:3 08:44:44 ~08 

To: CatN;fln8 BJSSERY 

Cc: John F ROOT; David VI J S,\GLEY; RiCh3rd E T BENNETT 

SUb!ect! Fw: RV' Anti MonrY LaUndering: Stlock: plan ~ Update 081'1.15 

Impoi1ance! Normal 

S-::.n~ of Ihe ~~pnn~ in hlni: raLo;e f!\(!I~ qucsf!f![\s 'th.:m !hey <!n.",,'er Y.!Lie}! ! 

,dO di~ll.SS Wlm Ranwn< i ia;.aw lilal Ramon illl.S cn:lIlellgcd t!:ie it~1 ?Osition 

tc:or~, lh~ Ciuc~tlon is Wbc::!t>:;'f thQ:>C clu:.:lco.g.cs Illt',:;: bcq; ;;tlpportcd by tl}1; 

t>:!~iJll'~~' "'helher fftentlg "':a(:('t;.>1nIlS, i<. i:l!:g.all'f ,,(I{ Is JKtl If>(-

q'U.:::;tion. hs a ri$l: based llilillysis lhatls req~~c!. wdg:lmg the 

:;o:lseq,<?-"'lCe~ 4)( 41I;'U~tornt·r bri:r.g:nb n $fllall tti~ s;::i:m ,l~ Vl'!ts.l.l$ the ri!J:: 

nf cf1Illinll1'l'Ig In Illlnk C11,,1nmcr:o; whn we l!link Arc rmhllhly ml'l1\cy l:mnrlcfil'l£! 

Warren LetJl1lil1!!, 

DEJ'UTY HEAD Of CC}'1?UANC[~GMO G.{P IHSDC HOLDINGS rLC H5BH 

j.! C!!!lfl(lll S!.j!J2re. Cg!>..ery Wtmr:-, L-en1iJ1\,E1 4 5HQ, Ufilled K'ngt!r:ml 

PM"" 020 1991 1)?-1)7 

Fcl)( 020 '991 47Ef 

EmaiL w~.JeanlL'1.g:g)h;lJ,.-:.~C11.'i. 

R1IDlfHl GAR C[ ~MnM.."il'[SBC@HSB('04 

Dec 2120,)8 j~:41 

To 

',1larrw G LCAhm.JC'GMO,>1ISDC#':1ISDC 

CO 

5us:!l) A WRiGi-fI;ijGHQlHSBCt7i;HSBC. J3Ill1le j SA.ENZ?tiiiMX'HSEC!it.HSBC04 ~~ . 

Fw: }tv: An~l Mr.m",y f.tlml(li'rill~:$h(lc} i1hm.Up@!o:"OXJ21.5 

-- M~l1HI.ie origlf".ai __ 

Confidential - FOIA Treatment Requested by HS8C 8ank, USA, N.A. HSBC DeC 8873474 
1556 


760611.389

Dc" WFlm:-r GLEAMING 

Ell\'i~cto: lZ;)6l2W(lIIJ~';''\1 GMT P:>n: Rl!lU!1o(l GARClA 

cC: StJS&n A l,VRJUHT 

A,,-):r,t;;.: Ro: Ai.!i \1c:tcy La.umkring: Sh:l>Ck pian - Uj'lua;c OBll!! 

Ril.T'ilQl\, 

TI~nk y;,u for your '-':.jd:!le. J kHC'!, ~ha!. SUSllU l12S CC'lrJuen,ed on th~ SAR's· 

11:131:";$ My IIl"H8111~ !Ire: 

:;:l5piclO;:~ ':;CCClmt; ;:en: t1ve."l p::antj for ca;ltd13\1:'lt tl1n:.tql:~ 1ft: mO£l 

dlk'lelll ;1I1t'll~"~ ri'll:)' [lfflUlr.'i W~ WIll L:eep ynu {"fnn"!"In !he .')t'iwU1Ces on 

!:)~ i:$~ue" 

2. l'..llulersland [flat you hif'lf! spl.'koo to RonOOlt almut my '/~i( r.:pt'T1-,IlI:l nat 

liem,.. ""ill 15(; <lctiolned T .. .o(' mOil import::>I;! On£'1 appear tv r.JC i(> tl': 

1J.)1il(; !I:~al1!l elIDe backlog ,uri UIot ciLeg<l1 10 do~ ac.c<rutll5 and 

b) ifstnct C:l,::'Ci:"l;~JT~ll; ofCB"r:.!5 re::l.lil1nB 111 thcclC!Hlrc Ccf~COlln:~ aft.:-r 

, .... "to $ARs i~ 1<> be ~nf':l:'t;o:d ~5 p1!1 \)fli~ ShlX;l: ill"ll, we. <'fill n~.:t1 ((I elll>'-1re 

li:lli SAR;, ilre .J"Jlly ioo.ilOed {1lK:e ·...,e l~vl:' the ilppropriati: $ltSpkl,;'!"I.a"d 110\ jus. 

b«3u~e \h: d:i!ehne i'!ls been breilclJ::d, 

AI! .. ~ cas.:s fCY,ncd &""C of Akn! .,[ su;ci;iiiil~ ~ s<IWvl'lcd. '.Ve <4-C 

weri:ing do~r whh lhe l;Itrsiror.ss S~r.1C11l~ ifl order:r, prOnll).le \hal he 

dllrHh:at-iI.lTIS ar.: Oft timc-, in order lU Cl)u.!f'ly wil;' 1)11: limd!1\t::\ ¢';ll:,bli~i:itd 

hy Ul! b~:!l ;~gll!Ht:o;m. 

J Jl(ot~ l!l:il Lltfrt is to bI': It f\X!l.!5 en co~el!ug tlill rcm~dlil.titi[j p.or;ra.'1\Ine by 

the 31st Janu ... .ry. Glwn that!~ (ayn~an ilC<.:OO[lt5 'Inri CMB 8t<':IJ'\ml~ hay!: b;m:jy ~tlL1~-J this scc;!r:"JS. (0 ix Qv.;!ny atnbif.oui-., Am I ,;orrw in :tmunirtg 

t!1Zi II. WSC r:umlr..""1 of sutrhav~ bccn dcdit:l\cd t~ tins mk. Ifso ... n: 

l!lCy M:illbd irom Cmnplll:llla: !lor frQI'C tl"£ tJlldncts <l.!i your rriOlltCcs seem 

strlOi"I~:dr,;ady. 

Ttltrt'. lL-e J members of,b.::! .WL SIB(fwhll m:.:: dtditnrOOf!bm-st fu:i tIme 10. 

~pj~:;;ng. ~m ;~viewill£ d:"t!:,)ases Of;ll~fJ~fHict:s uf ~;::;:;Oi.im:s :uld dell';5 c:nt."f 

B!l!::!Ii!ic,nil! ",c.rk Uk". fmlling diITel";!1lf I.\l:nrs til [~{u";;to.ue-r ti!~~, 

Redacted Material 

Confidential· FOIA Treatment Requested by HSBC Bank, USA, KA. HSBC oce 8873475 
1557 


760611.390

dqxond!r.g or.lhe deg:'i::C o!ir:!¢gmtiCit H~':.~.1;:r, lhc 1" .... 1L smtTh no-I 

rcmcchatiug !he (jk.~ dimtty . 

• ~!!C>. it i! 0\::" ·.lroet"!)!srding tilst !!1::; h,,!ir-~s scg.mr;:llt$ rlf¢ dc.~!il~Z :rlllfe 

((:Mlu:"tc:..~ in on:lr!r!rJ Jlwk~ ~1\!J,itlcall\ at.1\i~nlXS Irllm: ren1cdill!tnf"l of 

ilG-UUnoS in 1111;' 1:1<;, pln~c ;:;f-;'i!5ialJr ... ~ion. 

HappvtocilH;uss. 

Rarm:m GARC1A.tHBlI.1..Xl:ofsBqn1S5-C04 [.I('C jj ::lltl~ l~:H 

T. 

Wamm G 1.E.AMfNG!CMOrBSBCJi:H5Bc' Susrrn A ·1\-'RIGHT.:tiGHO/HSBC~I1IHSBC, John F 

p. OQTfGMO/HSBC~f,HSBC . 

« 

David W 1 BAGLEY,GMQlHSBC@H5BC' 

S!Jbj~[ 

A),li Money LFKn ... 'kring: Sh(lck !JIlin ~ UPWlt 01\1215 

Eul.!1y 

_ .• Fonva~rl ny Ramon GARCiAIHB~:x.4-iSBC Oil ,S/12:101l!C t'1:.33 p.m. ~.~-

F.dmll1~l MF};SMM"HFFt/HBMXIHSBC 

).'i-'11i2008 Dl:1B p;m 

To 

RilIl.J(m GARCWHBMJv'HsBC@HSaCG4,Lo,enzo RAM1REZtHBr-..Dt.-'HSBC(i:(,HSnC04, Lui's ALVAREZ 

nfLLO/}1BMXtRSBC@HSBCO<l, G~i.lr~k': VIGUERf.SIHB}.L"'t/HSBC@HSSC04.1bn.'l.ew 

VERAJHB","LXIH~BC-1!.ttSBCQ4.J(lhn R RENDAlL·HBMXlHSBC(!EHSeClM.lMs 

Rl3fDINGiHBMXtl-lSBC@"HSBC04. Roy C!\PLErrlSMX/HSBQt1HSBC04, uOMnio 

l·.R.-'\N A!P.B ~,tXiHS8C@HSBG.14 

5ub.l~t 

Ami MOrl~r Laumicril1g. Shr:ci: platl- l}pdalc 03i215 

Confidential- FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC ecc 8873476 
1558 


760611.391

Ba$(:1M.ourl.)c:11 rllcCllng 

DECISIONS TO-D:\TE. 

S,dl1:ug ]ij11UliiY !,lISBC linmcl:es ii1oMexi\:o »'ill b<' ~D<I!t.;rr FT~"· 

• \\.'e I,I(Hl no !C!!lgef by Qf re;! ~t<lhn~ ill n!£.j~.aJ ANY vr<-J)r.:!:: 

{cnstolne:rs v; 11:'t~1 c·cmome~}. W~ will.;.lS an altr:realive. QUe; 

mt.elers dlUjIiCS. jo cu:>I"r;,,;:;:s vul)-\ AI5Q Cl:;3t",-nCt:> can withdJi.1W 

dQlJ,)!"'i lit HSB(' AT"'J~ loc.<1t~d nt ailfC'T1; (~j;mt>z .18111~) or ibm 3111 

A 1M ill. ihe world ,.dth chcir debit cllrd . 

• W~ will 11.1;' !o::l;e: ~1;!~p1 !,e?c-:.ln O-f tlbSh C!cll:lrs- (.0 Ull)' a;::t,;:m:r.i at 

any Im'Incf'! (dollar.> orpetot) 

On .lmnary },!. XW; .11.11 aCCOll!lts cf~'IC zlcm:ion project 10 ,,~ 

properly doCUID..,,\l\c-d. O1beN()S¢ 11~ cl.osurt: prll"cc~:s of lll~c accou!\LS. 

willl<csiil 

Be-(Qre J<l:!luary I, 2009: A[ 1';;'1SI 4 branches will tr.: closed liS 

dis.-.ip.:in41:r a.:<illil5. In:J;mlla:y, $NilC, h-r.:mdm3 (lO-2{) .. il~ h;;¥{! aU 

(hoe' slalrdismLssccl bnsro on suspidou~ IlCtivil.y 

ll.ll ;;ccvm~l:;: ot"Ca.=:a de Camhin or simil"r{il)::}udjng employ"es of 

CllS::t~ Of" C'wni:1n-) u'itI be .;:k's~d. ~'jy wilt rr>oiew I:he liS! p~"id('it t.!" 

C{!l:uviimlCt' 1& SliJlllhe dQ$ur~ j)rot:~s. nRe':ur;';Sacioras·· wji! be l<.z~ll 

nl~ nx.-tric to be in<:htded hi tre BSC \I'iH!;Ie: :"lumber ol"ar·OJ1.J.11'15 with 

\WU O"r O)I)Je SAR. ~ ime.mioll js iila\ when accounts teocli 2 SAR are 

~!o.se hr..medi;zleo!j\ CO-r:1ylilmce wjl{ lr1::;x till:; i:uGrmatica Inc~hJy .md 

will prr,n:itk \fl.!! iljr~mwj(l!l ~orlh~ asc, 

Ime:rr-.<!lior .. l! c!i!nl~ nfHSEC willlle glyen !.rn: S3:rne !re:l.1me:l'III.IS 

d<))nc~lJc clh.·ms, J'l'OVU1C:r) ptoper uicm;I'i::ntu'Jll i~ ~s'!"l()ll:: 

",Ietah !raI1StiCIIDIl§ will :the be dimir.1!t~ 

All $f~~ho~IIt;l"])l' m.ilc!e ~\I.'llT(- 111;11 iftl1en< ltre" pmiS!('Ilt \:1I1';lllC"l\eS 

Qi"KYC in a panit:u1llT b11lOCh. the bra:l(:h"ll",lill be closed tlJd tl1l stafT 

di:;;t.li!;!oti! ~&r:;:tdl(Z!. ;;-.f l:t,w mlKh bll.."ir.e:;s W~ wil! los-::- on a>:.;.,:,:m!. ~f it 

Evt;ry!mdr (Ibm i~ ICI.J.uin::d Ie) tJIIS illlhcit lhlmltc-d Score Ol.ld lh;;-

lleed 1'3 tnrrb~!:t ('."-.1'.1.P !c the' msx!:;n;!m- mch:dir:!; l~ d(l5.i..':g.:;of 3,lt 

accoulltsihat h3'.-c two ormo~ SII.$?iciolll t[l:lm:;JC"li~)'5 higlll:sJltcd.. 

Ben;:l"lmtiir'..: HBMX ~iBlfj~t HB"BR. mms, TIBe'.} ,md BSAP il""t terms ofV{l-lunie fir 

~"l-'icious lrtnsllol:tk!lS ~ Ramon - TB D 

Confidential· FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC acc 8873477 
1559 


760611.392

TO DO lTEM'S TO IJ",iPLE~vfEt,,"T THE ?ROGRAf',·t 

Sundry. 

• Se;;,j Emil;;em and Luis iM bellcl\m;;f,; I)nmMX :;g"lm,! }U'mR, }.fEUS" HBfT! 

and HBAP illl~nl'tS- uf ... a!wnc (or SU5P\r.:Ii}l!~ \fl:l''tSllClio!l$' Rll,11DII· TBD 

: i::,,~::~~;~~~~;~~:~,~J~'~:~£IJe c;;mDl0 (or similzr}-

Ri!!1Mn· fJcremocrJI 

· ComlHlIllic<.1ion SH"Jtc~ ror hi.AfJ r.sk. locs,tions (e.g.. Cd, Ju;un) " I(O? 

• ~t;ri:r hO\!lrlt: tor emple;;'::(:$ h;~vir.g ttl' imvkmr:nl the pf<;:.t:mm . !~!UI 

• MonitlXll'lf> prUi:C:kS. r"l USD k~pl1'y Ille tmirdl,-'S - Lu;~ Ah'>lf:;l 

~ Vi~a (;<!'I'd <;,.nu; febi'mrry 15 • LCI"~!1YJ 

~ Debit nrd fd:ac('(lums mUSI):· IamUL"y j$·I.(ln:lU'o 

" Closure c.ft ... i\dxs: 22 and 24 Lie d,;cc",;ocr: fequ;r.:-.. miinagil'~ 

s,,,,feboxr:s 

• f'ffiiN'-'t 1:mc: (::nl1 ~a!tiliutl f:Jr{'!'.'t.~, Gemr:!O' TBD 

• Audit of r'MS m~ - RSllll'm - hlll.lll'Y J:5 

• flttl".e of ilt:;:,Qm,h imprl.'lllCrly t!ocurnClritt!ItJ-I:QTIlply wilh W!1b:wt:n~1I1 

Wilh ~\~llO:rifl' ~B~ Oll BR) 

TO DO ITEMS TO TRAC"::TH.E PROGRAM. 

* wtckly tracki.Jlg rcpcr1 Of! lhe ad,it:'1clllCllts (If lnilCSiol:<:1 ~ GcrarOO • 

~~:~;;,~~!~~i ~por1 !lfUSDtxP\'!icl- Luis Ah:!~tz * W~&Jy ~r Frida) 

Confidential - FOIA Tieatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8873478 
1560 


760611.393

Fro:/!!: David v.t J BAGLEY 

SelTi! Tue Jan 27 05:35:07 2000 

TOo: Susan A WR!GHT 

Ct; David VII J B.to.GLEY; W~rren G LEAU1!"!G 

Subject: Re: fw: Pless Release 

ftnportar;ce: ,".,I(;,m;;l 

Susan, 

HSBC a5 a Group is committed to maintaining the highest s.tandards of AML CQI\~fDls with both roO-List 

Group 1'nIr::)mum sm1'ld;l!;ros. b\J~ ~ko G~rv-a.nCB of ttl., Jet'.t;r and splitt o-f all rulas and r6yulatkms 

It IS c!e~ tha! M8.:4CO.is fs:Jng rea! ctH~ljenges in ccomb!'lflJI1r;! tile activities Qf 1/"_>g !r3ffickers and !:hcs-S' 

in''llJived i!l li;.eQi:li ~cihitV ~nd that tile Mex~an Gowrnmem )s comnitted to seeking to combat these 

J>.!l a re3:u1! HSt.Jf..'< it. di31ogoo \'Vilh Mm:fcan <lI1JthGriliBS b oons~ntl'i ft'l\'O'.:;ing AML controls to reflect the 

risks Ofooln[J busIness In MeXicQ, whilst being able to support its legitimate client base. Rec::";jn(sing l'Ile 

addftiD,lal ,lsks pvsed by Irlilf&'&Ct~fls ill Cl:IS!l, pl:!rliclJ:afiy USC, a d!:iCisloo ha:i btti:in l<tktffllO r~tri(j 

trn!'1$::iC!lan!; tly non-customers:.trY.:! !!mlt the amouo! C! casn !:hat ~e bank ' .... iH accept from exlsHr.g 

CUSIOO'IefS. 

Vl.r.e wfl! continue to mo,1itor the position and adjust policy a:s re.qulred to reflect the risks and to do all we· 

Cf;;n fo o\.'Oil our s.er'.licC$ being tl30ed ~;1ilpproprialely. 

! do think thOuglllh<'l~ HDMX have to be advised 10 be tllQlJghtM SOOt" ft)e fA:C1 t/1(lt there is clearly 

scrutiny ffom 1he North. I am surprl:!l.ad that HBU5 stili haye cambia clien~ 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC ecc 8873485 
1561 


760611.394

From: i,II/il::r€i'l G lE,A~fI!!lNG 

Sent Fri Oct 24 13:42:572001) 

To: Oa1Ji.d '..V J BAGLEY 

Subject: F'I!': R\': ;::w; H!3MX - C,~YM,a,,"1 /',CCOLWTS 

tmpCIrtaoc.e: Numtai 

Auachmlilnts; imag€Ul.gif; Doc linkiltm 

FYi, <:15 disr:ussed 

Warren Leeming Cl::Pi)T'! HEAD OF COtJpt,I"N.CE:-GMO eMf' t ~B¢ ~jOI.D!NGS PlC HS6H 

<l C"fI"';" Sq<J.ill'O, C .. 1~ry .... i\itrf. 1.;),.<10:"',:::::14 SHQ. u.· .. 1Jif.1I<I"~ld<l. .. \ 

f11or.atlZ'\'l!'!liilI}107 

r~ltlitl:r~141',9 

ii:miiili'J3'!'inlflil"')jng@))sb~"Crll 

Warren 0 LEAMUtOIOMO/'HSBC OC'! 23 2006 

10'58 PtlOl'Ie I'K'!. 79{; 16-2(17 

10 R2f'1C1n G.A~C!.JI,,1I;B~X:IHSB(:@t'I'2'BC.l!4 

Susan A IfitRIGHTfHGHQlHSSC 44 Q:@7 &(.15207 Moil Sil"¢: 16779 

We /)fe ccrrespol~(ji~g separ~te!y in respec! of re-la1..:nchirDQ 1M C3yrrrd'l USC- iiCcount produe.( but cou!d 

yet.! p~a:se Ilpc!ste us where wt! .are en the remea~~.end ~hetl'tar ... lchn fe---...e!'!ed 9. response from Lvls? 

W~rr$n L~ilmi-og 

DEFUW HEAD OF CCoMi>L!AHC~·GrAO !;MP I "sse 1-i00DiNGS PLC HSBH 

::-f~F1:Q2r,7ii!<16,('7 

"'.n~:'(,,;e'4rl~ 

Elf')!lil W",;3~,€:,"lf~(l.gHt!t:~!!! 

Confidential- FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC acc 8873500 
1562 


760611.395

Adrian CRISTiANI,IGMOfHSQC OcllLl :.lOuil To ~rren G LEAM!NGfGMOA-'SaC@HS3C 

16.45 !'r1<lH :j,l~: ~l.$ 

$utlje 'R!" RV: Fw: HE~X - CAVYfI..N A.':COUNT$ 

Wofian, 

Hsac Bgn .... ptc 

RegIStered Office: e Canada Square, London E14 5HQ 

y"V&iTCu G Lf.3..r·.{TNG 

_ ••• OriginBiI Mf:'.i:iiage ---

ii1'~: N.J.rr(:~1 G LE:!WI!NG 

s.ttt:: 1D/10(;:00 16: 3:3 GOT 

'ro, Adtiall C:;US!1AiH 

Sl.Il:o;!e¢t.: rHo KV~ ;:~I: }iEHX - C;"iHAN' ACCOvH'rS 

From the atta::ohc;c! It appears that 

1. ihe ~rnedi'ahof1 is not [:lrogr65sing if.' plan 

We will iol\l/<wd{c yO'-.J ill fe$por'l$e (ror'llih{l b\,l$lnt'S.$ whefl -/Vt;l i~i'M iI btlt ill this ~taD'" lil6ltl is ijW':5 t:i:s~ 

!hn! '1Ft! £.!:Ir. dc. Very happy to di$cuss. 

Regards. 

Confidential - FOIA Tieatment Requested by HSBC Bank, USA, N.A. HSBC oee 8873501 
1563 


760611.396

W.crre., LG~"'I"Iir.9 

DEPUTY HEAD OF COfJ.PLIANCE·GMO CI.!f' I HS6C HOlD!t«3S Pte HSSH 

€I (;nn<l~~ &!lJ:JffL Gansrl ;r.'\'IM.U)!\l):Jn =14 ~I"!Q, U'!1l>J<1 K!ngt!om 

Pno~()2079B182a7 

F"'t(l<O.~'4it9 

Er!0l11 ~£!!lTI.!.~~n;na3;1:l§.~~CQ.'n 

ROImcn GAR.CIA/HBIotXiI1SSC@HSBC04 Oo.t:o "V.'2~$:r; C LS:\M!NS- -:w'irnm!:l!.al'r':ng@h~::..~I':'l') 

10 2006 13·~D Mall Sill;: 11i71M. 

S(lbje RV: Fw. HBMX~ Cfl.'(M.,\N l,CCOUNTS 

" 

VJarren. Adrian's p(Uj:.Osal on not accar.-ting Gash has been sent it iO ttlC: OOS\l1e.5S as an !r;s!n.lCI10n, ! wm 

fo!!ow tl[l due <";OP'P!iance to it 00 fetPedial!ol"!'s tcpi>.!, t>elow ~<fea~ !im! self-:>;!!e.~9tQIY mai! sent!a 

Perle by Rendai!, i exDeCi to have e resoonse from CEO tOOay.1 wiii send also today to bus.iness and 

prodilct I..'lc Instr:.x:Wm sts!!~ t~l'l1 if t1'l.~ prod\lct it;; 1'e~~l,Inchedi all exls:tlr'l\l aCCC>lmts. h<,iw to be rrC'..ren. 

aoo rerne~:Fat~~ a5 end ~'I't:~n tfM~bl~ occt:r. 

Regi3rds, 

Ramon 

john R RENDALL 

-- Mansai5 original -

Oo!o: J, .. lH1 R RZN'OA.LL 

£nvi ... cic: 1{J!Q-g./2ClOS Gi:52 PM cm' 

.::c; L""Q1Ul.rdo AR.\N1I1 Ral"Jlon GARCI~J ·Cet"ilrQQ VIGL"E;RAS 

i\..:r;uni:.c; :\..-: iii3l.-jil: - CAl MAN" AC(.:00tH'S 

Luls 

there a~ars to havo been 'if!;;'f limitoo p,.~ress witt; ttla <inhancsd KYC PiCC6$S 

our cur'e-nt '!'l'!ttine:~ k"YC proc'!!;! i$: \~ o:>MtOu$ (,!:, 100 que-s-tions) r.=n1, j,1!~ that :staff ar-e. cont!m!ing 

COiifidential- FOIA Tieatment Requested by HSBC Bank, USA, NA HSBC OCC 8873502 
1564 


760611.397

to do .~-y oadl)' Ol'1s11e visit reports, 16m nc1vptimistk. abOf"l tt~ Irr(ijly Qualit'( ofwQrk goIng foroNard 

80S OlJr PLO r6gif[1:3 t:ec::)l'11es bettef jOi.'1e6-up w-e need to be C.t:.irefu! aCcllt!he r:s.ks of feill .. :!$S wr! caiman 

pl"weS5e-5 leading to .good~ customers getting classified as high "sk, prompting cbsures etc. 

LeOl1ardo an~ RAmon sl'151re therse concerns. 

v~'<t. have workad with t'le produc: wam .and GMO to ests.blis."'1 m."ls$d crrtGds Jc.r ope:,lng tle'w',. accolinls • 

!here Is still more wo1: to de Ort these. eepeciaJ!y wrtagreehg iimr:e: on VCll.l;,mn ofc~f.h depos!t;.. 

OIlCfl we h<l'o"ll ~etermined a finalsel Of cash lil'lllls rules and pra.ce:ssO$ lOr rmw&CCQlJolS, wewjt\ epptylo 

old as Yiell. t 1"!a~ask-e:;:;l eM? to woOf'!\: wilH PiOfJl,lct<Jfi whettWfwe ciiln "5:.Ci;fody sOOrtii'1l our?Ef'Si'SCClI 

en/1am:ad KYC 10 creatE; a mYJ'e n16ir06g~at.1e and $pe<;lr.c proooss fOr trJis procruct catavoo)'. 

Flnatly, wrt 1M s."I(\!:.\lnQ cuslort'!!&r ba:s~, 1i! IO! c.>fwork ~s boon d<:.'~ 10 Enalyse th-e risk. profii'?5 of !h~ 

a-ccount holders. We have asked the DhJ~ionai D!r-ecroTS to mOllS on the hiOhest risk C8ses ~ 1,314 

aus!omcfS (2.15:%) end tMn tM highig, risk cesres 2,027 cases (4. n.:.). Tho-good news: i!i tMt 47k ('Q3%) 

~rl;i' 'fie' .... er,J ilI~ low risk, We hEi\lle gtso deduplic<lood e<lGl1 (.at~ aomnst the Restauracion pmc:esse5 ~ 10 

avoid dolt\g tne same pr(lcesse!i twice O'let. 

l1we wailt 10 .;;chie~ the be-st :JaianC8 bat.'Jeerl customerser .... i;;;e snd ri.ij.t·based PLD.I believe that Wi: 

;rea'd to chan9? tt,e- p-Ian as fGi:O'.Jr's:-

implement !'In ~reed sel_ of flew product par;,.~te~ -and app!y the trar'ls.actloo'3!ity rules [0 !he ,:istln~ 

slm:k too • nn will blF.! mamJl'l1 at 1Ir.;;t 

iJll:.lre-meni a mole sitFi'larnli"1ed "-enhanced K'iC" , have it cOl.mtl!'rsigned. checked in Operations lInd 

tssted. by sampied CI'leck.s (a$ we. aifl£loing ..... iLI site ~it reports) 

df~P 1M e~MI",¢~ !'>;''C br existing to\v risk custorm-r~ to allow wl oor la'rforts to be. foou$f:ld en the hjg~er 

risk cates 

'Nhile !he last ]XIlnt SOlrnas IIl(e f:I. slgr!It1cIlnt change, with the revl~ proauct 'Specifications aOO the 

e;;~a;;cect 1rn .. 5actlooal IT"lOfli'iOiing that we nuw t,s\lS, I believe 11 Is a balanced ;'00 more t1sJ.;~swaro} 

prGposal. 

If you be!ie'1,.18 this Js a viable SQo/!,!tion to the concs!'I'\S ft-.;pfolJ:ssed eMler, 1 wouk! suggest lttat W9 W(lr\( with 

GMO CMP ilnd with LAM Audit 10 get thoro fuodbar.k and Input baron! bmally propos .... g as a revis~ 

~r:, As, 'I';e still h3'.'eO'l mcr.th ar,lj a t;<;lftc go bldc~ oiJrdeaQl1ne.1 tt'Jnk tt');;tt1 Is an owort .... "rl~ tirmtt: 

propose a re\l/sed plan_ 

We w\UMnti)'llJl'tt~ wl"Jl'kon the jt~ me-ntioneo abol.'e. Also please be reassured that ,,'!! reras-everyone 

acrQSs jeh bank is concemen iod3y. the pien is uncnanged. Vvouid welcome yourihooghts. 

lull: PENA I(EGEliHBMXiHSBC 311071200B in ElHil~D" AlOl'iSOIHSMXfHSBC@HSBC,DsvklWJ 

Confidential - FOIA Treatment Requested by HS8C Sank, USA, N.A. HSBC ecc 8873503 
1565 


760611.398

11:43 a.m. BAGLEY/G!v!OlHSBC@HSBC 

JQI1n A. ~eNC.>Al.LMBMXlHSscrmtiSBC. M:v~n 0 

ROACHfHGH01HSBC'".@HSBC.II,-iatthe.w J V'J K!NG1GGM INA 

GHCfHGHQ;i-t....~(;@i1S8C:. Mic:i1ael F 

GEOGHEG.ANlH.GHQiHS!!C@HSBC, PJc!-!lfd ~T 

i::U:NNETTIHSBHlHSSC@HS80,And\'l3E.NT.!}iBMXlHSBC@HS8C, 

Q"snam THCtASONlHBM"JHSBC@HSBC. L~rl·!u(S..) 

These t~·pe o.f DDA Cayman acco;.m:ts wars baIng cpansd, o~rsd ar,d .. d~r!is8d in Mexico {the bank 

w;\Io,; "fi"o':n hr thl .. r9<::f:C'fltty). M""",,ir$ll IBW prnl"Hbils M03-Qr-;<tn 1:)81'10:5 to oif<:!'r ool!ar -denominale>1 dlE'pos.its tQ 

Mexlcans, wiUl the exception of !{::Sideo!!'! in oo.der lones. SJ.artins:a tflit ~t Monda)" we hS\'i1 canc:;-elfed tills sen'ice. We \'rln es:t2blish 3 procast of enhanced due 

dIligence KYC lOr tne 35,000 customers hotling USD$400 mllliOil In DDAoeposlls In Gayman. iNa W!1l 

divids thasi;f ""COUnts amonQs~ Ihe 6- Ol .... I;ional DIrectors. The)' K'r'C pr~ss wUl be coordin"'"ed by 

Compliance Bnd wi\! end b)' December 1 ar-.,cording. ,6.fler (his- date we wm canesl ailihe SCCOUlltS that. we 

W~fe not able to COmplffl.e ~1e5 Oil .:irld wi!! se~d CSl~hiers cher.ks to a!! tn~ r@l=.~cti~ f.ustomlitrs.. 

F'0f" thefutu~. Mexjc~n:s who wish 10 open a dollar denominated account wii/ undel1}J a rererencino 

PfO"'"...eSS, ~'"l1r:hi:::.1-J tlla accmJnt5l1'."m be promotad and oPi'r.ed by tt::e bank's staff in G propa- offsl1crn beet; 

as we-doin our Premier olf-ering. 

'We have an &d>::litional challenge becaus. cayman also holds. CDs. ofJ..1$)jican customers, Thf:! ..,-nolJnt 

tM-re is US~1.1 bimoo (fum .59,540 cuMo..-rli;is. We W'rill blktw it)e S-;31Tr5: ;,nhanc€:u KYC pro.:el!l..Ires. 

whith the sarna December 1 deadline, 

Unfortunately WB wi!! U!r.ely Iose.so:me de~!ts as we 00 Olo! e~peC! me KYC process to s!.!cceer:l10Cl'%, 

but we wH! Q1\'$et a sQ!tlA';ant contral and !'e-QutatC!!'y risk. 

~eg.,."Irds. 

ll,l~ Pef!a 

David IN J BAGLEY --~3l/07J200g (0'34:58 a m. -Richard We have bccn in discussio"Qi:,:~i.tb 

HB"MX C?-,·lP ",{ith regard (Q certain iNteorial!y suspiciouS tran5acrions identified. by iOu1 

To 

Cc:: 

D!l!e 

()$j\'id' W J BAGLE'i'iGMOIHsaC 

~J~~e! r GEOGH;;o;..'\N/HG!iQ'HS~@H59C, Emlfo;;o;\ ALO!-JSO;'Hf.n.tY.:l~sBC@HseC, r..~~;I"""."\' J W 

l\iNt3iGGM INA GHQrHGHQ(HSBC®HSBC, Jcnn R RENDALLJJ1BMXrH$dC@kSEiC, Ll;1;: pefir\ 

KEGEUHBMXlli5SC@H5BC 

31.f{l7!2008 10:34 !lilT'. 

HEHAX· CAYMAN At;:'OUNTS 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HS8C OCC 8873504 
1566 


760611.399

RlCl1aH:l 

VVe have bwn in oisClJSsior1s with H6MX eM? with re-Q~rd to certa;n potenti.a(ty SU5pic~1.I5 tfansact;Qf)S 

Identified by routine t'onsE:ct',or, I7IOnltorir.g. Th[:; ~;ifjal r..::pm1 ~5S widened rotc a rr.ore gorwrol tSS"J-O D:; 

de'lsiladt-elow. Whl!stwe oontlnua tQ ftIllow up whh H5MX, , thlnr.1t is apprcpri;,le to provide 3fllnll:l,,1 

report.as fOijows: 

been ' 

ihrou9h trlher banks. a fe-view of the way if) which 

a:::couniG tlHough itS Cll>,rnsn brand!. 

,""BMX 1'lOljs a CalegO;y B tran~iflfl r:::ance 1f't Cay,;'\:;ill~ wt-.tch a1k:>ws L"lem to p~oV=-.Je I:n~nki:';S ~eMce& 

enywh~ other !han to Caym(?l'l resident",. 

TOO Il~J"IC&. inneritod from Bitai. S!tDWS ti8MX to provide USO·dcn-:>minaIOlJ s~rvices to parsons 

domIciled In MexIco. Ms)jc.an tegula~:cn appar!lntf)' protliolts iM;'ir.::uaJ M~xlcsns (Le. non-corpor.;,te} to 

holo- USDMdenornin.att;d dt;pQS!t accol,lotf; In U(nt"ico, TM bnanch CUfT~\'I,tty hcid$ US0400m 31"<1: 35,000 

account .. , Tl'tii\e h; PO pl1ysii;.iJJ pfttiimve in Cayrroan iillRJ eifl::!cth1aly rroll( arid {).acl\ omcs s~rviCt1s &1"6-

pro",iderj iJll the I}lutl'ld m Mp.xicc A!UIQ'.1'Jh HBMX were r~::l/y fined lJSD50.00n, for !J1e imlppmpl'iatl:!. 

promotion of ihwe ser ... ic~!i in M6Xico. i am advise.d iOOt CNBV are aware of the existence of the: 

accO"..lr.ts ~,~ services and have raised no (;Cfroems. HeMX ,ne howe .... -el ::;.ef;sibly fC\-1ewinij lhe posi~fT. 

I r:a~ta also asket..! CMP to ~','~ wtJ.eUler l~'lel"e ar-e a~ similar ope:e"!ions if) W\TP.~~,t 

Thore conlfnues to be a feQ! fow"5- on the l8w1 of USD-denon'.mt:l1B:i t:lClilllty III Maxico 0 .... CN8V ar.d 

OUle! b:...'"die;s, ar.d ills ~xje:lt of HSMX'"s activity i:1 tillS. area. Tnt; ao;:c;unt .base ha:i ro ther;;:;fora be So<lail 

::;;;. hiQ:h-rlsk frum llI1 AML am:! rop:.rts:tio"'~lJ pcmpcct!'.!e. 

A(lllamnUy an audit ;::eniedollt in 2005 ofttle ceyrmn bl'lilnctJ acfr..rities was mted as below £tBndljln::! IiInd 

Ideilttfl6Cl signiiJCaI1! KYC w&"9)i;fJ6bSfd" It wii! w lfllp;man .. to Enl:$Ul"e t1"!a\ tI·~ accuuntJ:. 'lliu ~~ coyered 

bV me 't'f!OOUS ecwtmt ~e!"1l!l!t!etlon pr!X!i:!S~S clider .. !3yln H3MX, and es 9 prY.Jrity .are-E. As!:! prec3u!ion 

HBM.Y. nal,.~ Issued ;nstrUcOOils thnt m new m.lCOw1ts ~ OpftJ"ll"....c peooinQ !l review of these activities. 

Wi:. sre <llso checldng whether dfly slm!;ar act!vitles ex:k.t ~tl L...,6.TAL-i. 

I wll report funher in due c(;>u~-e. but thought i1 im,e-ortant to provide preUi"nin;;ry f13'POlts. 

,I..,i';,. F r:OCT/G'MO,'r:SBC@f"~':lBC, $iPSan A '/..RIOHT;HGHO;}lS8C 

Sub~ F'Io'; HBM.\( Cayr.-an Strategy 

Entity 

Rarroorl 

Adrian Cr;s.uanJ, Head ci Wealth Manaq£!ment !=IiobaHv has as~ed wheiher the fJf1a1 pro.:luet prO~os.jiion 

Redacted Material 

Confidential- FOIA Tieatment Requested by HS8C 8ank, USA, N.A. HSBC DCC 8873505 
1567 


760611.400

nos bocn a;ncnded fo!!~'ing b'lc comments:;ct cut in ~ ~tt{lc.h¢d roo;('. R1rt.'l~ recorc he elso Oppo!:6S 

:<!:I':r.p.pling cash dfl:pO$it<;: 1Q $;J¢!'IIii~tounl-':i HfiI is keen tc P.n~ur{1 thf;ll burnncss io MP-:rif"..o lake £jr..c(Jum of 

compliance COllc&rns b\.:t filet the new product be iauncneC 5000. 

is there any chanoe thnt you can respono or call mE' toda;.r7 

W3fren Le.:lming DEPlJTI' HEAD OF CDrAPUANCE.GMO eMF! ilSBC I-fOLDINQ.S PlC HSBH 

(j. Cill,C!II ~:Rre, Ca;')arf IoIl'IiIrt, LOMeJl El~ 5!--Ci:, U"lIt&oj /<!r»lCQIll 

r~.ol'e (120 i9~1 621)7 

F~~ 02Cl /99147\11 

[mlltl ~W~ll@~~&~" 

Wlrre.n G LEAMlNGlGMOIHSaC Dcl 03 200a T:1 RZ:"':!!I G.>\.t::Ctll.I!-!BM)t'JHSSC@!",SBCQ4 

17.3!) 1-'tlO1l6 no. 799 11l2fJ7 Dt':.1dWJ B,Io,GLEW(',,\lo..'t-ISBC@:HS9C.JohnF 

44 (I 2ol991IJ2U7 Moo,1 SI7.Il: ij120.(4 ROOTfGMOIHSBC@HSS:C. &!san A \>vRIGHTiHGHQiHSBC@HSaC, 

Auri"l CRiST1ANIlGMO..-rlSBC@HSaC 

S-ubje Re: !-!B/t.f)t Cil)'fIl'l'n SIH'Itegy 

ct 

F'llfth6f to our discw;.siofl iast n1gtJ!, tJiank IjOU for thg updated C9yrn;i1 StrateiTY, 

I :l!se Me a disC'..:s&ion with ,.A.drfan Crist:ani th~ momiflg &$10 progress: h D::J!!1 !'e."TIed!S!:IIo!l ofexl$tlng 

fICCOUr\1S ood proposed strategy Qoing ibtward snd un.asoook 10 provi:1c him .. vilh bem. a summary of our 

posi'tbo and an upijate of progress (which the attached strategy wUi provide). 

For t ... iS ref:lson I &'"Iach a copy of reGen: cc"uspoooer.ce '!hat: r.a'o'S had with rvtifself and Jolin Rendall ??? of 11ur rlr:1Yioo 

Subject 10 aoy comr'l'leT'ttz i;hlll( Su1;;en rnay wi~h to (naic.er {she is out. oflh~ office t()(j~ blll: r~iurns 01) 

Monoa.y} It appears 10 me: 

The proposed strategy '."I':1:J1d still e!!ow irld~ .. id~els to deposit cash up te $10,000 e~ ror corporate:. tD 

del'Qs!t cash up to $100.000, Our adv~ as 1tated 'n my memD of26 SepterM$r to M9(ia SSieZo!ot. is 11'1al 

no.cas:; dePOSits sho/J!.:! be acceplEld 10 s.ocI1 accounts. 

Would yOIJ p!MSt'I r,!~r~ the! ~n eXis!!!1g ~I!~""~ win bEJ- YrJ!idat~~ again51 a blacklffi.t whi~h would 

i!lciuuu aji OFAG iis{s Hud W.lridch~.;k if yuu u:;c Uli:; iii Muxicu. 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8873506 
1568 


760611.401

~ues11ormsire . 

for corporate custr'JlTel";o ""e liho"uid complf,:te KYC on the; l,InrJarlying beOitlrlC~riq~. ~nd $o;:.:ounls !>hould 

abo w s.":It::Clle!l i:jl,/dil1!l.t 1/-JuJf. 

!'1 !'££~ct ot tl'~ reme1tatmn exerr::is.e we \1!0\.!!d exPe,:t ~h~t a!t ret! <tn~ 3mbftr p.c;.our.t5 ate fro:r.en to 

i'l'~VAfI! "ny tr.:."'!:;<!cljor'ts On t"'('l!i~ ~(:~lJnl~ t'"l!!! tl1~ ~f1f]"r!~ KYC:!l <:'.nmp!{I\'.>d 

R~garclE;. 

Ramon QblLC).A--~OJilQf200g 11!:3! :37··- k~lca~c .find anoctqd EngJt['JJ.translatioo to ~ 

dt'V"100,Pnt \",.'ith ell"' Cr;yru!t!1 S1n:tGg". 1 hope: 11:s infoMl:lt~o!1 gl'l.'ez you mere !i$h~ c 

x;;''';',CiI c'!\RcrMmMX;'HS8C@HSB-C~ Ckt Til \'\~n~n G U::!'.M!~~G!GMC'!H.seC@""S8C> St.;S:!l:-: A 

(:3 200'3 14;:';'~ M-,o': S ... !>: :;t~:';~:: \W.lGH"TfrlSt-:QlHSBC@HSBC, J,-~'1I' F ROOTf(::~.m!HSBC@~SBC 

Pil!'ase iiI"(:! atta<,hed English If.Ans!ation II) I'i riOOl!!NI.ntwilll on; Cryym.")11 Stu')t~'. ! hnp>CI tN,,; jnforrootinn 

gIVe!; )IOu mor.e lIgnl on were arg we on tm50 tapjG. Regafl1s. Ramon 

fanachment ~Graf)(j Cayma .... SVale;}~' Update :lppt'· i::leleted by Adrian CR1STIANlI(''MO/HSOCj 

Confidential M FOIA Tieatment Requested by HSBC 8ank~ USA~ N.A. HSBC acc 8873507 
1569 


760611.402

Rea:so.'1trlg is UlHt they are [~LllaleQ by 5epE:'r~te f~gutatGrs and accounts are irt ilinerem ccuncrie~ W;;l 

Hsec HOidj. ....g3 ~!c 

Regi:lj;t~rS'ci Office: 8 C"an.?ca SqUB.f.f!', l!:::nrY.:n E-q SHQ, Uni!e-.:J Kln~om 

P.egiStNe<l 1!1 Eng!an~ !1u.'"!1!;er !3179f!7 

~Qhr. R RE~DALL 

whet (; reasan lOf \leephg ky.::: documents ':;;Gpt:lrBte '{ My C[)(;~~m is lh<!! we will enu up donlg lll~~ n~dfy 

for geec e~s!!i"g cus!ome!"S th:::!~ me 3!re:Jdy well ldsntmed and 1!"lggs-r conSi:q:.iSnM! S~C't.",.!r.-! c!~S.t!H~ 

pmnlems: cl.ierytflrng!nat we f"ldve ooen 'I_'orklng lOWdl c (f5 wt\tr Np.sfaU'aGon ,$ klr 11!i" '!rJ :Oen(l~' c~l(:mel'S 

prcper:y once 

Jcl:n 

Redacted Materlai 

Confidential .. FOIA Treatment Requested by HS8C Bank, USA, N.A. HSBC DCC 8873508 
1570 


760611.403

.za'D3/2CVB to.OOd In Jt:1I\f1)- XCY.JllGMurrt!;KG@:H;J'i.\;. JaM ~ 

R~~Df<,LU;'Bf..tX!HSS:::~HSeCO~, P:~r:'..':<n 

GARClAirl81.tAiliSBC@i-"88C, SiJ~n A V'tR1GHTIHGH-QikSBC@.'tiS&C, 

W~tr"'n () L!:~.IlJ,~j\lQ"GMOr~S8C@HsBC, D~· ... d W J 

!:!.J::,('.tl::."YJHf'::HQfH88r;@H.sBC 

SU!:;,Oe R~; CaYITliH) AlX:uuni:!,. 

=::~ 

Maria, 

In fO:5pofl$e 10- 'jIOUr ;JfOp:)5S!s we nole: 

No1 only should thtt infunncflcrt:rom !Ile HBMX D:CX' • .'nts. an:j Cay'l":'1an 8;ur;ch OCCOUilts be se;;:cr~ted b;;t 

in addll!c1n II ShDUld be rT1O'1rla caar thflf the ::It,cn;mf nrtJ'1HlgIKY"C dD~UlT1flnt;:,lil(lll should l:le lillsn r.e!ri 

5.ejiiU8tely YOIl -Shu\.IrJ confirm wl~iher Un::Je i:s ""fly C;:Ifr(\.::l(j 10;:9,,1 it"\1uile:neflt fOi!t bt'; he;.j i(1 Caytl1&il 

or e!'tsngemet!t$ rr'..ad~ for it t;..; rrre:1e ev~il$b!e to me C;rY~rl ~!.it!";Ctiti~$, 1l,J;')!!e~tsnd t.~et Jalt;1 R(le-t 

has Deen SMIlg aavce If, tm',; ere-a so that Ii you haVE not rncelved any aCVlce 110m Cayman may oe aole 

toassl3t 

... \~ 85SUffll'l lhat ute- vdi~aiion oj pfospectJ",e ~!.IstUllrtrrs against b!ackii3t \rrcnJiG inclv~ aii OFAC iisi;S. 

Could yO!! p!e.ass ad'.~se wt'..:'!! tt~9 b!2cYJIstr. L'1clude. 

it is our recommendation mB! no cash dep-oslts snook! be acceptea to sucn sccoun~. 

V'o'e agree that a;;;,ciJurb should only be opeoed for e~L~t;ng HBMX cU5tClmero; who rave held accounts for 

sbtfTI:.>nths 

Regards 

M~1~.<,i5l\J,.AZAR-~l81Q91.2D(I&2iL"1Q:5&~-"W3xrf!'n aDG.$1):51mJII . .Q...n:ll"rtQ....("ontUt\1~~llSUSD CaYman accountS as reo:ucsted bv nroducl area. we would i>c (U'aWful if you c 

~" ... ~U!,"ZD.RIH~'".'H!;;tU:::e"'~ft~ J;e;::o Tn Warrnn G LEA~,MNGJGMO}HSac@HSBc, Susan;" 

'1'. 200i'l20·~() !I\;I:II 5i~: :J<H~ ffiIGHT{I-IGHQfHSBC@HSBC 

.Jci>n F RO(lTJr,."tOfIIS8CGlIIGBC .1M;'! R 

RENDAlUHE~.ilXtH5BC@HS[lCC:4 R"iT.-:.." 

GARCIA"HBMX!HSBC@:.lSa.C 

Confidential M FC:A Tieatment Requested by HSBC Bank, USA, N.A. HSBC eee 8873509 
1571 


760611.404

Fr,W)' 

In 0;:;:.,,- to Gootini.ie o~nlng USD C;"ymai', ;CCCiUiitS <is ioSQuSSt8d by product dfEi;;;, we wUlJkl bf; grQ~"f,-d 

if you could g.i~ I)~ Bn of1!rtinn on tt'le actioll p!Br1 IrnP'lf;>r:"I€!nt€'(! In ~BM.'or fe-gard1r'lg !l'le5:~ ;J.~cou!"'ts 

Mexican rcgwat~ni> set out tint USC accmml:,s can to ope-ned viily h, bord~r ZCfKi.5. In cider tc· of"rar USD ilOCOtHlI (J(;:tYS~ ~he oz>untry, f'iBM.)o- open{'C '" t:>r",..,cl; ~cO!h'ld in G~21Fl CBY'l'Bn in 19-80 

I., JUlCa CAMP mOfli:':""lI,y ;'y:>.it:om iil(:'"lliii6d ~iYI);i'ic.;;lIi \..ISD !t::ll1iiiluICtJ!. IfI<lUt:l uy <l numbel of 

cu;slO/tle~ to R US cornoah)' ~Il/:lge(!~' Involved In supp!yirg ai!C(afls to drugs carte!s-. S • .o\Rs ~~ bOO"'! 

flie:d wUt. ml'! aumofil:es. 

0;-, 2eJULO~ t'1f: t:;;;0r;ing of USC DDAz and CD/~ lCC8t'.id l~ cayrr.ar; w<;::; !;l.i~05Mo.d ,s;';c;; r~v:"",. or 

the procf;!u foHOWSd by HBMX 1:0 a~oerate USD accoul'ltt ihf~h Its C<l}'man br.mct1 was commencec. 

On 31.:l\.JLV8 HBMX CEO instlucteo Illat all c\Jslumers .... Ith U5U.acccunts lOCal€<:! In Cayman branch 

slJC'.ol1~j ha~ '2! com~'Jet€ \der,Uf.'{.G'ion me a;',;:J ali BnMnted KYC by DiDECGB. Tt-,.,. C,,;;i,omers .. ti, ... C"1;;,:,='.>ifi>:,c! i., Ofn,..r t(1 f'~I!3b!j~!< pn,)ritie$ to tQ'1lp~re t''''9''SI!;< :adiQr"l~ oonsl1E'rlng customers:' tranS,E:tilJna! 

actlvlty as 1011OWs: 

CAY:';AN ACCOUNTS 

(SAR~J 

AMBER Ctr;;tc:~rs alar;ed. by CA~~P !':'f'Omm wt!hl)llf S.AR$ 

\I\f}il f!:: Cus\mners \\·/10 are Got incbld~d iri t'1f'. twa "t).,-we ctrtegylP.S. 

Redacted Material 

Confidential ~ FOrA Treatment Requested by HSBC Bank, USA~ N.A. HSBC acc 8873510 
1572 


760611.405

~ All new elJslor"en; shot.Jtd NJ IT". an enh::m~ed KYC Que-;.tlOnnaire; in caS9 the RM does oot com~!e!e the 

KYC tlmoly. the acccuntwl!! bo can"O-!leod. 

- ValtOCi'[Jon of pro;;.pElct ClJ'Stomers againSt olacklrsts< 

- Cay;mr; accounts csr; be op.3;",ed on:y by customei3 with G-.. .ontt": o~ MXN A:::ccunt. 

- !:;Ci',,'l~u:J:l\i C~;: o~n O:-iy CiW: tiCCOUf1t i.'i LSD l'll:r:~, ~'l ::3:¥m:]11 br3:r.c!'. ~r 11'1 ~eNiX, 

_ A mAlI:jmufl'l c.ac;h oo~it !amount w9~ ~pt as tll'r.ws' 

LSD 10,000 for individuals 

'{ye expect Ina acove IrrormaHofl 1$ usso-u; tor you io qive an ornnion, so lna, product sma .cSfl t.::K1iinuo 

Off:$>ii,g ~e~;;- QCCQt"';:;'. . 

Maria del Consueio Salazar 

Confidential w FOIA Tn~atment Requested by HSaC Bank, USA, N.A. HSBC ecc 3373511 
1573 


760611.406

From: luis ALVAREZ 

Sent: Mon Ju12B 23:58:29 2008 

To: John F ROOT 

Cc: Ramon GARC!A 

Subject: Major Issues Outstanding 

Importance: HIgh 

101m: 

Please Gnd l1\e answer ol,lfslandl!l.[!, below, 

Best Regard$, 

Luis. 

USD p;:.ymeols - what are the resulls of our investigations mlO Ihe high 

vo!wncs from cambios anrl, iocrcasingly, orokerngcs? Please address the David 

-eagley nole (4 July) on the JlCed lD IIldude brokerages (casas de bolsa) J!1 

heiglllcnerl sec I)rocedures Your repor'l shcmld iTlclllde an analysis of!he 

Cayman accounts (lllCludmg lhe recem SARs) ilnd also dIscuss the CNBV and UW 

and US i/lvestigaliolls. 

large USD Deposits: 

In order (0 mitIgate risk in HBMX, lOOK prot:ess was implememed (customers 

.,.,lm make USD cash dcposil'i exceeding lOOk Within a one·momh period). 11 ha.s 

ber::n identified lhal974 Cl;slomel'5 ma~ cash deposits for a lola! amoonl of 

USD 308. Millio!! from Jan !() May. These c~on~ are classified in our 

monitoring systems as high-risk customers anrl an enhancel1 KYC mus! be 

pcrfol1'TlCd for lhem. lflln}, customers do not mee\ rcquiremcms. acCOtnllS art 

dosed. 

AJlCllhcr action being taken is that Monc),-E;o;change FimlS Ci) thai have a 

busirlt-ss rtlalions.hil' with HBMX and Intemte<iiary Banks 3r~ being examined b}' 

Producl 10 decide whether to comiauc Ihc relationship with the bank or oot. 

This deCISion OlliS! be confimte<i al the nex! MLD CO!Tnllltlee OleelirJS 10 be held 

cn3!JUL 

All accounts identified In these im.'esligalions have ~el1 ~poJ1ed 10 the 

aulhomies. 3Jld rl:levam business !inr::s have staned accoun! closing 

Redacted Material 

Confidential - ForA Treatment Requested by HSSC Bank, USA, N.A. HSBC OCC 8873598 
1574 


760611.407

praCOOllITS 

Regarding CNBV and U!F issuc. it is related to all enquiry made to !he 

InstilUlioninforrninglhatanillVesllga!icnwasoper.edinrelall()nto 

dilfen:lli transactions. This invcs!igallon is wlCk.".ay. Thcn::ror~. rliffcrCnl 

data an: now ileing provided to rcspolld these enquiries. 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8873599 
1575 


760611.408

From: MariOn 0 ROACH 

Sent: Wed Feb 16 11:56:55 2005 

To: Stephen K GREEN 

Cc: Richard E T BENNETT 

Subject: DISCLOSURE LINE - HBMX CMP 

Importance: Normal 

Stephen 

I refer to my note o121JANOS where! gave initial notificatJOn of the serious allegatiOfls recei'led via the 

Disclosure Line. ThE! disclosure made by three members of the CompUance function aUege that senior 

persons within !he Compliance function fabricated recoo:ls of certain mandatory enti·money laundering 

meetings enQ p;uvided the~e false records to the local regulator CNBV. 

It was ~reed wRh Sandy Flock;hart that these allegations should be investigatec by the local audit 

function in a 5sociation with GHQ CMP. 

The final report has been receiyed which confirmed the following:~ 

The relevant malldatory monthly meeliogs had not been held between July and December. 

Attendance sheets and mmuies wefe fabricated to disguise the fact that the meetings had n)t !a~en 

place. False records were prodUCed In response to a request from CN8V (recaived dUring a routine 

examination) fo( sight of the relevant minutes and attendance sheets. 

Two junior employees admitted Involvement and knowledge of !his fabrication albeitacling under 

instructions. fJom CarlOs Roshin (CR) the former Heed Of Money laundering Deterrence- within HBMX. 

CR admitted giving the relevant instructions and 10 being solei,! responSible for tfie fabrication. To his 

credit CR was entirely open and candid in responding to questions and immediately tendered hIS 

resignation. This was accepted. 

Rar;lOn Garcia (RG), the Head o1HBMX CMP was unaware of the fabrication, but was foun1j 10 be 

culpable given thai he had failed to ensure thst Ihe relevant meetings had taken place, parti~ularly as he 

had been deSignatoo chairman of the relevant committee. RG has been given a final written waming, and 

will not receive any bonus or salary Increase t1r the year ended 2004. 

CNBV have been advised a.nd it is. no! expectS<! that any action will be taken. It has been a~·reed that 1 

should adViSe FSA In a low key manner which wlU then hopefully close matters. 

The need to closely oversee, supervise and indeed support RG on an ongoing basis Is recognised and 

we will do what we can from GHQ CMP to assist In this regard, Overall RG has performed credibly, has 

wor~ed very hard, and would otherwise be hard to replace. In the circumstances whIlst we wi!! need to 

keep his. position under review at this stage I endorse the decision to retain his s.ervices glv~!n tIlat his 

failure is limited 10 one of failing to supervise a very senjor and trusted subordinate. 

I wll! provide an appropriate report 10 GAC at the next meeting. 

David Bagle}, 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8873673 
1576 


760611.409

From: .A.fI.9 T NUNN 

Sent -..,../ed May 14 1e;07:47 2006 

To: Kart eA~C:""4Y; Derek WLE<\THERD.ALE 

Cc: DaV1d W J BAGLEY; JOM ALLISON: AilsDIl N HILL 

Subject RMM" Count.)' ~.l5t. 

Import...!'!!'!ce: Norma! 

Ked. 

'ju~t trie<! to c;::!! you re your RW ... ~ qweJ)' a.'1d hDpefu!ly we C3n t2!K later. 

! OOli9V'9 you have Sight of our country ReputatiOOal f{ISk 1 atlJe out, as preVIOUsly dlSCUSS9'J, Un!9Gs, ttlElre 

('lr~ some specific concems a is. !lot prOp¢$eO to hjgtln~1'll tr~ t'ighl7st nsk cOl,lntiies .s.s s Imtt6f \;If w!,lGi;:: 

T!"Ierc a~ Mw~ver b,r,Io C(\I.J"'!tf~ to 'I"Ihiel'l. we would 1;1o:~ !<J or,;;w to RMM's a!!entiol'! I)!"! llle b1i si';; Of ,,(!- (,.riterio:! Ynl.1l':lfl'!l.1::tir;g;. 

Vt:neztJE:!a • the Cha..ez regiti'lfl ;:ind l)Qiifit:aiit::omrn.:lfcial erl'vironmen{ in 'Ven€2uaia, iOgeUier willl ifl8 

lewl of !;tlr.uptl.;}n, presenis liS 't,'nh ::J ~igrlifu;:;:lnt rsput::rtlo:om! ris~ when 3OCG'pting .:rtd!Cf rnwrrtail1lr.g 

reli3tlOflslllPS with certain Venezuelan govemmerrtlstale owneG t:o-:hes aM alW carta in 

bai1'rI~/;ildi1/jd"'fils!'wmpimjQs wt!V ari'l knowil!-o b'6 iJ5S-o';'latOO wnh afJ-G to ha'y~ blj~fited !'run tli.:; 

t:;/"IaW2: regime, This is furthet 6y.aceroatsd by the poor re~tl')ns1"!p bcotvl'een Venezue\.a and \t1e US and 

Chavez's SHirlee and suppor1 of countries deemed to be oooonenTs oflhe US. It is believed that me 

Group w!l1 nced to cOlISider a sp"dflc porK:Y'plOcedures re doing busirtess Wltfl Ver-eJ;uera to rmnsQC 

tfle!O-e risks. Th"'''se ris.lo:.s Mve ~lre;l(ly befilll fl~ged. h~ve be·eon -diSC\J:;selj in GRRC end fl I1~HrtJef of 

decislons reached to restriCt certain areas of actlvrty. 

Mex;co· wclo; ar£: specific f~l.s in reialioll to pre~:!tl.lre ti-orn ii'le US wilh regard to th61aw1deling of the 

prc~s cf ::!ruQ !n:rffickin~ -;h:<::i,lg!1 Me~n c.e$lc 00 cembio$, H831.1:<: h~ve z !lum..~cf C,"S!Orr'el'$ whc 

arc camblwmoney seMCa bUSMSS9S (MSBs) WM bnkS to tile- US and consequefltfy paymElnlS froM 

HBMX S~& ~ thiOi .. "Jh IICUS. Vvi'!iist entH:i.nC€,j due jillgencl;> and rr~Siii:f,o" «.onilQlir,g ~> be,ng 

irrp!ernellf~1j t!'lese Ne f'lOlOriOl!~ly O!:flCl!n ry..Js!')>3sse!; to rnoro!~Qr, ~rt;(,lJl.ar1)' iOIS !n ~ny inst8Jrtt:es tDew 

ousirtBss IS USr:S8Cted \IS e muitiiude of 8QeniswflQ can very irom ierger bUSinesses to C-oTTl'3f 

s.'lcpslf:-3Ve! agents, etc. TI'I~::'iugh lhe Ba:'1ist.-no 3Cqt;!sl~n the Grou~ ~i~c has 3n MSS In {'>'If: liS 

(aanG~il!) Whii;t) o~ra1ffl througrJ ~ nllrnh~r of bran(.hes end whjr-h I" ITI311<1!}l;!1I hy hSSC El $.':JlVildor A 

specmc ravi61'1' or til!§. OpErfQuiJrl is 10 00 aHan';)jtu1. y·~1t'1 f6gafd to MlV;.ico, there is also US co -)cefn ..... lm regard to the a('!lOl.-ont cf USD ~sh depcsl~ ~nd trensac!io!'!s betwee!l the US and Meliico end H6MX tie!> 

been iaenntkld 85 one of the banks with the nigll8S! 18\18'1 of acuvJty IfImlS area. A reviE"ot' of OII 

irr"-O!>.iemant in- this area is currently u,ldeM'CJY within liElff1X. HOMX al'\Cl l-IOUG ar~ ai30 liaising ..... ith 

reg...""1:l 10 MSB traffic cr.d b.mk not.;s \::"'iOines<;. 

Regards 

Confidential- FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC acc 8873750 
1577 


760611.410

from; MicnBel F GEOGHEGAN 

S~t: V'led JIJIZ{l 1.(l:19:04 2010 

To: ~~atiO', 8.. ..t,J?A"IOVA" 

Subject: ho.'- ReO NORTH AMERICA 

hnpor-lOllic.,; Nvrmiil 

Altachme!1ts: ima~_O.gif: Doc l.lnk.Nm; SerJ!of CMP ct<fe!:llves 2009 doc Z!P 

Pp 

HSSC Holdings ;:m-. 

NhDS~ r-ef;i;;t.'Jt;'d .addre-a. .. is 1) Caneda Squar-o;., Londo" Ef4 ~Ha. Unitiftd Kir,(jdom 

"-- Otigiflal Message--

i''rom.: urnd IV .J e;.o.(.LE-:{ 

Somt: 01(2f:l/201Q 05:],5 PM (;N!' 

'to: M.l.CnMl f' G~W,1!!(,IIN 

Cc~ JOuqla:> fLue' 

SUl:»e-C1:: m;o IlOR':.'H AMERICA. 

Mik-e 

1 attach a :><lTfeS of ~·rr.s~ a:;; requ~$1ed in wh~h I ,,,,"lied i;;;:"er.., .. tfoni wi::; r~<ird ~(,I \;.H1ous ,;har'/J8S 

lTl~de i'/iF'!n ttl!'!: C(lmplian{~ flJI1!::tiO£1 in Norttl Jio.rneflC"-<1, bOl:l1 in rn!ah-on to tl")e ITIC'st recent ("'~!i'J'3 (wr!ero 

Janet as'5umed a .oombim~d roie), but ai'5o prevtoli:!ily Wilen a Oef-'i5ion ...... e;s made to oomtMa .he roie 

LlM-er C2ive Glt'OOfiS during 6oi,AJy Mehti:\"s ti((JO), My' Ofily addilroli8! oo/"TuT!(~T,i5 wou1u 00;· 

Coocems !n rs!at!or: 10 !!"\e !!'Ie!t re::::~t ~pptJ!nt"l'\en~ "·,,sr.;! ~~i;;;trtenw by !he f;a~t th.~~ ! Mad. ;xevlOusly had 

real C0l100m'; abOut tne apprcach take:l wtlen Olive Gibbons assumed tne role on tM retlmrr Bnt ot Jiffi 

K3Jf.rr.ar., 

Th;~ !Mas <:,~~dy reflec!'ed In some of l!"1e !'eedbeck ! got friJ;n Lf"Je fl..ir,ctiDrl wt:erJ !he w!e was con1binerj as 

a oombJn,qO" legal fmd Cornplian¢e role, rletailed' in one of the attacnf'd. 

I fuiiy a~pit!<J th\:lt ar~rJdan. PI/U.! and Ricn<Jgj had tne rY,JilT to maKe this cali, aictl!)1Jgn 8S. I s:alCi to you i1 

V"8.11cou'.'Dr I now V/~!ll had beo-n mcm, 'JCciror0{.s, nrd in m{l current way my rokl operates I Eun 

confr:iei"lf Ihal I would ha'Je 1:1 far 5trorlgor S15Y 

I ha'va IlN.:d I-',y EI~sess!rret1t ... the tlw;j bullut ~>(JiTit OfU1(: n(;w of 111!lJIJI1", wh;-c.h gh1o;1l1 wn,-re we :stand 

£law cle:?r!y !...!li!.!!>t.if~C!, .AJ! ; w·\"!'.!!a :;o:y is thnt :1t !:hg! $!:Jge cc-mpHgnce risk. ;-nan~gemc;'1t ",\,I;S r2!ct as 

'Sfltisfacmry'lJ.)J t-Olh acc antj FRS, there had !)e¢l'\ no patti¢l,Iiarly .tldw~e ;;IW:!It! •. ana fl terms ot 

ccc;::erstlo!1 0;;;0.1 :n:taractioil >'IiU. Gt,,10 CMP, Janet had act;;c :appropj;lilS~y_ 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC acc 8873871 
1578 


760611.411

n::lv!a W J BJ'>J.}LEY!HG:H'::1l~~3C S~:1t by- M~m~ 0 ROACHiHG-HQf!-!~ 3!:: T l) 

,1l.,pr2:} 20C7 17 07 Phona:M 7991 e'}45 

+44 (2019}20 7991 a6.t5 ~~IIS!!!!; 3119 

Richard 

NiJRTH AMERiCA eM? 

TllirlJ$ in NOlI:) An'lerG3 j'lc'l'o'e ~tUed doWf1 sii~ntiy in ihst me tem;:mmry '5tr<.!r-tnre is up ;)!'jd f'Jl1ntnQ, ancj 

th~ review of!he bes.tway!O struc!.l.!re m~ttets is ongo;,'1g, ! \.."m relT',aifl-o:IO$c~ invcl ... <.:d il) tM, Gr'lO Mva 

aireaqy gIver. my Views as 10 what ISsues neel'! to no;. a.:ldl'(!Sselllfj tl)e new $lliJct\.lnt ! am hQoII'e1ler 

~pio;g i .. ;;;lo:;s cvntact ,"W, [,;rendan and In iI con\'ars;:'iol1 wIth him recently t1l6 Uii0wl'~ p.l)inis w,;;:fe 

clariliM. 

Ht! c;oni'irrned that he has now t'lSd a frao~. cornosrsation ..... :lh DClve -Gibbons with feQard to the true n~!.u~ 

and extent 01 hz ide go~r;g fQr,."ard, Th~ 'is ob ... IQu:;,!y con:;.IOcr>lbly ~vced and r;1~r o<:v~n pr~mp; a 

rCv1t:lW 01 its package. Bron(ian's as~$srne:nt W;;l5 that tl)sra W1j.5 i'I dI5!irx:t PQ5-sjbi!it)' hut 03l~ mOly 

dec.ide t~1€ 1'0~ if, $l,ImCieniiy ujllliHj.:;h~ tiO l:lS to walli to HlO'lti In tituS/: CfICaJfflstar)(;C;S Sr'l"II'l':lan fuii), 

U'1derst2MS t~!.!t we v;i!! f15!ed a. f!e'lf nesd of CCrnpM!lCe ~ North A-rerico :lnd $ oper. minded ::l~ t::> 

wnerthl'lrthis srmu!o be el reCfurtmllnt or $e<;.(1ndment OtWlously II IS helPful Lt1at he is open mflood, but 

0'11" wm 113; .... 6 t..') see If in fO.ct trois OCCl,rs, 

Brend<!'1 ~df:> ~ tlN'f th;Jt ult!~e!y !J'Ier~ probably !'5 21') inten!!-on to fet!Jm to ~ s!·'1gJe he<:ld !)! bwsiness 

fur Norih A;nerlca and that 1'here:bre in our pi;;mnif).Q of the strUCture flna 90ing forward we snoutl"l 

anticipale enu expec\ tljat Uli", win uitil'Mieiy be the stn .. 'Ciure 

D61"id Bagley 

.--fc.;wa\:'.€-d by Mlinon 0 RD,!\.CH,od81·I:iklS8C 01! 2'8.'C7/2Ci(\ 1752 -=-

Ilai'lld W J 6AGLEYI'tIGHQfH5BC SEmI by' D(I'.<'f(i W J 

a;..';:;LE'ffG' ... ;UlH5F1C M~~ i5 :2(1)7 07:34 F'ixln<e no 79S1 ae.45 

-,-o!.'; {207d} 23 79915645 M.l'i ;;;'.r.~: 4--:;';iS 

RichanL 

! h~ve gi...en !his some thotJg!'t 2nd wonder lfihel1:!' Is In fs::1 the !"1eed ~ either decide rlght n:rn or ra!se !'! 

sta dinner nerl week Iffnis v.dO flO! happen wom 30. I OGnct mInI'; lflarmere ara ob,ie{;tlOfls ill princlpJ03 as 

t"lt~ is d. well-cst .. blfsh-.d rr,;;dilkr :'is as a G;{:vp but !Ii~,k there a. ... llumber ofi;;SuEts on wt,idl"'6 would 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC acc 8873872 
1579 


760611.412

need to ne romfotlatlle before QOing anead. Tt'tese incluae' 

I hciYe a rea! concem that thii is 4 Ifery big,loO and tf Janel fb stepping up it) lar;e over LGA It bi askIng Q 

lotto also ask Mrto take M me!1eQ5'ment ofa!J of Cl-.1P. It '!i hard snO'..!gt: OOi:1'O en RCO in .ar~y 

jUrlsdiction bU1 me fBgU\aIOI)' pressures m {he US are Qrearer !nan anywnere alse in me GroUf' aM me 

mix of busj'j'6saes ",nd i6{ji,l"fQ,y b\1Cls;;: ;S 6):lramaly Cr,,":1plfiJo: TIle 5i~a of1t-t€ comDiiloo LGA aild eMF! 

teams wDuid be D::: big a team es 9i1ywheH.I cfso in.no laoa! and wrnplie:nce. ht pr~\,jQu5 disc(lssions!he 

ke:y l:lwibu{e l!;lr tne RCO fOP;! W.;I:i- ~e~ as beiJl9 stronQ lWna~merl1 sidlis as much as technicai InDut. i 

have no feet for Iwl'( geM ill I1'1aM!)ef Janet Is. accepting fultyher 5.1;.'ti! alld \!l)l.perier'lCe ~ a I~wy&t. 

! arn concerr.ed mal t.Jo:!s IT'..1~' be 'Socn 2S 3. polenl!a! ccs~·~::1\.'1ng exercise :it:;l ~ef:iO{ I:s~f. ! 't.'::uid h~\.'g 

thoUQnt that 2; very less! Jane! would ,'\eed someone witn conslcernbla e~rience UndeJrldlllh her 10 run 

the co~Hafice fu"ctiGn~ is t'16 .')ofrtethiilY tJ'Iat has troeii disC<Jssed wliti !3refidan and PaiJl. I ",tT; 

strumlfing: I:r::t :ree MW one peoon w!!l be etlJe lC gIVe oom you and I !!"le level of !T!Drmation W~~ need 

lunclJo!laIi), a::;: well as dealwitn nli of me issues in !'ron! cfBoards and Audn CDrrrnmocs-1his i thinl<: 

!nb"d'tS ihat 00 RCO equivaiefli is r'\e€:ded undt!'i the Head, 

i$ ttli:;; S.;..me-iiling lI'ille!! fl~(b 10 lle ui$(;l.!sse-u willi Ille BllClr(1s Qf Audit COI(UTlil\ef:s in us,.;.. 

Should lYE: set: ... hfi1 tlli'! ,tai!(;lll:n) or Veil pJirf.:=tIY i..:.yui""10I:> nJiQhl Vd. 

Qth9r than slmp!ff;ing ~~e repcmng line.lt tt'-e \~rl top I am ~!ruggjiflg to s.t:te any rm.i:ll \1dv.Jnt"ig3 o~ef 

!hlln polAnilBlly i'I cost saVlPg, WhICh I amwHry ~hrlut tm the above fE'.J:I.o;on!>, btll can.!>e€' som:l' ri~k.."'- no 

we 'Hamor naooto 00 Ihis 1f1 .... "iitiS .stil!the moS1 diffi~uItJUW.djctoo for ecmp.llanc-e. \ do recngnls£: lhat 

'~W(l~I)r.l oo£'d to find the rigt.<t po;;!fSOfl bran P.CO r:J!9. trutW':!L!~j hgye: tQ>ojo iI'1is :;!!1J"1"'2:,' e\'€n H'.19 '.'{as 

pl.n in eh~(!A \IiIh~t (11) yOl11'ii?'P ~'S Min.!) ~ rr~m <'JdV<.'lnt8gl} 

Thm~ ere some issues ueLWeen LGA l!nd eMF' and we wouid n~ in 1T\a.ic;1'I ~unllJ tMt ...... ~ rn:tn1t~!! lh~~!1 

P6f'iuf1Ei!iUe~ si''':)uid not hO .... f:'¥er be aiiawed 10 get in the w2y if we ijiinlo-. &lis is till<' fi!llll deci\lio-n. 

D8'Yjli '" j aAGlEY/uMOMSBC S~nj h)r M;!Irj.!)!'l « ROACrirl-tG;HQnit:·uC 

Jun 112m Ui: I J Phone no 7991 0045 

4~ 020 7991 oo'i51..Mii S'n: :39-ili'i 

Rlch,mj 

-::,~ 

5uDJ@- H ..... l.r YCAR 1;CV1~W ~ ,IA,~ET 

" 

i unde,stsno ihai you wil! b6 condLJoling ..'a(n.,fs haif..y&if rlhli~w Di! a facEr---to-faca b:;:,sls it ih,~ 1l'k'tfgIIlS of 

th6legiil ExCD. ! Em :;;lsc; wu.idng on:tii tasls you ..... ill 00 the SGrr-~ fo; t..,1 .. !, 

! !t;ought, ther~fore, it might be t1e1pfu! if! gaV9 ~ome fcec!bac." bm e CMP p9rs.pective. The key pojrt~ 

"HP'~ 

! haV\:j n,l.ctliYlS'.l a copy of JClf\~r!i tnlialiCOO sooroScard. Vvt1ill>t Ihis foilows the spjlii oj VIe con) ReO 

obje;::ti\.'eS that! set (whIch! intem::leO to De stonda,Q across tr,(j ftl7Icticn) (lie letter tr.:ls net bt:~n fo!k:r.,tJcd, 

ThIS 1$ iii qoory that 1 h<l\ll!ii rai~M with Ji;lflet I have ~de Ii CieOirthilt reg~if1;!jP"~S of prnclSe lIroi'dif'V} I will 

Confidential - FOIA Treatment Requested by HSBC Bank. USA, N.A. HSBC acc 8873873 
1580 


760611.413

juage r-,,;,r p<';itrmance again"1lne 500mB criteria a;;.lne ntl(1;;:( RCOs.. A copy of(Jur startdaftlgeilarn:: RCO 

ObjeCtiveS are: atl.aCf;ed, 

Overu!i ! 'H2S 8 litt!e !rO".:blcd by th~· ebscncc of sny form cf rr.ca$ur~s of a!': objective na!ur!:: h ~r sse" E'o'ery,hing seem':(j to be bas.~ 0[1 rel}tonal CEO and YO'vlr feedbadl;.1 would have thought that whef~ 

spO~iflc ~ctions wore raqu!r<1d ;os part of, s..-y, .. plan or r,urnt;.ers wui6 involved around a budgat il would 

be possible to ~I object''''!:; rnea~llfes as opposed t<::ll"1"K!fely judgmente! mE;tte~ on the ~,art: of Brendan 

;;ndyou. 

0""",,,,i1 ; wuuiu I~ie li,e perfoflnHm:;e o.f!he North American COlnpil"mG~ funciion <IS <l firm '3' btJi 110 fllOll:: 

thsr. this. t t:-:l'l!o: w.stter,:; h:llve been handled a~ropri8te~J In ~cco~dsnce with cere Gro:.Jp s.tandsr:la 

a!!hougt"r there 2m: a number t;.·r e.re-e::J; wtler~ I hav~ SQme Xlncerns. 

As you MOw, t retain concems tna. combining what were"fOUf roles in Nonh <~merica into a sir"lgle person 

is 100 much rngardklss rJf ln6 faC1 that we ara sr,fir.lIlry our .. ~,tles Vfil:h~ t-k..ir, America <'i~ a ·iiftOle 

Ha"lng ~aicj tt"oi.'i;, ! I/.ln only epp!)' tfl'3 'S-mfJoards reqlliletl 8[1d fXl1 !!lB.lce. r;t!!owarv::es .'3~"ific. sr<:>BS (1f 

concern hli¥6 been the fact thaI It W~ neceS:>;;l1Y for rll!;l to kh:ntity mat a specialist AMi.. dircl;\.or is 

f!Y.1u1rct:! we he ... ,.., had t :,,~mbcr of ',~e.~i¢nsl iss:":C$ ~n reiation to OFAC ccmpti~m;:e. ;t<1;ppt.$ro<;i t!",a\ 

OFA.C pmcedllrp.o:; wtt"ln thP. ht.~~on (HAil ha\~ not MAn r..nnslder'JC! ~nd I Rm ~lIald tha11 ~Ink 'hI! 

Complisncu funciicNl a.nd" Issues g~ li::i.is i6tl:i":n-"/iun \i"tar; malierti /~Q;;;I TtI.3t, M':;Il ... e ... ~f, (loa,. be jll51.ifie.:l iW"j 

as 1 say core 5~;;darGs ;rE me:' 

OVerall, hOwever, the ftloction is resporn;ive, meet! standards. <Yld I reco~nise that i1 is set\sible for me to 

<!it"~ct enquines oth~ tnll.n thrrll,.1,)h J8net to -aWlitj Hnn8f'c:>Mry !;"IIJr<:l*ln b~inn rl:-!ceo (!pon her. 

Ofle fiM! point 15 that i do (hin).. Janet trawis rathe:r I:i il)l tmd Il:llTl noil1lway:s :nll-e ihst th!tt 1:r8~j I:' 

strtc!:!y n:ecesS-al"'J ~ I wamer mougn If :h~ is a J'lJr.ct,.bn of her 1'.2'.-::"19 !OO many d .... tteS ~s cppc!:cC to. th2t 

travel b-eir.g e:<ceSS[V6. 

[iavld Vi j EAGlE"tfriGHQiH58C SeN D)' M&ril:ln 0 ROACHMGH(".iHSBC To Richa;d E T Bj;:NNI;TTIHSBHMSOC@H.SBC 

Jl,.ln :,;: 1 ~Xi7 14,:3G ?twne- no.iS"91 ~ 

+44 (2::179)20 79S1 oMS ~flail SJ.l.t'; 6194 

RiCh$id 

Subj1'! rlortn Af1"I\'.1".J! r.n"rhflN~ 

" 

;".5 ~ou ha~ Se€r! ! heve !iEI'Seoj c!cse!y \'11th Janet '<"1M hsS" been extrerrely active-!"! CDmecti!"lS !he key 

membe~ altne Gomphaoce function. exoiaininQ the cr.anqes to them and se.eking 10 provide some 

rt'rilSSUf~nce, The. comroonb rr-.a::l-e t:J J:m1Bt dirar.:t, ha ... -e bDe.n relalii/€:ly cons-:ruc1ive, with pcrr-..<lp:> t .... e 

rna$1 v:"I"C':lrerOl,is ooncems -axpne!<sM by Coroljrn, Ixlth from h~ ovm ~rsp~tiV\'l< but 3lso fro", the: 

j)l;:ispe::.H\fU of D.;.ni.s.e FWiliy. in lhi$ i02lttt:!ica:;.~ i H·l~llk Janei l)"s Lo~II ai.lle to tilke W .... ITlVi ::'[1;":1-';' \0 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC DCC 8873874 
1581 


760611.414

/,e<.:S5Ufe Denise, 

I ;;:epafOitely hay"" ;;pok.eol 10 tlotJl CaiotYfI and Lesloey ~1ld.laln. ! nave to say tn;,l ii1e rt1sp.onses 9:~n 10 

!"Ile dlreC1 \.oter~ perhaps 1-:55 favourable. pal'tt'/:because! wiHf'.(}!.l;le tMlrnew line ff'..ana~sr ~~ s!so 

becausE! ! thi'lK: Tney ha>re had a Rrtle room time to tnlnk tnrOU{l~ me ;B"(\jfjC"at~ns. II IS also r;;lir 10 s~y IMt 

t,'";cir oYBmH ~ffiia is prob-act; also rmpactEd: by tha ij.;Hle-iOi! le\;.,.!:; of cr>il;;ge .... nd uncertaiiiti i;1 Nort.'1 

Amarlcs -i'icross the wnoie Imsres, nQtjl13t Compli.m(-€. 

The essence of the cere points made to me are however 3S follo'NS:~ 

TIley uf'; :Cd up wftli 56;'&! managalTi;ilt changes and the i,HlCefle.ioties that (,0(1')(: wilh u~lis, 

They ~p net p.-a:t!;;ular!y mir,c! rep--:Jrtlng to legal 9S OPPOSed !c s HMd of R!s!o: n\.l! Cl'Inno! ul'ld.s:'Stan1 why 

a new- fuij urne RCO is not being 9 Dp)n!ed. Tnev poilnD-lhe rnoael eisevihere across me Group 

ac:::cptin9 t'"1~t the;e I:; a rcport into Lev&! b>.t nowr.ere. (with "1M exc.;ptio., of Mkkl:e East) Is lher ... ii. 

lo'rwY"'twh" ;FIr .. /">"...t!l "'~ Iflfl Rr:() w1!hr:>III" r:':ompl!fP."1'.:e !iipeoia!is-t !.,n-d~fl8~th than'\. .Arg'.lat>~ iO!'Ye!"11n the 

Midtlie El::lstlJr! Elien perJorr'r4 \hi!:> mic i'1 Elii but nalTl9. Tnis ~ noihinn to do w~ih Jiinet they GMnot see 

'":cw It is jl..ls"!i~c", tlJmk:3 s~ec.ie!i:;! Compiiarlce Offi:.;er it: required ;!r;d query ~~ c.1p~!:t'j of cr.e per;;cn 

to manage a veri large legal function ano a comp!lar'lc13. funt:Wn. TMi( .:;oncern Ihl;!(eforf; 1$ ttlal 

C\;;mpliaiica will 00 pu:;rrW clown taQW Legsl lind they' .11;:';0 tOln;; It ar::lv-efi;iy ref.ects upon tMm as 

mdi"';duals in that there were not seen a".'i being tit!O discharge Itte role of 2n ReO. I have Ool'e what! 

1;;8il in ~hi:s regard, but <IS you know ii1!s was OM of my ki:y i:oncems and remaiflS, and 1 c~ fino me 

struchJre hard to ocrond as cotJl)ar .... d acroos the r-ast 01 thE Group, par1icularly giwn the complexity of 

ths rngl:!?tory erNironmen! In tr-.e US. H8'.11r:g sa:d this, Carolyn, Curt aM L~IBy:are 13U veri exps:ienC8::1. 

Tncrc ere Undoubtedly 5DIT'I:! ,l"JefSol"'lSHty i$sl,.l~ as be-tween ~~rtai'l!y C~ro!Yf"l and ,Janet and some 

mislIlJs,t wiit'"lifl CivtP" ofLGA ami iha \"ta}' ihe;' Ciio t1aattrd I:lMsuppofie<i uy lGA. i liave QbY!Ou~iy made 

tl":e point thaI tile slng!e :nanggeme~tcf both fl.lfiCtlone WI! hopef>.lllj' seek to ~dCrees some cf thf,$$ 

olvislOnsgaingfol"Wflrd, 

Th~re is R {jE!.,ersl credibility iSSUE in CDn;,inck;g peop~ ~Mt no fui"1l1-€i -cf.ange-s are i!O,"v15ag€o: and oVe;all 

the lmpra!;skm was tna1 thfly ha.vs- ~en doWi'lcraded lr, iOllorbnce aod infll>ence. 

There was a sepcHBle O:lllcem on the pari of Lesiev as to wnelfler she 100 would be put under Armeile I 

"Soo no it<;;$on for this. Mva ,1.1 rHtSis for sus;.;&cUng tt"i~j H.i<; J:s I~tend€d bLlt; thli;k ~ wouki be: ~<!ry 

ad ..... Hse were there 8\o'1';t any ~uggestlG" \ha!', ~Y. wifhin H£;IIJS Caro~)"7l wovld ~P"'i to Emrne~, 

HSIO, Curl to su;<, .. o Geolge and C!,\I\aoa t.~:;.k:y io Am~~. I poirte.i .Jut ihal3i1}', wittlin Hono i<Of'Q 

P~I Hed~y doesn't ff;:port to t~ $enicr CIe.I\.~ lawyer no~ does ,AJ:m R:m:soy ropprt to Anc'mw Jscl';:;:OI"l. 

FUrU1er K,,1tn Foro is Heed of Legal 1.1 HEiEU t>utChris doesn't report to 11im twill sptmk wilt1..bnet a:;; this 

rrnlV be something we arc ab-~ to axpiiCltly adDress. Subsequent!}' corrrirmed Inat this iti not e;wlsageO. 

t have f',.o.t COpied th"is ,rOte to Jair6"t il$ I do not warn in ,my way"lo irrtene.-e what have b~" Qei)e.,ai1i 

PO$itfve t!ir~t ltr~~l;1ioll'S-, il.ls PQt SIJ:rpfIHll~ ttt::!t at th!:6 stf!g~ ~eop!e are f"1Qt WOO!!>I 0/1 OOf!rd f!ild I !<i"1('W 

WBtir9 committed Iogi..,iriQ!i e try, but i woolu not want anybody to lMink ihl:ltt.'l~ is in any way gQ111g to 

t:le s:!ra!sht f::)",::::rd or witt-.out risk -or cn~nenge ! wiH cx,t:r:uo 10 de Q1,tCry',hing I r.nn to m;;:t;.o it wo,l';, hope 

tha1 it ~j!! settle down gnd i wi!! contirlu::;; to woflo: closely wllh Janet. 

Confidential· FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC acc 8873875 
1582 


760611.415

Fr-cm: ANNE UDDY/HBUSlHSeC 

:jent: 12J3[)l2un:? 3:fJ9·~5 PM 

Tt:.J; DAVID W j BAGLEY/HGHQiHSeC@HSBC 

CC: CAROLYN M\NtND!HBUS!KSEC@HSBCM,,1ER~CAS 

Subject OF.A.C: PLC wIre on behalf of Me!!l8anY. pte 

David, fyi. 

FCr'Nardcd by Anne Udd,'iHBUSlHSBC on 12130/2002 03:10 Pt ... ~ 

Elizabeth PrOiOmaS(ro on 30 Dec :2002 i 4:49 

Note 

30 Dec: 200214;49 

From: Eiizabeih Protorm.ls-tro iei' 212-525·6692 

ntle: Vice Prs<;ldent Locatloll: 452 5th Av~, Fioor 07 

WC'fkGrotlpComplia.nce Mal! Size: 4Bi:l56 

To: Com!;'ll M \A,!lndlHBUS/HS6C@HSeC,''',MER!CI\S 

_At"!!'1~ U~yf\-l81).'S!HSBC@HSBCI-\MER!CAS 

DenIse A Rerl1y/HBU5IHSBC@HSBCAMERiCAS 

Subject OFAC: PLC \vlie 0" t;..;ha!f Cof Melli Bank PlC 

FYI, the .:ttladled paymanf from PU': was mj~clM 01'1 Frl;;Ls.y, Dl?'~~mber 21, Tt!e 

odginaio( is "8Mk tvieiii PLC" and ii\e aai fleid ll9<lds "Do not mention our name 

jn NY~, 

i have adVised N.nncy·s group to continue to rejeC1 such (lMurn) payrmmts 

cOflmli'iing that message. 

~---~--~ Forwarded by Elizabeth ProiomastrolHBUSfHSBC on 

12/30{2002 02:45 PM -------.--

HBU5 fa.x i2i:.i0i2002 12:'10 PM 

Di:M.fillutioll o~Fa;,; ilum ~3iJ2 05:.i6 2005" 

St~tus: R . .o9'ceil,''3d 

Timo: December 30 200212:16:02 

Pag6s: 4 

Receiver's Name: BSA Fax 

Recelv$'l"s Of[l~:.'.lIl Receiver's 10:. 

Calling fa» ~1achjne iD: 3C"Z 633 Z005 

Aliachmem: r0039i 7S.tif 

__ "" Redacted by the Permanent 

Subcommittee on lnvestigations 

Confidential - FOIA Treatment Requested by HS8C Bank, USA, N.A. HSBC ecc 8873909 
1583 


760611.416

From: O~ .. iO W J 8f1OL.EY 

~1; T",!j"Ql;f26130.e.:A.1 ;W~ 

11); A.jHY 8HANDOOLA 

Cc: Go:y SOON; mot john f 

SIJbjE'(::t: M'O!rno: R~: IR.4N· SWATEGY O!SCUSStDN PAPER 

impori.auco; Normal 

Atlach11'hoenls: lm.'lge_O,g!f,lrrage_1.gif,::'lee: Link. hIm 

sel ... :ces 'lie are cl.Irrar:lty providing to a numoor of I raCl!an blmks. 

To" Oa~"io \ill J BAG'-.EY/~G~QIi1.s8C:@k8B(: 

G.Qrv BOONiMGR PCM Mi:MiH8it.iEiHS3C@HSBC 

Re lAAN" 5TRA1~GY DiSCl,iSSiOr.; FArE;::;: 

Dayid, 

As discussed on the pl'lOne lnep.: IS 3 lot [;of WOf);: !l1at G.ary has already done on 11115 10 understanding 

O,ItAC regulations ana poss!o:e pawrtents processes. Can I slJggest mat J(J'1n Root s~~s to Gary as a 

r;tartir.g poi .. t to ;::-~c"k his brain'3, Ga.'\i is tra"(alli.,g Cf. t.i.J;;iiteS5 at t,e m0(t,6(lt ana \Vi~ be ba.ck 00 Th ... 3-Gth 

Confidential- FOIA Tieatment Requested by HS8C Bank, USA, N.A. HSSC DCC 8873958 
1584 


760611.417

Ajai' 

To DBliid W J 6A.GLEYfHGHQ..t1SaC@HSBC 

11m W O·BRIE"J,IGGM PLG GHQIHGHQlHSSC@HSBC 

Ja·", P" ROOrfIiG.'iQ.'H8SC@HSbC 

Ste .. e !3JI..NNERtMGR FLO MEMlHElMEIHSBCQlH3BC 

Alav 8:H~NDOOlAtC<M ~·CM ~EMfH8M8~l:IC;@'iSBG 

b« 

From. Da .... id h nODGi\INSOhl Tel flT I .; 5077402 

::}lJ!):~";1" FV!": IAAN· STRJI..TGG,( DISCUSSION PAPER 

David, 

HS8C Iil",rns US075m a year li"QII1 it'>- t}1Jg!l"1e$~ d-en~f\g.'i- ..... ith !f~n and we bglle~ tl"!et tOOts- 1s slgf'!!'i!:ant 

iClng-tem'l pO"teniiai"lol gl¢wth. A;; lJ:I"e d~(".u~sed lilt tr1!~ HBME board on Tnufsoay. we are Wry keen to 

ensure that we ber. at the ':,,:nGl..1S issues ~ef';' ~!cse!y 3M :ry :c !i:"ld <'.in <lcceptablC ;:.;;, to Offrlr fh~ 

rn.;xrmum ratllJof! ot ser\li~s posSible wltl"lout.!ooparols:ng Nlll Gmu:)'!l. fH1Sil1r4l In fAA U S Thl"'> (lew 

iruj,P-otive was discU5sed wim Y{)ussef I-JaSSef and it 1'/3$ r:e W~1t.I SU2!;W!itoo GD~tac;t wIth Paul Lee 

We V2ry much <3ppreclate your CQllc:r.ms, 13M lioOSeofPau! Lee, a.nd sm happytG tilCUr some- expense 10 

i"'~51;gBte in ine fullest W9Y the v"1~im.!s opnor!s wrl!'1 respect to usn p(.!yme~!S ana ot~ef busir!{:ss 

Uav!Cl 

Confidential - FOIA Tieatment Requested by HSBC 8ank~ USA~ N.A. HSBC DCC 8873959 
1585 


760611.418

Fran: Ton,' P COLLINS 

S~nt Th~ D~ 1617:17;4., 2@ 

To: Jotlfl ALLlS01'1i 

Cc: Qa-w'i-:: 'N J a';CLEY, Malcolm G EAST'NOOD; Rod MOXLEY: Jer8rt1'f R it':ALK.CR., Ni~$1 J ';'r,o"CiR; 

GRDft ARMSTRONG; QIJenM R A'r't,WARD: 8riOlll W RICHARDS: G~ry BQO!\l~ ,Jot>n F ROOT; J0!111 R 

\tv'iLKlNSON; SuSiln A \IlI'RiGHT 

Subject: Memo: Re: Iran - U-Turn Pay:-nents 

Importance! NorTn8! 

Attii,:hrmm&: lmage_u.gl1, iiMQt<_1.Y\l. irntlQt:_2.\Jlf, iVi~iiirylHtPr1X.tl~!>inlJ.doc; Mei; Rev,Qac 

The prot'...eSS'OQ. of trar11an paymenl., r.no me SUOsfll'1l!em reptrtaMnaJ rsl< InvOlved has been 8 rM.Df 

talkir,g poitrt duriflfl the!as1 few yeaos, Ttrase tlSCUSSlvilS t.&oon ,jl!e to ttle r,llmbei vf !,iln,afi p.a:-rnenl5 

/fozen ny H!i.ll~. the :<:;ljhSF.ql1.,flt p!'e~sure ri<;H;ed UPDr' th'!fP lJy the Fedel"<!! Au!nor"les ~!1d ou' ow!"! 

i-esr5 c:::H1eemmg our glotJ..."Ii reputallon 

OFAG $aoctions state tTlat ~ US ll'eposl1orylnstitutlonG may handle "U·Turl1" transactions ( cOlli2r 

J}a)'menl'$ invQiving iran that are- by orGEir of a thIrd coulllry bank to anothef' third country bank~ , 

j)fcrwided ttte.)' do not din~<;tiy Cleda vi u~Lit .1.11 h'miafl dt;talIJlli .... TI\", slJus.eque!li p.~su~ by ilJe 

Feoder.:! AuttJoritis5 C8!1Sei1 HSLlS to rMve the goa! post~ sHgh!!y, e',r:!nll!3!!y <l>;h .. ieohg !h;.;t =e::al 

P~yrT¥.;[tt'S alo!l~ I'I"JtJ1d be acceptable ffl order to rec~f,/e full rl!scI05!.n:~ 

The polilicaf slluf>ltion then cl"1angoo in Iha wake of 9i11 which I WOI.Jld guess stren\lthe:1oo HBUS resolve 

fer fu!i j!:;t.!csurc. blOt whether tr,<:3 ~:;\Opt:Gl1 of tho original :;noi;;';;5 ...-r.k:.'< na'JB now be>,;;, prn;:;.osed ;~ 

sti!! V2!~oj today shO'.l,1d be put \lnder C!O~.e1 sC!' ... 1iny, 

During me prevlou~ 7 months RMS have iml'eStlgal~ the Iranian i$$l.le with an ope" millO, taking into 

cons..d .. ( .. ti"" ..... "1 repLlt"'~i"Xkil Ii;;."" cuflo'r1,( dnJ fPJSSitJ!)' fl!itlle iranlM business and the iet:nllicai. $'~rfing 

<!nd financial !mpUc.alions, The most !mpcrt201 issue was olwlcuzly to ensure that ' .... 'e complied with 

currcm OFAC Sat'lGtlon$ aM to e~ pavrrems Wltrt tfle minimum Clf feputat~on3j rJ:o;k, Cover payrnef1\s 

~ttt1Js crits<i.<l ;;;no wi'",'; t. ... 2 propO;;;@adctitio.l cfal! OFAC Sanctivns iO lhe Pmra-:t~\'olfdatalk:ise and 

th(l. l?-:-.1.m t&:;urity prov,de<! by l~e O~AC 8.3!chlop G!u"!'ut:" in LoMor,. we belie\'ea !he! CO''-'~r paymer!~ 

wefS Ihe way fOrWard. With [tis. in mind, woe were lmder ths impression thaI Group COmpliance would 

cnnt:!ct Leg.,! CO!Jn"'...Bl with ~ \ii~w to pursuing tl"lclr sgro:;lsrt'.;;;:nt that COvsr ;ayr;;ents ""are scceptaok;, 

aM 10 subsequently opprol'l:!11 HB!.,JS wI&! e rIoF. ..... rf!nornrn~nd"hon FQr CQvt'r ~)ijyrnent5. 

It has nuw b&ilil cOilrlrrne..:l tt'l.at t:'ia reason lor Iiol CI),1t:Jc,ing LE:g&1 CCil.:flS",l at tile Dulset was 10 ensure: 

we didr\', !!'!i"ur !~~ri!l ~"P<!:'!~~ ~,!~!)!Jt fi!~! cUscuss!ng the 3:::prc:'!c.h ;.\'!th, HellS. VVe llrlOerS!'::lnC t~e 

reasonic"ll; but belie...e we have iost tne iml!€-tus oitne ori1,llnal pian to pef'3uaae H8uS 10 accepl coover 

p::l.jl;m::mts as ... ~!id pa\,..rn~:'lr rnzthod, ~r€~C by boL"; CrAC ali::: I'It,pMoJ:ly Lb.1<il CQo.illiiel. HBUS 11oGivoi:i 

t.1$fefof!;j reiterated their d<:~;re ~r full :jis;;.!ostJfe as per ~ejf Q,ic: .. &l di'ic .. sslo',$ pre S!11. 

A5~unMflIMI the i!X;'Ir'nple cf~yment formatting provl(1fld for Bflr.k Me-l!Iwiilf'lOllJ ~ r1uPl!C'fltI;l"O klr a!1 

(lui liEifiiall a;:;COLOlits, H6U$ Wiillh~ii!ut8: f,e.!rd i.o ope., SOI.Hll'aie plIJcessiny eccaCintS for ail our current 

and fc.'l:ure cusir'rr'lS'r5 whjch v:i!! su~seql!entli' be ent~:! :.o;to t!"',e!r OFAC t:~er :l!. a "tcker'l"!c t;)~;e that 

every I!snsa.:tioo i~ fiit-:f!!'d fur i.'l\'!'st!gatior.. 

HBUS will tnete:fore mquirc furmer FIE to procaS$ trlese paynwn~ but a buSin6sS propooalltlCIUdlnQ 

actual pricing has ,C!'t to be agreM, Were the 3 orig;nal FTE required 1Cr Bsnk MaUl payments only 11f so, 

Mw m;:ln}' \,I/i]l b~ fflqUIrnQ f(\r 'ill !Il:mi"n accoun't$1 Witt: !~ c:lea(l!ine o')ly ;.! few w~e!<.5 away we nEY fil':d 

oUIse-lves agleeiilQ to pay c:.usr.::.1rI~t In tr.e fuiure rlTay not prove fln<lnt:l<lliv sound. Tnese costs t:lQ31n may 

r!ss eE 0:..1" !r2ni3n cu~!Ol"n9f bese jn::m:1:-;e~, . 

Confidential- FOrA Treatment Requested by HSBC Bank, USA, N.A. HSBC acc 8873974 
1586 


760611.419

!f c:.:$t.omcr trar.:-;fors ere to:;:,c effected by MT202, th2 customer :;-.u~t iiipat Pd 5e :c G,"l$:.;re that MPS 

proce5ses :he payment through the serial roothocJ It i~ r.-:r.;sibie thai if F-d sa is. left o!-..nk., MPS willJ:tend 

O!')I 2 x MT202s by tr,e ccver metnl)d, 

\rim aU our Ir.,nl&i c.J$tornc-~ be required iU si;:;n I€iiY,s Mel ConG;\luns~ eAP!dillii'l'~ ,hdt HSi3C IYt!I nol be 

!lat:l!e ftJf elly ~ray[T1Bf1t'i we pro~ss us:tng a;l MT,!(ID ,,~ne1'; p~yme!'rt: fTlf.!t!'IOO? What s!am:e W!l! we take 

with those c~lOmers who d0l"11 wj~n 10 '!ilgn? 

MPS cannot bccl!t speeiflc p8)11T'le1l1 types for a specific cusiomer base and send itJe-m to a repair queue 

Tnererore tne (lilly option WOU1Q he to ~et a m:rl1ter en ,;"Ii Ute Iranian aCC(ltJnt$. .;od miilnuaRy chack (l;!ch 

paym .. mt 11 flO acWfi is tat:an, f.ill M.103 ;'rom Bdnk Meiii oc'uitJ £oWl STP C&I.J~lrl!l an autw-nat€lC'l (;0,,81' 

~ayrnenl to be effected via the US. If MPS canoot be amer.ded, whars will !he DnUs. of checking sach 

payrreni jav? Which everoe:pamnem is Gflosen for mls ias~. 1IrTte will be reQUIred fOr' Q ousiness plan to 

be mvestlg<:.lCO to diSOU':'::;' tut ... " smmng la,"6b ... .e o.:lsts. 

As It IS Illegal to IBmperor amAnd A p1:lynll;ln1 inSinw.tioo l'l'). it m.3y ~ deen~d a$ "sklc--steppin!J~r:;lJrrel1t 

s,tiJ1l;tions, ·w;~tit action w1ll bf: t.a~eni by LlviI'9~toni'GIQb.,i W1en ~fI ii~;aiiy .:l,",ni MT'OZ mi~ 10 rep3ir Ijue 

toa form9.W~g !sS!..'S' o!~ than tre paYIT",Cnt t-£ling ~ 103? It ... :i!! O!!:;(J be nCCln:::::a:yto ra-cd',Jc~tc cu~ 

customers wiill regard to formatting and especislly Fieid 72 with the commonly userJ slalement • Do not 

rr,enth-m loan" There .5 "lso 1ha legal :mpticatbiis cor~i:rn;t;g i1il~res.t cliilrn;; it H3US l1old,;;; valid MT202 

~yml?-~ tor tu~ lnv€'stlga1:lo .... \l'Vh., wi!! pay !hese costs: when rot." !he c~s!omer :and HBEU believe 

the rt=lyrrenl r.nmpHe~ with OFAr.. sAnction,;;? 

ror tr-oe seria; rrIGthou 10 [laVO any ci\€II1(;t1 of succcss, it wiii re!;luire our correct interpretation of a UM!urn 

trar:saction fur o\'-or,/ single p~yrnont. a !i..1! bu;;he55 proP05:.l!;O Indude s!:>ffing levcls in H8U~ and 

H6EU plus cosllngs and the a.greement altha customer. Due 10 many banks closing \helr \(anm,n 

bU3-insss, I Io'oQ;;id o;.iivecl Oo,if OlQt\l~T";i base to i;-,cr.;::ase &:~nlfi~antll' wl"IUoi) they fiiaii:s~ ihc;t HSaC is 

Mppy to prOCeS5: USD p?)'~r:ts T~is a!s.o c..~Jses !Y'.lnce1:~. 

in oonciusion, this JT1I2tnod will reQuirs an e~iremely difficult manUD: Dl'ocess wmch TQkes US one sle~ back 

ir: cur f;Qht for S'TP, G:CI..OP Ccrr.p!;ar;ce- have &d·..ii~d th<lt -DiJe to 1;-)" curr.ant iiigula10,y clima:Q, all p8Ymenl~ mu...~ hI"! transparer'll- wh.ich :ncreiil~"s the tlk":!llhoo6 of HBiJS 'H:elng sorneltilng they don't lik.e 

aoo hoi'-.ili1Q i\JnCis fOi irlw.sij\)Rii~!(lif(eezirg .. s~ei$. y\i!ih !~wd to U-Turn l;18yrneont;;, it all comes down to 

lnterpfelaHcm. !n sd'j!~ior" t.'1e1I is 811 ex!rerrely !IT'~1e<j' amount of time ='lvaitable ja set the requ~ whe,~!s 

11'1 motion. My VlEM Is tl1at the serial memOlf requires a large "mount (lfV/off(; priQr to COrT!ll1enr.l;'!ment ~ 

disproportionate OImoul1~ ofax:penS€' .and e higher than average risk to. tr,& ban~;s fapUl:ation ooing 

TC:1Y 

Confidential- FOrA Tiaatment Requested by HS8C Bank, USA, N.A. HSBC DCC 8873975 
1587 


760611.420

TQ: N{gd} WPl.R.et ai 

Toc Nrg':'llJ 'fit:;iRiRM liij MEMlri6MErtiS6C@tiS8C 

G~c!f "'.Rf,~STRO"!G./H8EWHSSC@.HSBC 

OU9nlin R A YLWARDtMDBKiHS8ClfilHSBC 

Srli" W P!CHARDSIPJDBK!)o1SBC'{??:HS9-C Rod MOXLEY!--i8EUfriSEC@iiSBC 

C!l1)' 8("K)N!MGR_POr..t ~"AEM!!il~M,SfH~Qt;'-@HSg;(;: 

Joht'l F ROCT/HGHQJHSBC@HSOC 

.toon At L j:';ONIHGHOIHRRc;@HSBC 

,'"ldlc:.v~-;; G ::;.A.$TV,,'OO<)/MPSK;; iSBC@H3BC 

John R WlLK!NSONlHBEU1HS8C®HSBC 

In,mny R WAlY,1;t<:IH8EUlHSSC@HSSC 

TO!1Y P COLL.;NSiHBEU:HSBC@HSBC 

C!S\"jd W.J BA.GLCYiHGHQlH,BC@?HSI:iC 

Subject Re; !ran" U-Turn ?ayrre:'Jis 

Tl.'i; I'WZ 3S54 

44 207'9 G25554 

further to mJ

' rece~t efT!:.!.)I$ p..le::lse ~M a;t'!2c~~d the- P~:)j:X:!;~C! U-tv:":1 prcc~~~!prccC{jl,.Jn:;s to"'N:::'de·:! cy 

Carolyn \f'Jin~. 

Gauid yOu (}1<!a$C :adviSe Jonn Alli"Son ot yo..u- commer,ts as soon as pass-IDle. (1 may 00 worthwl1lfe 

CDn~jl1tl;J anoiher t.-olll'?rffice Gal! :;md if you w[)uid !Jke us to arrange !hIs please ler me Know. 

Confidential- FOrA Treatment Requested by HS8C Bank, USA, tJ.A. HSBC ace 8873976 
1588 


760611.421

Fmm; N,ge! l/VH!TE 

8g.~t: Wed Ssp 2215:.41:53 2004 

To: rain STEwART 

C..:.; M"Jiiy(1 H SPEAR!NG, Ai.;,,! R.A.MSAY, M",h;l.1itn G EASTVv{)OD; GauH ARMSTRONG: Fhii aAiNES; 

De\ok! VI! J 5,A,GLEY; JcM ,a,LUSQN; N~e! J 1/1.£IR; Rod MOXLEV; /1,jCY BH.".NDOOL", 

Subject: ,ranlan U Turn Payments 

!mportallca: HI!;ih 

Att!!chm:!nts:: ima~l'U:!.gif, i.'11age_1.gif; in'.aGc_2.git, !RANIAN PAYME~ PROCESSING 

PROPOSALS coc; GHQ eMF' Commarr15 re m~n u Turn P'ayments.noc: ~esponse from phil BSlnes III 

eom,,:is;:c.n comflcn~s ra :,an U Turn Paymanls.do::: 

ialll 

DisCuSSIOriS on the quc-slJon Q\ ,far,;an U Turn paYITIei'It5 ha"il 1101'11 tn;.cg wlllpl&ted, i;!J)u \ht: aliaLlll .. ..j 

~rer ::","vi1e~ reccmrnendaticrs br ltH'!!f fI..!ture hand!!n~ TM prcpC!:!i ~ ~c· ~tin!1f1. '0 oro\'r.~e t.~is. 

servk---e, !'IJDj1"(;t to the Pf('C.e~:'i!e'!, detailed if' til"" dOGU''l'ler1t 

OI.j( objectives· w!lhln Ih3t declskm of oontlnuil'1g thP- senric(! - ~f{): as follows: 

I, iil pruleci iil.: BatIK by a-.oitiing sGiiolh whi[;h might lead tD U:!i bein~ ac;Gu5e>d Qideiiberateiy 

cicwmnaiiigstlng t,l.,. US OFAC legi5!a1ion, 

2. To eF''sl'fe ttle! tmfflc dlf~ted tC' HBUS co:t!P!es w)tr, O~.I\.C !ege!a~b:"l ;<:!i1r! speC.1~~a)!y~!':e ct!tc!~su:"i'l" 

rul(!S, to prot9:dour V-s. li!:>er.ceJ. To place thc sequesm:nion risk wiih the iranian !:larks ffitner than aursel\o'os as far as all non..(;ro.up US 

Bank traifl(; ts concerned. 

The propos,,! has !Jeen fC;.~cWGd by GKQ C.ompllanca. which unit rt.ad~ a m.ii'i~f of CGr,";rr.eilts.. Th;?s~ 

fire attached bel~ for ,'our refertmc~ and hi1\f111i M~ ;3d{1r~!:·$ed via en emai! rB'SPO'1:;p. frt'>rn !=lhil 

Bam~s. This I') alSOatl;lctJed belol'J. 

hi summary, aU Ji1)'(,o\vcd PGfties ha..-e ;:.;gnml 0", on {he proposal, an.;! ~he ne"i :31.:.p i~ iQrGHQ 

Compllan.cc to engage with \l1eli t-ellaagU6S 'll HSUS to o~taji\ thei, sgf~meJlt. 

! '¥!Ii De grTI!eft..! t~ fet,~l~ ycnJr <JMorseme"lt, nm:l eppm,re! to req!..!~s! GHQ CMP b e:-:ect.<t>e that f!e~ 

!':tt'lP 

Re~ardS 

Nigel 

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HSnC HANK PLC 

IP~~IAN P AYfvlENT 

PKuCLSSING PROpuSALS 

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This paper SClS out tbt' ~n'angeruents currentiy in piace for the processlfIg of payments 

origimning from lranjall Financial Insri[U!ioos hlghHghtmg nsk areas: and suggestlng- :iome 

changes [Q c)' isring practices 

Tncrt <In! cvrrco!iy US origina(cd OFAC sancnoos agaim[ iran but these 3J"(' not mirrored by 

ur..:, UK ur EU ~anclio(ls and the~fore Dot binding in respect of paymenTh made by HBEV 

7lK::r'e t$ howC:vt., an irnpaL:( ifthC5C pi'I)mcuL'\ ~I'e made]u USD 01 COler US juri.. didiUl1 

A iil.,j-m~C-r of ye~r5 a~v a pro.:.;:dure: -.... '8S devised whcl!:~lJy Iranian fI cusiomC($ put a C.3.UtiOl1dl}' 

no,,; on thc;r piiym~nt5 in Fidd 72 o:.tiyill~ typically "Do not meubonlrarl" The pBym(;fi'-i fell to 

a repair ql1e-uc where HSBC operators remove references to Imn IQ pr-enltt po:;sib11ity of 

f>Cquestration by ~he US auth(.;ritie; 1>1 Ne~v Y,-,tk Other w;;mli'ig m<;;;5<lg;;:::; 11l:;;i.:r;;oG include: 

"I.~arc :>:an('tlor;cd cOi..mtry", "do u'~' route "ia th.;: t;SA" and "'",c take G0 rcspvns:ibiJiiy for Inis 

pc.yrnenf'. It should be stre~d thar the "ast mnjority ofp-oymcnts arc v!lUd, fulling v.ithio the U· 

tum excep~iQn p,,:'ments "\'hlCh are pe'tTHssibJ::: by lh.: US authoritics. In any event, such 

tnms3cti~ns would b:! de=ncd to be bent fide uneer EU or UK legislation, The processing of 

t~~e p~ymt:Dt:s !!~ino the c(~ver fllthi."f !hIm ~er:a! ro:_rtiTI£ effectively removes any men!icn oflrun 

from the n;!:jDril)' of the~c ?lY'l!'lcnts when they l".!:n'c HBEU. Ms.!'lj' of these payments arc in 

fevour cl" cu~tomef'i. oithe HSRC Group or HSBC Gt{;t:p elluties themselve:; 

Th<:: h'!mien banks who h~\'c usccl this preenc.: arc Bank Mel!i !r.:m, BSPol: Marka:>:i, Bz!'k Tcjaraf, 

8~!!k i(csh!!r-tui a.!ld £~pC!1 D<;vdopmcnt 3ank of fr!!."C, 

rhe lias! ID!!J!:mty Df payments h;!ve been succe-sstull~' eftetted. althcug..'i TrlO!'e s.tringent filtering 

in US~)' me US Sanks and, driY~J1 by the- Fed, has meant that mQr{' payments wer'! being frozen 

OT mv["~t'Je:ltrd p.FIrtjClll~rly foJ!ow!ng 9f! 1. Ulis: {'u!miust('d in a B<lnk MrrrkaTI paynlC!li for 

t.:SD7.~m in O';{("IlJer 20(11 \IIbich "'odd h~ve tH:'eIT seque~tr(\t<:,(t!lt HIl\J5 bm for tl1.t:' petS(l!1(l1 

intervention ofHBHI Sel1iC'r Ivl<U1agf'1' P8ym~j)L~< 

This o;ayment had been sem bv the serial rouie and it is stiil uncertain as to whether rIH'! freezing 

had be~n precip1!tHed by OF.4.C Or a derical t:TTor wililin HBUS. Y:"is iTir;ident brought int~ 

focus the risk associated with making these paymencs aDd fhe need for a grearer understanding of 

v"iid ('If U-turn payments versus r'nose which eQuid be sei7.l~:d 

HBEU had aln:,fIdy bcc;n proactively pursuing an altcrnativc pTOccssing solution afrer being 

prUtuprcd by a Con::rpiiant;: Officer visit m June 2002, wln;n toe above Jll1!.cficc was c:ballcnpcd. 

in die klw\;,'lt:oge of a ii!:;a.{t)nillg of UlI: Fed's ap-ploach to saQt'ilo[) le>;islalioll, ""hich bas 

pmmpkd .'1 small number elf hauk'i to e.xit ihi::; business alld others to be subject to fiUii.Jlcial 

p.;1';altics. Oi,l' prim!!,), aim is 10 find a fficilflS of continuing iO 5lIPl)Oil. payment pfoces.sirlg for our 

lfllmiin Ci}SfiJilierS, wbilst rliaiUigji18 (tp;;;riiti~)fi~! aDd refiutational risk with;n i:!Lcevtablt;: lfv~k it 

shodd <ilsv be m.::ntiom::d th5t !Jlere reroiiin SOiHC US bauks: active ill this market 

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• We lll1dcJ"S!<:!...Tld 1hat Deputy Chairrr,!!TI HBME (Hod,gkinson) a:1d HEEU h1l:".·C: r-t:C[! 

cO"\"lll\lunicaling 10 cool1rm tl,crc is :d ocfinltc appl..'t1tl: for this busillcss and obtain !:!ui!abk' 

5ign~(lff w~ hs\'e nOl ~een eV1oef)Ce of thi;; fJlltc-ome of tfieo:e d!Srll~S;(lrl~ ~!th(lllg.h we llot~ 

the supportive email recel\.edfromRobert(Jt.3y(j .. tt~d 2 j June: 2004 ~l"ld the most r(:eellt 

emsui to our CEO. 

• HEEl; eMF' have cxprcssC'd coo.;cms wi!h ff1.c current raymcnt<:; rr-acticc but do not bciicv~ 

it is their place to exit tbis blJ!'\iness~ this; i~ il r;-ommer.(""i~i rli':cisiol1 in their ey~:;: 

.. The. current <;itlliltirlll i<:: that :pll.yme:nt ..... cnntinH~ tn be $UHm1tfe.:! hy ~lJme lrnllil:m (::lI'ltnrnf:,.... 

sa:.·jllg "Do 110t mention Iran" 01" one Qf the nther "PliDl1~ highlighted ~h()ve and proce:<;<;ed 

mllnuall~' BS bcfon:. Tnis procedure carn .. '"S a high dcf.'ttc of risk, both !insnci.!l\1y and 

reputBtionaliy as we ecuid be seen to be: i01.cNcnin£ in the proccs."ing of i:hr:sc payments to 

avoid OFAC legisl~!ion, radler than simply supporting valid U~tum rrans3clions. 

HBUS arc uncoIIlfortabic with the ex.isti<1g practice and with the mvoivcmcnt of Us. legal 

Cou!)sei biwe propo'ied a solutioD iacmporatiD.!! adsprariolls ro MT2{(~ cover payments 

ensuring fha~ they contaiu disclosure of lue uIloerlyillg yayme1l1 Ueti"lils in lieid 72. Ttris is 

dis-cus.sr:d in more detaii bei(lw. 

An MT202 peri'orms .a dual role within payments. it caR be llsr:d an its own as a bank to 

bank 11'ansfer, for exampk in seulemem of a. FX rrade, and incorporares full disclosure of th~ 

remitter and beneiiciary. Tbe MT202's orher role is \0 provide cover for an ~5:soci[ned 

MTi03 and it is ln these: in.stances lhat Ibe rcminer andJor ultimate ben.eiida. .. ·y is lIot 

clisdosed. -

Payment Sen-ices Complianet" cofl1ifkate in Dec 03 was cavea(ed (0 higbiight me fact that 

tile preseni practice is contiuuing, flccrui[Jg risks detailed below The June 2004 certifiCBte 

h~ Ol'I..:JJ similarly caveated and there is now il. I1l!ed IO develop a robust actioIJ plan to ensure 

that d~an sign off can he ~iVCl1 <n the next OPPOrtuniTY. 

CUITC11t voiumes of iranian payments business through HBEU .ere difficuit to quantify 

prcei~dv. ahoQugb the most I"t"cent ciaii:v ,,·oiumes indicate a 10ml of beweerl to ana 50 

paynn:nls ~r day with appru;tiullm: wtal wlue of USD 500,GOOr0SD i ,000,000. Ccmrnl 

Bank p~y!ll(;ui:S typicaii), arc made at certain times of U1C month auo H:::nd to boO much large!"" ic 

io iJ.'1e USD 1 (I lllilli{}tl value level. 

Repuiaiiulld.j rl'!iK if au Inmi<1t1 paymt1l1 t~ dTcdcd by HSBC when It contrayencs US 

:;ant:iioll:., 

• Per1lOJ!lll responsibility arw.cfrilll; [Q HSBC staft who an: irwoivea in amending; and 

5ubscqllcnily pHx:('SSjn~ ihr:::>.:: paymcms. 

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• rin.aociaJ r;!>~ from ciper!'!t10naJ losses resulting from HSBC havill8 to lefLill.d a c.U:;lomer 

',,;:hitst funds sitting in a froz..::n acrmlil1 wit.rl; or AC. 1bi:; Ca>l in',olve both i;:apitc.J iiild 

interest ~1th(\\.lgb limited Tn;CreS! b~ncfits can be accrued Oil OF AC frozen talaIices and 

released when unfroze:; 

~ Potcnt1:,:t mcomc 10;;'<;, 8:mi rcplHmim::al c3magr: v,'ith Iml1 if ' .... c witbd.:.:::v.' fro:n the FCc~$sing 

of these p2.yments. 

i) It iii iit vliriililce "Alh Ji(>f11ul {natke! ptac.ii-ce Itl.il.:l could re:')IJlt !1\ dr,lp-lic3tCtl 

payments. Must banks win Ojj!y L:r..PC(t hi::>iX h. mihimuril ofdi;1<1il~ Oil an t1'1T202 

message aod n prrrc!ice whcreb:v WC' quo;c the full bcr,cficiari name i"il addttkm i:() 

ather demll~ could CC:Jf:1~e the US Bartk; rcc~j-,:ir;8 tile SWIfT ffiCSS4/iiC. 

ii} From HBEUs pcrspccth'C' MPS (the UK p?yrncr.t!. ~y.slcm) j::. SCI up in such a way 

!ha~ field. 72 (ctTective!y the disc!o~t!re ridd) is a protct:ted field \\'ithin nn MTI02 

('{lVeT ;:md t<1!"UllJt be ;m:ew:"Q (am~1,.,.d) ~,'y ope-tarof'S. It !'n2y 1).;- pos,siblz to ha"'t 

this ch.rmged tmt this w(luld be a subst~nti:3l piece of work om'; m?y \Veil have 

irnfllirMino'j <f(fl)';'S the A~Dk It w(l!)lrl not 1>,,:, r1~irablf.' tr) (}pen thi.s tit"Jd for 

m9uloulstJQ7) as. It eQuid introdu('.c ncv.' are3S ('If rl~k k fraud Addil;1.oTI'.:lh .. it 

would have impJicatioos for our Wolf fillering., ElS we would have to ensure ~\3t 

we are filtering r'l'iT200 $enes messages. These ore currenti)" cKdurieQ from 

filn:ring on the [H!Sl;<; (ntu rhis !Tamc rrorcsCtm uurc bank ro bank NiymcnTI: 

trame. -,.-

iii) !Jr;!~s:i lb.;;: MPS enhWlCCmel'lts m ii) iibo;.-e weiC implcmciiu:.d, MTIOZ with full 

diSoClosure would bcco..-nc a camp!ctdy marlual F,roccss carr-jing the: disadvantages 

of them being pro."'1e te human error and costly Addition:dly, we wodd not be: 

offered t!:e prct{'ctlQ-.,": off:::rcd by filtering, <IS MT202 .ser:::l cover pr:yme-nts 3re 

!1ctprescntly fi!wrcd by Wolf. 

IV} 'Stance of Ol.ber US ba!'!¥'s. Ev t'n1f we ~ffect plyrnen!S p~!fec!ly from UK, there- is 

!mll " di\'~r=;jty of opinion ;il1d ~trBt .. gy tty US bants. Hn.Lm~r!'l'.'('s, wh!(h nh~'£It1<; 

that we cannot guarantee tbat payments wiil defini!eiy not bE' frf1rZ~ :n a lat~ 

stage 1l1r;rc is an ckr)1l~nt of "grey"' cvcn III tbt' U~tllrn lcglS.1Mion or <ll k2<.1 the 

imerprcultion of it by the U1~!Or US BtHl.ks. 

~. S\VIFT tvfr! 03 !It::rial paj'ltlcn! {'ption. 

This is the preferred HEEU opti[JiJ: bu, 5ii-fft:rs fi-oU1 <i couple of significam disadv"mt:ages. This 

',,,"ould im'olve a iCq;.icst to tt-..;:; b'anian remitters to iCl'aOve thei,' spe.cia! imtn .tctions in field n. HBED would treat tho;:: p<l)Tu2n~ liS a seila! pz.ymcor. 

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a system mtervenuoo 

is maoda[(ltv. Affirmation that the MTlO3 'Oavment auaiifies ai: a U~rum oayment would 

need rc be ~onfinncd by HnUS before rhe' final ptl.y·mcnt is effected, Th~ same issue 

would arisr: fO! j.Jayrm:lHs di~ctcd tU mbt'l US banks cmd wbeu,: we would be UnCelll'-JU of 

thClf precesstI)g'al1'illljl,eilLel1ls/jnl.el111·etaiion of OF AC t~¢slauou, 

ii) Adop~ing ii rule whereby HBEL: fHters. traiilan p.ayments p;ior topasslng them t,j US as 

also p:resen:s risks, On tht \:);S.sis n~: we advise i;,wjal~ remmer::; <Ci exch.:de caur;onarj 

phr.:ses such as "Do TI~ mention Iran" in melr lnstructions. but we do not fuUy <l.utoffi:lte 

th~e paym~ms, we wit! be: relian! UpO~l the cperltors of the HBEU repair queue nf Wolf 

Q?~rators ~o lS!ct fl.!> judg,,:: sndju.ry at to whC'thcr d~~ pl!ymc!lts sh:.;uld be prot.c%~d 

Each pll),rnent W0l1id be atl')\y'ed to alHQmatc through HBFUs pa),rnell ~ system t-lJi 

menhnn of Ir.'m wouj.i pf(lmpt refes-ral 10 the WOLF queue Th~ rn(e of [tH' WntF le.'1H1 

wouili titC1) be to valirlare the item :aWiinst set U~tum rules and rcic33C it. It ,,,,:auld then 

be for the oextUS Dank in the t::bain ~o vai:idtlte the item. This. would include: HBUS who 

wouJd rreea to satisfy Ehemseives 2S 10 irs validity wimin OFAC ieglslaticm, BOTh of 

tk-sl! flctlvihcs II1cur c:os~ and we would Dulv wldertakc- this work 011 the bftsis that ell 

li",biljry for SCYU1::sil'attd items n;tJ),ain ibe n::spUDsibility of the ualliatJ tcrhitling blffiks 

This is a ,oH.5doU5 and :>VC'lfk .;:"!i;;Ilge f{'>m die Clinefl~ ~t'PiC'lKh "wh<::IC the: Itallian 

Banks rely upon us, io "'dean" payments for tbem. There vi{mld be; 3 need to ensure that 

febuS! ch.:d.:ing mccnani3Ws iir~ in pla;::e withil.i 1-~Bt:S to cmurc that all I:nniau 

paymenrs a~ interrog.ated ".ld meet the relevant 1cgisi .. tion 

Our preference would be to fo!bw the so1utbn offered in Zil. This is b-eC2use !he TI2t',lfe cfU~ 

!';1rr! p!!;'mcn!s. (payments, inVQ!vl'ng Iran. which .are by order of.a third ~c!.mtry b3.!1:k fer raym:!nt 

to. f!uQthc:r third CQ!!..!1!!; bank, provgkd th~y do not rcr;uir~ 1110:: US Baok to dircc!iy crcdrt Of 

(1ehit ~n tr"'~'!Hm LlCCOllnt Ie r;:'ylTJ("nt~ "'1J~t !;'oat t;'I1t\Ii~(' m th~ US) k!1j311d tMt t.V U·'j 111lctr-l"'ttkes 

$-omc mmuai sCn}!iuy of c:.clJ iff'lU Ally ff'pmanonal mk wouin be mitie<ltp.d by the Iranian 

customer (a financial institution) ra.kil1,!; responsibility for submitting only bona fide U-ru.rn 

payments aod HBEl:" \Voif filter detecting !)!,)(C:urial1cn'onst~!iI1kl'd pa;tlDCnlS. 

BBEts will (CTlltlftl.tt tCl .<t(f\lpl 311 init:mal hnt prac;iicc whcn:hy it views and Tele.a!;ts payments 

tiikifig fin oV<:;ivie'w of this uame t.i9fllg the: WOLF~ 1l1,d C[)l.mif~l' Validatiun Bijcks.\O~l qUC:J.es but 

this w'ill purdy be for ;lii'.CmallTiOll:tGrdl~ lJl!.fjiUS('5. The: ~)vcra:l appfoach is that the Jraffiiiil FT5. 

will moniier tbeir O\\-'n payments ;rank and .. 0 ensure that only 'Valid U-ru.-n paymems or 

payments which are. pt!rmi:;.:;ib!e ur.der the fe:rw.::; c;f US kgi;l.:::icn .m:: ::;ubmitted to HBF:U. 

Effectively the risks .as~'X:i:':Ied 'Nitb. ::.equcstr[ltic.n would be plnced Wit7 li.e Inmi3n H T:llber 

tn.:;!). HSBC 

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The proposed mlunon wouhi therefon: iovoivc {he foiiowing components: 

• -We can continue 10 process MT200 series illstn\ctiaos from Iranian FIs. in respect of Bank 

wuiernem in;;rrucnons 

• All commerci:e.t payment jn~trucricm!: must he sent vi:a MTI(l3 ~eri .. i f'()utt':, 

• Full dJsdosur.c to be: cvidl'nt and Dny rC'fCJ1:'I1Ci:"S 10 "Iran" in customer p3ymC:N mstruction, to 

remain wtthnut mat~n;al sift:rari(lo 

• HBEU Paymeoi S':p'.;r.:e-s to undertake me,r nOIT!lal clJecks, p!!.nictllarly those h1ghlig..~!ed by 

WQlftil\~. 

HBlJ5 10 b<!.ve opportumty to validate aJ! Irdnian p~y!11ent!; U~lDg existing iH!!!rrng !echruq!les 

(and ~le~!;e, if JPpropria!e). 

Se~l~!estnH!un ri!'~l.. to bt:! bome by [rania;) remiuiJlg !JEnk. 

There will be costs aSSOCi!llro with thc m.anual interrogation of these i~cms and we would only 

fcd l\b!("; to 5UPPQrt this ::\ppro~ch <)[1 the bas15 tba! loss of principal, interest. ~!!d FX cosl5 

aSSf)('HHec'I wi,,", dela)' wOllin be ttle re$p~ms!t-Hity of the Iranian Ba.!l1.:, A.n ~ppropTiate fee 

structu:""C for the mar1MI int('"fTogatioJJ of these Items by I-l..BEU/HBLS wauld Dc('d to be' agn."('d 

lranian n ltmH<,nfi 

IraniallFl 

Eur<Jpe;<!lFI 

usn USDU~tt!l"t) 

U$(JnOIlV·;UrII 

HBAP ruc IR 1l31iollal USD UAtlm 

US FI ~/!.:"':S i!.l!iu!Ml usn !!IJl1 U-!uru 

HBEU 

EillIT 

Cm:ntrybxks\cp 

\l<(!Lf 

HBEU HEUS 

f,cli91l EiligI 

Pay Pay 

P<I), Fri;e7e!~~1: 

O~A.c4)lJif(ln.d 

lOp>!'.' 

CCUnlry bachlOp tWolf Pa)' Pay 

CL1l!lHry b~k~10j.1j~~V<)ir P,I)" Frt\:o;i~k 

BBElJri vie·~· is t&":.at if \v;':. arc 10 cuntiflue to support our lrLiulafi payment Diliin:.:ss solutiLiil.s need 

tv be c~ntrc.d ilfOlli"1d 2 abo',;e, In orckr to progress on th~ bOlSiE. UlJtl.incd, "tbrl::c areas of the 

business would need to be comfortable wit., our pioyos:lls and take action accordingly: 

RMs. to contact lrdf;lan bank cmtomc:r basco framan remitters would nud io be ad.vised of 

~ur tcyj$¢d proc;;:dur':::i, stlpula.tiu3 that ibey must ·.:mly 5.uDrc,lt MT103 serial p4ymcuts, which 

do nol indOO.; special instfUCtl0nS in lidd 72 such .<is "Do nut mention lrau'" "Car.;:: 

S<lnctiontd :;vllUtr:.'" and "no nnt route iria the US". AddioC>l1aHy f1drl S6 5h;:<uld hc 

populated to Il:'isis:: routr.g. Their risks una r£:;ponsibilit1.cs WGuld be Ol:.tllricd.. spc(:ifical1y if 

payments ;:rc frczcn k. the US .:Iud the pC$~lbility cf incrcx;;::d tariff would need to be 

ronsidered due to potC::::Hiully inctc:::IScd .costs in HBU5. Acceptance of ~Ciue:;tr<ltion dsk by 

tbe !r::ml:m b:mk v:culd abo need to be iuxrycrzted into 8r,y propc:>a!. 

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.; nnus (v agree to tliis: solution. The ::VIT20:2 CO'l'el payu.u::lll ptl.1pu~t::d i" Lllli:llt,;qJ.llil:Jlc: io 

HBEU and ~~1TIOJ serial pZf}iTilmt route' is in GUI upinion the only viable and It.allsparcllt 

so!ution. Action to be takeii ifnoo U~t'um paymcntl: SfC itro::ntlficd require to ~re a~WI;c..J An 

<'Ipprop:"iat~ fee structure would need to Je: "greed to reflect cos.ts n5Soci~teG with the 

inrerrcl;:1tion of It<:n p:;ymcnts twffic in HBUS. This \l!vul.1 be a..":.C0i,jlnoda;:.;.d thruilgh '" 

d(:dul:~ion from tbc: final paymcr,1 made to the' b:::ncficiary. 

HBEU :('1nd Group Compli;:.ncc to c;;r;l..;f;;c <my propo:;,,]. Uncuitditicn;;l !ilgu-uff of the 

propDsed CO'J['.Je" of nctkm would be required from Compliance. The comfort facto; would be 

in that all lrznian pal'men!::':; will be :;ubjcctcj to checks thmugh jh~ V/Dlf fi1\(,f ,:.r Cmmt'i 

VaEdancn S,rs.ckstop in HBEU (RMS) :md, in cT',lciall:{, HBUS ... ill utilise its 0;:,,, filters to 

second check pa,m~:ts :md -ensure tlJ..'l.t rhey ere complying, 

L Dmft le!!'!r wcrdhtg tc be <!gred \.:itb N,~$ser TJnmlip(,Am', S{~nir:r (Ot:ntry 

Representative, Lran 

2. Once 1!grccd R~lat!O!!ship Ma.ll2.gers to \v1"ire to Iranian F! CU~fomc!'t !!d\~~lng them of 

tbesc reqUirements and such leUeTS to be lWld delivered by Nasser Hcmapour to Senior 

MlIn!<B("DlC'fIt m the Irit.lll;'ln P!~ 

."l.. PCM DubBI t(l vj~it iranIan fI!' (~(.gge"teojj one week aftcr:2 above) to cnsu~ that they 

arc fuily aware of thO': fmmaNine n:qllir~m("nto, o\llIind in thr krt('r 

4. HBED to monitor traffic and refer any problems to N~~:;er Hom~pO!tr so thaf ioc<it 

inter-'cnrion can take piacc where appropnate 

This should enable L~e [l"anian payments bllsiness to continue without 'Compromising the: po~iti.nn 

of the Bank. In (JrdeT to eX[leditf: this solution 3 dnlft rempiate iener (beiow) to be Sent tu the 

Ir~man t::ustoroer base ad\'isjng: .hem or tne cha.,gcs: bas: been dcvciQPcd ft)f cQ'lJsid:radon_ At 

tbis stage there bM been no Group icgl'll input into this draft. 

Confidential w FOrA Tieatment Requested by HS8C Bank, USA~ N.A. HSBC acc 8874032 
1598 


760611.431

Dear Sirs. 

US DOLLAR PAYMENTS 

1 arit v..'ritinjl 10 inform you- of th(; ncccso;iT)' ro ;,oocnd rhe way in which H$BC' actS as 'four 1.l.2ClH 

fDr US dol1~' paymentS and huw we propose to c(mtinuc to~ handle The usn pa:rmcn~ bU5i~ess 

w.: ~·r60..i:;''' 0,1 )'ulif beL .. lf. 

Y(II.' Vrll1 ht' fiw<iIe that the regulatol), climate has. d1.:mgtd il.! !'t-jIKC( uf era:..::. bon:!ef payrut:ub, 

psrcicu4>rly th.:;S<! which ao-t:: dcu(lmiuatcd in US dollar,;,; aud imolv~ (enaiD aaUled (by GFAC} 

cour;ti":ic3. O\!cr tll.c last few years ',ve have L~fn abh~ to ServiLe yuur US dOlldf pi3ym':-iltf> 

bui.ne:;.;; hy ensuring that 0;". ar.:c;'ttioll is draw;; ~o the fiict thii' ea.ch payment remitted hy fril.nian. 

Bcnks is a U-turn paymcct and H::cn take .appro?na!e action, 

In the light of ~he d:anging. rcog'.JJ.;no1'Y cj)siromne:nt t..."le inclusion of 3ddit:cnnl text exampks of 

which 3TC cutlincd in :rcm ii) belDw (:; no longcl' ncc~pt"b!c practice. In CH.k:r to me:.::t with 0\.1. 

r::qwr-e~ents '.y!': now propose the fCl1C".'lillg chz:::g.e:>. 

i) Al! t'SD tvfr!OO ~eries pa)me~lt instr<.lcnons should be ::lCt.:t to HSBC B:t;ll.. pJc via 

SWIFT MT 103 me.ssage. These will be processed using the ser.d pn.yrnent method. 

"(our r-..1T200 senes ::lcssagcs ic Bar.:k to B::!:'C.k tn!:~fC1'S arc unaffected. 

ii) Field 72 should not conl1.[n any special r;luticnary inst:r'Uctioos. 1be5'c lI!dude but are net 

restricted to phra-"ie~ tike "D0 not menti'J!1 fl7.n". "Care san('tioneci ccuntry" and "Dc net 

ml!t'~ 'V!a the US-' Payments 'Ufhich con!inu::: to be sent ,,':!rh !hC'sc: h~:S!J1"!c!iot1s 'HI!! be 

C<lllceUed <lIld tl?il.red IlS null and void by our pa.yment pnxessi!Jg "rens 

11) Field S6 should he populated hy ynu with fhe- cock oftbc inf~ed1a.ry baflk 1,lI'I1O' will be 

effecting the paymeflf in the Ilcnmcilll)' b:1{1k 1 !11S l11f('lrm,'l/lof! <::h01!ld be" r(';:Idily 

avaiiabie froID yout' beneficiary custom~ts 

Fulfilment of the above TequlTement,\ will ellahle us iO continue to effecr liS doll fiT paymenlj 

efficiently on )'om- bchair. We: mUSI SITess, ilowevc:r., mar due to [be corurlcx and vaned narurc of 

these types of payments, the risk and responsibility io the event that payments are sequeslrated 

by the US TelolUiatory amhcriliC'S r-emain your resoonsibiiitv, Anv interest. roreien excbrull2.e or 

c~m'icqUt:fl!:iaf c('r.m. ~sMxi~ied wil'h a ciei~y in ~h; processi~g of $~-ch paymcm, whilst enro~te to 

ilu..: u~'Jll:fil:i;luy ~ill \.)1,: (".,mH.! by ,Yourscivr...."S. 

Confidential - FOIA Tieatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8874033 
1599 


760611.432

To feflect the ll~ iO reimtll.Il:iii: cosiS l'1..'\sc)(;ii.l.i.t"u willi ii'J{':st": lJuym.,-.i.::. ii l~ ::;!J~}!;I;~\!':d thlll (h!.;st.:: 

payro.:':Uts are marked "-Ci.Hifgci> bentfidaf)" sO (hat !! dcductio~ ~an be made ,m~f(hc paymeot net 

of such. charges. For those payments marked "charges ou(' any costs win chs.rj!oo tOyuUlselves. 

We would ask .)'OU IQ e:nsw-e \hat pi'i)"lTIefit iOSuU';::tiOfiS incorpor;.te the above 2 COndWQfrS i?.:i 

SCNll as posaib1c. hut ll-o-Iat~. th<iv J 1 A\igJ,I$i 2'004. It 'would be tdpfu..1 if il'ic implementation of 

this proccGure cvutd be made. lmdcr "dvic~ to me at ka;:,i (.lle week in advance vf the change 

being made. 

! wou!::! Uke :0 emph<.:sise th<tt ESSe gre .. :l;: appreciates the " .. lue of your business and your 

long~sta."'lding relationship .. vith us, We ~rpe:;'1 }'c:j: sssistacc{' to trnplCUlent the lIbove- ~ourse of 

!l.ction. 

If j'()I.l have any difficulty with the implcmcntat10n of this proposal or'I.'ish 10 dist::S5 fUlther, 

plc:asc arr.!u!:ge to contact me on 

Yours 

U0'1uott' 

iu order to ensure that we do n01.agrcc a $\I.ltablc way fo['wRrd with the ICII~tom(!r !fJld then olive 

an issue with HBUS, it would be appropriiJt~ to obtn;n your ngreement to the above cml~ of 

"coon and tben obtain ~n "in p.rindpie" agreement from HBUS via Compiiancc beforc making 

proposal:r;; to our iradan FT customer hase. 

Confidential ... FOJA Treatment Requested by HSBC Bank, USA, N.A. HSBC ecc 8874034 
1600 


760611.433

riorn: MarrO/l 0 ROACH 

S!!nt: WP.d Dec 151032 002CoD4 

To: Mariiyr. Ii SPEARING 

C~; O.a\'l.:1 H HODGKINSON 

Sl!~~et: !R,4N ~ OI=AC 

importance: NOr[nel 

At me GmlJp CEO's reque-<;II havt! kept him infn~med a.s. to pmgreR~ macle in rel.::rh('ln to It'oe al;love 

mat'".er. eonseque(!\ .Jpon rrly haV'i\g ad\,ased him that;ij compliant :!O-Qluiioll ;'96 );,ejljn agre6'6 il'1 ~rinclp!ft 

wt~h HBIJS he indicated that he dId just want to ccnsdsr the Issue 81ld perhaps d;sG1JSS with the Gl-oup 

Ch,",ifrp~.n. 

00 'He have any view as l() tne posslble value of aUT belnp able ~ aoo{!;ss !hls Issue of payments mrougn 

:t.n US :n 1err.,s Of tM potGf,tlaJ comrnercisl valua to tt'oB cfgantsatlcn ~clh in :erms- ct .(;)Gst;ng t;.:.JS1!16S~, 

but perh"ps more IrTlponanuy if!~!"JTI$ otftltufa t>lJ~il1lfi'1'~ I WQl}I(I nClt8'_'C'DI'!~t • .natw~ ~€Ik: t(ltry aflO 

Initut:l1l:t ,he ~a!e at Ih;~ Sld<je (and \flljESj i don'! thin;" if WCUll ~ (>rudenl to!'>lan iDhbyino:ai U\iS 

staJ;pe} bl!t It m;ghl be helpfu! if! W$$ a:-:ned 't':i::n the !:I~e!}' v-.. d:.1~ b: the G~cup jf we <!ffl :!1 effeG~ IT'.:.l!::ng 0 

repu:a!!nnaJ risk DV"'J passltJ!€- ~warr::t rype j'Jd;J!!:merol 

IlhinK I, will probably be SEnsio!e tor uS to ~1!~nt!y continua however to proceed tlssum!ng that we may get 

51ij.n-011". 

Regards 

Confidential- FOIA Treatment Requested by HSBC 8ank~ USA, N.A. HSBC ecc 8874039 
1601 


760611.434

!=rcm: ,~ay 9HAN!YJ:JLi\ 

Sent: Sun Apr 10 14~.ir'5.0 ?n05 

To: Oa \lid W J SAG-LEY 

Cc; O"J'/ld H I'fODGK!NSON: f..fukhtar M HUSSAIN, Alan KERR; Cbr\~cp"';r:r G LE\A.~S 

SubJect Re Fw' IRANIAN Rl)SINESS ~ OFAC 

liYIportanct): NQr(hiili 

Alt3ehmell1s: image_O gil'; j,'<1age_1 g:f; Iran usn p;:zy~nts,r1oc 

Dm/IC, 

relevant in y;)l..)l own p~per. 

Re, me orner p:?opp.r on the elden! :mel nAAJr!~ r.t the r:;roup'S ]r;l"l"liOln hl,.Jslne!;os; that you t"iBd (~qvestBd {rom 

ii"'lo!l lfdii office, i ooii;:,yti NBs;; .. r is {'i' 1&10111':1 JEllotJt),y;,; ..,ii-iiiug t:I<:: lJAE iVIIO: .. oIfc,w Clwj 116' wi!! (.;iIi! yVU Ull 

IhiS. 

Regards 

DavId If UOOOKtNSOO M TO Chri!i:;ph;;,r G L..I::W1Gf!-lDM[,HSaC 

A!rJn KFR.RIHRMF.fH.!~OC 

C;;n YOil plOal';"l makp.SllfB !hl!; ~1Jl'I"I!TJ.<\ry ".c\1Jt'.~ (;veryrhing ;;nrl o;.Oi1d your alteml;lti-..es P<l"PEtffO DI'I'I(I 

Sa;]lcy a 5 a p. Ti"h"3 princ;;.al concern i have is nut ~o mLl~!J aL>wi OWl ex.isliflY ~u;j.ir~ lJu\ ll'le )nH.Ii!<,.:! uu 

the lra"ia.'1 ~1~!afchY ()f HS8C be!:-'lg seet! t") ·Cr: s SP' ;,:n~ as IJ. [st..:!! bei;:g $..~!uClM t"Or;1 the cp~n:n;;; 

up 01 the Iranian oOln<:'fig. mar~el wilen It finally occurs. 

Confidential ~ FOIA Treatment Requested by HS8C Bank, USA, N.A. HSBC ecc 8874051 
1602 


760611.435

HS8C Bank pk, 

R6ijlSt;;,sd Office: S Csnada SqU&ffi, Lunder, Et4 5},C, Ur.ited Klngdc.m 

Aut~rised :ind RC:;Jutated by t,'le Ff'1anci;:;/ Ser,;iC~s ),.uthotlty 

David W J BAGLEY 

For",..,: Da ... d '<f J B.o,GLE.r 

il-cn.t; OR/04/2!.lO., 1'):.'12 

',I.'<=,: lJ.lvid H :/ODGK1.t.:SON 

Cc: ~iI!:S"'l" llUi·VlY(}1)!< 

!11Wj':U::t ~ l?.AtHAN B(JSINE.55 - onl.c 

I:: j-'(lur ab32r.cB i nm-e ct',SSflO Nar;,s.:;rft;;".I.'h:;;t I undprs:"'1Od to biOl t!'1a t:rs! :Jar: ofth<'.: po:;cyre",1ew. 

naml'lly 1m f'ls~t'I~.!im!lnt nflh'" A),1p.ni :l!-nd n"hx~ Of!)vr i~"'i~" ~~i"",5!'i.. Thrs. «;; l":fH,;~d p~nl,!.9" f>l'llrtt'lf 

au;: Ii:,;' \Nt:! It;lW<ttt.i 114Ui::lUUfl. wl .. !~ uE':I.;ilU':>t: Wtl wiii lltltlU (U VQiil H.I"ltiiyL'= t:I~1..h uifit;llt:llt Iy~ l'i 

busioCS3 and assess how Wi> 'nil[ .deal w,th le!:jacy lssues, 

H~ ... <inG o;pn!-:er< to StepMn. p!'-Gmp!ed by (:Es.scc .. $SiCnS ~-e:<Hing to 2 s::-ecr!i::: tr2ns-Clc!ic~ fef NPC. M hss 

Instructed r:"\l? to ace-pare to naper~' me end of ne)(( week for COr'fSJoeratron by the Chairmen seniiIQ oot 

0.'1 an3Olys[s olttle hsues antl.".iL'< re~,jfnmend.an::ms.. This :i~~a~:emak<ls it vwy urile"tt'lai! rec&i'i<3 is 

&af! I)ftr:e above bVSI~5S s'..lITlmary 8S q-~I!('.t::Jy '<IS poSS!t-e!. even If l!1 p~ CClfI1r!et€o forrr: by "'~Qr'!day 

cl()~e.?ot n,e ~If';;t \1\1': wiH t rer.00ni~o"! ha~ 31'1 {)('l.f'Kl,iHnily to tiiS(;l,<;S thi~ furtnl'!;r OJ) TueS;:1"y, 

Ii is \10! .ail as bad CiS it seems as- (he corwersatiOn lOO8:Y9.we t-orne ciear I-'«lsslbk< Biltllnailvt:! approac118$ 

to an oo.rU'ri:i!lt billl, 

H~"PY M speak o~r the- ~~ke"lct, -al!"QL~h S:=!~un:!"'y .!Om! t'l.'jlt b~!n l~ car 00 ~'"'e w?!j.! l!;:'! NcirtrL r>hl 

mnblLn i5 07803 0346~5,:IInd t:or 1h.i5.I!' .... t'ni(lg llo'!ill N- at hefTY" fn:,rn a.br"ul for'" ('11'1 017g!=lI)....1:(l14~ 

i am an~QtJ$ iI) awl\.! n,1$hinQ 1ili~ ex>erciss. "f.hough U11S n. now inevriabie , ami lfiflE'fe G anvthinQ tllOlt 

Cell'\ be cone t£i e:..p€diie !fit ilUOw wCHk i \/o!(luia be fltill!'::iui 

Confidential - FOIA Tieatment ReqUested by HSBC 8ank~ USA, N.A. HSBC ecc 8874052 
1603 


760611.436

"~e:ntl 

'X\<"~r :2OC'S !~'~7 

Tel: 7GG1384S 

To: 1~<I~"" HOit.to.\POUFVi-fS8L1i-iSBCAf"AC@liSee 

Dear Nasser 

My un(l~rSIRf1~iJ1g)1I; fr.~t )"i:! ~~Icr ~1P!l':'rtry ~m if!;1-w. prQf~"5 of dOGUr:'II>11tlflQ !h~ ~xt",nt nf th~ G!nu~\'s 

ll"a!'iia(J (elated bUSIJ"lCSS whic'1 miGhi be Elm..'Cied Wf]'fC there 10 00 any cnan9c in lhe Group's POiicy 

towards "'$'1'l3tlloniJ. tha! migh~ be affected by O!=, .... C f¢!;S~,j to;'::::cnl$ ev~n ifCOt.<iuCIeC throuQ"l 'Wf'rUS 

i!'lCorpors!-!X! Group ~!!t~~. 

1 retOQnise the obVIOUS concerns (nat L'l~e oreoposals IIItII rcglS~ wiUl you. but we ar€ currently 111 

something of an arntHglloos pCSi:lOrl, whers I am beHlQ (eQuired to give s c,;:;mplllinc.;:! view "11 a case by t:.a~ !:>a!<'s, ~u{:"" !:-'a! h is cleso1y des;fab~ fc.r llS ta resoh~ 0~r final policy OI.r!d a;:<;::<ma-::h ('I:"; 500n gS 

possIble. 

i wOuld be {j"1'alt'liui IT Y1)1) wOl,lid GOili~rn illsl ! ny <:lIJQ"'~ tIllUtll!).tafll.iili:.J (;f '1(\\J1 if)WMm~nt is c-orr'lXt nrJd if 

so weruld ju\j plea5e prVyj,je IT';;; wilt. soma idtJa of nO"I' far yOu ha...e reoc.tu:ld if) th~ pr,;;cess, 

Confidential * FOIA Tieatmsnt Requested by HSBC Bank, USA, N.A. H58C acc 8874053 
1604 


760611.437

THIS PAGE IS 

INTENTIONALL Y 

LEFT BLANK 

Confidential- FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8874054 
1605 


760611.438

Oql' ['trw:' To t;v;;;)ume ~i[!<l3iiI!CS 10 wnlL"l':/(' mating pll)'DlCnlS from rIani3;1 [);inks >iCCOl.llllS ... ,.,ilh HSBC to 

pr.)ltc1 Oll~ hunirt:' fTilll~his<: ",'hi:'! rE:nbisi::gc!',y .?c~sibk b~<lL ~d!l.!.m:y C~ rcP:l!;:tiO:1:l1 risl; 'J.' HBUS. 

Po f)UfliUCr (;f;ch..,rJ,2,1.i\,Clf hJJ,,-e ~en !:\,;;'\!utJ.ted wi:h oelilib provtde-d in th~ IUlneXUfes h<)we>'cr thert 5r:<::m to be juS! 

2 "!:!ble :l:!!!!n)..lji\'~t lh~! :!rl: ~-.;pbin;::d ~k'"" 

ni<: i,; tnt 1'F'01"'l~'lt'f1d!!'rt .a1tem~"'C rI<:.ii)'" to? 0"l1}, I";;y!ls ", .. l!'ch P!ym!;f1!s. ~JI" Tn.de !~nd cO!T!.!!tero::ia!, !.'.!.!!l 

con[inu!: t(} ~ m.:Kie ",·!tho~! >l:lY risk !e k"BUS er to oor jr.l;ll~Il bU$ifl.es;. TIlls CO>!~ [JOt meim Lb,lt H~ME WQuid 

<lggn::ssivcl)' bcwrnc 1:,::: Tt<lll)4U pilymt;>111:~1', h,: ~ls1<;ad ~n:"llld ju~t l>C ~bk ttl ccnt/m": w,z}j tiJ..; \';o.b!illil 

:p1ym~'l1£ lj'i1l m~ hcmg. .j~ne !.'t!! of!!";'!!!i;m b:mk <l;;::t't.'ll!O; wah lh~ Gr~t.'P. 

lliem~<)l'.lg1: AT't aJt<:m;nc iW HeUS1 u:$!) ev~~DC¢Ilt w(I'uld be \l.SCd far H!lME Ui\£ Fun tnrIspa!'cf\cy Qf 

(he pwpc:s.c of It,c ilCCOLllll. will Ix' rcqwl'\;d ,\ rili .he COl'n:spomk~i.: ntn::';!I. COJl~",pondc[ll is udild» lo ;!I/,\TI:C lu 

(!!.!r bu:i!~¢££ f:}y t".:\.tli~':1. !='wm)¢1l.1~ :<lCrnt r:DI:! wodd l'i:t:c:! !C b~ given "I b:e:::- ~h:h-'!. Ail usn .1::;(,"o"r;!s :;nf~~i;;r; 

D:1I1;:-, beld With dllfe;enl "tllc,es ;'I(;mss lhr fJ!'flllp CMlid b~ mrrve.i L,.., HB~E I.,'1arln>l in!dhEe-nc~ I~ fhat "flier 

h..lllh likll B-:";P de i\~ fuiil)WI'ng simHrrr prooeS$CS, 

f'''o.~. hJin1.ir,tlt~~ ~fRJ~ ri,>1; 

F:i!~}' \1:1 SC' \If. a.~ existing ~~tems.r:m bt u~('d Without :ll'iV m3JIual proce-sse!> elC 

1: i~ ll'lc l:c;t :;It.::r.,,;;tm::;.:; .::uut;"ll.';; ,ij} tiP::; (;f,fii,,~WC';"iiS ;lldw.;l"·<1! v~!ru(,;;IC:oJ Pi({ffiCilb 

COl1s' The!!' 15.';'!!! d!CCDo:m cfHSBC g-m!p-ri£!c (!!:!':mg£ HB[l.1f), whkt, c;m be miog2h'd 

throu .. h lQIIs!)3rel'lc)' and fuB discl()su.~> 

UJ5S- Dfl'(:V~l~$ fu; Gr()up(HSUS) Ift(llirt H~MF. UAEO'J;lnts..~ is mo\·ed. 

Wi!h tlle. Cl.Omn' C!ly~n:!1!!'le:l~ h m::ly L~ d.l~:o;:t:lt !o nne !l v. il!ir:.,; uS ';:c=~p:}-nd:n: 

/I.c(fons.· Eyaio...::llc tbe 10)05 of t-llIltlt'X'\1O tht Gnmp ~'i':1 w/)nlc 

lui..ialc du,clI~",ioll~ with. s;:II;>Cl (mnks, Cl'Ir.;': is m;uin:o S.1ncc this illlT'.OUnCCS OUJ'lntcnliOn$ln a sm3il 

m::rkd p!ilC~, 

Th!!; al1eT!!~tiv!!: ",~uld supper! t~~ exi$ttr~g T~de. P:'!ljec! & B:PO!1 Fi~:1Jl~ t,1\::!. Sf.~--:.(1l!t':"::! firul':<:e h~~il!e~~;. 

Oll.Y and would 1I0t suppongcller3! u50 commerc:il.1 pJ.)"TllCi1lS 'Illere would t>i': ~nm~ ret:lljon~l:ip ~rpn~."'inn~ 

:.it)(':t. the j.HvjJ'\.>sit)vll;s !:uHai\;;d tmwt.vi..r. allemplS would be made it, m;nimls~ lOt imPilcl su a!t tll jJ{U\cct our 

m:J.i!l b'-l~m~'~~~, 

Mdhfltk)hJ!.:" An n<)n-1J"SO ao::m.l .. t .. ,)flr..l~(,Ir r..)nh ~T'd t(llTll1i.1'!'!'S allY'.1'!tert' in the ~,n.'Uprall c<)n!imlt USD 

a~.,;qUlll'> C;':ll COfl!illUe III ilo:' 'k1!:P; Illru, :'1)1 {'~-W ~ U:'('C ')niy fm the purpQsrs sp-etlf:ed 'Xiow, 

l. l:SD payt.~cm~ Ie HSBC w;;':V-'.i:nu in :... u\ ~-Ountri Ont;:m;;.l book lmnsf-:;s) 

-;!, F~'!'C'i~TI .;'vt!Vm::y <~K\l!~l-,SD) paym'.'"'Ji£ 

J, Receipts Df fimOs ili5D Of Fey). which 'Would be Pfinl~fily Tlau::: relined. 

4 Peri"Gic d.:.f .. mdillj! .:;fthis :iCCQur;t ,~ it';, O,WI ;;''::C"u,:i3. ';;,.;",; 0th~i ',);jlliJ, ';,lj." 6.;il;" 3.::.de:l.;t HSBC UK Iv o.wh 

S!!!;!~r.n.t. UHS, SWltz~;b.'1d. 'lbcsc i!~rlr(Cl1;lS w;)'.!\l 10:- T:'1;:.'l~1.!1')' ;J.-~r',l~din6 tt::n~:.:clicn~ :L-;d no: ::omm~n::i~! 

~;:mC!J05, 

C!{jnr'l:ar";'i~ ,"£'qm~e.J: ,I>., T re:.sl;.ry d:f;.ndiri!,1 r.m;.;s:;;dian v"'oilld b::' p.:ltd t~ ihe- Imni;m l;';l~k T<I:1l.:~ iliv; :;. ti·Jrd 

o:utv, Tllcs.: \r:tlI3'3':lion~ would be hv \~<3:',! {It a <:n\!cr MTlHllnr<:."lJ~h 1!lC U;:; '\~ ncr 1h" !(:<>a! "')!"lnf! fC"'iv"d an 

~aY~H!OU rcquii'l! fulllX:"'011in~ (If<'ft~ 1.J.oo~t;fl}'i;'ab in~~¥:;ion,lh'~I::·~er> si~ ~~ :m:" rri':~l1: dtfu~.;iiJ1~> , 

Irnn:>;:.c!ior.s, th~ro:s 1"0 u~do:r!yi;;g :ran:;:.;.~t(m1 :l.'1,j wccld ci.,;,nply ,ntb :J-T;;m r~p .. 1i:l.tiv"s, Cl;li~ficaticlll would 

.... ~(l to l~~ ~{la:>;hl "'" 1Q ..... h<:'lb~r i.l::1!~<: ?:tymnts ca.", 1:-:: m~e thf':'U,!{b HBv~t 

t'N,,:;' M';r.in;is.:;s m~us risk. 

P;o('!c.:ts th~ tt1~:; bC$i!l,!$!:e~ ~fTr~e :me FnJt~! f'!1'~r:c~ 

C",,,,,j' T!:lc"l'C is" ;;isr;iflcaot dmnfc III tn~ l;:mu o-j'lhc account i.!wl w(;u:d MY:! mOfke! r1:p-cr~lls,';inn!l 

Sini:iO cnmm",rcl{ll ,?aymeot~ G.)l,llot :\e ,~~~, lhue i!, ~'(p(CleC to tot !.Olnl;' lc~;; ufbusjneS!i. 

,4~!j(;n,~:-. Seck d:rin~;.:ti~:.::.:; 10 w0eth~r ;;'!<15lljY defu;,din,(:" trnfl::;[)O;t.o;,s ;:':no1. to.: 'T.ilcl~ thr.:)\:g~ 

HBUS 

Confidential - FOIA Tieatmant Requested by HS8C Bank, USA, N.A. HSBC acc 8874055 
1606 


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- E~Lim;J,i~ lhe io-$$ of irot\!ilI'I lX\SJnc$S ,Jib:$ tlption is us\.'tl 

MI!U..1JLti 

I he!'! arc- o!!1er a,}{er::latJ.,es that h;:rv! be.!n. f;O!lSld.::red, I'Iowc\'er they wouj,;! :lll C31!se gte::ttermm.::t rerercu~s'[ms 

and wooid j~oparciise our irnoi:m pos(UOtJ, c.r ,Ut 100 C"UmbefSl,:l>m{:irisk .... 0 iClpjem::ul, heClce ilrl!" ll~\ ~c{Hntrlo:ud¢d. 

Ihcyr.avrbcC7tllSH'db=-low: 

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M.:t};t,,;}v/og,:: Cs{: th~ I1.... H;;.fCk~,;i1e. $)'sli;:ms ,,~tsid.= 1)5,0;; m,iJ..;; N]'m~u~~ i.} UIC wr:r';~~l\Ij':'Ul b",j}"i, 11i": 

p:!ymer.!s ""':Ill:cl ~ !t'$lriC!e:ri!()- !lpCJ;lll: b"'ln\-~ t'-'!lo h3'JC :l::-(,N1Ll~~ m Itl.:!l ~ounlry :mt! only ~N p:>ym:nt 

:lrr'r\"s~men\SCln \,X'nl;lkt' 

Cr::l,I' Ar: addbonal :;U"};C HS!3C entity wqtl.ld get In\'atvd 

T1m approach w(']ul(f rcC]U1I'C :r.:msp;Jren"y with HKI\{A liKMA hl'\\'c, worl<.c .... with FED ton lheir I;SD 

Pll>'P1e'll~ sy~l.:::m. I'II:I:\:'>:' .. n)l request may be rnutd In lh~ US FED ror upprcrv.a!. W~th the brge HK 

Srr!eol'eS1S ofHSBC. :be issi1e~ b in;;civill,!l; HEAP \:"'nuld probnb!y bl. sinil:lr f:'> me l!:Stlt"; ,vlIn HBCS 

IJ)~tl:t.t~t!!!!"J!lt!!.!!K~ll').P.A~~. 

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C~'!l'·:!l ~<'.k a!·d !'!!I':~ us~ pg}'r<!ep:~ I'J C:l!,'ll ~l!htT'. Bai"h g!'!!:!rar:l de' :10t L!~ !hi~ ~y:(!m, !i!!;-e i: !~ n~'-\', nCl 

lllCH\f.,f:l mrou!'il and !r.rn::]~ 110 baltfit o-vcr !oelrexistir.g [orresp-onden!s, HO'>l'e'r'er'l'O'e CQhld ~n!;"()ura!f<: !;JllY.lfk 

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.:.iBME )!::c HElME wocl.1 make ~)T.',en1:;o:'l :},~ir~~::llflc !;yedil~ ~~l't ~rr.:-:lgea 

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Th~ ~'(l'111j b~ ? ".<:,e~ for mrr:ual pl"X"<:~'-"':~ 1<;) mn!<:c- Inn!': p3y:mt:!H~ 

J.,,1.'1B1E~~ts. '" u.thi'I'"'::i1rTcnd .. "a:tJR., GBI'i 

.Afe!.i!t.d%l{:': {rl!nin.n OCs ~ld other !=,~':!l!s ;l'!." !;"l;:tl.c;.;!.lly oi! ~!::!cd, hence 1r~'! ~qt::remerlt i~ gecenlly i~ 

USD To,:\' do bn~'Cc at[c-male EUR !h:c[]unl~~\ l~ll uS 11 O2Innno{.tK\'. hO"'''\1;·rUSf) is ~lCill'fV 111[. Mt!i.-I'!tCl 

";L:k-:"""Y. \'11;; "'Duld ib.;;(.;fu-{C" «"1",,,11 U$D paYIJ;",r:l.:, mill' b!lY' EUR illlU !(.:mi\ E'LR wllfl \ll~ (;'IIT~!r-pouding ~\'cr:.;,;: fC!'ZLSr. e>;c.he..'1~e l~:;~tIO!l:lt the bl!:H'!fic'.;):,} b;w\:, 

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A d1.~p';m-lli(,l1l.CI!!H!J.:<: 3rd p<lr'.y },.":y!!lC'!liS (tJr':l'.!gt \.!".!;<s!try .. k:ds lSf>~qci!'d f,;-r t>{.'1..'J HSEC !t!'l!:ll~C 

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Confidential .. FOIA Treatment Requested by HSBC Bank, USA~ N.A~ HSBC GCC 3874057 
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of Overview 

.I PoJky Dinx.tives 

» ll:lISIBC Bank USA, N.i\ .• (URUS) 

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;.. HSBC Holdings pic 

IIH:orporated III Engl<lnd and Wales allci headqumterl:d in London, 

Lead regll1ator is Financial Services Authority (FSA) U,K. 

HSBC Group CumpaniEs 

Lecated throughout F.umpe, Asill Pucifi<o, :he AIT.erica" ttit, Middle East, and Africa. 

ApprCl)[il1Jatciy 9,500 oi1i;;e:; in 86 c:olllltri,;s an(1 tenitodes with .30e,OOO employ!,es. 

Serving over 100 miLio!) per80nal custumers and approximately 3 million commercial 

customers. 

Supervised by approximately 540 and regulawry amhorities. 

HSHe's Busine!:s 

);> 

Major lines of business are Financial Sor>';ces, Consumer finance, Commercial 

Banking, Glohal Banking & Mark<:ts, Priva:" Banking and Insumnco. 

IHSI3C Gronp companies execute approximately I:! million cross-border payments (ill •. 11 CllITendes) monthly, 2.3 million e,f which aT<: in usn. 

lHlSHC m;A, N.A. (BRUS.) 

Primary business ope;:-(ttions indndt Personal Financial SerViCI!5, Commercial Banking, 

Correspo:Jdent Banking, Trade Services, Bankno[(:s, Global Banking & Markets, Private 

Banking. 

• 

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HSBC GlOllp 6:1% "ff,ltaks of alll;SD virtually payments all processed USD raymer.ts by BRUS throug,h accoullls he'd at HBUS, 

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>- HSBC is committed to complying with both the spirit and specific provisions of all relt:van

laws and regulations . 

:.. HSBC plays an important role in furthering intcmationaJ effbrts against laundering and 

ten-orist financing. 

:.. HSBC GrQup and REUS are within the industry, inclu.ding the: Wolfsberg Grou.p and. 

U1C Nt;w York Clearing House Funds Transfer and OFAC Working Groups. 

j.. HSBC's global policies regarding sanctions reflect the PrinGiples. are developed 

from the by HSBC Group C()lIlpiiance and are by HSBC Ex,!\:utive 

Commencing i.n Murch 2004 and continuing into 2009, HSIlC Group Executive Management 

issued a series o{sanctions pnli"y dircdives applicabk [0 a!.l Group- offices, 

HSBC has adopted a htotal.transpnrenc.y" poF<;y, requiring Group Coml'a;1i<:s to use. filily 

disGiosecl serial SWIFJ messages whom imtiati"1': paymentf., 

HSBC bas applied a Group wide puli;;y restricting business with lnmian entities, which was 

implemctlteu pri.)(" to ihe withdmwal of the Iranian u-turn exemption. 

• Payments are subject to review against OFAC sanctions and sanctions imposed by mult.iple 

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__ ___ _ 

Date 

lvtarch 2004 I Established an payment s.canning system, "VvOLF', 10 he Group-wide (Fircnsnft is the vendo

Group Lis.t includes (C\) United Naticlns enlitks; (b) Termd:;;t Ib:t.i iF.5Ue:i by the relevant Competen

Authorities i":l UK, EU, and HK; and, ( c) US Oflice of Foreign A:lsets Co:mol SDN list 

Novenlber 2004 I Remmder that US dtiz!ms working abroad are unable. 10 execute t:an.sactie.ns to OFAC s,mc!ions, 

July 2005 R(:mlmier that all Group tX'tosa!;tion!> USD be in wirlJ OFAC . 

Alg'J tiwt aD Gro'up office USD InUli!lJ1 payment tmnsactions, \-vhich nre pt::nniltcd under the TiJl1

exo!p1ioll to the OF AC sanctioils., be rouled throug.h a segregatoo with HSBC Middle En.t,t f{)l' 

rOllie'N to en.slire compliance with the OFAC ]ranian program, with payments being ma.de 

April 20()6 Re.qulred (hat aU usn paYn:1.:ots initiated by Group ot1k(:s be re:miHed to HOGS a!' fI,.Illy disclo!J.ed scriZif 

pnyrr.ents. 

O(:(lJber 2006 0(1 longer pennissihle (OFAC regulation eITed'·.'!.' Novemher 200(,) . 

AUgtJtit 2007 Group introduced a requlrement to sJ.ppl.:m<:nt the local sancuollB and tcrroris.t lists with a Cirfl1.lp minimum 

standard Jist ,<:)f s3mtl0ns nr:d narHeS'. This standatd is to rtnn8adion scanning. 

2D07 All a-;C()'Unt rel2"tie'nships with lmnian banks must he: r,egardless ofcnrr'9llC'j. ne .... ' rvlalionship15 to b

eslabtished {:can. 

May 2009 All clients rnus1 be scanr.ed ngaii1(;t the Group List. Oroup'!; stralegie direction hi replace cKisLing locul clien

scanning sys.tems with the Group client sc;);lltDing sygtem, Security CDmpliance Data (SCDM). 

June 2009 Ail HSBC oflices re({,llired to apply the Wolfsberg altld the CSA Cie5.rlng House AfiS(lc1ation LLC payment 

s!andards in respect to Jnk:rnational 

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;.. HSBC has taken proactive measures to ensilre Group-wide adhermce to the sanctions 

policy, including: 

A glob"] Compliance review of conf<Jnnity to [-ISBC sanctions policy (4Q03) . 

A benchmarking of HSBC's. san,;tion, policy against peers and an "ffe,ctiveness test of 

HSBC's payment scanning tool, Fircosoft (lQ09). 

A Group--wide intemal audiE of ,a net inns compliance 3Q09). 

> ESBe has implemented training programs to ensure consistency of approach and to mitiga

ris};, including: 

Group spor;wred OFAC Tmining, 

Anti'«l\{oney Laundering Training Progrartl. 

Compliance and R{,pulalional Risk. Training. 

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» Adherence to OFAC sanctions is a key component of the HE US Anti-Money Laundering. 

(AMLj Program. 

:;. Oversight of the AML Program, as issue escalation, is provickd by ah,e Board of 

Dimcto,l'S, Aud.it Committee and Risk Management Committees . 

:;. All foul' required components 0'1' an AML program are applied in the managemertl oftl1e 

HBUS OFAC compliance program: 

The a,signment of a Co!.!wiialfce QflkIT. to Qve"":,, the progrf.m; 

The developm'!nt and of l:'o/!des '!rid Proce<l!!.m to ensure adhere:nce to Of l

regulations; 

Trainiru:. of im{'a<:ted personnel to ensure under.;tanding of the regulations and the 

roles they play mensuring adherence: and 

to e:J3ure tbat policies, pwcedures and training are executed 

;'prropnately. 

The prog;ram is implemenle:d on a risk based approach, utilizing, Compliance Risk 

Mitigation Proc;rJ.m (CRMP) framework which defines requirements filr eOilldueting high 

level and delaifed risk assessments. 

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;;. The FUIIction: 

• ASF.;sts line. in me,eting, its responsibilities to comply with both the letter and 

spirit of all relevant la'ws, regulations and standards of good market practi<:e, imd assists in 

resolving compliance deficiencies. 

Provide.:; indcpctldcm reporting of comphance matters to Business al)d CompHauc.e 

management, both Io.:atly and at Group, and to oversight committees. 

• D"vdops and implements a compliance management framework to keep pace with busin';>ss 

initiath'es, changes In market practices and the re:gu]atory environment. The framework 

includes policies and proc"dures, monitoring and review programs, and training programs, 

;.. The Compliancl! Officer: 

The Jesign3tcd BSA/AML Officer for HBLJS h",; a reporting line through to the SEVP and 

Geueral COllnsd of HBUS, who ads as HSBC's Regional Compliance Ollieer for North 

America. 

The BSA!(\ML Officer also Ita" a nll1<;honai reporting line through to HSBC's Chief Money 

Laundering Control OA'icer. 

Both the HSBC Chief Money Control Officer and the Regional Compliance 

Officer for North Arneri,:a have a fum:tionaI reporting lim' to the Head of HSBe Group 

Compliance, 

The BSAI ArvJL Officer is supported by spec.ializI;d staB; including the OFAC Compliance 

l(,am as well as WlffwhQ develop organizRtional policy ,md 0ther aspects ofth': cNl1pJiance 

maJlagement fi<lmework, 

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Group requirt!l1l(mts. The Policy is updat<:d, as and ap(!Toved annually by the 

HNAH AML Director and the Hoanl ofDi:ne,elors .. The A,]vfL Folicy includes OFAC 

covering: 

Roles and Responsibilities 

Scanning New and Existing Cw>t()rnem 

Scannfng Transaetions 

Scanning Employc:cs and Service Pmviders 

Hlocking & Rejecting 

Il"por.ing 

}- Business unit pwcedm'es implement the ANIL :Poliey and include OFAC reqllirements. 

All prO(ledures are updated in conjunctiun ',\lith the AJvlL Policy and approved mmually 

by the BSAlAJvlL Officer and the relevant business head. 

:>-- HIlUS OFAC Compliance has dew!oped appmved deskbook manua.! detailing OFA

related tasks, includillg the handling of: 

EscaJated OFAC items 

• OFAC Cc'mmunications 

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Enterprise-wide annual web-based AML contains a section on OFAC an

skill check to challenge undentanding. Each employee must no Ie,s than BOA, 011 the fttla

that inciudes OFAC n::atcd Qu"",;on> based on actual cases. 

);. OFAC COmIJlilllllCe (lillie,'!" Training - High Risl. But.iness/Operatiolls Un

Apprmeimateiy 2,000 j-mus staff members attend a trainer-facilitated progJam enllualiy, It deta

the regu]"t10ns a,'1d Cases that occurred during the ye,ar. 

.,\ltendees include: PHvment Operations, &. Menagement, Backnotes, I'd'Jaw 

and the 1'1,1>11 Monitoring Teams, 

Targeted Traioilng fOf' Payment Operations 

trainingscssions are scheduled with Paymerj Operatior:s to review recent 

;1(mvlty and. dwcuss appropnatc .actlOns. 

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HB1JS deems OFAC mquirements as "High Risk" and themibrethe prognm is subje,:t to 

all amlual iod"pet1rj.;:nt audit condu,"\"d by the IlBUS lni:<:rnal Audit 

Audits have consisten.tly reported Satisf(l(:\or)' (;OIHrol J1sk ratings . 

:.. RegnlMory 

The HBUS OFAC program is subject to ellal11:nation by the Office of the Comptroller of 

rhe CUlTene), (OCC) .. 

,.. InterJilal Compliam:.! MoOllIitoring 

Business line monitoring pro&rrams ,Ire in pl.)!::e to lest adhen;:nc(: t,) internal 

policies and proceKlure,s. 

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;.., HSBe UtiliZ\lS at vendor pmduct, fircoSoft, for automat!ld client and transaction scarming, 

;.., main components of the filter include: 

AttiHdallntdligencc. 

Matching Principles, Fal,,: "Hit" Refinement. 

;", In addition to OFA,C, HBUS <llso scans ,mtnes agaiJlst: 

Maritime A,ttnchments, 

AML Compliance Tarseh:d Names, 

• HSlBC Group List (UN, EU, HK), 

'" HBUS has the ability to add o.nd upda1e local list entries in response to in1cJnm11on 

uncovered during lIeColUlt activity monitoring and due diligcnce efforts and/or pller 

communications (I.e" llon-sanctioned 

» Filter list eotry procedul":s an: in jPial:t to ensure (ht: timeliness, J.ppropriat<:ness, and 

effectiveness of entries included In the filter, inclusive of exclusions huilt to reduce "false: 

positive" hits. 

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20011 

. 

r ---------------- W09--

DaUy i\v.rnge .I'ay.rrlimt Volul"" 58,515 I 1"5,000 

Doily Avenlg_ USD Processed 

CHIPS R.",king 

V{)inme Utrt!akdown 

$185 Billion I $317 Billion 

j ll1 largcst USD pr')i;:-CSS{lr I y:! htrgest usn PlI'oc.eS$(Jf 

15% CCrp'JI.atiorus & NBFIs 

23% Banks: 

44% BSBC Group A.ccounts 

18% Intennd 

Corporations &. t--1BFi3 

26% Banks 

63% HSBe Group j\J;oounts 

Y:',1 Internal BrallchfslDepls 

# of StoPIJml by the i D8iJy Ayer,ag.e: 1,580 I Daily 7}620 

Filter for Rc'vicw 

Numb"r ofStarf A"'lgnod to OFAC 

SUJlprJ'rt 

Payment OpsiCetntral S,ervi:;es: 

C'umpiiaiH:e,: 1 

Paymenl Ops/Ccntral S{'1Vic:es" 15 

Corrphznce. 3 

, _____________ .. _____ .... ..,Jooo ___ ... ________ .... __ .. ________________ -

OFAC lIIo<ked It .. ",. Num'.;:rof1tems: 218 

of Itemf;; $10:1479,296.40 

Number of Item">: 426 

Vah.:eofltems; $19,562,618.19 

NnJe: an: .:t!; of June 30, 2{)09 

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__ __ ______ _ 

> Client scanning indudles:: 

New custom<If wlationships. 

Exlstin.g ac:countt: that !l,ave undergone a change in mllne or acldresii fIeld, including 

country.field. 

All new accounts JOt ctlstomers. 

R""Rcanning of all agail"s!; OF AC Ii:,!: upda!e". 

;;. TIr.anslictioll scarming includes: 

US and rx. wire payments. 

Trade 

Ax()unts Reconciliation 

Private Banking Investments, 

Plecious 

).. E!,calation & Rep()l'ling 

Possible N arnbigU011s matches (of customer,; or transactions) that cannot be 

detennined by opcmlions learns alc escalated to the OFAC Compliance Team fot' 

further inv.e51:igation, review Imd d,."c.isioning. 

The OF/\C Compliance Team liai:l'Cs, as with OFAC 

D,epartrncnt for hu"] <iisposilion on the:se cl)mj};ex matters and instructs the 

appre>pria!c parties wilhm BBUS to take the required actions. 

For this may include approval of the payn',ent transaction for pmcessing, 

blocking of f,mds or f1ejecting lind reporting the transaction. 

The OFAC Compliance Teamliai!;cs with ChieflnvcstigatoriFIU regarding 

ofa SAR filing. 

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MonitorfingiReview 

Chent S.;.tnnlng Output 

. Transa'Cl.ion Scanning Output 

JReseunh 

- C1jt;!llt lnfmmation 

- Transaction Information 

C'ondu,:.t Searches 

Search. External Databases 

Annlysis ! : 

- Review transaction activity 

rcs1Jh::> ofresean;h '1 

* Approve 

• Hold for mar>! infonm tic,n 

• !3l{lck Account or Funds 

· Reject T ran9D.ction 

- Escalate to G)mpilflnce 

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- Liaise with operations/business, 

as appropriate 

- Request additional 

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to r-elated pm1 ie::; 

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- as tlElCessary; 

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Block A,;cout'lt or Funds 

M Reject TranS3Gtion 

• Close account 

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Recommendatiol1 

- SARfNoSAR (liab::: widl Chief 

Investigator/FlU) 

SAR Validalioll & API>TI)vali 

-Validate SAR filing is required ( , 

ReGord No SAR dech.io.n I 

draft SAR II 

- Lr.31se 'Nlth Law 

as appropriate 

File SAR (FlU) 

• File SAR 

M Update: mfernal tracking 

databa:;e 

- CQnfirm fibng Compliance 

Rep<>rting 

- Quarterly SAR repmtjng 10 1he 

Board 

- Ke} Ri,k Indicato: (KRI) 

Reporting 

- SAR ond Multi-SAR analYl,i, 

I 

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». HSEe's Initiatives includl; continuous and improvements to the OFAC 

compliance program, tor 

Filter scre(:ning and paym<mt systems enhancemlents. 

PWC('SS improvements. 

Group policy and pmcedure changes. 

Specialized training progmms. 

Client Education. 

Incrcasd SAlt Reporting. 

Adoption of flew cover tnc,.sage type or US<: (If serial. 

}. Industry Challenges indude: 

Conventions frolIl mJltipk junsdictium: Impact ofNon-1Prolifemlion of Weapons of Mass 

[les(ruc:tioJ\ (NPWMD) classification on lr.mian vessels, i.e. blocking/rejecti()n of 

docum.;:nts. 

Ishunk Republic of Iranian 5hipping Lines (IRlSL) vesse-! name c.hanges. 

Use busbesses in Dubai established to move gO(3c1s and 

to/fmm han. Increased 1.crutinv has caused some tinandal institutions to err on the side of caution. List entn," have inel'eased significantly overtime (OFAC SDN,., Non.-Sanctioned 

interests, Maritime Attachments). 

No standardization of list n.aming. 

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USEe OFA.C '1 Poge I, & 7 

InitiaUve:, - Overview Mny o·e:cd to be prepared to Cis-cuss why we are applying OFAC glo:n.lly f'}r usn Ilnd nnt other 

oucre"cies[D',Yid SIIgl.y]. 

i 

i rage E 

I Ddoiue tX'11chmarkillH review -- OFAC may int1!Tested in dr;:tdl on review U11ti the [Dln'id HaglefJ. 

, 

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lInUS orAC Ollftnpli:mct! i 

to prepmed t-;;l di5GUSR hol,,/ we risk assess \.lUI OFl:l.C pro!;mlT(. 

Ansv.'er: We Utilize the Ht\'AH O)mplii'HlCC Risk Mitigclt1(1t: Progra:rl (CRMP) wllld1 i!ldudcR. 

an annu.:.J assesmnenl conducted b)' Compliance- nfOFAC rq!,\41ation against line of 

busine:;:s then conducts (annually) a de-taiJed. rhik 1l1iljzjng more 

gnml..i.llil· ri.sk tcrrl'pl-Dltc!; d';lvclopro by Compllence indicaling oJlltroLs, etc, Results of t.he f-ii.l£;h 

Level Risk drive the Onnpiiance Testing l'rogrlUTI jn tClTI1S offrcque-flcy ar.d 

coverag.e. Etamp!cs lines s-cored a,1i Hlgh Ri5k for OF.1\C in 1.hl; High Lt!ve! Rbk 

are: PC:Vl, Banknot(ls. Banking, RdaillPFS. 

Corporate (i0V!mlantc and Board iuYo!ve:men1/!'eporting. 

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1 Answ(:r: We fake a lund stand ag,ainst Inmilln to the point thiit we have added. over 

I ! 3t OOO non sa.nellOl1cd iutert:st Iranian businesses anc companies known to trade with Iran into 

l_ ---- ..- ------------- : - I I"a.ge 13 

1 - Specializ'!d training ('..(Inducted for peM, Private Da11king, Compliance conductillg 

I monitoring., particular Group entities. Opewtions staff. 

- On-going meetings with th.e Operations team to dlSCUSS recent mh.9cs and I'cmcdi.1ltia!1, as 

I well as ltCTilS appropnately ')topped 

-

_________ .. ___ l=----- ______________ ------ - - - T,sling I F'"g. 14 

Note the comment regardjng CRMP above. 

In higher bUi;in-e5s.es there llre specialized rink based tra.nsaction monitoring in place t(1 d<!:tect 

; violations and suspicious patterns. 

reM was conducting threshokl! violation monitoring a-nd large wires being 

sent to a customer in Greece (shipping company), V¥'hen nsked about the suddcr.. increase in 

, activ£ty explained ttw.t they l<:ase shiptr fG a Chinese C(1fnpany which purc11l1ses nahlral gas 

\ fium lnm and ships it to China. We placed name ofthe Chine!;e entity in filter, dis(:usscd 

the vl01.HH)1l wIth our lf1omey, notlfied the corn;spondent bank of the ollgmatm 

____ ____________ 

I 

________ __ __ ____ _ 

[

Yilt .. M •. " .• ___ ___ ... _. ________________________ ._. __ 

- OvervieW I, Page 16 I Nvn-sllJlctiolllred entitlts Trading companies operatjng out of IluiJai which were 

_____________ 

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Hit Cllt'tellt since mid July we have and implemented 63 

exclusion nt1cH (good guys fot' flame.:; of individuals and financial insr.itutions) reducing false 

p03itives by hits in a 2 day perJ{Jd. 40 addltional exclusions luleB h:1V(: iu€:ntdicd and 

i arc in process (should be within the next 2-3 wks). 

Or; the Fjlter Hit Rate chart (next page) note that we SJlw.a slighl drop in the filter hit perIX'tltagl;: 

in Sept 2007 as a result of a Hit RefiJ1cment Task Fer,:!! pwject that Wlli put in place in tilt:: 

I summer of2007, post the GPSlFircosoft in July 2007. 

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Hit ReVl(W 1 

-

Scanned m,ing Fin::e·soft on a nigh:!y batch PIO,;e.SS and c·utput (hrough 

ICRU. 

- \J{e scm lluthiJrlzed signers and itfneficiJI (lWneIS 01'\ ,).11 of our R<:taillllld Corporate 

u(.'.\:ount.<l, 

We nilV<: a pf()gra.!TI unden'lay to 5'WUl llsek;i (10 aCo:mmts transaded ol"!Hline. 

Page 2(J 

Scannil1g JAT ACt{ undt;.lf wily to be compliant September 13, 20M. 

\\'e do not scan paper l;hrvcks. (Try ml1, to bring thjs v-o\ut1tmijy.) 

- NOTE: We do have an wide flOUt'to n:vic'"" prufJ'llIfn in phce ·whereby 

dl(:cks. received pouch serY1l;cs are fM red flags by pmf(:ssmg units 

whid ;r.c)utic! revievl for OFAC One Wit.'> 

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- 21 - 4 eyes on e:very paYlnent stopped by the filter. If to 6 . 

-.--.• .. --.--. 

Ae<:tivUiles potential ofprotm;ols 

- Client educ<1.tiDO: IPQ has crafted letten to- distrilmti.:: to clients :involved in Trade) 

:<Itatiug our position re1ated to trading with entities in sa:flCltOl100 Coulltri€'S a.nd 1he use 

of uanctioned vessds. 

- Middle tyforket work.ed wilh Grollp affiliale.5 to emft a Posil(1)n paper OH declining 

relationships with Europc'.an clltiti(;s with km1''oIm I;!':nian op:rations. 

- policy rolatl!d to SARs fbI reject'!i and blol;:Ks :nvolving US entities was 

e>tablished in Nov. 201)8. 

Group affiliates), AmilVeJ': If we a ,;ovcr that hit for another reason, W(: 

it and req'Jir,e fllll di:;;dosure through a MT 199. \Vedo not stop uti covers (Somc 

hacks dQ) 

- OFAC may 3!.k how we arc handling InUlian shipping entities. Anlswe-r: We have (I 

staff in the UK who research naIne changes .. Once idcntifi,ooj the new names nne 

f:ntered into tlw fiHer. Rec("'''I'ttly we had our first f:)I peri trice with a Letter of Credit 

citing usc of an IRISI. vessel. \Vc filed for ZL license which allthorized us to reject the 

dOCUID(!uts and return them 1.0 the- exporter, Dl.lr customer, Since then have had two 

similar inr;ident:s. 

- May ask al:>out Sudan ... In Jan 2009 we irnple:nentcd a specialized review procesS' in 

Paym.e:H1 Ops fiJr I1jt8 involving OF AC c(luntriei') induding Sudan. 

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filter (Firoo'5oH) in July 2007" J l' 

(GPS & - Continue tu work. with Fir<::oSoft to remediate issues through 

,'Utet') - Vle-nt from fI tobm bi)!H..":d filter to I ')I1,going dia/(j!;ue m: well m. weekly leaen meeting

logic. ' Fireo, Complizmc.e und IT staff !lfC a part <If Ihe team 

ldcntiiitxl. issues related to: 

I ',.\-'orkl..,gether (0 ;j.xument rutd resolve issues and test new f

I enhancements. Wi: takittga dew filter relt'ase in Nov 20

enharcc.emcnts HSBC has requested. to improve our filtering 

- Hies - GPS - HIes 1101 exp1'[nding I capSlbj:ilie3. 

into tf!xt - expansion ls£ue rectified in i 

4Q08. 

- spBits - OPS iS1)ue (i.e: I Rnn) 

which fc-sultcd in the filter not 

identit:ving the itcro of the 

inserted whic,h inSet1ed to 

avvh.ll:1lt:'xt vlI<1pping lssue. 

with IT 'tEams -ror w-lu1iom;. 

- Embcddt!d wmos fiiter (Le.: 

lranmah;riftls). Imlustry chaJlenge. 

In lldditlon, rect',nUy met with Fircosoft tf! their NYC ufflce 

NYC senl.or mannger and 3 senior pmduc:t dl;!'velopers/:Y

from thc:jr head otlice in Franl;.e to discuss filtering 

as embedded (wl1id, lS ,m indwrtry challenge). FlJ"CO 

icdicated in our meeting that another U.S. customer recently 

ISSW!; with.an ernbeudcd Firco is actively working on 

industry' wide issue and balancing th(j Issue ofnissing an em

word agai.nst the PQtential impao:t offal:,e positives ba,cd un nlgorltllm Chl1Jlges. \yeve: rtquested thai FireD IicCQunoi managi!r put together Sl husiness proposal to come onsite wit

dt:vdopcrs to work with HBUS to braios[oml on filh:ring iss

fRCOO by HBUS and the industry - ,[no j () paIti..:.'uiar the emb

word issue. WI: do not cun'ently have a date all pfO,x}sal tim

760611.472

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c----------I-.·---------c- ....... ---.... _. -·----c··----··-- .-----.... --....... -.--..... . ... --.----.. -

j Human Increa:se in filler hits has irlcreased the i .• The f.ollowing activltl(!S have bee:n irnpleme:nted or are curre

! Error handled by both the and Compli:J.oc.e. : process: 

I ! Spe(;ialized mview of count!"'j hit prQC(;.'3s an

j CornpJilUlcc quality contwl review proccS:'it!S have bec;:n 

\ ir,1pJemented, 

I 

I I 

Hit worktlow improveme-nt!> (designated syslelU.qu.r;:w",-s). 

lncluding crealion of new process flow wlllch IS curre11t1y 

i manually exooJ1.ed uud wlll be systt.1TIically by yea

! The flow isolates OFAC OJulllry hilS for panit:ular n!yjew. (

I Sudan, HUlma and Cuba). Syst1!m will also I non OF i\C related hits (i.e.: Maribne Attachment hit.5) from 

I SDN hits, 

I 

J Fiher and payment systems e ... '-iancenrJl;!:nts to improve the I prese:tllation of the hit and related informal ion fb

11-evicw. Due for release 3 of (iPS in 4Q09. 

I Hit refinement to (:reate bet1er quality hits and manage the "

I ProJect team Exclusions input sinc

'I resulted in Ieduction. of 825 false positives in a 2 

. period. Ongoing cfTOlt5. 

, 1 

1 I OF AC support sU,ffing 1l",<iS analysis underway, . 

\

lnCllL"\iOI1 identified Enti

, , (aka Grey Jist) in Group list for USD payments 

I, tscanning - effa;tiv(} 31AUG09. These are ma

Iranian E,.'Tlttties, which is in ke()ping with Group policy in te

""'J_____ _ _____ ...... _= ___ == ... __ __ ... 

760611.473

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j GnrtJp policy to- adopt I-lBUS <Jf"Second Level Rt:

I process (i.e.: '4 eyes a.wrou<:h') Not yet implem

; No yet SGj, Histo1:lCilJly has been met with SOllle resista

: 1l1e busin.;ss. 

! Specialized train.ing programs. have been designed and impk

! to assist specIfic: audienxs. in the rcvit!w mntchl!S 

Spedalized training 10r dedicated slaffresponsible for 

countrj sanction hits and training of Group entities who proc

USD p.yments through HBUS. 

tn 'he process of enhancing individlutl employee perfonnanc

aCCOullta.bility prog.r am human error and MrS to tra·;k. "r(:p

offe:J.dcIs" 

receipt ofCau.lic,nary Leiter in O

OCTOl: -14 

NQVQ8 11 

DECO!: - 5 

.IAN 09-2 

FEB09-· 4 

MAR09 :2 

APR09·- 3 

MAY09 ·-0 

JU)109··2 

Tat.lof43. 

760611.474

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- - - ------.-----.. ------., - -- 

j I I : Note tlwt the chang!:; in reviel'f process for country sanction 

I ! I jmpiefllf,..>nted ended in mid Spm:iallzed training has 

been irnplemt::uted, 

I r 

I '-----.. ------- . ------.-- - -. ------,--------------··-------·-

Nou- ! Vessel are changing. Inc:lusion of HBlIS jdr.nhfied lnlercat 

II SallctiQoed i-us PIs are indepclld<:ntly identifying (<\ka Grey lis!) in Group li:>t for usn paymenls 

I hanwn 1]1.l'lmer,;ses oper.ltmg out of Duba} ; scanning - impJerr.ented effective These. an: mai

i al1d the Far East The:ic result lfi rejects and Iranian Imtitit!s., WhlCh is. in ke,eping with Group in t(:

I ! subsequent reports. In the entJty , 110t precessing USD invo:ving Iranian entitie". 

I 'I J ",as unknown to HBUS, we place Um entJt)' II on the filter We now huve oveJ 3000 

! I Sl'tnct1oned enlitlf's In our fillet whIch cause 

II. 

-

____ ____ _ __ to _. J--------.--- ... __ .

, Rcm'ovaJ of ,Ongmatlng party removed to Iramao i Ex.iling !he relationship (ref I I F'Hymen1: I s.hip unCI HHlJS rejected th.e payment I Crcat.'ed and implementoo a reject surveillance process to 

f Infot'mlltion .1 e3rllf:f the same dZIY. I identlfY/prevent similar sitcfll.ians [10m occurring, 

I I ! Parameters input into GPS to "'t·oct re-efiocted wi", includ.e

'I I Value range (+1· S 1(0) 

- Date range (2 wed;.s) 

I I ,- lkoit part) "(",,unt number 

i II Prognnn in early wi]( rnootfy based on lea.ming;)

I 1

- 

'I :: CD!!!fgrU&Y£!L 

I j \ re sanc:tlOl1'> comphance (I,e fillly senal method for US

! I 1 - TranspureIlcy Group haslrnplemcl1lcd leading edgc P

l.l 

_______ 

. 

________________________________ to OFAC re

- - Redacted by the Permanent 

Subtommittee on Investiptioas 

760611.475

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hIkes. this e.vident in tht i.'J:.;uanc(; of Gruup po

OFAC. Cover - within lInUS, when a (:(Jver payme

stopped by the tiltl!f and e:)(.'..alated to Compli::mcl: we ho

payment and tequcst more information from the origina

:mch as ('Ifth..:;: p!lYlTlcnt, gno(lIservir.:es 

g('lods invdvl;!d w,: rcqucsr '1css.::l na111C\ ultirnalc bcnc:f

the paymenl, el\:. Infonnation received is reviewed and 

the·n ;1 decision made payment disposition (processreject, block. bold tilT more info) 
1643 


760611.476

){;('port "\jO! Ci\Q 0611007 

• 

GE"'.:RAL ,\,·orr REPORT 

i-iOi\iX - KVC OF liSD CiJRRE:\T ACCOliYfS 1~ GRA;.iD C\YYV\~~ 

GROUP Al'DlT ~IEXICO 

JAXC\.RY 2(l(i6 

Confidential- FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8874307 
1644 


760611.477

Gl!lleralAlIctHRrpllrt 

HB":!\.- .~S l}il'5[)Curr5~~!.~"d '~~!~;;;:;I ACCI)UllflO in Gril~tlE~~~'n':::ln 

1 EXEClmn~ SnlMARY 

11 Background 

Hi-P ... fX offef. .. their di~nt~ the cpr1tm to o;rcn l'Sf) current and in\"(::s!mcm ,KCl)un15 m (,r.1TllJ 

Ca::-man:;o ihal (hen,;:; profit the ad\";mt3g('~, of that CCUtlt!"'" sueb <IS tax f'ce lllv\,stmrnt<; 

U!i(k-r cvllfi\l~hlia!il) t..:nns 

:\! ;\'0\'05 HJ-D.IX 

rcle'>ar;i bra;h::bes 

a.;cour,G 

current accC'UTJt$ located in Grrmo Ca~l11i\D. rile 

for 1\),;;,: npcmng.. m.anBg.~lUent ;Jf\d cHotral of ~uch 

The audit w:ts cond~\.I::-d by R::llll ~~uirr(;: and n"ni",j l,;')1""ti.-. of (jn:mp ,\udit I .... lc'(ico fn;.>m 

~_~DEC05 rhrough 05J.lI..NOo 11li~ IS the fir:'l :-mciit of the KYC process of usn .:urrcnt 

3.CC{)UnlS based in Gland Cayr.-...lall condlll:t,d h) HB~'fX GAO 

.L1 .\udit ob;Cctive.'!. 

rh<2" nbjectl'ieS oftbc audit we-re to a$~('<;<; ;md fc:pon on, 

the appropfiatenes~, effiGiency ::and effectiveness of the In:ernal control 

enVifOf'lment and the susceptibility of that environment to failures In internal 

controls or breaches 111 authority in relation to KYC. 

e compliance ''.'JII1 Group an-d local po!im'o; ,lnd p-mcedllrc:. regarding the l'pcniug of US!) 

acc<nm!s in (;!l!lld Cayman 

!h~ n.d.CqU3~-) of accoum fi.le cnmpktio1\. 

the ,,(curacy of the- ir:for;n3.tlOn i:lpui to lil(" nS·Hp~ym sySf,m Bgainsl the Illf(.lm1ahon 

cc.iltained il: account fi.les 

* rhe 5cClni:y 111 the r,rur.tnlstf3twn :-md cl.!stody ofaccoum filt."~ 

ld Audit !"'OP~ 

';11c ~cop[' nt' Ibc audit fidcb:ork cnt:ulcd, in In ~Ii~, a n~\'ic",,' of the KYC of ()S l,SD 

"c.:ount. .. located in Grand Cayman, 

Accounts "ith ~:nlu!.es 1 (l"l{'',.V}, 4 (dormant \vith balance 8boH' MXN 1 k) and 99 {ActiveJ 

1'11<: a.:.:our,t files that w-.-re rC\,l:?wl'd co\'er~d a total (\1' 2h HBMX bnmch~~ 

COiTcspC>fldiv.>< '-0:; Distnct Offic('~ of the PF~ \1e-trn reg-lOt"!. as 1011(>w$ 

ZOIBO! ~ Brancbes !7. 99, 77. ~O4-, 1<)20 Y .1007 

ZOJBOJ - Branches !9. ell. !236~" Jon) 

201A1:) - Branches 39,59,561, 584, 1157_ 15 7 -+, "Ol7 Y .'\07:-S 

lOl ,\ II Branches!P y 31)09 

LO],.\12 Branches 55,537,/ 3011 

• Adequate complctlQrl 3.nd existence d :l-cCounl flits as P~y inn;'"nlai :md cx ttTllal policlcs 

(Art 11513anlung Law and Clrculnr !elter De~'I\,istO'15) 

.. \dco..jual;; custody of .<lc-count me;; as per I.kmk·s regulations. (cm:ulM letl("r !\dmnn(13) 

• R"::li50nabilliy and COl15lSlcr..;.}, oft!!;: mfon11atlon -captuJCd 10 CJ5 and H(l~an cW(lin~f th~ 

docl:ITleiHiHion lllaintamet! in ~hc file_ 

Confidential· FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8874308 
1645 


760611.478

• 

Gl'ncrul Audit Rrpnn 

Hb?~_ tete flfl'Sf) Cun-rnl ~n~ inoc .. tmCllt "m'u,!~' in. Gr;~)(l Ca.~~~~_ 

1.d. Conclusion 

DenH:d from lhl' tindtn~~ nOf..:d ill Iht: jlJtJ(O:ss 10 open USD l:UfrCjjt and lr1,,;:stmcnt <;CCO\lnt~ 

)n Grand (:lyman ,IIHJ K Y( Ihe ihltliiOf', Jla\C ass..:ss.;d In..:: control m.k of the 

Dmric{ :lS Heiow Stlmdard. 

More ~hall .;O~(I of dL(.uuCll fik:s that \h'r~ n'::"JC"w..:d lacked th.:: re!e\3.nt .. ts:t rcpcn. \\hICh 

y..::aicu .. the posi1ion of HB~,[\ In ,enn<; d the KYC for thes:.' :ypcs d accounts 

(Grand C il:;'llhln}, particularly iho:;c an;,1UIlIS op('ned by In addi!1or.l. m I :t°'v 01' 

files revii;':\ved ttl,,:: \"JSit report;, falled te) indud:: malt.'11;'1i 1;1~!lbhng to h:w(" 

adcqUtli.;' K YC, 

\\ c.akn..:~sc~ ..... ai: noted in t.'lc hUPC:,I!";iorl c';cr lhr: e.CC0unt 0pCn!nr:; rrr'cc~s, which "k/) 

impeded t,'i d,::t,;:ct prompdy any info11l13tion !!nSSil~g in :'!>;;c0l!!ll file;; N ,nc' .... ns.i~tt'nne .. 

between the inf~)ffiW:,lOn produced by the client Rod tilt: data cap!l1f<:>d in C;,,·Hng<l11 

Oml~:"lons were n01e::l m the refer<.'nces that should be caprured at thE' [)OrR Sl'fccn, which 

impeded t~c $;'5{C)',' to detect aov dupllc~tcd rc:fcn:nccs" In <I0dlti(lD. t111;' ;l1Idiwl<:' Identified 

fnr;:ig.n cll~r:ts \\'ho ~\~rc m[)u!!O {foe s'yslcm as n2riQnals. 

!n addItion h) thc forcgomtt. c. 

actlons hid appeared to be taken 

of account file .. were not found at the Branch('~ No 

fC\.h t/)~:nn1r!ctc client's file again. 

lr. jJ3nh:uL~r the audhors identiticd that t0r ace(}unl" opened by foreign -cHenIS. thL'SC had 

prnd'.!ced e.\pired {"rms. nna that Branch statf old not maintalll a COP) of all the 

composing such 111is <;immlon \vs.s due. in parT. to the fJct th.(lt ~l,cu!ar 

D~pv!~1(l4S tProcedl1rt' 10 npctl CutTcn! and iClTn accouotsf J$ nol cI~ar In the proccdure 

to open these l}pl:."S ofaccolJn!" (Grand Cayman) 

The (lll~ttnr<; wi~h 10 Ih'Hlk PF,) Branch :-Iaff fO! their a.ssistanc(' and cOOpCTa[1On during the 

("()UT<"C (If the audit 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8874309 
1646 


760611.479

• 

\rtnrral -\IHlitKql()f"1 

HB\u-.K\'<:' ~~~.5:urr.er;t an~ Im~~m.rl'lt ~~~J~ Gr:.\nd C2an 

Appendix 1 

CQ!\·1PUA~CE RELATED RECO;\I.."[ENOA TlO\lS 

RI::I"QRT Rl:CO'\UI-IE'-.iD.'\ TIO"It 

R[I' 

3 I &. .; 4 Bran.;.h <;lmuld ~'nsure that K YC Jnd account opening. documentatloTl IS i:Ompkh.' 

anJ in cO!1~pli"nc~ with rcgu\(ItlOns . 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC ace 8874310 
1647 


760611.480

• 

From: Sandy F'ockhar! 

5en1: vvea Apr 04 1 ~ 13 37 2007 

To: Grarlam THOMSON. MBlthew J W K!NG 

Cc; Uz A TESTEH; Paul A THURSTON S""ry~ P)i'-lA 

Subject: Re' GROtlP AI)DlT COMMITTEE ll.pR07 

Importance: Norma! 

Attachments: Doc link htrn 

f :0ill. Grah.1m Tl-lO~lS0N 

Sel\l.O<l·()2'~1l\l";'05·-I(>j>M 

i'wMit'1IIC",JW K!~(; 

, .\ "Ji-iLRSTOl"\ ~Ilnd\ rltK~liar1 5Iergi(l Pll\.l,. 

-\! 'DlT CQ~l\lr;-f tE - ,\J.'R1(7 

Confidential- FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8874328 
1648 


760611.481

• 

Ih:.: number 01" nlll;~ 1,,-, rc<.:('m:: from the fl'{!ul,mm lor a~o!(bhk ':-ITa,<-

c:; tUlhng. h} rCfon rl,lnch {Jp~:\lngs. O~ s~nl(lf man,,~CiTK.·nj :IIJfX\mU11o!nt;; cn 

\l1n.:c 

RC:91,dllll! 0.lwr~HlJl!,- !osst'~ :wd cr~rlJl ("Td l!')\lr~ ! 2p'),~nd tk h)!!~)\\ 111:' 

C0q\lu\.nl~ . 

KeganL~ 

Su\;:o..:d 

P.e GRULP r\t:DiT COro,IMITll.E. ·\PR(l~ 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, NA HSBC oce 8874329 
1649 


760611.482

l~A GliQ.HC,)-IQ·IISH( 

• 

e Rq~.mb, 

\1;\l\hc ..... Kin!' 

« 

Confidential- FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8874330 
1650 


760611.483

• 

From; John F ROOT 

Sent: Wed May 17 11 :08"33 2::)06 

to; Susan A WRIGHT 

c ... : Da',lld ',N J BAGLEY 

Subject: F','r !r.tema! Audit repnr;z; 

Importance: Norma! 

Attacflments: Imsge_O.9if; lmage_1.gif. image_2 gil RESPUESTA CONS GACOS01 i8 v-' doc GAQ 

Compfia'lce 050118.ooc: Reply_!NA doc 

SUl>an, 

As you c::l.f1. sec from the <xcumBnt sttl';lchc.d on tho right (the 0(1('; In EngliSh, with a surr',mary of the 

HBMX Audit findinQ!'; on AMI. ;111:1 CAMP. flnrl AMI '." r~"ronsf'''), thE" ~Udlt f.'I)ints are bl:1"IQ. s!lOngly 

rejected tly HBMX AML AMLIS ~Iso alleging errors of prodeclure, e,Q.. audit nncHngs that were 

doCtJrnented in 1/1e final report. but not in the eXlllnlefview Many, jf no111"l051. of the recommendallons 

were 'reJec~e.a" or downgraded 11"'1 Importance Dy AML, wMlch IS c~rtaHl!y a f'eartfelt. but rather unusual 

forma J reachon, 10 an audit. Most of us just accept audit f€commendatlons. wnether perceIVed to De "tan"" 

u' nul, (lnd proceed to IrlIplement Ulern 

Illav~ Id the: iJust s€:m~ d bil, <Is. AM l Ilwt"i:l!,j<;!ftlen deariy feel aggrteveo, but closer morltOnng IS 

warranted on l1e specific nudli lecommcndahons 

I·Nould be glad to explaillihe MeXican wrinkles For el<:1l"1p1e, '" RAP I" fl p1'lyrolf aC.{";f)l.Int. wh",re tt1e 

account holder is tfle employer MAL s~erns to be mgumg thaI m.'1nltorlng IS dona at the employer level 

through the bUSiness, ratherthan at the employee level. 

A nWTlber of recommendations frOUDle me, hut jr,e O'1e that most SliCks out IS apparent laCk ot monuonng 

of the (reln~:·.:ely few) I\Ml st<::!t !n !hc f.cld This taises a -red ftag" ", a Pisc;;';l,ke M6X,CO, ",here the drug 

cane!s. a'e very powerful ilnC! Ijhiqll!~nll" A" With "",y. Br:;iZll, progre5~ is: U51)a!!y llla(Je by the Federal 

gover'1mcnt. not slOlte ane! loca! Duthorrties. It IS therefore lIita! that the cerwe hold. botll wrt'l the redera! 

goverlmen! and With HBMX AML. To aver, as the audndoes, that "we do not realty know what our man m 

the ~e!d is dmrg" is a warning sign, If t[lle. AML of course vigourously de!~y this 

The tfans!allOn is 8 l'aiI8'lt allempt. but a bit choppy The 0"igln81 SpanIsh document reads better. 

John Roo! 

Leopolda R SARROSO.'HBMX!HSBC HBM)!; 

08!O!i'2000 20 22 Mail Sizt' ~«1J7!38 

To John F ROOTIHGHQIH5BC@HS8C 

'<"lnYln GAF«IJ\'H8MXif...Sf!C@HS8G 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC DCC 8874383 
1651 


760611.484

• 

p1eOlse fird enclOsed a copy of the Interna! Audit Repcn made to HBMX·CMP, a:"ld the respor'lse sent to 

INA Goth documents are!n Spanish since a translated version was not available at the time, however,! 

am also including a summarised versIOn of the !NA's ~nd;ngs with our respo:'lses, 

Addillona!:y, The supervISion \%I! earned out by Ule l,,'e:<It.<ln FmanClal.au~l,oll!Je.s rIdS t:orlt.:luJ~d to, th~ 

MLO department OLlf eXls: ~eting wW t~!-::e p!ace May 8, :2006 Deri, .. ing from the t::!lks, ;3nd the fcedb3ck 

Itself of the audlt''lg process our outcome WI!! be satlsfac1ory, the only two findings thai will be: lssued are 

related firstly, to the recesslty of Implementing a High nsk C'Jstorners Questionnaire, whlen will b~ covered 

by the under9Dlng proces5 tD comp~ wIth MeXIcan "UBA" recent requirements, that we had lau.'lctwd 

Ihrougr'lout the worKgrolJp lhClI selves the purpose, and secondiy, It 15 i'!I requirenlftnl of Ire CNBV 1h81 

'i;r,:\~t opening a 00/\ account by c cu!'.tomer:s no ionger an cbligallcn ta contract a !O"fl by dOr."icstic 

regulation 'Kraner" must be nXinilorad (or AML purpo5P_<; R:; well-.s "Hngan' 

A nllrn!J€f of recomrnendahon were also iSsued, however, as In name implies they are net enforceable 

We think tllat if aetufl.~ results of Ihe audit are AS described above, oor department has accomplished the 

necessary Improvements to be flI a significant level of performance, and couid De comparee or 1aKen as <J 

tGi,dCl of the fUl1.:!ion withHI me Meld.:"r. Financial Si;lC,Ci' I w,iI conf;~m if the "Exit meet,ng" ..... ,th ,ile 

eNBV was as e:(pected from the above cammcnls 

Best Regards 

Le')poldo 

Confidential - FDIA Treatment Requested by HSBC Bank, USA, N.A. HSBC DCC 8874384 
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760611.485

THIS PAGE IS 

INTENTIONALL Y 

LEFT BLANK 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, NA HSBC acc 8874385 
1653 


760611.486

Internal Audit Main Findings to MlD 

l~~A has I$Sde:d a set of findll'Qs. fiwn nll~ programmed Audit, we ha .... e lISted below the most 

refeya'l1,0' th.ose wt'ere MLD does no! conclir with iNA: 

peT I Hj~RISj(' ~~-:~~ findiiig-"_-~===-L"._ -MlD Reply ---- ~ 

14,3.1 iThe MLD Deparlm,ent dves 11vl use CAMP In j 'J vVe . do -nOI Knew,' OJ any Internall 

I iii 

i lIS entve fUf!Ct'Drll-1:11y I \ fCq" ..'irement. nor regulatory itlat i 

nhligCltiO''; 81) area to u:;:e <J'1 apPliC1:l!lCl'lfrll 

I I Its e'lhre funcilOnahty, even If It IS not I I totany applicable 101M speClfic need'>, I I j ! additionally. the reports not uSed are 

I 

I .. . rno5t1t ;n.fonrJ.a.tI'J",. ",nd no!. U. U".·Ii:lIIV." I j The fmdlng ..... 25 not accepted --.J 

-4F1MLO does nothave a DfOper co~tfOTovef the 1'1 we -have argl.~- thatthe" h~frlwarfl anol 

usefS and prtvlleges of CAMP. like testj' suftware requIrements to access CAMP I 

I 1 users. users from stMf not workIng In tre ! IS quite different to 1hat of the traditIOnal I 'I ! area, e,c AddItionally, MLD must eSlab~lsh a iiS8C user; merefore, even that we I ;Xocess to rnO"Jtoi such \>St:;rs. rT,dfJagell'ltJnl. ,~:;:J!b~-p'~a~:f:f~~1e o~5~~~~~.!~,Shi~li:~ ! 

I 1 ~ virtuJUy Impossible to access CAMP for I i ~ i areas different tD MlO, aU rnentloned I I' ,users wIll be- lermlnaled, and the process! 

I . to rnonrwr s-um uS2-rs control has ul;;le(: : 

I docui1"'o'.:nl~ We do not concur writ' !r.e [ L-__ L_. _____ .. ___ .____ : 'R)skteveIQraded __ , ___ '., 

4.3.10 I Two rr{)ruhs ago a change to eTR (Currency f l TIle IT requIrement WJlI be presented"j 

I T:"ansactlOn Report) report iNas Issued by I I however, there Wlf! be no substantIa) 

. MLD as s consequence of i~gulalron II. utioll1yt: b.t:tween the S€.,",.,automaT1C 

I chRngp.<:., where an mchlslcn of Tax ,procedure estab!l:;hcd, and the I 

I

ldenti1ication. date of bir1h, an. d the MeXIcan automation of such Of"ocp.r1!1r~ SInce 

CURP were reqUired. where IT has I virtually 11 does !lot embeds anyl developed a semHwtO[Tl(ltlC process fo II difference to itl€! actual procedure We I 

! ~~;~~~~~r~~of:~;)~~a7~\~e ~~~n ~!e AI! n! ! ~~d~~ ~~~C~~c:~~e~h~a:~~~ u~,e~he~. :c~ : .' __ J . ltiat I! WA';> grMe-d as lOW risk. 

4.3.11 \ MlO has IT final user developed applicatIons I 'Iwe wi! docur.ient our IT. fOlJtm~ 1 I t~at do not comply WJth Group Standards. order 10 hand them to IT, whic!l IS a I 

I

ii! process that IS underway, It is I,:portant, 

to that IlK,n;\ of the routines 8re I 

L. J. _ __ I; ~o!n:w level, conforming n I J 4.3~1·.i- I There ~~t' been camed out a revIew Off ! We reG-Ognl~e the need 10 periOd1c3liYl. 

I 

I all of CM1P's detecuon pararre1ers by 1".e i ITW.)dify, m.onl!or or give rnam!enance to [' 

I

I MLC staff, nOr a formal procedure to H'I(Khty. . such pflfameters on a yea,1y baSIS, 

~r:~I:;er~r gIve miwl~errilnce to swch II ;::~~~e~;I~~~~~:~~rOftti':! ~~;ic~tl~~~ \ 

j ! , 'by OPSCO a whole re\l1ew 01 all I 

i I I parameters I~ inappropnate We I 

J ' , : G~nSICef thaI ttus should no~_b~ a HIQr-, I ~ __ . ________ . _, _____ . __ ~ __ ___.:...J....8.ii>l> f,,,ding but Ol}~",,9n-ll!lel!dCltJ~Q:_J 

Confidential- FOrA Treatment Requested by HSBC Bank, USA, N.A. HSBC acc 8874386 
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760611.487

e 

• 

IRet IMedjum""Rlsk-F!~-----"---- ~-1 

]4.1:1--{M-CO-dDes-nCt have a {ralf1!ng programrne m! MLD s!aff -Is--prc;penytramed -ii1i 

I I place: 10 properly trdm slafl ave, CAMP, aJ)u I U?!fIPlidflGe w~th Altide j "15 of the I 

I I ~.~LD ma~Brs. :~"~~~~::~l !~Sr~:l~~on~f "~~ I~~~faf;~:! 

!I II II if'l.sti!:.Jt\Ons .ACt. As for CAMP, stoff was /. (famed by H8US staff last May05, and 

! ; ~:1~.~p al~~yst~n a~~en~upe;;;~~~el~~~ 

L I I applf{:.ation. Vpry hmqr;r, tr.;Jmm!:) IS 

---J----.. --.- ..... _ _." ________ ~~~i~~ingWasnot3ccePted ~ 

1

401.3 ITnere ale not 10fl1,811sed agreements With! MlD has for~\allsec an agreement or 

I I other area" .... :--,om suppiy data to MlD i th,s ly)X:' w,th CiS 10 ''Ui" .... i<. Ils\" 

! I J ,~uestc~~s ~~~l~~;:;~rt.~ig~f~~~:ZJ~~t I 

I ! [ i reC8wes Iflfonmtion from P!F, and LGA i I : under non-perk>d.1C basIs and !t de~nds i 

I i ~~~n ~:;~~U~~fr~~~~d~ 6°~ ;:r,°:'~t~~~! 

II 

to tlJe authorilies I 

~ Th~s finding was not inciude-d i~ the I Extt Meeting n~r in t~e individual I cti5W55;OjlS o~ f.ilding wittl our staff; I 

, ( j ~':~e~~~I~::;a~f;; ;i~~~e U~~f, the ~ 

141.4 MLD UpCOUf'ltry staff (loes not have -3' proper! '-1 Upcountry staff is iocated In High Risk 

I 

: working plan, and as weI! Ire adequate! areas m terms .Of MLO, addrtior.ally, th. eir I 

! supervIsion 11 ~:~~s~:re f:;:~~~:ty d~:~~r;:~' a~; 

I : I .mrcn-'lnt Lln!I~IJ.:l1 ActiVity ro:~ns .:l1'1d I j I special cases g(ven tneir exPerience and I ~ __ ~ .. __ I.. _ _ ___ ---.---J-~ ~1l1~ndtng w~~_n~t;~epte~ _ .. "_~ 14,1.7 iEve" ,t",;;t tto,e MLD head ON 5t~t8d tt,all iPB1;;Bp\!M of d'''llge IS WI abstract I 

I 

: ;~~~s ;;:;~ been set, there is r!O eVI\:!er:ce of I J ~~~~~thOdOjOClical orocess of aierts 

I The(e IS not a perception of change from the I analysIs has -changed dramatically.! 

'I analySIS stand point of the new ~ ! slmplifylI'g the process, t~us reducm9 

i"i"ldilf.lgt!n)enl, ::,!n{;e the atl'!rt::, i:l.nal~Sis have I' ! workloads, and not a/iowm9 .10 have 

I 

I no! changed. 1 ~!~~l~j:!· IH;:!ti~hir I~ :. prR!(")g:.th/B of 

I '" Lack of supervIsIOn by leaders. and! i tHe hne of command, thiS a vague 

! managers ~ I I perception Issue 

I ! ~ ~~Id ~ro;D~e~'~~!lDn rrom ~uo directors I I ~:ou(;~,e~t~~a~to~;:;'~~PI~ n~t aannyal~!:~ I 

I Lack of .:lCt!'!<;'';: tf] <:y<:1em<: (C,prrp 1j1:lf!1l ! I to rave acc"''''';<'s to a:)~lIcatJons where 

Spel Qrdenes de pago etc) I tf<lnsachon~ <lfe contanied 1'1 Hoqan" I I" WOrk: overload ' I Processes are more efficJent we do not 

I I lroncur with the fact th<lt lhere are 

I ! I ~~:~~~.: s" 1;;O~~;:.rQ~ t'c~~<lIY~t~ 8r~ I 

I I ! 1 The hndmg was not acceoted I [4-21 I ~"e ~S!O eJldence 'hat closed non I We hay~ 3_stag€s In aU! w;'know\o1 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC acc 8874387 
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760611.488

• 

r---irepo-ri€d·aler.s are sUP€r"i~--~r:;se such-alerts. flrstlv~'theWo(kl 

I ! ! idooe by lIle analyst, sewndly, :hej 

I !i~ <:HI<liysi, willen iinaliy, is confirmeo or 1 I 1/ 

project leader vahdates Ine work. done by I 

I j 1 ,the hierarchy level accepMg the "jert 

de:1ied by the fT'-<.l(lOlgcr, a trace is left Dyl 

, ,I 

ii' 

I I : This finding was not included in the 

Ex!t MeetIng nor In the mdJ'.lldual j I I d!scussiorl$ ot fInding wltll Oojf s.taff; 1 

I 

; I therE.fore, It was not known until the 

! 4.2,2 Even ·thoug~ strateQles have. beer, set- in [ \ ~~~~;e~:~5bjr~~i:~7~1~:rh~7'tend 1 

) 

I ~'~d~~~:~ h~ll~c~~8~:e ~~fe :U~~l~~~ tl1f~f;I~~~ I i ~a~a~~~:t:.~~e~~~~~~;rt~n' ~~, d~l:~: I 1

'1. ... 1S:3~:;factory \ ,and cur bclmf 15 that the findi'1Q ;5 all I ) V.aIUAjur1gment 

I ! . -----.... "--- IIThefiod}f!"gwasnQtaccept~~.,"_ ·(2.3 I There IS not an adequate fallow up to the ,The .first element of an M. lD CO'fV11itfee 1 I MLD Comrnlltee resntiJl!ons. I!S to read aM foHow. up Ihe formerj 

! se:sslon. w8 accep: thai III all t!:>;CtlPIKJli311 

I j I i ~~;:;r ro~~wC3~~~ b~~e~~ ~~3~ n~; t;~~~ 

[

I"", I,., .. _ j "cases there were inaccurate agreemen:s __ ~ _ _ ! that can no! De complied. j 

, ~.2<4 OFAC B:1d" i:"Jorid·Cneck iiS!mg"s"' ire not: \ 1r~ef:j~:~il-~:CZ~-~lyt~e6d;:ab;i;;tled \ 

i venfied by managers, and supervisors i ! 111 order 10 c:.OI""'1p<He our ""Ie-rts ,.,nth ~.\JI.:!) ~ i I I i listm-g, includ!ng the use of a new list of! 

~.____ __ _. "~~~llattnAf~ericaSDf:;':" • _." __ ----------J 14.2.5 I lack of communication betv.leen LeOs at1d I 'LeOs from the subSidiaries arc Invited to I 

I II sub.sidia;ies re,atad to t"lLD tools i . 1M ,MLD Cumrn'tlee~. t:lt:!t:duw, t~l~ll I i H'lvQiv€rT'.€:1t WItt] the subJ~ct rS t'lIg,"1' I 

iii :~It~n~z, r:~~~~~~s b~ ~~~~h;~~ I 

! ; 1[ 1 ;:~~~~pether .... 'lh the Imp!eme'1t~l!on \ 

I :~t:2.S 11 CA~ip daes "no"i ·81IW;tF.i -n1Cr1iioll;;-g"oit

l

'lcAMP does-not'monitv; RAP accounts, I 

some oroducts 5uch as RAP accounts,. If W.'l5 n<:,(:.jjed no! to rnon'(or (herr" since I ) Concentrating Accounts, Credit Cards and j i1he accounl holder is fbJJowed up by the I \ lrarsaclions of rerniftal1ce~ oomparlcs MLD! busmess. A'S fer Credit Cards, there is 1 I does '101 have a pian to cover sa~a products \ j rrof1ltoflng when ~he customer has olso I I I' I a cheques account hvld.;;r of H8ML 

, I' Rernrtt3'lces Comp2f11e5 aTe treated as I J SCCs, and as such tney are currentlv1 

I I I at!€nded by C18M, alSO' tne oayments, 

: 'are limited to no'1 customer thresholds I , I ,Ai:, rOI (;o!"!ctlnlldmg accCJunts, and I 

I ! ~~~fi~~~ tl~;t -;:!~ d:c~eO~~:~ a;~~u~: I (ber~g reported by the MLD Committee [ 

j 1 I setlmg speCl'fic instructions 10 the I I ' ! bUSIness 10 close :'1e account, and! 

I mstfUrT'.cnt.". other vehicle fo, t,'"ose I I custorT'IP.r~ 

.~~~ ___ . __ .. __ .. ___ Durmg tile E~IJ Meeting the produ~.::;: t0E!J 

Confidential- FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC acc 8874388 
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760611.489

• 

r-~ 1 II we;:ement oncd as not moi1ltOred wer~~ ,I I I mi'fer€nt Ie these fir.all\ fJrmtt!d If! \tle 

1__ _ ___ ~ ~lreport_~_ ~ - 14.2.7 1 Despite t"a fact t'1n! 'WOle' hSiS not been I MLD monltDnng (If 1 hi'; tr .. n"RGhons Sin 

) ,rnrJ(>tT'o(>nlf!c1 y"'t In HBMX an alternate place throuql1out CAMP revewtog I 

I

i ' method to mOnitor local and lnte.rnatlonal! ! MHO.GAN" a system to momtor lo<,;S!! 

remittances to f1fe l."ent ML operatIOns has 1 remittances IS not prospecteO, since I 

I I not be~n eS'sbllsnec1 I ~::iPat V;~~~celsfor B:~d fu~~r ar;gF~~ 

I I I Comollance which IS raslncted to a II~f I 

I I I whiCh IS not restncted to AMI.. but also to 

j ! USA enemIes. and no; to unclsual 'Fi' II :~~~:~tt:I~C'!~~~ (f I~ht perforM co ML I 428 To c,.,;tabl sh ''-'rQ_gholJt the ~ILDC;:;;~~ I W", ]1",\lP fomrIH'!<i wIth the compromises 

agreements to have a centra! dat<'lbaS9 of to ~eep a central d8tab;3s.e with alii 

j j secs ! ) customers undef ttus category With the 

I I I

I buS mess ~tlrougho.J.t tne MLD 1 

'I· COlnfTlltteA, ""if;. recognise that foUow· up 'I'. 

1 

must be enfQfc-eo ",nth the 1'l1!~lnp.S!'i to 

I entlance thiS process. and a rew I .1 \ ,database ha'> been purchased to .. iso I 

I I ! enhance OiJf currs:t dal<L I 

-ITs : LJ~k uf toile;;. up andbulld up OTrr;a.;".agefl3fl-- ~~~~~:~i~~Tr'c~a~~~~~:~6~~. the fl'2J~ ,i 

i ;::;d~nt~~o~:~~:s. ~h~c!o~~~;~ ~!~~~~~ ! ! ~~~~~;~lblh~ur~~j~~ In Pl~~~~h~;~~ th~~ I other areas, sosclficaUy ,0 terms of Circulars I 1 Colleagues that lIunk the "'LD 

I Banrrex01 II , and SHltertJ09 I I' evaluation, As forSIf"iterOO9, IS related to 1 i l K'lG jJfo::.-eOUfeS, whereas rt was ~rgued 

: I tt>at an(l>hp.r Cm:u!ill cMPPlDosoo31 1 I establishes KYC poliCies, InCluding I 

l

"" i: I' I· schedule visits to their cus:omers tly the I. \ ~~.:~es~t~e I~~:<ne;~te~~ha:~u~~: I I Clfcl.!!atlon of smd pollc~es> 

:~________ _~ __ ~i 1l!l.~!.i.!1~t..~£cePted , 

I 4.2.10 The MlD depa(11'f1ent noes not Intervene in 1 i We are evaluating, lh e acqulsl\!o'l of 8 : 

I : TIe c:lelectlOo. and om.''!I""sIS of MLD: I appl;catIO'1 from an outside vendor, whO i I for some subsidlalies j : appears 10 have IMplanwd l~ sY:;\l;;:ni In , 

·1' , ! HS8C ~K's Pnvate Sar:kf.'"lg .HG"o:e'!er·

1

i 

1 

! appJlca1lon~ frlr thf; Bond Cornoany, and 

, ! the Insurance Company had oe€n I developed that marginail.,.. comply. 

I speCIally for l!le Bond Gornpany \hat nas 

very 5car;:;e activity. as for the Insuf"ncc 

I Ccmpany in g<:'1~f31 It I':' ITIOnibrer! 

I I I :1~~:~3U;e~~:a~· ~~~~~!~:;n~! their 

j4.3T~ere are-nOtiettc~ Signed. by staff with tne I ~he related-staff is pa~-of- me MlD 1 I II~ceptmn of responSibilities wh-en user aeparunent, addltllJrt<"lliy. <iii Siaff has, I Ilde!llJ!K,~trOOS are lSSu10d within CAMP, ! Signed conflden.t:<li:tv zgreef'T"len!s :~=t! 

I I There IS not an adequate control over I mr:!IJde al! sens.ltNe issues I 

1 prl"'llegAs of Hogan's. users !Tom forrn'~r . IT nOIJn.S expres.ses that the tf.'. '.Sferring I 1 colleagues of PFS [department must iJsk for cancel!allon of i _. ___ ~ .~ ~e5'"'-_..?DSL~_CQ!1~~~ 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC ecc 8874389 
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760611.490

• 

.. ~~- .. -".~- --~-----'~l : depanL')g "ihe'".irI?8"byadvisiig-Log-lcail 

, i SeCll~lty.. t __ }. . _ ThefmdlO W<!snotacc:epte~ I \Vh,le the-,e afe strateQies to rnak;; tt<€ VJe have developed automated i 

1 

:~~I{~~~, ~~os;A~~a\~;:;d ar;A~o! m~~~ ! !~:~:;~e~f :;-I~ s~:'O~~fet~ffi~I!~~ the!1 

~uo~~~;~~ a~~~~~~~le to - m3ke the analyst : ~r~:lyl~~f~~en~~~t ~~r~fat~~alr~jt~f ;~: 

I I' IflclBlllIoInt of tN" staff t;H?~ I 

I To .evaluate the ~ystem pararleters to Workloacs are withl" medians for r.BII,~X I stratify alens by com9feXJty arc to verify that The findmg was not accepted I i the staff reqUIred IS r:roportionate to the 

4."3.3- -II'r.· ,:~,~~~a::~'~'~:;:~~~':~;~~~~C~"~ll·1 ~,f::i~~:~ ;~~ ~L~~d"~~~-""';~~:: III ,~'S well :3" r,.kwE'Y laul\rif'nng RI::'p0fi1r'lO [he€n 8s'S~~n,,(f ;1") contrast As for tn!? 

j Officer (MLRO) prNrlegcs. i system Admml.s.tratlOn functIon, aM the 

1 ! ~~~lnd~~(e~m;~~~~J~~~n t~~~C~:~r~~~;: : pmper segregatIOn 

, The findin was not aGee ted 

4.3.4 To assure an alternate person for the ! Eduardo Alvarez who is the AML 

I functions related to CAMP's System I 'Complia"lCe Officer, wll! be InSLJuCled, 

Administrator, and the Business: and trai'1Ed to fulfil such tasks as an 

L~inI5:fawL ~I)~,, ____ ._ .. __ ~._~~ 

1

4.3.5 I'. it was ;de"t.,fied that tr,€ '.'\lr,te Access, ~~01 C.AMr·s (0(65 <ire gh'en by default, MLO 

Access, and Read Access roles am not used ,did not Creal€! those prof!es, whereas, 

i currently by any user It is r9COmm9'lded to . we do ~o! think It IS relevanl to termmate) 

I

i : termlngte such roles tf there is no use for I . them since a probable profile might be! 

:~:... _._. _ __.I.. ! ~~~i~1~;~:::~t~~~t acce~_ ! ~!1 W3S founc th::lt some user$ ho',,'e t'NO ! Cl·J.iP·~ new vers:Qt'! '.;','3$ re!e3S~ , \-lccess <lecount'S <lmJ other lJsef!'; that do not : Oc!05 and if does not allow the; 

j belong to the MLD ale a ! AdmInistrator 10 pertorm suc.h task, rt ~In \ 1 , i be reQuested to the_ Logical Secumy I I I I area 10 correct sucn differences. i 

6ri I MLD accepted the finding !1iade-d as aj i : Il)wrisko'le. 

4.3,8 ~ MLD.IS not P.'O.08rty usmg acc~55.es prOfll.!'!S 'We €Xp.TainediNA-tti8t-Bi0 USef~'do not 

I I ~ established by the applIcatIOn S manual, have capa~lty to close daily a:ters, y.,hlch 

I specrally (elated to Btlslness !nvestlgatlen IS a HBMX speCific need due \0 

i I UIl!i (8iU i uSt't~ l~yu!al!Un iNe Clbu eJq..liall:ed iNA H,,,,! I 

1 ;~~~s~~7 ~iS~~Qf~~r+:I~ t~~~7s~sa ~~3~~i~ I the MLRO for the Jack of functlonallty of' 

the B!Us, I 

i ".ll:e flndln.9 w~~ not .a.cc~pt,,:d. . . . 

14.~.S ~~~l;~~~~ta~~d~-;~~~~r;~I,~~'~~~~7:~~ i

l 1 

has the same toots to analyse the alerts 

that are assigned. I 

I

I SIOC€. we t;~\'e _dlfrere~.ti.ated :as.kS , ~nd I 

~~.;~:!~d~:;3!~\~1:~~~_~~~;~ ai~~l~~V~t~si~ I as welf as tI1e accesses to the! L __ -'-________________ J ... L"C.''',,,_cc,,',''C' JOlJrnats..J __ w~ ~cat.""!_;'l9!j 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8874390 
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760611.491

e 

I . 1- ~-~-----n aSSign" the same- toofs to-~cvcry sl!1g-'el I I I analyst 

~_ __ I . _____ ._. , ,... . _ ... _.~ _____ -:_I-+~J!nd!n9 \"o!~..!. not accepted ___ ,-__ 

j 4,3.13 'I MLD has not attended propedy e!lVI 1tJ!J;> i I We wiii nUil1y HBuS of sucn cOn<Jmon, 

! that were generated cunng .1l,LlGOS, i . !~cct~1~;~~r~~~!t~~~f~ft~U~~ ~~%i:~ 

L. _~"~ ____ . ____ .___ \jt\teri!!.~pfRisk. _~. 

[

,3.14/ It was detected that the MLD Depallment We have established dual conlro!s along 

U"I:c'b- ::',<!~JJi-auiomolic processes \0 generated, i Ole line 01 command of the area, from 

:~~~~U{~~\J~D'h~D~e;:te~:,t a~:ew~;!e!:,n;~ '~~b~~r~~~~f~s ~Oan~::r~s to ~~I~~~;I~~(; I llnforrna!rOn s. "'I. 10 the CNByV Not using for I ! is a text fi~ tnat IS subm:tted ti"~;~gh! 

___ ~\ :e~~: dual controlS. _ JJ ~~: ~~~n~t~~!~:~'"accepte~_"_-J Ref. I Low RIsk F,ndlOyS I 4:8.1iJnsuff;Clen! dc!er.;nmaIIOIl ofopera110naJ Ri:<;k j '11.11 n will -;f;'w:w prOperl;: the Opef2!Ir>g 

'I I associated with the MLD area. 1 Risks not detected. f 

Lack of evidenca oT me review of all files of! : There is not express obligation of ~ilgnln.g I. 

customels feponea to The authorrues. 1 ! the I1le. there IS currently an dectronrc! 

I I

, ! : e,,}d€llce of the analysis. I 

Review the SLA .t;lgnF'n Wit., IT regardl'!Q 1 j We will reVK!w the SU\ ":i!h IT II I ! response limes, mputs, and outputs I ! I CA~P imp/erne-nlatlOn documematlon IS ·OPSCQ has control over such I 

I I InsuffiCient. ! documentation, and ~ney were dell'Jered I wl~h !T t"e automatio!") of the! I ~hll~,J~sLl~~~/~i~~eA~~~~e CAMP can not: 

Imolemented process. of cases presented! loutomate Ihe process, it will haVf~ to be 'I· 

I MLD Com"Tlittee.s I ! dDne throughout other deve-:oped 

j

lapP11C<ltlon Ihat wou·d contain alll 1 ,18qIHred stages. of me Vllo(kfiow 

I I _______ J 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC acc 8874391 
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760611.492

e 

Key IsslJes: 

Tne report was contested by MlD u!cludlrg most of the ,arguments depicted aboye last 

NOiemiJe( i4. 2005, wh~!e8~ ilj~ Final ((:lJOli Wd~ !~~ut:u by iNA lin Dt!'{;~f!ll.:t:f. 2005, not 

expre~sl:,,:q our orgurr.ents to Incir !1ndhg!>. 

The GASM 'Gener~1 Audit Standard Manual' states on lts "EXIT MEETING" section the 

fcllowlng. 

Exrt Meetings 

It 1<; audit polley 1h::l: ('xi! W~rvi8wS Me P01r1 WIth senJor rna!1~€nlent on corrptetlon 

of til,"! fludlt fieldwork On a small audit It IS expected that all points which wil! b€ 

raised !n the tinal repon are dIscussed, For larger auaits, the meeting May be 

(estnCted to me Key pOlms, but delalleC! prese:1ta'.lons should tle made to 

de~arlrnenl heads co,rCfmg :t-.e iOiyer ,isk ISSiJes 

A!)rE'erlE'r.t or <]1<;BQTE'E'mert .... ·!t~ audit r€(:ort'r>er(latl<)(lS at E'>:!1 rnee!rngs s!'1ou/<j 

be documented Effective use of SU'llmary of ConCerns and RecommendatIOns 

{SeRs} Of Interim Progression Do:::iJments (tPDs) shouf(J reduce the pOSSibility of 

such disagreements arlsmg at this late s:age of the OIud,t 

AuditCfS shc!..ld, nevertheless, mai!"lta~n a health", dialogue with :Tl3nagernent 

tnrotlghou! the aud,t advising of 1M- pro!dI€SS of the audit work and 01 any 

sigmficant issues as and wrten they 9flse" 

!NA S report should be SUDmlt!ed to tne CNByv as required by ttHS governrrent €fl1lfy we 

fe<:entJy mad€: the CNBjN a presentat,on of Dwf new procedures and the tI.):Jt'nt of QUI 

capa:::!ty to .ana!yze alens. and in gene~al to manage appropria~ely AML related ISSUes., 

which is currently an area of hIgh conC€fI1 for lhf' i1!1tt1i)riti~". th~ (P,;)()(i 3~ ill'> writ tell flllQht 

generate misleading aDpreclattOnS by the CNByV, and might aiso create misleading Impact 

from cur plesentah[)n, which we think w;:!s made;n view of aU enhanced plocecures UTT tt-e 

depar:'mef1t 

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760611.493

From: Graham THOMSON 

Sent: 7'ue Oct 28 23:20'(15 200B 

To: Matthew J W KrNG 

C;:: Dayja W J B.A.GLEY: EmiIS0!1 . .A.LONSO@hsbc.;:or'1 rnx; Le\vis J ;:J IJV!LSOI\!; 

Alfredo.BOLANOS@hsbc.com.mx 

Subject: Fw' HBMX ~ Projecto Restauracion 

Importance: Norm81 

Atiachm.ent5: image_O.glT; Dec Llnk.mm: MII1Ul<3 jum3 de clerre ProjRest ~ ENG,doc 

M .. lthew 

I attach for your informabOil !I'.e self explanatory corr~spOr1dence relating 10 the above, whIG11 outlines the 

results of the recent project audit completed by GAQ. 

The a:tachmsf1ts Ihatwere. Included in my email 10 Emlison have been removed as they are h Spanish, 

although in their place IS an English translation of the C10SIllQ meeting minutes. 

i!u!t .... ~s w~J! keep you ac',':seC ::;f C$ve!npmen:s 

Please !et rnc know if you requ!r!l any cl5!rificatmn en the foregomg. 

GrahHm Thomsol1 

Head of Group Aud!t LCllin America & the Caribbean 

Tel:52) S5 5721 6236 

---- Forwarded by Grah?ffi THOMSONfHBMXiHSBC en 28'"10:2008 04 52 p m 

Emil!;on ALONSO/HBMXJHSBC 28 .. 1012008 04:4B To Graham Tl-<OMSON!H9MXIHS9C@HSBCO<'l 

pm lUi';' PENA KEGF.UHBMXll-iSBC@HSBC04 John ~ 

RENDALUH8MXJHS8C@HSBC(J4,Chr!sR 

GENTl.EY/HBMXiHSaC@HSlJC04,LewlsJ P WILSON/GM 

ArH,'HSArfHSBC@HSSC03, "Le,mar:b ARANA" 

<:Lecnardo .'\RANA.@hsb:::cemm't> 

SUbj9 Re. H&MX - Projec::o Restallf(lcion 

Graham, 

TllanK you for 1he up tQ date. IllS d!sappolntlng :ne result of tILe auo!t assessment 

I am more cOiiceme-d as tills ,So floi what i w.as assured by HB~lX management ,n t:-os fast HBMX Exeo 

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760611.494

Looking forwnrd to sse the !lnal audit report 

E:"T1Hson 

--- Original M<.;5"a{je -.~ 

EmIson 

AS reCl!Jes~ed j 2t!ended the recent closing rneetl'1g of the CAn euojit oflhe 2bove project 

The auditors In completiDQ their review of Phase 1 artl1e Pmject, graded Its conlmi fisk as AMBER for 

reasons stated in tc,e attac;hed agenda, The detailed fPOs, which are also attached and will form the c;ore 

of the audit repor<, have been reviewed and agmed by the bLJsmcss units, They had not in their final form 

Deen signea 0:1 Dy lIle project sponsor, JOiln Renaall. Arr8c:;hed IS <l copy of the closing neellng minutes. 

T~e key iSSue:; th@t",era ic.:;ntUied in the aud~t and wther; alB being addressed by managiOrne-r<t induce 

slow pro~fess w:!h remed!8ting PEPs/Sees ar:d o!.n~r hlgn nsf<: c\.!storners, w~th some 40% of tiLe KYC 

records of PEPs/sec customer seQment as.at 29AUG08 (internal deadlirle) qot yet remediated, These 

accounts are now In the process of closure by HBMX Legal. 

John Rendall In responding 10 1he audit conclusion, expressed hiS frustration at !he slew progress 

achieved by til€: Proj13Ct (.,air'!. He e,quir.,u how ,h;t'QS cOuld be improved and was advis~;j that perhaps 

the hist!'1!lcz! resc!Jrces asslgned to complete 1Me tasK h3d been ll'lderes!lmated. Th~s resource issue is 

tne of the Hlgl", K.lsk IPQ:; r9.:sed by the ClIJcitors, 

SeparatfJ!y it has been reported that checks done by CMP Gn visit mDOrts completed by bra1:;h staff, 

which are a key component in KYC pm:::edures for PEPs and r,jQher risk customers, :;ontinue to reveal an 

unar::ceptable leve! of "manufacture.d" Witt repor:s. The accu~acy of these "isit reports Will be key Irt 

It;JO)er.j,l':Iling ill'" Cl:!yrnan is!<lnti (eil pGSiitofll1S tile HBMX CEO !ra~ uBlt:lmilled eldi aU Ci ('UsiO(Ut.'IS 

~ho~IC be :re::ted 3$ !',[gh nsf; T,f,is Situation wos (!isc~.:c$€d If; a further meet:0l:l :h0.1 f held wIth U.lis Pen2 

and John Rendell[ on Monday. when it was confirmed that management would be apn1ying a lero 

tolerance polir:y to of enders 

The scope of the audIt did not extend fa rsviewmg C! customer KYC, The KYC for accounts opened for CI 

cus\omr!rs will be verified centrally and remedra!ed in Phase 2 of Project, despite those clJstomcrs pnor to 

ii;e CEO's emoargo on new ousmess, being abie iO cornpre~e ar::coum opening at many of11le Dfancnes 

and beIng subject to the samB CNBV requirements ;,;s cr,$hore custOIT'8r:;. I: is 1:; antldp;;ted thai the 

KYC for ::Jpprr.')(W,Rte1y 1.000 r.w;tnmero;. ,,1::J<;.<;iI1erl in ttm CI "red" segmp.nt rom which files ::lfe bero!J 

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received centrally, ShoUfa be remeclated t;y :.tl0GT01:l (an Internal deacll,ne) 

Current:y t~e bUSiness OWner and c;::ompUance "lie still discussing ',vith GMO CMP the product pararneters 

t'"l@t are to be .a::,p!led to !ift tfle curre'1t ern~3rg0 a!id relaunch the C! prODuct. II is lmporl::-n! that thR';P. 

d:scwsSlons result In practic~1 product parameters 25 the Ci portfolio is an important source offl.lnds fOr 

HBMX and It is hop~d the rep'acement product will be shortly $ubmlUed to Ule new Products committee 

and thlm relaunched, 

i S~laU f{)rward a GOpy of the foregOing email with only a copy of the closing meeting r1lnlllO (in EngllSh) to 

M",t1he"... King and David Ba~!ey, Before domo so, please advise if you na"e any carrments you wis" to 

Plea::;E: ictme know if you r~quirc ;:l'lY c)urif:C9Hor: on ,he foregcmg 

Gl'OIhflln Thomson 

Head of Group Audit Udn America & the Caribbean 

Tel (52) 55 57216236 

[atlacnment "Agenda {je Cierre Proyecto de Restauradon v4.docu deleted by Emllsofl 

ALONSOJHBMXfKSBC] 

[Ettachment "Apt:!ndice I,x!s" deleled by Emdson ALONSOIHBMX/HS8Cj 

[attachment "IPOs RG-stat.;f<.!cl:Jn 4 -:-otales.doc" delelec:! by Ern,llson ALONSO!HBMXlHStlCj 

[atlacrment "Mmuta junta oe elene \l4.doc~ deleted by Emllsofl ALONSOfHBMX/HS8Cj 

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:) 

J 

HSBCID 6ranc::hl!5 & Contint.lous Audit 

I\1.inute, 

Cloling Meeiing- Re,';ew of Rcs(Quracion Project 

nate or meeting: 230cr08 

Time of meeting: Il:OO hl"5. 

Venue; Roolll A901- Audit dcpartmcnt 

Subject: Closing mCl:tint 

Attendees: 

Chri.s Berniey - mA John Rendall - COO 

GITiham Thomson - Il'-JA 

C"rlos Ramirez - Chanoels 

Gerardo Viguerns - OPSCO 

Imm Carlos Valv::rde - OPSCO 

Laura Otdooez - ITA INA 

Agellda! 

Giurlll. Rusa:; - Opc:lIltiul]:, 

Ramon Galeta - eM? 

Joel Rios - eMF 

Ricardo Zamora - IT INA 

Sergio PiT.i3 - BR INA 

E..'1rique Carmona - BR rNA 

I lbe result of the audit conducted of the Rt!$I{Jl.wociol1 project was discussed and agreed. 

The Buditors have I'l.ssessed the totDI risk grade oftbe Reslauracion project as AmbeL 

The auditors identified a number ofrelat~ processes that have bee~ strengthened, yet 

still Ibt:-rc arc risks tbot hovc not been mirigatt:d, Key factors that canmbut-cd in addition 

to the lisk assessment included: 

a. In accordance to target dates defiued for the project, of the issues that were advised 

to thc CNBV, 2 rcmained outstonding: tbe: inregration of7,941 sees files and the 

cancellation ofaceounts for which there is no me integrated after 15 day! of 

opc::ning.1rl tbis regard, CMP jndiCllted the CNBV bas been kept informed oftbe 

progress made, and that no regulatory breacbes bave been incuwed by tbe bank. 

They acknowledged, however, there are siilllSSUes to be compieted internaliy. 

b. Gaps were noted in secs ideotificarioll and mooitoling procl".SSCS, since che 

identification of customers performing high risk activities is primarily based on the 

corJ.!rol appiieci by the network., without there being. mociroriog (lCcivi,ies in pIau to 

support flle idcllllfication. CMP indicated PEPs and blilCk liS!i;d eUS{(l!\\~S were 

being detected, that Phase II ofllie project will include other bigh risk customers, 

and that they ·,vere aware vf dlc need to have monitoring activities in pl<1ce whilst 

system cb::, .. g~ were '::np!emeu!ecl. 

~. It we~ considered little p!"Ogre~s has been made on files ir;tegratio!1 for customers 

\IIitl; transactione! levds abov"=, usn lOOk. bcillg nCCC5S1t'l)' to !"!Ike ;t~ti(lns ro 

I!.ccr::k:rnte the p~ss. 

Ii The impact of account cancellation on the business, customers and COS1$ sbould be 

analysed allainst the risks that bave betn miti~alcd and accepted, as this will allow 

havi~g adequate controls. The need to adapt the processes qlrickiy to support the 

decisicn-making process was discussed. 

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HSBC(D Branches & Continuous Audit 

c. It was commc:ntcd that despile there were strategies in pJace for historical files 

integration, tbes~ had nor been forma.Uy approved and, more importantly, DO actions 

had been taken to fOllow up this issu.e. CMP argued such situation was due to the 

fact that regulatory provisions will change shortly. They acknowledged, however, 

that an approacb otiented to comply with new regulations may be 

implemented/incorporated. 

One value added issue that was not included in tlle scope orthe ReslauraciOJI 

project was the adajJtation of processes to maKe the most ofmes digitalisation, as 

this will allow lmproving the opemtional efficiency and reducmg fraud related 

losses. 

g. 10 regards {O the project, B.Uemjees considered major issues were budgetjng for 

Fhnse Ii of me project, and reso-urcing, 

tl. Since USD current and invesunent accoums iocaccd in Grana Cayman w~re not 

considered for the ResluurClr,;ion pruject, thl:Y were Doi included in tbe: scope of 

audit fieldwork. However, it was meutiolled such Il.CCO\Ul!S would be considered in 

PhaSe U Gfthe project 

lJ'JA pres:!nted a :summary including the nssessment of each of the 7 sub~proiects> with 

particular empbesis on sub~projec!s 2 and 1, corresponding to Special Categories af 

Clients, where the: risk grade wa~ essessed !!s Red. 

Finally. INA (:xpJained main issw;s were PTQj~ct man8gcrn~nt. budgctin&and 

resoun:ing, as welllls BAU, which refers to the performance of !he processes that were 

implelJlellt~d. 

JR commclltcrl that si~ificallt Cff0l1S !:lavc been made to rcmcdlatc customer files 

integration; th~t it was necessary 10 take quick decisions and actions. and that progress 

bas been made, considering all this sfarted from 8It1ending an "emergem:y". 

SP indicated ilic background section in the audit rcport will include the COJ:lmcnts nlade 

by JR, and the situation that gave rise to this project will be Rlso included. 

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() 

David Bagley 

lrAI='I":roD-II01;~ 

David Vi' J BAGLEY xl al 

To: Cb'."",dWJ3AGlEY~SgC~S9C 

Marion 0 RO .II,cHlHOl-tCIHSBCCH'SBC 

'Na.~~ G L~~"!NGIR!..A lG ... MEMotlBl,IE'lHSaC!lf!:HSBC 

... , 

R., IRAN' _ CORRESPONDENT BANKING SERVICES 

Oa~d 

I haw been if1 regular contact with Nukhtar HL.$sain and h" team on this topic which i1l1litill open, 1'h6-

current p:;;~lioo as briefed to me last ... ask ... as that we h8.\.~ ~ yet Iound 3: 'N$y to hw.:dle major USD 

CJe£!fir"lg busl~!. a~ I am an1icipallflQ having to a"Plaln this 10 th8 Ctlntral BIUlk on my \IIsk to Teheran 

in eerty May. I hsve asked aUf people 10 put forward the- burs an which they belivva this cook:! be 

undertak8n with the bwest level of pen:;eivad risk. so that ifcJ"cufTtt,I~5: change....e know our pr'elel'f'M 

wfl'jflxward. 

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760611.500

From: David W J BAGLEY 

Sent: Tue May 04 07;4a:01 2004 

To: John AlLISON 

SUbject: Re: IRAN _ CORRESPONDENT BANKING SERVlCES 

Importanal: Normal 

Attilchment&: fmaQ8_0.gif; Doc Link.htrn 

.John, 

, om reluctant 10 extend until 30-6 unless Ihera ts a clear and agreed solu1Jon with a dennae and 

proximate implementation date, 

I would be gratBfullf you would d.lscuss and then update rna next week. 

r:-..., Ifwa have to shut this down we will also need to be In a PQ5itlon to adVIse SKG why !heneUlng approach 

'-..,.1 will not work. 

Thanks 

_ FI;)!Wlirdad by David WJ 9AGlEYIHGHQ/HSBC on 04 May 2004 0740--

From: NIg.' J WEIRIRM IS MEMlHaMElHSBC 

c) David W J BAGLEY ct al 

To: David W J BAGLEVIHGHClIHSBC@HSBC 

O.vi<I Ii HODGKINSOt'-VDCH MEMlHBME/HSSC@HSBC 

MuktlIat M HUSSAlNfCEO rB50M HFSMniBMElHSBC4JjHSBC 

bee: 

Subject: Re: IRAN • CORRESPONDENT BANKING SERVICES 

David. 

David has aslced rre to respond to thl! a1lached as he Is out of the office at present. 

Redacted Material 

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760611.501

(, 

~) 

o 

To this end Gary Boon and I have already had discussion:; WIth John Allison and he agreed to speak with 

ROd Moxley in OI"der to wort. out iii suHabl6 solutIOn wllich wUl enable. us to continue with the exlsUng 

payments. At this stage I am not certain of the timeJrame I18eded 10 arrive at thiS solution bull should 

know more when I speak with Jalln, Gary and RocIlaler this week. As StJch ! should be gratBfu! if ~u 

could exterld your dispensatiofl until 30,16,104 and If IJI"" whatever reason this is unrealistic (e.g. If systems 

enhsncarnsnts ere required) ! will edvise you accordingly 

From B specific bonk relatlonshlp perspectr..e end Indeed an oV'8rnll Group Iranian strategy perspectlve 

we need to find a satisfactory solution to enable us to oofltinue processing the existing payments and 

avoid a slluetion where accounts Qre dosed. 

K~d Regards and I hope you are well 

Nigel 

••• - FOl'N8rded by Oavid H HODGK!NSONIOCH MEMlHBMEIHSBC on 04I22f.200<l 08;56 AM • __ 

David, 

D_ld W J SAQl..EY HOHQ To: David H HODGKlNSON1DCH MEMlHBMElHSBC@HSBC War 

19.2004 18:40 ]001 8645;44 MEMn-tB'MElHSeC@HSBC Subj&ct: IRAN ~ CORRESPONDENT BANKING SER' 

201991664!'iSSntDY'M_!1nnO 

ROACH 

Thank you for prolT()t resf)OIl:Se of 17APR04. 

In the r;:ircumstances, 11eellflat there is litlle option other than !'or me. to recorrvnend to HBEU that the 

ex\$ting activity be di$col\tinued given the risk that we ere posing tor HBUS, unless 1he solution undar 

consideratiOn at ~ur end gives u.s Ell satisfactory opllon. Would 11 be possible for detailS to be provided to 

GHQ eM? as s.oon as possible? 

Kind regards 

Redacted Material 

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o 

o 

David Bagley 

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() 

o 

From~ laan sTl:wART 

Sant! fOri Aug 06 14;'07:3:3 2004 

To~ Mkh'J~ F GEOGHEGAN; David H HOOGKINSON 

Subject: Re: IRANIAN • PAYMENT PRocESSING PROPOSALS 

Imponante: Normtll Al1ac.nmentS; Dec Unk,htm; IRAN LAN - PAYMEhiT PRocESSIN.G PROPOSALS.doe; IRANlAN 

PAYMENT PROCESSING PROPOSJ!oJ..S.doe 

Pro~ rcpart. TIlTS wIlJ dday lC a. bit bla WI; an:: gcuil'lj: Hter;. 

~.--FOI"Uo't\rded by I~in STPWAR.T/tB£UJHSBC on06 AuglOO4 13:3.9" ---

David W J BAGLEYfHGHQMSBCon O(i Aug ;WCI4 ! I :~7 

Memo 

06 Au! 2004 11:37 

From: DOV1<1 W J BAGLEYIHGHQlHSOC Tet: 7~! lSb45 

44 20i9 9i8645 

M~! Si~: !22<fn 

5crn b)': Marlon 0 ROACH 

To: Ni~d WWllEJHBEUJ1.iSBC@HSSC 

cc: lain S'TE ...... ARTllBE'.),-'HS1:K@HSBC 

M!l.rilyn H SPt::ARlNGIHD PCMlHBEUIHSBCra;JHSBC 

AhPl RAMSAYilBEUIHSSC@HSBC 

Nigel I WEJRIRM IS MEMIHBMEiHSBC@HSBC 

Geofr ARM5TRONGiHBE"vlHSBC@HSBC 

~i1 BA!NES!'~.mB¥ ... rHSBC(~SBC 

Brian W RlCHARDSJMDBKlHSBC@HSBC 

Rod MOXLEVIHBEUIHSBC@HSBC 

Tony P COLLINSIHBEuri-:lSBC@HSBC 

Aj6}, BHANDOQLA.-'Rl'"ff'CM ME.\t1-:IBMEJl1S8C....'J?HSBC 

naN WX)NfMGR.?eM: MEMlHBME/HSBCUllHSBC 

J~~';' R WALKERfHBEUIHSBC@HS6C ' 

MKhel¢ CROSrHBEUIHSBC@HSBC 

lK:c: 

SUb.i~i;t: R.e: iRAN[AN • PA V'MENT PROCESSING PROPOSALS 

Thallk you lor yoor f\I,'o mlcs deice! TCspc:clivcly 4 and So August. 

My initial re31:1ion is thai tl1l" p~s.;Iil'e muTe 'QUIl;;!,.ilniI llicr.:t\)i"t' mor.;'; 

litcly tc be :l:~ee;u!Jo!~ thoo we. anginal co-mcMplalod ~r p!t"J."O,ocL t do 

ltcIwevel' think lhal we s.hoUld .consider the p:.pc:r in lile following way;-

r would like John Allis.CIJllo look rhT'Qugh the paper, from.a praCtical 

j)el1ipecti'vt giv;:ln hi! kr.O"""·I~Be of horn. p.Ilyment processing ~!,-ce~ b>.li 

1!lso fi'f,HlI ~ pe~d"e oflttc: propos~ use ordlr. WOLF ,!;),.5lcm, 

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.) 

We WIll also ll0e410 maJt~ II ftt:sh apprQllch (0 US la ..... yer.; for liw.lr 

CUnfirrr,.liofltl:r.o., ;hc pr(;pc.sed av-pr'-"icl'l w;:m!d be OfAC' :on:plizm (as H9US wi!! 

look lor this cOlllrorr) and in order 10 do :to, J suipCc'I lhat we will need 

John 10 lue !lIoenllhn:J.u8b the: prac.lii::iI i$..!1JCS and t.ecbllicallcRn!i beron: 

lhey will fcel sufficienlly Ilble 10 o;onfimllbeir leSllll;tpil'llon. 

Unfonumnely John is currently on ltllve. ilnd does 00l return 10 the omce 

lll\lil !6AUG04. 1 ..... i1l ast. tlim 10 lake lhcsc!>1CO' forward imlTK"di:'lcly 011 his 

Rc~ 

NlgeJ WHlTElHfiEUMSBC on OS A.ug 2.004 tl1;O,-

Memo 

n~ AUg. 2004 01:0~ 

from Nigel WHITrlHllEUlHSnc Tel' 7')1] 12348 

4421)79q I'-'''P. 

Mail SiZl:: 116146 

To: David W J BAGLEYfHGHQfHSBC@H58C 

cc: lcin STEW.-\.RTllBEUlHSBC@HSBC 

Marilyn H SPEARlNGIliD PCMlHD£UIHSBC@HSDC 

Alan RAMSA Yil8:&IIHSBC@HSBC 

Ni&cl J WEJRI'R,M: 10 MEMlHBMElttS8C{Ij:'HSBC 

G.;:off ARMSTRONG/HBfUiHSBC@I1SCC 

""i! !!AINESJMIlBKJHSBC@)HSBC 

Brian W RICHARDSIMDBKllfSBC@HSBC 

Rod MOXLEYIHBEUIHSBC@HSBC 

Tony P COLLINStHBEUrHSBC@HSSC 

Aja, EHA.."-:DOOLA.:'RJ-.i PCM' ~.{E!\W.BME;'HSBC@HSB[, 

Gary BOO~IMGR PCM MEMfHBMFJHSBC@HSBC 

Jel'\'IllY R WALKERIHBEUrnSBC@HSBC 

Michele CROSIHBEUiHSBC@HSBC 

bee: 

Subj~t: Re: IRA.NIAN - PA YMENT PROCESSING PROPOSALS 

Va'Vid 

FlJnh.:rto my c mail dId Yc:>tcrday n: (he above, pJc3se sec: Ihe IIWIC.tled 

tne!:l;ase from Phil Bai)1e.s< 

?hir:\. pait1i is .... jJLn.li(;, i .... ~ itl~ we. will ;;c~ In ;,,.;].:.c ili .;:.h;rngc: !.e fh: 

pro;..~ed !<:!!-:r 10 !I)e L-alllao R'rnitti'lg bank, ~ .~.delinell below. 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8874704 
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__ Forwarded b)' Nisei WHITEI1-IBEUIHSBC oil OS Aug. 2000:1 07:04 ~.­

Phil BAINESIM.DBKIHSBC on 04. Aug 2011}4 11(;05 

FraIl). Fhi15AiNJ;;S/MOt:>KI'.-!$:SC Tel; 7~1 1'1(;9 

44 2Q 791ill 2169 

MailSi:zw:: JI0562 

10; Nigel WHITElHBE"'uIHSBC@RSBC 

~c: Makolm G EASnYOOOlMD8KlHSBC@HSBC 

Vakrie ROLLEJHBEUIHSBC@HSBC 

Nigel J WBRIRM IS M'EMlHBME/HSBC@HSBC 

~~~~ ~~~~~~~~~~~;!~~~~~ Red MOY..LEY/HBEUIHSBC@...l.!SBC Totty P COLLlNSlHBEUIHSBC@HSBC 

AjiIY BHANOOOLAIRM POrt MEMIHBMElHSBC@HSBC 

Gary BOONlMGR PCM MEMlHBMl::.IH&BC@HSBC 

J4:fem,t It WALKE&'HIlEU/HSBC@HSBC 

bex.: 

Subject: Re: IRANIAN - PAYMENT PROCESSING PROPOSALS 

Nig.c"J 

I M'r'e spoken with Malcolm ~ roy aUached note I!.lld specUk.aIl)llht proPQs~1 

thal""e, CIU)(.ei any pe~rl.)C;Ol$.lll.lllt cot\lruru a na~h'c In Field 72. Whilst 

.11e Mment 'Ii)'~e!Y\S .. &t .... uk1~ ~ ... jfy .... -,d n:;j~ any p;Yl",1.ents. \\it." f'.::mIli' .. e 

il! fl!'M 12 10 enable us K'I rerum Ibc:fll. we cannol he 100% et;l1.ail'! that this 

will ~mlc perrettly every day. hr t:u&lllPle. a syslems g1y~b ctJuJd arl$e 

such IllOlt a payment of this ryp: could ~ proo;sscd or human error could 

Kwh if1 such. payment Jxit18 procc5lI;'d. iflhc I;md n;liiult 1III¢rI; ihut i~ 

p::.yIr.cm w:a liu~;"'"q:le:!lly [RlLeIl in t1Je US. t.~ !r!mign ha-'* ~!li!ldjt!..'ilifi!lb!y 

claim rccC)Ul1e onus 115 III consequence of our wldenaking 10 e&ncc:l such 

paymcnu.. ACCOltHII,gly. Malcolm and I ha .... e concluded ahal thJ: safCSl ~ion 

i$ II> deJr:le lIE rnc~ il1 our tett,=" udviullg dUll we Wtll cnneel payments 

wil" fltlffltli'r'f in field 72 ..... 'hil,;; t!lii is PtQvi£!ing tl. rOOu;:ed di::;m 

$ervi.ee it !;"!!5"u..~ !lmr.!h!:o ruJl "mJ~ Qr~~fI$ib;Jity 11; on U'IC" rcmitlm! 

bank and nol on HSBC. 

We wou)d ~iale you notifying C(Jrnpliauce aIX'Ordil\i!,ly. The- olli,. a.,oerodn\Cnt 

R-qUired:~ lk!e:!:;m :;-fthe s~c~~ tIl. !h~ pro~sett !m!rr 10 lli'F !~ni!!!1 

remirrill! banla lludcril) whi(.b ruds "Pllymcnls whit), con1inue let be sent 

with tbeu It\s.Iruc:1ioru will be caneelled and treated as null aod: YOid by our 

payment proco.sillg areas." 

Phil 

Confidential· FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8874705 
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_ fv.-.... ~tdcd by PhH BAINES,I!-.-fD9KlHS:ec em M Aug 2004 ! 7:J 5 .---

Phil BAINESIMDBKlHSBC on ()4 Aug 2004 11 :06 

M.m<> 

04 AUg. 2004 11 :06 

From: Phil ElAINE$lMDBKlHSnc TeL 79912769 

44 20 1991 2769 

Mail Sin: ImtiOl 

To: Vah:rie ROLLEMBEUIHSBC@"'HSBC cc: NigeJ] WE1RJRM IB MEMIHB"MEIttSBC@HSBC 

Nigd wlUTEiHBEU:H5OC@HSBC 

Gcnfl' A~~".fSTR.ONGIHB£U/HSBC@H:mC 

Brilln W RICHARDSlMDSKlHSBC@HSBC 

Rod MOXLEYIHBEUIHSBC@HSBC 

Tony P COLLINSIHBEUtHSBC@.HSBC 

Ajar BHANDOOLAi1I.M f>CM Mt:M,'HBMJ:.IxSeC;g""'HSaC 

Ga.ry BOON.4!GR PCM MEMlHBMElHSB('@JHSOC 

Jerml)' R WALKERIHBEUIHSBC@HSBC 

btt: 

SutjoQl;::;: r~: lRAN!AN· PA YM.ENT PROCESSING PROPOSALS 

Malcolnl 

! ho\'~ ~..!:Il !:I Va!o:n.e tbl! momLqg re [! fe ..... mi!l(Ir nDX'lKi.1lJI:I]1S III IllI; 

documcm, 

MDre iIDporUII)li),.1 wam to be atnolUlety cenaio lhat we Ire: entirely 

cc.rufo .. a:.:c w;lhd''';: ~~I t~: we ;l'iJ) ;:::.n~~l ~ ret'.::m:any p,,>,me!1t 

imtrncHo'lS (hili "hII"Ve ~!lpedll.l caUt(oR8ry instJuttions." in Field 72 for 

ll1recrcasoll!.: 

","m O"Uf fihcn aiwnys plea: this-up'? i wllkll>iotld ill"'\ jlii; WOLf fBi", wm 

only pk"~UJl refotttnce to !~l!, nel meSS1!ges!udl as. ".care ~oc,i~H!"d 

eOWJ(ryR; 

are we in btcocb ofOFAC regubltioll$ in ooing $01 

!.he onus SIDUld be on !he re:Ellltling balik., not ounelves.!lS we Sinle in page 5-

(Ifl)ur rtov.;~uiolg Pl""opo-sal PHpcr (rckvant parngrdph& "ll~hcd b.ctow). WhtJ,! 

lm?'r-l~ if 'l)1!'! oftl~~ ~mcnts slips ~h/"Ough our system IIond is then bm;~Il'! 

_ the te1lliUing Dank (0lJ1d claim 011 U$ [or11ot Slopping and [dummg. thl: 

paymcnr? 

Ot:r~fe..-=eew~uld be-l~ folhwllle !~IIl!;tm(lrr~i!1 2i). This ~ 

~c the n"'l~ oru-tum P:ll)'Tlll;'J1b, (p.ilYmcnl.t- lnvotving Iran, whici111"t"C by 

Drder of:llhird.counlJY bank torpaymnu 10 another Ihini CDUntJ)" bunk. 

pl"a\-k1ed Wi do not require II\IC U:; bank 10 direc11y credit or debit an 

Inmialt<l'",Wii i,e poo ....yrr.cr.ls ffi""W; 11(1; firialise in lhl: US} d<;;"m~d l!'~11he US 

l!ll!krt:!l"\;e~ S(':I!fIe man...a.l $.Cruliny of cacb item. Any repuUHionai risk: would be 

miligal'lld by tlw Jr;nw.n 0lSh:l1llCr(a financial i1l!>tiru.\iQn) taking 

~spo.Jnsibi!ily forsubl"1l1oinS only bona [ide U-turn "PIIpnClllS IIJlld HBEU Wolf 

Confidential· FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC ecc 8874706 
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litler aetec.{)l1!5 pol~ltilli Itrrori~l-hllked pIIymenu., 

HBEU witt cOllli.nue to adopt;tJ1 lIuc:mal besT pn&:lir;c whereby it vie'¥t.·! and 

re!ea$~ J'V-yn1ll1ll9 t""log an OVeTView (lftlris uullic us"iltg llle WOLF; and 

Country VlIlidation &ehlop qneue; 001 this- .... iIl pureI)' be for lmenlaJ 

mnniloring pwJXls.cs.. Tnr: {Ive:r.t.I! upproa.:::h i" thai ite liilllian Fh wm mcnit~r lh'::ircw!! Pl!YW,.eOl! !ruffic and to Cr!$.I!Tt: {ltat only valid U-turn 

J.lIIymcrJ\S. "rpayments wllich an:: pcrmisSlblc un:kr lhe lerm~ ortiS kgi$Jalion 

are rubn'lilled 10 HBEU. EITec.tivdy lhe n:sb uwxill.letl with ~tration 

would be placed WilfllBe Jr.alli;uI.Ft !"3111er (han HSBC 

Rcg..a~ 

Phil 

VlI.krie ROLLEJHBEUIHSBC on 04 Al.<g 1004 (1):45 

Memo 

i)4 Aus: 2UO'H~):4.5 

Fro,,;,: Vii.k~ .ROLLEr'!iBEU/HS,3C Tel: 799 12Jot 

44 2i)i ~91 2301) 

Mail Siz.r: 93723 

To: Nigel J WEiiVRM is MEMIHBM'EiHSBC@HSBC 

cc: Ni.g~! WHITElHSEU.tHSBC{,!M!SBC 

Geoff ARMSTRONGlliBEUlHSBC(a'HSBC 

Phil BAINESlMDBKJHSBC@HSBC' 

BtUn W R1CHARDSlMDBKlHSBCC~J-I:SBC 

Rod MOXLE\?d8EWHSaC@-NSBC 

T01Yj P COLLINSIHBEUIHSBC@jHSBC 

Ajay BHANOOOLAJRM PCM MEMlHBMElHSBC@HSBC 

GBry BOONtMGR PCM MEMfHBMElHSBC(~HSBC 

Jcremy R W;"LK£RIHBEUiHSBGitiHSBC "',. 

Subject: lAANl;.,N - PAYMENTPROCEssrnG PROPOSALS 

NiJl,ci, 

For your infa-m:lalion. 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8874707 
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Maicolm 

« .,» «,,,» "<".» 

o 

THIS PAGE IS 

INTENTIONALL Y 

LEFT BLANK 

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From: David H HODGKINSON 

Sont Frl May 2018:54:532005 

1'0: Nasser HOMAPOUR; Muktna.r M HUSSAiN; JereITT)' H Bariol'l: Aja)' 6HANDOOLA: John 

BLANTHORNE; Rict-oaid J COLE; M!C"lS~! J HODGES; O$vid W J BAGLEY; ft..j2y BHft.NOOOl.A; 

CtHi!;top"~ G LEVVI$ 

Subject: Iran 

Importance: Normal 

At a mectlf'lg with the Group C1l;airman and tne Group CEO, it was doodad to manage Ih~ USD paymefilS 

ancl set119rnants bus~s. by tranSferrlf'lg usn accourm. of Irani2n bank!; tl/storically held witn HBEU to 

HBME and using a thIrd party COfTOSponoerJl in 1tIe uS for towr allCl O'ihcr .... dd U tum ~tnenl$. yvlljist 

i'I iii; ayri'OEod tQ alfow Iti .. exllSting b\.J~&aa Qnd co.-nmitme."1tt. with 1::.:-: !O continue, marketing alnew 

buslne,>-e> Qf 9:o:iond!r>g our curref1t portfolio and acUvtie5 Should be suspended for the time beIng until the 

elltemBl polflic:aI sibJation with Iran !las. Improved., 

It is appreciated that maintaining tilts positIOn wll present Challenges, but the potentiallrnpact 01 a wors8Oing sltulltiOn With tile intematbnal community on our bus"n~ss in h lJS lind Ol~hefe ;;annot be 

Ignored. V.;. OOrlfiW'8 that this approach pr:;!i8r~'eS our abl!~ to r-espond spprtlpriate!y es th'!! ~ItUBOO!1 

cl.'Ci ... ~, enhancing OUr comrritment es end Y!!hef1 C!fCLIf"lS!a!1l;;eS ea~ 

David 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC acc 8874714 
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From: Vivtan CLARKE 

sent: Mon Oct og 15;41,.45 2GOCi 

To: Mict-.ee! F GEOGHEGAN 

SubjQ¢ SKG 'NOULD LIKE TO DISCUSS THIS E-MAIL PLEASE "mAN· U·ruRN PAYMeNTS"'· 

Importance: Normal 

vc 

fORWARDED MAIL 

Mom. 

OQOcl2006 t5 12 

From: C.,,5d W J BAQlEYJHGHOfHSBC 

Sent by: MarJ:)fl 0 Ro ..... CH 

To: Stephen K GREEN et al 

'Tel; 7991 8G45; ....... 

{2071J~ 20 79~1 8646 

TO: s.pnen K GReE.NIf1SBHIHi:.BCMERmLilf04@hSaC 

Mk;t\~! F CEOOHEG."' .. N:HGHO+IS9C@H59C 

Dev1d H HODGKINSONll-lC,HQIH$6C~HS8C 

bee: 

IRAN· U":T\.IRN PA'fMENTS 

pursuant to GCL05004r 'Compliance with Sanctions' Group offlces are ~rrritied to initiate 'ifMtS&etioos 

ill USC ..... hlch are (;.ompnant ·",itl'i !tis sc-ca;:ad U~Tt.:m 8~mpllOn= unoef the OFAC cou .. ~t!)' se.'1ct!cn! 

re!ating to fran. OiY8fllhe C(lmpa.~ otttle relewrltexemptians 8~ sucf1 payrnerrtl5 are touted via HBME 

DUB where a specialist unit has been estabU$hed. This unit carefully 'crutlnlses 8111 such payments and 

satisfy lhemsfl'{ve$ that thOSe plllymetlt$ are eompliant ..... Ith ItIe re-I$vant OJIIGmptlOns. Giwn nowflwr that 

the 6iij'l1ifJICI:ml regulatory and fEiputaOOi,.i lii-kS assooatad with SiTi pctenti .. l b."1lSCh of the OFAC 

~l!I'\ct~~. ptartieul!!rtoj relating In l!'an. thOse peyrr.ents. (lire a!!;Q $Ubj&ct to a sub'S6quof"1 ch&ck by HBUS 

eMP. 

Them are weekly OOn\tt'l~BtioJtB between HBUS CMP al'lt:i HBMf: DUB so as. to ensure on en onao'llQ 

basis thBt a Uln$~iI!!l'Ii alleJ accura""rii appiLkic.'1 is taken Ie) judijiilG 1r.-t1attu~ .. u .... 8'XG:rlptiO:':S fife be!ng 

p-roperiy applied and H.BUS CMP have expre!;~@d \hIilITlHMJi!' kl be utisfied with the proctlflS. 

Having said this howSV9r I believe thai the risks. a:s&OClated with these USC lJ.. Turn payrrenls I\aW 

)n(;reased following the' actJons taken by Ihe US government In wlthdra ..... ing me LJ .. Tum 'eR:!mPtion from 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8874731 
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Bank: Sadesal Durng ITl)I nteenl. vfsit to the US to eUend a vvortsDerg !Tle6ting I was discretely EKivtsed of 

I1'!e bnoW'Wlg by a. reUable souro&:-

UndO;" SQeretary le"~jI (who Ollll.-id Hcd;!d .. "Son:.and! met recentty) and the I'MrtI hawkish elB1'T"9~ 

wallin th& BUl!!ih admlnistration were in favour Cifwilhdrawlng the U-Turn e::lfl~it'm rrorn all IranIan bankS, 

This 00 the basis that, whilst hav\1lg direct evidence against Bank Sacierat parfICUIar1y In rti IatlOn to tile 

alleged funding of HeZbollah, ttley suspected afllTWjOf lran~n State OWned banks of 'n\'Oivement irl ItllrroriSi runding and \t.,-vo prOGUrlBiTlti<,t. 

It 81:mea~ th~! th$ "b~noo: of explk::lt evidence against banks other tt\<ln Bank Saderat led to some 

oppositian from the State Department for the withdrawsl of tile U-Tum exempii.:m against ali banks. 

Certain US Gowmment bodies h(W8 howevar made it known to 0 number of US biilnltJi. Uurt, as VVi'liiO 

I"e/;;;ied (fartsOlGUoolS ar,; !1llj)ClSliib-1a m detact:t'.or, ~'CiUId run.:;;n W'lCCGtpto;:ble mputalbns! and rev..:!e!o!}1 

risk were they 10 coot\!"lUe 1.0 proC8$.$ U_Turn transactions. The essence of Ihe statement appears 10 ~ 

that 815 WMO ~ traMSctions would be hc:Iavi!y dl5g~M'd (whe~ even as a trade trHnli8ction 

documenls would In effect be falsified) there j$ no SliIfeway fora US bank to be involved In e'lefl a U-Tur,.. 

exempt transBCiion however stiingent th~ scrUliriy 0, IToi'i1o..ing. 11le clear implicstiorl mc;da was ':'1st 

beinQ round to be involved !n a \lYMO r~~ trane<!!Goon, e~ if whOlly .... no~ntty, would result in 

8!gr'lifiGanll:!lrod S61!Q1'$ ac(1(ln being taken flg<lillst sud! B /:lank. 

There were vety Slrong indications that Q nllrrbat of US banks were therelOf'e CO()sid:ering witl1drawlng 

from all U_Turn mlated activity. Ifthl5 h8pp9llS those contJnulng In this. rnrubJ1 are likelY to have an 

iru:;teased concentraboft 

Attt-.ough I ~m $::~l'led that we hu..oe P'_>t ~p!!2~ c~ntrc!s In pIece to rnl!11!!ge- the U-Turn Ir@"$.a~n$. 

J am concerned tl'lel there 9f9 now '"creased risks In continuing to be Invowd In U-Turn USD payments 

wtlft.h wol.lld jU5.tlfy OUr reconsJdertng our approach. I do recognise Ul8llhe slgniflcQIlce that tk;;lhbmlng our 

policy 10 wlthClralN from U-Turn permitted transac.tlons WOUJa ha\l8l11lBfrm c(olirMidciie Eastern and 

H'Bm8ln businass. 

I would' be grntenJl fOr j'O\.Ii -.;(""",s. 

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Frr;,m: Mljtt~ J W KING 

Sent Fn Apr 20 10'.21:51 2007 

To: M!ehael F GEOGHEGAN 

iIIt;Re:Man3;eriaIL~r:HBMX~}j Cc: DavidWJ BAGLEY , •••••••••••••••• Xl if 'hi IT 'W ne 

=';'~"::::'_oali'II •• illllli!lll •••• _ •• Mike, 

I am told the Me:<Jcan autnori1.es- ate taking a teunivciy D~t'I attrtuc:J!110 our involvemern w.m this 

eu~tOm::1', wh~:~ t:munsfe t:e"'...au~e !he revbw h::::3 revealed a nUn".Der of wc::b".esses. A $erics cf 

lnaccurale, and poulbly fatlricat6d, 'I'Isit reoorts seem 10 have been "led by \1'1& tIUSlness whleh fMlste<J 

any reportrng of$U$pi:c0n6 a number oftimei. For its part. the Monoyl&tJodering OeJ;lar1rnElnt failed \tJ act 

as a proper CfleeJ( and biJol:ilnce. I haW sUQgest9CI :II lJ1orough revll!JW or processes WfUlIn the 

MoneylEl:UI1C1arifll;j DBpartm:lnt end ollt1a MonB)1aUlldeflng Commlttea 10 ensure they are robust we did 

~!e e repor! ~!tl'J. !he e~c-rt'J~ m 2004 W!1!t:.!'1 has prcbaOly t:le~ o~r savIng crece. 

There SfO also a number ofper50nnel decisions to be \liken. 

! hew not heard the butin8fi.581i react.i:>n to the report. though it was ool'TV11li&sioned by Paui ThUB\on Bnd 

th8fe was e meeting resterday to discuss it 

Regards, 

Redacted Material 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC acc 8874762 
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Report ~o. GAO 0700!Ui 

GENERAL & TRANSACTIONAL BANKING AUDIT 

HBMX. - MONEV L.4l.lNDERlNG DETERRENCE 

GROUP AUDIT MEXICO 

DECEMBER 2007 

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INTENTIONALLY 

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760611.515

GAQ Genenil & Tra~5Io8.ctlo~1 8<lnklng Audit Repori 

"H!"!IM""X~-::.!"!!!-O~'!!,"EY~U>.",U~-H",u",ER" ... "-",--".", ..... =."R,,E,!NC,,,E=-__________ DECo.=:e:ER 2007 

CONTEXfS 

1 EXECUTIVE SUMMARY 

.Ll~ 

1.2: Alldi!Obiecthc~ 

J.J Audit Scope 

U (91),-!\lskm 

INDEX 

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GAQ Ge!neral & TranNctiol181 Slinking Audit R.aport 

tmiliX -IiiONEY LAUNDERinG DETERRENCE 

1 EXeCUJ!VE SUMMARY 

In Mexico, fimm""fll 111sutLlliWli irc roquiroo to cv'-llply with facal :nr'..hority {SCP.P) pro,,;,uiO"'.s to 

dfoit:f, detect filld jryQrt crb • ..inal-fimd transactiOlil. Lik~wise, HBMX is -required to :;om~y "I"i!h 

GrvUP rcg-oJJariom: defined in the Comp!i::m::~ Officer H~ndbock (COH). conuUl'ing ~wlementllry 

guidelmel to' !ccal regu!3ti~~. 

The Direction of Money Laundering Del~eoc<= (DPLD) reports to RlllTloo Garcia Gibson. Head of 

HBMX Compliance, who in tum, reportS to JohD Rendall, HBMX COO. The DPLD j;; under The 

TCsponsibiliry ofLcopoldo Rodriguez Ba"o;;;o 

() ~fill~~::~~~::~;nD:~6=;c» (busine!i5 lines) 8~ J"CSpoosiblc fOt" applying AML processes 

(J 

_KYC 

• Filts hllegn'!oon 

• Prot't!' i~Pllt of ClJ.~toroers· information in the system. 

I V!ilidlltloo ofalcrr~ ~I by ml: DPLD and cffective rcspOIlsc tbC:fctO. 

Due to tb1; CQn:-guiu,g, {hiB rcview Wi'i5 oriented to review DPLD opcr(j.;iOils.)'~ it covcrt:d:. !1!.lmbcr 

of ,:iI.T;;iU iD\/,)lved in tl'ie d~iectiVil of ML att:ivn:ie~ and compliance with. gO'icrni~g l!lws- and 

regulations. Therefore, litis wa!;.t t.'::erned audit 00 Money L!llf'u:leri!lg D~teTTt'1!ce (MLn), 

Simultaneously to the performance of this review. a foUow-up over me issues raised from ihc: 

referred :audit was conducted upon reqnest of me authority through f-egubliOiY rerum 141 ... 

J/867804!2007" The major inue, derived from laid review.ire described in: se,:tioil4 he~of 

Ad Audit Obicctbes 

The objectives of1hc Bud;t w~ to assess III1d report on: 

to as~!ii and rc:port on the appropriatcnc,.!. cffiCteIlCY and effectiveness af the internal control 

environmeut and the :J~q>libm~ of that cIIvirciIlilleilt. OU 0. sampl~ basis, :0- tmuds:Jfaill.lre in 

iniC1Ual cootrots or breiiCbC3- ill authoriTY 

the reliabiHi-,.' and im\,;giitj of (mir.d1\:l and other op..."':'a.ting; mMer.;;. 

the "ppropriateneJ! and adequacy of procedures in pltlce to e-c$;'.;.re ccmpli~ce witb lot:!!. 

oationiil Dl:;d il:itcmationi.ll;.w~ Rnd .cg."..:b,tians.. 

= compliance will! G:"o:.:p rmd l~! policies 2nd procedu..res. 

tile des.ign, implemenbtion .!.Ild effectiv!:ncss of ethics related objective<;. pmgrnmmer,; Bnd 

C(;tivirics.. 

"'" the ev~!u.ation and protectlOO of !I'~ts 

u.~ 

The scope of audit fieldwork entailed. inrer alia, a review of: 

the reliability. functiODality aDd deployment of SO\II'Ce infOtlDstion from the CAMP syStem. 

• the reliability of CAMP generaleil. alerts (peer groups eaJibntlon) 

• the efficiency in the medl!1 mOl1ilorif1g proce~s (articles in the papers) and the procw to keep 

blacklists upd'lCd, 

• moniton'ng o(tTansactioolllYolumes of cust()mer credit receivable!!. 

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() 

SAO General & Tn:r.~-=ct!~-=t ~nk!!!g Aud!t R~port 

HBMX-M~J.,~:!LNOERlNGD!!!~NCE . __________ O~~~~ 

the quality of the a.nalysis: cond1X1cd over CAMP aJcrted a<:counts. . 

• the foHow·up given over C:USlmner accOunt:r reported ilnd alened. in Bccordflllce with CAMP 

senerated reports. 

identilic.r.t1on Rnd monitoring afhigh risk and politically exposed clients. 

departmental structure. atttntiou capacity "nd analysis of CAMP aierls. as weii 113 other media. 

locally managed information bacJcups. 

lit conD'OIs 1n place O'Yer cUSlomertlles jr.tegmtion. 

• !!ct1OUS tDken far Group staff rn.in.mg and degree of compliance with inll':mal and e:\ten:.al 

policies. 

configuration of sysn:m COO\1'Oi PllfB.ffictCr1 in line wiih regula to.!)' compliance. 

identification, mooirori-og. analysis and follow·up of CAMP -alerted custQtIrer a'counts. by way 

ofCAAT~. 

n:vit:w or iI SiiIl}plC of ale.~.o el1:;w€ quality ofa.""'Wllysi; ar;djustlfh:ll.ticn for the C3S~ t!J~t Wi!<Te 

dei:idOO ilu; tube: re.pvl1ed. 

[~~w;~l~~~:::;i::~~~o."nmtm~ti(r.l$ m3CC ~ tllc pro:iom 21udir con.~_'C!cd of Compliaoce 

.. ':mfigur~tkm of a:cc~ sccuriry to strengthen lIdeqMt~ ~pprovll. "!cgregation of duties and daUi 

coofid~nti;!liry. 

Th~ MLD audit was cooductro by fnmcisco ~ga (Team Lel;lder), Carlos Magafia, SiMa S. 

Gon.clkz (ATC), Lizbeth GaJid$. MarlR Ojeda, Elsa Cruz. or Group Audit Mexico (GAQ), as M:I! /is 

Ricardo Zam011l, lorge E GonzAlez and Blanc!! MoJiu of Group IT Audit Mexico from 03SEP01 

through 08OCT07. 

Previous tludhs re~ted to thi~ theme are listed below: 

Repo" reference GAQ 050118 dated 0£(.'05 of audit CODducted of Exccuti\le Direction of 

Complia:rl(;~, which covered the DPLD, when its control risk environment Wa! l!~ellKd il5 

Below Standard. 

In SEP07 GAQ conduc1cd II ~vi~w of the imp!cmcntlJtiOll shires of recommcnd!!tioDs made by 

CNBV in regulatory reblro No. 141-11867804!2oo7 ~1ati\'e to tbe review conducted -ofDPLD 

in JUL07. 

II Report GAQ 070066 Special Review of DDA and COA Accoun~ dated .nJNo7. The objective 

of Ibis special review was to Cooduct a comprehensive 2.sscs:smcnt of WI: process of BCOOWlt 

(DDA and CDA) opening I completion Df account file documcniaiiuc, IIppHc.atioo of KYC 

procedures and rclated canrrols in orDer !o romp! whi. G,oup lind local r.:gIllations. 

• Special review ofthel'lilii iii f r J: :. ; 2, c~~ {xpcn r;forer.cc GAQ 010036 &ted APR079 

• Report .elm-nee GAQ 07008.5 PFS Strategic Cootrcl Ucit. 

Even though Ule audit report refe.re.nce GAQ 0.5011 g corresponding to toe audh CQIldLICtc:d of the Executive Direction of Compiiance assessed weir OOlJtroI rl!lk t1l"itOilllio'd. ii$ Belo-w Standard, as 

this \V1IS a themed audit, the ~ is different for"liot... audits. The scope difftiS from p;..-:vic-.::s ::.udl~ 

to a gJCilt cxtCUt, and c:on;;equCtitfy thi:: is considered a fin-t time ~hC:'l'l:zd audit of Me-ncy Laundering 

Deterrence. 

The auditoo MVe- asses~ the overaU Cootr(l: tis:' -of tIie: Moael' L&Uiidcrlng De~ce- weme as 

Miow Stand.:ir'u. 

Redacted Material 

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Even tboogb progress bas bec::n made to reso1ve I!:Aisting high. risk i~\le5", these rernaiu unresolved. 

Key factors that conmbured in addition to the risk ~ses$t1'lent included: 

ComDliute Gov~rQln('e Structure The auditors ideutifil!:d the Deed 10 review- the cwn.:llt 

governance SlruCture oftllis function, in order to assess tlle creation of a comrnitteein HBMX. with 

the main purpose of defining and approving HBMX policies and procedures, and ddilling the 

guiddincs lbat should be rollowed by the COTOitcs de ComUlliCBCioo y Control [Allti~moncy 

hWDderiOg. committees (CeC)] in line with Group poIick:$. further, the auditor .. identified areas of 

opportuniry to Improve the slTUCtures, roles and rt~sibi1ities of the various cecs, which may 

conmbute to have better governance on MLD related activities. 

Re;ulatGry ('ornpliaMe 

1.- Q-... lity ilild ~vwpkU\Ii~" ;::if tliitomu m~ d~Umenu.tivil. 8 .. sl;d on the r';::>vlts uf ibis 

relliew. the 11;.ld.itc~ cc:JcJuded that despite Ine !lctious :~keu w rtTi1.:dia!e d;c noo-ccrnpliili>"t¢ .... ith 

m!nimu.-n regulatory rcqui!"!::m:nt! f.c:- me integraticm, it has net be:n pc~ib!e to r .. lIly rectify the 

d~~~ys to rrgutari~1!: the fil~~ alre.ady identified as per CNBV UBA regnJatm)' reCl.!.!'!l {1.8m} and t(;.> 

mall! nccessary ;unl!fldmcn~ to proc-~SI;S and controls in order to prevent IDis issue from relapsing. 

10 MAY07 it was Stl1.1ghi m cxlcmioD to. lhc CNBV trJ ~tify we imcgl1ltion of (be roilflii)' of 

cllSiomer files. Howclo'.:r. the r~gulaioTwas ildvjs.;d lin 86% pt-ogre:ss had teen made in terms uffilc 

integration and oornp!ctcpcss. wbich may be: quc:stionable a!l ~(K:b figun; \Io1l!'O obtai oed from an 

l.mc..""'F'l.d8b!c: SCU1'''Ce cfinformati::m C/o.Coo). 

1.- Kaow your customer - }(Ye. Bn;l1tCbes of KYC policjes and regulaoons were identified as a 

T"e.rult of the lack of supervision and indepe.cdenl controls of Iho! bwiness arca5 wbicb may allow 

dc!ecnng b~aches incutTed. 

3.- Rfgulatory returns. As .. the date of the audit. there was a delay to report 10 tbe authority a 

toud of 4.890 accounts tha1 rqlOrted unusual transaclions thin look place between APR and 

AUG01, tbereby breae.hing the regulations The fo~g.ojng was mainly due to the fllilwe ttl 

promptly rcspoIld to the inc.reuc in the cases due to changes ill the critcri\!o as to whether 111(: cases 

that should be tahled befon: the. (;omm.jtt~. ltsbould be noted this situatlcm wu advised veTbally to 

the authority, yet this i$ not suffieienl grounrh for exempting me insritution ITom being sanctioned. 

TraiaihK on MLD Based on audit findings.. tbe auditors concluded 1be training stntegy sbould be 

reviewed, as it was nllf.e<i the staff of Branches reviewed were not sufficien1ly knowledgeable on 

Ihe policies and regulations applicable ill terms: of deterrence. aoo detection of money laundering 

activities. Additionally,we iludiroT5 notcd incoosisrcnclcs in the lniormatlO'n .. bled at the eee, in 

terms of uu;: outOber of staff in the payroll. whicb exceeds by 16% thO$e reported by HBMX 

Training & Development Toe above situation may evidetlce the tr2;ining coverage does: no'! 

na:cssariiy TCIIches the totality of Clllployees. 

HBMJ CCC. Th.:: audi·,on noted Set:liOi 1'.1anagemOlt':;: little atto:;dai;cc to cOlTh-uittce mu.-nugs. 

dclays In dcci~km m:.!::ing rc~~~g !l.ccc·.m( caocc!J3tkx::., a..."'<! dcl:lyd $aDcticns of ~scs. t:J bl; 

repo!'!ed !o t.~e CNEV • .!!mong oilier areas of improve'!n!!'nt. 

Systems IIdm.fa1strarlOI\ and optrarion The auditoni notoo bn:3Cbes of Group system security 

standards. A number of in!'Otances identified Bn' described below. 

There was itladequate us.::r admioistrati..m in the CAMP system, which may lead to mi5.us.e of tbl: 

infOl'Dlarlon stored therein, Thi5 same issue was raised in the prcviOU$ audit report Ref. GAQ 

050118 datedDECD5. sectioo 4.3.1. 

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C) 

G"'Q Genelllli & Tr .. nslctfonal Banking AUdJI RRPO"1 

!"BI'IIX- MONEY l.AUNOER!N~=DE",1ER=R",E",NC=E"-_________ -=Dc:oEC:-,E",M,,".c:oE,,R-=""'=7_ 

Thcrc is I. high reliance on anI:: single pcrsoo to perform key acti'litics, without actions being taken 

to trtirl other s.t;ff that m::y perftmn sucb duties in the event of a ccotiGge~cy. The processes rbat 

mgy be ~! risk i::t ~rms of their cCl':.tinuity, in the case !he person ,ccct.:nrebJe is absent are zs follows: Parameterisatioo. CAMP aod WOLF systems user adrnillistrarioo. admlnimariOil of tbe 

MLD ftlQdulc in the $F('TF system Tbi5: is~uc Ulhs fnrthc:r £l::kv"!'!DC"..c 115 ttJat ~lImc P('J";C'f\ 

developed the Workflow application that is used to analyse the waroiog!§ that may be reported to 

Ihe 21ulhOl"ities. 

To date II partial monitoring is applied over Iri!lDsfers by way of using WOLF. Owing JUL07 and 

AUG07, WOLF generated 1,217 warnings,.or whicb 858 cases (11%) were Dot reviewed, posing 8 

potet'ltial risk Ibat criminal IrBnsactioos may not be identified which may have 81l advl:rie 

rcputauona! e:ffe~t on the: Jn~tiru.rinn. This !iituaticm has prnaiJed since 001: year ago to date, 

without there being any dl!;JlCO§8rion from not reviewing me totality of CSSf$ warned. as a result of 

insufficient OpcratiooJ staffing. 

The auditors: identified I Tepeal m:omrnendution Il!ld 11 partial ~at ~ommen~rions from 

prtvlo\l3l1udits. 

Mi5-CcllanCQUS low risk rccommcndatioos (MLR) were advised directly to audited managements 

duriDg fieldwork for their implementation and, thcrefDre 1 no n:sponsc Ihrn:ofis required. 

The au.diaurs- wish io maul the managelll.e.Ilt and :Staff of tl.H ma, involved in Money Lli.uI1JeriTlg 

Deterrence for their aSsiSIaTlce and Coopcratioo during the course of the audit 

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INTENTIONALL Y 

LEFT BLANK 

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o 

GROUP AUDIT M.EXlCO 

AVDIT REPORT SUMMARY SCH£DULt 

CiiQ JU:J>ORTA,iiL£ AUDITS 

J Joif!lIne of Audit J. HBAIX_ MOl"iU u.Um:i"i'S'GbETERR[SCl (ML()) ~n: Me;o:ko I 

1-'"'=.'::"'=":---+1 ! CUWIlln-CI'1111" ('-'=""'='1 ~ Hig.h Cji.IUTiii.a: A_till ~I' "8M): __ 

__ 

~_j _ 

1 une ill~1 'l.Olltrol Kidt Ift~rall RiI}( 

) n. AJlllh I DEC07 High Bdo'" Standflld Hi{!h 

jl.MIAltdit ! NIA -~-~A-----'''---- N/A 

I ~t1I:~::-::~ III til;: process (blllil:u\ lillt!) art '""JXIl"W1C rGr app!rillS ML[J pro~CJlt5 lk!i!'\l:d anc! I ! :ii~ Dy Lo~j MlD DcpJln~1 on: K.YC {k.nirW )I)W' Cw.lamu), Jj)H ~l!egraLi!)oJl,).'mp« Input of eu~omm.' I 

I ~~~:n ;:~i!~e~~':'~~O!:::;~~~D~~~~::~~~i~:,~~~~~~~ non"bcr ~f a~ I iuvolv"" ID the delecliOfl r:>rML «li"jlin tux! complirux:r with S"''elTli7llliuws und rq;ulallam, 

J Cfill~:lllfi"#.:!!t --------1 1 MOlin tOHlrol weaknessei idaltificd d~ng!he <lll'ill WlI're:.lS jQI!QWs. I 

'I ~tJ!~I~' b.~~ in KYC' ~~ ~t.'Ch ll'I llle l:!rge !JllP,:bcr ormc:c<!'..p!a(~ c!~t'..! n~:!!'.d !l!>t ~~e II pror;CU ofSCC ic\cmifuioll aDd n»ni!orillR II:I05!I the fI.1worl;;, 

I ~ KBMl has ken glvrm an l:X.l~ion fry lhi RegWst(lr fKlm Mar 07 III M~y 0lI 11;1 C/lSUN thai a !JCI11~ Dflt.t: I 

f ~~~i~~~l:":;~=nl~~~oAll:!:::~~~~:: ;~~:;:~~:~~=:l!: ~:b~~;:l~~:~"l :'~l~ I ,altle\llrotttthb:dradlirY:, 

1

* M lit May 07 HBMllwd advuoi me RegnlllloT we WU'C AIIWY. ~!)treas all audit 5alllpk:; beth ill tlti!; ilWiit 

aud the n:gular bmndl iiI.Idil$ coOOu~I~cI o\ler the yll!ll' give 1\ nUJCb 10 .... 1:7 percltfllage. n~ bUcr number is t"Oll'd 

Ie ~""~(Nli1t from a SiiliiiJk:- blUU :rut l:l. is 10-" as ~~~ \if me i."Il.e&~tio.-.. uJ;W;lri .1.; joo in l;a;i<': ,;;; ;;.ad, 

IIJW~ mf, m(l>Il(h, it "t'f)' ehallc<l!:':'1'£ ! . The UBA oombcr t:>::tlud:::i 11'.1: a\lnoSi {i O'Iil1ion olh::r CIKnI:li me ~ hM in Mnico \\ hidl are !ubjccc !o I KS!:IC 's o~'n MLO policies. wlitre- 'tllnpfirJll a]~ live. B """J~r low n~be'J Il'f romp1ele f,!-I!!"i. A~ tt]l$ prtil>lell! ! f,ji:j ~l\ i~liiHc.j SUf,~ ")()IoI.i,~ lig<> i~'f- COO Wijli iil'j>;)iiilW li&(j"~ OIl)'; i;.OOfdifuoiC a ~li; ;QfI:.e ie> r'-Ii'I""gJ: 

1111'S l1~!lt"I'. filPl'tM"okl~II~~we"r tTl the ~~1t)" 

I 

~~:;'~in":!~I~ IIIWSUlljt<1lJ~IIo.l1'! 10.llr RegutaivrdlJl;: \oivl~ nJf<iberc;~J 10 be ~~M,.Jtb.~ )!~ AMI. CM'ml!!t't ~"If !J-Jw d!rmM-m!..~ 18 the p!'oc~s 

I ~tr!!~f:~~1 underU:IIlldiJlfl 01 lile iTpo'{l~f$W' aM lOok ~ry \0 ,mu.:r I.;to oaivilies and I apE"Y l!JI l:\'idm:N b! the ho:k of 1 rt!idbJc system to (f".d: clie!'!t tile'! lnlegnmon. dl,tde<Ju.He al>i/ily to $Clft:n 

bJaelllJiS1mditlUQUB.ltlllt>ll1toringSCC.'PEP·stlt. 

I ~o OOIM me 1ICe(I 10 ~~'iS l~ O\lel1ll! IPp~h lO M:ll) auinillt II!! lIl'tSuJt (l\ f2iiures I'rsuiarl)" II 

\ i&:!'Illfl~.illbi"allCl1aU.d!l!;, alldl~IiIe;edlo~~;,er.ll0(iJ"!TtYilem!linustt.!l~nt~bc:!krCQlllmloyer I bolhRtg\llalorymd GI1lIlVJlI:llttlef;arodproc.cdW"C5. 

! To .-:tU.UI"t: lM211t1t:rr IS one ovct1.li IrllCW11 approach 10 T-t:SONt !he: iiSUd, ill view cfThe INmbcr ind in IT\lny 

I C!U:~ M;nCl!!!f!e!!- of '!he "Ie.d;n~es ~i!~!'1!~ we ",(!owe It'r:>mmo;nd tho: t~~l erf l!1! OvC!"!!l'l"! ~r. I pos$lbIy.il ffBM'X Mcmr:" t.;w.dcrins. Ct,mlmiUI:e. 10 .mplement betta, dlon and longer Icrmplill110 en511le lliat 

, ,be iu\JI!:S raised in !hh J't1XIn <;1111 be: filily addru:!Ied. This bod)' will nc!:d '0 myt '\ltrlti~u ~"'=rmtrll HI)d II 

I

I proacrivify to Qrive Uuou;h 5O[]1I:- of tnc nlta!utes noedcd III ..ompl) with both lf1~ai and GttIII.p poac~ \lnd 

~ro::!1~t:~~i:!1!y in;~!m~ ~!I!d:s im .. ,:,h'd ! 

1 Ru.pO.1e troll Muq,,:tDut I 1 <Jl~lin1'J1;'Pl1rnl:'ll]llielludltrJdue()-n ,'?JAN!)!! ! 

[' 

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F:cm: Lui!; PENA KEGS1. 

$erlC Wed Nov 26 23:24;43 200& 

To: errnlson ALONSO 

Cc: John P Cilrr; ISB.rgiding,@'U.bc.com.mx; Lewis J F WILSON; Miehaal F GEOGHEGAN 

Subject: RB; Visii io CNBV ~ Finding"S and RtJI,luirw Acllons 

Impor";;flC8: N~l 

Sllre w~1 do, regards, Luis 

EmiIson AI QNSQ...,..2.6Ii 1/290B Y5>\'}6:SS p m.--Pear Lujs: 

Frol'n EmlI5Of\ ALON$O!HBMXJHSBC 

To lpk@hsbe..CQffl.JltI( 

Cc: t,IIich_1 F GEOGHEGAN, John, P C.rrIH6MXfHSBCOHSBCD4, LAW!s J P ~lSON.ffi"'XlHSBC@tfSBC:04, 

Iars.!1Iiding@h&bc.ccrn.ml 

D~Ie' 26111fZOOO 0:5:06 p'.m. 

5&Jt,e-::i; VbI~ to CNBV - F'lI'dings and Requited Actions 

[)ear Luis, 

Fo;:Uwlng ttl" GoiOUp CEO's \i'!s~ to Guiklrrro 9.:b~, pres!dentolCNBV,! 'MOutd I!'Z~ you t> prepare an 

actiO!'1 plan in om"," to addrm;s th6 additional tssues AI!8ted to rroney laundering. export of cash USC to 

the USA, via lila branch network and about the delhlQUency In credit CBl'ds. 

() Tllis Bethn plal should enc;:ornpasse:t the fortowlng areas of work: 

Money li'unCler1nglExpon of US 

* k!ent!ftr..atlon the ~Iumes and the type of'ellentek!llhat is currenttj USing I-fSMX branch netwan.; 10 make 

~1Ol$:t\ USO depos Its fOr rerritt8nees 10 USA.. 

- Immecliate elJrninatlOn of th ~ kind of Jervic:oe In QUr Ilran:Che$, Corporate clients that require SU(:ft $~e 

sl'io:.M be appl'QY&d by you on a very eJQ;eptlOfial basI:!;. 

¥ Identify the branCfleswnere tnls!dna afa activity is /TIQI"C freque:l1tlhighe:rvOiumes In urosrm take- tt".e 

nece5;$Sri .. drnlr.Istr'".tr.,.'e .;n;tfons t:;: il:il:mlm:te potent~! menS)' 1:3l!~derlng problel'f'lfi (indusj\,! ...... ith thA 

~~te clos-::e of some brunches ). 

credltCerds 

-In addition (0 the actions already in progres:3 (elated La credlianal'y'tiGs {ii~PUcatiot; SCOla .. ) a ... ,d 

coUectiui'lS, it is pararr.ou .. t i!'I gre=~r effort 'b:5how the C~BV the ~lin!19 that heY!!' alrea"y beert 1&l:B'n in 

order to rftnegctlate c!el~'1q!)ent contracts on a !T'!)(e fiwDnlbte 18flTlS wllh our clients ( restructuring ). 

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t klndty ask you a report with me actions to be taken end a weeldy tracking report on the achkilvemerm,. 

o 

rd. 

EmiliOl1 

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Ffam: Luis PENA KEGEL 

!ef\.t; Thu Nov 27 DO:41'1~ 2008 

To: Emilson ALONSo 

Ce: Micllsel F GEOGHEGAN 

81.1bject: R~; r-w; Money Laundrylng 

irn~~!NOfrt'liii1 

Tho two invnedme aclion~ we are taking are: 

Starting Oece!T'lber 1. We will no ooger buy crseUdo!lars In (::8sh atANY branch (cusromafS ornon 

customers). We will, as 9n aHemative. offer trawl91'S CheqUes to cuSlOmal'S only. Also custor'nEn. can 

withdraW !:SonalS at HsaC ATM9 Jocated atsll'pClrt! or from any ATM in thewort::l with their debiic-.lfd. 

Starting January 1. We wlif no iooger accept o'epos./is 0( ca::J.h doI'iaf& 10 OIlY dollar account at allY' branch. 

'A'e are "iW'Cmlif,.1r,g t.t;e lmp3CtcflGStre .... Of1uc3. On the nlpslde. 'New!!! !le'le the ope:ra*"'Jcmt of 

troflSport!ng end ~rt!ng c!o!!9:r hils, 

ThiS sllCuld take care oftha problem. 

Regards, luis 

-------------------~----.-.---

Emilson ALONSQ.. __ 26/11i2008 06'34:09 p.m. _FYI - -- Qris;1m'li Message 

From: Emlmn ALONSOiHBMi'(jHSBC 

To: ~Lui;, pooa--<lpk@hsbc.com.rm.> 

Data:· 26/1112006 06:34 p.m. 

() FYI. 

Michael F GEOGHEGAN 

-- Orlgb'1a1 Message __ 

~0Ia: t11cl1ao:..l F GBOGHE:UAN 

Sent: U/26/200a 11:11 PH GKI' 

8ubj_l;!t: Money i.o.~un.d.~yin9 

Em~n 

We should ~fOp any Donar remittancos. 0( accapt any Dollar payments unless tMy are done via a 

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;) 

o 

custotrer's account 

We should bench mark HBMX CAMP and other sesten engine systems with H'9US (thay have some very 

sensitive behaviour rnon~) snd $Elfi' whetl'ler we are finding as many 5U$pic:~\J5 lninsactions B5 we 

should be 

HSBC HOIdIn~ pIC 

Registered Offlce; 8 Cilnada SCluare, London E14 SHO, United Kingdom 

Registered In England numbel" 617987 

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c· 

f:om: erril:ion ALONSO 

Sent; Frf Nov 28 17:04;19 2008 

To: michael f gaoghegan 

Cc: ~Luls Pella"; -Matitlew J W KING"; "David W J BAGlEY"" 

5ubjec::t: Fw: FInal draft i'of Mike's illiter 

Impurun.cs: No.~ 

Michael, 

Please nnd bebw the reply to your ccmmenta. 

I just want to assure you that 'WIll Will propal1y with the AID rauo co.ncem in oroer to manage it within tile 

limItS. 

emiison 

Luis. PENA KEGEL 

- Original Message-· 

.r~om..: Lui.ll reNA KEG!!:L 

3fi\t: n/281200e 01:3:27 11M CST 

'to: I!Inl1son ALONSO 

.!Jubj.~; !'Wt Final draft {or M.i.kQ·s l&tt/H 

Seme rasponseG Br'Id ned stops;: 

1, I wo\.Ud not mention we ate stopping doS .. r nom G)(j:)il:rts as .. -e iiliY M\iO some residual ~rr,curr,s!'rOm 

ArMs for ex&"'T1p'ie. It 15 yo.lnw to ba minimal but not e~m~te::!, 

2. The Lara kJlaTiiioCe p:c!:;:y Is new !;;:si.ng em:cted soc! word 13 sprea11r,g out 

3.ln Janu,sf)' (! l'/tIuJt;:! definitely ~ ITII!"ntioo Chis in the !etter 10 CNBV) we are closiflg two br$'\CheS Ind 

firing allHle staft' as exemplary measures. We are. chQO!;ing 11'111 branches thes& days: branches with 

atyplcal transactions for armunl5 or typo. 

4. The next Challenoe: i5 COfTWfll.mtcation. we are tonnU&a1!ng a plan with severai siakehokic~: $w.ff, 

aW1Qritios. media aoo opinicJI\ lWd6iS and uusto."'iis1s {m. branch). V\'s rwed 10 maloic :sure we 

c.Oorl"' .. 'n'.mi=ete l! prc~r II"!95sege: to staff and QuthoritleS "- Is centered on rControf aOO 2ero toleranoe. To 

media and eustOI'l"l8f"!!i hoWftver. We mu5t make B 1J'f8 d1at money Laundering and comrol ara NOT '118 \s&lJ6 

(ewo though :!JO~bQdy fJ18Y picI( that Up), WIi!I aro tlWlk.!ng 0111'18&589_ lUte panoonalseourlty am! 

modam and electronic media as oppo&ed to doIhllf note:s (ttaW; .. ~ ctl&Que'i, .... 1Siii TllilIwl mon.,i TINch 

we wlli put iogUthllf lIIld ATMsj, 

5. Last but net te=:!., ! wi addres~ me M!..!e of funding, AlbJr IIin, CuyI'l18fl end Mexll:an dollar accounl:!; 

pr(lvlde us with USS2,e billIOn of cheap Ulang. we are likety 10 Jose a big portion otthls if Wit \!til 

cI,IslOmers W9 no Iong8( receive doMas notes. We haVe to provide an alternative loour custorTllhs Iortnis: 

Miami accounts IT'IIY be an alternatE""" but we will naw to talK to iiOOS of haw w(J get ItIIG Cilape fu'.,ji.'g 

MCk to Mexico to lend, Dm&rwi5oa, mere wiii bfI a 1'f\aS6M fliiQ&t1va 1ri1>8cllO OUf AIO ratio. 

Regards, Lul!i 

- Forwarded ~ Ll.llS?~ KE.G:::.L .. ~-U}~'lX.t:SBc en ~al11l':20Ce OS:H~ a..!l'l ..• -

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760611.527

o 

''''''' 

To: 

[)(I18: 

Subjoct 

~h:h~ F GEOGi1EGJU.i,tiGHCliH58C@HSBC 

EmilllOl'1 ALONSOr'HBMXIHSBC@HSBC04 

"DaVil1 W J BAGLEY'" <dwk:lbegle:y~.CDm>., Allilm Vv'ILSONIHBELUHSBC@tiS8C. 

<Lewis.J.p .VflLSON~J.bo.oom fT'IOo, "lui" ?l'\a'" ..:;pl<GJ-05bu .. c.or.unl;.;>-, ").\a«tv;l1II J W K!NCt 

<1'1VI1it.eYl'kj,-.g@hr;bc.oom>, Lut;. PENA. KEGEut'.St..tX'HSeC@HSSC04 

2811112006 05:20 B.m. 

Re:Fw~FinaldnrfttorMb's~r 

DearEmISOIl 

Not metltioned'" the Jetter but disCussed betw~M us is L19 ISSlJe abo\.fi: ~;oli nn-sport tr;OV3l'r'i8r:t1 to 

USA by HSBC ,do we oot Wiiot to Siiy ft'ij .i.e stop+il .. ; thI::; ;S wiIlll? 

Also, WhUst ttdo:J85 nOI need to 9" In ttle llItter I hape 1t Is clear1D eyarybody In HBMX. that as we did in 

HBBR, al starr shoold be rnad8 aware that itlhers are persistont br'e8ches Of KYc in a parllcular bratlCn, 

1he brancl1 wi! be ~Osed and aU staff diSmissed regardlsss of now moen blJ5iness we will lOse on account 

otil 

FillaiiY i assuma: everybody (that Is required~) M: In 1hslr Sa!.;nced Sco:-e C~ the ~ to !mpterneot 

C,o\.MP to th9 max!!TJI-.Jm- IflellllCllng the ckn;lng of all accoonts that nave two or more SllSpiCIoU6 

transactions highlighted. .. 

! .be!feV8 we all know that KYC is go.,g 10 De an oogorog ddlilenge but ff past ED:p8n.!"I~ jl'\ Srazll are i 

m6li1sur8.1ryou demonsuata ZiRO tols;ai"ica oflapses In In'¥lam;ntir'.g KFC then Dle c~rgHcm. sh!r!dar:!5 

of the wt!n!e buSIness JfT\~ at: the same Urrw:t. 

V\tIat we are dolng In Me~O needs to be copied everywhere else In thEl te(JfOn. 

Many thankS 

Mik. 

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760611.528

Frcwn: Paul A fHURS10N 

SE11t: Fri Jun 29 tl1:5S:55 2007 

To: Da\lillW J BAGLEY 

Cc; John R RENDALL 

SubjE!cl: Re VISit Rl'IpOrt 

Importance: NOI'fi'lal 

Da~!::t 

lllluw for your l'qXln • lhh is vcry bdptul and C01~n1Cli;·c 

John wHi be oeveioplntl 3.\1 anion pflm 10 eddress lne poims r~ised, 

cn:brn~i:;4 ,:)\hcr cctic:15 ;;nd l::-';\l"t:vts thut nrt <:lresdy I.lm!~ ""·cj'. :u:1we 

~ii\ "h~fe li1,'11 wi1h ~O(l wIle]) tompleled 

I agtt;t with your I;Clwn(:llt lli::Il we need to reVlCW (he role: IUJd ~OLlro:~ JIl 

Ih~ (:ompllil'I;;'e n,111clklO JielwCf;lIihe 'lvee "(lIS, Sandy's view tlfRarn:)n :Illri 

,h' qUiiii1y tifn-.. {'",-r,pliar..:;;; i;;ili';11~ root il51N~;fiV' .. s ;!l;:; Oi"iC exprcs>"o in 

y.)tlrnpo-It. and in my $hm11inlC hcn:.1 havCoCQll)( !o,5cewby. F('Irllll 

Ramon's ~\l'ellglbs, 1 !J1M:: equally ~eer. we:4mt::sse~ in addn::S5illg key i;s;;U!':5, 

and in Imsmc~s tm:lentmd11lS- ~ ill my view rho JUTY IS out Oll1t1S Jlbl!lty 

to d-J .311111:1.1 W~ ~ed U1 HBMX, k1 :l.iOfll: tl')' to {'vt!5ee other COWltrJU ill 

:h.: It:giou. 1 think \11l:s is ~OI'C!~II:1~ 1\1,H woe oJ,Quld ltl"~14' t.a .... oen the 

!hro;o Cor us 1n ~ fC"ol' !lH!m!fs !imt:. ~"hl:'} W~ ~ y.rn..'1! :>~(lgl%S is bC"i~g rn!d'!. 

n ... m}:s lIWtif1 for t~ 'ttl>\ln, and for the 'mppol1 you ~e pTlWiding 10 the 

tCflml:<:~, 

l'"aul 

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760611.529

From: Jc-/1n F ROOT Sent: F~i Ju! 08 10,39:11 2007 

T,,; Matthew J W KING 

Subject: Fw; Vlslt Rep(.lrl 

Importance: Norma! 

Attacnme-n1s: SUMMAR'!' OF eOMPUANC!: tsSlJES - Fl.ioXlCO;:Joe. 

As cliSl:Ul;~ed 

•• _- FOnN.nn:i.e.(\ I')' J(llm F ROOTfHGHQIHSBC on 06 'Cr?:1007 Jw38--

D~vM W 1 ~!t(;\ FYff..l'GHQ/H$RC 

HGHQ 

Sell1 by: M8ilon 0 ROACH 

2711J&l{t/J716:25 

Phone No. 7~?[ g;..:S 

+44 (2(17(') 20 irrrq 1';(,4:' 

Mall Sin': ~4054 

To 

Pl1ul A THUR5TON'liSiviXr'HSBC@:HSBC 

" Jo1m R RENDAlL:H8MXJHSBCubHSBC'_ GTllham TIlOMS07'lIHBMXlHSBCrmHSBC, Chri~ It 

EENTLEY/HBMX!HSeC~,HSBC. !tanloll GARCJAll·IBMXIHSBC\1HSBC. Warre:1-G 

LEAMINGlHGBQIHSBC@"HSBC,lohn F ROOTlHGHQIH SDu.a"HSDC Suhjct'\· . 

VI~il Repc;"! 

E!'JIit:-' 

HSBC Holdhlgs: plc· HGHQ 

Paul 

I .1tt.¥-h::l ~\!mrm~y of !]l1:. k!'}' !S~~C!:. ~!ld !l:y l!!!!>...c:! oM-~r'.'(l.!to:~ cr 

re'illnnlcl¥ialion~ foUowinglhc 'I1~illl,) Mcx.:cc. I ,",ould $l!1:SS !JJ<Jt 'l<i:).11s of 

lIds )llfHll't are 110:11 eQllivaJem 16 d rDt1ml C(Jmpli~n;:c- rcyicII-. 

H<lving said Ihis lhere 00 appt'"MIC be llllulllb~r ofis~ues w be rtsoived, 

PIIl"llcnl.lrl~ '1l\()I;>e: tej"tH'I]S to ;tl..':::n"~le {,nsoinB acconlll {t~ni11& pr.;)m~ 

tlfiX:tivc and COlllFJctc icmcdir!lion m 3Coord.".1lt.c with [NBV roqllitt1l1("n1.~ [or 

clli:i(illf. acciHlnl.S, (lnd complel11)1J of the re(.{lulffie!ld~ e:rbanCemem$lO the 

wolbrlg orIne :'-110 t;ommillee. With regard w this tauerpaint t;l:Ul: a1.>o. 

:1nds to be some comistenc)' of"je\\· as \0 me scope \1i IJll,l cOlnJ:li:lee~ 

-a~:irit)". 

There al~ seen);'; to be a ne~d 10 Ilddn::ss the C{lJlCCnlS in 8 Ilumbcrc-flircas 

e.l.VTessed h) arov, hell jrw~ I)). ttol n~(e$sanly coocludt: Iha1 limse concem~ 

ilrc.Il.!lly lUS!~tle(l orsupponccl boy m~ fuels. It is cleafly lmpon~J1llhat 

we gei eNO v 1(1' /I PO);)! \.\ ileft ,bey are s.ⅈ,i1;J lh~l t;it;~ ;~ I1u t,ljG«iYUlg 

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760611.530

Vrobielll(lt. where there i::>. lil;:t ;:rppropriale steps are lIeillglru;ea LO address 

t!~cj::.:.~t. 

Filially I do think {luit ~t' ""Ji[ JJe,d Gil all ongoing b<lSi. to 'omider Il!~ 

nllture:md ~J(tt:'ln of1he !'eSllurces curr~mly ll"lIil<lo1e in CMP. The: n"e.d to 

I"t"V1CW til,tse reOO\lfces Set:IT,,5.lo me 10 be pru1icl!h~r]y oo;:ute lit relmHln In 

Ihe n:::gkmal suppon !lISt wlil dean, ne.::d 10 be given by Ramon's I~aru Hi 

the l')till Am<:;:["1(:;:rn Qfiie~ fJc is requ~d t" t)\'~N! jl'''Cflon!ll)y, ~n.j ~!so 

wilhln ClBM where I suspet"i 'We;lte alm:\dy .!:e.tched 2i>.'e!1 Ille lIP1laren! 

gr{mlh thaI h".<l.Ircady,ot i. IllI~Mcd ttl illkep!m;c rn tllisarea wtlidt 

ap?=~ (0 be gro~"lh (lfboth VO!unlC and coll·-'Plcxi~. 

Wi\Jl. r~g!!.'11 Y.I tbe ~b-jC'l1l!J ro!e 1 wi:! sh!!!"'ly providr Gr;:l..fJa..ru M!lCY!lJlJ,!l.hloCll! 

WiTh I! llOic dctailing lhc 'I'ariom steps tMI \.\'cn: discllucd:md cOJ~dcrcd at 

a \1lcctillg (If <llllhe ACOslfws.t' j\lri$4i~ljOI1.S inhe:rl1ed M pan of the tllll1'9!l!ID ilLq>Jlo;.llion. WllI!>;'l Ihl~",iU a vel)' posi!j'll~ n)eclins. i1 is clear 

lillli ,l"'lc i ... '" ~j~lIiJiC;;JlI ;tg,U!ul \I·w'Clllt0.1 ,ull.: ilJl Rr" ..... u\ \I:.w, If",\! 

<In: ~'J t'r~!l~ !!!l!! C'<:.'JI'.p!iitr!c~ proce~S!:~ \'.'!t!l!~l ~ho~t' offict's are:o b~ 

r.m\l~ll HI hl".e. ,vi:h Grou;::IlJI)lky Jt:Qlllrt-mcnlS. 

I wilt of c(I"urse be ... ~t)' h~pp>' to discuS! at\) (If my e~ll~lHsl{Jlls.or !)~gllt$ 

with you ur 311)' ofllle-1earll, We wIll cmllit1U~!e; liaise wilil Ramon 10 

pr:::'.'i:!~:J;~ tll!ltl: $tlppcn :l:1{! h::1p frcmGHQ C~1P;:~ pc~~lb1(:. ) \·.'O~llj ~\:8S!i~t 

thai il \I.'ou!d be sellsll;lle \oail(J ..... ~~me lime 10 elap;:ehefM' ",e.ll~ GHQCMP. 

llllder1ake Ihe lonna! CornpliJUH:e revie",' fh~t is required by Ihe Compliance 

Offfcm Handbook(ol.lI FIMJ. perhaps. dc!lIying ollls I.lntil4Q07 or lQ08 tQ 

1'Iiil)w time fOf nmber steps 10 be laken. and lbe AC'P Oij; process tx:ini all;)wed 10 cor;;;idu w!l;,l f'CsoUorcing Inels art a:ppropri:lte lll;d requk~d:m:l 

canbcag~crl. 

Re!;lltds DlIVid Bugley 

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INTENTIONALL Y 

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760611.532

SVMJ\tA.RY OF COM!'LL-\NCE ISSUES - ~EX!CO 

1. Allti~MQnt'Y t.aundt'1'"ing (AML) 

CKBV regulation ;equires that HBMX carry 001 fI retrospective re·idenrificaTioD 

prDgramme so as 10 ensure that ID Zlnd KYC records for all cLlstome~ at:eord with 

the slated reqUlreDlents. These requirelDe1Jts antiripate tbat this !ihoHld be 

priom:lScd 00 a nsk·l'Iased basis. HBMX l)avc all'cady rccognisL'cI that they will 

not be able: to meet the timctfames stipulated by (}.ffiV and have S.OUSht all 

('"xo::nsion ortirne. E'Icn if this t!)(lenslctl is gnml!:'d thi:s. issu1" Tal$CS a l~umbcr of 

mallei'S \vhi.:h I tr,ir;\; u.o-ed specific n;s'J[utivr; arid,lilT dee-isloG.s zt s-eroloT business 

!2Ve!.-

Thct'C 3!'1pl!3rcd to be:: differins opinions iL~ tollaw many acrOUllIS wcrt: 

affected, bow man:-,- :!iccounts were {}lJtslandm~ and therefo.re nQ TeIl.I tr.!!ddn~ 

of the pn)~t(:~ btlllg m,M1e. ll1ave 5.1.sn.esled io RlUllon (whe has already -

provided a delailed bmalr;dOWll to me) dUll there is l.l need to {';Stablish an 

agreed method for reportl0g how IIIMy accounls. are involved and how many 

have bcCl'l t'Cil1cdhued against agreed tis.k I;\ltcgon(:\:. This would tht:n allow 

progre$S to be fuiiowed by management and CMP, Given the signifiC8Dce ot' 

this tnancr crnJsidcnlricn shDuld bc given to the regwtlf rC~)rriIl81<l !he 

equivalel1l,; of E,;('(. and tothe auaittumf'lio~e a!ld thE: establishmeot ofa 

project (c~m t" V'-'t:fS;;:C MId t:('"c:m!lnatc wh;":lt Uppc;\J"3 to 1:e n rnnjor 

l.mdert~kir:g. 

1 was concerned that there nppcared to be seme weaknesses in relation to the 

o~in~of1Jew accounts, 1ii1BX cu.rrently reports a failure rate of 7%, 

Wllilsl. this exceeds lhe Group m!l::railee level of J%, given the 11ahJ~ ofthc 

junsdlclion 0 7% failure rate whilc high WO\lJd lIot be a CIWSC ror r(!al concern. 

There is however rei'll docbt as to whethcr tlJis figure is accurate as it appeared 

that account Opt!niug staff are 2lble t6inri1clIte that ~uworticg dacUmenl3t'lon is 

hdd whCrt this may not be the case, This nccrls to be invcstigated as i am nO"( 

COlwinc-OO lIi. lil's ~tirgc that [Srty (;!"t<:i.~ I'l':lian(.c (.l:ll1 tx- pliiced OIJ the 7% f.gllfC 

If h'C fire opening 1 .... \,>- aCCOllnt:> baJJy it ",i11 on.ly .add 1Q the rem~diar.cfi 

:ex:rcise required by CNBV. and iftbj$lS::1 (;lctsll~st,mti~!)' in e:'tcess cf 

30% 5llW.dard QroL'P policy f{'qL'!r(j: that n:'m~dh!:t acllQrJ b~ tak~!l. A.;t.:P·8tG 

~nL\ c{jmplet~ account opcnil1g is 8 k.cy AMI. connul, particLilariy in emerging 

markcl:5 Serious conS-ldcl1ltJon should be gIVCtll!S to whether cither the 

remeCIi'lT!Oil exercise anct/aT account opening should b€' h.B.ndled ~eparntely by 

a {'on trol resoun;e. 

Both 1hl:: remCdl2ltlon c:xcrris:: and llew ac-tounl opening appC.9.f to largely take 

piacc at brancb jevel. I wouder if we CaD fCll.!isticaily exp~t iliat i:mL."Ichcs ellll 

or will be- able 10 "ddre!:$ the!>!:' activities giveD their 10l.'US on sales m'lo custGrn€T service. P"~:e>s.es: like account operi~Jlg ;em: often .::ciltrilhscd iicross 

tl:',e(jmup 

~rl;' "-J1Pl;arc:'ci fo ~ ~Qml; <;:('mfu<;icm!1~ tnthl" stl'1tt'd aims "-nrl purpc~ ofih<" 

MLD Committee. From a Te(!uJatOfli uosition I believe the Committee review:;. 

potential SARs pro-filing nod ccnf.M~ decisions ru to whether aCCo\1«ts 

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760611.533

.::het:ld b: c!O$ed. If the Committee j~ to under\1'..ke~ wider role t~~ the 

Terms of Refer>::nce and th.<! H~! of altcnd~ts may nc-:::d to b~ !12+Jkwo::L If!b\: 

Committee i$ to addr.-;ss more structural AML issw:s dlcn mOr(; scmor 

business representation would need to t>e included if it is to b~ flQ eft"ective 

deri;.ioo-m~king: hody. At vel) leas.t tbere (lppefued to be a need f(lf 1I 

cOflsisteJlt I,lDaerslandi£lg ofrhe cot:nUliltee's role. Funher it did oOf 8Jlpeer 

rhat all of the chsJlgcs rreommcndcd as reCjuiroi conSl;'qncnf to the Ul1imcd 

issue il!.d been act6d upon. TIllS should be: seC1l f\.S i! priOl1ty given ihc 

significant issues raised. 

Leopold0 Bi3rro"o Ii~peafcd to IUG)C"t£" thlit he 3i;CS "is time in 'his C1<rrcnt ,ok 

:l.S fir-ltc!. If ,hlS is to be :he C;J,S~ then 2. clear ~'Jc~seicn plarl wi!! b.: n::;:ru;~d. 

• As has been the elipetience elsewhere: m me Groop the CAMP monitoring 

sys!l"m produces significant numbe~ of'fa!se' "lerls TblS is {I feature of all 

AML monitoring s.~to:'ms.. Hav!ng .5.ll.id rhls, sleps arc brIng takcn across the 

Group to seek (0 minimis.e this, arid {suggest th"t Ramon and his team liai~e 

""ilh GHQ C~1P (Jo\!n Altison):Is welt [15 continuing the dia!ogui! with the US 

IT leam Hl as ICS ensure Wt take ndvllntagc of best praeti(,'~ across Il'H: GrOtlP 

1. THE COMPLiANCE FUNCTiON 

O"'croll f S;P.'\' much :!1<:;t ',;'m; pos~ti,,'c v:trticu!~rly lbc qu.:!lity of the s:::nbr t;::!l.m 

members. The fe!;!db~c.1: si\'~n fr~rn bl.!si~eS2 !!fECS w!.~ generally bVC'llrab!\!, 

Illfhmlgh 1 did not lJ\(;et .all bt\~in~~ hc:nd". t drt hOW<;:"'Cf h~v~ sotnl: Ob$CIVadons, 

where the points me.de cen be eoasldertd £IS pa1"1 of the ongDillg development of 

tht:: function:-

Overall 1 Ihink thfl.1 the teallllS lightly resourced.. particularly given that 

Ramoo now has compiiallce responSlbHily for a number (If Group cperatlOfls 

across Latin Amencl\. The oversight ofthtse oftice..>!S I1kely!O involve 

sucs\.enriai effon. 

Thc;.:' appeared to be sc,me arca;; w};<!;c the stfi.KtUfC of the function i"-Hl}, need 

10 ch:""l~~:; it devd:::lp-f: so <IS to ~ Ctelrl]' aiign i!se!( wjth bustc{"s:: units. 

PJlnlClIllirly the CmM team indudc~ a smail team of people devoted to 

m~a.ll;imr. rea.lator'1' examill:ltioos and follow-up. Thit. hOWCVL'T covc.rs all 

eUTllinarions. not j~S! those lh~t reline to ClAM 1 hsve nn iss~ with a 

cOlrral team fOf tbis pu..~, bl.!t there may as. tl reS'll!l be El aisto-rted view of 

hoI.',' much resource is in fact CmM~facing. In fJr~tke there appeared to be 

one full time Camphanec Offi;::c::r, In addition 10 thc:ttmc spent t'n ClBM 

matters by Jorge Enriquez, which in view of wr ambitions and me incrcas10g 

complt;xhy oflne l:ronSl11.;IlOO5 oemg lllldenakea seems likel)" lO be 

iu$ ... .1.fficie[Jt. TIten; ii already an int{':ntiGl1 fm Jm-~e In i>pend some lim;:; ill 

LOttdo .. to corddct rc~,c:::ch prc:-cdu~. T th~r."k this ~hculc be z}:tcndd by :.t 

}e.as! g fuJ"'",ber week !o.e!!aw Jorllett'!l!ee!witb the CIB:'\4 CMP spedl!.1im n 

WM dt':~r tl-mt ('MP are ilbeady ~uW¢rtil'l.!l: two innlwlltiVt': rr:ln~ti.oos. for \he 

Ma:ico Market and woold dearly benefit from 5Uppori fronl tbe more 

cxperieTJccd team in Loocon. 

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! wO'.!!d !li}m~]ly ~Qmme!Jd that key members ('ft!'lt ('~p!i:m:e ttam 

sh(llJ1d atlclld the Group O)mpHrmcc and AMl tTflining C(l\JI'SCS Given 

lO~$tics, tbc need to .;lIse cover Banistmo Cornplianc:e Officers ilnd lllng;uQ~e 

is;ues 1 will eXJllore wl1emer we Cllll suppon lOCal delivery Df one-Dff c~u~s 

perhaps using John Root 

Carenll cOl1siticrafion will need to be Sivt:Tl ro the resource irnpllcl!.tior.s of the 

rq~ial1.!ii role that hM been assumed by Ramon, This sbouid take accoUlit of 

an)' required heaocc-llnt, bUI also the- neeri for travel to complete reviews ~ud 

cv-.:no;li .. o1te \11-= aCil\'il,c$ "f""t il::gU}iial ACO~ I wuuld 5uagest that the 20GS 

,,",or yrovides an cbvicu'S cppcrp,mitj'. 

" M£RTTNf; wnn f'NlW 

I met with Eduardo Alcab. and Ange!kaPriew atCNBV, This WiU an el.lTtttldy 

cordial mcctiT1g Dnd CNBV wen: overall c'lU\:mc!y positivI! abou! the benk and 

thc improvements they had secn since HBMX joilled the Group. H~vlng said this 

eNBV h .. d a f~irJy lengthy list of issues they wanted to discuss with me These 

iocl-.lded> 

OULsOOrctl1g·-As.Yt.'ll may be aWalc tbele is a Llt'W CNBV regulalioo thai 

::~~~~~~~ ~~ l~~~~~~:t;;~~~~:~:~~s~~~; :~.!~:;~~~: ;:; :~;~~r~~ to b,.,. a deadlinl"'. of yc:ar-i:nd CNRV di(\ll(>.t ';um to!\(" npp(1St'd I,) ''''UlSOllft'iI1B 

but ~qualiy WeTo:. concerned to ensure tblt even where Jlrocesses wctc 

outsoun:cd to othcroarts. of the Group HBMX would be able tocolltinuC' iO 

funcrioo p-ro~rly (lJ~re lldequ1l1e t;:olHingem~y lHT'd.lIgcm:nts. eitber witbm 

HBMX or Ibe service pn;widcr may be key); thal customer coofidentiahty.und 

tiara sectl(!fy IS protected ;lind Ih~i CNBV would he 3!'11~ to mal:e examinatioll 

\fishs to tbe St'TVjce pl'ovider 

AS ;:here is a ),CM-c"cl deadiine it is imporum thaI.an rclc'Ianl.lullmgetncr.t:s. bl: 

ld';1"Jtifkd rulO dis';:\lssed -.vim CNOVas 50(.fI .. :;; po;;;;ble. \"''bi:~t CMr ha.(' 

been able to i.dentify ... si£oific.m: ml.-nbc. of l;;:k'.'1U1t sCTyices 1 thick that tbl::re 

may need to be ![1\'Q!vcmcn\ a!! bUs1nC:Ss and {)p:ratlOnal kvl'l tD rnake s:ur.:; aU 

oIW; .... _lr!;"<"'d" <;("rvkr~ .F:I"C f"rm,ilir:rr-rl 

Baste II , .. (.'NBV e::>:pressed 3 wiHiIlgness to ccmsider Group inte'J1l1'l1 cr~ctit 

models, blll also "ppeared s.;;eptical tbat such standard modcli c;l)Uld be 

sufficientiy flcxibll: [0 eddrcsliloeal condJtion:;:, 

AML - CNBV :speci:-ically mentioned the need to re~iClencify existi[j~ 

cuStomers, acknowledgh::g 1hal HBI'.'i.J( bad reque5ll:d <ID e):t~nSiOT1 ofdlm'. 

filiUd·- CNBV ;!ii5Cd cOfK·cms·.;oi~ fe-Bard tn ~ccnt f:<itld ""Xpcri::l'H::C in 

rel::tloo to one P2.rtic:.:J:>'f?~;:k!).ged prcdtl::-I, eNSV iI!dIC.ated tb.a! fheir 

COIK"-em~ also coveted i.11~ impit<:1 (hat 11igh f!"<l.ud )OS"¢5 rnizht h!lv~ 01). 

Cll<:tCtn"ler $Htisfaetian. and the h,mk's reput:'i.rion 

Confidential- FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8874972 
1702 


760611.535

Redacted Material 

Branch Security --CN8V me-ntiout'll tbatphysiclll "<!cmi/y OfDT.:!IlclJes was 

somt:thing wbicl1 they were itt!ertHed in. 

Sy.~u:m~ failure - rNUV describt>d HBMX 35 naving t:aroed a yellow card iD 

rel8t!OO 10 a reCe1l1 fallure of our banking system. wbicb I believe rcl31ed \0 II 

fnilure by systelIlS" 00 bnd:-up provided by a Ihmi p:my This iatlme 

under-scored their intercst in oulsourcing alTlln~cmcots. 

Credit Ca:rl$ ~ C~V inditt:.ted thtit they had ~ome q'J~cns <:bO~l! the r.lpid 

g:t"(, ..... th ill Ollr card base. J belieI,'.;' !bere will be.·ormay already lta"e bee-n 11. 

mcctiDg with eNS\' to discuss their concerns. eNB\' were however 

approochillg this jssue 1:-0111 from II prudcntiolllnd IJ responsible lending 

pers.peclive, 

KesPQosl\l!:ness (:NBV were very complemenrnry ab(\1,Jt Lhd. inl:('n(""tloo 

wim Ramon's team. They did how.::vcr indicatc till!.! on occasions then: was 

lin ll.1I,lCI;.Cpi:.ablc d\'lay I!) providink, ';;';{lICStcd. ir,f(,mll\~i.:'!l. When I dj~us.;.cd 

tll1!; with Ramo\1 it <lppearc-..1 th::Jt Jt dcc:s ~Or:1etirr-.e!\ eke ::lfCZ!> :'Ilitd::: while to 

provide' lnfoonati~n 10 eMP for rt'·IIl)'in~ (0 CNBV The fari that (,NBV 

ra.ised this specifically sug£ests !.bat a reminder should go out to busioess and 

s~pPOrlllrca.s. but also tnat CMP should escalate any delay to the rckvan.t 

bUStllCSS or f\.lHction.fll h>:ad, 

OmlludsmflD complaints"" CNBV ex.pressed a concern thaI HBMX's 

complaint !C\'cls weI"(: high, What was tlnc1ear wss wherher this. was in 

abwiulC" Of fcJattVI:: tCmlS_ but pqhaps J"¢!]ecttd ",hat appeared to be a geller.al 

cur;;:;cm that vur rapid gri.'.i ... tti has put PiC.i:;Urt an fraud, crcJH ,,"lid opc-;';nioI181 

con!!O!~. 

4. GEr\[RAL CD.MPLIANCE ISSUES 

Fincs - There !iIT some llrCEI$ Dfactivity. with diITcl'ing regulators that appear 

to impose sigllificant numbers offincs fortcchnka.1 and (Y1 the f~t ~fit minor 

procedural bre~cbes. Whilst mdiyid\l30! fines are small Ihe su:ns &rC signifi,:;an\ 

in <l£:ho-regate. 11 did not appear thai illest: bre~tbt.'! aIlU 1bc fines i1npt--.scd 

0':;(":'$)4I,1y havo;: tI,e- p01ent]al tu da')i<'tge w" rel.iitionship ;;;rith the rcgulawry 

b";J:i,,s in qucstic. •. 1' ... th~ fai!icrJi:,> trppcal 10 relate to po.:..,,:: a;:!hcrct11X fO 

procedu~s (rather than om 3bsence of procedures; tb.e underlying c:msr:s s-ecm 

to rda!e rnopCl"l!.tioDll.l infegrity. Those tracking opcl"llt1ofllll105scs.£encrally 

may fiTl-3 it helpful to have 'lht~c fines reported r~lIJarly s.!) !hat wher-.e 

justified root causes c-an be addrl!ssed. 

It eppeared lhat R2lnC'n was finwng the regular contact wilh the recollfil!:uroo 

team !u GHQ CMP lJdpfill. I "",ouid eDc~urage RalDoo to cootlDue to iook for 

support, nOt jln{ expect (rvr::r5i~t, from GHQ CMP. 

KPMG ~sessed. the stre!lgtb of our Compli.mee {genern.lly notj'!Jst t",":e 

funC'llCl!J!!!-; flO 1l.i'i:lT wil~ fltlf peers bllt tloehtfld S~Dti~ f.\!,[lk 1'110 Citi 

Confidential· FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8874973 
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760611.536

Redacted Material 

~~i~~~.,~~~l#t~ T(]rh.i::enditm-..ybt! 

LUful irwe \1!itb GHQ CMP provide rhern 'With srnne updates about Latin 

AlTIO'"ica pcriodkally so as to gCllcrnlly cduco.tc them as to some (lFthc issues 

and chaHenges J will diSC'u:)5 this with Warn11 

In batson wllb RAmon's tellm aad. GPS we h<lve commented {hl' requesleri 

review of the perrnmcd !l.cUvitics from outsiik: including PriV!ltc Banking in 

Mc.*,iv;; and Clilid jurllodicli.;)ns- ill Latin Awui':ii, 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC DCC 8874974 
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760611.537

From: Warren GLEAMING 

Sent: Thu May 24 16:59:25 2007 

To: Dam W J BAGLEY 

Subject; He advices that his own Compliance learn are advising him lhat such cross-border activities 

should cease.~HBMX 

Importance: Normal 

~=~~~hdis~~~~:~~~;:~~=i~ :;:s~ ;;~~~~~~:~~r:~~~~~~~e focus of his visit was cross-border marketing into Mexico. 

6ecause Mexico's tax scheme is relatively penal (worldwide income} (here is a hIgh demand for off~shore 

products. The local regulations requires that you cannot solicit Of mass mark.et non Mexican products:in 

Mexico and all products sold must be registered in Mexico. He is concerned that there is a large number 

of staff from other Group entities who visit, and sel! non Mexican registered ofrshOre products from HBMX 

premises, principally Private Bank.jog and PFS from the Am~ican Premiar Centre in MiamI. Apparently 

this has been previously discussed however. a business exception was made to allow visits from the 

American Premier Centra in the interest of pining up across the Group. He ts however. concerned about 

what controlsl rules that are In place to manage this cross*border activity and to what the degree Is there 

compliance wIth such rules. 

He ad vices thaI his own Compliance 1eam are advising him that such cross~border activitieS should 

cease. Effective!y 10 order to be comfortab!e with continuing this business exception he would lik'8 to have 

a better understanding of what the risks are and what controls are In place to manage such risks. 

He has requested that a Compliance review t8k.a place 10 order to give him a baLanced independent view 

of tile risk, He would prefer lhat the review be conducted by an independant compliance fU(lction whicl1 

would also be able to visit the American Premier Centre in Miami 10 review the files in order to gain some 

comfort as to what products are being saki and the level of compliance with the agreed arrangements. 

My initia! thoughts are:-

1. We need to be sensitive to potentiaf politics between Mexico and the US. There is a yearly published 

Group policy that North Amenca will be looking to migrating Customers from south of its borders in order 

to grow its business. we need to be a little careful that it IS not compliance that Is dictating a non jOined 

up epproach. 

Conversely Paul argued the compliance card, Le, there are many competing and conflicting Mexican 

regulators who impose significant fines as a maner of Revenue raising and ne Is also conscious of the 

potential Impact of 5a!'ICtions on his bankIng licence, 'iNhen I spoke to Ramon todaY' he confirmed that all 

competHors do It and that no one has been fined to date, 

2. We would need to closely liase and discuss With North American Compliance. It may be that they 

can assist with some elements/aU of the review although I suspect that this may not be seen as 

independant. 

3, I briefly discussed with Paul that the fact that it appears 10 us and aU the Compliance and Audit 

teams maY' not necessarily be working as closelY' as they should. He responded tha1lhe support functions 

generally in the buSiness are nol as aligned as they should be that Is the reason Why he has appointed 

John Randell as a new COO to assist them with becoming more aligned. In his view Graham is rightly 

concerned that there are not appropriate controls within the AML function itself as evidenced by_ 

Redacted Material 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC acc 8875007 
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760611.538

where he believes that COmpliance were as much to faun as PFS io not haYing escalation procedures. I 

have been thinking about havirlg a chat with Graham myself and wonder If we shOuld do this prior to your 

visit. 

Lets discuss torrorrow if you get time, have a good flight back, 

Regards. 

Warren 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC acc 8875008 
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760611.539

Actions laken sinC'e 18FEB 

l. Completed planncd tcrmination of Head of MLD. About to make offer to 

expene'nced Mexican professiollal 

2. Appointed full tiDle project manager 

3, Created comprehensive projcct strueture 

4, Have had hands-on SllppoT1 from Group Head of Coompliancc. 

B CrunP Alerts 

[mplemenred new rules ror heiBhtened scrutmy ofUSD-depositiog 

customers 

Started revicw 0[312 customers with IBrgc USD deposits sinee 01JAN08 

c...D.jgir:aiisarion anrl Cennaiisiltkm 

A delayed systems upgrade is nnw in place 

Operarimls precesses have been reviewed h)' Audit and Gleha! Head of 

Complian .. ..e afld have been determined to be fQllllst with adequatft' CQllt:ro:)Is 

we bave double ilnd triple-checked that thl'Te are no gaps betweeo 

regulations, branch procedures and Operation procedures, 

we bave complered first week's work witbnew process ofqualir:y checking 

withiil CompliaDce 

er.hJ;nced sign-off proce~ses for KYC :md ne"v t:cCO'Uut proce!;:;e::; W~!'e 

implememed wcfO)MAR08 

Confidential - FDIA Treatment Requested by HSBC Bank, USA, N.A. HSBC DCC 8875040 
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760611.540

__ = Redacted by the Permanent 

Subcommittee on Investigations 

all UIF (and similar high. priority) lette~ are being dealt with completely 

iI'l~nousc 

we have created a team offout cxpcricncoo Compliance OffiCCTS to 

manage these cases to support iDlprov~enls in both speed nnd quaiity of 

response 

we bave investigil.ed an of the 35 case. preseuted to nSF on 22FEB08, 

Uipdolii"iid~""ii,iipo.niscisliiooii' ith~c,,-~oli'i"'iCSil"i'i.l!.biiC idCiJ;jVCi'icdiliVill CompHanec - It has, though, 

confirmf':ti that W~ can ac.hi~ve j"'flrov~~ in ~~e.d and quality nf 

r~porlses. 

We have established a weekly mcctiIlg widl CNBV to review perfonnancc 

wrt high priority cases. First meeting took place: Thu28.FEB08 

We have opened B direct channel between U1F and our Security team to 

supplement ex.isling process.es. 

F T~ckjng eNSV Audit respoqses 

Tntr;>rmli policy h<1ls. bCCll reviewcd and updalcd 

We have crc-ated a s.pecific !'espoosibility for !.his process within 

Compliance 

Confidential- FOIA Treatment Requested by HSBC Bank, USA, N.A, HSBC acc 8875041 

760611.541

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Rectification Programme -12 major projects in 6 categories 

1. KYC - Centralisation of control of KYC for all new accounts 

- New process for control of site visits 

- Remediation of old files, in risk priority 

- Transaction profile rectification, storage and monitoring 

2. PEPs - Centralised review of all PEP files 

- Revise process for checking and approval of new accounts - Formal annual PEP revieVl/ process 

3. Alerts Process - Re-engineer and strengthen the Alert reporting processes 

4. Information Requests - 6 Sigma end to end review of process 

5. USD Banknotes - Review of USD intensive customers 

- Analysis of transaction patterns through branches 

6. Transaction process - Re-engineer branch transaction processing and records 

HSBcm 

" .. "'''. 
1709 


760611.542

From: John ALLiSON 

Seflt: \lIJed Jun 1311:36:00 .2007 

To: Clive BISSETT 

Subject: Fw: GROUP MESSAGING GATEWAY FOR l...AA1 ¥ CLEAR CHOICE REPORT 

Importance: Normal 

Anachments: Doc UrTk_htm 

Clive 

Any thoog!11:5 0fI tlOW to deal wi!h these c-ountries? 

Regi;!rds 

John 

~, •. FOlWardcd by Joiln AI LL..C';ON/HGHQlHS8C :II" 13/0612007 11 35 .-.~ 

NoeIu&h HEREOtAJI..IBMXJHSBC HBM:< 

11/0612007 16:D2 M~J~ Si:I::'!f; 26167 

To John PsLUSONIHGHQJHSBC@HSBC 

Ch'B BISSETTIHBEUll-ISBC@HSSC, 

TOfTla5.da'l'idovich@hlibc,cornl'T\l;,..b-. H 

CURlft-fBEUIHSBC@t-iSaC 

Sub~ Fw. GROUP MESSAGING GATEWAY FOR LAM - CLEAR 

cl CHOICE REPORT 

Entrty HSI]C Holdings pie ~ HGHQ 

JOhn, 

We hav"e r.ot e;-.gaged with ci and Nassau as 'fie haVe no leadership respofisibllity ~r ttl;; geography, I 

trust t,.,ey wlil d~l direct wlttllT, PCM, et af god !Oak sftar !herr.selvss. 

Re&;aros. 

- Fcm'3rc!ed !;!oj Neelesl": HEREDI. ... /H9MX.'HS9C c:-n 11/M/20Q7 09'59 1l m 

Sarod-,' FI.ockha. ... .JHCMXlHSec C1!O&'2007oe:34 To N.ee.le$h HEREDIAlrlBMXiH55C@HSSC 

p.rn Alan EJ.EATTIEIHaARIHSBC@HSBC,AnlornoPIA 

lOSADNHSARlHSBC@HSBC.Arturo 

RJVERAfHBMXIHSSC~HSBC. CIlIIe 

eISSETT/liaEVIHSBC~HSBC, DZI ... tdW J 

BAGLEYrriGHCiiHSBC@HSBC, Edu.c;njo Pa18Gi;)5; 

KahusrnfrlBMXlHS8C@HSBC. E=milson 

ALONSOIIiBBRlHSSC@lHSBC, Gary fill 

PHIL\...IPSrHBMXJHSBC@HSBC.Graham 

M;\CNAUGHTON!HeMy./HSBC@HSfJC, J~ 

PAAKJHBBRlHS8C@HSBC,John 

AllISONl1-lGHOJHSBC@HS9C,JohnR 

REMDALlit-iBMXlHSBC@HSBC, Jon H 

CURLiHBEUit-iSBC@1-IS8C. L\j!~ 

Confidential- FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8875063 
1710 


760611.543

Nee~~, 

EDLJARDOfHBBRIliSBC@HS6C, UJI6 M 

MARTINEZlH8ARlHSBC@HS8C,L'..!iz: 

SlMl0NElHBBRlHSBC@HSaC,Manat'l 

JEFFERYIHBEU/HS8C®HSBC, PElIJi A 

THURSTOt-.lrrlBMXrHSBC@HSBC, F'~mon 

GARCIAlHBMXlHSBC@HSBC,Tomas 

DAVIDOVICHlHBMX!HSBC@HSBC 

Sub)e R(I! GROUP MESSAGING GATEWAY FOR lAM - CLEAR 

eI CHOfCE REPORT 

AS th!'!i is tl1e most cost effective s,QltJ1.io:ln you hE!ve my approV2! to proceed as propOSed. 

RegArds, 

Sandv 

AlexanCler A Aockhal1 

Presldtint 8: Group Managing Director 

L.atln Noorita and the Canbbean 

Pa560 de la Reforms 347 

OfJcina23 Piso 32 

Col. Cuauhtemoc 

06500 MeXIco, O.F. 

Tel: 52-55-5721<i914 

Neel&ah HEREDI.M-tBMXJHSBC 0513112007 

05:59 PM 

To SandyFlod:l'1art, Gal)' M PHILUPs,.,...JBMXJ1-ISBC@HSBC. 

Eduarm Palacios Kohuam'HBMXJl"iSBC@HSBC, David W J 

BAGLEYIHGHQ/HSBC@HSSC, Remon GarCt9, Jae 

PARKlHSBfV'HSBC®HSSC, GrGhsf"1\ Mac.naugh1011, Lui;; 

EDUAROOIHBBRlHS8C@HSBC,Alan 

aEATnElHSARlHSBC@HSBC,JohnR 

RENDALlJHBMXlHSBC@HSElC 

Paul A THURS1QNlH8MXlHS8C@HSBC, Emilson 

ALONSOIHBBRlHSBC@HSBC, Anronlo. M 

LOS.bcDAlHS,l',.!"VHSBC@HSBC. T~a$ 

DAVIDOV1CHIHBMXlHSBC@HSBC, C!IV9 

Confidential- FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC DCC 8875064 
1711 


760611.544

MARilNELrrtBARih'SeC@HS6C, Luil. 

SiM10NElHBBRt.1SBC@HSBC 

Subje GROUP MeSSA.GING GATEWAY FOR LAM - CLEAR CHOlCE 

;::t REPORT 

All, 

As you are aware, we ha'JEI beel1 assessing 1118 m:>st viabie and Gro\JP policy compiiaM Group 

Messaglng Getewey (GMG} for !i.!t!..!re P':!'OCessi!"!g of lAM payments, Atteched Is the fine! ver.;.!o!1 of the 

Clear Cnolce (CC) and to whiCh I request }Oour apptova! to pro('.6Bd. 

For ease of.-eference, I adviSe that the CC fe-port recommen<l:S mi'Olralior"l of all LAM nOI"l US Ba-$ed 

SWJFf adClresses to tne UKGMG. 

The CC w:;:;, collectl"'ely put toge:Mr oy: IT, PCM and CMP in the UK aM IT, eMP, PCM in tAM. 

reprEl5eT"!mt~ frQm HBBR. HBAR afl(j OPSCO (for HBM'){., l,lI..M InrematiQJ1al and CC sponSl)M!p). My 

thanks to all participants, 

F'ost approval". priority na;q steps include: 

Definition of: Project sponsor, Project Coordinators for lAM aod 1M uK from Business anti IT. In-cOtIntry 

Business and IT repre$entation and supporting LAM and UK P!U"ject teams. Action: Davidovich. 

Preparation end approval of a Project Tcrrns of Refcrencc. Action: Project CooromaIDni in LAM Bnd UK 

Ad",ice to aN LAM countries ofec dects1on. Action: Heredia. 

Progress wim HBEU IT the need fur -spanish speaking support (luring !...AM's working houl"3 at lhe 

S"T'DGe. ActiDn: Heredia with Phiilips. 

ldenlity and agree Pilot site. Acti<lrl: Her9Ciia wi/fl MacnsughiOll 

Fa iJow on I!cti-oos will mclude: p:1or!tls-~ list of COlmtries to be m!greted, rc!l<ll.'1 plan a~ ri-me!!nes. 

project plan$ per country, SLA3 between countries and the SYOGC. formalisation of the migration of Keys 

ano Access rights, demise of SWIFT Alliance etc. 

F'lease address any quer1es arising to me. 

Regards, 

Nee-lash 

[attachmSl"lt "Claar ChoIce - Non US SIJV1;=T Address GMG Mlgfoillicn - FINAL.doc'· deie\ed" by Neeje.sh 

HEREDI.AJHBM.:.:IHSBCl 

Da'lld. 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8875065 
1712 


760611.545

The con.tact should be Nt:eiesh HerediOll bui Graham Macnaughton Head of intemaii:lnal and Edwwro 

PQ!aci01;. Helad of PCM should be- copied in ell correspondence. 

Sandy 

Alexander A Aockhart 

President & Group Managing DIrector 

Latin .A.t'r.aric.a and ttle Caribbean 

Paseo de Ia Reiorrna 347 

05eina 23 ~o 32 Col. CI18uhtemoc 

00500 Me:x:lco. D.f. 

Tel' 52-55-5121·3914 

DavM:! w J SAOlETlHOI101HStlC Sent D'rMarion 0 ROACH 2210312007 11:11 a,m. 

S<::ndy 

! refer to your e·rne:i! 'O'f 14!tJ MarCo" 

To Sandy ~~kharVHBMXfHSBC@HS9C 

Subje GROUP MESS,4,GII'oIG 

" 

Clive B~eft. GlObal Pr'Ojec:t Manager', GTB has been nomlnaUld to assist with the prepamtion of B Clear 

Cholces,.dOQJment. Could I 'Suggest therefore that someone be nominated for LATM to liaise closely With 

CUve whfch will ensure that a proper and complete coosideration will be given, including. to the capacity 

Issues. 

1 am aware from my contact with CMP In Brazil that they were gMllg some cOllsideratioll to gMng up 

certain ~ymef1ts :!!Ictlv!ty given ll'le c.'l"'!kmges of pa:o:olng that actl'lli1y lhrough the us. We 'I,alo'e indicated 

that any final deeision shoukl be d$fetred 11'1 this regard pendil"l9 !II proper consideration BS ttl whether the 

payments messaging can be mlQraled elSewhere IhuS" allOWI(lg uS" to preserve as much activily and 

business iSS pOS$jble. There may also need to be a conversation at SOfTIe: stage wilh Paul Lawrence If tt Is 

ne.::ess.ai)' tv persuade HBUS to cvntl'll.a3: with pCiy'meilt ffiassCigli1\j pending any migratlon, ) will rIVWever 

advtse furtt'ler I! !:hIs proves to be the case. 

At my end I will ask ooe 01 my team, John Al!!soo, to support Cwe, look fOrward to reeeiyJng ~etallS" of 

your nomInated contact whereupon I will ask Clive to make appropriate contact and commence the 

necessal)' work, 

Confidential· FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8875066 
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760611.546

I am grateful fOr your assistanoe 

Reg:::rdS 

D9Ivid Bagley 

Sagdy Flockhart 

- Otiginal Message--

From: S<'I.ndy Flockhart: 

S."nt; 03/14/20Q7 12:<15- PH 

ToO: DBivid Ii J BAGLEY 

eel Davl.d Lel.ghtonJ .Neelesh HEREDIA; Pa-ul A THURSTONJ Graham MACNAUG)t'fON 

subject: Ret Gr-oup Messaging' 

Dii"id, 

I./'tfe ~tQ ~imillJrIy kel;lfl W ~"iOVre th:;.'ll\ p.;:tyrlllffif$ O)r'ltintle tQ /;Jper~$ smoothly, whils! being completely 

compiflnt with Group requirements, and 10 thfs end would oot be averse in pril'ldple to re·rouiing 

paytnerm traffic via Sheffield, rather than as J:lresel"lt, via the USA 

\ll/nilst clearty this would need to be fully 6wluated, no11east In respect of tl'la cost saVIngs that w()U1d 

p.-esumably liGCf\.Ia, as ,"ell as. 'he; ability to me'et SpeCifiC Latin Americ.;;;:,l fEiqui .. iifT".ents {til"i'Pt> zvliC, 

!a'1gIJ8g€ etc). we wuu!1 want to enE''lre that all Latin .~t'can countries m131 the ffil)st stringent 

requirerrents. possibly by cenlrBlisin~ all payments through e Payments Services Centre such as the one 

we recently commissioned in Mexico. One component of !tits might be to ensure ttlatwe used precisely 

tne same algt>rithms ana screaning parametel'l1 as are USe<! by the US, but tnls too WO\.lO be part oj the 

atc'.'8m=3ntbrmd 3va!tmlion. 

Clearly a decJslon wll! need to taken soon as we are in the process ofclefln!ng the migration oikJttOtJ:V 

which, until your communication wa6 received ware going to be routinely routed Ihrough the Un' States 

in the usual way. However, you men1ion there I'llay be capacity issues in the UK, .and Oofoourse these 

..... ou!d nood to 00 resolved with.:;ut disprupurtiofiste cost Impficaoc.'5 fur LA TAM, it wc.u;o thar&fCjfi; b;;. 

hefpful Jf you woukl Mvise the name of a contact with whOm we could dIscuss vaflOUS points of detail 

pnor- to I98ching a !'inal deciSion, aod with who we could wor'k with afle ........ ards to convert if sucn was 

decided to be tlle way forward, 

I look forward to receiving your thoughts QO the abo-..e, 

Regards, 

sandy 

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Presid.,nt 8. GfOW.c> Marmgofng Dlrec.tor 

la~tn Af'"Mriea and 'lM Canl;lbean 

P:aseo de la Refor"rnol 347 

Oiicina 23 Piso 32 Get Cuauhtemoc 

06500 Mexico. D.F. 

Tel: 52-55-5721_3914 

DD.vtd W J BAGLEYlHGHO/HSBC 

David W J BAOlEYJ"'GJ.fa.lHSBC S&ni by: 

Mation 0 ROACH l.:1103f2007 00.08 a.m. 

Sandy 

To Sandy FlockharttHBMXII-IS8C@HSBC 

SUbJe GfUUp ~"'!os",gi~ 

ct 

\oW:h apologies for the lerl11th of the note set out below, I neoo to raise an issue witf1 you which relate'S to 

payment messagmg for large, if not all, part.o; of Latin Americ.a. This is an issue Ihal has been around for 

gome tilTe, but probably now needs a str'3tegic nigh-le~ deCIsion given the potential, oommercial and 

.:;O::ot consequence$.. roo key tss.ues are as. foliOw'5:" 

You w!!! of C:O'.Jrse tle aware of !he Increased slcnlf!cance of c!Jf!lPl!ance with tl1e US sanctions 

promulgated by OFAC. This has led to the Group reinbfcin9 and reiterating a requirement for ElII Group 

off;c:es 11;1 cofTlJly with OF' AC in r.tiQn to trans~ction$ denO{Tlinated in USD regaJdle:ss of their place of 

incorporation -or operatlCn, ThiS pollcy Is well-establlshed. and GJ>pears to be aOnered to very clDSely by 

Group comp.!:fTlies. 

OtJvious:ry our operations: in the US ~fe obliged tocomp!y w:!.'l the requ"ifemer.!s cfOF • .o..C!n <311 currencies. 

not Just VSD. This obviously rel'leclS the fact of either the-ir US if1(:orporation. or the fact that they were 

operating witrin the US. V'vW'lin the US however there is an increased focus upon effectlve compliance 

with the fto?qujremenls OFAC on the part of both OFAC itself bul also our ttanking reQuators 

At present. C:ro$s-border paymentS. regardless of currency, Initialed by most. jf not ali of our operations in 

utln A.'7'r8ricQ pass Ihrotlgh the pay~nt gat@' .... ;:;yoperatedby H.eW$ ir. the US. The inc;Eased fOcus 

upon OFAC compliance has led us to consider varioos situatiofls whers transaction5 pass through '\he 

US, but are not Initiated by and do not Involve Ol.'r Group companies In the US. They are. In effect, merely 

a service pro~der. 

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This cleMy has the pow-ntial for ad\o1eiSS corrlinercla! consequences, in that tiansacf.oflS m currencies 

other then USD involving countries or entities covered by US sanction5 would be callgf"1t even U'lough 

overaillhey were permitted by Group policy by reason ofthe-lr non~USD denomination, For thi-s reason, 

we ere In the process of relocating the .net end .com services, end made a conscious deciSion 10 develop 

a stano-alone \r'VHiA.L system server in the UK where tne original proposal was to host all Group credit 

card tran$Sctions through servers located in the US. 

Oblo'inusly the signific9nce of the aboYB is that where payments are processed through Ihe NeY.' York 

gateway on behJi'llf of LatlO Americen operations then H8U5. taking III cautious approach justified by the 

current regutatory environment, willl'leeClto filter all tran!'>actions regardless of currency and reject those 

transadtons where they would brBech OFAC regardless of {;UrrBn~. This wDuid clearly be 

diSad .... mtageous from LeUr. America':; perspective, one equall!J 1 s.uspect the logistic:. ofhavir~ to locally 

pre-screen atl cross-border paymerll5 in at! currencies would be COrTTrerciaJly and oparatiooally 

challenging for our operations In Latin America. 

My own ~ew IS that commercially you would f\nd the 1ntroduction -of IIlIering by our US colleagues 

unetiractiw commercitlliy, and I do remerrbe( the probieros that & k)C;ai US hote; chain gol illiO when 

refusing acce5~ to certa!n Cuban v!s.!tors. If my f.:ssumptJen here !s correct tnSfI en thE;l ~Un'.ption that 

you will want to carry out a!;i many transactions permitted by Group poky as possible lhe most viable 

option snd wsy filrward would seem to be to relocated your pBymellt processIng to .a different Group 

Mes-s8ljng (GMG) llalBway. This hO'NElvef would need yO!Jf support and the gen&ra~oA of Bil appropriate 

business ca~ and clear ci10ires ~I. Any such pfopo~ai wo-ujti fleed to i<'lk~ <'Il,.wuoi. oiiikt::iy 

impacts upon operational support, time zones, performance and cost We have informally explored the 

possibifjty of relocating Latin American lows to the UK GMG. bUf. this centre has expetlenood some 

capaci1y Issl)fls. 

Vv,.Jilstwe!\ave lived with the currenl position foe some time, It Is lair to say that nowthatolJr us 

colfa--aglie5 are on notice tt"~y feci .ell.tr1?lT.ely lIncomfortable Iii ellowing the pu:;;ition to contiiii-le 

lnde"!i"ltety. !n essence, we will either he.\.'€ to have a pass and t(me!ine fer e relocation 01 the payment 

rne"sge'3 or will need to tum the filtering on. 

I thought it Important to canvas this 1.9300 wlttl you first, but reoognise. that you will probably Wl'll'lt to 

nominate one of your team to take matters fOrward. Similarly, we will proviOe as muctl assistance as we 

;;an here iil aHQ CMP, having deve-foped some understiiiidllig &r..d ~row'ledge of 1tie lS5t;eS posed by 

OFAC, 811j posSible solutions ana apprcact'las to rnsolva t ... ,ose eMnEH''\~s. 

Regards 

Davia eagJey 

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o 

MHo/UTE OF44MREGIONAL ,(UDITCOMMlTFEE JI..!LY 'lJrfJ 1007 

HSBC LATIN AMERICA & THE CARIBBEAN. 

REGIONAL AUDIT COMMITIEE MEETING MINUTES 

11'" J UL Y 2007 

The Audit Commiltee meeting was held in Mexico City on 27111• July 2007 in the board room of 

Grupo Finsnciero HSSC. OD the thirty second floor of the building located at Paseo de Ia Reforrna 

No. 347 and by video conference linked wjth London, Sao Paulo and Curitiba. 

Present: Brian Robertson (BR) (as Chairman) 

David Bagley (DB) 

Matthew King (MK) 

Paul Thurston (P1) 

EmHson Alonso (EA) 

Graham Thomson (GT) 

Mark Gunton (MG) (part of the meeting only) 

Ramon Garcia (RG) (part of the meeting only) 

J.e Park OP) 

Osvaldo Grossi (00) 

Victor Jimenez (VI) 

Rae Sc.nlon (RS) - KPMG 

Secretary: Octavia Contreras (OC) 

b. MINUTES OF THE PREVIOUS MEETING 

The minutes of the previous meeting beld on 27th. April 2007 were tabled for approval. 

There being no comments or objections, the minutcs were approved by unanimous vote oflhe 

Committee. 

GT presented his report, whi.:;h was based on the cousolidation of reports for the 2Q07 submitted to 

the Argentina, Brazil, Mexico and Panama Audit Committees, He commented as foHows: 

The audit assessments of control risks completed during thc quancr recorded 40 satisfactory control 

risks from 55 reports issued, representing a reduction to 73% of audits completed compared to 81% 

for the previous quancr. 

GT mentioned the Outstanding bigh risk rc.:;ommcndations show an increasing position for the 

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o 

o 

MINUTE OF LAM REGIONAL AUDIT COMMrrrEE JULY 1~ 2007 

quarter. This increase is due to the inclusion of high risk open recommendation from ITinstal1arioo 

audits in Banistmo. 

GT explained that Regional CEOs now take disciplinary action should a manager record 2 

consecutive Below Standard control risk assessments or record significant repeat recommendations 

OT commented on the key risks faced by regionaJ and country management, the more important 

being as follows: 

customer records met with regulatory requirements. GT highlighted the high level of exceptions and 

variance between the paper and electronic records that existed in HBMX as evidenced by OAQ audit 

findings. This would require a large rectification effon to be completed iflhe Bank was to meet the 

regulatory deadline for compliance of MA YOS. GT also stated that the branch staff were not 

sufficiently knowledgeable about classification and identification of see (Special Customers 

categories) and further the failures by HBMX Anti-Money Laundry Committee to follow up 

instructions about customcr accounts that should be cancelled. PT meotiODed that ao escalation 

process to senior management is in process of being introduced to resolve these issues. 

Action Point: GT was asked to update tbe committee at tbe next meering on progress made in the 

restructuring of the AML committee and progress status on achieving with the Mexico ac<:ount 

documentation requirements. 

GT provided a verbal update that there were inadequate management and system controls over the 

monitoring and reactivation in HBMI ofundaimed balance accounts fails as at 31M AR07 HBMX 

reponed 61,096 unclaimed balances amounting to USD 116.5m. 

GT rabled the minutes of Group Audit Committees for Argentina, Brazil, Mexico and Panama. 

The Chairman thanked OT for bis report. 

:!. INTERVIEW WITH THE REGIONAL CHIEF RISK OFFICER 

MG presented his report. 

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o 

o 

MlNWE OF LAM BEGIONAL AUDaCQMMJ7IEEJULY"~ Jf)Jll 

MG updated the Committee on the status of LAM Risk Governance including the Risk ManagemeDt 

Committee, the Risk Limits and Exposure Reporting ( Market and Operational Risk). and Policies. 

He reported the problems faced by the loss of experienced personnel and difficulties in finding 

suitable replacements. He stated the LAM Risk and Watch List Bnd Top of Mind issues were in 

Mexieo- credit cards, SME I SE. in Panama - CMB Real estate lending. Colombia - Personal 

Lending (credito 81 instanle). 

MG presented statistics as at APR07 for the Latin America Portfolio. 

The Chairman thanked MG for hls attendance. who then left the meeting. 

~ INTERVIEW WITH THE HEADS OF COMPLIANCE 

Mexico Central America and Peru 

RG was invitcd tojoiD the meeting and PfC$Cllt his report. 

RG commented that Head ofGJ'Oup Compliance DB visited Me:x.ico and Panama from 11 to 14 

JUN07 Actions points were listed for coosideratioo and implementation in due course. 

He updated the Committee on i} Inspection and ReguJatOJy visits and ii) Fines; 

RG explained that due to problems with ASSIST (the AML system in use in Banistmo countries) 

there has been a delay witb the issuance of systematic SAR in some jurisdictions. Experian, Ibe 

software provider is assisting with a solution, but in the interim manu.a) monitoring processes have 

been not detected unusual operations that merited SAR submissions. 

In response to a committee query, RG advised that the business approach to accounts maintained by 

Cuban nationals in LAM was to requcst thc accounts to be denominated in a CUlTCDcy othcr than 

USD, and where dual nationality existed (e.g. Panama) the customer should use the alternate 

nationality. 

In conncction with thc point raised by the Head of Audit regarding compliance with the new Mexican 

account documentation requirements, RG expJained the mcasures being taken by HBMX including 

the centralised management and control of imaged documents. HBMX COO was coordinating the 

project which was commencing with 21 pilot program being carried out in 94 HBMX branches in the 

Metropolitan area. CNBV bas granted a l~year extension to MAYOS for HBMX to regularise 

customer identification files for account opened or coo.ttacts signed before MA Y04. 

Weaknesses were found in files integration in the Ceotral America region, Panama, COSta Rica. 

Nicaragua and Honduras and mentioned that remediation plans have been implemented . 

.b... South America 

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() 

o 

MINUTE OF l..tW REGIONAL AUDU CQMMllTEEJULY .ll!' ...lJJ!ll 

Then lP presented his report and commented on tbe following: 

~ a) the effon to solve documentation problems with OBM customers and PFS payiolls 

accounts continues; b) Some errors detected in the AML database to the regulator will be fixed by 

July 07. 

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o 

() 

Brian Robertson 

Chairman 

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eNB'! 

Dayid 1"{ J BAGLEY !(l~ Pi-II!A. 'rJ.'lURST.QN 

'Sent by: Maui~ 0 ROACH 

RI{;Mn.I E l' EI'"N,,,,,--IT. COOs: ~ EENTU::Y, R<.mon Cc o.4RClA. Maj!honr,oJ 'NKfoN"G, W<!:fTlln ~ j,EA ... !NG • ..'aM R 

~ENtlAU. JOOIl F' ROJr. Gral'l"m T!-IOMSON 

J l"mvo1I. ,III pro'1liSed folklWP.d 'Jp wi!1I FE"<A wJ:;= r ... ~'e ",Iwh"k/ -it Cg!l~lin" ",j1/1 ~6V. ! b'lUIrVIII 1l'!!1 

\II~:;;:ln:htl¢!)"~<I' 

CN8V s!e3lt"fjh.,. ~1!'o\IlI.!lIM bJi fduartlo C-,o-m-iJ:zbt.tFSA --.. .... limo Y30!l. ... <I'l1'o.precif ... J'If \ ... !'ie Ll'1';!Jlf1m .. nd 

fhg ",u.,ne.l (If lhot t;;:MI es !\tported to mOl "QWS~ hI' "" 1allow:s::-

TIly v\1~/oJI1 of .,1016"'11 giWln by CN"eV QCcrl,'oi(ort ~I'! t'l~ n>{;r .. :1Il I h~ v:i:>\.i(!olli:i jl) FSA, 

.. I SlTipuctCNBV SoI)l.l!t1t tQ Jysrny Itlclr actbrr" 10111.<1<'$ 0' '!!dS"~9 t;:.,..--m:oms:~h">l n",~\ir;;xl try life aciQitlDn!'JllInd n_ u.mcemlli' ill relarlol"llo AML, :lCWllnl op.eIJiflQ' and r;t,; r6f...u.:d ~rtlCedlJ/'Qs, 

CNilV"~&d'bJCC'flnlmu.;n\Yll .. tp~II1'l.lIC!iQ'lontneil'P"Il'1'werel!Wli::l;lnC!IJl'Isra~<;oo 

byF!U.llndl,.,,,ltlo~~~n~~=:nli~;;st"r~ __ raconC'ltrnQdbt,i':al$IQlOOf9fJt$ 

CNE!VlNiOr. ~l\<;P.:tned. 

• CN8V o;.rolll't:tmd 1t1\it ~ W8Il!- ~!lsfjed.....,111 ~">8 ll:aclIUI'1 and SleJJs WI! r-.", ~~!'l .. IthOl!gh .... i!! 

~"r.Itc;fo !.""pI~mefj"'Yu,,~, 

• 

Wooly 

!1>e:~ ':no:: a <='..oo..Jl ~e,!jliQfl1h8.l:Pt""io;jed we 'll1p~ar,ted ;lIp~ropI1Gt"ly, no fuo1hsr ,)r--1IOn WilS 

• 1 

vicwofl!'U!I 

W<:H.l!d $lJ!;I[l"lI"$i!Ji.ill R .. mo!'T IInd.!ln o~pOt1'll .. i:!y II;>."~ c~J..: !}\:;,l ~c l:!lvlnl; ili:''':Il,.:fJ!; ..... lb'l CNBv~1I Cilli. i /'!all", mane!t ctellr to- FSAiht9! \"M as. QMO CMP .... 111 CIJl'~t"Iue~'<rort do$etv ""';!h yoll11l1i8MX iJ!ldtl:rat!n:a-,Q is. ."Ii,litmir(tV(jjIDgirlmoni,oriI19 and U1IClCinil .. !~fjtI.·~I. 

,,"Ial,,!;! 

FOf Ih8 tIm~ beI~9, I (hil'\( ~his co::mdl;des \he a/;;.1Quue trelWeen f'SA ;:pnd CNBV but! w:jt "'a!:~ tlt... ~ t.ll''''' <Ji '"f wuci<'<e muatings WlI!J PSA. 1 paiadlc.M1y updtlfQ l/lmn. 

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From: Tamara KHAN Sent: FIt Jun 18 18:08;192000 To: susan A 'hRIGHT 

8ubjec:C Re: Idamo: Signlflcam Exceptlon 2000-04 

bnpott .. ~! Normal 

Attach...,..u: Imamt!,-O.gll; ma.ae_1,gH' 

SU!I:ih1 

I a;re9. 

I do no-t belie\oll!t~ po$ltiOn Is Cle~n$llJle 11 queflCCl, and there b there-Ibn:- n rcal risk of reput8tbfle! 

~8. 

~ 

t would haw 1hought the.e Is BI1 altem8ttve way of handling th13 busine" which ~es oat. cause 

be ilCcusad of sharp practice, l~nagem&lnt i5 oat pl'Upsred to dtop Ute ptactioo. )'0'" wiD 

need ~ 9d...t!ae ~res9mat.1ve9 on l'ltl ~ so they oan relw It at e Soan:! m9!!1dl"Q. INe do not, of 

cour.rn, control~snd we hew to be send!lva to thi& rn hcw we pursue the point. 

MQtr1'lewJ WKing 

SmiItA WRlGHT@HSBC 

-:~~::J &~ A W'R!GHT~HBBC 

l~H:J3 

To: MI!IftheW IONG@H1BM 

Silktly FrivAte and Confidenti,td 

M.:lttbe-,,'. 

Some weeb flgo Boo Cooper ~dvised me t1t~t wheo pn:x:e$$ing wire trnnrlersllll.standard 

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procedure has heen to rcpJsce automaticaUy the name ofdJe re;:nitter with mat of_We 

advised tltcm !h9.t this ~ contnuy to SWIFT guidelines {drewn up to:~ fA Tf c;;onccrns re 

money IBlDldering vi. win: transfers) which require that the full details (names !lDd addresses) of 

remitters and beneficiarics arc included. We have DOW been advised that they have acccp1ed our 

recommendation and win cease Ibis pnedcc as soon as certain symms cblnges havt: heen made.. 

~cr this .is subject to one a.c:ri011.t exception ~ for USS payments that are OF AC s. cnsitive 

~i1t continue to arnmge wire tnmsfen on a bllI1k to bank basis so that the names crf me 

rCmltter and beneficiary .are omitted, advising the beneficiary bank $eparatety of the beneficiary 

detail.!L 

FrOfil. a Group perspective I consider the continuation of ibis practice to be unacceptable and ti a 

d=libere~ nnd calculated method to fl void the US OF AC snnctions hal;: the potenb.Ol.! to mise 

!criO'.!! reguIatOl')l conc:crns Lnd crnba'T'2S.!i! fhc Group. 

I understand that Ron Shaw is aware of the above proposals and shruM be COI1tacted before this 

iuue 15 escalated furthel". 

Could we plCll!je discU$30. 

Reprds Susau 

----FOtWUdId bySIJOIn A >Mi:ICHTJHG;HQlHSBC C~ 141Oif2ilOO 14;01------

Memo 

09 Jun 2000 17:02 

To" Susan A WRIGHT 

TQ: SU!I8Il A YoRIGI"rrIHGHOt'HSBCOHSBC 

Fmm: Bob J COOP'ERlHGHQIHSSC 7VO 50082; 44 2Q 1260 0082 

subpct: Slgl:l~ Ex~ 2Q(l(){Jo4 

further to my initial report.lilllulVe DOW c:onfirmed the following:: 

By (be end of June. me practice of automatically replacing a remitter's name wilh that otfIIII willuase. 

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HO'\'\"CVCT. for payment! l"-e:! arc identified as being OF AC scn!ievc tl,cy win follow a different 

proced .... 

In thl3C cirwmsmnces. for USS payments., ~ will arrllhge cover for the payment using 

MT202lZo3 remittances. These are bank to ~8)'ments and no underlying remitl~ j 

beneficiary details an: f"I!'Juircd. They simply facili.w:c the mOVC1Ilent of funds to I from nOitro I 

vostro accounts between banks. 

_will then :Iep8.tllteiy ~ead ltD MT 100 mesJagt: (not payment) to Ihc underlying benclidary 

bank. Within thi.5- Ine;i5&&C. fuU dem.ils of the remitte:r and benefid.iilj' wm be quoted. III this; way 

a payment, in USS Cat; bcmadc for a., individual or company on the OFAC list. ,,-ithout the 

1l!:tD~ be!ng·derected' by the OFAC filter! l!:!at all US bWJIi would apply. 

John nench estimates that anytbiD8 between 20-30% of _, busineu would fall into tbU 

categol)'. We need to rettlember mat one oflB's sharebolders is also an OFAC Hsted bank! 

I bave spoken to Jim Bad seplD1ltety asked. _ London brancb foc comml:3nt ... advise 

that they do not take any ac.tion regarding OFAC listings. 

The ~ i,sue is a difficult ODe and 1 C8DDOt see My C:1lSf altemanve to Wilt proposed by John 

Tre~ 

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From! Rod MOXLEY 

s.nt; Tnu NOv 27 17;27:122003 

!e: StlS9!1 A WRIGHT 

Ce.o John E ROOT; John ALLISON: John R VVllJ(INSON; Nigm J WEiR; G8fY B09N; MalColm G 

EASTVYOOO; Jeremy R WALKER; Tony P COU.INS 

SUbject: Oml't itBnlan - USD Payment Procedures 

rrnport.;m:~: Ncrrr.al 

Au..t;:hm.nts:: imagfLO.git, Imagll_1.git: 'NOlF IRANIAN USC PROCEDUR.e.doI;:; 

Susan, 

This is draft copy of proceoont regarding Imnian U-tum payma.1a, 

You w!!ltte aware fram sma!!!; esfiet' today. that I :a",~aHing clarifieatlon from Gary 800n 011 8 irna!1 

numl;lII"r ofIss:ues which may mean that minor e.mendmeJlt$. wit reQI.Jh'8 10 be made. 

I assume. that this document will rec8fw tile apprt:lval af Exlema! Counset In due C01"lf'l8, along with our 

prevDus note regarding Puyrnent messagesiinstruilOiiOml fe<:iitive<l. Fur yOur Iofofi'i"lrion, RMS '111111 arr=,".ga 

to communicate 10 EPS LI"hlgslOn tiff, procedural c;hanQ85 ..... hld1 1'nS"; ~ on tl'-.e!r cperetkY.!. 

If }'OU t-.aw any qlJMl.es. pease con!:9ct moe. 

ROO 

-FolWilrdedtt,o Rod MOXlEYJHBElIJHSBCon27 ~2:00317:13-

....., 

~::!==:~~;;-:·:::,~tB 

From! Tony P COl.L1N81HUEUJHSSC 

To: Rod f.lOXL.EVIHBEU,HSBC~BC 

J&!1M1l'! R WAU(ERlHBEUn-\5BCUiSBC 

Janet18 )(INGIHBEIJ..-tSBCGf"lSBC 

T_i.100 36503 

44 20 7280 85C3 

Mau s\Z&:5£1;!39 

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bee: 

Rod, 

As !'eQ'Je!';!&:!, ~ lind attRched '!'Ie dr~ft Iranlan • USO Payment Procedures ~ disC\J5sed aartler 

leday. 

Tony 

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PROJECJ WOLF 

PROCEDURE FUR HANDLING 

fRA..."t,lIANUSD PAn-tENTS 

INTRODUcnON 

USD payments effected by hanim BIUlkJ arc covered by Lcgislatioa provided by tbe Unit~ 

Star;c$ 'Ittiasury DcpartmCllt. Officc of FOIciga Asset! Ctm.trol (OF AC). Tbr:sc US Econorme 

Sanctions deal wilh a wide variety of subjccl:!I ,Sucn 8S lranillll Tnmsaction Regulations, 

ImportlExport. Travci and Flights. 

It is c::.'Oc:r.ti~ .tb:t our firumciel dcaJiog! wid:! Il1Ill donorcootravcne IV "gidc !!Itcp" currcut US 

Legislation. TheroCorc. evcry cffon [bust be made to CIl'SUR that paymr::nts effected by HSHC 

are paid in accordance with US Sanchons. 

AREAS OF RESPONSlB(LlTl:' 

It is the duly urihe: s..'1ldiQjparty, be it anothcr bank or a cwtomeroll1SBC to be aware of 

any n:nrictic..,s., limit:::io::'o$. 1:N.~ or SSl'1!!r!C.'l!l; which may dfect their paymalt. HSBC 

tb~fC!~,.ean take no te5pcns:ibili~ for any lOS!., resulting from the in~cDti(JD of 

government bodies or-Ceob1l1 Bankll applying local contrOls. 

With this in rniod. every effort must still be made to ensu.n: tIl1l1 payments effected through 

HSBC do not contravene US Legislation in order to protect the Banks Reputation and mai of 

our cmlc:Jlru:r. 

U~TURN PAYMENTS 

Current OFA C Sanctions preclude any paymC1'l.t sent to or nom an lranian account entering 

or cJ(itiDg tbe. US if said fund'J. af!: fO credit or debit an account with a us Insdtudon. 

The relevAnt wording pravidcd by !be OF AC Sanc:tiOll on Inn j!f. M fuU.owiI; 

"U.S depository institutions may harldle: "U-T>.!rn." millSl!!:tiOIlS (oove('ptlYlNfllS inyolving 

11""-0 that L~ by ord¢t' of a third COl.Jl1try bank for fl8.ymcnt to another tbird country batik) provided they do not cfin:cdy credit or debit an Imnian 8~ount." 

AlI.l:Xample would be Bank Melli Tehran sending an MTt03 requesting \Ve effects USD 

paymcot via the: US to Ovm.cas-C'nlncsc BaD1ing CDIpOnrtlCDI Singapore. This payment 

does not debit or final1y credit an Ilccount in die US, 5.nd is tberof(tt deem".cd II leg:r.l and 

-wropriatc P'*Yr..lent. 

Further ~aroples .an 8vaib.bl~ lU the end of this procedwe. 

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RECEIPT ONTO WOLF OF AN IRANIAN USD PAYMENT 

On receipt oE either an incomias or OUtQOiDg Ir.mian usn paymC1Jt tQ Ib'l:' Wolf Q\leue. fbe 

foilowing :itcps should be undc:riaktA. 

1, E~u.re that the imtructioa. received r:;..omplic$ wi Ih I.':lI1YCnt US SanctlCIIU concerning 

"U-Tum" payments to and from Tran, 

2, Cheek that there is no reqw:sI in ftdd. 72 "8 ant to Bank Oculi!!" instructing H$BC to 

amcad or delete any p!!.yracnt information. On ~pt of such aD cKample. the 

payment must be declined and d!.~ custllIJ1t:t lIIdvised t1ut: 

"We ore unable to act ~ eoodJtiooaJ payment imlrrucliOO5. wh;c:b rr:quirc 

HSFC 10 IImefld or delete payment details," 

Under ItO circUtn$\mlCcs. should ANY field within a payment order be amended to 

remove the name: of a Sanctioned country or town. 

3. Confirm and investigate any lis.too. po1cmiiil. bit usin.g Wodd-Chcck.. 

4. R!i::!=.se the payment ifit mens. the IlMV'; menll()ned eriteria. 

EXAMPLRl 

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Bank Melli Tehran send aa MT103 n::qu,eerins USG to be x:nt coB ~oont with 

O\lCNCiS CbiDC5C Banking Corp, S~ via their account · ..... i= JP J..1.oq;;:n Cb~(: NY. 

MPS generafes the foUowWg MTl 03 meu:age to HBUS (no COVei' MT202 beawc inCQnlmg ins.uuctioo. bad a SWJFT iru;tr"uclion ill field 56). 

EXAMPLE' 

Bank Mt;Ui Tcbnm send an MTJ03 n::t[ucsling SBSO to be sellt tQ~~ account with. 

Redacted Material 

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Ovcrscu CbillcsC BlIIlking Corp. Sinagpocc. 

MPS lCllcratcs the fOllowing MTI03 message directly 10 me hml:ficWy bank. (assuming we 

bave ole IIlIthentical:ion) advising them that fundi an: a.vailable with their cormlpondent (JP 

Morgan Chide NY). 

MT202 COVER lNSTRUCTION 

"'Plcsse Dote MPS doc:sn'l include me ordering bank: on the outgoing message. 

Redacted Material 

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EXAMPLE:; 

Balli Melli Tebrsm lnr;ttvcts US to pay 5500,000 to _ via lhdr New 

YorkOfftce 

MPS gc:u.cratc5 the foUowin,g 1lJCS5I11'C to HBUS. 

Redacted Material 

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Frnm: SUSAN A WAIGHTIHGHQ'HSBC SGI1t 7125/2007 2:S3;O:J; AM 

T~: ANf'JE UDDYn-4BlJSIH58C@HSBC 

cc: JOHN ALUSONIHGHCI'HSBC4PHSBC 

subject: Re: Fw: ConverslCln 01' OlerQ to Sililnal Paymenl MethQd 

Arma. 

No. it didn't get to me (wtong email address). 

There ha-..e bMrJ a iimited nunbar of d/S.~'$ grar.:ed ra HSBO'a C'lNn 

eustomars ~ John Is the kseper of 'the ~qtions a~ eo wtI pnMdo you 

with mont detail. (John please ~ me In). 

Regama. Susan 

.... nne Udd)llHBUSMSBC 

HBUS 

25I01J2O(IT 02.:59 

MaDSIu: 5251 

To 

SUsan A WRiGHT/HGHOIHSSC@HSaC 

'" 

""bI<>« Fw:: Converslon of Clients to Serial Payment Method Emily 

HSBC HoId~ piG ~ HGHQ 

Susan. not sura If this 901 to you or not. 

- Fo.-:,.'Ard8'd by "'-.n~ Uddy/H9USlHSSC elI'I 07,12412001 ro:5B PM .-

Anne UddyIHBU8.lHSSC 

D7111l12OO7 04:57 PM 

T. 

S""",Wrighl 

co 

Subject 

ConV8fll1on of Cllenta to Sarlal Paymant Matlod 

SUsan, f was toid UXJaJ' that Da~"od Bagley 'G$UIiid .;, dlspa~tfcn· regardfng the 

requirement 12"1.:1: W9 !ndlJOe oor cI!snt& 1Q I1'l(M!I from cover paymom to Ih8 tUlly 

dlsdO$8d s8l1al me'lhod. I know that therv wu wmB OEtflOraI (lscusslon 

regarding !he filet that we W9rG having a. difficult time getting our Group 

oMce·, to switch (mlillnly tile to cy&tBrm ~88) m this method that il SHi'Md 

as though we needed to pro...lC1a rnor& Iltl"'oG tor our cncmb;.!o oc!wWl as well 

8l.'1: 1 dQ not receR dud a dlBpensatJoo was h~llull!ld In Ihis regar.d. Do you haw 

Ihe bar:kground on this? Thanks. 

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HSBC oce 0384172 

HSBC acc 8875256 
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F""", 101m F ROOT Selllt: Fri ~ 12 H:14:17 200S 

To: Adrian CRISTIANI 

Cc: David W 1 BAGLEY, Warren G L£AMING; Susan A WRlGiIT 

SilbjE:ct:: Fw: Ca.y;r..an AcCOUDts 

Im'PorUl!~= Nrum.!..I 

AttathHMntJ: image O.git; Doc Linkhtm 

Adrian. 

Page I of2 

At Warren Learnlng'& request. bGlow ptease find a recent breakdown of the USC Cayman 3ocot1nts at HBMX (I.e. 

held by a branGh of HBMX with a "Categot)' B" OfT8hore Cayman license but no physical presence or cilent 

documenlatlon in Cayman). 

Too HBM)( ~Restotation" project cnail'OO by John Rendall, H8MX COO, Iii endeBvourtng to regulanS6 these 

accounts 0., a iiak-baals. Account opooing documentation !s generally poor or non-exisrent 200 l'lere Is a lot of 

work to de. Mcne""j'~!3Undertng risk Is ca'lSequentJy high. 

Regards. 

John Rom 

- For.vardoo by John F ROOT/GMOIHSBC on 12/0012008 1.!5:O5-

JI....."O" TD John F ROOTIGNIOtHSBC@HSBC 

Maria SALA2ARJHBMXIHSBC@HSBC04 

GARCIAJHBIIIlUI4S8C@HSBC04 

Sap 12 2008 1.5:04 MilD SIz$: 

37281 

JOhn, 

CO 

Subject Ra: Oiyman Accounts 

E.""'Y 

Piea158 find attached information requested, Regards, Ramon 

CAYMAN ACCOUNTS 

I~ 

Ct.l.$tQmers were classified in emergency lights considering thelr transactional behavfour as. follows: 

RED sse status, black fists and customers. with one or mora raports to the authority (SARs) were 

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Page 2 of2 

considered. 

YELLOW Customers aferted by CAr..4P system without SARs 

WHITE. CUstomers wIth no colncldenoe$ In the two previous ranges. 

John F ROOTfGMOIHSBC@HSBC 

John F To 

ROOTIOMOIHSBCGHSBC 

1110912006 06:.51 a.m. cc 

Subject cayman Accounts 

Raffion. 

Could ~'O'U pleaso sand me figures for the: Cayman Accounts? How" many? To!a!? SAR3 flled? CO? Etc. Etc. 

Regards, 

John 

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FrOID: Ken c: MP.THESON 

.et)-c.: 19{06/2010 Hl:46 GbT 

'J'~: l;iavici W ;; SAGLEt 

;E;w.jecJl;:: .F-,.,; RMM a~tion point 

David 

FyLI shOuld he~i!f1. irt!tlBldrult on N!onaBywrueft we can r6Viaw. Do YOll want me to worIC wlHl &.Is-an7 

Ken 

HSBC Holdings pic 

Registefed Office: 5 canada Squate, LondOn 1':14 5HQ, lJnited Kingdom 

RBQist9rocl in E~ number 617987 

Ken HARVEY 

_ .. OrIgina.l M8SSage1'r'I:'m: Ken HAQWY 

Ben"'-! 1B/O.(;/2010 12:4.( COT 

~l Ken C KATHE50NI John Ii' cur/HBMXJRsac6H5ac04 

sw:.j_Clt; h: RHH action point. 

Kari 

Th. 

Michael C ANDERSON 

-O' ... ,g:L .. d Mess'iijSnom: Ioli .. hael C A.~DERSON 

!len!:: O§/1!!/2010 05:26 FM G[lT 

~! Ken KARWY 

CC~ Andrew ZISSELL 

8"gbjcc"': ~ ac;t1on point 

K.., 

The minutes at the last R.MM IncllJded the bllowina a&oon point 

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53.2 Ccmntianpe Report 

Doogl:3 F!int presented die report which drew paJticulllr attention to the: following: 

iii' 2 I Mexico : A~ previously reported,. during the implementation in HSBC Bank Panama oflhc Group's ann-money laundering transactiOtl monltoriq system (CAMP), it was di$OOVcred 

that ~erWtl transaction ~ were not being cap~ and merefore were Dot being monitored. 

PfOJIlpling a review oftbe CAMP imJlallllltion in Mexico which was licked to the same banking 

$Ystem. After invcs;tigatioo.,lt wp discovered that HSBC Bank Mexico's CAMP system bad nat 

bcc:n fully updated since installation in 200~5. This failure to monitor certain transactions io 

Mexico may It:ad toregu18,tory actioo. ACTION - M C Andenou to reque!ltKcn Harvey to 

provide a backaround paper on. the mattl:r. 

1 .... 'Ould !)!gratefu! If you wo .... 10;1 plea" arr!l1g!! for prolliSiO., of the reQUmlted backgtQWld PiIIPOf. A3 the 

July RMM 1$ aArly, Ol.r timing is 9uch that papel'l3 are needad by 25 June. 

'am happy to answer ~ queslions if'tou llawany. 

Regal119 

Mite 

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From: Susan A 'hRIGHT 

Sent: lhtJ Dee 11 09:13:54 2003 

To: Oavld W J BAGlEY 

Subject Ru: IRAN EXAM~ES 

Importance: Normsl 

Attac:hmlfTtS: !mage_O.gi!'; 1maQ8_1,gif'; Doc Unk.hlm 

- Forwardeid by SU5aI1 A WRIOHTIHGHQ/HSBC 01'\ 11 o.c 2003 OQ;13-

Fram: Nigel J ~RIRIII9 Ml!MfHBM!IHSBC 

--------------

Susan A WRIGHT et 81 

To: Susan A. WRIGHTlHGHatHSBC@HSBC 

e.G: Geoff ARMSTRONGlHBEUJI1SB¢CH$eC 

Qultn"" R AYLWAROIMOBKlHSBCOHSBC 

BMn W RlCHAR,OS/MDBKIHSBC@HSSC 

Rod MOXl.EYIHBEUlHSBCOHS8C 

Gary BOONtMGR PCM MEMlHBMElHSSCOHSBC 

JOhn F ROOTIHGHOIHSSCOHSac 

JohnAWSONIHG~BCCHSSC 

M8Ieotn G EASTW:JOOIMOBKIHSBCCHSBC 

John R W'lLKlNSONIHBEUlHSBCCHSBC 

Jaramy R WALKERlHBEUAiSSC@HSac 

Tony P COLUNSlHBEUIHSBCCHSBC 

bee, 

SUbJect Reo: IRAN EXAMPt...ES 

Susan, 

Tid: 971 ... 5077622 

Milil Size: 10438 

AI our meeting 00 3OOCT03 W$ 9Q~ that we sttould obtaIn legal counsel opinion on our prl!ferred 

standard MT103 & CO'\l8f payment msthod bafon mverting to HBUS with our fait accompli, We seem to 

have dEMSled from thIS ptQpOsed plan. 

I believe that the HBUS proposals you BI'1!lI mrerTfng to racoft'lll'Wlnd tt'le serial methOd whidl is not our 

preferred solution. I hope this Is not the case as (seem to rel'T'llHTtler it Involved manual processing and 

potentially additional tJeadcount In HBUS, 

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I am also concerned thBl thedeac!rlne of31112is app~chlng rapldty and we are not in a position to 

advlse our pruposed changes: to our Cilstomsn. I thamlote suggest an e)(ttlnSlon 10 thfs deadlns. 

Kind Regards 

Nigel 

10o.c2Q03 

To' Rod MOXLEYlHBEUJHSBC@HSBC et al 

To' Rod. MOXt.EYlHaeUIHSBCOHsec 

Gary BOONIMGR PCM MEMlHBMElHSBC@HSBC 

Nigel J WElRr'RM IB MEMlHSMElHSBCQHSBC 

JoIv1 F ROOTIHGHOIHSBCCMSBC 

John AWSON/HGHQfHSBC@HSBC 

J.4.tcotm G EAS'T¥«)OOIMD8K1HS8C@HSBC 

JOhn R WlLKJNSOJIUHe:eUJHSSCGHSSC Jeterr";' R WALKERniBEUIHSBCCHSBC 

Tony P COUINs.'HSeUIHSBCQtlsBC 

bee: 

OUr Ret. Your Ret. 

SUb}act Re: IRAN EXAMPlES 

I am writing 1D update you on the current sftUalkm with regln:l to our I)fOposal$ Ie tne ptCICessing of 

lran!an U Tum paymanlS, following discussions with Csrolyn 'Mod, Hilled of CompillilOCll for HBUS. 

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W'til!t we WIll of course stiD need to agree procedures kit Payment!! within HBEU I /law asked C8('OIyn 10 

Iorwerd the HBUS ptOJ)05als for COrlsidel'&6Qn by aD Interested parties and wm CIrcUlate ttlese as soon as 

they Qre received. 

Aegards Susan VVrfght 

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From: JOohn F ROOT 

Sent Tue Aug 1015:40:312004 To: De \lid W oJ BAGLEY; Rlchefd E T BENNETT; Sandy Ftocldnwt; RaI"l"On GARCtA; Matthew J W KING; 

Da'l'id LeIghton; Susan A ~IGHT 

SubjKt: HBMX JULD4 Visb: R:eport 

knportanc:.: Normal Attachments: imuge_O,giJ: H6MX JVL04 VISit Report,doc. 

Attached ple.B&a ftnd my H6MX JUl04 Visit. Report. 

I wQLlId te glQd 10 3r'ISWer any qulIStil:lrls or COMments. which you m.y hliw. 

John Root 

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H8M}{ JUL04 COO CMf YISIT REPORT 

<:'IJM1<I_'\P'Y 

Senior m..a.nagcmcnt hal made signifICant progress in innoduciI'l8 Group Contpliantc 

Policy and StBJIdards in HBMX. The hoad ofdlC Compliance department., Ramon 

G~rcia Gibson, has set the foundattl;Jll for.an eff.:::cti .... c: COTlpJiiUlt:.::: function. 

HBMX ¢(rn~s ~~ much improved fro!!! th~ s[tuati..,., th"t II!xi.~ted 11·1& mouths ago 

HO'\IIt"It't'r. TrC!IIiIolII'y hIIdr-officc operations an: a smm:c of major rcautatm)' conccrn., 

as is accmate and timely reporting ro the rcgubtOtt. 1bc introduction of the Summit 

programme fOJ" derivatives is. of vita1 importance, as h. the hirins of a Summit expert.. 

'IbI=: reviewer wishcs to thank managcmc::nt for in. C('.Iopel'Btion. in the ptcparnrion (If 

this report. 

~, .B..~llb~.IQB.~ 

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B. Q!ID( 

Pe:tncio BuswYicntc. OTIC ofthc five .commizioners oft!tc CNBV (Comision N~i~iIll 

B=Cllr.,!.), de Valon:!I,), stat". "10 the bll"iw.ells ~a [ofHBMX], the ~ollJCt5 have 

arri~ed. In the areII of eontroh. die resources have noc. arrived," 

TbeCNBV gaYe us a "facts'hcct" ill English willi (he fullowins"m.ia t:Q~cms'" 

liiMd below in p~l'Ient lIan: 

Anti .. naoney laupderlng prOl:es5et ~ AlthO\1sh impruvcmcnlS have been $Cen, 

some CODeems n:main regarding dcftcicM:ics m pl'oc.C!S (no syncm for unusual 

operations detection and a pooridcntification of public figarcs and hiMh r1$k 

CUltomen) Bnd oyer COIlrroJ cfFanilflla's bflUJ.::h opcnui0ll6. 

S),lteiilS M:gr-~dGili &. Aaditability Isicl- S:cwity cc:ltrols and !!.udit~bility 

ccn.~! d1.le to migr1!.tion of credit CIln:l operatioo!! mid derivatives processing 

srstem.!: (WHlRL &. Summit). 

• Comperoller FUACtioai Need to be Fully l .... plelftCllted - Although c()Iltrol i. 

oerdscd IIlong mOStproccSSC3 {Ide], fuJI implcUlt11tBtion ofcontroh~ arc [sic] 

-upecled. 

CMltroi i. Fiduciary Opentionl- Coobd of legal r\~l;: uf tr~..!O nceds to be 

verified. 

• Fr.2.gd PnvenrilJn PoHdrs - HigIJ 1eve1 of cu:nomer complBiD" point to possibJe we~ in fraud prevention policies implememation. 

• Te.r.bI'JBIC1}' In Treasury &. Rldt Mont.arlDl - Manual interfaces in tmlSuty 

opmItioos atd risk moo.ittJriDI blVe led Hsac '0 ~ceed iDtcmal aDd regulator)' 

limilJ,lilce PVBP [-f'rescDt Value Basis PolnG" is a 1DCU~ ofinlclt:!it rate 

$CMilivityJ_nd £he centra' bank liquKtity coefficient l"CGuirernC'l'tt in USD. 

DRP" "till ln irnpklllentarion . Di$~!C1' Recovery Plan~ M'C still in 

imp-icrnrot8tioo pfQC(.$$; busim:ss connnuilY bas to bQ sC~fcd. 

Redacted Material 

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Witb reGard 10 du: money-lauuclerlng 00Ill;ml3 cited 8oove, setlior m.nagement ac 

HBMX is surprised that cNBV should ha'Vi!' eJ(pttssed eoneem oYer Panama's control 

ofmoncy lilundenng. as. prc;:5C1'mrion had been giv,,"n to all n:gul~tOl1lo whic'h 

included. segment explaining in detail how tbe Pansmanie.u operations were subject 

lO US scrLltiuy (wbicb is ieTlcralfy held xc be tighter thBll Mexico's). 

10 II Ylide-raagiDgdisCIlSsion. CNBV regulalOl'S cOUImenk<i that lUll' ootsourc;:ing must 

be able to bc.audi&cd from MC1I:ko. They do nat want outsOW'Cing tojurisdlcr.lOfls 

with stTOllg bankingsecTeCY. 

OtMr important CNBV cm:nmeJl~ an: rd1.ee:ed in this: report, DOt9hly in Section 501] 

"FidLl"i.~O (Tf1J~}". SeetilXl 8' O!l "Staffing". 9nd Section 11 on "Pa08Qla". 

RttOllUfrmdodon: HBMX CMP,hou.Id,.in consultation with scniOl' managcment, 

develop II ptOgnmme of speeific 1U000mcDda.dons lO ~5!l the concern& io me 

CNBV "FlCt Sbeet". 

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A. SIANDA RQ CONTE.,M~I 

The newu.trtdard IItt(lI.mt conrract i, an t I-page doc:umcllllhit is practically illegible 

becllUSC' !he print is miuuscule, 

~ ~_~~-~-=--~22-"EiE ~""~~~_~ ~=~~~ 

3--=-..::r------- --= ~ ::=-~=~=-~ ~ -=-~ ---=---;:::-=-=-~~---=~ ::: ~3'-: ~~E 

The Trusti departmellt is- stn.tggfing to improve the pcKJr coodirion 01 itl files. 

NotWithstanding. 1l".lDior manag~r'S oprlmlmJ ["'Most of mem. KYC is okay"' and 

~Mnd deficiencies.~ not rchdcd to KYC'1, by foW ihe gT~tcsf pn;;bJcm is missini 

K:YC dQCumentation. 

Of II tout of 15,434 trusts, OIlly 6,868. (44%) have completed dOcW\et!tauon. 2,955 

(20"1.) of trusts have PO dOCU[IIcotatiOD at all, 746 6 Dr 11.11 otissi11& documell1.l!.riou is 

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KVC-reialed, 

RecOl1! KYC ~I.!!rioos an:: more stnn!!;r:nl.. The T~t:J dt:partmcnt is discussing with 

tbe CNBV whethcrfortrUsts pre-datfoll tile new rules a notarised public deed wi!) 

continue to be StlfficiCJ( (tl., II sworn natcmeJ3t by a Ilolary public that be has seen 

Ibe original idClluficarion documents). 

The Trusts ckpa:r1mCDI has budgclcd me; equivalent ofUSD 15 rni1Jion for an outside 

law firm to rnvi~w the files. Around 8,000 fil~s b!\'1: been ne-yiewed (CIo date". 

A target date of:;!Q.OCT05 bat been!c:1 for obtaining aU missing dotmnentatiOll, 

Man.agcmcnt hal agreed that me cffortl to bring me: documentation irtto order will hi: 

priaririse:d 00 the ba3is o(risk (i.c,. recent active: tn..I5ts Will be clC3ncd up bd'OR old 

donnant oncs). 

Patricio Bustamcntc. one: ofthc flvc commissioners of the CNBV. \1l'Jcd HBMX to 

renew its effort! to "f¢lln up (fie filcs. He indicated that CNBV would not welcome 

bland assurances of compliance ,hat wen; not based on fact 

HBMX eMP shouJd continue to monitor periodically progress ill litis department, A 

forthc:oming .udit makQ5 mort: ~ifk Jtt;ommcnduii()fiii. which ate not I'C:JXa.cd. 

here. 

6. FJANZAS fG! IAMNTEES) 

The- "fianzas'" area i3 "trollbled". accordill8 10 a senior maTI"Ser, AI with in;urance. 

die products arc ,old through third-party agents, "All the rcialiOllships were bad and 

all of them W~n!! cut." "The ar'eII is n::buiiwD¥_" 

lt~CtNr.~~."fdetie1f: HBMX CMP to il]"'~.iBate this erc.a IIII.d send ... report to senior 

l'I\Qnagcmcnt and GHQ CMP with specific I"ttlIInmcndation&. 

7, tWMtTT ANtES FROM THE UNITED STATES 

Around USD 16 billion arrive from the Uaik:dSlalei eicb year, mostly tbrougb t!le 

brsr.c.h nCI:\\-'Ork. Money l:llund...'"1ing ri.!lk is mitigAtcd by JCVent! rattor.l: (1) 

rcmilUrtCC9 en:' gcncnl1y small (US200-300)., Ecording to two senior tnaJItlgm;; (2) 

due mliscnc:e 'AltarS to be adequate. 00 the AML procc:durc.s of Us IhiJd-party 

motley sefVi~ b\l$lnc:sst:5; 1IJld(3)CAMP Retail,a IIOftwarc:progmnme tod.etect 

$U$picious mmS8clions, is scheduled to tK: illlltaJlcd in the branch nctwork in NOVU4. 

R~ntJltMd(jtidi1: HBMX eMf> should $iI.;r;plc pcriodh;:c.t!y r.::rn.irtlnCl:5 fu:::Jm the 

Uoited St:l;~ 1O delermine if, in fact, remimllc~'i are geners1ly smaU and in the 

ordinary coune ofbusmeEiS. 

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760611.585

SeDlor CNSV regul&iOfS were quite- i.lpiMl' with t.'e f~er AML dircettr, wbo they 

belie\'c hed "lied" to them .bout dIe adequaty of the bl'l1lk~s. AML .systems. rShe h&d 

si8~ and. r::OI1finncd [sic] Ibat fhc AML proCI:dun::s. wen:: adequate.) TIley indi~I'cd 

clearly that bad this penotJ not been fired, HBMX would have been ''penalised''. 

Unfort1.lW!lleiy. 1he person's d~1y alsD pcriDf'D1ed poorly. accotding 10 1 nW'D~of 

$cnlor HBMX man~n:. lW~. HR ob-jccu:d to the diimiss.at ofthii Pcrso;;, 

a!kg1ng Ihar cnployrnctu law ir. M=xicQ requi~ 9. !c!id "pBJlcr tnljl'" ofproft's~0TI!t1 

iDCOmpetence. I'll tilts penon's \AtS1!. the paper mil was apparently unsatimetory. 

The matter is stiU under investigation, aod die person hlJ:$ been mmsfem:d tD llI\lItber 

,area. but there remain! a cn1.ain amount offiustJl'bon with Lhe diswi$sal Pl'Ott:S!!. 

carlos ~oc-hil]. tile Cu.rrettl AML direcla". appears w be both competellt And diligf:DI:. 

ReCt1""rt~ndadon: HBMX HR e..~or LGA to !umman!!t: to writing m~ pmt.e.::lures 

for firiDS $llIitT {illc,IJdjI3B $~Qr management) with 01' without caUSe. 

9. HEAOCOlfNT 

Approximately 1800 PFS employees have not been properly ACCounted for aoo lire 

pre£wncd "rni5ijllj!". Richr.;1 Halily. In HBMX IT ~uditor. is investigating. He has 

=!most fjl!.lshcdl!is analysis (25() C;"5C5 remain}. lind no CM(:S offurud have been 

found. 

Rf;!ronl",~"d,dio1f: HBMX CMP should file al'l EllCeptlOl1 Report ifany evidence of 

fraud surfaces from the above-referenced illvestiptiDIJ. 

10. us SARBANFs.QX! EX ACT 

According 10 5~0I' managemellt, HBMX is '100king into tbe evalu.ariOll of adequate 

resOl,lR;es. foe Sarbancs-Oxley {me rel:ent U.S. Slatutc wbicb enhances. corpon.tr 

governance tequin:mcnts]," "We an: scapin&: the quantity and qualily oircsourccs 

reqlli~ to fulfil SarbO"ll." 

ReCDlfllnDftl,mP!L' HSMX eMf' sho<..dd report periodically to ~ior JOlU'lisgemmt 

and GHQ CMP art dfons 10 rcc-ruit 51.« to address- S.!lrb.!lne$~(hlcy requirements. 

CNBV regulators e;.;prcuc:d some :slight eooCl:;,'O iblilt ihe Ilew HBMX acquisition of 

die bLi5iii~';; iD Panama Gligh: l¢:;d (0 ~S".:J:tQry :...-rbhrtgc". They do nO( want 

Pen!!T1la ro be used 85 Itn offshore o;:nttr;: for McXitM clients. The example given was 

one wbere credit norms wouJd be relaxed for a Me.xku dient borrowiog through 8 

struCture in Plnftme, wbr=n the: client would cot have qualified far 8 101m directly in 

Me~ico. 

The re5ul.~ ftmiln1ed US to coniclieate P;mlun.:mian operations usicg M~d~.m 

GAAP. 

R6COIIUJN!7ttlrrtio,,: Ramon Garcia GibsOIl, bead of HBMX CMP. should inform in 

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760611.586

writiDS the CEO HByA (wilh copy tothc ACC)of tbe abO\lc~cm.eerm. 

12. LQGGlNG OF REGULATORY VISITS 

GHQ Aumtnotcs.persistCDtproblemsw:i1h HBMX eMF repon:in8 ofregwatory 

inspections, and the ~spDl1Sl:s tIIereto. 

A new System to impfO\'c thc tracking of rcguliltory ... isiUi ~hocld be in place by 

3IAUG04. 

Some coafusioo had ari$e1l over the n.eed to t:r'aDsl.te aU ~t1 for GHQ Audit. It 

bas N!:::11 agreed lbat oil Sul'ml'lB!'y ofkcy issues in ElIe:lish it- sufficient 

IJ. ANNUAL CONFl8MATlQN PROCESS 

~ AnnUAl Cor.firm:r;~C;\ proc~!S (10 GHQ Audit) needs t('l be improved to Crlsure 

that the most up-tO-date status rcpom arc included in the rerum;, 

Tbe plDCeS!o. wbi"b now is enti~ly IMDU.J. should be improve-d wilh fhe introductiOll 

ofa new monitoring sys~ by 31AU(i04. 

14. CONCWSION 

The moOSI impol1011nl is.:sue is the imme(lilllb: improvemeD.t olbilrlCk-office OODtmlS in 

TreaslllY. and most parti~irly die early introductiOl'l of the Summit'Programm1:! to 

monitor derivatives positions, IlDd me cQEI¢(lttlitant binDS of a Summll expen, 

John Rom 

Seoil)t Manager, 

OroupC'ompliw.tc'!: 

lQAUG04 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8875575 
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760611.587

From: Ramon GARCIA 

Sent: Mon Dec i5 19:23:53 200S 

To: Warren GLEAMING; Susan A V'YRIGHT; Jnl'ln F ROOT 

Cc: David W J BAGlEY 

SlIbjec:t Anti Money Laundering: Shock plan - Update 08'215 

knportance: Normal 

BaIi)T,'II plaase find weekly rapart. on the subject. Regards. Ramoti 

Edu::= ~-SBMACHERlHB".xJHSeC 

1511212008 01:15 p.m. 

To R-<»'1'lOn G,."qC!NHS~~.xtHSSCrmHsacc", Lcrel'l%O 

RAMIREZlHSMXlHSBCOMSBC04, Luis. ALVAREZ 

TRILLOIHBMXlHSSC@HSBC04, Gerardo 

VIGUERASfHBMXlHSSC@HSGCC4. IgMCIo 

VERAlHBMXlHSBC@HSBC04, John R 

RENOALLlHBMXtHSBC@HSBC04, lars 

RE10INGfriBMXlriS6C@HSBCG4, Roy 

CAPlEIHBMXlHSBC@HSB0J4. L'!!CI!ll'!r'tjo) 

AAANAfHBMXlHSBC@HS8C04 

Sl.:~e An~ Money i..alJndtmng: Shock plan ~ Update 081215 

Basoo on aut Dec11 r'rIeeting 

DECISIONS 'rO-D1'ITE 

St:i1rt..il''J J""nu~ry 1, HSBC b;rancht:l:lo it! Hexico .... ill be "Dollar F['e.e": 

~1e will 1'10 Ivn9~r buy or .sell dollars i.e c:a:o;.'j-, a~ ~t."'.{ branch 

(customers or non CllstOl1lers). We will~ as an 'llltll!rnativ-a, offar 

traveloerrs cheque.s to cllstomers only~ AlsQ C;:1lstoroer, c:an wlthdraw 

dollars at HlIBC A'!'Ms l.ocated at a.irpot:ts {starting Jan 15) or from any 

ATH in the "'orld with their debit card. 

-We will no lonqer accept dlilpo.s1ts of ca.sh dollars to an)' account at 

anoy pr.!lnch (dcll.a.rs or pesos) 

On January 31, 2009; All a!:count:.s ot the. re.5toration projEtct to be 

p.roperly doc"\,:ul'oe'nted. Otherwise the C10IJl.lr. p~OC~8S of these a.ccounts 

will bsgin 

Before January 1, 2009: Jlt lBast 4 br~neh@s will he elo .. ed as 

disciplinary actiorll5, rn JanuII.ry. =some branches: (lO-20) will hav~ all 

't-he statf -dl.smis:Jed based on suspic1.ou:l!l activity 

All account.:! of Cas!! de cambia or :similar (inclUding employee .... of 

CaS:i1S de Cambiol will be closed, Roy will n:view th~ list. prcvidad. by 

Compliance t.o start t.he clo.5lll:e proc:ess. ·'Remesadori1s;" will be kept 

The metr.ic to be included in the 8se will be: N'llllIDc:r of accounts wit.h 

two 0[' more SAR. The intention is th.~t. When account.s r-eilch 2 SAR ;are 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC DCC 8875786 
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760611.588

clo.s.e imm.ediately_ Compl1ance will track t:tns inf'Ormat1on monthly and 

w11~ provide the informa.tion for the :sse. 

Inte.rnat:.ional clients of HSBC will be given thO'!: sa"'e. t'reabr;ent as 

domC!iltic client:!!, pl:ovided propel: ident.lr1cat:lon 15 po.!;slble 

Metals- tran.:3a{;tl~,5 will fll~o be eliminated 

Starting JRJ\U&ry 2009 the- ",roU.p will .al~o fo<;::us on MX.I:" transactions 

<The following are directives of MeD 

1\1.1 <J.tiil,rt .should. be mAge aware that i£ there are per5i,stl!lnt: breache~ 

of Rye .in a pal:'l:iculllr b,.. ... ",.,h., t:h ... hr~nJ:'"h ... ill b~ olQe~d 8mi all staff 

dismissed regardless of ho ..... much busine".., we will lose on account of il;. 

Ever:r-bedy (that i3 t'equired to) has in their B&lal\ce.j SCQr~ C""rd the 

need 1:.0 ir'lplem<!Jnt CAHP to t.he InolIIximum- includinq the clo.sinq of all 

aceount.s that h ... ~ two or more suspicious transacti.ons h1.qhJ.lghted. 

<Directi \"eS fro!h E:A~ 

Benchmark HBHX again:s!:. HBBR, HBUS, HB.EU and HBAP i.n t:erm.:J of volume of 

BU8pl{;i(!>"U . .s r.ran!lactiOns - Ramon - TBD 

'1"0 DO ITEMS TO IMPLEMENT 'l'RE 'PROGRAM. 

SUndry; 

8 Send Emilson and Luis the benchmark of liBHX against HBBR, HBUS, HB£.(J 

and H&A.P in 'Lerms of volUl!le of St:lSp.1cl0'U5 tra.nsactions - Ramon - 'Ieo 

- V.l.sa Pre-paid Card - !.e~:1.=.rdQ - Ja.nu:lry 1~ 

- ro..l..l.ow-up of closure of" accounts of C<ll..5a5 de calT'lbio (or similar) -

Ram6n - December 31 

- c~mn,ur;icati~m ~trateqy for hi"," risk location~ (e.g. cd, JUare:r;) - Roy 

- Security ho1:.11n~ for employ"es h<lving to iMpl@m@nt t.he program JLlhn 

f"or t!1.c .];;muary 1 de8.dlir.~ 

- Monito.rinq proceB5 for OSD kept. by the branches - r.Ui5 At.lvare% 

- Virsa travel card: l'°ebruary 1.5 - Lorent;o 

- D'l:bl't. card for aCC01.lnte; in USD - J1J.nu.:1ry 15 

Closure or branches! 22 and 24 of december, requires managing 

.safeboxel5 

Tor the January 31 dead:'ine [closux-e of improp.e-r-ly documented accounts) 

- Prep-ose Ion", term solutivll for Ci.IJB - Geral":do - rao 

- Audit of eMS tiles - Ram6n - .Tanutlrv 15 

- Fxe<!l:ze of iI.<;:count .. imFr<:lperly docum~ntc<:l to o;;-omply with commitment 

with authorit.y {Ea.sed on B~) 

ro DO I'l'EMS TO tRACK'I'HE FROGRAM. 

- Weekly tracking report on thO'!: achiev@Xlen'ts ot milestones - Gerardo -

W-!!!-!!!Hy, b~ =-r!d~y 

- 'Weakly t.racking report of USD el'lported - Lui .... Alvarez: - Weekly by 

FridelY 

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760611.589

THIS PAGE IS 

INTENTIONALL Y 

LEFT BLANK 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC acc 8875788 
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760611.590

From: Warren GLEAMING 

S.mt: Tua Dec 1611:39;182008 

To: Calherine B.uSSERY 

SUbject: Fw: AnU Money L:aunder\n{l: Shock pial ~ Update- 081215 

Importance: Normal 

Attaehment9: Doc Unk.ntm 

FYI 

RagatdS. 

Warr'I'Jn Le-arning 

~l1n' HE.,q"I OF COMP'-lA~CE-GMI) CMP ! HS9C HOLDING& P\.C HS9!-f 

& Canada Square. Canary WNr1, London..E14 5HCl!, UI1ted KltI!;ICIom 

PM'1&. O-ZO 7991 6207 

F~xil.2V7~1471Q 

--- Fo:o!Wertled by \r\I2rren G LE-A.M1Nt3/GW~rHg8C an HV1212OO8 11:39--

WalTen 0 LEAMlNG,lGMOIH.SBC Dee 16 2008 

11:31 Phone no. T!XI16207 

To Ramln GARCIAlHBMXlHSBC@HSBC04 

susan A WRIGHTIHGHQ'HSBC 44 () 207 9916207 Malt Size: 13513 SUi:)je Ra: Anti Money LaunO!l:rlng: ShOck plan - Update 061215 

" 

~ntity 

Ramon, 

Thank yOu for your update. i r.;1lO'trf that Susan has commented on the 3M's analysis, My thougtml are; 

! unde~tand ~at you llave 'lpol<en t-:a Ramo'" sbou! my visit report and that !tems will be eeOC-ned. The 

most important ones appear ro me 10 be: 

')Ih."at""of"'.ba_gEmil]iI~~ ,nd b} If strict enforcement of G6P25 resulting in the ctosul'e -Of accounts after- toJl'O SA.~s !s to be enfurced as 

part Of the ShClCk plan. we witl need 10 ensure that SARs are ClOty lodged once lIVe Mve the appropriate 

$.us;piciOn and not just because the dateline has been breached. 

I note that 'there Is to be a fcCliS' on compleUng thE remeQ~tic;m programme by the 31st January, Given 

ttlat the ceyms.'1 sceounts. flnd CMB ~o:.mb: na\'e b~reJy started this seems to be overt)' ambltlo~s. Am 

Redacted Material 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, NA HSBC OCC 8875789 
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760611.591

I correct in assuming that a large number of staff halo/tl been dedicated to this: role. thQ are they s1affed 

from Comprlal1C8 or from the business as your resoUrc86 seem stretched already, 

Happy to di:scu~. 

Ragaids 

We", .. 

Ramon GARCTA 15/12/2008 19·21·53_~BeJQW nlease find weekly re.porton the subject 

Recants Ramon ---- Fonvardcd by Ranxm GARCIA/HBMX/HSBC on 15/l2/2QQ8 01 :33 p 

Ramon GARClAIHBMXlHSBC@HSBC04 OM; To lNamm G LEIVdINGIGMOIHS8C@HSBC.SlJ!!;anA 

1G 200s 19:23 Mail Si3: 8944 'hRIGHTIHGHCt'HS8C@HSBC.John F ROOT/OMOJHSBC@HSBC 

DavId W J BAGLEYIGMOIHSBC@HSBC 

S\I!:l}e Anti lMon&y Laundvrir1g: Shock ptan _ Update 0612115 

" 

Enlity 

Belew please find weekly report on tho :subjf;t(;t. Regards. Ramon 

-- FOIwarded by RimlOn GARC!A/HBMXlHSBCon 1511212CJ08 01:33 p m.-

E!duardD MESSMACHERlHBMXlHse.c To 

15/12J20()8 01:1.8 p.m. 

Based on Olir Cilc11 meallng 

DECISIONS TO-DATE 

,'-= REIOING/HBM SeeM, RoyC,APl£klBMXJHSBC@HSBC04, 

Leonardo ARANMiBMXi1-ISBC@HSBC04 

~bje ArrtjMcn .. yL!iUild&nj\g:S."uck~n -Updat.,,0131Z1S 

" 

Confidential· FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8875790 
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5tartin.q Jl:tnutlry 1, HSBC branch@:.:"'i in Mexioo will be "Dollar Free". 

-iie will nQ 19n'ler b\ly or :sell ciollar:l in ea5n at ANY branch 

(cu:!iItortHi!'r.s -or non cu~tolrlelr:li. We will, I'l~ an 1'llte.t"nativ~~ of!~x 

travelers cheques to customel:;s only. Also cU5tolllers can ..... ithdrl1:l.w 

dolla.r:~ at HSBC ATMs located at airports (starting Jan 15) or from a.ny 

A'I'M in the world w:i,l:.h their debit card. 

-We W'il1 no longer 4o!:~~pt. deposit.Y of ca:il.b dQl1ar:s to any account at 

any b~!I'lnc:h (dollars or peso~) 

on: Janu.!l.ry :n. 2009: All acco'Unts cf the re.::t.cr:l.ticn pr¢jcct toO bc 

properly docurnet'lted. Otherwis. th. c10lOut"ilI proc'ile~ of these accounts 

will begin 

Befr:'lre Jar1U-!lry 1, 2009 ~ At 1'l"1I!,~t. 4 br;;o;nc;he.!ll ~_11 b-e clo::-sed as 

di.5cip1.inary actions.. In January, some branches (10-20) W111 have all 

the .. telff dismi.Slad based on 5USp.lCJ.oU:I 4~tivity 

All Accounts of Cas,." de Cambio or similar (inor::1uding .. lT1plQy ........ 11 of 

Cd3D.S de C.ambio} will be cll:lfled. Roy will roview the 1i.5t provided by 

Complianclll!, to start the closure process. "Remesadoras·· w1.11 :be kept 

t'he metr.lc to be included in the' BSC will bel NumbeJ: of accounts ",J.th 

two or mot'"8 SAR. The intent.lon is that "'ben accoontS' J;"ea.ch 2 SAR a.re 

.cios.e immediately. Compliance will track thi~ l-nfol;'mat.ion monthly and 

wi 11 ["cnvio:l~ th'!' 1nfo.r:Ift;llJtion for the B-SC. 

International eli ... n:t:s of HSBC will b. qiven th ... same t.z:ea;tment as 

domestic clients. provided prop=r ldentltlc/ition is possible 

Hetaals trant>actions will a1lOo be eliminated 

StartL.n9' ,Jat:lu~ry 2009 tbe group will al,so focus Oil v..xp traasa.etions 

<'I'he followinq are directives of MG::> 

1111 8taff should ~ mad", aware th."t if th~re ~re p1!!.t'~i.!it~nt brea!::h'!':s 

af KYC in a pa.r:ticular br ... ru;:h, the b~anch will be closed and all st.af! 

d.i:5lll.i!S.!Iied t'"l!!.qardless of how much bUsino;,$s 10'6 wi1.1 lase on account of it. 

Eve.r:ybody (t.hat is rllquirl'l'd to) has in the.ir Balanced; ScorE> c~rd the 

need to implement CAMP to the maximum- inc1.uding the closing of all 

account,.. t.hat have two ar more 5u.5pic:lou,!; transactions hililhli.qhted. 

<Di recti vel; from eA.> 

Bi!"nchm.ark HBNX 1l9ain~c BBBR, H8\JS. HBRIJ and HBA1? in t.erms of volume of 

5U5picio-us trl!lfls2Ictions - Ramon - TBD 

1'0 DO ITE.'!S TO IMI'LEMEh"T THE PROGRAM. 

Sund.ry: 

- Send Emilson and Luis the benchrn4rk of J{E!)4X aq;;li.n~t HBBR~ ReVs, HBEU 

and HBAP 1l"'. tarrns. .-::of "ll'olllne of 5ucSpiciou3 transdctionB - Rarru:m ~ TBD 

viBa PJ::e~paid Card. - Leonardo - J~nuary 15 

- FollQ~-up of c;losurl!! of account.:5 of caS2I9 de cambia (or SiMilar) -

Ra:m6n - December :'H 

- Communicat.io."l strategy fer high risk leeat1cns (a.g. Cd. Juarez) ~. Roy 

- Security hot1ine :for *mployee3 hrt.vinq to iTllp1ement the program - John 

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Fox- tb-.= January 1 dea.dline 

~ Honitoring process for usn kept. by the. bra.nches - Luis hlvare'Z 

- Vi5t1o t:ravI'Il card: Feb:ruary 15 - Lorenzo 

- De;bit card fer accounts in USD - January 15 L~renzo 

Clo~l.1r<!! of branches: 22 and 24 of deocembe-r, 1'"I"!qulre.!l manat;:!lnq 

safe:bOXQs 

:for th:e January 31 deadline {closure of impropI"!rly docllmented accounts} 

- rrop..,"c long t;~;:1n .901ut.ion for CMB - Gl"lrs1:'do - TBD 

- J\udi t: nf' CMR. fi 1 ~.<; - Jl'5'.JfI6n - ~Tarmary 15 FreeJ:;e of a:CCDunt!l imprope-rly docW'llented to comply with cOlllmitment 

""ith authorit.y (Ba3ed on BR) 

TO DO ITEMS TO TRACKTHE PROGRAM. 

- Weekly cracking' r""port on t.he ach.ifilvernents of mile!O-tone.s - Gerardo -

\'lll!!ekl}'. b}' F:!:::iday 

- Weekly tl:o!'.:;killg l:lIport: of OSD I'otxported w Luis Alvarez. - Weekly bv 

Friday 

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760611.594

From: WBrren GLEAMING 

Sent: fri OGt24 13;42.:572008 

To: D"",id \~' J BAGLEY 

Sulljec:t; Fw: RV: Fw: HBMX ~ CAYMAN ACCOUNTS 

ImportKnce: Normal 

Atta~hml!nts: image_O.gif; Doc Linkfltm 

Regards, 

Warren Le-aming oel>UTY HEAD OF COMPL ..... ~Ce-GMC; eM;:> I HSBC HCU)INGS F'tC HSSH 

Be CIIna= S;:juate. C-""l"-ii:ry V' ....art Lono::o,E1 ~ 5!-!O. Uo!!sd KiI'lQdC!m 

Ptwme02a7g!l16207 

Fax(l2Q79111"'17W 

Em!I'I~~'<SlID 

_ Forwarded by YVarrer. G LEAMiNGiGiviO/HSBC on 24i10'-2oo8 llA2 -~ 

WarNII 0 LE,A.MlNGIGiIIOlHSBC Oct 23 2008 

10:58 ?hoM 1'10. 1G916207 

To Ramon GARCIAlH8MXlHSBC@HSBC~ 

Susa ... A VYRIGHTIl-fGHQIHSBC 44 0 ';f)7 S9~6z.o1 Mall Sii:o:: 7677'J StJb)e ~w; RV: Fw; HBMX ~ CAYUAN ACCOUNTS 

Entity 

Ramon 

We are correspOAding separately in respeet of re--!auoctling the Cayman USD 9CC[)Uot. product but CQuld 

you please update us where we are on the remediation and whetl'let J()hn recei"ea a response from LUiS? 

Manyttmnks 

Warren Leaming DEPlITY HEAO OF CDMPLIANCE-GMO CMP! HSBC HOLDINGS Pl..C J1S.BH 

8 ean .. 0:1:1 $qUlr., c-ry'Mlilf1 Lo"00n,E14 SHe, UI"I~ KIlgOO!'l'l 

Phor>eCQ"i17e .. i fi2U1 

FoII.(020"79(!l1<1719 

--_ FO!Wsrded by 'Nerren G LEPtMINGICMOiJ-!$9C Nl 2311Qr20M 10·54 ---

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AdrianCRISTIANIIGMOiHSBC Ocl10 2008 To \IVl;;)n-wo G LEAMINGlGMOIHSSC@HSeC 

15;41S Mall Size: 29z;J 

Suttjv R~: RV: Fw: H8~X - CAyMAN ACCOI...INTS 

" 

"V-arren, 

Best. 

Adrian 

HSBC Bank pic 

Reglstered Office: a Canada Square, London E14 5HQ 

Re~slered In England. Number 14259 

Authorlseod and r&g\Jlated by the Financial Services Authority 

Warren Q LEAMINQ; 

- 0rfJinal MessageI!'rOOl.: Wa r ren G !.FJl..MING 

knt.: 10/10"/2006 H;39 GDT 

To: Adrian CiUSTIANI 

9:ubj .. et: Fw: RV: F'o.': HBMX - CA.:tMAN ACCOUNTS 

Adrian 

Fror'l the attactloo it appears U-l&t 

1. 1M J'@"!TlOOietioo is not IJrogres~ino to plan 

2. the. netw product delails ate stili with \he buslrleiS to determine the final form thaI it will take, 

We wHI rorward to you a response from the busioe$s.when we rece}\IIe Hbutat Ihls.!itsge there Is little slse 

that W8 can do. Very happy eo discuss. 

RegardS, 

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WRrr&n Learning DEPUTV HEAD OF CO~PUANCE.·Gt.lO CUP! HSBC HOLDINGS PlC HSBI-l 

8 C8.1'\.Ida Squara, ClIII8.ry V'lharf. LOlllltm,E14 SHC, Unlled Kil'llJdorn 

F'tIOI'Ie Il2C 7991 6207 

F~X 02071l~1 4119 

1Em1jll~~~ 

_ forwardert by Warren G LEA~INGfGMOfH5BC on 1011012008 15.36 

Ramon GARCIAlHBMXfHSBC@HSBCD4 Dcl To "Warre-n G LEt\MING" """'4!II..,.nle~lT'ing@hfi;bc.com> 

1Cl20081:1;10 Mail SiZ'.e: 16294 

Sub/O RV; Fw: HElMX - CAYMAN ACCOUNTS 

ct 

Entity 

warren, Adrian'!! proposal on not accepting casl'll'1as been sent it to Itle businOS5 as an instruction,l will 

follow up due compliance to It On remedIation's topic, below please find selfexplanatory mail sent to 

Pena b~ ReMall, I expect to ha\16 a response from CEO today. I wID send alSo tMa,; to ooSllless BOO 

product the Instructlcn stat!ng that If the product Is re-leullCtJed all exIsting ac-coonts hBW l'O t>e frozen 

and -remed.iated es find wl"en USMactlCll'1s occur. 

Regards, 

Ra(r'J()n 

jobn R RENDALL 

--Ma-nsaja orlginSl -

De: Jchn P. RENDALL< 

Env.lad.o: 10/09/2008 0": 52 PH CDT 

ec;: Leonardo ARANA: Ramon GARCIA; Gi!>rardo VIGUERAS 

A:su:lou,: F'\l; HBHX '''':AYHAN ACCOllNTS 

Lu~ 

I ha'ole become concerned about the plans fiJrthe way forward here:~ 

there appea~ to have been very ImJ1ed progress with the enhanced KYC process 

our current ennl!'lnced k,"'I(C process is very onerous (c. 'IUO questions) EHld, giwn that stBffBr8 continuing 

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to do ... ~ b~1Y 0f1 $rte visit repol'tS. I am not optimistic about the likely quality of work going ror.,yard 

as out PLD regime: becOmes better joined-up we need 10 be careful about the risks of fclllurB'S wli Caiman 

precesses leading to "goed" c.u~tomers gettlng t:!assl!'ied as hJg~ ri::;k, pro~ing c!csures e-tc, 

LeonardO and RAmon share these coneems. 

VVe have workoo with the product team and GMO to establish revised I;riteria lOt opening new accountstrlefe is sliU more work to do on thes4lI, especIally INrt egreetng Jlmlts on vol(Jmes of cash depostts. 

On08 we. have deterrniMd a final t>Eltofca.sh iir'f\il:$ rules; and processes ilr new MC()OtltS,W'e win apply 10 

old ~ well. I have Mked eMP to work with product on y.':hefher Wti e.g,., SS~"J stu'!'!en ~ur PEPSfSCCs 

f'I!"!h<In~d I(VC to <::r""ale a ITI/:Ire ~na!JE.I3b~ .. nd $pecl~c pr~eli\s fnr Ihl~ I'IrtxtlJ~t MtAgnry 

Finally. wrt 11le e){tstlng custom&r base, a lot of work has been done to analyse the ri5k pro1iles of the 

account hOJders. We haw asked the Divisional OireclOrs to focus on the h~hest rIsk cases .1,314 

!:iusJ.omers (2.6%} artd then the hlghish risk cases 2,027 cases (4,1%;. The good news is Ihat47k ('93%) 

are lIlewed as low risk. We have also dedupUcated each category a.gainst the RflIstaufsl::Jon ploGe3Se$ ~ to 

avo!\I (JOing tOe same proce$se$ twice O'oA'!r< 

If we want to achieve the best balance between customer service and risk-based PLD. I believe that we 

need to change the plan iI:i roUows:-

i~lIiIrTl9nt an agre~ni &at of nt:JW product pararreters and appiy Hie transnctiomliity rl,J~ W UM:: xb-iillQ 

stocl; 100 - nb will be manual at first 

impi'!f11!mt B fTDfl!!! .streamijned -enhooc!td KYC" , have it oounte~jWlsd, ctrecked in operations and 

t~tM by $emp~ (lneck~ (as wo are doing with sire visit reports) 

drop the enhanced kyc fOI flxisting low risk custOfTl3.rs to allCNt all our effort:'!! to be focused OIl the higher 

risk cases 

While tM last ~M souflds like a sigOlficaot change, wlm. the Je\'tSed prodUCl Spec.lficatJons and the 

enhanced tran~acHonal monltorlng that we l".c-..... have, I beile',.-e It:s a ba=Snced and more rlsk-awaro 

proposel. 

If you believe this isa viable solution to the conooms expressed earlier, J would suggsst that we work with 

GMO eMP and with LAM Audit to !'.let there feedba~k and input berore fOrmany proposing 85 a revised 

pian. As we stUl ha"e a month and a half to QO before our deadline, I think that it is an opportune timem 

propose 3. revised plSn. 

I also fee~ that tM new prOduct should go throUQh t\"le New Products Committee process.. 

We: will continue to work on I~ items mentioned aoo'ote_ Also please be reassured that as: far S$ everyone 

across teh bank is concemed tClday, the plan i$ unClial'lg&o, Wc.uid weicome your thOUgtilS. 

John 

~- Forwardo!!d ~ .John R RENnALlJHBMX/H~aC on 0611D1700e 06 OB P m. ---

lul5 PENA KEOEUHBMXlHSBC :'1roT1200s To Em\I5M ALONSO/HBMXfHSBC;@HSBC, DBYi::I W J 

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1l:43 H.m. BAGLEYIGMOIHSBC@HSBC 

Jotll'l R RENOALUHBMXlHSBC@HSBC. Manon 0 

ROACHtHGH Matthew J W KINGJOGM INA 

GHQIH 

GEOG ET 

BENNE Andy GENTIH8MXlHS9C@HSBC, 

~~m sec@HSeC.leon~rdo 

ARANAiH'RMXIHSRC@HSBC 

Sub]e R;e.: IIst.lX _ CAYMAN A.CCOUNTS 

Theroe type Of DDA, Cayman accounts were be:lng opened, IOHered and .Qr'I\II!'!rti9Ad in ItAmrioo (the benk 

was fined 'for this recently), MexICan laW prohibits Mexican banks to offer dollar denominated deposits to 

Mexicans, wtth the exceptbn ofresJdanlS In boroer zones. 

Starting this last Monday, we have canc8'lIed this service. We will establish a process of enhanced due 

daigence KYC ~r the 35,000 custOn;ters holding US0$400 million in DDA deposit'S in Cayman, We wW 

dh .. ide these accounts amonQst the 8 Oivisional Oirectors. They KYC process wiU be: eoordinated by 

C[lmpllance~nd wiU ~nd by December 1 QCC.Ordlng. After tl'lis dale we will can~ 9011 the.accoW'lts thatwe 

were not able 10 complete fileS on and will send cashiel'S CheCks to all tne respeCtiVe euslon"lB(s. 

For the fuluce. Me.xicans who wish to open e dollar deoominatedl accouf'l wlll uod8fgQo a referencing 

pr~oe$S, in which t"1e accounts ...... 11 be promoted and (;!P~ by tM ban!<.·s staff in ~ Propel' offshore book 

850 we do In lOur Premier Dlfering 

\MJ haw an additional chalkmge because Cayman also hOl~s CDs of Mexican customers, The amount 

the", is USD$1.1 billion from 59,546 customers. We will folvw the s~me enhat'\Coo KYC procedures, 

wtJlth the same December 1 deadlne. 

Unrort\Jj),8lely we will likely losesorne deposits 8S we do oot expect lJ'1e KYC pfoces.s tosuccee<:i 100%, 

but we will ol'rsfrt a significant contini and regulatory ri.'ik. 

Regar~, 

Luis Pei'la 

David W J BAGLEY~~~3l/0712008 [0:34:58 a.m ---Rlchard We have been in discussions with HBMX eMP with regard to certain potentially suspiciQUS transactions identitled by rout 

To: 

Cc: 

Dare: 

S\lbJliilct: 

Dltllld IN.J BAGLEYJGMOIHsec 

Richard E T BENNETIIHSBHlHSBC@HSBC 

Michael!=' GEOGHEc;.ANtHc;.HQII-ISBC@.HS8C, Emison AlOOSDtHBMXlHSBC@HSBC.U:eltthewJ W 

KINGiGGM INA GI-IQiHGHOIHSBC@HSBC. John R RENDALi...Jt-IBMXiHSBC@HSBC, Luis PENA 

KE:GEl..J1oiBMXlHSaC@HSSC 

31r01/20DS 10'34 a.m. 

H8MX - CAYMAN ACCOUNTS 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC acc 8875822 
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mchard 

vve have been In discuSSiOnS witn tiBMX CMP witI'! regard to ceftaln polentlaHy 5UISpicious transaction:> 

Identified by routine transaction monitoring. Thi!; initial report tlas wldoned Into a more general iss~ .as detailed belo .... L WIlllst we cont!l\Ue to follow up with HBMX-, I thl1Jo: It IS appropriate to provJde an initial 

report as follows: 

I am awaIting further detailS of !he SUS.piClous activity !dantmed, but In brief If appears that our CAMP 

monitoring system idantifl9d slQnificant USD remittances beHlg made- by a number of customers to a US 

company alleged to have been involved !n the supply of e!refBn to drugs caf1el.s, Appropriate report:!; ha\'e 

been fi~d and have apparently enabled lhe authorities to identify significant related activity pass.lng 

through other banks. This led to a review of the way In whiCh HBMX operates USD·denominatBd 

accounts thmugl1 Its Cayman branch. 

HBMX hOlds So Category B banKing licence in Cayman which allows them to provkle banj(iog services 

311YWOOfe olh&r Ulan til' Cayrnan fttSidBnts. 

The !Icence, Inherlted from 8!!3!, 211ow$ HBMX to provide USo...deno!"!"lMted .5eNloes k) persons 

domIciled In Mexl(:o. Mexican regulalion apparently prohlbl:ts Individual Mexicans (1.8. non-corporate) to 

hold USD-denomlnated deposl1 accounts 10 Me:dco, Tha branch curf1ZnUy holds US0400m and 35,000 

accounts. There Is no pnyslCal presence In Cayman end effectively frorrt and back office services are 

pro ... ~da:d 001 tt13 g:-cund i01 MEI::dcc, Although HB'" ..... ,'( were ~fl:!y fined US050,OOO. for the inappropriate 

promotion of these services in MeJdco. I am advised Ihat CNBV are aware or1he exislence oftha: 

accounts and seMccS and have raisecl no concerns. HBMX are however sensibly reviewing the position, 

I have ;;1$0 askQd CMP to re'oiew whetherlhere are any similar operations in LATAM. 

There contmues to be a real focus on the 1811'81 of USD-denominared activicy in MexiCO by CNBVand 

other bodies, and the extent of HBMX's activity in this area. Thi$ account bS.5e hM to therefore be seen 

as hlgh~risk From an At.4L and reputations! perspective. 

Apparently an audit carried out in 2006 of the cayman branch acti:'lliliBs was ral8das belOw standard and 

identified significant KYC weakfl9Sse5. It wi} be Important 10 ensure that thesa accounts will be covered 

byths various account remediatiOn prooosses underway in HeW, an<! as a priority a~, A3 a precaution 

HBMX have i.ssue-d Instructions that no new accounts be opened pending a review" oj these activiUes. 

We are alSo L:h~cking WhethEH any similar aclillities exist in LATAM. 

I· ... 'ill report further in due courss, but thought it lmpOrtSI'l;t to prov.tle pre!lmfr'.ary reports. 

Regards 

DaVid Bagley 

Warren G L'fAMINGI'GNOMSBC oct 08 2008 To Remon GARCIAJHBMXlHSBCimHSBC04 

15:17 PhOI1lll no. 7~ 16:207 ~"'n F i"{OOi(OMOlI-:ISSC@I1~eC, Sus;;n A \."'RIGffrIHGHQ!HS6C 44 0 '207 9916207 M",il Size: 615543 suoja Fw: H8MX Ceyman Slmtegy 

" 

Entib' 

Ramon 

.a.{jren Crlstani, Hsad of Wsaltll Management globally MS asted 'o'Jhethef the final product proposll!on 

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has been amended folklwlng the eonvnents set out In my attached note. For tlle record he also opposes 

B&Gepiing cash depa!lilS to such accounis. He is keen to ensufe that bUsiOElss in. MexiCO take aocount of 

corr4JUance COi.cams but that to'la new prOdud. be launehoo :.001"0. 

!s t!lere 9ny chence '!hat you can respond or 'OaI! me bc!ay? 

Many thanks, 

Warren Le.aming O'EPUTi )-!£AD OF COMPLtANCE-GMO CMP ! t-ISSC HOLOII\iCiS F'LC HS8H 

acar.e/!!!I SqU/lfe, C&natyWhaI1. LQroc:Ion,E14 6Ha, UnlteU I"Jr.gG.1Rl 

Pho" ... O~j)799162Cll 

Fu020;>9~1411'i/o 

ElJlsllffl!Ji'0!e;rming@:bibc"pm 

_ Forwarded by WllrTen G LEA..MINGJGMO/HS8C on 06110/20061.5:12-

WeIr,," G LEAMINGlGMOiHSBC Oct 03 ZOtIe To Rarro::lO GARCIAiHBMXlHSBC@HSBCQ.1 

17::r.i Phr:Hle no. 799 ;6207 DaVId WJ BAOLf.YIGMOlHSBC@tisaC,JohnF 

4" 0 2019916207 r.;;.U Sru: 6i:tull!i4 ROOT"GMC1HSGC~HSSC, SUiQiI A't.'RIGliTiHGI-:a.f-tGOC@l:-lS!3C, 

Adrillll'i CRlSnANIICMOJHS9C~SeC 

SUblill Re: HeM)!; Gayman Shtegy 

" 

Entity 

Kaman, 

I also had.a discussion with Adrian Crist;tr\i tniS I"I'IOming G!O- to progress in both remediation ofaXlstino 

accounts and proposed strntegy going forward ~nd undertook. to pro\lld& Nm with both a sumfT\afY of our 

position and an update Ofprogf.9SS (Whk:h the attached Strategy will provid9). 

For tnis reason I attach a copy of recent cOlTC'spondonce that ! h~ve nad with youtSelf afld John Ri:ir"ldBII 

1n ofouradllice, 

SUl:JjeCt n any comments that SUsan may wlSh to ma~e (she IS out of the office today butretum$ on 

Monday) it appsars to 1118: 

TIle proposed strategy would sliliallOW IndMdualS to (tepeslt .cash up to 110,000 and forcorporates to 

deposit cash up10 $100,000. Our advice as statsd in mj m6iTJO of26 Sepler.terto Maria Salazar, is that 

no castJ deposits should be accepted to sucfl accollnots 

Would you please clarify that all eXlstlng customers will bEl valWjatM against a black.llst which woukl 

InclUde all OFAC lists and Worlclolle{;k. tf you use 11115 In Mexico, 

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You will recsilihat SusEin would 1111(6 to revIew the enhanced KYC 

questionnaire. 

For corrm;;~ custCJ1".ars we shoukl complete KYC an U1e underlying beneflCiaoos. and accoo,,:nls should 

also be screened against YVOW. 

In respe:ct ofthe remedIatiOn exarclse we would expect that aD red alld ember accounts 31'lli frozen te 

prevent any trans(lctions on those acCOllnts until tne ennanced "KYC is completed, 

I ifITI happy to discuss if you have any questions 

Regard:i. 

VVarren 

Ramon GARCIA-~..(l3/IQI2008 14'31 :37ww-Plcasc tInd attached Englisb translation to a 

document with OUT \ 'ayman Stratcsy I hope this iniormatiQU gives you more light Q 

Ramon GARCIAIHSMXJHSBC@!HSBC04 Oct To ~rniln G lEAM1NGr'GMOIHS8C@HSBC,SI.nIHlA 

03 2008 14:31 M:.il Size-; 551333 WRIGHTtHGf101HS8C@HSSC,J .. t;r.FROOTIGMOIHSI3C@HSBC 

DilviQ WJ BAGLE'tlGNOIHSBC@HSBC 

Subje HBMX Cayman $tr9tegy 

Eolrty 

Plea$e fin.:! atta:ched Er.gli$h tisnslation to a document .. ilh our Ga,.-rr.an Sttata.I;jY, : nope ~his ir;for~f,o" 

gives. you more light on were are we on th!s topic. R~rdso. Rgmon 

{attachment "Grand CaymM StrAtegy UPdate 3,ppt" deleted by Adrian CRISTIANI/GMO/HSBC] 

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Point taken, wasn't thinking of the central Res:tauradon doc record f;eepinQ. 

Warren 

HSSC HC4::1iI'lG:'> pIC 

Reglsl61'.gd arTie9: 8 Ca.'1:ad3 sqtJ..a:re, LO(tcon E14 5HQ. United )C3ngoom 

Re-gl$lered in Englafld number 1517987 

John R RENDALL 

F=: Jocn R REN:>Ar.!. 

Boot: 26{0'9/2:08 .1:46 C(lT 

'1'0: Warren GLEAMING 

Subject: Re: C!t..yman Accounts 

what is. reason fOr keepil'lQ kyc documents sepamto? My OOneem is that we will end up .[joint! thsl nadty 

10( good eJQsiiog customers that are- already well iCeotified and triggef consequenliai account closure 

problems. Everyltli1g that we have bee'n worldng towar<:Js wilh Res-tauracion is lor us to ldellliry custOfTl9f'3o 

PfQptitr)yOl1ce. 

W.!!.rrcn G L1:::_A.MINC"i/GMOlHSBC@HSBC 

Warren G LEAMINOIGMOIHSBC®HSBC 

Redacted Material 

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213/09l'20C1!J 10:00 a.m. John F ROOT/GMOJHSBCOH5BC, John R 

RENDALl.AiBt.-tXltiSBC@HSBC04, Rsll'lOtl 

GARClA.'HBt.1X .. 'HSSC:lHSeC, SUS31'l A VIR!G!-!T!1-IGHQlHSBC@HSaC, 

YVarren G LEAMINGIGMOIHSBC@HS8C, DiNld W J 

BAGlEYIHGHO!HSSC@HS8C 

Maria, 

In response. to your proposals we nota: 

Subj9 R,,: Cayman Accounts 

d 

Not only shoukllha jnformalion from the HBMX accounlS and cayman BraT1ch accounts be separated but 

in eddll:lo1'l it shvuld be .,-..ada 0/1361' lI"oat tha account opgr.ing.KYC docurna;Ttation should b;a .:'iIISiO held 

separately. You should crInflrm whethertnere is any Cayman legal requlremenl rorit be held in Cayman 

or arrangoments made for it be made evalleb/e to the Cayman authorities. I uf\d~rstanlj that JOhn Root 

has bsen glvint;l advice in this area so that if you have not received any advice from ca)lman may be able 

to assist. 

VtIe assume that the validation of prospective customers against blackli9.t VIIOuld !nclude: all OFAC lists. 

Could you please ad\lise whal the blacklists include. 

It is our racom;r.endatlOn tJ;at no cash depcslts shou'" ba ac...-apted to sucll a~\.ll'ltS. 

\He agree that accounts stlould only be opened for existing HBMX customers who have hOld accounts rot 

sn.:month<J. 

I wauk! be happy 10 discu5S furthet. 

Regaras, 

Maria SALAZAR·-18/09l2008 20:40:58 W.arrcn and Susan In order tQCQntinue QPcning 

USD Cayman accounts as requested by product area we would be grateful ifyoq c 

Marta. IIA.LAZARlHBJilXIH5IiJC@HSBC04-Sep To WiIIrren a LEAMiNGiGMOfi"iS.'B.C@HSBC,SusanA 

l&,2:iJOO. 20;40 Mail Size: J416 ..... R1GHT.'HGllOlilnSC@W'"...EIC 

Jillin F ROOTfGMC.'HSBCCHSBC, Johr, R 

RE:NDAlUHBMXlt'iSBC@HSBC04. RIIfTlQ(J 

GARC!M'lBMXJHSBC@HSBC 

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Subje C<I)'man Accounts. 

" 

In order- to continue opening USC Cayman accounts as requested by product area, we would. be gfateful 

If you COlIld gtve us an opinion on tne actIOn plan Implementea In HBMX regardIng tnese accouOlS. 

Tha- maif) issues regarding these aCC03ur;ts are ttte following; 

Mexkoan regulations set olrt that USD accounts can be opened only in border zones. In order to offer USD 

account across the coun"by. HBMX opened 9 branch IOtaltld in Gran Gayman in 1960. 

In JUlOa CI\MF' monitoring system identified stgni1lcanl USD remittances made by a nurnDeC 01 

customers loa US cCofi"ij:l8r.y allegedly in\o'OlYSd 1n sl.OpplYing ai;eraffs todt.;gs csrtels. SARs hev:a bGcn 

filed with Ih6 .8uUmtities. 

On 28JULQ8 the opening of usn OOAs and COAs IO-Caled in Cayman WBS suspended and a review or 

the process followed by HBMX to operate usn accounts througll Its Cayman branch was cornrTl(':l""lced. 

On 31 JU1..0a HBMX CEO inslrUCtEld that aU CUslOmert; with USD acoounts located In C8)1man branch 

sl'louk:l have a complete identification file and on enhanced KYC by 01DEC08. The custOfTleT$ W~ 

class!flad In order to e6tBblish pnorlUes to complete these actions col"tSideflllg -customers' transactional 

activity as follows: 

CAYMAN ACCOUNlS 

Customer.; were classffied BCOOrding to tral1'ic lights considorlr,g their traf\S3ctional activity as fOllows: 

RED sse status, blacklisted people :end cus10me~ will"l 000 or more reports to the 9utharity 

!$AR~}. 

AMBER Customers alerted by CAMF' system without SARs 

WHITE Customa~ WilD ere flot included in the two BbQ\o'e cateQ()fies. 

Redacted Material 

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product atEla in order to continue offering lhe5e accounts., they will be implemented in two stages: 

- AJI new customet"S should fill In an enhanced KYC Ouestlonnatre: In case the RM doc:::! not complete the 

KYC timely, the account will be .cancelled. 

- VQ~i~ticfl of prcspect c.:n.tomer~ ;]!'il3ins~ b1~cKU~~. 

~ Cayman eccounts can be opened only bv customers wlh 6-month old MXN Ac.coUJ"lt. 

• 'nd·ividuals ean open only one account in USO e-iltler in Cayman branch Of In HBMX. 

~ A maximum casll deposit amount was sat as bllows: 

USD 10,OOQfof Individuals 

USD 100.000 i(lf companies - A commission for cash ..::!~P09-!ts wi!! be paid by custDlT\ers. 

'We 9xpect the above !Jlfolmatlon Is useful for you tD give an opinloo. so that product area can continue 

offering these llCCQUnts. 

Thank you in adv.mce and regards. 

Maria del Consuelo Salazar 

SUlWlrecto.r CompUtance t Hsec MexICQ, S."" 

PIlUO I» '- RI1orTI'UII 341, PM ~. Col. Crn!uI'1l(1!moc. "h~dco D.F., C.P. D5SOa 

Ph~ne. (5255)5111 5042 

f1l'. !52S6)571151~6 

E'T18A·~,.-AZfo.fI~!le~_1JlX 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC ecc 8875829 
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760611.606

Compliances FAg's GeL 070D49 

Sanctions against 'ran 

..... _.-.. _------------------, Q1 Does the GeL apply to Iran natlonal& RIIaldlng outside ot Iran, In respeel of their I 

I 

bank 8CC;OUntiJ outside iran? 

A No. only In raapeet of payments made to Iran whicb sbould be In accord.anea 

! wlththeGCL 

Q21 Can we continue to h~\le Iran residents ill' cuswmera? I 

A v ••. '\Not aN not enc()I.Jraging taklng on new cuetomel"5. however, &0 long as we II 

are comfortable wttn the KYC and comply with GeL in the respect of payments I tn Bnd out of Iran there Is no requirement to close non...uSD alOcounts. All USD I 

I account$ for Iranian Resldants must be clo&ad as soon as possible subjecl to 

tile local pr'OYisions ",'ating to giving or notice. 

Q3 1 Wba .... ·SUb!illidlllryofan Inlftlen 8.II.,tc. Is baUd_"c:S ... ga.ter.c:S QWJ:rMa* l 

{outsIde Ita,.,) would teatrtl;;tions a.ppiy 1;0 that entatv? 

A Ya ... The restnction& apply to all eub5Id~-I1~ of Irsn~~ &;~~-... -.-... ------1 

. ~Q4-f 008. the GCL apply to International e8l_~~.that have ~~~~he:s In lta_"? ____ " I A I Y88. It appUes to all ea~ks operating autsld_o __ lra_"_, _________ '1 

! OS tfa non-trade cutliiomerwant8 tOi send Of"receiYe noiJ-ljso to ol"fl'OlI'I it;ll:'i can I thev do 50? 

I ' 

They can do $0 as lang as tt Is not USD. however1 it wIU of course become very 

dlmc.ultto do 50 as we will not maintain any ret~)onship$ dlRlctwith tran Banks I 

and any such payments wKI need ta be dlA!!ctea to or rec:e~d trom ocher Bank$ 

who have cOfTespondent reJatlor.stiip& with lrar.i.m Banb.. 

Thera should be no tra," transactions in accordance with the trade guidelines 

avaNable on the GHQ CMP IntnlneL Only m-1Sa ~nsactlol)S forwhieh our 

customer' 1185 a IJcence or are under the I:cnb"ol account as set out in the 

Compliance Guidance on me. Group Complial'loe: intranAt wHi j)Q perml1tltd. 

F,!)!lowfng 3(lNOV07 when ~n SWIFT eKE's 9nt clc3..."'-d pIlymentz Cl:n be !lent tc 

or receIved from Iran foreustome1'S via. a third party bank however. 5Uch 

payments will be caught by WOlf rUtilra and will be I!wtlstigatad to .naunt thllt 

the Relationship Managersare comfrJnllbJe that they.are not b'ade ttansac;ti<mt 

for good that can be categor1sed_BS __ d_u._a_1 _U58_-__________ ---, 

Q6 Wi!! we be closing the HaeC !r:a:n representetlve offlt:e? 

---------' A No. The raprasenlative office in fran will cOl'ltinue to operate in order to rnainbll;n 

a lin. of communication with Bankl Markazl (Iran's Central Bank) and to support 

the Group' •• xistlng business. 

,- ------------------ ,en W","t 1& the Trade CQntroJ A",ount? 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBG OGG 8876013 
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The onry exception to the prohibition of tra-de wkh Iran is. for exi5ting customers I ::~O=:!~~~d~~~~=: r~~~ ~~~:~ !S=::'~~:c-::::n~=lt~"=:art 1 

UlI'l l'Iumanitarian tl'8de thl'Ough GTS. if it is thgught a customarfal5 within this 

very Omlted exc:eption the Re-lationahip Manager should cOrltaci their Regional 

CMP and Regignal HTV. 

A Ir exceptlonany an Iranian bank approacnes us for dispe:nsatfOn to eontinue 

us.lng MT2{)2"s for bank to blllnk paYm&nts Qnd provlo1_ good reason§ iOor doing 

so (e&g. systsrns c:onsf..ralnts) vr- will c¢nsidert!1e$e r"eC:jtle8t6 on merit. Such 

r9quasts should be directed to the Allevant FIG btam. we have alNady had two 

requosta from S8C1erat Bank pic and Persia International Bank requestlng 

dispensation for theirbuslnesa with HSBC bank PIc and these! haw bean 

granted. 

Q9 Does the GeL. apply to pape~ fran.aetlons. i.8& drafts and I;heque. to and fromIran? 1 A 

QID 

Absolutely. business mustensllrethatthere ar& measuteS in place. to monitor 

suc;h tr.ansa~lons. 

Doas the GCL apply or restrict trade payments 10 or fI'CIm customerS under 

ltJ[istir'i1j) _legal c)bi~gatiOr1${ 

A NO.l&lo long IIII!IJ such p;,ymente. are not for dU;:II1 purpose usc! and there Is a I~gal 

~~~~tl.n (a. di.tinct from a reques., to make t/1e payments that may have :J Q11 What doeli i"riJW bu6in666 mean in the GeL? .---~------~ 

--

A 

A 

New busines.a relates to new I1:lations lind new aceoun.ts. wi ... transr.n. are 

pannitted In ac:eorttanee with the guidance I.e. for individuals for non-dual 

purpose goods but not for trade unless Its thtotagh the eontrol account. 

Canwa ccntSnua.to be pan-Of loe=lctNttng $:~":CQrns of\t;."hlch Ir;;r. may bo 

members? 

You ma1 COntinue to be part of 1000al c:learing systems. (non.uSO) as long as 

psymenta are not ror dual use goods. 

rQ.;'; We ere advised thet the ;mp!ement:::tton ofthie GCL 010049 In our country cot.:ld , _. ~ be dIscriminatory, what Is the all"inso position? 

A Whilst we would never endorse allreac:h of a !oeallaw tn genera' ttle GeL 

applies to Iranian entities In Iran and not in loca' countries .0 the GeL may well 

it01 breich loa.lliiw in local countrfes. The GeL reflects GroLip policy on ii 

Global basis al'1d CI'! such M! neeod to achle'.'9 as !!'ruch eonslst9ne~f U possfbl9 

and to reflect the rest of the Group In nDt applying the sanctions. Dispensation 

Will onlv be granted wtMIre implementing the GeL would cause a speC:lfic breach 

ofla.w. 

At 1'{lPA"l1t::> ... 

I 

Confidential - FOrA Treatment Requested by HSBC Bank, USA, N.A. HSBC acc 8876014 
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[Q1~-r~~-~;~d-~C&Ounta and' SWIFT a~~;"'-ants rmmUon.d II) GCL. 

l 070049 aiso apply to bl'1lochell iilnd subslcililries Df lrani .. n Btlika located in 

~ItICS ot.'t:!d;! Ir=n. 00 th== mea:ures a!sc ~:dend to brnnches and 

subsidiaries of foreign banks operating within Iran? - ---- _. .. .._ ...... - -_._---------,._--_ ... - I A. L.~~ __ • ___ _ ____ _ 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8876015 
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760611.609

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760611.610

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PEF has provided ,"clllti •• 

to a number of Export 

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Bank • 

PEF has also a gignifioont 

portfolio of loan. 

out.tanding to HPC .... 

• PEF has 10 Export Credit Agency ("ECAn) supported loans to various 

Iranian banks; including Tejarat, Melli 

• HSBC's lending equates to USD239 million of which USD9.8 million is 

uncovered exposure. 

• Loans WL'fe medium terms and have between 7-9 years until maturity. Loans 

all being repaid on time. 

• PEP has a very close relationship with __ _ill of Iran (elB name) and has provided in excess of 20 loans to this entity. 

• The facilities are by each of the major EeAs, with the longest 

maturities up to 10 years. 

HSBcm 

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PEF has provided a number • Bank Tejarat: 

of ECA s.pporte<lloan to 

Iranian B,mks - I direct loan provided by HBEU 

- 4 sub-participations (3 HBEU and 1 HBME) in loans provided by other internationa

banks. 

USDJ.53 million in lotal (USD6J million of exposure) 

USD and EUR. 

• Bank Me1li: 

I sUb-participation in a loan l,rovided by another international bank (through HBFR

USD7,7 million (USDOA million of exposure 

760611.612

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Other interaction with 

IraTlian banks. 

• Bank Saderat pic (UK) had taken a USD denominated sub-participation in 

one of our loan facilities. Bank Saderat has been removed from this facility 

following the extension of the OFAC sanctions. 

• Bank Saderat pic still retains a EUR denominated sub'participation in one of 

our loans. 

• Bank Melli pIc (UK) still retains a EUR denominated participation and a 

EUR denominated sub-participation in two loans provide by PEF. 

• No other issues with Saderat or Sepah to report . 

ifieant issues will arise if the US takes further action against Melli, 

r Tejarat. 

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Loans to National Petrochemical Company 

PEF h .. a large portfoli. of 

loans outstanding to NPC 

• PEF has arrang(:d and booked in excess of 20 individual loans 

the support of each of the major ECAs. 

• The loans are booked in a number of Group entities (ie London, Tokyo, 

Madrid, Paris, Seoul and Dubai} . 

• Loans are provide in USD, EUR, GBP and .fPY. 

• Maximwn maturities on some facilities are in excess of 10 yeers. • Loans provided directly to NPC on a "clean risk" or on a "structured finance" 

basis. 

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NPC - Structured financinlis 

PEF i. 'egally obligated II) 

manage a serles of oscrow 

accounts oWl1ed by the 

tlPC 

• The "structured financings" that HSBC has arranged operate in the following 

manner: 

• PEF London or Tlinkaus (Gennany) hold a series of escrow accounts in the 

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The portfolio of loans gives 

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payments thaI need 10 be 

made Of received by HSBC 

1. Disbursements under the exisoDg loans: 

- PEF is required to make payments IlOder the loan facilities to tbe international contractors 

constructing the underlying projects. 

- Funds in USD, EUR, GBP and JPY, 

- Funds transferred from HSBC TeJepatb suspense account to tile iDternational 

conmlctors, 

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Flnancing. 1t 

4. The adminisblltion oftbe escrow accounts that PEF London and Trinkaus hold for 

give rise to situation where we are required to make a 

number of payments: 

Escrow aceou.t' are held iii USD, EUR and JJ>Y. 

- funds m paid into the acr.ounts by intematiou!lII petrochemical off takers. (USD, EUR and JPY- PEF Londou and Trin1caus arc rtquircd to transf cr balances between difference su at 

certain times during the year. These are internal transfers. 

Vie are sometimes required 10 coovelt barances from EUR to USD (a.d vice verst). 

The escrows nre debited twice a year to make repayments of debt service. FUIlds are transferred 

6'OID tbe eStrows to PEr I Tri.bus' clearing accounts and payments ar' Iben made to syndicate 

members. 

funds in tbe accounl> ." Ittul'lled acoounts are debited, funds 

transferred to our clearing /i{;counti and then nominated bank accounts., 
1784 


760611.617

From; \lVafren GLEAMING 

Sent: \Ned May 30 11 :40:11 2007 

To: Jolln F ROOT 

Subject; Fw: Desktop &1Jrwy ~ AML practices In HBCR 

Importance: Normal 

Attal;hmmts: Image_O,gft, lmaga_1 ,glt; Image_2.gl!; lmage_3.s!f; Ooc Un6;:,I1tm; Acllon Plan NQVoe,doc; 

J.ALO MAY07.doo:::; ReportBusinessL..inks.doc: Situation MLO.xls 

Jcnn 

You do not appear to have been copied on thfs. You may wish to try 10 \:let a copy oft!'le document that 

was attached to Graham Ts nOM and which has. been de~ 

We can dlsclJss when you have digested It 

ThankS 

Y·Wilfl"eR Learning 

DEPUTY HEAD OF CQMPL1ANCE-GHIJ CMP 

a CaN~-Sq~"'. canary YVI\ltf. LOrldQn,'EI-4 !SHO, UnJI,t:I "'lnQdom 

0201'9916207' 

Email. 

_ Forwarded by W~mm G lEAMINGlHGHOIHS8C an 30l0.5I2007 11:38 ---

Ramon GARCLAfHBMXlHSBC H8MX 2911'l5l:2007 To Gral"lil1n THOMSONIHBM-'<lHSBC@HSBC 

23;51 M>liI Sb:e: 13G411.9 Gn!.ham t..·ACtV\.LJGHTCfWHBl'.~XtHSeC@HSBC. A.tz."'I 

ORJEVElHBPM-tSec@HS~. 1IprO~r@bini5trro,com. 

(lWrtCelrGbene-li,oCOI"I1, paul.s,tlcldarui@b~bga,CQflI. 

peterde_lTlCIrltforl@banGOsatcom. WBrrer! G 

L~NGfIoIGHQf1oIS8C~S8C, G .. ra-d" 

VElASCOIH8MXIHSBC@HSBC. Laur.!l 

YESINtHBMXI1-ISBC@HSBC 

Subje fie; Oes!OOp$uJVey'· A~ pracU;e$ in H5CR 

" En.lily HSBC Holdil1g:5 pic ~ HGHQ 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC acc 8876088 
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760611.618

GrahamT. 

~~¥.e3~~~~lreadY approached by Compliance. We have elsboraied all Action Plan 

,>~. ~~_. __ ~~ rer Iha lmpIGmentation of Group standards; h"1 ttle region. The Plan was explained to 

ACO$ in January ~md th& dlJ:l<!ldlinB$ ~o (;ompty with Us requirelllQ"~ haw ~fflaQY ~n prolJided. tIleit is. 

wl1y C~ta Ri-:;a has answered YQ\J that !he COH gap analysis will 08 ready by .Ju.n~. 

f:~~':;!71 On ltae otht)r hand, vrf!! have eomp!ete ateview on MLD cQ(\i(.ok In the region,~~·' ~~~. Jt1 this 

oocument :;''O''J wi!! be able to observe which monitoring systems exist,lf an 3utomat.ic repcrt Is $1.Ibm:tted to the Regulator, ttle $tatu5 Q1 MLO Committees and OF'AC rrnnttortng. We are also ptannlng to perform 

reviews over the advance in the ActIOn Plan implementation <WlO a 'functional complianO!:t reView rnust be 

carried out to au ACQs by 1 aoe. 

The .re,:a.tlom.h~ In the region wrth North Korea., Cuba ana Myramar Is explained in 11115 report 

-:-';~~'~J 'n~~" ....... "'""-

! would strongly recommend !o the COO$ fa provtde fully support on ACOs In their duty to !~Jemcnt the 

Action Plan. which we consleter" coven the most Important compltarlc8lssues that must be In piace. We grantE!d 2007 to achi&\'C the Action ?tan goals, however, we ere subleCli to systems development:!;; in the 

realon to achieve tobl integratlcn •• 6,.:; an example. CAJt.i!P. Group " • .fLO system w1ll not be in place during 

2007 since HOGAN s,/stem mU$l be- in tllIKO finit. \1Vf1 are currentty using Ban~~'~l~ :iASS1ST and 

~;~ MONiTOR) this preliminal)' file contains scmt other details OIJef MLD controls l....,:;:""· ,:-... ':;:,~_ 

Rsg9f(Js. 

Ramon 

Graham THOMSONIHBMX!HSBC 

Or3ham THOMSONIHBMXlHSBC 2af05l2OO7 

07:54p.m 

D~vid 

Ttl "O"'~n, O .. vi<r <.dd\J1"\l;il11~9](,00lTP 

Ramon.GARCJA@hsbc.com.rm@HSBC 

S~bje Re: OOSk.lopsurvey -AML practICM In H6CFi, 

of 

f'IUIny t!1anl'"..$ fcrtJ'!e response: end ~nks fOiclc~ing the !;lap on OFAC appliC2.tion to !RMs alld ORMs, 1 

arnsurprtsed thatthl!! had not beAn pickeD up Rarlier by HBMX/HBPA CMP. 

Confidential - FOIA Treatment Requested by HS8C 8ank, USA, N.A. HSBC ecc 8876089 
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Once my analysis of the d~taiiad reply has been completed, I shall revert in the e'tent I require any further 

cillril'klatioo. 

Grnham Thomson 

Head of Group Aud;tlalln AmericiiiI & the Caribbean 

T~ (52) 55 5721 62306 

"D"nCllltl. Dtlvfd'" <ddU"l1GIIl1@benex.oam> 

.2aI05I2007 06.52 p.m.. 

To 

Sullj$ Desttop SlIf'o'e)' _ AML practices in HBCR 

" 

Gliilham, 

I attad1 a word t\le witt! the- ie$ponses to your 5l-s"vey Gt;e;stiQr;s. l1'ley are In spanish but preSlJmabty tr;!S 

is not .a problem fer }'OI.l. 

By way of additoo-ei commentary : 

Point 1; the deciSion 10 change me rcportir'lg parameters to t:ufnllatiw VSO 25k per mon1h wa~ .at my 

suggestion and ratified by the Compliance committee meeting on 10/5101 

Point 7: whilst no alerts were raISed to the Superintendent In 1007, one case 'Was sent In AprU 07. 

Point 12; the Cuban customers were already part of an investigation fol~ing eoquify lTom H6MXlHBPA. 

We ldentlfied 15e accounls but In aI! but 32 caSBS dlecustOllll!lI'5 were now naturaHsed' according to our 

reoords ana were not transacting bu5in6Ss wittl prohibited OOufl1rie:$. we believe it probab~ tnat the 

m&jortty ofttle 32 cases Will fsl1lnto a similar situation but as yet we do not have the documentary pro-of 

which C'...:r l~gai dept Is seeking from the Immlgnrtion aU1hcmnu;, 

Point 13; therA is a significant gap he~ witt] HSaC ~tandards in that neitl1erlnward nQfoutwgnj 

remlttBnoes heve been subject to an OFAC anslysis in the manner required Le. even the monthly process 

which Is run could miss prDhibltecl actM1y, ! have. instNc::ted our Compliance. OffIcer to liaISe with olJr 

Intematlonal (forexj area to introduce appropli.ate measures as soon as posslble and confirm to me by 

3016107 at ltIe latest that HBCR Is tully compliant. 

Please revert it yOu need further clarification. 

Regards 

DSD 

".,mNI'''':Jil#t#@l!\:t'l 

ElfYittda c!: homcs. 28 dt; rno:yo t$: :1:(;107 17;26 

Redacted Material 

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Pan: Duncan, David. 

Asllato; lnfoIlllC para Grnham lllo~ 

Don David; Mjonto el documento con las ob;9rvacionas sei'taladas. seludos 

«GraMm Tllomson.dQc;>:> [attachment 8Grsham Tllomson.doc- deleted by R.amon 

GARC!AII-.;BMxrrlS6C] 

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THIS PAGE IS 

INTENTIONALL Y 

LEFT BLANK 

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HSBC~ 

INFORM..4.TION REQUESTED IN CONNECTION \'\'TTH: (NORm KOREA., 

CURl\., AND MYANMAR) 

t. DHc.rlpti: ... 111 fh", p .. rl .. nd ,.,......"..( ~ Dcnvi6~ contcih..ting t .. rI:~'''''U''-'5 

frvrn IIH: oountr:v. 1QlriMr l'ridt II IklCrlption or fm bu~ and ,"~m 

ctlDtr1ba.dnl til f~ t"cVChW!S. The ahoPhJ inelta&!, "'tit not be lInri.ft'd te, 1Ileft&ik (If 

the entities DDd p1'Uj«t5 to wtudJ you hoft: JlnModed fbljlnt"lal. 

HDMX~Mu.loeo 

We We.J'C notifiotd that tht'nl IIJll! ndalil1Jlships with CublUl iIIld Norlll Korell1l CUiI~, 

MLD ~quer;Ud 111c .:anc.:Jt:UiQll Qf tbeir alOl.VWlt~. IU:d followed up .lil the proc~ Wltil 

s~h IlPlloOLa!.ts dJlJtQlnUlRled in liSn were csnceiled. All oC'today, WOO have foutu'i lo.g 

N0r61 Kori!:.:!tlt cll!!c;nol"n \\'it~ ~1.tnC~ of l1.S00.11 J..f.e .3.:l.d l,368 Cuh.m curtome:! \, jUt 

hall.nee", Tnth.! 2mOllrtt (lfUSDI0.11MIl. PleJIse nnf.;! (hEll tlwfl'tincipal is d.mommllted 

in MXP. 

Pm:=:; 1md below cr. upd:1l.ed li$o1 orrel:!tio.... :;hip$ wiLh Cub:;Jt:=l N(I;""~o,,; !-.:ore:an 

crtizcm: 

Total JlQmbcr or cqsfOOleI"ll by jUJ"b:dKffon, (~s in U5D) 

MXl' n 137 6!f1.W4.~4 

Beth MXP:md 

llSD 2' 2.374,988.17 

USD 9 46,50:7.25 

C.ha i3b8 1~ t6,215,77il.14 

~{."{p 1284 12:49 8.900,194.29 

&1h"MXP,..,o 

tlSD 61 ]9' 966,656.77 

LJSD 'H " 348,919.07 

Tood l,4i' 1,642 13,3;}4.8'10AO 

BalaneeaQ.l;.otI8~{A.Yl)7 

Nate;; the ohf>VC figur"eS h .. v.c been !>en! to bl&<;j~~ unit; O\~ tbn.t !hoy will verify the 

nationality of the ;sbov,," relationships, Wid so u kI confirm their migmtory stlll:l.IS sineo 

'lye have deicelOld thill !>Orne or tJ1Cln h,a."..., been n.ahlnlj$et.lll$ ::vIoiCml dliz~1>-

Confidential- FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC ace 8876093 
1790 


760611.623

_ t::> RedBctl:d by tbe Pennanent 

Subcommittee on In"cstigations 

HSBCID 

ImrA-PlllnllllJd 

13allmml) PM2JM hI:Is the (onowtns Jdl.tionships "'lib. Cuban I'I!.ltCMl. ~o tcs.idi in P'anatQ&~ 

OI::pC$if Acoc:nmts whit b:dAnc:a ofUSD 12'}~ 

C~d c.vds ~ith ~lm* otusn l?K 

Mon~ in t~ IlROWlt ofUSD145K 

1M 1I~W'na orew .. n:rdo~J. IN ~.04 to N cQACelled 0:lI lOJUl'll07. 

~it Catcb orBanirtroo p~ that lW ~ 10 ~ ~ in Cubo 

IW exJlC"TN lObe eaaccftcd on In.lUl..D'. 

flBPE4 rem 

HBPE does nat tuw. AD)' relaliandlips eilhu with IbCI mO\"e jurbdidlons. \lIatb nor 

go_l'lIJ1ImtIJ. 

tlBCO .ColOllibla 

'I'boft: b one R}.,Uondlip "idl I lIS millin V~iOM ILAt reJl/Jod to 

tim h don Mt h:1\'t' 10== l.vUb dtc r:.=k. ('Ilr.:I~ 

n.dthe:-1'J1.1ko 1iwuCen;; 10 Cuba nor T'Cca1,"" rani~ 'Tho1:- depo$.it. ~ dentKlllin:d.cd 

inlocoJ.cantne)'). Thne isJUI ~4~iDIn~ U1loc;al QIIJTenoe:, "'lib It bdanCl:! at 

There is one bll5in-CE8 rdlZlioJDhip \\'ilh .. lhel' mfl\main • uvings 

u.c:count 6cMmlill4ttd in t:SO IMi. Waa; upmed gn 24-Dcr;;-OZ wilh .II bo)Q.,.:.c ,.. or 

'ZIMAY in Ih~ ama\D\t of USD93K. The !rM5I5(1j0I1S ~cc.ut(!Q' by them aI'I! ~ ';;;;;:1. eWl witl~. thu ~ clI:WUlScd imo toc41 aIlTenty for & 

In Ad6ition. ~ d; CI:n 'COmmr:rCiai rc.~renwp with .... Cd>:1tI rAtitlll.lb: Ylith tbt! (ollowing balance:8! 

AeCOUntJ dcno~inPled in USU: V~J) :111 K 

A~CtJnt$~in;tc<! hi I~C,wt:nC)'{Lc:a'lpir.u):USD 23K 

HBCR-CosfD Rio 

~ b one coro,JDQt:1Bl rc.iatioumlp wilb .J2 Cu'b.ml cw;tolOtl'll whao i1aw- dl{ferc!W 

u,\.insI ~ .~'l KQ(lI;lBB knominarcd in USD with bDrrn~a QfUSD1J.6K _06 «;,dit 

=ds with bo!KJoos ;DdJ,e cunoumorUSO SSK. 

Confidentlal- FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC cec 8876094 
1791 


760611.624

HSBCID 

HBSV - EI Soto?ador 

There is. Q{l~ rela.tiQnship witt! 1II Cublll1 n!:ltJ.cnaJ (A .... v;r:J,gI IIl>C'OuJJ1 denomjn.sted ia 

l(1cIII cllrr"nc), -Coio.n salvMord1o. wlih. b,.-j;sn<:e ofl SDlJ.ll.} 

HBNI-Nlc2.raew 

NiCIII'3gua doelI not execUlC: hu nOl e>'CWled tT1lNac1ions willl Cuban, N<tnh J.:are.an. 

or Myaamar r.e!:iOll:l!C ' mrltiesc. 

II. AlI3' R£W de-vliJoptnl.'Uts ur l'utuft IlJltk:lpatcd b.:mltl"!J$ lI~tie~ l"I:l~~ tlJl, .T cn."lio::bwith,theatlUltrlllll'ltste4. 

h:w t"~ eJ)lin" '""Jilin.. 1111 n~lJ.I.ry ll<nngo1ments have holm mlMie to .. ano;el-ll!t bluinf:!"! 

relatiomhip$ With the above jurisdictiolls • .:ither m rol"latioll to Il.cCOLnJUi ael'lOlnin;lded in 

USD or commc.:-ciru ro:latioml1ips with $\1"', junS(h~0I1s. Therl! ~ m>t Dew bnliirl~ 

n=iatiollship" to be opened with till< lib""" jllrisdic.iUI'IK, 

ilL A desaiption of Ilbttt or indb'CCt «l1lIMb willi th.e eovr.mD1rhb oft~ JUlDd UlWlh'R::! .rul wit:b mdM.ckub t)r _ttiIeti am,liBtald "1th ~ ~trOlJed b}' t~e 

X~~ .... mll the _ JnQde by ml)Se pBrde5 ot fIm.<ItI l'efelved bllfbe l'f:b1c1f 

t~~ctkms. 

for the entice Rgion, f01m.1 nrl~i01J$h~ maillt.ained with suc.b junsdlc1iom.Art" 1,\.'1111 

tt. enli:1au;iu;. lis m.(J'If.TI in sectit»n I hereof. 

r1-'. QuantiliattiOlto ror dI",h or2003, 2004., 2005 ... Pd 1006 o.f: 

(.) 1'I!",,"q.es rrorn n,;:>Cf)WI'ry: (ft,) prnftta.1lHy t»rthe country (pleaw IIdVille: an,... :slplfitaAt crrtim9.tcl usrd 

till .dloe .. tmc eOlit$;' .nd 

(~) tofltPd es:sffl in 1M comdl')'. 

Y. Details es m wh!!;th.!o:r Lle !ldMt!e!! !dm.H!lef an iiI"'.:!tJc-t;t t.:J a:rtQm~r 

c"lIAdl'llttaHCy. 

FtIt thi ftnliN region, con:fkIJ!"nti:liity ~1rictiollS lire -a~ljCilbjc and infonull'liQll n'La)' not 

b::! pI"O:l'.1~ed 1m!.;" it i~ ~eru:d by the r:.g::l::t{';i'. 

Confidential- FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC acc 8876095 
1792 


760611.625

D~i\NCH AUDIT REPORT 

HBMX 

SPECIAL HEVlrW 0,"' RESTORATION PRUJECT 

GROUP INTERNAL AUDIT 

REPORT No, GAQ Oll(lOIl1 

'11th ri!pOtll.i F't tlu ~d'l<;li'f! U!ig /.IfnI kn(~wge "111,6 /fIUJlflgeJ'Ml'lf, A""if Imd Cf1mptiQncw. Cmmmtr6'~, ~ 

n'B'f as "'/rhin lire HSBC GroMP, II/Hi $lJ«8 noJ be lUetf /J;l' any otlour per~"1f I{} the. ones sl'~ciflCrUlJ' me7tlioneoL 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8876417 
1793 


760611.626

CAC: C.sm::h Audit R~vrt 

HBMX- Speeial '~view Of R~t()r<!I1iQn Project 

November ZOOS " ___ ~"_,~",,,,,~v,~_~,_,~.~.,,, __ ,,,~~ """"M ___ .... ' ......... ____ . _____ _ 

CONTENTS 

I. EXECUT1VE SUM~1ARY 

1.1 Conclusion 

1.2 Entity Dcsl:ription 

1.3 Scope 

1.4 Objectives 

INDEX 

1,5 Rcsponsii)ilil:Y for dearing the repOrt 

1.6 Summary of High Risk Matten; 

PAGE 

I 

I 

2 

3 

'J'1Jts ryfJrl i.t for the t!.rd;uiVl! 1I.\"t' and hQwldg~ (if t"~ M""trgo!MCWt. ANdlt tiM ("mJqlflIJifu. Com~. Il~ 

M'i!U /JS within Ihe }J,sJJC GNJNP. fuul skilU fJO$ IN #sed II)' .. 11.1' Cltiter pl!non W till: Me: sp~cific~I{1' m"",iQnd 

Confidential- FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8876418 
1794 


760611.627

GAO Bfimr;h Audit Ruport 

HBMX~ 5peCiai ReVli!W 01 Restoration PrOject 

~.~~~rn~~ .. ~~ ... .,_. ____ ...... _ ...... ~ __ ~~, ____ .".~ _____ , __________ _ 

.h EXECUTIVE SUMMARV 

L.! Cy Gdu>:iwr3 

The 3UrulCrS baYc as$~scd the t~nl risk grade of tIte R",sftmmd(Jn PJ"(ljecl Phase! os 

Amber. A.ppe:ndi,.;. 3 <:olit31I1S the as:'lcs~m:;:,nt of ~<ch of the 7 sub-projects ,.c1~ctcd for 

review,.!!s well as o'/ernll prcjcC! management 

Despire it is a-cknowleciged rhe Resfallracir':m (Restoration) pr<"ljec:t .'lraned from lhe 1Jeed to 

Ilrgeotl), attend concerns mised by Tocfll !:Iutbonties io regards to KYC and quality issues 

and that a number of proct:sses have matured since then, the Rudilors Identified mojor 

weakIlt:s-'Si!S tllat may binder rcgulittory complianc'C and ar.,1lj(::\<emt;nt of pr<Jjt;:ct 8u~ls, 

including, inter !'Ilia: 

.. The idemifics.tion, categorisation ~nd (jjt::'S itllegration processes. ofhigb risK customers 

an.d PEPs need to be strengthened for Phase i1 of the project, when defining the 

QCcounts databesc to work OD. there shotlid bc criteria in place lojustify the database 

SciCc\lO;"J mad<r:, and adequate. reconciliation proceS~5. 

• Whil'll the sysremic cOT11T01 to idenTify customers. engaged in higb risk !:-,pes of 

bUs-lt)c$$ is asscsse:d, eM? should conduct pl:riodic rcvi«ws of the accounU database to 

eoofirm all eu:s:tomers under such cilitegori~ bad been properly categorised in the 

system. 

• TI}C accouIltabiltlY to complete visit report!: should be I"Cviewed, cQnsidcrlo,g they 

should be prepared 0!1 the bft .. is of ctlsromer ris.k levels f~ confirm tlley conrail] reliable 

ill rormation. 

.. The intelIl1'ltion -orQCess of old account files for Phase II. where the volume of files to 

fcmcdiat~ witt i~CTcaSC, needs to he srrcamlinc:(I. The OTOJ,l;reSS made til Dbase I for 

PEPs and cusmmers with cadl deposiu Abtwe USD lOOk WM flJUnd tQ be slow, where 

:llese rwo concepts reported ifltegrarioo pe"!Cemages of 34% and 22% within. a period 

of 8 montns despite account cancellatioil actions have b~n taken. 

• Th.t imp~ct of ~count cancellation on the busines;. customers ard cost<; should be 

31lalysc-.d li'Ig~il1$t .hl; fish dud hl:lv<.' be!:n mirisak'fJ lind !lI;Ci.·ph:.'d, ,is this will !tlJQ\\' 

havIllg anc.qllfltc bal>1[J~~ bet"l.l.·~en ['.onrrol lind bllsir~s;s> plH1ic.nbrly wbe:re: 

caned lations ma:~ he attributahl-c iO intt::l1lal errors rather than to the cu.~IOlUers. 

IS Ot;t: stmte-!;y for the jnte-~r<uion of old acccu.'lt fHes based 00 the expected change5 in 

the regulation needs to be d~signe:d :md approved. to anricir..ate ::he impacls on volume, 

effc.-rts ana resoUI·c.es: required in Phase H. 

In terms of project m.anageruent and considering Phast:: II is ongoing. key issues are as 

follows' 

• Project mafltlgement should be strengthened !\r1d ir.('.('IIporntc cOl1trnl D.cti'Jities included 

in HSBC ;tandards through l Project nlsn3Bfmenr oitice and !he me of tools and 

techniques. to suppan the decision-making process. 

'"' RC'sourt'c cap:abi!itic5 should be analysed based 00 the sc.opc and objcctiv.:s of the. 

Thi.~ 1'q)uH iJ jUl- if,,1 ~.n.:imi .. ·tf 1l~;"1! wtfl Anuirlt!.q:e uf ihll J/llmtl:e.'f"Mi, "'"rii/ll"'; CUfr>j"u""I--e:. C...rn(hf;{"~ lil 

... ·!!II !!.~ lW!1ri.'! !lr~ H,"!,HC (itNrp. l!tJri ~'hR" YW! k rJ.(,M r'!y !lP!J' f!t!Mr fI~rJ(I" fro tIt~ n!US ~cifiro/lj.· .·!!fflti,,"~flf. 

Confidential- FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8876419 
1795 


760611.628

G.4Q !!ranw Aw:!H ~epo!"'t 

HeMX· 5peci:a1 Review Of R~stor.ottlon Project 

November 200S 

·"--~·'··pro}e~~·"C':-o-;di""· m-c:n-'-:-ion:-:-;t\c:,,-st;·ff1f;~e··~;d··budget~that are necessary to ~chie\'e the goals. 

Thett.: ""ete no repeat rl!Cor~lmaldatio!ls. 

'Tbe sl.;dit-ors WI$h to thank th~ Maoagem~nr 3:1.d staff ofHBMX Complianc~. Channels & 

Distribution, Operations aud opseo for their asslsmncc l,IT\d coopc;r:a.1lQn during thc C~lUrsC 

of toe audit. 

-drcums1<1nces were the hackground of this project: 

G:rowing pre5:Surc from Mf.xkan regul.~10N rc KYC issue-so 

iI FiIlilu.re t;)VII<Ki;isc MtD lm(l COI:J1p!i-i\l;Ce js.~'l.1~ in HliJI;fX. 

.. Exlilicu..:t ui" tlt:ct:n{nl.i'!lt:d KYC prucesscs, 

-e. The regohllOI)' requiremellt to remediaic 2 millil"lfl of cumulative files. 

it The cootrol and cusrody of customer files-lied with the mere th;tn. 1,300 branc.hes, i,e: 

these weie nOt cenu-alised, ",hlch impede€"! t:11~mmg ad~qualc fil~ integrtltion and 

quali1;y. 

b. Failure to r«:ondle new a~counts input 10 Lie system vs. accoant!; WIth a file 

integrated at the branch, 

e, Idcntific:nionlmonitorinH of PEPs and high risk customers. 

d. No foliow-up was given to the in:cgration of old accOUnl files. 

t. PnClr !evds ufint.r:.!:p"aiioD or new accouulS Bssed un lntemal Audit reviews. 

Thw-c was 00 reliable. matiagcr(lcnl hlf(Jlrn&.t)()!1 llJat showcJ the ittlmd posi(ion of files 

in4cgronOi], 

g. TIl-ere ',l,'as no idenlific;ation, monitoring or L<:;rt"goriS<lti'Dn of high risk cus.:orner5, 

inch.;din2 customers ''''he make high llmour;t usn d.zpcd5. 

II'J 11gb' (If th() BbQ~'(':, cff-crts were mainly pricnrcd to rcstoring me credibilitY before." the 

'Ulthori!ies., from 'Illel'1~ the: R{?sit'JI1tT.)dJJI proj!"ct was & .. i.¢ed into 10 sub-project~: 

1.- SlrllClurt and Slanitlf, i jJi~()~:S ~~~~~~~ o~ ~i~~~m~~;~3 and ~l-wlls to a(k1ress the I 1- E·~t)F,ced ltll('w-IlP of !:4;h risk I!.! Dtiinc 3 pmc<;:!s 10- ~m;ri'. Ire. CP 'lP !!) &lIe, .:lW. i m')l~i!()J hig.J: i el.!!>!Clmer 11Jc.\ r:!l..:ust"!lJtr> [0 em\.lJ"( felmhuory ¢(lJnpJi;toc¢. 

b) TIl<: nroCt1$ to id~J1I!I" 11i h risk customer .!iou:d il\clude those 

Tilh "1'01'1 r. for tbr. c-ordllrb'll JI},'e and l(tjoidllt/gr (If life. MlntagE_ltr. Alldi( "1',,1 CtJmr1ilfr.r,:t:. O.IWflPJiI,,"s, IJS 

.. <dIIZS within tilt HSHC {imffp. (lItd .thuiJ"o.r 1M N~ed /;j'lfi1J' ptker pttrlfmt to lint m"~ .,!(ucjji!-all)' fHllntiflllf:tf, 

Redacted Material 

Confidential· FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8876420 
1796 


760611.629

GAQ Srliller. Audil: nt!pod 

H9MX- Special Review' Of Re3~er~~n Prcject 

NO\Iembe( 2008 -"--1 j tUS1011'11..'1'S with h'gh IlJl)Omli [SD depns.ils ani lhe ccm:::spcndjl1~ 1 

11.:-=--6iX;n;s~-"'t;li~p·--;'j ;~;~~1 a ~)r~edu,~-'i'o"(~~\lre t'oi!o~:up' amlllllpterm-iiiitio;\od j ~~~~I:{ llIltb£ ar,d \'IS!t rll:poflS ! ftcornmtOOlll.lons. II) eND\' repol'lS. f 

t'..\.,· Re:lflerii;lIiHJ\ of (ltd act'{llll'~ file'J. II! ~'K:(;1ili1'\ 'llie' 'IO\'a!ii:;" (.t ~iJ a.:w'u;i'i"njes ··~TfiEP··';;~:'imUer.:> ~md )1 

! {If PEr C1.!!i!0nxn dcUtz)l one ~r:iI~gy for fib if/Icgralion bi/sctl on the risk /I);; lala.lil), . 

of PEP cmicmers revresents and the docunlelll,.Hon mw.lllg: illl:Xll! 

I file. j 

. bJ DIl·.~I')t.\ .! ~Ali ptm;~dule \0 id.mtlry PEP C'J!otomCfS ~td e'-~UI-e i c------n I p:-operj~~tl<:!-n-!)fIM!r2c~~.~le;. t ! 5" Rcmedl:i1too itntegies to; Defu~ meeh;;.nisms K" remeih;ite rhe IQlality ",f Qld "C:CQl1nt flits Cl:l ( 

! imillUvl! llle C'[lulily oril~n .. PEP old ; the bn-~i~ of~\!s!or:nerri.sl: le\:els:. j 

~~~l!f!.t~L..._. __ . ___ ._.-+-__ ........................ _ ...... ___ .................. -;--___ ---' : \').- SH"Cnglhcn I. .. AMP r.lt!n! SrmngIhcll HBMX mClIlil()nng ~)"$t<':ms. paonu:ular!y HI regards 10 ~ 

~ ~~~~U~: .. _ ... ______ ; ~~g~~~;:;d~.;~~~thl; lcll:.ibtliv to_~Cdt~{! [~Mr ilkr'& I 17. Dlgt\illiS3 .. ilOtl ...,.,,,,, .. t;iilltr.'.li~.".i .. '.. '. rw.Pl(:m.~l1 0.1(: ~'!fIXedM:- .. I.' .ensl=l." .. DD .. '."' .... i.'.W. (::'{1."".11 <!c .. " •. ' "'.' .. 1' 

t~f15:}' .. ~JJ.I~~ . .' . i files are l11!e;g,,!!~"~n.? reJ?~!!;"~ om~~io!3s fl?("c-or.rection.. _ . 

~ !\.- KY( qUill/I;,' llSStiffi/)(¢(OAl : flllj.lltmeU1 11 process ttl en~"Ure KYC pGllCies WId ptCcdures {Irt 1 

lBVI~----J~~~i:;~:;~=~;;;:,~::::i~!~~J 110.- LC,.~om~lp~Vedj IllcJllde !he I~~s.l'ms k-aml. dtItJlIg lilt: RC~!~~~~tal)~ Iht l. i acces~ to Saul's lTlllISlIctl(lt'W1 ld(2S at Hie \Xll]tct IClIP1 In .cannet1ioo ... ·)tI·1 l!11proved alACSS 10 rhe i 

L~.:fQ,!J1}im2T!..,.,._. ______ ~". !.'!!.~~::r~i!J!"!: . _I 

a) Proj(.-'ct management: 

Roles and rcspon:sibijjrics 

audset 

I RCSOll_'1:CS 

;; Goal:l: acIiieveInem 

b) Proee!:1sl!s ongoing: 

.. riles digitaiisatiou 

Old 3GCOunts 

• Databases 

.e System5- supporting the id:::ut1fieation cf sees 

The Sl:ope of audit fiddwQik did not c!)nsidcr sub-projects ;; and 9 as these wcre r-cl:atro to 

processes that had been reviewed by thc Trnns.lIctionai Audit team, as well as suh-project 

10 which was at 8 primary/<iefinirion Stage. 

TJr;~' nport Vi Jur tile UUll:i/w 11.);11" (11M b~lfofedgf!. Df the. .JIlIlWgelJUnt, Itlrdit ond Cmnplillffce. Committu!!, II.! 

.'tH 4; .... lIMn flit H.~HC (if1.Np, anti .t/wf! ,ull ki,utW by JlIIJ' fit,," ~()R fu Iff/! {)lu,r JIJeI.;ijiwJiy mf!1':tWnM. 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8876421 
1797 


760611.630

GAQ Branel'! Audit Report 

HBMXw Special Review Of Restoration Project 

Novembl!r 2008 

The audit was conducted by Serp;io Piiia, Enrique (armona. Amaury Reyn~ (Branch 

Audi[), Carlo;; MagnulJ. (General ,~\ldil). Ricllrdo Zamora, laara Ordonez, MDno Cadcna. 

Yirlanla. Tot"I'Cntcs (IT Audlt) from 04 SEP08 tbrou,gh 23 OCTOS.. 

The objectives of the audit were to as!l-e~ .end fq>OTI, on; 

ai The processes and conn:ols used to manllge and implement Ole lleslallra.::ioll projol;ct 

and tclatcd 5uo-projccts. 

b) The processes in pltu;c covering intcm .. l commitmcilL$ und thos.c: cstalJlisbcd with ~hc 

eNS'V, 3nd their effectiveness!e prevent regu);ttmy breaches. 

The- followhlg areas have .~?onsib1lity fur c!e!lring the report, :!I!d were lDduded ln fbe 

~.fL distribution1isr' 

Direction ofOpcrattons and Admini;:tration 

Dirc(.1ion ofCh!WIlCls and Distribution 

E:.;ecutive Direction of Compliance 

Executive Direction ofOperntlo'llS 

Execu.tive Direction ofIntcme.l Control and Compliance within Channels and Distribution 

L! Summary 0fHlgh Risk Matters 

Key lligh risk matters idt=ntificd during the audit are summarised below: 

3.) The rnte!> ~nd re~pon~ibiJities, and activities, ~)f tb~ involved in the s:t.:b·ptojectl: 

:should be dearly defined, Ie pn:vem g3pS, work in sile!:., cr rcpr:xessi~g. 

b") For Phllse U of tht= project, resourc~ capabilities s~ou.ld be aIlalysed based on the scope 

and objecti\'e5 of the project to avoid delays "nd Cllsu .... 'C the SU(:'ccsstl.li and timely 

impicmentation of the project.. 

c.) For Pba$e n of the project, [here should be: dear definition criteria in pl3ce 10 select 

and idcmifj lbc customcrslaecmmts to be reviewed from the databases, as wei! as 

adequate r~CI)nCmeliOJi -processes tl) ensure theiTrcliability. 

d) While the idcntifi:elltion/c~~g.cris.ati(lG of high. risk C\mmr"crs/:llt.tivirie~ is. :mr~n.mrcd, 

the datablse sbOlJld be re-galErdy rcvil!\'Jw il) COOfin'll ali high n::;k cu-stomrn 1m! been 

categorised in the syste.rn. 

Rl!'bwt validation pr('oCcdures ~hould be applied too ellSUf'! e!.1stO!Bers reported to thf 

authoriTies nfl\i(' b('ctl1.d(ontificd !nld C3.tcgIJriscd in tb~ s.ystem as hi~ risk customer.;. 

'[1ji~ reprm i~ for the' txdu,i'iioe U~ u111J k.rt<J>i"~J;;r tI/ f/'f: Munogeim':nt, Ali~t ~ CllmpJ;OrY~ OJHrm;"~, .n 

M"1!U a,t: wirhil'l fll€. H.'mc.: <'N1t1.n, amt shallll(lt he Iw!d fly tlnJ"oIlr~"fi~MJ{lJ t/WINIl!t .fP£r:iJicotry melUMnfd. 

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Tab 25 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8876423 
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760611.632

CROVP' AUD!T HEYJCO 

AtDlT REPORT SU~IMAR't SCHEDULE 

GHQ RErOkT.'\lJU.: .UnfS 

. Name 'of ,~udii ""1 'fiB~i:-SPEC1AL K£~=i.t~ THr.1iESrAlri:iailivT Rt'$SltB! LAM I 

~;;i~~r--'TfcJ)\raJsu}1»";1mWl""'~~TI~'di't"- l-"~~ ,(lIntl-nler(,roap ~_ ~ I.. I 

1

---- - D.\.t' - \ - 'I.-(,!I)otnoi R..k I Ov;;:lI'ifR:Gi-i 

Th15Al'dit ~j A;r:b'tr- NA ! 

k---,. -, ---.-L _______ - ----1--------------. lUI Auoiu ~'A ! N;\ l._~. __ ~. __ J .... _._ N!A ! N.BtDr .. tlfR".~ini!'u ' 

111~ ,"t""':(",-r.;l;:r;),"; :.~~:~<1~~I') ~it:'::' :;::m:o trom;~ i'C'iUir;;m-';:ll[ 1>? aM/-.-s; ~rlO\l' Nllc;:nli mJ:;,;:d &)' ~1 I i re.\l.ulru.Qry .!IlI\horih(s >eblil:!; IO HBMX's KYC mill AML pro(,'l:E~e~ <\lid rec.()J'.t~ PM1lcular ('CIlII::al11 were j 

: llOled \\'ilh ~m ~ fl~ at:tur,)t'~ "nd I;(Jmjl'ielrnesi> ofaCCDUlJ! OOf.umenlS trelll~i1lioll • ...,I~~..m v\<er;::. 2. mllli.,ll 1 ! 3cwunts, ds'.mg l':lC.k 10 11)03), the H[,l'lclil\CU oj' HBMX's; rcSpt"'l.'i~" \0 ~guliltory ~qL'CS.1.S and cerl.t!ll Olil(>T : 

L~~:fL C:~:.~$,.w;:h iil:h(;$C' ~u\'l1d US;) ;'-;;roS&c,iom. __ .~_. __ . __ ~ .. _________ j 

! O.lJlol:JII'~iouof"'\qdif: 1 i llJe 300i,:OIS nored 1M! a I;(ntr."li"rxI ~CCc)1:1'I1 <;'>lX'\hlltl:~!jo.n unit had l'een pIlI ill p\;!I:e 81 <'I11j'mr!y ~t"g!: pfthe 'I' 

I prujOX'1- ,l.! ~ ruuh. rmrugemenl bdievel1 llml t~ ~.~ Jbf nc.:oonl5 OjX'lIr(\ SlJ)_~ ttlf1lrncncC'l'Tli:'nl of:h::' , 

! ~~;~re ~~~t ~:~~~1: ~~~~t ~;:~:~~~~l~ ;~~;~:e ~~~;:!:~~ f~e~~y ~~~'7e; b~rt~"1'21~~1 j 

I :~C~~\I~~~:~:~~~~I:: :~:;~~:!~I;f ~;~:::' ~~\~fo~~~;'~i;~~fa:~~C~~:k~~:~,~~~;i~ 1 

ll)r~iw.'s cr'lcr"l~ t:.OO~~', • . i 

! T1\eleY<\.~I~ ilk-rlllhl.'dlno;luU;:d,mlera.in f 

! q~~~~: !!l~~.e;i~\l:~~~~~~~e~!:~~d~~~:I~ :~=:~, ~:~I~~:~:Tlj. ~~i:~l~~~ ;~~~Y'~:~:~ l 

! :;:~':~i~~e;'!1::~\l!;(Jl'\lledUll)01I ~r8Jl(Ji) higll. nsk. Pf'S OCtoulllsl, spccl[kally in Il.'m\i ofll'lc CIl)iure i 

I : ~::'::;::~:;:~1::::~:':::~::~~~::~:::::~::;:::::;::~::~':::~:,::: 1 

I n'i!uircd. !\lid ill ;,I)Jl~ <:lIW~" Uc>c ":vorts \\'I,."!'C i(!\lIJd 11] t><:: MYC been CI'(,1l1cd W1,hnu! viSIi.t :x:ifl~ JHRl1C; l!lld. I 

~ TIl: ;n!jto,"':'.o recomr::el':de;l llll;llh~ imp<,;~\ of ~ccour.\ ~lr.;dla:iol1 on tire: husi;-;es •• 1:l~i.l!W!f5 lllid CG~t .oo~ ! \It. .. lHl,.."e(I, 1I'~'1<i"'\1 fhe ri$\.-s beln$. 'rtili.g::lled. ~I:'l !:'m.F.I~ 3n iI..je~OI!e b~I:U1ce bt-lW~n cornro! ;;nll buWI.e:iS_ I I paMicuurly ,~'t.ere cjiHlt~IIf1!iI;o,,~ 1ll4IY be m:rii>ll1Jble 10 illlenl3; errors rnlher [hallIe Ih~ tuSlomers.. I 

I _~ I R~;~~:~a~m Managt:mrnt ; 

! ?!hM!l:~r.t is 1"H\:llualing Ihe K61l'iI\~ O'f 1:&1I:( ph:l;C$ (Ifill! Pf'O;lcet, l'IO~inl!.. tm, inc l'eglllJ10ry all1ll<lnlteS I ( :1I~y il~l.rtldl1O:: ~ !l\()fC ~k.J:mcd gppt'O~'.I .. wlne!1 W~IJ[d rcdltGC Ik- scale or fClncOulillll rcq'lin;d. AdruliOlu>l I 1 (,m!rot~ ha\'c b!;!(ll j:l111 in p1w:c ;!l1llJlld!lle visit pro.:es5_lHi.ck~d by lI' revisic.vlIIO saltillr.:t!lll\'<:S sud, Ulill only ! ! :~:lll~e~;r~;,\\!:"h ~\\'~r llo.c\:!ntrl;;l:il¢o1 "'.'O\11;'! be ~'·n(r'.;l!;;l, in ","'d~r ti!- ~murl: :h,,: 11;;:',,, .. fj'·OP'='I1:d a.;;'CU;lts ! 

! ~~ ll~~:~nre to l~:~~~.~~_~e ~ ~2 J,'~~~N, J 

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760611.633

HSBC DROk Middle ERst 

~Ilise ReiHy, Senior Ma.nager, Operations. HBUS 

Malcolm EastWood Senior Mana:tl.er Operations HBEU 

rom 

ick Puduer Head of em Middtt! E>t$t DUOli:i 

c 

r,

Or NliSS6' Homspour, Iran Rep:re:!>Ctllathr£, Tehran 

lige! Weir, GP'}'{, Middle East. Dubai 

at')' Boon. G!ob.ltl Payrnc[l\.s & Cash Mgmt, Dubgj 

ames M1!dgm. Global P''''yme:nts & Ca~h Mgmt, L('IIIdon 

Executive Summary 

Memo 

rate 

Janu9.ry 2003 

~ndcr's Reference 

;Receiver's Reference 

This paper has beeD produced in order for t1ic Senior ManasclIICIlt Committee (SMC) 

of HSBC e~ USA (HBUS) ~ eYe.ltl./!;!e w~.e!:her or net HBUS wi!! prcc~s US 

dollu (llSD) P"yt!lC'!lt! inl!5!!tM. by lrMlLaO Ban-I(.; vi~ j!oc.Qunt§ held with HSBC· Bank 

PIc (HBEU), U$ing th~ proccu pro"ided to HBEU by HBUS Utlted. 29 August 2001. 

This cpemtioD8J process may be amended at a.ny tilDe and HBEU will be required. to 

adhere strictly to the !lew procedures as advised by HBUS. 

CUITendy, it is estimBted that Iraoian banks issue up to 7QO USD payml!nts a day 

using their USD service providers, mainly banks io tbe UK and .Europe, whicb in turn 

use their New York usn cOfTe!pondt'llt1; to effect the payments" It is: believed that 

some service pro ... idcn amc.nd the paymCllts fO ensUl'C il'tlo is not mentio:ocd in me body of the payment instruction to their USD t:orrespoodent. This: proceu orinltl:lises 

,hi; l'isk Ilf pa)'ifje~lS: b~ifig refen"'ed m OF AC. 

l:ostHuticncl. Banking .acd. PCM believe therc h a substantial h!ccmc opp-~nity to 

sell a USD payments proposition to Iranian Ban\cs in view of !lle nnpending FATF 

roe.bruilttiMS". which life due to become effective in Q2 2003. The uew regulations 

dictate that each bank (effocting the paymcnts on behalf of their clients) "I.'ithio c.a(:h 

fA TF member country must en~ut'e the full name, address and a!;(;OUIlt Tll,Lmber of tbt 

ordering party a.rc quoted on the payment instructions. This lllcrce.scs the risk of 

Iranian puymenl3 bdn.s held in the USA as they may iall foul of the OFAC 

regulations, The Iranian Banks have now prioritised this issue and are DOW actively 

seeking Ii solution from their banks, includiog HSBC. 

We beiiev~ tbat HSBC collid offer tbe .inwia!l Bank!; II solution t'ilat fadlitates II w:J)' 

f«!hem t.u c:1fcCl USD payments to beueficiaries outs..idc tbe. USA -wing the. 'U~Tlirn' 

process do,:.uUlcntcd ..... -itbiG the CfAC r~gulati0n5 for Iran.. m~us hu."c ain:4d:y 

pro.,.idf..{!. HEEl) with their aper::.ti::m:l.l n:quin:m::nts to pm:;:e~s !lJe~£ U~TI.!n\. 

paywC!lts 9!"!d therefore SMC <l}"P1'ow!.l is bt.."'ing sought prior to HBEU scoJ,.ling 

potential IT changes Rlld the production of a 9ervi .... c propooitioo for the II1Inilln Bnnlc:s 

This In,J.sinc'lS case also bigbligbts the potential rislcs should a.pproyal not be given.. 

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llackground 

About BO% of Inm':i for.cign trade, mtallicg USD1S bilJioo, is denominated in L"SD, 

iran undertakes It considerable ,,·oI.tlmc of trade in mmcts il1 which HSBC is 

represenred.., ~nabiing '!he Group to leyenl~ iu global footprin.t Our inn 

Repre.sentative office has wvrked ha.rd Ovei me past three and a half ,~ tv build 1'I. 

positive i..c::llS'! uf kan. throusb road ~hows, vi:::its, sUflporting tnJde mi;;$ion:; ::1m:!. by 

~fcmng S;oOO lra!lian tJt.LSin'!S~ t<J Group offi!.."'C!. This r.!:!..'!. shown HSBC to its 

customen as a hank that is able to do business in difficult markets: :md as a result 

added ronsid~ablC' value to the Group, Stra(C'gicall),. TrilIl} is Ihe COWltry in tt..:: Middle 

East region with the most development potential for HSBC in the loo.g term. It bali lbe 

world'!! fifth largest oil reserves. ~c;ccmd largest gas r~C!Vcs, substantial mineral 

reserves. and a l(\~ well oouuted population. 

Th~ Imn Repr~ent8ri,,~:offic~ was est5bli$hcd to develop relationships Imd credibility 

fOI HSUC i.l me market, This ohjective has Ixl:"n Iiiliicved .and tin: Group is. weU 

:pl~d to devclcp it!: opcmricn f.'"CQ <l. paStuon of CC1:llPid:mlblc ~ .... >i!t Dc+.zib: of 

HS~C', bUiines!iwlrh Iran and Imniao entities ar~ sbown In Appcndi:t 1. 

Th(: FAFT rC'gulati~ .EIre due to- be impkmc[lt:ed in Q2 2003 and I,/\oili fmtc bl1llks, 

witbin till: FAIT countric:s. to disclose all details of me: ordering and beneficiary 

parties. effectively ending the practice currently undertaken for hanian payments. The 

Jranian banb bav£: yet 10 hear from tbeir existing provideI'll:, mainly LJoydlJ BanK and 

Standard Chm1crcd Bank, ami we Delieve were is cum~J1d}' a ,...indow of opporlwUly. 

Howe1r'er, during the past t~" yea~, fIDEl; and ROUS l-.a ... "? been in di~ussioo:;; 

;i!;bc>.!! bew we ~ proce~ these tranSlctians., idctlnf"/h::g the cp;ml!inDa! processes 

and compli!lIlce issues involved. After mcetings with OFAC and txre.:mnl COlmsel, 

HBUS hEls prOOtl~d Ii pityments process. 1t will be:: sc:opecl by HBEU, suhject 10 SlvtC 

approving this paper, in order to identify their operationi!J. compliance and IT imJ.es 

b~fore providiDg &II!!:, with a ~en.icc plVp03ition, 

HBW I HfmS have identified that by using tb~ 'V-Tum> paymeDt method, Iranill.O 

banks can effect tl'8osacrioo.s ro bcncfici8I1' accoUllU OUlsicic the USA. This mcthod 

will iilluw HBE1J iu send HBtlS paji'!;I\i;nt iJistru,;;t~('1ns with ll"!i.nia.'n entities qu~d. nn 

th{; l11:Hl',loCtlcnS .tmd yet a: tbe S:lrC.C time:: bv: CcmpliOiut with F.A.TF ~nd OFAC 

g'.Jid(:!ine!}, The pr~c4. se""i<:~ proposirif)!! \,"ill proviQ! e. s';.lit.able di.~deimer t~ 

etl.~\lre HSBC i~ oot held ljah!e fur any (l~yments whic~ have rI()t met tile 'U-Turn' 

criteria and 8iS a rcsull been referred ttl QFAC. 

Redacted Material 

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760611.635

II<>ne6ts 

.. Payment vol\.ltneS ~ estimated at 701) per day of which 70% will be commercial 

payments, Transaction income is estimated at USD4M, assuming that HSBC wins 

all me busiooss at In average item price ofUSD30, We believe tbat c.harges bdng 

levied by otber banks a.t the momeDf IUC far higher than alus. 

.. Balance income in HBEU. 

• RcputDtlolI within iran and the potential to icverngc additiooaj business, 

Risk~ if Appro"ai Dedined 

• If HBUS declines tu pmc~s tbc~ lran:s;>Ctiulls, wt:Q VJlIlIil,ie:Qi!lou will oeed tl) be 

gj,,~n to closiLig all <::Aisting In~,t1iall b~nk USD a,-c~ts ..... "ith the aSne -Group. 

.. Should ~be ::::boye occur the current OrtJup ;!rums.! i~omc cfOS02M fr-m !r.mi:m 

Banks ""ill b~ onder !llrent. 

.. The market will perceive ilial HSEC dccs. not support IranillD busil1~s 

• The ad .... erse impact on our Represell..tative office in Teht'8.ll . 

.. Summary 

II is anticipated that Iran will become a sowce of increasing income for the Group 

go1ll8forwarrl and irwcare ta acbieve (his \}.OBi we must adopt a positive Slaac.c when 

encountering difficulties. We are IIware of the coocerns ex.presged by HBUS but 

strongly believe. that by wort.:ing 'Q~ther we: CIm overcome them using means wllich 

-lire perfectly legirimate and in acwnlallce wilh flJles laid down by Ihe relevant 

regWatory bodies. . .i bope we wiu be- able to resolve tbis issue omerwise I fear we wiil 

u(:st1'uy future valui':" ill a market wbicb hn:s sbt,sliUltial !)oi~fiii.al for tile Group. 

It will he appredated if j'Oll wutd mise this paper Ie yo-..:.r SM'C at the carliezt 

cpporo.mity an.d advise me of the dCcl!ioo!!s sOC!:! ss possible. 

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760611.636

Appendix 1 

1· Medium Term ProjC.d Finance Unc· V5rlous Group Offices. US.D5OGM. 

This lim', covers ;; [jumt.er or indillidual ECA backcd p£oject fimam:e k.a.1...t;, 1t is 

denomin:ned largely in USD. The facility requires: that Iranian banks effect regular 

T)SD So far ,.mdu this 1JSD35M is utiH:scd. HSBC l1QW b::'\5 a 

~ 

be financed 

and the adler Qn~ is near completion. The provisioning 

been reduced to 5% in Do;crobc( 2002. whicb wiU make it easier fIX 

HSBC to undenake more projects iD Irm in the near future. With this in miud iiSBC 

troja:.:.t Illid £x.pcn FiUBllCC have decided to iIicrease die abuY¢ 1m.: tv USDtbu. 

2· Shan Te:rt!1 Trn.de Refu:!l!!lcing Agreement ~ tI_.B:ME Oubai USD50M. BACH 

t:SD2~M_ TIlCSC lines. .!I.rc d.-gJOm<~.9.~tcd,}p USD and require rhc USO loan! to be 

booked at HBME Dubai or~ 

3~ Whenl Fillaf1ce tines with HSBC AUlI1J'alia lJSD50M aDd HSBC Canada 

USDlO<)M. 

4 - L/C's issued iQr Iranian Companies Abroad .. VarJQUs GrO\lP Offices. 

HSBC offices are de\'eloplog relatioushi}l!l ..... ith 11'3nian Gor.:emment 9.J."ld non -

Goy.ernm~nt ccmpcmC3. Tnt; ues i5S'.!oo fl;[e :l~mnaHy ooomiceted in USD. 

F(\Uo~!lg moe's. !I.tt~!ancc of HSBC as Q[l~ i~ listed banb, HSBC He".\!:: M1ddk 

Ea.<;t now hl1lldlcs han' soil e:o;pt)r1 related LJC's. Tumovet' for this b~ine5s is about 

USD400M per year 

5 - USD Clearing AceOl,ln\:3, 

HSBC Bacl:: plc bas a number of existing 1I5D accounts for InlQian banks, which €ire 

med for paymenl$ ckarillg PUI'pOS!S. 

6 ~ Trea,,-ary 3lld Capita.! Marka::ii 

HSBC Invl!Stm::nt b~nk has tratl:>uct-:d:n excess of l!SDlbu of Sar.d b:zh:.::n wi:b 

Inn. g-er.erati[!g ar. incCl"llC: of 'Jver GBP70{lk ir. 2002, HBME Dul!oei a!'!.d HSBC 

Markft'i operate active focOgtJ r:::u::bange Bnd money market lines v.itr. the Central 

Eank of 1."1lJl and Iranian banks. 

1 - Potential Bll'\lnCSs. 

11~ HSBC is ltCrively pil1'5ulng an As.c;et Mmll8e.nu:nt mandate with the Central Bank 

wnicb wIH require USD payments t(l be p.aid aodreceh-ed. 

b-Imn has eDtered the capiml market for the fim rime in 20 Ycari, iSSlliog USDlbo 

'J\'UHh of pape.r through the Certltal Bank. The l;.udgl:t for the next year ill USD 2bn 

-.. -ith z.om.:: :0 be: i!stlcd ic Isl~!:lie fo.'U1. HSEC bas a very good l;r.atlCC of ~eing. 

1!Omi!l3i1:d to lead 0!1l:!g'C pert of the cO!lYCn!lomll !s~uc md!1 good ch~cc ofbci:ng 

Tlryr~iT!~ted t~ thF;" l~l~mil;- igl):V-f:. BO~ n::qllin': usn pllym~ntg to he paid nnd TT'.ceived. 

o;::~ HSBC mily form an Int~rnet Bank in 1nID, whi(;h will rt'quil'C' an active USD 

payment capability. 

The key thing to. note i1J that all editing and pob!ntilll business iB\'olvet 9 regular 

and ,ubstanrial now of USD plymeuts bQltJ in IUId oot. 

Redacted Material 

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760611.637

From: Marion 0 ROACH 

Sent: Mon Sep 0115:59:53 2003 

To: John F ROOT 

Cc: John AlLISON 

Subject OFAC 

Importance: Normal 

Attachm&nts: image_O.gif 

I attach a note ll3CElived from Mattllew King. 

I wourC3 be gmlefullf YOIJ could fun~ this, although I am not sura whether Matthew Is referring to 

payments made through H6EU as ~correspondel1t or something er!te. 

Our current thinkina Is however as ~ows:-

There now appears to be sorna clarity surrounding the fact that OFAC sanctions do not bite on non-US 

parsons even where payments are denominated in USD. 

There is an established payment mechanism of bBnk.~lo-bank payments, and no reason why this sholJld 

not continue to be Ibllowed -I do not see_es any dlffimmt from any other correspondent customer. 

I am not sure tlowever whether the practice being referred to by Matthew is the same as a bank-to-bank 

payment. Perhaps we coutd clarify, end judge the extent to which any fell/sed instructions shOuld be 

reissued. 

Regards 

Oavid 

2OAug200J 12:43 

From: Matthew J W KINGJGGM rNA GHClMGHQlHSBC Tel: 7991 0276 

44 2079 910276 

Sant by: Liz. A TESTER 

David W JBAGLEY etal 

Redacted Material 

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760611.638

To: DavlO'WJ8AGLEYIHGHQlHS9C@HSSC 

lain STE~TIIBEUIHSBC®HSBC 

Chti9 HA'Ao1(Esn-tD GAE EUH/HBEUIHSBC@HSBC 

bee: 

subject OFAC 

W'1.ile at a meeting atBYestEtrday, t was told b~tnat HBEU continues to send 

remlttancas 10 !tie US with 'selVes' noted as the oroe~en the transfer would otherwise be 

tiltered out for OFAC 'Sanctions reasons. I recall this has been raised in !he past, but I thought we had 

agreed the praclicewould cease. Ale you aware of the Gl.JI'Tant poSitiOn? 

Matthew King 

Redacted Material 

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760611.639

From: Jeremy R WALKER 

Sent: 11111 Aug 25 15:46:48 2005 

To: Gary BOON 

Cc: John F RCXJT 

Subject: Memo: Re: NON COMPUAt-IT TRANSACTIONS 

ImportancE!-: Ncrrruil! 

Attachments: Iran examples. doc; OFAC_lrMian_Consklemttof1_Sp.-e_O~1a.xl$ 

Ga" 

Si;oc!;- ;h~ GeL R.ud. 01" myselfbave not declined iliny payrr--ents f;)1 bej~ in 

bn-.ach ",t'lhe u-twn !":I!:f'mptiom. This is btt:~S<e tho;" Wlderlying tnmYl:tir:oEl 

lw b"n quel!ltioned before payment Wit! made and deemed to be 1'100 eDmplial'lt 

r bave tried io. crlSCtanee ourselves from Ihes.e Joc.aJ decisions as mas. possibl(:: and as:1 result do 110t have II. record OfU1C1lL I have howC'Vt:r 

altac.hcd QUI' nxunb or Vl!yuumLs rofcnl.'d 10 us fur your rofen:llc~ BgaiIl_ 

I have allached though. some examples (){non u·tum paymellls that we h.flVe 

declined in the past here in RMS whicb may be useful to yoo, 

Regards 

Jeremy 

JOM F ROOT1HGHQIHSBC on 25 Aug 2005 09:0) 

M(::;nQ 

25 Aug 200~ 09:03 

From: Jo1m F ROOTIllGHQIHSBC Tel: 79925555 

44 20 1992 5555 

NI..ail Si~: 3323 

To: Rod MOXLEYfHBEUI1-lSBC@HSBC 

cc: Gary BOONfHBMElHSBC@HSBC 

bee.: 

Subj!!tt: NON COMPLLA.NTTR.-\NSACT!ONS 

Rod, 

Would yOll ple:ue be 3blt tll pro·,dde G:rywith .. ftw examples.? 

nl8nkyOu. 

Regards, 

Confidential· FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8876580 
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760611.640

John Root 

~ .. _ FOr,l,la~d by Jonn F ROOTIHGHQIHSUC on 15 Aug 200!i OSl;D2--

from: Gary BOON/HBMEJHSBC on 25 Aug 200.5 06:40 

To: John F ROOTIHGHQlHSBC@HS,BC 

1>«: 

Subject: NON COMPLIANT TRANSACfrONS 

Joh.'1, in D!lt'id';s nete to Invid Hodgkinsc:= d1.~ Wtl1.A.ugu$t one oftbe ;JQinlS 

reft::rred to no-n compliant paymenu. re Ir.we tOUlSHcllol15 (see below). Do you 

have specifu: examples that you could send WI for our educatlonllibrnry? 

n.a.oo 

Gary 

J nole that it is your ylew that a significant number of tile trade and (1[11er 

tr.lJ15aCtions you list whkheu!'relltly irNol",c HBME wDuld be U-turn 

.:ompiia.iL T 1"lIIv,: to loa,. thlllit IlUmber uf IJUtcutilil pa)'1IM:nb ro.u1liclt irQlU 

trade tramo.cttol15 [rom othor Group ofIices that John Rool and lila",e Iook.ed 

al sioc-e Ihe- issuance oethc GCL are JlOl in our view U-turn compliant It is 

clearly importnnt lhat 0:; berween O'Ul'iehr.e:s and Dubai we continue to as~ on 

a single !nl"erp~t:ltion and it may be t1t:Jt further considenltio.n of a number 

of the tr.Ins.actions you list is necessary before a final det;ision is Illkcn. 

I cnn hnwc·,ter rel;:orJir;;: that the sample tr.millctiollS sent fm n; ... i~,L' h)' HBME 

w~re ronfumed.8$ U-turn compliant.. We have also yetted PEPs existi.ng 

payment nows .. 

« .... » « ... » 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC ecc 8876581 
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760611.641

Ffom! Merion 0 ROACH 

sont: \oVed Jul0517:04:23 2005 

To: RId10rd E T BENNETT . 

Subject: Visit to HBMX - 1 B ~ 25 MA. Y 2.005 

Import:a,no::.e: Normal 

Richard 

I have oopied YOll with the headline po-juts: jost in case Sundy cans you, 

There are II lilt of detailed points bUI llIllii we have lhe ril!,ht amount and milt 

orresourees I ClUlJlOt:;ee you Ramon can mllke progress. 

Acgards. 

--Forwarded by David W J BAGLEYIHGBQIHSBC on 06 Jul 2005 lS:53 •• -. 

John F ROOTtHGHQIHSBC on 06 Jul2005 15:43 

Memo 

06 Ju12OO' 15:43 

From; lolin F ROOTIHGHQIHSBC Tel: 79925555 

44 20 7992 5555 

Mail Size:: 4690 

To: DaVId Leighl:oIlIHBMXlHSBC@HSBC 

cc: David W J BAGLEY IHGHQIHSBC@HsnC 

SU5aIt A WRIGHT/HGHQIHSBC@Hs.aC 

bee: 

Subject Vi~it t!:l HBMX - 18- 2, MAY 200~ 

David, 

I have~ ill a 5epatate e~l1'Iail. sent you my visit rePort. There Is a wealth of 

detail. ;u. a clese analysis oftl~ nu.Jl\bcl'i ~vtal:i ooth where progJ'Css has 

been made and where we sbould focw. our d'furt5. 

The four mitior ~ommend,uions ofthe report are all HR~n:liJted. SccalJSc or 

u-oC :sensitiYities involVEd. they are ~nted sepa ..-utEly in this. OO1ier 

tooCiro_ The rt:l:oo;m;:nd<!tions arc: AS fo-lInws.: 

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760611.642

The HB~.x MLCO soould be appoillted llS soon ~ possible in torder to- Te!}rga..,ise 

promptly a demoralised department. and. improve AML conuuls by, e.g., 

oven.eeirtg the implementutlon of CAMP Retail. J rcaliu !.hat we have 

eon'llllenc£(l an int.trn:\] pl"lXess but thls needs to be completed as quickly il$ 

possible. Tile elllem..,1 candidate we l\3\IIC identified is, in my view, 

acceptab-le i£ All equivalent internal c;mdidate cannot be found. ] would 

re<::{lmrllend rLlleariy offer to !.his cwil1iftJ!'. Thc= ilctiI'lg MLCO b. mOlY 

oplnion, som.eone whose talents might be best empklyed in anotheT depmtmellt. 

As we have botlll"Ccogruscd. we nccd ad iOOepcndcnt, effective pmCC;5~iona1 in 

the sensi{l.ve role of head of AML in Meric;o. 

The 't'aOous u.:0s shoulCl, per the LUH, be evaluated closely an an on-gomg 

ba:>is;;.y tr.e C<lmpllance rllJ)(;lh>n. and nmjusllllt" lIWillltu. Key "-IK"aoci~ 

sh(Juld be .nile-d . .PFS ill a pnn1cubrly ilI'lpilrt.'101 area where ,,·e need:!l. (utt 

<:omplem!"nt {!finck:poendent,. !!Clive complil!DCe offi~n. 

Allower suggc:stlt'll would be for us to COIl!j:i.d~ the appoin!ml::DI af:ll pP;;!j~l 

managcr to belp t~ HD CMP. Projects are stand but seldom complc1cd, 

pcrhap:'l because of the many mini$terial tllJh !hat have ~rocd sire-a rOO 

dcpartun:: oftflll HBMX MLCO at the beginniI1g ofthc YcaI', TIlis may Pc II role 

th.3.t is only requi!.cd whHo the bulk o£th::: n!qul.'"'Cd i:npleme.nt;ltiot tll::cs 

plm:e. Tt may also be tole that can !.Ie cMnbined with that ofMLCO, as rhe 

bulk oftbc required implementation is in AML.. 

Imer-dep-;inmeutal cOllunwllcaliorJ Bnd I:DCpemtioll wuld be improved. Three examples. shou.ld su:flice to show when:: progress could be made. Fim. the 

L~gal. CClmpliance. and HR departments :should clearly delineate their 

re~ti'la l'£&ponsibilitias ill l;orgEH$I;::t1e prtlj~l;t.s $uch <'!i the accredi:;;.tioll 

o.ft1le $lllesfoJlC"c.. Sceond, HR and C{)mpUtlDCe should C.SfRblish p~eisl;ly woo 

should do whill in training staff tllroughQut HBMX group. Third, AMl and OP$CO 

should ronunullicalC. regularly about !be fUmIer distribution throughoUl Mexico 

of documentation sent by Group. Here again, responsibilities shtluld be 

defined . 

• A~ you (}fc~u..rse:koow. tbewcrk:h!!Spit.ed~ in IheCcmpliance depw1m~nt, 

and Ramon needs belp with the backlog. )1 is true that we lwve increased 

StafTin tlle depanment, but tht:y are [I105.tly eflfry~levtl analysts in need of 

di~ction. It is. impoI1uru that we hire a.n. MLCO as quickly tiS pos.sibh:. LInd 

perhaps 800 a son of "operaTing omce(" !br Ramon to enable him to brtng 

thclkparlmcnt b"p to Group 5tanda.~S. If yOlJ agree. it might 00 s.."'fliibl.c to 

se~od .s. relallvely ju.."tIor but ex~rtenc~ lmn3ger frem else'~here In Group. 

I would of c.ouJ!le ~ ,glad to discuss the above, and my report, with y()11 III 

yourconvenicnce. 1 leave it to you [0 copy anyane atHBMXycutllinkb. 

appropriate. 

Kicdregaros., 

Iobo Roof 

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760611.643

Re.pDrt Ne! GAQ 050069 

General Audit RepOrt 

HBMX-PFS Torreon Di,lrkt{Z04 COl) 

Group Audit I\oleKico 

Augu.t2005 

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760611.644

Geaieral Audit Rqtorl 

HBMX - PES AAmOD Di!tUt fZii4CDt} 

I. EXECUTIVE SUMMARY 

1.1 B&ekgrgllnd 

HBMX DislriCI Office Torreiin (Z04COI) is louted in Torreon. State o[Coahuila, Mexico. 

It controls 22 PFS bmncbes and the District bas a headeount of 22 managers, 54 

relationship manager.;. 4 PFS relationship mana.gerS (Banea Patrimonial) and 105 teHers. 

Torr-ron is ODe of 4 Disrr1ct Otnccs that report to Direction Z04C, in the Northeast region 

oftbe counny. 

Key pcrfonnancc statistics oftbc District for March 2005 were: 

Othcrlncomc 

Towl Income 

Experu:~,. 

Net Operating Pmfit 

OperalionaI Losses 

Net Profit bdorc Tax 

Tolal StI111(#) 

Nc::t Contribution per Employee 

Currenl, Deposit alld Investment Accounts 

NWllber QfCl,lStomcr A,,('Q1.ITlt:!i (#) 

Av(!regc Ba.l2l!lCe per ACCoWlt 

Cus.tomer Credit Rccl!>ivxbb 

Ov~uo Rect:ivabliC5 

Percentage OvE!rduc 

~ 

~ 

5",324 

14,021 

~ 

(3,812) 

(763) 

~ 

'7. 

53 

1,290.607 

8:2.041 

,. 368.900 

[2.284 

3,3% 

The IT syst~s used within tbe PFS Network are SleOBI (Bank's general ledger system), 

CT and PSSW (Transaction';l), HOGAN (Customer account information} and Kroner 

(loan,). 

The audit was conducted by ivan Torres, AarOn Torres'aod Rodrigo- Rodriguez of Group 

Audit Mexico from 04 tllrough 08APR05. This is first a.udit of the distriet conducted on a 

regionaJ basis althou~ the District Office had been audited twice before by GAQ when irs 

control risk environment was assessed as Below Smndard, 

1.1===== .. The objectives of the audit were to assess and report on: 

• the appfopriateness, efficiency and effectiveness of the intamal control 

environment and the susceptibility of that environment on a sample basis to 

frauds/failures in internal controls or breaches in authority; 

• toe reliability and integrity of financial and other operating matters; 

__ "" Red-aded by the Permanent 

Subcommittee on Investigations 

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760611.645

General Audit Rf'port 

R8MA PFS Torredn Di.'1triet (Z04Ciii) 

the appropriateness and adequacy of proc:edures in place to ensure "compliance with 

local. na.tional and inLemationailaws and regulations 

compliance with Group Itnd local pnlicies iJDd procedures~ 

Ihe design. implementation and effectiveness of ethics related objectives. 

programmes and acrivitiesi 

the evaluation and protection of assets, including the potential to eliminate waste SDd 

conlrO! costs; and 

the effectivenesl of the District man3i1:ement structure in mitisating risk and 

supponing business growth initiatives. -

1.3 Audit Scope 

The scope of tbe audit flcldwcrr" .. which was hased on the District's financial and 

accounting rc>::ords as at :r..fui:h 2005, cnmilcd. intl;r alia. a revicw of: 

Go its management proudures and controls applied in the Disnict Offi~ and throughout 

its brancbcs~ and 

tJ- branch operations, activities. procesge!l 9.0& procedures. 

Using GAQ~s key petformance indicators,S of the DistricCs 22 branches were sdecred for 

ddailcd Tc\,icW and examination: these WCi"C G6moCZ ralacio (230), La Rosita (38&), 

Ciudad Industrial (408). Hipermart Oriente (409) and Col6n (810). 

1.4 CCnt:1csKms 

The auditor.; have assess.ed the control risk of the District 8S Below Standard. 

No signHicant progres3 ha3 been made in tbe admiDistretion and control of the branches" in 

the District since the previow audits and 11 repeat recommendations were identified. 

Key factors that contributed io addition to the risk assessment iocluded: 

failure by the' Sub-Director to maximise bis usc of management "information and 

system enquiries to control and monitor branch pTOcesses. particularly those related 

to cash flows, manually generated reversal entries, 8000 series traI13itory suspense 

account entries, trends and variations in operating perfonnances, expenses. etc; 

recurrent weaknesses in consistendy and completely applying KYC requirements 

including. inter aHa, completion of Dew account documentation, iovcstigation of 

!ruspect accounts- detected by the Monitor system, preparation of logbooks and visit 

reports, and failure to visit customers to verify far AML purpost:S the rationale for 

transactions ill excess usn 1 million; 

the sales. strategies of insurance policies were inconsistent with the product 

characteristics with 26% of the insurance poiicic:s issued hetween OCT04- and 

PESOS. subsequently cancened~ aDd 

tbe risk of receiving counterfeit currency notes or cbeques was not mitigated, as UV 

detection lamps were not being used in branches. 

The auditors wish to thank the Sub-Director and his staff fot' thdT assistance and 

cooperation during tilc cour:se of the audit. 

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760611.646

Geoe:raJ Alldit R.eport 

HBMX - PFS TorreOn Djnrict fZlMCOll 

COMPLIANCE RELATED RECOMMENDATIONS 

Auudr'u05 

Appendix 1 

The auditors considered the following recommendations were compliance related issues: 

~ RecoOllllmdatioa 

4.2 Branch staff should ensure that KYC .end account opening documentation is 

complete and in compliance with regulations. 

4.4 8mncb staff involved in seHing investment products should be AMIB 

qualified_ 

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760611.647

From: Emma E V LAWSON Sent: IJ\Ied Oct 1810;23:392006 

To~ John F ROOT 

Subject:: Fw: .cOMPLIANCE wrn-j GPP 25 

imporUl"IC:IJ! N0(J'1"181 

Ar..a:hmcms: Doc llnk.htm 

John 

Good IXWS from Mexico! 1t 6.ppe.Fl~ will be adopjing GPP2Sarrl giving 

cousMe..<if.lD {O closure afiet tWO SARs ratl1er than [,t...e cumnt fOl,lr, 

1 will diarise to ensure I ~ccive 1he res.lts of the I1OI;t meeting ofrbe MLD 

Comrniuee 

Kind rq;lIrdi Emma u ••• PI)r'.,1J~~d by Emma E V LA WSONIHGHQ/HSBC on 18/1012006 10:20 --.--

Lcopol00 R BARROSOIHBMX/HSBC 

HBMX 

17/lOr.lOOo. 11:.5~ 

Mail Sii'C: 1269G 

To 

Emmot E V LA WSONIKOHQ/HSBC@HSBC 

co 

Lnura YESINfHBMXlHSBC@HSBC,RmnonGARCiAlHBMXMSBC@HSBC 

Subje::t 

Re: Fu.r: COMPLiANCE Wlm GPP :z.s Eorily 

HSBC Holdings pte; - HGHQ 

[)ea.-Emma.. 

'The HAMX M[.n C'ommlnee ~ ljeci"ed 1('1 ;i&pt the C;PPl.'5 nt'!ui~me1'l's AI i'~ 

last meeting past October I:", ~J(M. (lJus a dispe:nsatlon wilioot presumably 

be .sought~ howC'I(;T, since the buslnt:S$ bas 10 ItIllilyse the accOUl1~ !hilt wtruld 

have 10 \>eoosed as a conseq~lenc~ or'hls. poltCY (appn'));'lmalely 1,460 

accoW1tsmootly PFS). a period 0(30 &ys has been granted to ;11:tua.lly eiUler 

C!UT)' on ill.mucting the c~ur.e of the .!l:CC¢UIl!~ with mc:e {han OM repon:, 

or aslilllJ]e the- responsibility ClVer the ones that rrught be asked not tIJ be: 

dosed ~d on II dispensation that w-ould navl: 10 be supported by the 

bu,inl:S$. We will keep you updated Qfthe nnill (:onclusiol1!J. and decisionil 

adopted as at lilt tWll MLD Comminee muting scheduled for N(lvember B, 2006. 

KiodR~g;mh 

Lcopoldo 

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760611.648

Ramon GARCIAIHBMXIHSBC 

i 7ilO/2006 08:21 a.m. 

To 

Leopolda R BARROSO/HDMXlRSBC@HSDC 

" La" ... YESINIHBMXlHSBC@HSBC 

Subjec( 

Fw: COMPLL<\NCE WITH GPP 25 

Polo. 

POT favor para. rcspucsta a Emma. Tenemos que tener prescnte ta GPP25 en este 

t.ema. 

Saludos, 

Ramon Glireia Gibs&n 

Dir!:CCion Ejeculivil ae- Compliance 

ASBC Mexico SA Pasco de In Jte.tOrma 341 Oticina 5 

Col. Coauhttmoc 

06500 MexiCi(J OF 

(5255)51215509 

Fa}\. (5a~) ~711 !l7:56 

_ Forwarded by Ramon GARCIAIHBMXIHSBC on 17/10110fJlj 08:23 a.m. --

EnunllE V LAWSONIHGHQIHSBC 

17/1012006 04;02 a.m. 

To 

Ramon CARCTAlHBMX!HSBC 

'" Sus.:m A WRlGHTJ'HGHQlHSBC 

Subject 

COMPLIANCE WITH GPP 25 

This i.5 something we di$cwscd at the confcr<:nec. 

lithe !viLO Committee has adopted a pt'DCedurc orcor\$ideril~g cll)~ after the 

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760611.649

foun!J Si\R, !'-'u been ve!ldatcd thell e disl-'ensation mus.t be sought ft(l'm ORQ CMP. 

Please advile wllctbcr the Committc~ will be amending their procedure M if.n 

disp¢JI$<I:tiOJl will be sought. 

Kind regards Enuna 

._ Forwarde{j by Emma E V LAWSONIHGHQIHSBC on 1711012006 09:.5Rlohn F ROOTfHGHQIfISBC 

HGHQ 

26/07/2fJ06 16;46 

Ph.one Net. 7992 ~5~5 

+0044 (201) 7992 992 5555 

Mail Size: 2510 

To 

Ramon GAR.CIAlTIBW.x.1ISBC@HSDC 

co 

David W 1 BAGl.EYIHGHQIHSBC@HSBC.LauraYESINIHBMXfHSBC@HSBC.S\lSailA 

WRfGHTIHGHQfHSaC@HSBC 

Subject 

Re: 2Q06 HBMX CompHaner; Repart 

Emi~y 

HSBC Holdings pk - HOHQ 

Ramon, 

Om: (;Onu:ncnt: 4 SARs seei'IU ilwfuily iI1~n~ertl. even by local s!oodatds. At 

:my r:r.tc.. It is :J.!j:rlru.t Group poUey. as Sus.an pci.n!S out. so you wi.\llle.ed. 

to 'Seek 3D Qo('fLCial disperu.ation. 

Tlllmk:you. 

Regar.:".s. 

John Root 

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760611.650

From: D~ W J BAGLEY 

Sent: Mon Oct og 14-:3":43 2006 

To: John F ROOT . 

Subject: Fw: HBMX BIS AND U AUDIT REPORT SUMMARY FOR SEP06 

ImportlJnce.: Normal Attachments: Doc LI"f(.htm; summery report (Z01 C31) Pueb!a.doc; summary report (Z01 C23) 

Puebla.doc; summary report {Z01 .'\20) Morelos.doc; summary report (Z03 502) Cd. JmirElz.<loc 

John,. 

For yo-ur el1l'ertairtrTWml. 

Reg~rd$ 

- Fonvnrded by David W J BAGLEY fHGHQlHSBC on 09/lOnOO6 14;19--

Matthew J W K1NG/GGM INA OHQ/HOHQIHSBC 

GGM n:.rA GHQlHGHQ 

Se[!! hy: Liz A TESTER 

06/10/2006 01:31 

Phone: No. 79!> 21176 

+44 ('0) 20 199 21176 

Mail Size: 214139 

To 

David W J BAOLEVniOHQII-lSBC@HSBC 

Subjec( 

Re: HBMX BIS AND U AUDiT REPORT SUMMARY FOR SEP06 

I;n(ilY 

HSBC HDldln~ pte· HGHQ 

For your infurmation. 

Matthe\v King 

«, .. :» « ... »« .. » <.:::: ... :>~ « ... » 

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THIS PAGE IS 

INTENTIONALL Y 

LEFT BLANK 

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760611.652

Naml: of Altdlt 

8.smessor 

Customer Grnp 

Last Audit 

Natlinoiiill!lnus 

GROVP AUDIT MEXICO 

AUDIT REPORT SUMMARY SCHEDULE 

GHQ REPORTABLE AUDITS 

PFS SubdiTcOX1(m WI 01 Pucbla 

PFS Audit 

Da,. 

AUG05 

[abueut 

Rl>k 

Medium 

Medium 

Committee 

COQtrolRkk. 

8;10'\\' Stand#d 

BelowStaIldIu'd 

HBMXAudil 

Cotr.r'l".i-."w.; 

Medium 

'The PFS f'ucbla ZO! C]! Ois!!r.t O.!rIce rn.en!!ges .!I nc!W(I!"k (If l7 brorr.1!t:! Lhl!! provides 8 rnTtgC' of prodllctS 

(cur«:1Jt depasit and investment KC(JIJ:Il't!i, .$;n"inA Dod payroll ~C:QIWt5. ~~, CIII" and pc:r$OTiIII( 1030&, 

PYMES. insunmce and credit cmds and other services, 

Coru::btslon or Audit 

The factors that C(Ol.11ributed lome ~ignrd rnt were '3!Iloog othersKYC I..s:sues and file integrity failed t{l comply with Grollp poIi~jel. 

Weak"neue:; and inconsis;cm:ics. in iqFlit or cllstomer infCitmQtton tOo rssw !;i".d CIS :.ystern were noted. 

User 10$: were found to be shared <IIDOug staff. 

Th¢fimR$pOI~1.O 1he-audlt is dw-Qnl8 0C"f06., 

Page-loft 

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760611.653

D .... 

TltiliA:;;dit SE."06 

L;t$tAadit AU(i(lS 

Natun! of Buuen 

GROUP AuDiT MEXICO 

AUDIT REPORT SUMMARY SCHED(JLE 

GiiQREpORTABi.1: AUDIT'S 

luhermt Control Risk 

Ri!k 

Mtdium Bet~wStw:xllud 

Medium Ik:low Standard 

HBMXAud-il 

Cvmm.in;;c 

Over.allRisk 

Merlimn 

M«lium 

Th~!Jf'S ~ta ZD! C2J D=wictOmc~ ~e3:t n~twod:: or11 br.II"<1::hd. !rot pmvi~:t l'8r.ge ~1'T'md!...'Cl5 

(ClIrn:::nt d~5it lind invc!itment Dt;COllnts. s.,...ing lind payroll IICCOUtlts. mortp!!e, car :wd pe:r:lonal }\lQJIS. 

PYMES, wsurmce and ;;redit cards) and other servkes. 

CORelusion or Audit 

KYC WUd and flIe inlegril)' railed to comply with GroLlp politiC'S, 

Weakneues in the cath management opnatiom IlfId dual cl;llUrol over mooeys depOSited illlOloUY lock 

OOlHl'1i.. 

Rcspoll!lle from Mau.gcmcut 

TIle ftn;t response In the audit is due on 18 OCTQ6.. 

Page l of 1 

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760611.654

GROUP AUDIT MEXICO 

AUD1T REPORT SUMMAR\" SCIIEDQU 

GE:iQRUORTABLE AUDnS 

N.me of Audit PFS Subdirccciiln ZOI A20 MoreJos 

BuJinellS or- PFS Alfdlt 

CUstomu Group Commltt~ 

Date 

LatAadil ocro, 

Jobel:'ePt 

Medium "'''' CUDtrul.Rbk 

Below Standaro 

Re kin MCKico 

HBMXAudit 

C;)mmittcc 

OvcnDRi$k 

The N."' PFS ........ M~)!Clo$ '..... lDl A20 DistriCt Of1lce rr..anas~ II nelwcrlr. of 19 b;-;nlChes ~d I Mcdlll::o th::t ~id~ ~ :. 

nm~(; or products (cmt'eru deposit aud n.w1:S!lnl!nt accounts, .savill8 "00 pll'I'roU ac.counl!!. mortgltgc.. {;:lg xnd 

i DCtSonall(}a!l1. PYMES insunmce and. c~il cards and other servlccs. 

Cond.sw. of Audk 

The ~o!":! !~.:ll C~l!rrib>.lted to l!'!e M!.igrJ!d ,hie were a..."'lOng ol~~: 

KYC is!iI1C."; and file integrity failed t.o e«nply with Group polldes. 

W(.:flk.!1<;:»c:i iii UP.:; cflt.h "llIjoa~~nt vpCiali(n\!o a,td dw;l (!Qnuo; O'l(:lTlHlllC),S depo~jl':d ill r01&l)' luck 

boxes. 

CJe:dtl file iutC8rit~ fltiled 11) tl)tnply with Group politics. 

'The firm: rtsponse.O tilt audit is due 00 I' DCro6. 

Page 1 of I 

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760611.655

Name<ofAudit 

B.";lIeMot 

CUiilGliJer GrvliP 

Last A .. " .. 

Nature ,1 8nhaeu 

GROUP AUDIT MEXICO 

;\.UDIT REPORT SUMMARY SCHEDVLE 

OHQ Ri:FORTABi....IL .AtUDITS 

PFS SubdircctUm ZO;l S02 Cd. 100m 

Da .. 

SEPOO 

AUGOS 

rubtJ'ftt 

Risk 

Below Standard 

R a Mexi(:o 

HaMXAudi~ 

Corrmittcc 

OveraURisk 

M~il1m 

Mediwn 

The PFS Cd. Jum--/. z.o~ 902 Distri(;~ Office If'Jm:,:~ s ~twcrk af:,H brnnth.::s :o:nd ! C!,l.lltom Mod~t!! I~ 

pn:r.Iido. a t;1m{C ofproduc\3 (c~Dl de:p~it and inve3l:JTRmt accounts, ~v!n~ and payron accounts. 1Uon~. 

car aud per!tOMllomu. PYMES. insuraDee and credit canb) and Gd\et'SCSYioes. The CUstom Module receives tllX I paym~nlS of fotelJro trade. I C;}uclur;iu of Audit 

The fattol'S thai: t:ootribuled to the auigncd ridt wc~ among Olben: 

It YC ISSUC:! and iHe integrity faitccllo ((Imply wltn Group poi'icics. 

W~u.es iD input of CU~1Omet' intorm:ttiou M P$SW and CIS s.ysfem WCl~ n/loted. 

Weakneues in voucber opemiom. reversal control &Id 8UptJYd.ion at eu,toms "Module were 

identified. 

W~es in the c.a'Sh mamgCtDf:nt operation~ and dual eonln)l over moneys deposl1ed in rorary Il'l(k 

bGxes 

SiX ~peKt ~(':oRmlC1dati.om were idem:ified fmm ~ious. audits. 

The no~rc:spomc lothcalJditis due cmOl NOV06. . .. 

Pagel of I 

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• 

• 

From: Paul PROCTOR 

Sent: Thu Oct 23 09:12:46 2003 

To: John F ROOT 

Subject: Re: OFAC sanctions evasion ~ Iranian payments 

Importance: Normal 

Attachments: image_O,gif; image_1.gff: image_2.glf; image_3.gif; image_ 4.gif; Doc Unk.htm; 

OFAC_ev8sion_to_RD_ -_Julie_A_CL_1-O.rtf 

John, 

Correspondence with Clarke/Pollard of Bank pic compliance. 

Paul 

~- Forwarded by Pal,J! PROCTORIHElEUfHSBC on 2J Del 2003 09'12 ~--

""'mo 

From: P!lul PROCTOR/HBEUlHSBC 

lulie A CLARKE et al 

To: Julie A CLARKEJHBEUfHSBC@HSBC 

cc; Rod MOXLEY/HBEUfHSBC@HSBC 

Chris J POlLARD/HBEUlHSBC@HSBC 

John R W1LKINSONIHBEU/HSBC@HSBC 

Brian W R!CHARDSIMDBKlHSBC@HSBC 

bec: 

Te!: 799 12778 

44 20 7991 2778 

M;;lilSi!('!: 

Subject Re: OFAC sanctions evasion * Iranian payments 

Julie, 

Thank you for the attached. 

! did see tile original exchange of emaits from Rod to John Wilkinson and expressed my concern as 

follows: 

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• 

• 

Quote 

Have read your exchange of emaits with John Wilkinson re the above. 

This is the first time I have seen in writing, an admission that Payments Services are amending payments 

by removal of either the remitter's name or country to prevent the probable trigger of the US fitter and the 

subsequent freezing of funds. 

You indicate that Group Compliance have 'now forbidden you to tafTl)er with such payments, which I 

would fully support as it flies in the face of Group policy re complying with the spirit and letter etc. 

However, do you Mave anything in writing from GHQ CMP that you can send me as no doubt! wi!! be 

asked for my input in due course regarding the impact of Wolf on this issue. 

Unquote . 

I haven't yet received a copy that I referred to and this is the first r have 

I will be attending the forthcoming meeting (18th September) 10 further review Ihis issue. 

PauL 

Julie A CLARKEfHBEU/HSBC 00 08 Sep 2003 12:43 

Memo 

From: Julie A CLARKElHBEUIHSBC 

Paul PROCTOR et al 

To: Paul PROCTORlHBEUIHSBC@HSBC 

Rod MOXlEYIHBEUJHSBC@HSBC 

Chns J POLLARD/HBEU/HSBC@HSBC 

Tel: 799 25547 

44 20 7992 5547 

Redacted Material 

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• 

• 

bee: 

Subject OFAC sanctions evasion ~ Iranian payments 

Paul, 

Below is Rod's response to the original query attached. 

It appears that John Wilkinson has been allowed to continue (to 31112/03) to use 'selves' as the remitter 

name for Iranian payments, which I believe contravenes your recently issued guidelines, ! believe you 

should consider attendjng the meeting he has asked fOr with PSD, if you have not been invited. Wlllieave 

with you . 

Chris -I suggest this is followed-up at the next regular meeting with PSD, I have filed this in E-docs and 

put a paper copy in PSD file. 

Regards, 

Julie 

--- FDrNarded by Julie A CLARKE/HBEU/HSBC on 08 Sep 200312 22--

Memo 

From: Rod MOXLEY/HBEU/HSBC 

To: Julie A CLARKE 

To: Julie A CLARKE/HBEUIHSBC@HSBC 

bee: 

Subject ProjeclWolf 

Julie, 

Tel: 790 44479 

44 20 726D 4479 

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• 

Further to your note re sanctions. This issue has been under discussion for some lime and I sent a note 

to John Wilkinson, Relationship Manager, on 18 July to formalise our position. The note I subsequenUy 

sent to Pat Conroy to keep him in the picture is attached. 

Hopefully, this answers your questions. 

jf not, please give me a call. 

Regards 

Rod 

-- ForwOlrded by Rod MOXLEYfI1BEU/HSBC on 08 Sep 2003 10;10--

Memo 

From: Rod MOXlEY/HBEU/HSBC 

Pat N CONROY et al 

To: Pat N CONROYIHBEUIHSBC@HSBC 

cc: John ALLISON/HGHOIHSBC@HSBC 

Jim F EBOON/HBEU/HSBC@HSBC 

Malcolm G EASTWOOD/MDB'r<'JHSBC@HSBC 

bcc: 

Subject: Project Wort 

Pat, 

A quick note for information. 

Tel: 790 44479 

44 2072604479 

M~ll Site; 2SSS 

You will be aware from discussions we have had in the Steering iiffiffilll Tat 'i If"ntified a need to draft Wolf procedures qUIckly and to thIS end! agreed to contact Naturally during the 

course of discussions with him we exchanged information regarding their issues with Ubya and ours wjth 

Iran. 

Redacted Material 

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I nave been advised by John Taylor, Senior Manager GAE tha_ for whatever reason, Ilas 

deemed it appropriate to bring our current practice regarding the alteration of the remitter field on Iranian 

payments to the attention of both Matthew King, Head of Group Audit and David Bagley, Head of Group 

Legal. 

I have reassured John Taylor that their auditors did not Qmiss" anything when they carne to audit MPD in 

October 2002, in fact a genera! reference was made 10 these payments in their audit point 6.1. He seems 

happy with this and doesn't seem inclined to take it any further, 

However, just in case you are approached by either King Of Bagley (possibly via Mr. RanaldO I will reiterate our stance: 

One of the prime purposes of Wolf is to Identify such payments and they wil! all in future be 

monitored (and rejected, if necessary) by myself and the team presently being set up. 

Ii) The specific issue with Iran has been identified and raised formally with the RM, John Wilkinson. 

Due to the Group business implications he has been given a deadline of 31 December 2003 to remedy 

this situation. In the interim period he has tJeen in disc.ussion with his !ranian customers to try and reach a 

professional but appropriate compromise. He is seeking a meeting with us (Payment Services) in 

September for guidance. Ma!colm's stance, I understand, is that any payments after 31 December 2003 

wjlf not be processed un!ess signed off at a very senior level. 

Regards 

Rod 

Redacted Material 

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From 

Sent By: 

Date Sent: 

To· 

Copy To: 

SUbject 

Hello Rod, 

Julie A CLARKE 

Julie A CLARKE 

03/09/200309:24 

Rod MOXLEY/HBEU/HSBC@HSBC 

Chris J POLLARD/HBEUfHSBC@HSBC 

OFAC sanctions 

You will see from all the attached e-mails that a question about OFAC sanctions avoidance/evasion has 

been asked. 

It appears to relate to payments from business areas witt1in HBEU tt1at are processed through PSD. 

Please advise me of what your issue was here and if/how it has been resolved. 

Thanks, 

Julie 

--- Forwarded by JUlle A CLARKE/H8EU/HSBC on 03 Sap 2003 09:20 -

r It n 02 Sep 2003 18:04 

To: Mclarkejull€ a (NOTES)" <julie.a.cla!1o;e@m/1ub1.com:. 

cc: 

bec: 

Subject: RE: OFAC sanc.tions 

Julie 

~~!S p!~:~~:t!;:a~a:~o t~ p~~n~~O:e a~o e~:~~ m;U=;~~~s (=~b~~~~~~~~~d in 

payments affected by OFAC. During the conversation, I mentioned that 

historically we used "selves" but that I had stopped the practice as soon as 

I had discove~ed it in mid-2000~ stated that it was still done in HBED. 

This was not l.n connection with ~ payments and I have no examples. 

Sorry I can't be more specific • 

.. -----Original Message-----

From: Juhe .A. CLARKE@mhubl.com [maiHo:Julie .A. CLARKE@mh'.1bl.coml 

Redacted Material 

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Sent: 02 seitember 2003 17 :ZB 

To: ~ 

SubJect: OFAC sanctions 

The a~tached note from Matthew King has found its way to me, via several 

others! 

In order to follow up this issue~ I need m~il, eg are you referring 

to payments made through HBED (vla CIB) as~ correspondent? ArE' we 

talking about bank-to-bank payments here? 

Additionally any examples of previous cases may help_ 

Thanks, 

Julie 

Memo 

20 Aug 2003 12: 0 

From: Matthew J W KING/GGM INA GHQ/HGHQ/HSBC 

Sent by: Liz A TESTER 

To: David W J BAGLEY/HGHQ!HSBC@HSBC 

lain STEWART/IBEU!HSBC@HSBC 

Chris HAWKES!HD GAE EUH!HBEU!HSBC@HSBC 

bee: 

Subject: DfAC 

Tel: 7991 0276 

~4 2079 910276 

Mail Size; 1500 

While at a meeting at_yesterday, 1 was told by that HBED 

continue.'; to send remittances to the US with 'selves' noted as the ordering 

party when the transfer would otherwise be filtered out for OFAC sanctions 

reasons. I recall this has been raised in the past, but. I thought we had 

agreed the practice would cease. Are you aware of the current position? 

Redacted Material 

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To: ALAN T KETLEYfHBUS/HSBC@'jH5EJC 

cc: DENISE A REILLYIHBUSiHSBC@HSBC 

SUbject Fw. Covet payment processed to CredIt SWsse te ~Bank Melli" - USD 100.000 

fyi - this is the payment r mentioned i11'1rtipr in thl! me .. ting 

r also- stopped by your office. to see if ttl ere is anything, the QFAC Compliance 

team can support '{OU with. as it relates to !he tJiid~East summit. 

p.5. i believe th(lt Monica and Camiiie were hying to pull some numbers of the 

entry types listed per program: let me see if they h~',Ie specifics to <'hare witt', 

you. 

-_. Forwarded tty Grace C Santiago-DarvlshfHBUS/HSBC on 11/29/0501.25 PM -_. 

Ron MOXI EY!HBEUfHS8C 

11/24/05 11 :11 AM 

To 

EHzabeth PlototT:3:;!rcfH8USiHS.8C@HS8CAMER1CAS 

co 

John ALUSON/HGHOJHSBC@HSBC, John F ROOTfHGHO/HSBC@HSBC, Grace C 

Santlago-DaNlsh/HBUSfHSBC@HSBC, Nancy Hedges/HBUS/HS6C@HSBC, A,drew P 

DroietJHBUStHSBC@HSSC.Jose t1l1a1iasiHBUSJHS8C@HSBC, T~lesa PesGCIHBUSlHSBC@HSBC, 

Anne UddyfHBUS!HSBC@I-'!,SBC, Donald W McPh~fs<JnfHBUS!HSBC@HS8C. Jeremy R 

WAU<.ERlHBEU1HSBC@HS8C. Malcolm G EASTWOOO/MOBKlHSBC@HSBC 

~~ - Re. Fw· Cover payment processed to Credit SUIsse re "Bank. Melh'·· USlJ 100.000 

E!izabelh, 

Thanks for your email 

The revised procedures established within H9EU re!J~rrl!ng OFAC ~ffected payments 

necessitate Irantan payments to be routed to a dedicated Centre of Excellence 

in HBME DubaL This has worked we!lln the majority of cases. However, in 

instances. ·.·.h~te {fIe etlstorner Inputs the transaction tilrougn an approved 

elect..!!XIic channel (Hexagon. for example) and the trans-action STPs, the en!, 

"oontloj" over the transaction HBEU can exert IS when rt hits the Wolf aueue 

!t should be understood that at this slage accounting entlies Will have been 

passed and the cover MT202 wilt have automatIcally been generated by the HBEU 

Pilymcnts system. 

The attached transaction for Melli was such a cover payment aod so we ha .... e :3 

option In handling such transacbons: 

1 NotJ"/our customer base advising 01 change of prcccdl:rcs r~ga~'ding 

intermediary banks.!cover payments and HBEU will adjUst its routing table fOi 

these payments. t betleve this is under discussion but involves a huge e mount 

01 worK and may alSO have other customer jf11Plications 

2. V\..tH~n HBEU iOf."ntities the payment in Wolf. we can reverse the accmmtlng 

entlies, reG,,1/ the cover payment and tllen re-route via HBME Dubai ....tlo IMII vet lhe payment and pay as a sew'll payment. This has been done on occasions but 

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- = Redacted by the Permanent 

Subcommittee on Investigations 

it irritates the customer, r.oniuses the cover agent and causes delays for which 

HBEU 'MH receive interest and compensation claims. 

3. HBEU Wolf team will yet the payment on the Wolf queue to ensure It satisfies 

the U rum provisions and pay. Gleany, if rt does not meet the provisions. the 

coyer 'M11 be recalled 

At tile present time, we use option 3. This means that the payment h<'!s been 

vetted In UK and so will satisfy the U rurn reqtHfements.The lack of 

transparency to HBUS has been acknowledged and a paper has a.lready been 

submitted to Head of Payment Ser'.:!ces for ccn:,;lderatlofl. 

For your mformatlon,! attach a summary of events regardIng 1he Bank Melli 

transaction, se. to'lat you are in p05.5.es-s.ion of the fuB fact~ B~ to huw Oclkli!l 

issu~!i' hi'lve aris'2'n: 

The original payment \!liaS an STP rtem received from Rio Tinto 

Minerais favour of MELiiRTHA96 Rio TJnto quoted CRESCHZZ80A as an 

Intermediary bank in field 56 and this created STP. 

The 103 to Cred SuiSSE!- would have been vetted by HBEU WOLF but due to Ihe fact 

tile cover had already been paid and the payment would otherwise qualify as a u 

turn the payment was released.as flgreed 

The cover 202 meanwhile would have instructed HBUS to pay Credit Suisse Zurich 

and informed them the Cfedii reiated 10 our direct 103 In this way Gred 

Suisse were able to apply the funds to MELlIRTHA96, I can find no trace of 

Sank. Hoffman within our pa;.oments <:;0 thIS r;;tlst be In~ernaj routing tom Cred 

SUisse's end to apply funds to MEUIRTHA96. 

The funds could not be appIJed by Hoffman and they have tIlen approached HBUS 

for further lnfurrnatlorl. H8US pal:lSed thi5 IC!.lU8St on to us, we sought More 

i!lfo from our customer al10j upon receipt of the new S\".~!=T detaHs responded to 

HBUS 

Hoffman shouid not have contacted HBUS direct but followed SINIFT protocol and 

sent !heir fCqU€st for further info. via Gr€:d Suiss~. 

HBUS requested we ~dvise Hoffman directly nf1he flJrth~r il1f(lfrn~ti{)n 

EPS h<!\re disregarded this request and then have provided H8US with Iranian 

informatJon 

Rega,ds 

Rod 

E!i2:abeth Protomastro/HBUSlHSBC on 2:l Nov 2005 20;07 

Note 

23 Nov 20DS 20:07 

Flom: Ehzabeth Pto[omastro/HBUSlHSBC 

Mail Size: 110627 

To' Rod MOXLEYiHBE:UfHSBC@HSBC 

cc: John ALl..1S0N..'HGHQ1HSBC@HS8C 

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John F ROOTfHGHQtHS8C@HSBC 

Gr~ce C $anti~go-Oarw;hfHBUSlHSSC@HS8C 

Nanc:y Hedges/H8U$/HSBC@HS8C 

Anurew P DroletlHBUS/HSBC@HSBC 

Jose MatlaslHBUS/HSBC@HSaC 

Teresa PesceIHBUSfHSBC@HSBC 

Anne Uddv/HBUS/HSBC@HSBC 

Donald W McPherso1l/HBUS/HSBC@HSBC 

bee, 

- == Redacted by the Permanent 

Subcommittee on Investigations 

Subject. Fw: Cover pCtyrnent processeo:! to G1edlt Sll'';''E-e- fe "Ban~ Melli' - USD 

100,000 

Rod. this message was addressed to you, Teresa Pesc~ s.hould be a "cc" oniy. 

! h;::vc 5cnt n rn.c::;::;ogc to C/;:Judi;:;; MCP~H~r~or: !o disreg.'}rd 

Thank you. 

-.------•• Forwarded boy Elizabeth Protomastro!H8USfHSSC on 

11f2Jr2005 03:05 PM ---- ----._----.. ----. 

Elizabeth Pmtomastro on 23 Nov 2005 15:04 

Note 

23 Nov 2005 15:04 

From' Ehz.abeth Protomastro Tel' '212·525-6692 

Title: Vice PreSIdent Location: 452 5th Ave. Floor 07 

WorkGroup COMPfANT!·MONEY LAUNDER1NG Mall Size: 

To; Rod MOXLEY/HBEU/HSaC@HSBC 

Teresa Pesce/HBUS/HS8C@HSBC 

Claudia McPnerson/i-1BUSIHSBC@HS8C 

l';r;~ John. ALUSON/HGHO/HSBC@HSBC 

John'::: ROOT/HGHQ1HSBC@HSBC 

Grace C Santiago-Darvish!l-lBUS!HSBC@HSBC 

Nant."Y Hedge-s/HBUSfHSBC@HSBC 

fl.'1drew P DroretfHBUSfHSBC@HSBC 

Jose MatiaslHBUS/HSBC@HSBC 

Teresa PescelHBUS/HSBC@HSBC 

Anne lIddy/HBUSlHSElt.:@HSeC 

Donald W MCPhersonIHBUS/HS8C@HSBC 

Subject' Cover payment procE'ssed to Credit SUisse m "Bank. Melli"· USD 

100,000 

106228 

We are bringing this to your atlentiofl as this situation indicates that cover 

payments involving Iran are still bemg processed by PLC It ""'3S our 

understandlnqlhat Group payments involving Jriln would be flrily disclosed as to 

the originators and beneficiaries. Please see details below. 

Ttle folo .... ing p.('IYTnent ...... -as processed b,. H8US on 17"Nov-200S. It 'WaS processed 

as a "stralghHhfougtt D1.Iym.;-nt as it contElins no refefl?nCI!' to Irall ana .so 

woukl not be stopped by the filter. Copy is al$o attached_ 

i 7 -NoVw 2005 

~~~~it.HSBC Bank PLC London Clearing 

Credit: . Credit Suisse. Zurich 

Bank to n no: Bnt! Cover our direct IT Ret •••••• 

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USD 100.000 

On 21 -Nov-2005. we received a SWIFT from PLC s.tatln!=! that it had "contacted the 

remitter" and they advised "correct SVVlFT address. s.hould be MemRTH94~. /1.$ 

you will seE;' from tne attached sV'VlFr message. this message indIcated to us that 

HBUS was now to pay BanI( Melli. As you are aware, a U.S. bank cannot credil an 

!rani~n bflrrk. ~Ild SIJr:n a VClymE:!nt wollirl h~ve tQ 01" fp.jp.dp.d 

HO'.'vever. H8US does nottn:'Je the funds Le., no paymentto reject The turds 

were paid to Credit Suisse on 17-Noy·2005, There is some mOle background 

correspolldel1ce on this payment. deserjbed below_ 

On is-NOw-ZOOS, H6US reco:<ived a SWlFTftolll Bank: Hoffmann, Wfth a "'e.c" tu PLC, 

advisIng ll1at th€y ar~ unable to appty the funds an4j requesting more de-tails on 

the payment. (Note that HBUS InvesligaUons confirmed that Bank Hoffmann AG. 

i.e., HOFMCHZZ. ts owned by Credit Suisse Zurich. Bank Hoffmann was not 

mentioned on lhe payment instrudion procassed by HBUS) That s.~me day. H8US 

sent a message to both PLC requestjng details on the payment and another 

messaClle'to Banlo:. Hoffmann advising of such action, and stated on both messages 

that th; PLC could "provide further payment details through ourselves (HBUS) 

fortransmitta! to you (Bank Hoffmann) or directly to you under their 

dIscretion." 

On 22&Nov·2005, HBUS recejl,led a message from Bank. HoffmannAG telling Ttto 

consider their la-Nov-2005 "request as settled and closed." It appears that 

tnere was a direct excllange ofinformation between PLC and Bank Hoffmann, and 

based upon :hi" informtrticn, BanI;: Hoffmann ""'as no',.. able to process the payment. 

/J.:s you can imagine, It t\a$ tak.en some time to research tr"1e flow of the message!'> 

re this co .... er payment in order to document on our side that (1) we hold no 

funds to reject and (2) if Bank Meiii is inV'otved fJS mentioned in tile PLC 

SWIFT of 21~Ncv·2Q1J5t the payment m~sts the u-turn license, which!t does, 

HBUS is debitin!;l and creditin!;J two offshore, non-iranian banks. 

rhe :/!1-No\J-2U05 message from PLC to HBLlS appears to have been sent in error. 

HBUS hCls Rj~Q S!;![lt"fi rnp.s:-;~gl;! III Crl'HM Suiss.e reque:;ting an explanation of how 

the payment was settled, but we realIze we may never get a res.pons.e to this 

request 

1 have now documented an .aud!t trail to support thl!t, \fthe pa:ymen! does 

involve Bank M~~. It IS covered under the u~tum. But we still have at issue 

the fact that PLC is sUbtnlt11ng to HBUS cover payments involving Iran. It was 

our understanding wilh PlC t"at payments mvolving Iran are to be fully 

disclosed as !o frie identitieS of the originators ani! bef1€~ciarie5 

Please review a[ld advise your comments, 

Thank you. 

AUt:tchment. r0516990.tif 

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HSBCBank pic 

David Bagley 

Copy'" 

Jim Large 

Rod Moxley 

Vikram Bose 

Michael Grainger 

John Rendall 

Patrick Nolan 

Malcolm Eastwood 

DISPENSATION 

David, 

Memo 

2 t November 2006 

Ext 799 12300 @ 8CS28 

HBEU Payment Services are hereby seeking an exteosion to its previous dispensation which 

expired on 31 October 2006 from the under~noted section of the above-mentioned Gel as 

follows: 

"I. With effect from JOApr06 all USD payments initiated by a Group Office and 

remitted via. HBUS, or any other US correspondent, must be made as serial 

payments." 

HBEU dispensation 

All USD payments initiated by HBEU Payment Services destined for a beneficiary in the US 

are now remitted via serial route to HBUS. However, are not currently in a position to route 

USD payments destined for countries outside the US, however, in the same manner (via 

HBUS), for three primary reasons. 

Firstly, serial payment methodology does not cater for the increased number of payment fields 

necessary to effect some payments requested in settlement of HBEU core customer 

transactions. 

Secondly, the US test key nctv.rork is considerably smaller than that of HBEU and the absence 

of common Standard Settlement Instructions will greatly increase the risk of payment delay 

and subsequent customer dissatisfaction. 

Thirdly, the differing number of reference digits used in the serial payment metbod will 

potentially lead to increased manual intervention, delay and incorrect payment. 

We have been working with HBUS to build solutions, which will ensure that the majority, if 

not all, USD commercial payments will be sent via me serial method. To date, no workable 

solutions have been finalised by HBUS. 

Page 1 012 

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This is an extension of our previous dispensation wbich expired on 31 October 2006. HSEU 

would seck to bold this dispensation in place until after tbe successful implementation of the 

GPS system (wbich is scheduled for I July 2007). During tbe interim period we will work 

with HBUS 10 develop workable solutions. 1 unde~tand that Sandra Peterson has been ask to 

lead this. 

By way of information, a further barrier to our achieving full compliance with the GCl 

without adverse customer impact is outlined by HBFR (email from Matthew Paul Smith of 24 

October 2006 refers) and surrounds fee cbarging. The change to serial payment methodology 

would put HBEU at a competitive disadvantage and we believe precipitate voluminous 

customer complaints, as evidenced by the attached schedule of customer issues prepared by our 

GTB Product team when sampling was undertaken in Q306. We have sought input from our 

business partners in eMB & CIS on this issue and they have expressed thl! view that they 

would not wish us to proceed until the HBUS additional charge issue is resolved and the 

customer impact minimised. As presented this practice would appear to contravene HBUSs 

policy of "treating the customer fairly". 

Regards. 

Malcolm Eastwood 

Head of Paymcnt & Commercia! Operations 

Attachment: usn Serial Routing Complaints log 

Page 2 on 

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USD Serial Routing Complaint, Log 

I) raised a co~pJaiot as payments which they were sending to beneficiary 

banks outside tbe US with charges field marked "OUR" were being changed by HBUS to 

"SHA" and so charges had been deducted from the payment It is very important for_o 

ensure that the full amount of their payment is received by the beneficiary. The intenm 

solution adopted was to remove the particular beneficia? bank from the pilot and HBEU to 

route these payments direct again whicb has pleased however should this scenario 

happen again with any of their usn traffic even with Principle Protect, for example HBUS 

having to route through Fedwire due to not holding authenticator keys, we can expect further 

serious complaints and potential withdrawal of payments business -{worth £500K payments 

income per annum alone.) 

2} "ruch remits large numbers of payments r..brough 

RBS and HSBC. Their key customer activity is to provide retail payments worldwide. TIley 

also arc using a whitelabel treasury platform provided by HSBC to support their on-line FX 

trading and international payments activities. 

Both payments flows are being processed through HBEU's EPS .• is a payments 

consolidator. Its business model relies upon providing payments in all currencies to end users 

at competitive pricing. They are keen to squeeze out any extraneous costs in processing the 

payments to maintain as much of the FX margin as possible. Additional cbarges appearing as a 

result of shifting the process from cover to serial payment method for USD payments are 

therefore extremely visible to them. 

_have complained about thc' extra $20 being deducted by HBUS from their payments being 

scnt out with charges field "BEN". As 75% oftbeir paymeots are below $[,000, any additional 

charges taken from their payments are especially felt by the beneficiaries (often these can be 

remittances to family) and affects their busioess model. lbese payments were all to one 

Peruvian hank which has since been removed from the pilot however once this extended to 

covcr all USD traffic their customers will especially notice the further deductions and tbe 

overaJl costs of sending USD through HSBC would likely mcanBvould withdraw tbcir 

payments husiness from HSBC - the relationship income is £1.6m per annum. 

3) )ave raised queries as their customers are complaini 

$20 less from their USD payments. Their husiness is similar to that of in 

that regular low value payments are made to the same beneficiaries. 111 respon ed that 

these are bene-deduct fees and so beneficiaries should expect the payments less charges 

however these enquiries are set to increase should serial routing come live and complaints to 

follow once they realise that HEUS are taking extra cbarges. 

4)_ have raised exactly the same queries as. with thc RSCE, also 

handled in the same way and so queries I complaints set to increase. 

5]; It ecently won b~siness aD the strength orour group presence, complained as 

they have been receiving payments into their usn account held with ourselves and $20 extra 

charges have been deducted. These payments arc originating from our Group Offices such as 

HSBC France and HSBC Hong Kong. "Ibis raised the situation where they are being penalised 

for sending USD payments within the Group yet they do not encounter this when receiving 

USD from otherbank.~ such as BNP. 

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6) A similar complaint was received from who were suddenly 

charged an extra $20 for transferring USD via Hexagon from tbeir account at HSBC HOllg 

Kong to their account held with us. This has lead to tbe perception tbat we are the "rip-off' 

bank. 

7) HSBC Funds Administration Jersey bave advised that they have received numerous 

complaints from both the HSBC becutive population as well as "traditional" customers in 

relation to tbe additional $20 belle-deduet fees beillg takell from their USD paymellts. These 

have been received despite only 5% of payments being routed in this way at present. 

.lIlcc)(np,Jai[.ed about the additional $20 charge on their 

as a result their RM believes that they arc now making 

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From: Rod MOXLEY 

Sent: Wed Jul 04 14:54:072007 

To: Tony VVERBY 

Cc: Andy M NEWMAN 

Subject: Re: Fw~~ HSBC arrangements for payment of the Consideration 

Importance: No~ 

Anachments: image_O.g/to lmage_1.gif; image_2.gif; Doc Link.htm; Gel OBOO11.doc 

Tony, 

I don't know if there is sUU an ongoing issue with the attached but I will supply a few genera! comments 

which may help clarify the position. 

Firstly, the whOle concept of filtering of payments (and the related issues as to whether the vehicle for 

transmission should be MT103s Of MT202s) was to ensure that we as a Bank are not conducting 

business with known terrorists or with countries who have had sanctions imposed against them. In the 

scenario you have described, the important overriding point is that we should be sure that at no point in 

the chain are we dealing with counterparties who may cause HBEU reputational damage. It is therefore 

critical that we know who the transaction is ultimately between and this is not masked by funds passing 

between a multitude of intermediary banks and third parties. 

Secondly, the reason for the introduction of GCL060011 was to ensure that our colleagues in HBUS were 

not necessarily wlnerab!e to investigations by US regulators when they were processing MT202 

payments, which contained only a small amount of detail. The US regulators afe not interested !n whether 

we have paid or received funds from another banloi., however reputable, more that they are comfortable 

that we know lIlat the undenyfng transaction is bona fide. A suitable way to guarantee "transparency" is 

by insisting upon MT103 instructions with full disclosure of an parties to the transaction. If, in this 

transaction, there is any dou bt about whether HBUS are being placed at risk because of the mode of 

payment transmission, ! would suggest that their Compliance afea (Elizabeth Protomastro or Grace 

Santiago-Darvish) are advised and clearance given by them. 

Thirdly. the dispensation granted by GHQ CMP was only granted on the basis of the huge volume of 

HBEU traffic and the potential resolution of the problem by an impending globa! system change. It would 

appear unlik.ely, therefore, that an application for a further dispensation would be successful at this stage 

but! am SUfe John Allison would be better placed to answer this. 

Hope this is helpful--please advise if you need hJrther comments. 

Regards 

Rod 

Tony WERBYlIBEUIHSlK 

Tony WERBYJ1BEUIHSBC IBEU 20/0612007 10:55 Phone No . To Rod MOXlEYIH8EU/HS8C@HSBC 

799 19081 

+44 (0) 20 0207 991 9081 Mail Size: 72B67 

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From: Paul PROCTOR 

Sent: Man Jut 15 14:56:19 2002 

To: Julie A CLARKE; Malcolm G EASTWOOD 

Cc: Paul B GOLDFINCH; Nic.k J COSGHOVE; Geoff ARMSTRONG; Mary L CUSACK: John R 

CHt',PP!::NDEN; Pnt N CONROY; Allan 0 DEADeN; Jc~r. ALLISON; Chris J POLLARD 

SUl1jp-ct: Monitorino of p~yment trans;:I(:tions ag~inst sanctlo,.s. 

Importance: Nonnai 

Attachment.6: image_D.gif. General Guldeilnes for Referred Transac~ions Jul02 doc 

Julie/Malcolm 

Thank '{Oli for your input into the wording ofth.:: guid""iine5 to be issued to 18L managers/staff. i have 

Incorporated ~'oL2r sUGgested amendments and would be gfale;ui fQr l'OUf final conf!rmaUol'l ot 

,::Ir:r:«ptallcf::'. 

June, I have hiQhliQhted Matcolm's sUQQested wordinQ re 'recommending tt1at payments including 

potential offending words i& not made' but would welcome your confirmation that .such recommendation, if 

made to lhe originating party. would not contravene Group Policy. Malcolm, is my inte'preletion ofyou( 

suggested phrase correcl 

! look forward to your final thoughts whereupon I will iSSIJ6 within IBL. 

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Gcncrnl Guidelines for Rererred Tnmsactions - Sanctions Monitorin" 

HSBC Bank plc has a duty to ensure that it cornpliel> with an~ sanctions that directly 

affect it (e.s- UK./EUflJ1'.:) with regard to tTlmsactions proccss~d on behalf of 

In the case of US sanctions, which llrc enforced by OF AC, HSnC Bank pic: is flot 

kgaHy required tc comply wltl) them but we should be n:Ulldf .. ll of Group policy 

which States th?t 'Group members should comply 'Jlith botb the letter md spirit of all 

relevant law!;, code"" rule", re~'llll'ltlQns \'1no st(l11nflrc1s (If gl)od Tllnrke-t practice in tach 

jurisdiction around the \varld where they conduct business'. It is strongly 

r~collllnended. therefore. that R.lI.1s do nol deliberately take action aimed at assisting a 

CUSTOU1er to circumvellt OF AC sanctions. FOl' e.-xampic payment Instructions should 

not be am~ndcd by lBL s.taff. 

At-presellt.1I.1PDiICPD refer to liL. trallSlleliom from the aCCOUl1L inl1ibit 4ueue and 

those nOll-strajgbt througb processcd V:iIP) paymcnts goiug to COWllnes where they 

are aware that sanctions exist. Ccrtain paymc-uts will SIP notwithstanding that they 

cunt!lin country infonnnrion which mlly be snn~tian sel1siti-vc. MPDs list ()f countries 

whcre sanct.uM are known to e;>;i5tis rev1e\\'ed by the LCR on a qUfHtcrly b"sis, His 

-CUViS.1gcd til at, in due eou:sc, the responsibility for policL1g paymelits and cheque 

ciearln!!s against sanctions will mi,!:,'Tate fi'om IBL [0 Payment Sel"ices nr Park Street 

but l1Util tbe!!, please obse~e lhc following !..!;"uidclin:-s: 

For sanction.~ imposed by the llK~ Ellllr ON: 

HSBC Bank pIc bas a legal Dblil,!atiolJ tD monitor trallSacti;)t15 3g<liDSt these 

sanctions 

As only ih scnding party (Col're5pondcullRc1llitliug: ballkJIlS.l)C branch) is fully 

a~arc of the underlying reason fDr tile tnmsfer. your only practical course of 

aelion is to refcr back 10 them to aswfcyoursdf1hnt the transfer docs DOt 

represent a breach of sanctions. 

Od} if you can be ecrtain that to process the paymcTHwouid nor result m HSFiC 

Bani plc COllirdvenillg s.lltlctiun~, t..:aTl yml authuris~ MPD to process the payment. 

Sb.ould you conclude that to process the payment would contravene such a 

sanction: then the pay-menl sbould not be :!tnncriseC. and the sending bank advised 

im!)l~~djat('.ly 

Yon ,",ill n~d t() r.1l'1"rly HAise wilh II.WO:I('PD, <;.in('.~ tllPY will Ile"./Xi 10 know 

what action to take wirh the payment in question, 

For sanctions imposed by the USJOFAC: 

Whilst HSBC 8,,01: pIc is not legally bound by sucil saoctions we. mUSt be. mindful 

of Group policy 

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USD payments routed via the US. or where settlement is via a cover paymCcllt 

placed 011 the llc:ount of /l, nostro provider domiciled in the USA will1cad to tilC 

pilyment being sCTll'hniscd in detail under the OFII.C requirements, Key words 

such as han, Traq, Lihya, Cuba or the mention of cities or entities knOWTI to be 

domiCIled in those countries wiil nonnally result in the funds being sequestrated 

by OFAC. v,ilh the onus then beiug on tbe originatOTW prove that [he pli)'ffienl is 

not sancriollil.ble, A flJll copy <.-'1flhe pa~'mei)t instruction .shOllld therefore be 

reviewed whEre there: is sllSpicic;n th"t seqllei>ti<H100 ;nay occur. 

Release of a seqaestrated p2lyment can only nom,ally be achieved tl1rollgh the 

produe!iDn of a liccn::c or by proving rl.:!al the word or ,voIds gC!lc!"ating UJc 

~t::quc.~tr~rion were arMed!f~.fI rC~\1lt of ~ ckriC,ftl error, i c. ~hey (lid 110t fom) P!\r1 

of the original paymCI)t instruction, [t is thel'cfore recommended that aJl), 

pll:yment rt'ferrc-d which rout~ius such wording is not mnde. If it is tbell it 

s.hould be pointed out ro the remitter that payment wilJ be m.ade at their risk and 

without liability on the part ofHSBC should the funds become sequestrated. This 

should be eOlllll1UI11cated in writing as should the customer's acknowledgement 

aod confinnalioa that the paymcot sbould s::iH be made. 

• It shQuld also be born m mind that paYr::lel1ts in other clu1'endes incorporating 

such lllformatioll aud which arc sellt 10 on'ouled via the US may ajso be ~ubj(;c! to 

sequestration niles. 

" You should refer paymenis falling \vithin tbe abvvr. criteria back 10 the sending 

p;my (Remitting!Corresp()lldenr Bank or HSBC brandl). pointing out only 11Hlt 

OFAC s:ancticlls exist end 2sk fer f'"lrtb,er instr'.lctions On no -account should yOOl 

deliberately guide, cncourag.e 0:' coerce the sendcrinto amc1lding: the payment 

details;,;o3.<; to ClreUQlVcnt the OFAC !'::mctiollff. Any action taKen nl1l~t hf: 

detcnnined by the scndlngpsn)'. We will simply pTOC~SS as instructed. Tfthe 

pilyxneot is still processed after referral make clear that this is at their risk and 

witoulit lilly Ji",bility OD the part of HSBC. exrhaug.t: COIl'cspondcnce 10 this effect 

and record (llt! tlisl'l!ssioll and deci~ion lakt::n D1I a tall H:.port lu llle {:ustunrc:r'" 11k. 

In the: ever\{ thal rcf(:H2I1 baellO the sending party is J)ot feasible ahead of the cul~ 

Onum!! ror USD payments you should refer to El Senior Manager, who would 

need to take a decisiotl. taking ioto account the likelihood of tIle funds being 

sequestrated Ilgaillst the risk of an Illicrcst claim being mude agllhlsi us if we fail 

to PlOCcSS allead Oflhe CLl! otT time-. 

15 July 1002 

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From: John ALU.sON 

Sent: Tue Nov 11 13:19'442003 

10; Susan A WRIGHT 

Subject: Iran payments 

importance; Normal 

Susan 

As you are a\','are. I visited MPD in Park Steeet last week to discuss Iran payments. 

The Iranian correspondent bank custoi.lers enter IfREe;n Field 72 {)ftheir MT100 payments. This causes 

tMm to drop out for review/repair befote execution. MPO staff know that lhey are expec1ed to ensure that 

the word lran, or the phrase "00 not mention tran~, or any other compromising reference are not 

wotaimllJ in (h~ r...rr 202 t.;UWl paynnmt p;,tYI!1~!l1 fll~S;;i::IYI:' whidl is ClduCllly tHm~rllilil:!u (U lhe USA. 

There is no clearly do~umented procedure - [tis rrPre a case of "estabhshed cLstom", beUevec by MPD fo 

00 at the request of relationship management. 

Tile newly establjshP.d CntnpJi:mce Ma!lClger in MPO is nat com!(1I1Rble wifh the cusfom which he !las 

Inherited, neither from.<l moral compliance pmspec1ive. nor from the op€ralional JosslembalTassment 

fac!or should an MPD rev:ewer/repairer make B human error and leBve so meting in a field which CI:lUSt'!s a 

US bank OFAC fiiter to identify a trigger word/phrase/reference. and deiay or hlock ifJc P<3yment. 

MPD CnmpJianc!'! ilfe very uncomformble at being asked periodic:Jlly (currently by Nigel Weir ~nd Gary 

8MI1 !n Middle East) whethet a. certain fOrmatting methodology wiU pass succes.sfu!ly through an OFAC 

fillec Th.:::y fee! It a relationship managemenj responsibility to understand I'Ihal :he Iran payments 

represant, and give advice/guidance to the Iranian banks on the circumstances, if ary, in whIch payments 

are acceptable. The role of MPD is to execute clJstomer payment lnstructions efficiently. 

We based our disclJ5Siun <ifUund the OFAC FAQ sil~.I-l(j!Iit.:uli:l!ly: 

QUOTE 

QueslioJ) ~ i've heard ills! U~Tur:1 payments are alloww for Iran Ilv'l'U3.! exac:tly I;; a U~Tum paym~l1!? 

Am:.wer" A "U-Turn" payment invoMng lrar. Is where US dol\.sr irans3ctions inv.Jll{ing Iran are cleared 

through a. US bank. Generally speaking, there must be a third-country ban',; on botn sides of a transactlDn 

!O qualify as a "U"Tum~. For e>:ample, Bank Melli Iran can send funds from Its account at a German bank 

through the GefT11<ln bank's correspondent in New York to an Itflli:m b.:mk to pay for goods purchased 

from Italy. The origtflatfnQ and beneficiary banks may not be US banks. 

UNQUOTE 

it is. the opinion ofMPD CompiiancB mat ail of the Jran payments which they piOcess fail Into the "U~Tumn 

{;tltcgory. They thcrefore belicve thot it 5hould be en:ircly uGccph::b!c to send MT103!:; (which h£lve 

(ep!aced MT10Qs} direct 10 lha paying bank, and send MT202 cavaf payments to US ba'1ks, perhaps 

even going so far as stating specifically in bankAo-bank information field, HU~Turn payment". MPD pointed 

out filat on the OFAC website, U~Tum payments are actually defJl1ad as cover payments: 

QUOTE 

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US depositary institutions may handle ·U·Turn" transactions· cover paymenls involving iran that are by 

order of a third country banI< for payrrent to anothe.- third country bank- provided they do not directly 

credit or debit an Iranian account. 

UNQUOTE 

We discL$sed how HBUS would want cast iran guarantee that or;jy appropriatelY QU81rtying U·Tum 

payments euuid be sent 10 Ihem, and this will be given more consIderation, MPO uflderstand HBUS's 

preference fora direct t'J:T103 to HBUS, fortnem jn tum to issue a second MT103 (t'le so-called selia! 

route). because it gives HBUS total transpareny and control. This represents a deviation from established 

S\NIFT cover pa)lment practice, and MPD underlined that the Iranian banks would have to be coached in 

another "spec1al procec:!ure~. 

N8Xt immediate action 

Conscious of the instruction from David Bagley to ceaso processing Iranian bank paymsnts, but bearing 

in minu lhest! Lliscu::.:,iun::" MFD 18YUt:!siw fwlilt.'1 l;tJll:.iI.itO:i8liull on w!'II2:U,~f U",;" paYf(.e-nts CCln 

legitimately be excGi.!i'Hl as U· Tum paymems 

!rthe peymen!s q'.1<!Hyi·'g for U-Turn can be !denEf!ed by controlsfprocedures to 100% axial'll, then! 

believe that cover payment tectmlQue coUld/should be used. If controls/procedures are not 100% reliable, 

Ihen MT103 probably becomes ineviiable. 

Happy to discuss further. 

John 

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From; Teny P COLUt'lS 

Sent! Thu Dec 1811:11:40 2003 

To: John ALLISON 

Cc; David W J BAGLEY; Malcolm G EAST\o\IOOD; Rod MOXLEY; Jeremy R WALKER: NiQel J V..rEIR; 

Geoff ARMSTRONG; Quentin Ii. AYLWAHlJ; f:lnan WkICHAKDB; Gary !jOON; JaM t- ROOT; Jor,n R 

Vv1U{INSON; 3"san A WRIGHT 

Subject: Memo: Re: lrar - U-Tum Payments 

Impol"fance: Nonnal 

Attachments: image_O.gif: image_1.gft. image_2.gff: Melli Pymt Processing.dae; Melt Rev.doc 

The processing of iranian paymenis and the subsequent reputationai risk in'tOived has been a major 

talking point d~ng the last f'3w y(;ars. ThGSB discussions b,,;;Jan due to tM m;mo~r cf !ranian paymants 

rro:z-en by HBUS, the <;ubseql1ent ores'5urc piRC.ed uron them by the Feder;:!1 AlllhQrilfes End Qur ry.~n 

fears conceming cur global reputation. 

OFAC Sanctlons state !hOit" US Depository Institutions may handle "U-Turn" transac:tions (cover 

payments inllolving Iran that art'! hy order of a third country bank to another third country bank), 

provided they dQ not directly credit or debit an lralnian account.", The subsequent pressure by the 

Federa! Authorities caused HBUS to mDve the goal posts slightly, e'l8ntually adVlsmg ttl:;t Senal 

Payments alone would be acceptabie tn order to ret:elve f>,J1l disclosure. 

The political situation !l1eo changed in the wake of 9/11 whictl ! would guess SlJenglhened HBUS resclve 

for fu!1 dISC!c:;UrG, b'..:tv,hather tM sdoption of tM original findings which have ;lOW baan proposed sra 

stit! valid !cd!};' shou;d be pul under claser ~ciJHny. 

During the previous 7 months RMS have investlgafed the Iranian issue with an open mind, taking into 

consiceratian our reputation a! risk, current and possibly future Iranian business and the technical, staffing 

and financial Implications. The most important issue was obViously to ensure that we compiled wilh 

current OFAC sanctions and to effect payments witnme minimum of reputational risk. Cover payments 

rnetthis crit.3ila cii1d wit. ... the proposed addition of aU OFAC Sanctions to the PrOject Wolf database and 

~h~ e:.ctra ~eclJrity provided by the OFAC Backstop Que-ue In london, ..... e b~J!eved that Gaver paYfT'efilS 

were the way forward. With thiS in mmd, we were under the imp~6sslon that Group Corr.pllance would 

contact Legal Couns.el wittl a view 10 pursuing their agreernent !Jiat Cover payments were acceptable, 

and to subsequenHy approach HBUS ..... ith a new recorrmandat!on for cover payments. 

it has now beeD confIrmed that !t'h" reason fur not contactlnQ Legal Counsel at ltls outset was to i:115Ure 

we didn't incur leg'l! expense without lirst discussing t.~e epproach with HSUS. We understsnd the 

reasoning but beliel(e we have lost the Impetus oftne original plan ta persuade HBUS to accept cover 

poyments as velid payment method, agreed by both OFAC and hopefully Lega! Counsel. HBUS have 

therefore reiterated their desire fer fun disclosure as per their original discuss)ons pre 9/11. 

Assuming that tl1e example of payment formatting provided for Bank Melli WIll nGW be dupllcllted for aU 

our l(ElJiian accou;'llS, HBUS will lherefore need to opefl5eparate prucessill9 13ccounl's for all our current 

and future cu~tomef$ w:-rich wii! sUMequently be emerec into their CFAC lil'ter at; a "toKen- to en:>ure :h<::t 

every transactio!") is tmerec! 10r Invest!ga!lan. 

HBUS will therefore req;Jire further FTE to process these payments but a business proposal including 

ac!ua! pricing has yet to be agreed Were the 3 original FTE required for Ban~ MeUl payments only? !fso. 

how many will be required for all Iranian accounts? With the aeadlll1e only a few weekS away we may find 

ourselves agreeing to pay costs that in the fuiure may not prove financially 5(Jund. These costs again may 

risc as our !rnni::;r. customer bl,lse ir.creas~s. 

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!f customer lransfe!"S are to be effected by MT202, the customer ~l'Jst input Fd 55 to ensl.!re the! MPS 

processes the payment through the serial method. It is possible that If Fd 56 is left blank., MPS will send 

out 2 x MT2D2s by the cover methoo. 

Wi!! aU our Iranian customers be required 10 si;Jn "Terms and Conditions" explairllf1g that HSBC will not be 

liable for any payments we process using an MT100 series payment method? What stance will we take 

with those customers who don't wish 1:0 sign? 

MPS cannot loca:e specific payment type5 fur a specific custol11Br base and se'1d them to a repair queue. 

Theretore the only option would be to set a marker en all the Iranian accounts ana m£lnualiy check each 

pl:l),lTIenl.lf n:J aclion i5 taken, F.ln MT103 from Bank MHII! could !':tfl! STP causing an l:lutumattld l:OV8f 

payment to be effected via the US. If MPS cannot be amended, wllere VI ill tile onus of checking each 

fJHyment lay? Which eVe!"ciepartment Is chosen (or tnls Lask, lime wW be rsquired lOr B bUB/ness ph:m to 

to invc:Jti~atcd lo discu~s futurc staffing levels and co~b. 

As if Is BJega! to tamper or amend a payment instruction as it may be deemec\ as "Sic\e-:steppingw current 

sanctions, what actIOn wi!! be taKen by LivingstonlGlobal wilen an Ulegally sent MT1Q3 falls to repair due 

10 a farmatling issue other than the payment being a t037 It will also be ne:::essary to re·educate our 

customers With regard b fonnatting and eS;Jeclally Field 72 with the commonly u:se-:l statement" Do not 

r;-,.er.tion !ian", There is also tr,e legal implications conce;n~ng interest claims if H!3US hold a \lElia MT202 

payment for fiJrther i:tv€stigatiQ!1. W'no wi!! pay these costs w~.en both the Cit.'sjcmer and H9EU be!le'lo:': 

the rayrrent Gomplie..s with OFAC sanctions? 

For the serial method to have any chance of Sllec~ss, it will require our correct interpretation of a U-Turn 

transaction fu, every single payment, a full business proposal tu inch.Jde staffing levels in HBUS and 

H8EU plus castings and the agreement of the customer. Due to many banks closing their Iranian 

bUSiness, I would expBct Ouf custDmer tlase to jncrease 5igntncantly when limy reailse that HSBC 1s 

happy to process USD paYr.1ents. This also !:Suses CQll'::ern. 

In conclusion, this method will require an extroffi8ly difficult manual orocess which "lakes us ana step back 

in our fight for ST~ > Group Compliance have advised that ~Due lo the current reguialory dimate. all 

Dayments must be trans patent" which lilcreases ti1e lIkelihood of H8US seeing something 11ley don't like 

dnu iloiding funds fur investlgCltbn/freez:mQ assels. V>fith rtl!,lOlld to U-Tum payrnenb, It ail com::::; duwn io 

irllerprebtion. in addition, their l~ an extremely ilmited 3mount of time nvoUoble to set the reqwfee wheels 

in mation My view is tl1at the serial method !equire."; a large amount of work prior to commencement, <:: 

disproportionate amount of eXpense and a higher than average risk 10 the banks r~putation baing 

damaged by a future payment. 

Regards 

Tony 

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Memo 

11 DacZCC:> !7;3C 

From: SUS.lIn A WRIGHT!HGHQlHS8C 

To: Nig-el ] WEIR et ol 

To' NigetJ \NEtR/RM 18 MEM/HBMEJHSBC@IIS8C 

GeoR' ARMSTRONGfH8EUlHSBC@HSBC 

Quentin R AYLWARD/MDSKiHSBC@HSBC 

Dna.' W RICHMDSIMD81<1HSBCg)HSBG 

Rod MOXI EYIHRF.:UlHSBC@HSBC 

Ge:y BOONI/JJGR PCM MEMfHBMElHSBC@HSBC 

John F ROOT/HGHQlHSBC@HS6C 

John ALL!SON/HGt{OfHSBC@HSBC 

MalcQIm G EASTV\'O:)OIMOSKfHSBC@HSBC 

John R WILKtNSQNlHBEV/HSBC@HS8C 

Jeremy R WALKERlH13EUIHSDC@HSE3G 

Tony P COLUNSIHBEUIHSBC@HSBC 

David W J 3AGLEYJHGHQ/HSBC@HS8C 

bee: 

Subject: Re; Iran· U-Turn Payments 

Tel; 7992 555~ 

44 2078 925554 

Further to my recent emails please flnr! attached the proposed U-turn process/procedures forwardec by 

Carolyn\/Vind, 

Gould you please advise John AI;ison of your comments as SOQ;' as possible. It rrny be worthwhiie 

convening anoitler conference call alld if you wouid liks us 10 arrange this plaasa lal me know 

RegaHls 

Susar; 'v'v'rrght 

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V-TURN PAY~lENT PROCESSI~G FOR BAl\l( MELLI VIA HBEV 

HBUS '-vill process payments for Bank Melli as. the OIiginator of transactions via 

HBEU. As Bank M(!I1i will appear as the originator, all transactions \l,;ill be 

subject to OFAC review on the EP payment system. 

Assumptions: 

A separate processing eccountwill be established Wldcf the name of "'HJlEU 

Special AccounC on HBUS books. Only Bank Melli orig:ui'lted transactions 

wi!! pass lhroug,lI thi!> aCCQulll. 

Additionally, the account number of"HBEU Special Account" will be entered 

into the OFAC iilter as a "token" so that every transaction for this accown 

,,,,ill be stopped in the OFAC queue for review and approval before 

processmg. 

IIBUS will be reimbur~cd for J FTE to be kiTed due to cxtn.l process burden of 

OFAC review for an estimated 400 transactions a day (methodology and 

pnclng 10 be e~tablJ~hect) 

• The "U~ TWll" transactions will be formatted in accordance with SWIFT 

MT202 s.tandards and will include Bank Melli as the O1igillator as noted 

below 

Dank Melli sends ali MT2C2 to ! IClCU to deb;: their accoi,.lnt and make a U.n.. 

payment with full detal~S: 

Originator's Bank: 

Debit Party: 

Credit Party: 

Intermediary Bank: 

Ben~ciary Bank: 

Beneficiary: 

Reference: 

Bank:Me!li 

Bank Melli's account with H6EU 

HBEU's nostro account with HBUS 

any U.s. bank v!s Fedwlra f CHIPS 

any foreign bank: which IS not Iranian, noi 

HSEU and not a foreign bianch of a U$. 

b:'!nk 3.n~ mue! be for the Mneflt of t'1e 

foreign bark's USD account on 1Jle books 

of the above ~in1ermediary" U.S. bank 

party Bank. Melli is remil!ing fund~ to 

(optional) 

HBEU sends an MT202 10 HBUS to debit HBEU's Qccount with HBUS: 

Originator's Bank: 

Debit Party: 

Credit Party: 

Intermediary Bank: 

Beneficiary Bank: 

Beneficiary: 

Reference: 

Bank Melli 

HBEU's nostro account wah HBUS 

any U.S. banI< via Fedwire I CHIPS 

(no! applicable) 

any foreign bank which is not Iranian, not 

HaEiJ arid not a rOl"Etign brancil ora U.S. 

bank and mL'S! be fer lhe benefit of the 

foreign bank's USD account on the bOOKS 

of the 'Sred!! PRrty" U S bank 

party 8ank Melli is remitting funds 10 

(optional, 

Confidential- FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8877153 
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QFAC Filter Revie"w Process: 

1. Upon receipt ofinstructiolls from HBEU, payment will be executed as STP (str<llght 

through processing:) or repair. ]f repair, any required corrcdons '''''il! bc done It: 

accordance with standard operating procedures. 

2. Payment will be stoP'Pcd in the EP OF.AC Filter for manual review. Thcrewi!l be 

1:\\'0 reviews and lIVO approvals required before the payment can be processed. as 

described in items C') :md (4) 

3. The first reviewer wi!! examine the paymcnt for compliallce with the "U~l1l:1l" 

exception under the Iranian l'ransaC(iolls Regulations, i.e., the wire transfer must be: 

(I) By a foreign bank wbich is nOt!ln irll11ian entiry 

(2) From its own account at a domestic bank 

(3) To an account hcid by a domestic bank 

(4) For a second fOJ:eign Dank which is not an 1rauian entity. 

4. If the fir~t rcv1cwer.conflrrns (ilat pil),mcot is nor prohibited by OFAC sanctions, i.e., 

it is permined under the "U-turn" exceptio!) to the Iranian Transactions RcgulatiollS, 

the p?iymeDt ..... 1.11 be released to be verified by rhe second r(;Vie\vcf. If lhe revic-.vel' 

r.ietelmines wat pl:l),ment does nut meet the U-tUTll requirement, il ""ill be rejected 

back to HBEU in accordance with the InlOian Tmnsacouns RcguhlliOllS ami repmtcu 

to OFAC as required. 

5. If the scc-ood revic,-yervcrifics and con£rms that the paymcr1t m.;d::; the L~tunl. 

exceptiou, he/she wiiI lelemit: the piJymellt for frnal pl'Occ::'::.ing via Book Trans ref, 

CHIPS, or Fl:o.win;. If thl: !:it!(,'onJ n::vi~wet' dctefIlli,}eS lhlll the ?aym~nt does not 

meet w.i{L cfiklia [or a U-lLlfll c.'i.ccptio!), il will bc rcjectcd hack to HBED in 

accofdance with the lrallian Transactious Regulations and reponed to OF AC as 

rcquirc-d 

Confidential- FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8877154 
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From: David W J BAGlEY 

Sl.mt: Fri May 0510:11-02 200fi 

To: John ALLISON 

Cc: John F ROOT 

Subject Fw: SERIAL PAYMENTS - USD - GCl 

importance: hior:nai 

Attachments: Dec Unk.htm 

John, 

1 am not sure I fully follow this, nor have 1 fried to analyse how welllhjs sffs with the djspens~\ion requests 

reCleved In relation to HUB sfl.es, largely Via Uly. It does however indicate a possible consistent apprcach 

Which was of course something we discussed at our meeting earlier this 'Neel<:. 

Could you connslder and seck further and better particulars where needed, 

Regards 

--- Forl\iarded by Dawd IN J BAGLEYiHGHQIHS8C on 05/~'2:l06 10:08 --

Mlc!'lall) GRAINGERlHBEUlHSBC HBEU 

05;05/200610:00 Pho[le:' No 79925254 

"'44 (0) 20 7992 5254 ft.ail Size: ::r!2:94 

Michael GH ... -'\L"1GERlHBEWHSBC 

David, 

To Dallid W J BAGLEYfHG>-/Q/HSBC@HSBC 

Stephen REYNOLDSiHBEU:HS8C@HSBC,MalcolmG 

EASTWOOQ/MDBKlHSBC:@HSBC, RDd 

MOXLEY,'HSEUfHSaC@KSBC,AkbiOlrDHALA.lH8EU/ri38C@H3SC, 

Ralph D JELBART/HI3EIJIHSBC@HSBC,MelanieR 

FRENCHIHBEIJIHSBC@HSBC. Mike R 

BAN'fARDfr-iBEUIHSBC@I-IS8C 

Sub)e ~w:SE.R!AlPAYMENTS USD_GC", 

" 

Enlity HSBC Bank. Dlt:-~ HBEU 

I ..... ork In GT8 • PCM 'for Stual1 Rouselll Peter Hazou and have been asked to co-ordinate a resoanse to 

the recent Gel (below) in relation to USD payment messages initiated by a group office having to be sent 

as serial payments. 

In conjunction with Operalions * R5CE (with whom I know you ha1F.l been in communication already vis 

Mrs lj'l"ipacts pre GPS - attached belo .. ·i), and IT, who are rC'viewing the HUB impacts 001 other European 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC acc 8877231 
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yiOUP offices, I wOuld iike to reQuesl a dispensation frM, (hi:; Gel. 

This \"/iIi e!Jcw fOf systems changes to be im?!emented for the HUe snes and a pilot tec,a.,nica! sOlution for 

both area.s 10 minimise both systems and custoPler disn;pUon, given th6 short notice to implement the 

GeL. 

In summary 

\.I\f;lh reference to the recent GCl 

tlttp' ilg ro up ghq. hsbcJlolfgrovprl1ome ,nsflByRef!UK CM6 NlDD N 1 0414806042 006? 0 pen 

This has a 2 fola impact. 

1 On MPS from H8EU Londor where Operation::. and PCM in Hw UK have been woridng wilh H8US 

smce Mmch on a plio! to kst rw',ps =nslrcunts and minimisD systc.;'1) and cuslamar disruption, 

Rod Moxteyhas farma!!ysought diSpens'2tion tm end October 2000 per :,e!ow note to j"oL!r::e!fso Iwll! let 

IhBl rlln ,t!3 r::OIJrM-. Mf'IJ;olm EAstwDOCI ~I1Q I arE! both Nrty to t.1E1 pllQtworking p~rty. 

20n other HBEU sites through HUB. Extract from IT summaf}l of Gel impact!;:w 

This requires changes to HUB which, both on a Core 7 and Core 8 platform, only currently allows MT103s 

10 be sent to the US if the beneficiary {s also in the US. There is a HUB development to supporl Seriaf 

Payments but it has not yet been piloted_ T he HUe Centre of Excelfence has requested that all sites 

awaIT the pilot refuass prior to further roll out - this IS to fuJfy provl$/h1$ change and 'f'l'ill preverrt 

u.-?(;eces~;y :a-work. ~1/e need to do mora analysf.::; /0 galn an iindF7rsfanding of ar.y local fiJ Cora 

t:(lnnicts w/Ji(:h might eXIst befofB it is 3,oplied to Bny of our Core 8 sites< We 131so (l/?ed to review wnetljer 

UleTa are allematives to back synchronising the change to GOrB 7 (which would jnevrtebfy require input 

from local IT in Spain). However the only cartainty at present is thfit our HUB snes in Europe wm not be 

compliant by the end April. and that dispensation from the GeL needs to be sought 

IT has proposed a temporary manual workaround in line With what ASP have done for tlJeir 

Rt!gion and therefofe a dispomsatlofl from the syst~ms s.oiwlioll tm tHid of 2006 to. allow ra! time 

for Ute systems changes to be piloted. and then implemented. This wi!! require z Regional roIl·out 

across all HBEU sHes. 

!n the meantime, sites have confirmed that they wlll comp[ywiti1 the manual worka(ound (as implemented 

in Asia with tfleir dispensation stretching til rough to end of August - I attach thelr cx:rrepsondence at the 

foot ofmis mail whicl1 outlines the manual solution, also Implemented m Europe). 

IT has approved the request fOf dIspensation, and grateful fof your confirmation as to fhe proposed 

Cullr;:;e of i::C!1LII-1 rOf boll) 81 e~. 

Regards. 

~:'Jichae! 

D<'Ivld 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, NA HSBC oce 8877232 
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HBEU Payment Ser\'~:::e:; arc hereby seeking a dispensatior: from the under,toted hvo :sections of the 

above Gel as follows 

Quote 

) WiJh ;:ffc;::l f1Ol11 ;lOAPR06 .11111SD pIlYP1(;;lt'i initimcd.:-'y a C'm:ll.lp Office amI. remitted vi;} HB1:S, or any olhcr 

1.;5 correS\XIllJt"llt, :J1USt be 1ll~1de <1$ scritil p'l;'mcllis 

HBEU /lil>/Jernatiufl 

All USD payments initiated by HBEU Payment Services destined for a beneficiary in the US will be 

remitted Ilia serial fOute to HBUS, We are not currently In ;:t position to routr. USD pnymenfs destined fur 

countnes outside the US, however, In tho same manner (vlu HBUS). for three primary reasonS, 

Firstly, serial payrnoi1t mc:hodo!ogy cocs not ca!cr for the increased number of paymen! f1cids necessary 

to effect some payments requested In set!lemen! of HSEU core customer t~f',saclbns 

Secondly, the US lest key nat>,,'nrk is t.onsiderably srnaller than that af HBEU and the absence Gf 

common Standard Ssttlemenl Instructions will greatly increase the risk of payment delsy and subsequent 

customerdissalismction, 

Third!y, the differing number of reference digits used in the ser~aj paymenl method will potentially lead to 

increased manual interventron, delay and incorrecl payment. 

\\'e arc cummillc(\ to \,orklngwi(h H13L'S 10 build solutions dmin.1; ue no:! SLX lUo!lths, whleh wi!! CDSU,C that the 

ma.ioril~" ii'1lI)l ,111, 1..:SD camJl1C:rcia! P<'lYmems wiil be sem yi!! the ~eri(ll '\I<!)llOd, 

.4 \)ntil thrrtlcr notlfic::Ithill. U·lUrn ;)<lym..::nts, \lI1.1cl' tho::. lUll COl\il:r'j 0.1:-;.,(" sancrion,> ,h:l1lId [llso conlirmc 10 he 

'1,~6::' ~, (!l~'er Jl~):IlI~'I'~ (MTlO"l +·lil!J.:ed MT202) '15 :-.t!iil) pil~'me'llf" C~Il'h)1 (]llillii'y n~ {"-In'll pny!'unt'. II! 

accord.1nce wah Gel.. 050()4i.f!11 L"-tumpaymenls must confinae 10 be mnde"iil HDM£ DIJB. Where U-\um 

p3ymcms are :TIat!c, Fkld T1 or 111(: Swifl V<lymcn; mc;s~ge m,n;( be compleled so 11<;' 10 m::tke r\'Cerellce io (my linked 

MTJO:I. 

ABEl' t1i~l'cns:ltion: 

We wi!! continue to route usD Iranian u~tum payments via HBME Dubai without altenng the customer 

H1stn..lction in any "'-?y. compliance with the Field 72 riO-1uir'e~nts WIll be the: fespor.;:;ibilitlj of f:8ME 

Dubai, since '.'Ie hav~ no control 01.'et this e!eme!lt of the process. 

HBEU would seek fo hold this oispensaUon in place until 31 October 2005 at which time we would review 

HBUS sE!:lVicing and progress of the GPS payment system, with a View to removing tile dispens.ation_ 

Unquote 

Dlspef'salions are submitted by different parts ofthe bUSiness in different formats, In order to ensure that 

thIS IS properly fOrmalised, I Will be grateru! It you Will confirm ill due course tl"Jat you are happy with ait 

aspects oftha dispensation request (i.e wl1etllaryou require t,'le request to be transferred 10 a standard 

rorm Of whether a!Jthorisa~lon IS required by way of ell'F.l! frofT1. Heact f"!f P::=:ymer\! Services), and irv::l~d 

c·onfirmatio<) that you flfe prep"8red to aut!'o-rise it 

Rod 

Confidential- FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC ecc 8877233 
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Rod MOXLEYIHBEutHSBC HBEU 01102/2006 To Da~idWJ BAGLEY/HGHClr'HSBG@HSBC 

08 39 Pho~ No _ 799 13884 JS'7'\eS J Y MADSEN/HBEU/HSBC@HSBC,John 

44 20 79913664 MsH$lze' 54392 All.ISONlHGHQlHSBC@HSBG.MllICO!mG 

David, 

Tilank YOu for your note regarding Hle ftbove. 

fASn\lOCD/MDBKJllS8C@HSBC,ManunO 

ROACHfHGHQlHS3C@HSBC, Michele CROS/HOEUIH50C@I.,S8C, 

Martin 8 CLA~BEUIHSBC@HSBC, John P 

EDGLEY/HBEUIHSBC@HS3C, Bin E F RICEll-fSEUI1-lSBC@HSBC 

Subje R.I:. SERIAL PAYMENTS- USD 

Entrty HSBC Bank pic - HBEiJ 

! ~eta!! b:!ow Z COl'lSDlidated respcnse an behalfo.fthe P;::ymen! Services arGa in HBEU. which attempts 

to address. your specific issues .me! al'So draw :Jui other observations materia!ly afl:ecling !his subject 

1. All Group offices will be required to move to mandatory serial payment methodology fer 811 USD 

payments initialed within the Gmup and passing via HBUS. 

Presently, aft our USD pa)'ments to hanks located in US use the serial payment melhod. There is a 

probiem, which we belleve to be a Global one, lhat USD lo other non US countries use the cover method, 

k"t part due to market pmcti::.e ar.d in part due to tht: fact that on occasior;5, the f'..xcessive number of 

parties to a payment inslmctjon rroNbils the lJSE) of seriAl pAyme'1t routing {due to the finite nurnber of 

SWIFT fif.l(5) 

Ifw.e are to migrate to the full serial payment methodology for aU USD payments to aU countries, HBEU 

Paymem Services would seek a dispensetlon pend 1119 the mtroductiorl of tile new GPP system. when will 

nead ;0 bE confi;Jufed to ';;:Cco!7lmo.::late this change. UK implement:;tion o.f GPP 13 e-xpec.l",d by 31 

Dec..emMr 2006-but other parts of the Group, Hong Kof'lg rofexample, wjJI not !iJUo\'l untrllater and tnis 

rT\ay impact on their llhility to meet the proposeo March d<:!<ldline 

2 Where any dispensation is grantee! fur COV{.'r paYrJ1enhi, thi"S "Should norma!1y be for a limited period 

of time and any payments made in relation to any OFAC constrained jurisdiction being made on a serial 

pGymentb!3sis. 

Any outward paymertts to OFAC constrained JUriSdiction.s are highlighted on the Wolf queue, In future. 

when such payments are identified. the. (.over bank rout;ng method will be changed and paymt'lnt <"Iil! be 

mElee by the l;erial payment met'1odo!ogy. This wi!! ir.volve adjl..!slrnent:s to our rouling table and rr.anua! 

adjus1ment to the payment. In respect of inwad payments from OFAC constrainoo jUfisdictions, our ECS 

depanment are working on an enhflnCement to ensure offectcd paYlTElnts are identified pre-accounting, 

so that offending payments can be c<lncelled prior to credit of customer axount or paid (lfsaUsfying 

Rxemptlon cnten<l). 

3. A specific exemption from serial payment methudology wHl be 18Qui(ed Io! ir"aniao U·lUlJ) pGl.yrllenl::> 

where any .such payment must be pre·screene.d for U tum complia.nce <Ina rOuted via HSME Dubai. 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC ecc 8877234 
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This wI!! enlail na change to HBEU, a1!llough the Gompletion of fiQld 72 by HBME Dubai does raise some 

concerns. Firstly, HSBC could be can!ivued 8S mater,sUy changin~ clJ~tomer instructions. in precisely the 

same manner outlawed In the recent "Do (lot mention Iran" notations on some lns1itutiQnal customers' 

instructions. Secondly. if funds are subsequently s-equesttated in us as a result of action taken by H8ME 

Dubai, roJes and responsibilities need to be defined, as the comp!Blm wO:.JJd rever1to HBEU (11.5 C;J5tomer) 

bl../t the 8rTOf would. be that of HBME Duba\ orafthe Group sttate.gy itself. 

4. Specific dispflns"t'ClflS from $;i';ri81 p;:;y-r>lEwl methodology mRy also be H~'i[jired i'l relaliGn to 

specified customers. 

From an operat'onsl viewpoint, these should be kept to 8 minimufTI but ! would assume ti1a\ thi?'s€ WQuld 

indeed be very rare_ HavinQ agreed uPOn a Group strateQY, I am uncenain as to what class of customer 

and for what reason payments Vlould requIre to be made tJ.y !he nQ'Hransparenl co~er method, 

particularty when our GPP systemW\ll be geared towards the seria! payment methodology 

other observations: 

<'I. Payment of USD to non US c:ountries still remains a big issue. It ;,::;s been louched upon above but 

lne arnOLmt of IT de ..... "E!opfrl€nt work required wouid be sUbstanttat and far this rea SOil We would strongly 

recommend "Naitmg ~r the improved solution offered by the. impfer1entatton of GPP.! am aware that 

GHa eMP will be caned upon to make a difficult business decision here butitis not mv bel!eftha\ the 

Compliance risk IS incr~ased by t!"Je stance taken by our.;elves .. 

b. ! am atlaclling a nole fmm Mar!h Clark, PSCU detailing systems iSSlJ8S which will result ffOf!1 

cover to serial payment methodology. These may nDt be specifically Compliance~re!ated issues but may 

assist iii the ovem!, undertandtng of attandant lssiJ2S and can provide a focal po~nt fur discussion of the 

wider ser· .. icing issues which ate now brought ~..,to fo(;us. 

Ragards 

Rod 

David W J BAGLEYIHGH()!HSBC 

DaVid W J BAGLEYfHGHQlHSBC HGHQ 10 John AUJSON1HGHQ/HSBC@HSBC,Mchele 

CROSIl18EUiHS8C@HSBC,MalcolmG 

EAST'.f:OOD,~lOBK/HS8C@HSBC, J<>~s J Y 

~.t~.DSEN!HBEU!P,SeC@HS9C, Rod MOXLEY!H8EU:HS9.C@HS9C 

Sent by: Marion 0 ROA.CH 26,1011200614:13 

Phone No . 7991 8645 

Subje SER!Al PAYMENTS· USD 

ct 

Entit}' HSBC lioldillgs plc - HG!-tQ 

Confidential· FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8877235 
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Dear AI! 

r'l:rther 10 01)[ meetmg on 24JAN06 I have altl:;"mpied below, in tile form of a series of bullet points.. to ~e\ 

out tt"le suggested recommendation tc Group CEO. The <::pproach set out <lim!; to ;Jchiove fiJll 

transparency tit as early a date as 1s practically possible for as much Drtl1e Gmup as we can. Further 

during any period that a particular area is unable to move to serial paym~nt methodology for a.l.LUSD 

payments, then permissible payments relating to OFAC conslrained jurisdictions will be made ::m a serial 

pOlym8nl ba!>i! •. 

TIle suggested .app~oach is therel'ore:-

By way of Get, ail Grcup ("Alices to be required to move to mandatory serial payment rnethadology lOr ali 

USD payments i:lmot~d wIthin the Group and pO!:OGing .. ~c HBUS. [V'-.'c need to cugQCGt 0. dole bywhicli 

this rullng wlll become mandatory - could I suggest 1 March unless it is felt to be Impractical tD do this 

earlier}. (I have assumed that the V.8st majority of USD payments iniUated within the Group. and passing 

other than through loca! USD cleanng -systems are routed Via HBUS ~ do we need to oeaJ with USD 

payments made by another US corre..-pondent For consistency thes.€l too should be serial) 

ltVhere any jurisc::iclicn, entity Qr business is l)nAble to mo\lP. in A serial payment basis by the specified 

d~!6, thar. cover payments can only continue '.viti! EI dispensatlon [I suggest o~t~inad from GHQ CMP on 

nle undEfstanding th~' WI'! wi!! seek tp.c'lnit:i'I! Uuidanc:p. ij rl'!quhed}. \fIlhl"rfl l'my rii'ip.-msHtion N 9fHnt~d 

this shOuld oorma!/y be fur a limited period of time (for example to nHow syste1l15 development for 

introduction of GPs) and any payments made in relation to any OFAC constrained jurisdiction (wliere lhat 

payment must be in cornpllance With GeL 050047 - i.e. permitted by OFAC) being made on B serial 

payment basis. 

A specific 6xemption from serial paymEnt methodology wilt 00 required for Iranian U~!un; paymants where 

again consis!~n\ wi1f1 thE!" abOve Gel any such payment must be pre-sc.ree!'led Tor I)-lu·'ll <:-Qmp!i8:pc~ 8nd 

be routed via HBME DUB. HBME DUB are of course considerinQ whather lhey can compiete field 72. 

{SubSequently confirmed}. 

Specific dlspensatlons from serial ptlymentmethodology may also be required in relation to certain 

specified customer.; ~ again a dispen:oatlon to be required from GHQ CMP, 

progressively HBUS to' migrate I!"',ird party customers \0 serial payment methodology witl"l mandatory 

seri;31 payrnet"t fTloe'thodo!Q9Y beirlg required by 1JAN0711 MAR07? (I ar!1 concemed that 1MAR:J7 m.?y be 

seen .3S baing too long a period of time, a!tt1ougn will make it clear in any recommendation tnat this is tne 

prEferred time P8tiod from a CCHllHJt'SeiHI perspp.c!ive - tlere we will need fhe tWS'iness f'wntmrs- by the 

time I go to GfOllp CEO which I would like to do by the end of the week) 

Part!OJlar!y In relation to third party business we wi!1 conhnue to mooitor the regulatory debale in tile US 

Wi!6re specific consideration is beh-Ig given by th€ industry and iegulators. as to coV(:r payments ';'(Id wt-lat 

us ccrr6spondar.t bank'S are f€QUl,€U to do In ralati;);i to the iT.onitoring of CClver payments. 

A:<isurning th<l! the T1t0\~ accur3!e!~' reflects our discu5sion ~ although! am happy {o be com~cted D!\ any 

points thero then seems to me to be a number of pmctical steps which WEI need to consider. where! do 

no{ rlecessarily expect that I helve thought of Ell! of the possible issues. The following however occur:-

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N,A. HSBC OCC 8877236 
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760611.691

It wi1l c!6<ir1tbe ser1sir,le-ruf us to lie in i:l pDsition 10 l!:;.sl1e some glJidanCefFAQs with iegard to those 

issues and prob!efJ1s which miQht b'J faced by Group OffiC9S. Cou!d I ask John A!i':>on, M3!co!m a·'!d Rod 

to consider these and start preparing FAOS • already we have Identified Issues sur;h as potential 

breaches ofSVVlFT rules, insufficient message fields etc, 

It is clearly Important that we moniter and indeed perhaps prompt discussions within SIJ\IjFT -this dearly 

requtres that bo bnef Marilyn as our board reprosentativEl. I would welcome suggestions as to how and 

when we might do this 

My suggestion would be that1he polley be Issued by GCl which, subject to Group CEO's concurrence, 

ot!gi-Jt to be issued SlS soon as possible aUowing offices time to prepBre. Is !bare any obvious prior 

consultatlon,'waming lh~t we can give partkularly to payment areas - if so, I am sure John would be 

happy to do this subject to having an appropriate list ofcontac!s. 

I look forwan:l !o hearing from you In due course, 

Regards 

DaVId Bagley 

Michael Ram3nadenfHBCAJHSBC@HSBC02 To Alan HOOKJHBEUIHSBC@HSBC 

HBCA 25/1)4/2006 13.58 Mail Sill:!: 1.2'15526 A.finr<ltnwn RuvindranlHBCAlHSBC@HSBC02,Chee Kiong 

ChanIHBCNHSBC@HSBCQ2 

Subje F\'t: Compliance S~Hia! ps)'meI115 GeL OeOD11: US Dollar Payments 

" 

Alan, 

This is what ASP are doing for tneif region, Something similar may nee<] to happoo for Europe, 

__ Fo.wan:iE'd by Ivilchaei R-amal1<::deniHaCA/iiSi3G on 25'04:20':-6 05;5i AM ----

Humberto 

FERNANDES@HSBC HUB 

APHfHBAP 25 AF 20Ce C~·cro 

lQ: Uly l '( t'iO/CMP APHJHBAP/HS[lG@HS£JC 

5n.JVASTAVA/TSV,W,,·v1'lOAPIl-iSDC@liSnC 

Sattu MAHAPATRAlODD SGHIHBAPIHSBC@HSBC 

Arlaratnarn RaVlndranIHBCAJHSBC@HSBC02 

MICt1aeJ Ramans<lenlH8CA,'HS8C@~SBC02 

Hugh '.'1,1 C UM/PCM ASPlHBAPIHS9C@HS8C 

No!an S ADARVEIPCM ASPlHBAPlHSBC~HS8C 

Frankie S 0 AUiPCM ASP1HBAP/HSBC@HSBC 

Confidential- FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC ecc 8877237 
1859 


760611.692

Kit Ki','3n K K VVONGlGDP IT ,\PHIHBAP.lHS8C@HSBC 

Fred K W U/GDP IT p..?H!H~APiHS8C@HSBC S'..Ibject ~IIJ: C.ornpliance Serial 

Gel 060011: US Doller Payrrents Our Ref: Your Ret 

Lilt 

We hsvc discussed tho system solution, developed by GPCM, in order to mcetthe compliance 

requirements of Gel 060011: US Dollar Paym~nts, .. ,1Ih IT departmen1s in SGH and INM. Both have 

come up with figures of8round 7 weeks. for lmplementing the change 

Scope as determined by INM n a) SOUfC6S : Totally 70 existing prograrns changed of which 20 pH>grams have local-to cor;; 

8rT1!O'ndrn~ .... ts and nI'lBd<; rf'!,4mJ\l r>f ir:1.p~ot on 

Iccal amendments and 5 new Critical proqrams which -erc chanqi~ are process control 

programs for OR and lB modules 

b) Files : New Files -10, Files undergoing changes - 22 

c} Program . Existing programs which need to be recompiled/racreated clue to ch.anges in I'tles 

are approx 55 (as per tr.e documentation) 

Broad timelines 3.S determined by !NM IT 

rT\'!or~ program synchrodzat!on (2\'/) 24:I,.pr~ OlMey 

U,.6,T (3w) 08May-26May 

Release Preparation 22May-27May (in paralle!) 

signoff 

CMM Request 

ReJeese 

2n.~a~' 

2?May 

10/11Jun 

Broad timelines as determined bv SGH 

Sf;'>.'Q Tn~k Mao· 

da}·~ 

S.tttcydO';t.'mt"'n!a!icll&.~l..!rcc 

2. Source sym:hr.miza:ioll 

3. Review documcmanoa 

Conversion 

Ui~1 .-\ccept<lnce Test ~cydes 15 

15 -17) 

Stnrt .End 

18Apf1) 19AprO 

, 

1('Ap\1) 27'<"," 

19AprO 2BAprO 

21lAprO 2::<Apl'O 

O1i"'ia~ 23\-I<l.y 

06 OG 

Pl!:rt), 

lTD 

lTD 

ODD/SO 

C 

[TO 

ODD/SO 

CETV: 

HSSilTD 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8877238 
1860 


760611.693

Prcparr: WQlk.l1ol,,'Pm;;cil.,lf<il 22M;;;), 26Ma) ODD/SO 

CDEL'lg('S 06 06 

Re!~5e Preparalion 22Mll)' 2I'iMH: lID 

DO 0(, 

Lmplc.ncntatlOll 27\1a)' 27Ma) lTD 

Ofi no 

Work that nE!'sds to bE!' done per site: 

{List of HUB sites: Dhaf.".a, M~lJritlus, B" ..mel, Manlla, Korea, Tai'l'!a:l, indonesia, Chlna, B3nglicK, 

Australia, New Zealand. ColOmbo. Malaysia, Vietram, Japan, Singapore, Kazakhstan, India, Paklsiar) 

Following the completion oflhe release in fNM, These changes have to be rolled out to the rest of 18 ASP 

HUB sItes. 

TIle rolkJu110 each gilA will ental! the following ~ 

1 Review of each sites Ioca! amendments to verify if there Is any Lrnpact 

:2. Review of each sites processing methods. to verify if there is any Impact 

3. TestH19 of lOcal mtertacesl modules; processeS ar,d procedures. 

4. Release of changes to SItes production envlronrnenl (See scope for impact). 

S. Ensuring proper customer communication ana change l111ariff. 

GiVe;", that for tt,E pilot sitE It w;l! tE1~e Bround 7+ weaks, elapsf"..d time, we aiC uf the vplnlon thaI to ro!1 Olot 

th-e Changes to other ASP countr!es would take us arouT)d 2 1/2 months i-e a comp!e!!on date of 31 Aug 

2006 for 1B sites, This would be an extremely ag):lfessive implerr.eniation schedule. 

We seck dispensation for the above mentioned countnes, fer the implementation of Gel 060011111{ 31 

August 2006. 

Humbe:rto remana€5 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N,A, HSBC OCC 8877239 
1861 


760611.694

STRICTLY PRIVATE & CONFIDENTIAL 

HSBC WHISTLEBLOWER ITEM 15 - HBMX 

INVESTIGATION REPORT - EXECUTIVE SUMMARY 

HEAD OF GROUP AUDIT MEXICO (GAQ) FOR GHQ CMP 

FEBRUARY 2005 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8877877 
1862 


760611.695

--= Redacted by the Permanent 

Subcommittee on Investigations 

HSBC WHISTLEBLOWER -ITEM 15 - HBMX 

GAQ • INVESTIGAT/ON REPORT 

.1 EXECUTIVE SUMMARY 

1.:.1 Purpose of the Investigation 

FEBRUARY 2005 

The pmpose was to determine the accl..Il-;:}c), of a wbistleblower claim that a Director ofHBMX (.an 

executive) had ordered a subordinate to f.alsify documentarion fer submission to the rinancinl 

Services regu]ztor ("CNBV") during a 1"~cent. sc!1eduled in~pection. Tt :;hculd be noted tIlat the 

claim ,,"'as lodged by three strff 'who worked under the Director in question 

14 Backoround 

Ou 21DEC04 GHQ eMF received a whistlcblO"wcr report of specific im:gdarilics that were 

alleged to llavc nccull'cd in the Money LaUlHll..--nng ("TvH ,P") setlion of the HR\'iX C'ompiiftnCe 

(Ci\'fP) ue:parlmelll (RamUli Garcia Gibsun, Htcau ufHBlv[X eMP) 

The: "\Vhistleblowing" took (he fonn of au email scnt by one individuat to GHQ eMP, with two 

other individuals "co~optcd» as v.histleb!owcr.; by wily of being: CQpicd, 

TI1e emaiJ to GHQ ovrp claimed !hal on 130£CO<1-, :"n am:!)':;t in the Muney 

Laundcling Pn:\'cnlion (MLP) scctiUD of Ch1P, had c!'catcd f~lsc :Jrt:l:nJa...TJCC lists :mu minutes of 

t.'I]e Bank's "'·1mley Laundering Committee m.;;ctings 011 the order of his Director (Carlos Rochin), 

and at his reql1cst, had suhmiticc these falsified dccu:nccts to the Bank's regt!.!ator, eNB'V, 

(Mexican Lav,,' piac.;;s impoltanc~ on the e:dstcncc of attendance lists in preference to minutes of 

rnecd.ogs to cvidence that mCe!illgs had actually tabn place.) Tl1C whistleblowcrs also claimed 

t"!J.ar these meetings had not in fact been held, 

Fil1al1eial institutions were required to establish a motley htundcling committee tComite de 

Communicacioll y Control, eCe) [oilowing the publication on 14 May 2004 by the Mex.ican 

Ministry of Finance (Hacienda) of new and revised anti-money laundering reguiatinJ1S within 30 

days of gazetting 

These requirements superseded all earlicr arrangements whereby banks had operated anti-motley 

hmndellllg deterreuce committees ("CAPORT") governed hy each hank~." own intErnallU1e~, wllh 

a Hacienda ru.auda~d requirement, whith (inler alia) \>ou~ht {o add a degree Qr fOTTIlalily 

Jemoostmbly missing from the broader Mexic.:m final1cial system hitheno, 

The internal rules govcming the Hm..,1X CAPORI CommiU;oe were that the commlHee ',I.ins to 

niC:!et monthly to (inter a;ia) determine transactions and/or custom:;'T3 sufficiently suspicious to 

merit bciDg reported to CNB V. The dt'..Signlltcd cbainmm (president) was Ramon Ga1'cia, and 

Carlos Rochin was hj~ alternate. Other member;.; 'were selected to rcprc~ellt va!~ous b'lsincs~cs 

,; ... -itbin the Bnuk ',.\'tlh <Ill intere:>1 ill the o·,ers.ighl ofKYC/AML 

The allegations conveyed to GHQ CMP were that, in fact, the last meeting covering Money 

Laundering (CAPORI) was actua;ly held on 24.lUN04 and that the Hacienda's new requirement 

(the CCC meeting) was not complied WIth. 

A prillcipie. nci" n::qutreruelll Biwe.u at f1:lising tbe profik !:Inu level Df impllrt.ancc: of M(lnt.:y 

Laundering monitoring embodied jn the new reg.u1atioos was that the CC:C: should compnf>e three 

executives of no more than two Jeve1:s betow the CEO (in practice Executive Directors), and two 

Strictly Privllte & Cmifid.entilll Page 1 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC acc 8877878 
1863 


760611.696

'''''''- ""' Redacted by the Permanent 

Subcommittee on Investigations 

HSBC WHISTLEBL.OWER ~ ITeM 15 - H8MX 

GAO • INVESTIGATION REPORT PEB~UARY zOOS 

at no more than three levels below (Directors). Tn addition, it "yas mandated tbat euch institution's 

Head of [ntema! Audit should 3.Iso be a member (although no voting rights would attach). The 

o.ew commrttec's responsibilities largely mirrored those of the CAPOlU committee, which was 

thereby superseded, but directed ccrt!!;n addition!!l requ.in:mcnts/powcrs -regarding appwvlll of 

deteTTcoce personnel, systcms, policies and procedures. 

As 3. result of the new requir.::mcnl, and in accordance with its provisions, eM? tabled proposals 

fer membership afthe CCC Committee to the HBr-..·tX B03rd of DircctC1J"S, which 'l.'ere approved 

at the 27JUL04 b03!d meeting (which meets qu31terly. and thus precluded approval within the 

prescribed deadline). Both R.amon Garcia fmd Carlos Rocrun were appointed members !llong wiLl'. 

tl1ree l10micflted Executive Directors and the Head oflntemaJ Andi!. 

Follo'Wing the CNBV 311nua! inspection of d1~ Bank dunng 4Q04, duril1g which eopies of the 

"minut~s·' of tbe Ballk··s money laundcriug committccs. had becn collected (which clearly related 

to tbe old slyle "CapOli" mccrings), the CNBV requested copies of attendauce lists <IS tbe 

"minutes" did not show who had anellded. 111 respouse to this request it wa.<; alieged b ... ' the 

whistleblowers that Carlos Rochin had instlUcted a member of section to 

falsify such attcndilnce listS in an ilttcmpt to rruSlcild tbe Regulators, 

The Wbistlcb!o\,vcrs 11lso claimed Carlos Rochin (who V{3S absent frunl tLH.! office at the lime) 

illStn.lct(~d_thel1 to make himself scarce to prevent furtbc! quo?srioniog: by the CNBV. 

TI1e whisdeblowets' denunciation also included othel' secondary complaints i'elatil,g to alleged 

favouritism! nepotism ill the dcpartmcnt, following the creation of the Complia.nce Department 

pursuant m acquisition (hitherto IlllS had been th~ pro ..... ince or Tritcmal Audit, and all the 

\Vhist!eblO'.\'crs had been transferrcd from that departrncnt at the time), and the recruitment r;f 

Riltnon Garcin a.s its Head (together --:"itb tb~ o:ssocintcd extemnl hires on more f<r .... curnbl~ 

compc:n~alioll V3.chge~ thaIl thost! enjuyed by 1eSacy :>tafT), tugether v.'ltll (Jlher HR rda!eu. 

t:ompbints. 

At the request of GHQ CfI.,fp. and with the a.b'1·eemenr of the wbisdeblowers, the Head of GAQ 

met ·with the whistlcblowers on 19JAN05 to commenec an investigation into their claims 

1d ~e of the lnv.estigation 

Ttl!; invcstigaliun WilS undertaken on behalf of GHQ CMP lUll! its s(.'Qpe included: 

individual interviews held .. t an offsite 1oeation with eacb of the whistleblowcrs to discuss their 

clllims~ 

a revie.w of tue Driginai C:r-.·lP departmcntal fecords tbat cO(Jtained ruimHes of meetings of tue 

B<lllk Moncy Launderh18 Committee (CAPORL'C'CC) that were held on 28JAN04, 25FEB04, 

JOMAR04, 20APR04. 6MA Y04, 24J1JN04; (tud that might at first glauce have indicated that 

meetings were held on J6A UG04, 3lA UG04, 30SEP04 ar:d 290CT04; 

discussion;; with HBMX exeCl\ti\·~;; that supposedly attended the me~ting" to confirm the 

alttndancc !j-,t~ and the existence of tlle m~(':ting.<:;: and 

fomla] interviews, conducted joimly with David Leighton (fIBMX COO), of the key 

CMPiMl..? personnel. 

Strictly Privute & Cm~fidel1fi'lll P~e2 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8877879 
1864 


760611.697

I =~edaNCd by the Permanent 

HSBC WHl5TLEBLOWER ~ !TEM 15 - HBMX 

GAQ - INVESTiGAnON REPORT 

1.4 Findings 

Subcl)mmittee on Investigations 

FEBRUARY 2005 

1. TIle Bank had been in breach of the [leW B(lcienda regulations since 14JUN04. 

De$pite tbe HBMX Board resolution an 27 JULQ4 "L\lh~rising the nomillaliorn of specific 

itldividuals to Attend the recently prescribed CCC commlltcc, i.md the t8Ct thM Ramon Garcia 

(Hr.ad of HBMX eMP) W{lS onr. of tJJ('. nominees as w-.lI <1.;'; the c;o:.-:c.utivc rC5PQllsil)l~ for 

hrinein[l rhi ... lm";I1f~<:;" It') dl/". ~1Tf'nlioo (;flh~ hCl1lrn willI hi" l~r,orlHnf':nrl:rtinns M Tn WI1,; :';.hl'llllrl 

be llppointed fO the CCC committee (find should thtlS have been aware of developments).. the 

fiT'$t CCC committee was not ill the C'vcnt held UI1ti! 28JAN05. 

2. Dem-i1ed hwestigntions hove substantiaTed ilJ1egp,tion~ that artelloance records related 10 

Muncy Laundering meetings held Elfter july 2004 were f<tJs.ifi..:d insof<lT <IS n ... l meetings. were 

adually hdu. Cl:ld0~ Rot:hiu, Direct"T fUT Mom.:)' LC'luu(h;nllg DctCW.:IlC¢ dll<;<..:tly aJmiucd 

in:'.ll'ucling (ajuuioI' nltlllbef ofh;~ :''laIT) 10 cn::,ate false: aUendallce lists 

and til gu hack th(;ll~ht t1K: file: to reformat all the: nl;lrut~ for 2004 by adding a ~jgnatllre lille 

() eHsur.:: CUrd!~kl1i:y 

The <tttcndancc lists were falsified by copying lists for earlier meetings and then pasting over 

the neadel' and da.te \yith revised detHi!s. The pasting was not obvious from a copy [he 

doctored document, R copy ofwhicb was then given to CNEV. 

The process guvcming production of the Money b.u!J(Jcrlllg committl'!! meeting., W'dS a~ 

follows. From an electronic Microsoft Word template containing the sLandard CAFORI 

minutes heading, _would enter all suspect cases fur cOllsiderariotl by th~ Commince 

into" table COI!Hlhl~d v.rithin tbe template whicb wo~d be used as the agenda for the rn~~ting. 

This dOCUlllent was (lot distributed. and was for internal CMP use up untillhis p0int but bore 

In its header words indicating that it was the Minute of rhe C.':\PORI meeting Following the 

JnC(':ting, th~ format \'i'ould be- c~pnndcd with tcxt recording the dcr.isiQns of tb~ Committee, 

ann. enlerr:n. nTI.;,ignf'rl i1)tn th(': file ~~ thf' offi.i,,1 mhllltf': It .~hOlllrl he: nnt(':o th;'It fhe fr1rm~t<; 

contained in the "tile rdattng to meetings Wl1ich did not actually take place arc ill thi!; premL'"Cting fOTIIlat_ However, HS pM! of ,be fil~ cleansing exercise prepara10ry iO !he CNBV 

audit, llu:.:se fannalS were re·prillt~ in rnid·NovC"mbt:l' 2004 ..... ith a new footer cOlllainll1g: 

provision fOT the signaturcs of Ramoo Garcia and Carlos Roehin, and were si811cd by each 

(sec below) 

Tue l'e[onna!lcd minutes wne tbcu brought bdm RamUli Garcia fo. sibruatmt, aml Ramon 

was informed h)' Rochill that this was merdy a fQrmality to etiSl),le the me was complete, ;J;1)d 

on the cleaf undcfslf111ding that th::: meetings hil.d in fact been held It should be noted that 

Ramon had e,~cntiany dc1cgfllcd trlc running of jhc~c meetings to Rochin and had not 

attwded mnny of them. His reasous were thai tillS was consistent the niles establis.hed 

intemaJ1y tv govem these comminees; bccaus{' Rodin bad personally written the rules in 

Hacienda in his previous: employment with Hacienda. and was thus the recognised expert en 

!\:!Ollcy Laundering; and bcca.usc, having worked ,,-ith Rochin in two other in.;t;t'ut1ons prior;:o 

hiri.ng Rochin to HBtv1X. be had implicit faith in RochiR 

11,e -reformatted minutes were printed on 17NOVCl4 and collected by CNRV at some rime 

lberean~L Copie~ a[ lhe aUelldallct! lis~ rOT (he second haIr of th~ year were <;ubsequenlly 

requested by the eNBV on !3DEC04. 

Strictly Private & Confidential Page 3 

Confidential- FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC acc 8877880 
1865 


760611.698

~~ .. -- "" l\edIH::ed bv the Pcrm~tnent 

Subcommit"tee on Investigations 

HSBC WHISTI.EBLOWER ~ ITEM 15 - HBMX 

GAO ·ltfllESTIGATION REPORT F~BFWARY 2OC5 

3, It is irnportant to not::: tbnt dt:spite tbe fuet that the MODey Laundering: Deterrence cOllUiIittee 

meetings were not held .after 24.TLT"N'04, the MlD section of HBMX MLD continued to 

complete 311 preparatory "' ... "ork r..c:cessary to enable such meetings :0 be beld, and dischnrg~ 

fully its responsibililies to report all id::ntificd sll~'Pici{)u.!i tnmsaelluns ttl C'IBV on a timely 

basis. Such direct reporting was approv:xl by Carlos Rochin under the au!.hority vested in hitn 

to report "emergency" cases, '.vith a view to sueh decisions being ratified later by Ll-:e Money 

L,nmdering C ommittec. 

4. Both Calios and _ eonfim1cd they created false documents, Ihe latter tll1dcr the express 

instructions of his superior notwithstanding that .was most W}COmfo11able Wilh what. hZld 

been asked to do. Ramon Garcia cOJltlnned 111M, al the request of Carlos, he had signed the 

rcfonnl'lttcd minutes as President of the CommlttL"c Oil tile ckar tmderstanding from Rochin 

thaI meetings had in faet been held and that evet)'tbing was in order. 

S. The CNBV r-::Qllllcd to the Brulk after [hey had completed their exit intcfVie\ ... ·s with Bank 

management to ask for copies of the attC:l1dallce Ihts for the Money Lmmdcring meetings held 

as such attendance lists were not incorporated into the minutes themselves. This may have 

resulted from the fact that the certified extract prepared and signed by tbe Compan)' Secretary 

of the HBMX Board r.;snllltion for tne CS18blishm::nt ofth:: CCC Committee, and provided by 

Rochin to Ill!! leguialor, hlHl inarlVClicnlly omitted listing the Hc~d of IntcmaJ Audit as 1m 

attendee at the CCC meetings -- an omission that had not been detected by Roehin before 

passing the document to the CNBV. 

6. The CNBV was apparently aware bcfor;.:: the end of their audit that tbe CCC cDmmittee bnd 

never' been convened, a1~d tnat HB!'-,-{X Was prima facie not ir: compliance " ... ith Hacienda's. 

requirement. They mus.t also have heen fully a.wcln that after the mid-ye('s d-ead!i;1e for the 

ece committee, ·wh..-.:ther or Dot a CAPORI me-clio,£ Vias hdd ~"a$ ctllircly irrelevant, as it 

shedd bave beel1 superseded by the CCC committee. Oulos. Rochin advises having.l·epoftc::d 

to me CNBV during their inspection that he would hold the first CCC rr.eetin,; in Iam.l31Y 

2005 iI! dear breach oftbe new mles. However, by Ills 0\\,11 admission., Roehln Dey:::r revealed 

this breach to Ramen Garcia, <lss-;:rtillg ru?.! everytbing \\'35 in crder at eac~ enquiry. 

7. It shmJld be noted that this bread\ was not considered by tbe CNDV an Issue sufficiently 

serious to be raised at the formal exit meeting \~·j!h HBMX managt!menl 

8. into followilH! the instructions received from Rochin in tlle 

absence of his dirccl superior, wbo was 00 a business tri-p ill_at 

the time. but did so immediately upon ~tum. As Rochin was on Je.ove by this time, 

_took the unusuaJ step ofYislting Carlos Rochin at his home to dJseuss the issue. 

Rochin advised him that he took full respollsibilit),. and that _,.as thereby absolved. 

He also stated rhat the CNBV had already noted the lack of HBMX~s compliance with Ihe 

new Hacienda requiremeuts, and that HBMX was thus already liable to whalcvcr sanctions 

wt'!f'C handed down by the Rt':guluror. irrespective of the fact that attendance lists had been 

falsified, as the meetings to which such lists related were ilTelevant following the introouctiotl 

of the new reglllations. 

9. For the record .••••••• ~mailcd_concems to _ 011 23DEC04, ..... 110 

forwarded the mail to Redlin (on 28DEC04, which appears tv have been unrespc<1dc:d)" 

____ had, however, responded (rhe same d~y) to_ offering bim tb.e opportunity to 

Stricti)' Prh·ate & CcmjidelltilIl Page 4 

Confidential· FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8877881 
1866 


760611.699

- = Redacted by th.e Permanent 

Subcommittee on Investigations 

HSBC WHISTLEBLOWER ~ ITEM 15 - HBMX 

GAQ .1l"NESTIGA 110N REpDRT FEBRUARY 2005 

meet with Luis A!-\'arez:, the eMP Ethics Director, to raise his concerns officially. 

Unfoftunatdg,LuiS Alvarez was o-n leave until the following 1V1onday (28DECD4), by which 

time, lad got cold feet and bad declded not proceed. (it shouJd be rcm~robcrcd that 

_had only around -=mploymcnt in the Bank, and occupied a jUllior post.) It 

should also be noted that Luis AlvaTCz personally followed up on the issue, offcring~ 

;;econd clHIl1Ce to come fOlward on it fonn .. } basis_. hut thatthios was not taken up 

10, Ramen Garcia during his intcl"-'iC:\\l expressed ::tstonishment tb2-t the mcctin~ e'.'idcnc~d by 

the "minutes" had 1101 ill fact been held, and 'was only convinced that this wes the ease when 

presented with documentary ~vidcncc. This confirmed Rochin 's e~!icr testimony that Ramou 

had had no knowledge of the fnl~ifi£3tion of the attendance lists, the "mitmtes" of meetings 

th:3.1 had not been nCot held, or that the reformatting of minutes held in the file w~s anything. 

othej" than a housekeeping eXel"cise 

Ramon stated {hal he had relied on Rocllin to manage the entire proce:ss OIl his behalf This 

was fully corroborated by Roehin in a plior interview at wbieh be was emphatic that he bad 

deliberately '>\~thhejd the nl.le facts from Ramon Garcia. 

!! l1Hlt Ramon Garcia was neglig.ent in failing, to ensure the implementation of the new CCC 

mecting u:;qniremcnt is not in dOtlbt. This omission was funher exacerbated by t11('; filet he .,vas 

a nominatcd member oftbe new com:llirtce, and Wotlld reasonably have been expe('ted to ba\·c 

noticed that he bad not been calJed to attend - all ill a context where other (less imponant) 

HBMX subsidiaries 'were all in full compliance with the new roles by SEP04 . 

.b§: Conclusion & Recommendation 

Tne u!!cgations made by the wnistlcblowcrs hfl.vc been substuf1tlated. Spccitltll.l1y: 

Ramun Garcia pt=~on"lly failed to ensurt: that the Bank W<l!i in cumpliance witb the Hacienua 

rt'guiations in a timely manner, and that he placed undue reliance on Rocnin given the latter's 

track reca:·d and dcmonsrrabic: cxpcnise i[l dJe Mexican Money Laundcring arena. 

AU evidence supports thc contention that Ramon Garcia was neithcr mvol\"(:d in the 

falsifications that were effected, nor that hc was in any way aware of them. Rochin was 

emphatic that be had deliberately misled his superior whenever Ramon Garda had enquired 

(lbout progress, by assuring him that everything w~s Uml{~T control and proceeding 3S n:quin:;u. 

As a result of his implicit trust in Rocbin, givcn the benefit of hindsight, Ramon Garcia was 

guilty of exercising inadequate oversight of [he aCliviries of his snbordinate, and tlms deserves 

censure. 

For his pru.t. Carlos Rochin c!e~rly abused the trust and eonfideilcc Ramon Garcia bad pI~:;ed 

in him hy failing in hi~ rcsprmsihilitic:'i, and by fal;;;irying rccmd~ dr:;<;ignc-d to mislead the 

CNBV By hi~ own <ldmi~$i(m he lnf,tmcted Bn inexpcnencc:rl f'md jnnio!' memncr of his own 

st::!±T to falslf~; doc:.ttn".'!n.ts, 211d lIe dc!ibcratdJ' ill,sled ills superior. He:. sho!.lld recei\'e 

:appropriate censure . 

•••• 111~ albeit occllpymg a JUnior posltlon and with only ...... 

experience with the Eank, should [Llso be censured fo~llrt in creating the fahc documcnts, 

an act which aJearly recognised as being wrong. _, also failed to follow d:rough using 

,5,.'Mctly Pl'ivote & Conjitle.rltial Page 5 

Confidential - FOrA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8877882 
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_ _ Iltdaded by the Permanent 

SabeommitfH on Investigations 

HSBC WHISTLEBLOWER ~ ITEM 15 - HBMX 

GAQ ·jNVESTIGATlCN REPORT FEBRUA RY 2005 

available channels:, and the direct assistance of.immediate superior' to use those channels, in 

order to report thesc tnmsgrcssions. 

delllo1l3trab!y <lc.ted ia a tic.lely tlHll:Der, and ,vent to ll1l\lS"ua[ lengths 1O 

rcsoJvt: me issue, but ultima~ely fuilcd in the fiml.l sroe,'es by uccepting Antonio's refusal to t<::ke 

lnaltcr further using ttl!! channels availabJe to _should be censured. 

In the case of Ramon Garcia, the \evd of censure should be subject to further evaluation once 

CNBV's d,x:isic.m is known rCg'dnlingpu::;sibJe penalties impo~erl on H81vlX am! eOllfirmatitm has 

bec}] received from GHQ CMP, HBMX CEO and HBMX COO that they can conrinue to {-ely on 

him to fulfil his responsibiiiti~s as Hcad of Compliance. 

As pn:::'viously O"utliued the: B3.nk intends to make fonDal disclosure to the CNBV of the fact that 

[libificJ I:lttclldam.:c li:;l;:; bav!.': been p}cs~Iltcd lu thew punuan1 tu their lCl;Cl1t inspc!;tiull. 

!.§ Management Response 

Senior HBMX tvlanagemem has provided the following response to tht: findings and 

recommendation of this i1n'cstigation: 

Carlos Rochin has resib'11cd from HBMX; 

RamDn GaTcia has forfeited his t!tttitieruent to a bonus for his efforts during 2004 (a figure 

approaching 6 figun:s USD) !IS well \is any inCreml'nl umkr the forthwming Matth pay 

review: and 

... IIIIIJI •• iIII •••••• ltwi11 receive written -warnings to be placd on 

their file in Human Rcsow-ccs. 

!',1a'-'1agernent further commented as foUo'.vs: 

Whilst it would appear that the whistleblowers should be commended for their aerlOD, there 

are underlying circumstances thaI indicate that their motives were at variance with their stated 

position t11at they were ptlncipally concemed to protect tlle Bank's reputation. 

Under Bital, the Money Laundering fUllction wao:; parr of Internal Audit, but following 

acquisition, and at the recommendation of GUQ Compliance (in line with standard HSBC 

practice) it was decided to constitute an independent department staffed y.;tb propcrly 

qualified and experienced staff. This resulted m the need for extensive extemal reclUitmenl, 

icciuding Ramon Garcia (who was weU known to GHQ and theiT strongly preferred 

candidate), as well as tne pmgre.'lSlve r~lllo\'aj of staff deemed inadequate to the task. 

Rernoval of the previoU5 "Jircctor \vas .accomplished rt~lativel)' early, hur a suhsequellt change 

iIi local hTf( policy almed at limiting payouts to depaITJl~g staff resulted ift a dcli:'iY of ov<!t a 

leal: in the removal of OIle of the r¥o'o Sub~DirectQrs in the Money Lruudering se~tion" Duriug 

this extelided penod the Sub~Director in question was given ample opportunity to identify an 

alternative post morc suited to his limited abilities, but failed to do 50 as ~utatiOD 

preccdcd hinL~as rbcrcforc subscqucutly sen'cd notice ill mid-Novembcr, a date whieh 

coi;)cidcs with the date upon \vhich thc ;1:p0rtcd fillsiticatiol1s W\;iT cxcc-"ltcd 

Sfrittiy Private & Conjidflliittl Page 6 

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,_._----_._--..., 

-- "'" Redacted by the Permanent 

Subcommittee on Investigations 

HSBC WHI5TLEBLOWER ~ ITEM 15 - HBMX 

GAQ ~ INVESTIGATION REPORT FEBRUARY 2005 

The burden of c~rryillg- n totally non-functioning Sub.~Djrecto:r. one of only two in the section, 

therefore fell enhre!y on Rochin, who st11lgg1eci. He had also to face discontent among the 

disaffected clement that he had illhclitcd 'Khich manifested itself as thinly disguised 

resentment and extre';1lely limited cooperation. He chose to keep this blrrdcTI. to himself rather 

than reporl it to Ramon Garcia. 

The decisiol1 to instruct_to falsify lhe attendance lists. was made whilst l{ochin was 

2ttC'nding a CAMP workillg group at another location 1t ~va.s a decisio" which he immediately 

regretted. The caJl was initiated by _and \vhcthcr the call had been cboreographed by 

others is unknown. but the result wns Roeh111'S ill-considered, soap decision that presented a 

unique opponUJ.l.it)' for the disatrected elements among his. staff to exact retrib\.ltiou for the 

dismi~sal of their colleague. Tn doing !iO, they ignored all iocally avaiiahic channels and 

instead went direct to the GHQ \Vhistleblower for maximum impact. 

In the event, [be considerable senior mana,Q,crnent time speut galhellng the cvidcllcc presented 

in the file anached to this management 511mmary proved unneces.sary as regards exu·aeting a 

confession from Roehin. He responded clearly, unequivoc.all)' and truthfully to questions (as 

borne out by previous interviews and collected documentation), attempted to conceal Dothing, 

and accepted full responsibi!ity for his actions. As stated above, he has tendered his 

resignation, which we have accepted. 

The first irOl1Y is that Rochin h~d conteu1por.meously invested considerable effort to pl"Ocure a 

pay rise for the whistleb!o\vers, '.vithant their i'..nc'.vledge, dUling {he period "l-vben they were 

eMcling their reveng.e; the second is that the first CCC committee has potentially beell 

compromised d~ to the non-attendance oflhe HC!l.d or Group ,1I..udit (!!S mandated) who was 

otherwise (and unavoidably) cngag:cd. in this highly confidential investigation- at the tim::: it 

\Vi'lS held. 

Whilst this case may bave served to highhght the diftlcuities faced in attempting to transition 

HB:-'1X to the standards deI'nanded by HSBC Group, it is difficult 10 conclude thatjuslicc in 

the full sense has been done, givcn the cynicism attendant Oll this particular usc of the 

\\o"histleblower system. Due to the stliet anonymity TLlles of tile Whistleblower system, and the 

tillY staiT complemcnt ill thc Money Laundering section (which makes obvious the identny of 

the complainallts), i-1Br..-iX management is eHectlvely prevented ii-om pubJlcising the lessons 

leamed as part of the ongoing effort to change entrenched attitudes. 

There is also littl(! point in extending the usual thanks to aU those that assisted in this 

investigation as this report will remain eo:rfidenti::1l, and wi!! enjoy limited circulation. We arc 

left with the destruction of a promising career, as ,-veIl as potelltial damage to the reputation of 

HBMX's Head of Compliance. Ramon Garcia will [Jaw focus pc1"Sonal!y on rebuilding the 

shattered Money Laundcring Sectlon of the HBMX eMP DepartmeClt. 

1.7 CNBV Meetings 

Reprt".,. ... ntativt."!> f)f thf:': B,mk met with CNBV 0T1 f1,vo lxcasiQt1s to report thl;' findings disclosed in 

thio:: n:pOTt 

Ramon Garcia met with Parrido Bustamante, (Vice-prcside1lt of Supenrisionj and Yeron Castro 

S'Ml.'tly Private & Cm'fitientioi Page? 

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HSBC WHISTLEBLOWER~ ITEM 15 - HBMX 

GAQ ~ iNVESTIGA TlON REPORT FEBRUARY 2005 

(General Director of Supervision) of CNBV Dll 3FEB05, to report the matter. Cl'i"BV were 110t 

previously aware of it and requested the Bank lO submit a brief report on the matter. 

Ramon advised CNDV thilt Carlns Rochin had resig:lH~d from nm'.1X 

CNBV reiterated me comments raised at the closing rneetil1g to its inspection visit that, by 

comparison with other fvlexlcan financial institutions, HBl\1X CMF appeared to be lmderstatl'ed 

and urged Rltmon to increase the depru1ment's headcoullt to permit mcn'e etlective money 

laundering prevention coyemge of HI::iMX's activities <\11d operlltions, 

At a follow-llp l~leeting with the CNRV on 8FEB. attended by Sandy F!ockIHltt. David Leighton, 

Gnlh<lm TllOmSc,Jl.l. Rtlmon Garcia. S~ndy pn:l:'(:ntcd tk BIWk's letter summarising the matreT. He 

stateu that the Bank was repol1ing the matter because it \\'as internal poliey TO do so, and as a 

matter of courtesy. He indicated that it was; possible, ~i\'en the sellons nature of the matter, that 

GHQ ClvtP may ~onsider it appropriate to advise the -Bank's le!ld re~'Ulator, the UK's Finam.;<ll 

Services Authoritv (FSA). of it. 

During the meeting D;;;vid Leighton indicated that the decisioo to submit falsified documents to 

eNDV Wl1S m(lde by Carlos RochiTl <It a time wbcn he W(lS apparently under pressure CNR V 

asked lhat this mitigation shou.!d be cxp!ainco111 a further kttcJ" [0 it rrom the Bmlk. 

CNBV reiterated the comments made to Ramon Garcia regarding staffing levels in the money 

JaundC11ng pl'evcntlon department and also expressed some reservotions regarding the CAMP 

system. It W<lS agreed that the Bank would assess the staffing requirements once CAMP h3d becn 

implemented and the volumc of transactions reported by it ass~ss~d. It agreed to submit by April 

2005, a 5ummal)' of the system's capabi.lities. 

There \lias nQ indic~tioT'1 provided during either mcctil1g; lh(l.t (NAV intcnd,-d 10 cmll;uro the Bank, 

Graham Thomson 

Head of Group Audit Mexico 

9FEB05 

Smetl)' P"hwte & Confidential 

Confidential- FOIA Treatment Requested by HSBC Bank, USA, NA 

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From: Michsel F GEOGHEGAN 

S9m: V\led Mar 14 OO;33:111 2007 

To: Richard E T 8ENNETI 

Cc: RzIJph G BARBER 

Subject FW: Iran 

impQrtance: Normal 

Richard 

Please brlng this malter up at GMB 

Mike 

HSBC Holdings pic 

RegiStered Office: B Canada square, London E14 SHO, UnlT:ed Kingdom 

Registered Number 617981 

David W J BAGLEY 

From: Di'nl'id W J BAGLEY 

3fit1t: 13/03/2DOI 15:19 GH7 

To: Hlchdd F GEOGHEGA..~ 

Ce: stuart T GCLLIVERi David H 30DGKINSON, Alan RAMSAY 

subje:ct: lran 

Mike 

I refer to discussIOns prompted by tt;e le~er recently flied with the SEC relating to the extent of our 

expo5ure to busineSS in tJle so-called named lXiuntries (Sudan, S~',Ja ancllran), particuiarty through C!BM 

if! Lor.dcn and Paris, This tatter activity re!atir.g to lp-n.:n addilion, and as a result of"fi,lrlner deSignations 

issued by US authorities in relation to Iranian banks I nave also briefly updated you wjth regard to furtllef 

steps taken in liaison and after discussion WIth HBME, and HBEU in respElct of relationsnips with Iranian 

bank!>. 

The position is as foHows:-

We were awaro of the exposure and aGtMties within CfBM and this is included in the figures that have 

been sUbmnted to Finance In aavance O! ttle drattlng ot the letter ~o ::iiEC, 

Tile exiSting ievels 01 busIness, muctl of which is historic and subject to ongolng cDrTmitrnents, has been 

revle<.'fed by eMP as against the requlrerner.ts of Group policy, ?'2rticularly where transactions are 

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dooominat6d In USa, Some oftllis activity relates to pr9-9x1stlllg committed obHgatjcns which are bhding 

011 ao 011go:ng basis. Group policy recognises that we will have to allow such arrangements to run off. 

Relevarn business colleaguos are ho.we·..ar .aware of the Group's stance In terms of havmg no appetite for 

new or extf'Jloed l1usine!';s activity irvolvlflg Iranlim cOlmlerparties, ~ere tr;:!nsaGiions appear to 

potentfa!Jy conflict with Group ?olicy those transactions are referred 10 GHQ CMP fur determination and 

sign-off. INe have recent,ly reinforced the requirements of Group polley In Ihe course efa detailed review 

meeting. 

US authorities recently designated Bank Sepah as a Specially Designated National under OFAC 

sanctions based on aUegations Ihat Bank sepah hM par1iClpaled In funalng and assisting transactions 

rslat8d [0 weapons proliferation After disGussion with HBME and HBEU il has been agree<! that all 

remtionships with Ba'lk SepatJ wi!!!:le closed, mcludll1g a GBP cleering role in the UK, O!rld 2[' appropriate 

guidance note wlfl sl'1.ortly be is.sued cross.-Group_ 

Separately US authorities alleged that Bank Saderat had been involved in ~ansactions Intended 10 fund 

terrorist organlsabons, a.s designated by the US authorities, Hamas and Hezbol!ah. We have withdrawn a 

trade finance line frOm Bank Saderat, will closely rrorlltor aU activity ttlraugh existing relationships, and 

win not In anyway expanCl activity lIwoMng 1:::IanK ~aoerat. 

We wi!! continue tQ closely m:mjtor the sltlJation jn relation to Iran, and any fu1Uf8 designations by relevant 

euthorities, partlcularly those i.'l !:he UK and Us. Generally there is ::3 clear um:!ersfarKllng thE! the Group 

has 00 appetite far any increased or fresh activity. and we have an absolute bar on USD transactions 

initlated by Group Offices, even thOse whIch fall wlth.in exemptions under US sancton!>.. 

It appears likely tl1at US authorities will seek to designate ftJrther Iranian entities anel banks under US 

sDncticns as part of a gradual and ClOlltlnued tightening. It is elsa cicar tnat FSA arc irlCreasing their 

regulatory focus on oompl!ance with sanctlOns prompted. we believe, tly UK govemrnftnt incfs8sel1 

appetl;e to cooperate with the US !n tenns of sanctkms upon Irail 

Regards 

David Bagley 

Confidential- FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8878038 
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"Cl"O(;ker'. Tom" <TCroeker@afston.c.om>OI1 02/0'2/2001 09~2S:50 AM 

1"0: EIi2'2belhPro(b!'rtash'() 

Su~)ect R.E: Central BBflkQrtran 

............................... " .... '" ... "' ...... ~* ... ,. ................. ~"..-I' .......... ~ ............... '"" ...... "' .......... .. 

This messaqe origin<!'tsd froll\ Lhe Interne:t. Its oriqinat:or lnay Q'!' 

rn.ay not be ..,ho they claim to be and r.he informi!.t.ion conCain'<!d iil 

the. rne~silge and Clrly a.tt.achroents mayor may not be aocurate • ...................... II ....................... -40 ........ .,. ... ~ ~.o ....... "' .. ~ .... .,. .............. ", ................... ,0. ......... ., ... .. 

El'tZsbelh- The bottom line is e scenaJio outUhe<l below does nat 

G

Ppear to qu~tify for the SQ-called usn "U~tum" exception 111 the iranian --""" 

Transactions Regulations. section 560.516{a)(1} ofthosa Regu!atlons I 

provides a generallicen~ for dollar clearing KiiiC1.lons whlch meat the 

falktw1ng criteria: the transfer must be (1) by a foreig" bank which is not 

an iranian ~ntitt (2) from its own account at a domest)c bank (3) to an \ 

account held by a domestic bank (4) ror a ~d r~ ~ which js ~ 

an tmnian entity. Diagramming this Qui, the Ch;;lin would look ~ follows: 

Foreign 6'8ok (nan-Iranian) 1-00rnestlc Hank i-Domestic flanl< 1 or 

2-Fcrelgn eank 2 (non-Iranian) 

The H5BC prop<Y'..aI, as des-cri'OOd In your message, differ!;. from tJ"Ie above, <;lS 

folloWs: 

Foreign Bank 1 (HBEU)- Domestic Baok 1 (HBUS)-D<:rnestiC Bank 

l{HBUS)-Fo",;gn Bank 1(HBEU) 

The probkm is ;rt the: tlil end of the transactfo[l;)1 Cllaln. The USD lIarefe, 

. goes back Into a foreign bank, HBEU. but that banK ~ not a "second"' foreign 

• ~~k":" it is the samg bank as the first f"ot!.l9..l! ~~~.If one Were to argue, 

·8S0ne possibly might, that the se¢Orld foreign ban k. at the end oflhe 

transactional chain ls not HBEU bll\ BanK MeIU, that also would be flawed 

because the AA~"k wou.ld_be an lfa'21aQ~~.l1tity. wJ!i9:Lis ?r~. Obviously. one w2t/ to soNe this problem and be in compliance 

with lhEt RegulatH'lns 'wOUld be to have a ~d. l"Ion-lrarlian roreign bank at 

tl~ end of the tt.a,nsacOO~. ~ (the fact that 200 Iranian ~ntity suc.1, as 

BatIk MeUi ortgioates!.he transaction W ultimately benefits from rt at the 

end of the ltansac::tion shoold not tn<rtiel", provided the tran.sactlonaJ c:'ain 

outfined 1M Soctian 560.51$ is 

met 10 the middle p! t1le~), 

Look,\ng at the ~c~narlo oLlUihed be'ow for Mell~Royal Bank of 

ScotJandiNatWest-JP Morgan Ch~5e., it ~ not <;:tear how thcat lrcmsacti0!'\31 

chain would quatify for the exception. Howe:'o'er. I suspect that \here 

-t .p'ossbly might be several addlUooa! ""clUes in the chain, .w. .s'M ..fioYai)leme.n.t,of a. US office. of Royal Bank of Scotl:aMn~tWest (which would be 

Domestic 6ank 1) and of e second foreign bank. such as poss'ibly a London 

subsidiary of JP Morgan Chase:, which wcuki be \he second rort!ign banK 

Alternatively'. jt is possible that OFAC might have issued B specific-license 

Confidential. FOIA Treatment Requested by HSBC N Amerl'ca Hold' I H 

C fid ' ''"9s, nc, SB09278739 on entlal· FOIA Treatment Requested by HSBC Bank USA N A HSBC 

' '" OCC 8903859 
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760611.706

JLN-29-2e01 U;: S4 JC 

1.0 JP Mo~n Chase to process !he tr.;Jnian USD transactions e.ven if they do 

oot qLJaHfy under Section 560.516. I 'NOlJld vIew that possibIlity as 

unlikely, h¢1HeYeJ'. bLJ1Ulere is now~ to knowfor~rtain unless one 'IIi!!re 

10 obtain such Infor~tlon directty from the licensee (OFAC does not make 

public its fssuance of specffic; licenses). Still, somei)mes large dDf"MStic 

banks whose ~tion OFAC needs are able to obtain stKpIislng licenses 

ffia'i ror~9n 'b<l~ks canOOt normall'l' obtain. Let's just say, it wouldn't be 

the first 'lime. There is certainly no reason whX HSBC coufd not apPly for a \ 

\ 

1icen~. au ! .,.h to 

e -lnvotvement(lf additional entities in the ba11.S3Ction-a1 c1'lain. _~ ~ f.$ to the remalnm.g1;fUestionsyournrse.-if ij'i€ftra'nsactiOft-qua1ffleS under '-J 1 Sedion 560.516 it :shoUld not mo:tler what the traft$:aCtioM. und~ing \he ?J usn dearing are. eVen if they io\lotv~ the ~um bU:Siness. as olJtlined 

!flJour emall1hu~. there are no speclfically protllbtted uflderJylng 

transactions in relat)ol1 10 uSD clearillg- provided you qualify for the 

raJ Ucen!le Of get a s~jric n(:~T)~,. ___ . . .• -.- ---

Please give me a call H you need further explanation. 

Best regards, Tom Crocker (202 

-Original Message- From: EliZabeth.ProtornastfQ@HSBCRepublic.COM 

{rnallto:Eru:.abeth,Pmtomastro@HSBCR.epublic.COMl 

sent Wednesday. J.nuary 31. 20013:59 PM 

To: Cl'Od<er, 10m 

&lbJect Centra! Bank ollran 

~ we discussed. details of the proposed relatiOnship are provided below. 

"As we discussed, HBEU is anxious 10 obtain a definitive answer to wheft1er 

HSBe 

BanK USA (HBUS) could m?l;ke and receive USD payments instrum.ed by H8EU or 

lor 

.credit to HBEU, (or account of a Central Bank of Iran B(:cQtmton Lie books 

of 

HSaC Bank pIc (HBEU), From inrorm"tion we have received subsequent to 

January 

17, we understand thaI;: 

1)8ankMelii a~l:s as the oo/TlmerCia! arm oflhe Central Bank of Iran. Either 

Bank 

Melli or the Central Bank of Iran (aka Bank Marks!l Iran) or Bank Melli. 

lon~on 

Branch. woukl open a US Dollar denominat~ account on the boo'KS of HBEU. 

(For 

the &ake of this note, I y.;11 call ttle account owner Bank Menl.) Melli 

would 

instruct HBEU [0 make. US Dot!arpa~mellts, and. in hJrn. H8EU would Instruct 

HSUS 

to charge ~s ar:count to effetl the payments. Rp,ceipts woultJ come into HI3US 

via 

CHIPS or Fed and would ba credl!ed to H6EU's aCCOJ,Jnt with HBUS. for further 

212 5-25 6994 F. 09/39 

5(,0. '2ot 

---

--- RedaUed by the Permanent 

Subcommittee on Investigation, 

Confidential- FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB09278740 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC acc 8903860 
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760611.707

,1<C 

credit tn the USD :a'lccount that Mel!J would maintilin with HBEU. 

Presently ~nk. Melli maintaIns its USD account with Bank. Mel!!. london 

Branch, 

who, In tum, maintains Its account with Royal Bank of SC:otlandlNational 

Westminster Bank, whose correspondent In the US is JP Morgan Chase. 

2) We unders.tand ti1at there would be 5 paymenb pius five receipts per dey; 

the 

value- of the payments would be.$ 200 million, and the va'u~ of the receipts 

also 

$ 200 Million. Input would be electronic (presum.ab~ SVYlFT). 

3} The name or the ultimate account holdor 'Would not ap~a.r on the 

lransac!Ions 

(but I assume there could be s~p.-uP$) 

J) The transactions would be: 

a) money market placements and receipts 

b) receipts in favor of the National Iranian Oil Corporation (as a 

resoft 

of 0" exports) 

c) letter of credit reimbursements 

d) possil:;ty. payments to SUDpriers (of oil drilling equIpment, for 

!nstance.) 

We believe that JP Magan Chase is operating under a license rro01 OFA.C to 

tra.n63Ct th~ bUSiness. albeit Indirectly 

Per our conver.ls!ion, would you ask Counsel to provide his opinion, after 

discu~s.int) with his comscts at OFAC and any other relevant regula(OI)' 

agencies 

Inlhe US? We assume Ihat if JP Morgan Chase can obtain a locense, we should 

be 

able to. as well. Would coun~l also advIse whether certain types of 

payments 

and receipts are not permitted? Finally. if we do proceed, would tu~ Mvise 

how 

10 apply fur the license ,. 

ThIs message Bnd any attachments are confidential to the ordinary 

user of the e-mail address to which it wa.s addressed :aM may also 

be privileged. If you i3te not the addressee you may not ropy, 

forward, disclose or use any "part of the message or its 

attachments and if you h?1'e received this message in error, please 

no~ the sender immed!ately by return e-.mail and delete it from 

your system. 

Jnte:met coml'l1Unicatkins cannot be guaranteed to be secure or 

error-free as information caWd be Intercepted, corrupted, lost. 

arrive I.;lte or contain vIruses. The ser'ldet thefefore does not 

accept llOblrrty for any errors or omissions in the context of 

212525 6994 P.H,V30 

In I •. 

Confidential- FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB09278741 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8903861 
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760611.708

iEC 

U'I!s mes5$ge which arise as a result of Intemet transmission. 

Ally opinions contained in lhiS message are those of the author and 

are flot given or endOrsed by the HSBC Group company or office 

through which this message ts set'lt unle~s o(herwise de~rty 

indicated in. this meS$age a.nd the authority of the atrthafto so 

bind lhe HS8C entity referred to is duly verified. 

212 5Z) 6994, P.11/38 

NOl1CE: This e-mail message a.nd- aU att&chml3nts transmrtted-wlth it may cDntain JegaUy privileged and 

confidential Information intendad sOlely for the use of the addressee. If me reader of rhis message is not Ihe intended redpient. you are hereby notified that any reading, dissemination. d!stribulk;m, copying, or 

other use Qtthis message or Its atLachments ~ strictly prol'1ibi.ted. If yOlJ have recelved this. message 1n 

error, pleas!! notity the sender in'ln'tedlately by telephone (404-$61*700.0) or by eIectronjc mail 

{postrnaster@alston.com),and d-efete Ihls message ;and all copies and baCkups thereof. Thank you. 

Confidential· FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB09278742 

Confidential· FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8903862 
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760611.709

lLH-29-28Bl 16:5<'1 

-to, b"-<.~",-" "'"~ 

/Bmi81r NJ21'd '::>0 b994 P. 12/30 

r' .. ~~ "I. "" ..... 

(Embedded image mov'!d to file~ pic2072'3.pcx} 1.4 Feh 2001 06:4.J. 

F~oro.: Kurt ZieS'le:r/lnstitutional 

.Banking/O!:epublic/us ® REPtlBLIC 

To; B1:'ia::J. W RIOJARDS/MOBK/n.saCfiRSBC 

Co.! 

Mail Size! H281 

SUl:>jl"!ct: URGENT Central Bank of Ir-al'l UJlG~tn' REV!$JW 

ba:l;:"d on thi.s .L"lquiry out.5ide counsel cornmem:.ed as per the next message. 

Kurt 

-- _~_w -------------- __ Forwarded by K\lrt ziegler!Xnscitucional Dank1n9'/Republic/U5 on H/02/200~ 06:3& __________________________ _ 

&:.lizabeth Prototnast:ro 

U/02/2001 13 ~~5 

From 

Date 

b692 

:aS9C Legal De-pa,1:'tmenc. 

PhQne 

Dept 

Title 

Location 

Vice Pres.ide.nt. 

":'S.2 5th Ave, Floor 07 

TO:, Kurt Ziegler/lnatitut.ional B.anking/RepuhlicJUS~Republic 

Sub) ec:t: Memo: URGENT Central Bank ot Iran URGENT REVISED 

Por yo~r reference, attached is the !!.mail that outside Counsel is 

l."~fer::t:ing to _ as _ .. the scenario outlined belm ... ~. Thil; was forwarded to 

h~rn Jl.1~t itS ~t. U~ and he. came back .... ith the: opinion being sent i~ a separa tee el'f\a.l.l to you. 

--~-----~~-~----- ----- FOrwal,"ced by Elizabeth Pl;'otomastro-/HBU$/HSI3C o~ 02/13/2001 01:22: PM - •• _______ .~ ____________ • __ 

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760611.710

Pe-t~r C BLENX",RSBC 

02/0~(2001 10 :23 .~ 

SEC 

1'0; "81 i'z:abeth ProtOrIl.6 tro/EBUs /HSBCilRepubl i c 

Subjec[.: Memo: \.mGENT Central Sallk of Iran URGENT REVISED 

21252569'34 P.13/30 

! hope you hil,ve not. spoken with Counsel. yet, (il-S the pict.ul:'e eeems to 

have c}..an9'ed radically; the changes are in R1m ___ ~.~~ ____ ~ ___ " _____ ~ Forwal'ded by P-e:t-er C BLEN'L./RB'£U/HSBC o:r1, 

0:2./01/2001 02;46 PM ----------------------~--.-

Pete}:" c BLt:N'K 

Me"" 

31 Jan 2001 l1 !J1 

TO: Elizabeth Protoma!l'tro/RBUS/HSBC®Repuhlic 

cc: Gary A. BUR.."':S/MDBK(HS!3.C0B'S8C 

From: PetE"r C BLE:RX!lmttJ!HSBC 7:90 3J752; 4'" 20 1260 3752 

Subj ect l Central Ba.nk. of Iran 

As ~ disCl,.'l5sed, Rsac Bank pIc UI9BO') is anxious 1:-0 obt:.ain _ 

de£.inil:ivo ans'W'er to whether Hsee sank USA {REUS) coul.d make and 

rece.ive USP paymen~s in3tructed by HBEU or for credit t.o HBEU I for 

account: of a. CQb.tral BOUlk of Iran accOunt on the. bOOK .. of a:SBC Bank 

plc (BBEO). From infarmat:.l.on we; have roacBived sl,lbQequent to January 

17. we understand that: 

l}Bank MelH, acts as che cOlMle.X'e:ial ar.n of che CenCr,..:t 'Bank of Iran. 

Either Ballk. Melli or th~ Central Dank ot Ira,n (aica Bank Nark-ad Iran) 

O~ Bank: Melli. London Branch, would open a OS Dollar denotrU.naeed 

account aI'l the books of lifi.EU. (For the ;!jake at t:nis note, 1 will call 

the dCCOunt owner Bank Melli~} M~lli would instruct HBW CO make us 

Dollar payments. ;:..nd, in t.urn, HSEU 'Would instruc;t lIDOS CD charge its 

a.ccounl;; co Itr feet the payrnente. Receipt.s would came into HEUS via 

OUPS m:: F~d a.nd would be credited to HEEU's a.ccount with llBtTS. for 

further credit to th~ USD account. chat Melli would maintain with lmEU. 

Pre.6P.-Q.t-l y tbe centr-al B.mJc. of Iran or Bank Melli Iran mair::tains ita 

usn account "i'i'l:h Bank Melli. London Bra.rr.ch, who# in. tU:r:-n, O1aint.ain.s 

ito. account with Royal Bank at Scotland/Nation.al H'e:Jtminster Bank, 

...,boi;;e correspondent:. in the- US is JP Morgan-Chase. We: a,5Stnne: that rhi., 

'!I.l:rangemeni: would continue, with a:BBO SUbstituting for RBS(Nat ~est 

Bnd aIms substituting for JP Morgan~Chase. 

2} We understand t.hat there would be. 25 t:r2allu.t:y~related payments pIllS 

2S troOaBury-rel.ated receipts per day: t.hl!! valUE: ot the paym~ts .... Ould 

b~ .$ 750 million, and the value o£ the receipts aleo $ 7.50 it\illi.on. 

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760611.711

JlN-29-202l 16: 55 212 SZ 6994 P.14/30' 

Input would be SWIPT. '!be.se payments £lDd receipt.s relate to placerneo:.: 

o.f money (unuaLly overnight but sometimes up t.o 3-moutbs) with highly 

ratRd European banks. Molli believes that. they re.qui re. an intrad.<lY 

line (IDEL) of: .$ 200 - $ .lO[) rnilli¢n to handle thia business 

efficiently. This line, m.igh.t be :'tecure.d by deposit,:, whb llB:E;:U or HBUS. 

3) IIt addit.ion, they make 100 co"ltlrnercial payments per day. Melli 

London ro.aXes the3e paymenc& on behalf of the branch and t.heir clients. 

Some of t;.he5e payments are lettllr of eredit reimburseltlel'ltEl. None of 

the pa~nts" relate to letters of credit covering L\\ilita::ry goods. Tbe 

total value of thes.e paym~nte is .$ :;lOD - lOO million per day, We b<1-ve 

not heard tha.t t.he Nst.ional Iranian Oil cornpapy could be a by-order 

pa.rty i but thi I; is possible. 

4) The name; of the ult.imate a.cc:-ount holder would not ilppea.r crt the 

transactions fbut: J: ao.!l'umc: there could be slip-ups. given the volume 

ot 150 trans:;J.ceion!l per day. > 

We be:lieve tbat JP- MOrgan-chase is operating under a lie~n:se from. O;;-AC 

t:o tt"4n.5ae:l:. t:hi$ bu~ine~!iI, albeit- i'tlciirectly. 

Per our COQversat.ion. ,""Dull;{ you ask CO\ll"l.sel eo provide h.i.a opinion. 

afttt l;{iSCU~9i1tg wit.h hiS contacts at QFAC and any other J;elevant 

regulaton agencies:: in the u.s? We ;i;U;;\pume t.hat if J'P Morgan"Cha~e can 

obtain a. license. we should be able co, d~ well. would COUDsel alGo 

advise ""het:het' ¢ertain types of pay"mQOts- ilDd roceipCs ar!'! not' 

permitt.t!d? finally, it we de proceed. would Counsel advise ho'W co. 

apply for the license? 

Reply 

Elh;ab.eth Pror.oma5t.ro 

13/0:a/2001 1B ;:;!6 

From. 

Dace 

6&92 

HSBC Legal Department 

Phone 

Dept: 

Title 

Locll.tion 

Vice PresideIJt. 

451 5th Ave, Floor 07 

To; K'llXt Zie.gler/Institutional Banking/Republic/US@Republic 

Carolyn wind/HBUS/HsBC@Republic 

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760611.712

,Be 212 525 699d P,15/30 

~e Lic1c:iyjHBUS/RSaC@Republic: 

pe.ter C BLEN".tVRBSU/llSBC<Q)HSBC 

Jobn G HOLIN".rO../BBUS/HSSCilHSElOJooERlCAS 

Subject: RE~ Central Bank of Iran 

The. opinion received fro!!'! out.side counsel. 'Torn Crock~r a! Al~ton &: 

fl.ird, on 2/~/Ol. in -cegaJ:::ds to 

the proposed transactions per Peee.r Blenk's emails of 1./31/0l and. 

211/01 is quoted bd-ow . 

..... tha .sc:~rio outlined bel~w does not. appear to qualify for 'Che 

so-called oSD "U~turn" ex:cept:.ion in the lx-anianTran.aaee.tons. 

Regv.J.ation~ . 

Section 560.51.6 (al {l) of tbo!:le Regulations provides ... general license 

for 

dollar clea.ring functi<':l~ ""hich meet t.he following c;riteri~: the 

tra.n.s!e.r must be 

{l) by a. !oJ:"l:Iisn bank which is oot an r):'ani ... u ant-iey (.2) from itJ; own 

lilCcount at. a 

domestic: blU1k (3) co an account h~ld by a dQrt\<Oi:litic bank Ill} fot" 11 

!'.econd fore.ign 

bank '!'hich iJ;: ~ot an Ira... }.iac. entity." 

ror )'Our informat.ion, the following i!l a r>!!priot: of" complete Section 

S60_S16(a) (ll ft'om the Iranian SauGtions 

Regulations. 

SS60 .516 Payme.nt and Uni ted states dollar cle.aring trans3cr;ion.s; 

invol vins I ,(,an. 

(,,) Unit.ed St.ar;.et;: depository inl:t.it.uticn& are. a.uthor:b:ed t.o 

process t.ra.n:'lfer~ of tunds to or from Iran, or for 1;..he dix-ect 

or indirQ'ct benefit- of perlOoos in. rran or the Gove-rt'lmept, of 

IrlUl, if 'the. transfer is covf:.red in full:Oy fllJy of" the 

fol.lowing condit.ions and does not invol vo debiting or 

cre.dir;.lng an Iranian acoount. 

(1) The t.l'::ansfer i~ by or(le:r of a fore.ign bank which is 

not: an Irani.n entit.y from it. own account iD ~ domestic: 

bank {directly or through a foreign bratlch or euos1diary 

of a dO~~l:>tic bank} to an account held by a domestic b.mk 

{directly or- through II foreign branch or B'iW6idiou:y of a 

dOfrlectic bank} for a s.ccond for'3ign bank which is not an 

Iran;tan entity, For purpo~e5 of t:his ,:"Iect:~oo. ?toreign 

bank? includes a foreign s-ubgidiary. but. not a foreign 

bxanch of a dome!ltic panJq 

(2) 'the transfer a.rises from an underlying transactioo 

that hi;l;B beeD. authoriz-ed by ... ;9pec:ifi-c or general licemSfl 

iSGl!.e.d pursuanl; (0 this -part; 

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760611.713

~8C 212 523 6'394 P. 1&/30 

(3) The t:rall~£er a.rises f-rOm an u..':iderlying tra.Il:Sctction 

that. i~ not prohibited by this part, such a:J a 

D.on~commcrcial remitt-Ance. to or frotn Iran {e.g .• a family 

relnittanct! not related to.a family-owned enter];)rise}; a 

U.S. -rel.<tte.d cotmle:t'oial tra.nst"~r not prohibited by t:hilO. 

part. (Bee. ~.g., Se~. 560.S1S{b»i or a tbird-count.ry 

traJ'\tH\ot:ion not- prohibit~d hy this part; or 

(4) The trans!e.r ariseli frcm an underlyiD9" transaction 

chat:; is QXempr:ed from zegulat:ion pux3uant: to Sec. 203 (b) 

of che Int.ernatiOl1al Emergency 'Economic PO'iJers Act (50 

U.S.C. 1102{b}), such a.G an exportation to Iran or 

irnportat;.ion frOl'l\ Iran of i.Eliormation . .and informational 

mat:eri<l.l!";, a travel.-related retnit:tance, or p;a.yrn~t for t:-n~ 

!lh5.pment of 8. dOllI.\t.ion of articleo to relieve h-uman 

suffQring. 

tb) Before a unite.d st:.at\Jt; depository institution initiate;t ill 

paymen.c. on be.b.i'llf of a.ny C1,1stomer, Qr credits a t.zan5f~r to 

the account on iu books of the ultimate bene.iicii).zy. l:.he 

United St,ate.,s del?osit:ory institution mu~t det;el;m.ine that the 

UIid.edyi:ng tr:u:u::a.cl:ion i~ not 'Prohibit.ed by this :Da.rl:.. 

(e) Pu.r&uant t.o the prohibition!!! cont~ined in SSSO. '20S. a 

U.,.ited St::at~s depository in05citut.ion may not. make transfers 

to or for the. b~'I'!fie of a fo:rej.gn-orgllnized ent:icy owned or 

contro~letl py it::; if ehe. Wlderlying transaction .... ould be 

proh:ibi.tt!d if engaged in directly by the U.S. depo.Git.cry 

instit;.tltion. 

{d) This G~ctiort dOQSP not: a\lt.hOJ;'be. transact:lons with respect 

1;0 p-roperty b~oc:::ked p\lIsuanc to pare 535. 

(&i ~ 20168 4/26/99.} 

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760611.714

GEC 212 S2i 599<l. P. 18/30 

M.a.t."Chew J W kINGinGJiQ/HSBC en 26 Apr 2001 13:19 Hemo 2..P. Ap.!: .... 21lD.L_l3.0,l9Fro1'l\; Manhe\-i J W KI~G/H.GHQ/HSac Tel= 790 59815 44 20"1 2~BlS . ... 

Mail Siz.e: 15055 

To~ Brian W RICH.bJI.DS/MOBK/HSBC@HSBC 

cc: John L R.rCHll1tos/HSBL)HSBCAPAC~HSBC 

Chris COULOREY/HBEO!HSBCeaSBC 

Subject: Re: OrAt - Iran 

f"ur"thel:' to our conversation, I attach a copy ot the US legal advise ;'1hich sets QUI;. the mannlO'r in which tra.lisactions nl2~d to be stzuctu'red in or-der to avoid us OFAC restrJ§gi?"n,:;. 'r-collf.bJti._:x;;::m,JEil?EX.-f.Q .. ttl1e business to be 

.1 

!) 

nfOrIlldt 

etta en 

ion. 

on th,loS .a~lease~Ule know if yOu req~ 

1 9.l1I as.su.mi.ng this businQ-~s will be bool!:ed in HBEO, henc:e I am copyin.g Chri" couldr~y. If a.ny other G~¢Up entH.y is likely 1:':0 be involvQd, could you ~I;!t me kno-w, 

Regard$ 

--------~------------- Forw-a::;:ded by Matthew J ~1 KING/HGHQ/HS8C on 26/04/2001 12 ;44 --------~-----------------

To: I-'.atthe.w J W KlNG/HGHQ/RSBC@flS-6C 

cc~ JohnLP-.ICHARDSI HSBL/HSBCA?AC <JohnLR!CHJ\ROs9Not'3;s8HEA. COll\> 

Win~h~2..:..~!'.....o.:wne :lhalCpittman .com 

~.rom! John. sin.ons.@sh~wpi ttman. com 

SUbject: Re. OFAC - Iran 

rhLs mess~ge originatect .('ront t:he Interne.t. Its origi.nator mayor Inay not be who tt\ey claim to be and the information con~ained in the U1~ssage and any i!lttacrunent:s mayor may not be aCCurate • .. ". .. "'*-..'" .. "' ......................... 1' ..... 'i'''* "' .. 1< ..... ,., "',.., .......... " .. ;0. .......... * l ....... ..- • ",".,.<or ...... "''' ~ ... 

MattheLoi. 

~~is is in rollow up to my c:mail to you or:}~ and my e1t1ail to W. Brown 

2127/01{forwardl2d 1;;0 you) ~oncerninq the above-referenced Iila,ttcr. 

Steve !-:lunro of OFA-C' s Chief Counsel's orrico<!: c.alled me yesterd.ay to S2Y that he 

discussed with Lo:v:-r.<tine LOIIwlor, Deputy Chief of OFAC' S Compli;;lncB Division, the 

langUa.ge i.n 31 CFR 550.516 (the "U-Turn" dolldr dt::aring exemption}, which on 

It!J face appea.rs t.o p,ohibit .a us bank from p::rocessi:lg .:l p:lynleJit order to 

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760611.715

,.:5BC :212 525 6994 P .19/30 

or 

from l~an, or fo~ t.he direct or indirect b-enefit of p~,tSQns in Iran or "[he 

GO'VGrnm-ent of Iran, unle33 the payment. OI:dec is by order of a foreign 

non-Iranian bank froilJ. .:such foreiqn bank.'s own account a.t the US blink. 'Co an 

account held by a $er:ond forGlign non-Inrnian bank; at. ~n.oth!":r US bank. He 

said . 

tha~ Hs. Lawlor ackoolo{ledged such lan.guage. in the regu1"tion~ bUt. shQ said 

that 

the Compliance Oi visioo has never viewed the "'second" US baTIk language <I..os 

mand~totYI but. merely d'l'lsc.ri?tive. of t.he Io/ay most such payment orders are 

reC:Qi'l'ed ar.d pr-oce!'!3ed try US bank,,>. In e.ssence, the COrrJpliance Dilli!l'ion'-3 

main 

concern is that the payment o~der issued to the US bank mU:Jt not come 

directly 

trom an In.nian bank. and that th.." OS Sank !IJ\l,st not send the. f\lnds dii:'Octly 

to al'l 

Iranian bank or credit an Iranian account on its books. "Neit.h~~ hI!! no); Ms. 

tawlol; could COI1'\ll: up with an policy rea~on why a second US bank should be 

reqUired in proce!r~ing su:ch paym(;!nts. 

Hr. Munro satd he was unaware of any specific license grant.ed by Ofne ttl" a 

OS 

bank in connection ~ith the nU-Turn" dollar clearing exemption, and that. 

he hOld, 

nEver ::Ieen an enforcement ""ccion or p~nalty l.mpos(ld on a US bank for not 

using il 

""e<;:Q-no'f OS bank tor such clearing tran:'WctiOns. Givan ttle fot:'Elgoeinq 

inter~retation by the Cnmpliance Dlvhion, ll',y gue.e3 is that JP 

MorganlChasQ ..... ere 

0.1.50 comfortatrle tha.t. their pr-oces.'Jing t.ransactions u01.l1.c:l be vi~'''''ed by the 

Compliance D~vision as: talling withir) t.he "U-i'1J.rn" doll<lr clear.1t19 

eXQ1I\ption 

wheth-er or not they used another os bank: in th~ cl~aring proc~s~. 

Accordingly I 

i£ HBUS i;, also r.he cor-r(!Spondent bank for the second £orei9f1 b<1T1J.:., than. 

liBUS 

should ba .,ble to send dire<:::tly to, or credit t.he ""ccount of, the second 

foreign 

non-Iranian bank. for fu.rth"r credit to ::>uch foreign b.;tnk'!l cUstollH!r and 

selll be 

in compliance with such reQulat.lon. The nn;aipt of fUnd.s flow lnto and 

out. of 

HBOS ca.n follow the S6me scenario. 

Mr. Munro 5iJ1.0 tho!lt if the US bank w~s uncomfo:r:table \.lith the CcmDliancl2 

Divi.:!lon'3 "interpret.at.ioo" of such regulation lno"twithst<lndinq the (/tel;. 

that 

the Com.p1iance Divis10n o::'i9inally d.rafted such regulation), them it could 

submit to the Compliance Di",ision a copy of 't.h'!:l first SlnFT payment order that 

dld not involve a second US correspDndent b<lpk and !I:$~ tha CorrrpliilT'J,ce 

Divbion 

to approve same under the r(!guletion . .1 don't believe this is nece5s.;&ry 

given 

the foreooing, but HBUS cOllld dO so ':'f it d~:;ire:d more fcnnal 3SSlJranc'? 

from 

orAC. 

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760611.716

JLN-29-2001 16: 56 ~13C 

Pbase advise if yo-u have; further questions. 

R~gard", 

John 

I 

I 

I· 

Hb.t.thew J Ii I 

KING I 

<tnatthewlcingO I 

h:sbc.com> I 

1 

03/08/2001. 1 

Ql:23 PM ! 

I 

212 Sa 6994 P.2@/30 

~ ___________________ ri ___________ --_~ _____ --------~-~-- t 

I I 

! To: Jahn.Simon.s@ol!lhawpittman.com ! 

1 cc: JohnLRICHARDS/f!:S'SL(.liSBCAPAC ! 

I <JQhnL'U.CHhR[l5/t!SBL/aSBCAFAGI!t\ot~.!I E:HEA. Com>, ! 

tiinthrop. B:r;own$shawpittman. COtl'l. I 

I Subject: Memo: Re: OF'AC - Iran I 

:> - -~ ----- -------------- --~-- ----- - ~ ----------------------" ! 

John., 

Has there be~n any p.fogress? 

Rega);"os 

06103/2001 00,16 

10 ~ MattttewJWl(WGJHGH.Q/HSBC@f{SBC 

JohnLRICHAADS/HSBL/HSBCA.PAC~HSBC 

,lint h.rop. Brcwn@shl'lwpittman.com 

from: John.Slltlonse.shawpittlnaIl,com 

Subject:: OfJ\C- Iran 

This message o.dlJinated from the Internet. ItS orLgin~tDr .mayor 

m~y oot be Who t.hey claim to be and the information contain~d in 

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760611.717

... iBC 212 52$ 6994 P. 21./30 

tne message anO any a't'taclooerl'cs mayor may noe oe aCCUr(1l;;e • 

•• 0&. .... ,.. ............... ., .. ., .. "' .. ., ......... ~" ... ~ .. '" ... " ... .; .... ~", ... " /;/ ..... ,. .................. **'** .............. .. 

Katt:hew, 

~o': I 1!.pol.ogize fer the delay in getting back to you, but (he a.ttorney in 

OF.I\C"S 

Chief Counsel'.!iI Office who i,s knowledgeable about the Iranian 

regolations has 

been out o[ the otC1ce until today. I did speak to him (St~Y'''nscm 

M\l.nro) in 

general t-erms .about the propo~ed t::ran~action (without attribution) .and 

specifically about ttl!! "V-Turn" dollar clearing exemption in 31 eFR 

560.516 and 

the. },anguage in ~l.lr:h n:.,:ulation that would "ppel:lr to require "BIJS, 

upon 

recl1'.iving a paym!:nt order froIn HBEU, to !lend the paym.ont to another us 

dom.estic 

bank for credit to a sec.ond toreign b,mk which is not ~n Iranian 

entit.y. The: 

regulation .is not spec;ific about the :requ.irement.'l of hol'<l funds must be: 

rer::cived 

by HBUS from foreign ban).:s [or tl:Ltimate credi t to Bank MUll I;:'! .!lo;:;-t;ount 

at. HB£O, 

but pre5UfM.bly ~heke may be the sa{l\e "second US bank" requiremont. 

undto1t:s:talld 

from Bri",n Richard5 that many, if not mO!lt, of the payment. ord~r5 from 

HnEU will 

likely instruct usOS to send tunds to Chas:e or anoth.er us banK for 

~X'edit to /l 

foeedqn banI< {non-Ira.nian} accotmt ,H1Y"'ay (with (l ~iroilar !:Il.tuatio:n 

for .int;ominq 

rQcQip~ ~f fund~}, :;jO this may not:. be a problem. but he couldn't 

guarantee this 

h.ct patt.ern for eV9.t;y sit:uati.Ol"l. 

At any rete, Hr. Hun.ro agreed ttt3t the regulation was confusing and he 

c0\11d not 

re~dl1y Elxplain t:t1e seeming re.quirement for interposing a. ~et:ond us 

b,:mk {in my 

initlal discu.';sion.'3 ",ith OrAC'!:I Compliance Division, ~J.lch division dld 

not 

appear to requi.r.e su!."::h "second US b"n\c" in the payment t:ra.nsilIctlOn 

ellen after 1 

pointed out such lanQuage in th<s "O-"Ttnn" dollar cle:nring ~xemption). 

~e !>aid 

that. h-e ~jould d,iscuss- sam<'! with the head of OF"AC's Compliance Division 

and get 

back ~o ZI'Ie !Iho:t"tly ~ tomorroW' .If we're lucky}. I kno~ you ;i!.re an::<ioIJ:;r 

to resolvli!: 

this: matter. but I think it is impol::t<lnt to gE:lt a c;l~ar\3r 

under:sta.ndin9 fIom 

Of"AC as to exactly ho~ it interp:n~ts the "U-1'\.1rn" doJ.Lar clearing 

ex~mption in 

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760611.718

JLN-29-2001 16:57 212 53 6994 P. 22/J0 

31 C:F'R 560.51(;. 

HBUS'!! wire trarl,::ders, SWIfts and payrnc;!nt orders are rut". through a. 

"filter" Cor 

Of1.C complial'lc~ purpo:!l:es. These filt.er::!. only kick out. those messages 

in whit;:h 

an OF,Il,C filter keyword i!J read. Xi there is no O[AC filter key-..;ord 

read on such 

iII(!&:sag(;1.S, then. :lUch me.9saQes would· not be autematically kic')(ed.-out for 

further 

~n\lal r'l'lvleh'. Nonetbeless, r'm sure yo!: are inteIested. to koCT'"ll how 

OfAC would 

-treat lilll:;h SWIFTs if an Iraniart j,nt<a-rqst appeared sorne:whe.::-~ in. such. 

messages. 

I'll let you kno~ a::!l !Joan a.s 1 he.ar b,,"ck tram Hr. Mun:ro. 

Regards, 

John c. Simons 

Sha.., Pi"ttman 

This lilliict.ronic message transmiSsion con'tains information 

from the law fi~[tl Shaw pittman that mlly be confidel)t\.al ct:.' 

privileged. The information is i.ntended solE!:ly for the recipi':'!r'tt 

and USQ by any other party i~ [lOt. authorized. If you ,:iro not 

the int.entieO reciptent, b~ aware that an)' disclosure l copyin.gl 

distribution or use or the contents of this information is 

pIohibite:d. If you ha.ve received this elactroni.c tr~nsmis5icn 

in Qrro~, p1easi:l. notity us ilrntediately by telephone 

(1.202.563.8000) or by GiQc:tronic mail 

(po"trna~t.er@.sh",wpittman.com}, Thank you. 

This /I'Ie$sage and <!.I1Y "tt~chment~ ~z:e: confi.dential to tho ordinary 

user of the e-mail addross La ..... hich it W.83 addrc:Hled and may also 

b:;l privileged. If you axe not t.he addressee you may not copy, 

fo!:w .. .rd, di:;;c.lose- or use any p~rt of the message or ir.s 

o!lttac.hr.\ents atld if yOIl have. reCE'ived th.is m~ssage in error, ple~se 

T10'tify the senoer immediately by return e-mail and d~lete. .i.t from 

your system. 

Internet c;onullunicetions cannot be Quarant:eed. to be sa-cure OJ: 

arror-free as inforrnat:ion could he intercepted. corrupted, lo.1Ot. 

arrive late or contain viruses. ThQ SQ;nde:t: the.relore doe .... not 

acce.pt li.ab1l1ty for any errot.!f or oroi::lsiorJs in ;:.he context of 

r:l1is :1't2SS.agC which a.ris~ as a result of Internet tran~mission. 

Any opinions contained in this me:3""Q(!: are those or "[he au:cl1or and 

<l.r~ flot g:l,.ven or el'.dOTsed by the HSBC Group company or office 

thro\J9h "'hich this ml:ls$;:I,ge is sent unles,!. otherwbe cle:~::::ly 

indicated in th.is message end the authority of the auchoJ;" t.o so 

Confidential· FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB09278752 

Confidential· FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8903872 
1886 


760611.719

JU+-29--2001 16:57 212 525 6994 P.2J/30 

bind the aSEe .entity r~ferred to i~ duly V'eri£ied. 

Confidential - FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB09278753 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC acc 8903873 
1887 


760611.720

Brian W RICI·LltRDS/MDBXfHSBC on 27 Apr 2Ml 06:,jB He:mo 

27 .Apr 2001 as.3BF:corn:. Brien W RICRARDSfHDBK/HSBC 

t~ail She: 2644. 

To: Hat-thew S W KING/AGHQ/RSSC@HSBC 

cC: John L RICHJI..RDS/HSBL/HSBCAPAC@HSBC 

Chris COULDR8'l/HBE"O/HS"BC@HSBC 

Quentin P. ~YLWP.RO/M.D8K/HSBCf!HS3C 

Teny J BELLAM"t/HDBK/HSBC(?HSBC 

Suhjeet; Re: OFAC - Ir",n 

Matthew 

Hany thanks, 

ie).: 790 -4~439 

The payment orders f~r the debit. ot Melli·!! account w;ill originate f~orn 

HBEO~ and credit!S £avouL: M~l).i wi.ll be credl.ted to the account I)X HBSU. 

The cover will., of course. pa:;3 OVQr HBEO'.s USO account: with HaaS, \<Iit:.h 

HBUS receiving .fund..:! favour HBE(J for ac:.c:.Ollnt of Melli (l1\ostly from other 

banks i.n th~ O"SA. b\lt possibly to the debit of. K:etJS~s CI'rffi corrQspondQ:nt 

banK customers), or paying- away from }'I88U's USD account: at HBI,lS favour 

other b.1.nk:s in the: USA (or pos.::dbly 'to tha credit of HBUS' sown. 

customers) , 

Tho.se direct. ~t1~totllers of !-lBOS COUld, on occCl~ion-s, be another GrQl,lP 

ent:i.t:y. such ~" fI."BHE or ReAP, but I ~l.lSpeCl; this would he ve:L:y nn;H::h l;":he 

except-ion. 

T'n13 payment orders ... ould not: make mentiOn to Dank MellL and tlBUS would 

not receive either payment orde:(s or pa}'1llent recl!!ipts directl.y from an 

!ran.ian entity, For H8US any I(Cl.nian entity lioul.d be, at "c:lose~t'" the 

customet" or a l"lo"(l.-OS bank outsid.e of the US1\, and by far the greate:3t 

volume ot: payI!1cnts would in\101ve another US bank in the paym@nt chain. 

I believe that th1.:l payment:. chain accords \oo'ith the penultimatB sentanc::e of 

the 2nd pareg't";:lph of John Simons EMail 1:.0 you dated SHAROl. 

Brian 

Confidential - FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB09278754 

Confidential- FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8903874 
1888 


760611.721

Win. 

, -,de 

TO: Winthrop 13rO'tn)/SPPT /US@SP~T 

ce: 

subjee~: Re: Me\TlO! OFAC constraint.s in t.he 

Cent.Ial 13aci;; of Iran operal:iDg a USD Clearing 

ac.eount rith HSBC Bank plc:. in London ("Docurr.ant 

link; Wint.hrop Browo) 

212 525 6994 P.2S/30 

1 spokQ: 1:0- the: Compliance Division of OF]>"C today about t.he ·U-Turn Dollar 

Cl.,az-i1\9" e..xempt:ioo (.H. CPR S6Q,51G) for wire t.;rans!ers involving l:ran. and 

told th.:;l.t ",9- lOI'!.g: as we pa}'fll~c inst.'t\1cti01l5 or uso come from $.I1 offshore 

fo-reign. bank (ot.her tllan direct.ly from an Iranian bank) to the. dOt'l1egtic Us 

b'nI< 

and. t:hen go hac~ OUt to anot:.he.:: off.9hore foreign bank (other than dir~ct:.ly t:o 

an 

lxa:nian bank) (i.e., the US bank must be wbuffered" by non-Irllnian foreign 

banks), the processing of such i. wire tran.sf~r by a domestic us hank would be 

in 

eompliance with OPAC regulat.ions. The Complia.nce Di.vision ctated that th!:': ITS 

b<Ulk in $ueh a \.lire. t:::r:rru:£eX' .o;:hDuld Dot .;iebit or credit an "lrania,p. .!tCCO\).Dt on 

it.s books" and should not. be tM o:d.gina.tor of 5uch a payment orde.r. If the 

usn 

COttle to re51:. in the US, then the t.ran5.;lction would not be deemed. to be .;l. 

"IT-Torn 

Dollar Clea.ring" transaction for purpose~ of suoh exe.mption. HEEU' !!I proposed. 

t-r=h$act'lOn a.ppeOl.rs to fit this scenario ",S long as {i) HBOS c.!ttl. send USD it 

receive~ from an offshore non-Iranian bank back out to ~ non-Iranian foreign 

bank, and {ii} payment o ..... d.er' received by HEUS fro)l\ mEa instruct it l:O debit. 

ite, account. S'C aliUS <Uld t.b~ send. usc to another off,.hore non-I:nmian forei-gn 

bank. 

'The Compliance Division also told me t.hat. the requirement in 59.ction 

SSO.S16 (b) 

for !)S depositor'f lr...stitutions, prior 1:0 iniciat.ing a payment 01'\ behalf Qf 

any 

customer or crediting" a tran:5i::er to the a<:count on it.s books of .the ult.lmat.e 

beneficiary, to dtH.errnine if the underlying transaction is prohibit.ed by 

O!"AC'S 

'C(!gul at ions , doe;s not apply to wire t:rCllnsfer tran:sactions meel:.ing !;be 

requi~eme.."'l.t:s of t:he wtJ-TUrn DollOJT Clearing" exemption of section 560 .5161a 1 

';{bile t-hi~ int-erpreto.t.ioll from the CDmplia-nc:.e Division is encouraging (aad may 

IIxplaln why JP Morgan Chase call pe:-!o;nn such sel;v;ice.9 currently) I I ... ·anl: to 

double check this- int~rpretatiOn wil!h DFAC's Chief Counse.l office. r have a 

!;all into such office but may not hear back from them until to(TIQrrow. 

In tne mea.T'l t.ime, YO<J. can conl;act Mat.he ..... and advi!;e of the foregoing and 

tnention 

Confidential. FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB09278755 

Confidential· FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8903875 
1889 


760611.722

,sse 212 525 6994 P. 26/30 

tbat we ho~ to confirm. such result.s wit.b t.he chief Coun!'lel's Office totllOrrow. 

'Regards, 

John 

! ~~ ______ + _____ ~ ___ ___ M. __ ~ ___ ~~-> 

I Winthrop 

I Brown 

i 0,/,./>001 

I ll:,U pM 

1 

I-:~ ~:: :~:: :::: ::::: ::: ::::::::::: -------- ___ -- ___ --- __ -----I To; John Simon!'l/SPPT/US'YSI'PT I cel 1 Subject: Memo: OFAC const.ra:i.nt.9- in the Centrall 

Bank of Iran ope;'l:ating a. USD CIQ.aring account. wit.h 1 

ESse Bank ""Ie in London I :> - - - - - - - - - - _. ______ ... ____ - - - - - ___ - - - - _. - - - -- ---- - - - - - -- - -- I 

Did you send mG: &omethi.n.g on this? r f\'k."'\Y bkvt'l inadvartently l-ost it. _____ Fo~arded by Winthrop Brmm/SPPT!US on 02/l6/2{lQl 1J..:<\7 PM ---"-- \ ________ + ________________ 4 ______ >-

I Mattbe,-"t ;j W I 

1 KtNG 1 ! <;l'IIatthe.'r,ikipg~\ 

I hsbe.ccm:> I 

1 1 

1 02/,,/2001 I 1 n,,. JIM I 

1 1 

1-:::::: ::::::::::::::::: :::::::: = __________________________ I 

1 

TO': Wi.othrop.BrO\.ln(i>shawpittman.,cQn\ I cc \ .John ... RICHARDS (john. 1. richa:rd.s@hs!:lc.com>1 

S1,lQject.. Memo: OPAC cOD.strai[l.t~ in the Ce.nt.rOlll 

Bank of Iran operating a USD Clearing account. WiT;h! 

HSEC pank plc in London I , ________ -- ___________________________ - ----- ------ -- --- ---I 

i'1in, 

Confidential - FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB09278756 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8903876 
1890 


760611.723

212 5Q 6994 P.27/30 

Could you get you:- OFAC expe't't. co look <;it ths proposal and let: me knoW' 

(hopefully) 'Wh~t ... ra nee.d to do t.o be: able. to accept. this OuSiIleSs.. 

!nc:i..de.ntally, I seQ your old colleagul2, Tern Crocker. .features. Please 

send him my :!"egards if you l:tappen to be speaking to him. 

Regards 

John L R1CF'~:umS 

.emo 

19 Pel;! :2<JO::l l.l.:o!o9 

Forw-arded by Matthew oJ W lCINGfP.GHQ/KSBC on 

TO ~ Hal:;.t.he;w J ~ KING/HGErQjKSBC®HSBC 

M1Jlilitar HOsSJ\rN@U:ct3K 

Brian. W Rlc::H.ARDs/MOfl'K/lLSBC~HSBC 

Prom.: John L R.ICltARDS/BSBL!U$:BCA.PAC 9B21 20'J 046"1 

subject: OFAC const:.l;'aints in the Co!;ntral Ban}( of r;ran operating a OSD 

cl~3Iring accol.trlt. \,lith 9SBC Bank plc in Loudon 

(Embedded 

iDlilge lIJoved (E~edded image rnoveo to file ~ l,')iC1.6056.pcx.) 

t.o f.:i.le~ 

pic1S92-t .pc.:<) 

De.a.r Nat-thew 

We have bee:n a.6ked. by the: Ce!ltral 13anX of Iral'\ to take ov~r its usn 

clea.ring account; beld with Natwest in London. Op!3ral:i¢n at: tbiG: 

ac:c:ounl: wiLL ~e.quire that. USD receipts/paymllnu: are set.t.led t.hro1.l,gh 

HSBC us. w~ ~d assumed. that based on the clarifica,t:ion given in 

Maleome Bamatt' G compliance circular GHQ lK'O 950015 L.hat. sucb 

transa.<'!!:ions, as detailed rr'.ore fully below would be possible. The 

advice :received from' Elizabeth Prot:omast;.ro susgegi';:S this. is;; not:; t."e 

As: such t:ran."lactiona are already being undertaken on behalf of Nat; ...... est 

by JP MOrgan cr.ase. .....hich tnUst be subject to t.he- Game compliance 

issues a. RSRC, I can only a,siiu.rnu that the queSCion as.ked of AlstO'!'\. 

and Bb:d did not. fully cover the 't-ransactions that we intend, ,,-lthough 

the. posit.ion stated in Pet.l!:!r 81~':!I email below is clear, 

This is a very important:. m;:tl:ter for Cbe Group as it is e~plil.cted that: 

our abilit.y to respond positively to chI: Cent:ra.l Bank will have a 

Confidential· FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB09278757 

Confidential· FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 8903877 
1891 


760611.724

JLN-29-2e01 16: 58 212525 6994 P,28/30 

major !nEll,lence on OU);' winning of a ~6tantial AsS.~~ Ma.nage~enl: 

rNIJ:l(iate lU".I.d fucu:ce projeot finance (Mutia'te6. If we are to ret.use Ole1r 

reO'\l.;"9-1:. I must be able: to show tbern a fOrr$.l lagal opin.ion explaining 

waY the propos~d transactions are illeg31 and as a re:3'Ult lJl1y the 

=rr~nt ar:t::ange:mene with JP HorgOJ.n is in fact illegal. 

r ,apologist:! for t..J:ouhling y()U with this. but shall bf'!; grateful for your 

inte:r1Jsnti<Hl. Further informaeion on this !Mcter can be obtain.ed from 

Bi."l.iU\ Ric:hards in F'IG in London, who hag bet:n copied in on t1U3 ema.il. 

Regards 

,Joh.., r.. Richards 

Group Representative Iran 

1-1 Feb 2001 12:31 

Me"", 

To~ Quentin n A.Y1.:WARD/MOSK/lJSSC@HSEC 

Gary A SlJRNS!tIDl3X/HS.8CG-HS8C 

Chric BuTCHER/J1DI3K/HSBC@l{SBC 

heel 

John L RICIU>.RDsfBSBL/BSBCAPAC@RSSC 

hornapour. n®mhuh1. com 

trom~ .Bri~n W RICHARDS/MDBK/HS'DC Tel: 

OUr Ref: Your: Ref: 

Subject: tlfWENT Cent.ral Bank o( Iran URGENT RLV!S£.n 

_____ :Forwaz:ded by Brian ~1 RICRARDshmBK/I'!SnC on 14 Feb 2:001 09:02 

Kurc ZiQg'hrjInstitut;ional s.-mking/p.e.public/US @ REPUELIC on 14 Feb 

2:001 0-8-:111. 

~emo 

Confidential· FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB09278758 

Confidential· FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC acc 8903878 
1892 


760611.725

c 

To: JanetBurak, Regional Compliance Officer 

David Bagley. Head of Group Compliance 

David Dew. COO, truSI 

From: Carolyn Wind, EVP and Chief Compliance Officer, HUSI 

Date: ?JANOB 

Report: 4Q07 ComplilUlCe Report For PFS, eMB, GTE and GPB 

1. Issues Arising 

(a) Ngw lsSUES 

Redacted by the 

Permanent Subcommittee on Investigations 

Confidential- FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC acc 0616330 

Confidential Treabnent Requested HSBC-PSI-PROO...Q000508 
1893 


760611.726

c 

Redacted by the 

Permanent Subcommittee on Investigations 

• Customer Scnnning }lrcoSort Vendor Product: Serious performance issues have 

been diSCQveJ'ed with the FircoSoft customer scanning produ[;t that may hinder our 

ability to fulfill a 29PEBOB commitment made to t:h.e DCC in response to aD MRA 

identified during the Retail Bank BSNAML examination conducted m 3Q07 with 

respect to PEP sC&lrung. Benclunark testing has indicB1ed that the existing product, 

as well as the enhanced version schedul ed for release in 200B, will not support HBUS 

volumes. Substantial lime and funds have been expended to dare regarding 

implementation of this product, scheduled fur comp1etion in lQI2Q08. Howevet, 

fITS and Compliance bave now bad to analyze various vendor alternatives. the results 

of which win be pr~errced to senior AML Compliance management in early 1 AN08. 

Redacted by the 

Permanent Subcommittee on Investigations 

Confidential- FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC acc 0616331 

Confidential Treatment Requested HSBC~PSI~PROD-0000509 
1894 


760611.727

Redacted 

by 

Permanent Subcommittee 

on Investigations 

HSBC-PSI-PROD-0000510 - HSBC-PSI-PROD-0000516 
1895 


760611.728

Claude: Yes, Mr. Cohen? Heno. 

Mr. Cohen: Did you forget? 

Claude: No. I did not forget, but I was with other clients, I run (??J it's Monday. 

Alright, we are going to get a reply for you, Charles win call you back by early afternoon. 

Mr. Cohen: Early afternoon. 

Claude: Yes and I am ... I hope that that will work. 

Mr. Cohen: Another thing. Can you give me the attachment for First because I'm 

going to look over what you sent me. 

Claude: Ah yes, yes. 

Mr. Cohen: So, can you tell me who the signatories are for First? 

Claude: Yes, I'm going to get that for you, one second, I'm going to give it to you. 

I will give you who the signatories are, OK? 

Mr. Cohen: In order. in order. 

Claude: In order, 

Mr, Cohen: The first, the second, the third. 

Claude: The first, the second, the third, the fourth, I think that there's Leon. 

Mr. Cohen: I don't know, tell me. 

Claude: OK, ['11 tell you. I'm going to tell you but the table [??] he is not the one 

who signs. 

Mr, Cohen: Who is the individual that signs; the one who is the.,. what we call the 

owner. 

Claude: Alright. Hold on while I look, so., ,Signatures. HSBC Corporate banking 

'resolution, the one that signs. That will wait because that's imaging, we do that in 

imaging and that gives us who the signature is and who ... the narne and the signature. So, 

we have Sonia. 

Mr. Cohen: The first, who is the first? 

Claude: We have Sonia who has the first authorization. 

Confidential Treatment Requested HSBC-PSI-PROO-o030873 
1896 


760611.729

Mr. Cohen: Sonia? 

Claude: Yes, Mauricio, Habib Levy Sibony [inaudible] and then we have Habib 

Levy Sibony [inaudible], we are SUre of the loans and then, director president secretary 

it's Karen ... 

Mr. Cohen: Karen is the director. 

Claude: Yes, director president secretary on the. 

Mr. Cohen: It was the " 1... 

Claude: Alright now, it's the opening account booklet, application. Here we go, 

hold on. Now, on the card too, on the slgnatories' card, we have, let's see what we have. I 

think that we have the same thing. One second., I will see, I went back into further detail. 

We have, so here we go, We have Habib ... 

Mr. Cohen: Habib, 

Claude: Mauricio 

Mr. Cohen: Yes 

Claude: And Sonia 

Mr. Cohen: Sonia 

Claude: Yes, but Habib, I think that he is the beneficial owner. Hold on while I 

check, corporate documentation .. .I know that Habib is the beneficial owner, I think that 

it's Habib. 

Mr. Cohen: But I don't want, I think, I want to be sure. 

Claude: [Inaudible] I know that you changed it, I am sure that it's [??] (llld we 

changed it. It's Habib. 

Mr. Cohen: It's Habib. 

Claude: Yes. 

Mr. Cohen: Alright. 

Claude: I told you that it was Habib, we changed it, I know. 

Mr. Cohen: So he is the one who has to sign the W attachment., 

Confidential Treatment Requested HSBC~PSI~PROD-0030874 
1897 


760611.730

Claude: Yes, for the ... why? For the address? 

Mr. Cohen: No, for everything that you sent me., the two papers, the W ... 

Claude: No, the secretary, it's Karen who .. 

Mr. Cohen: But Karen no longer exists. 

Claude: So I don't know, we have to do something because it's Karen, in fact.. 

Mr. Cohen: We'll do the papers. 

Claude: So here, you put Habib. We will need a paper like this saying that he is the 

secretary. do you understand? 

Mr. Cohen: Draw up a paper for me, I will have Habib sign [it] for you. 

Claude: Alright, OK. 

Mr. Cohen: Another thing. 

Claude: And for Wfiitebury? Do you know Wbitebury? 

Mr. Cohen: Yes. \Vhitebury, who is it? 

Claude: We have to know for it too. For thllt one, we 

Mr. Cohen: [inaudible] signature 

Claude; Yes, because I had .. also for Whitebury, we need,. ,. Ah, I spoke with 

Zolti, you know. 

Mr. Cohen: Yes. 

Claude: So, she . .I sent it with the secretary ... the secre~ how to do it; she's no 

longer there, eh? 

Mr. Cohen: Yes, it's Zolti. 

Claude: Yes, so I spoke.,. so the document - Who signs? You want him to sign 

too? 

Mr. Cohen: Yes, for him to sign. 

Confidential Treatment Requested HSBC-PSI-PROD-0030875 
1898 


760611.731

Claude: OK. Leon signs for American Leisure not World [71]. do I know? Grand 

opening, application, so ... Lea signs there I think. 

Mr. Cohen: Give me all of the names. 

Claude: I'm going to tell you all of the n'3;ffics, all of the nnmes. Habib is 

the beneficial owner. 

Mr. Cohen: Habib, beneficial owner. 

Claude: Yes, of White bury. The !lpp1i~ation is ... here we go, its Allegria. 

Mr. Cohen: It's Habib, Allegria. 

Claude: WaH, no, no, Habib isn't there. Allegria. 

Mr. Cohen: ICs Allegria? 

Claude: Yes. Mauricio, Sonia and Leon and Lea jointly, 

Mr. Cohen: Allegria 

Claude: Mauricio 

M. Cohen: Mauricio 

Claude: Sonia 

Mr. Cohen: Sonia 

Claude: Leon and Lea jointly, that is to say together, 

Mr. Cohen: But, that's a bit, you took me out of it? 

Claude: You are still there. 

Mr. Cohen: Ah no, that's not right The last time that I signed L. 

Claude: No, no, no, 

Mr. Cohen: Yes. 

Claude: I will... hold on ... no. I'm telling you no, no. We only took your name 

from the credit card and yours and Sonia's personal account. 

Mr. Cohen: So you have to send me the papers again to sign. 

Confidential Treatment Requested HSBC~PSI~PROD-0030876 
1899 


760611.732

Claude: And you W!lJlt tu remove your name from Whitebury. 

Mr. Cohen: From Whitebury and from First 

Claude; OK, so I am going to send \Vbjtebury and First again. Here we go, you 

still have .. 

Mr. Cohen: And I'm going to put ... and send me a new owner, I want to put the 

[inaudible]. 

Claude: To whom? Him, he's going to sign? 

Mr. Cohen: To Whitebury, yes. 

Claude: To Whitebury. OK, SO I am going to send you a new booklet. 

Mr. Cohen: You're sending me a new booklet 

Claude: And I am going to .. write forme who is going to sign. I wil1 put 

[inaudible] X here. 

Mr. Cohen: What? 

Claude: I'll put an X where you have to sign. 

Mr. Cohen: Yes, Habib is the beneficial owner, the same thing .. 

Claude: Habib, I don't have that, he is still the beneficial owner, but you have to 

add him as a signatory, no? 

Mr. Cohen: Yes, we have to add mm as a signatory. 

Claude: So there, I added him as a signatory, there has to be a power of attorney. 

There has to be a power of attorney. a power ofattomey for him of the company. 

Mr. Cohen: I have the power of attorney. 

Claude: You have it? 

Mr. Cohen: Yes, yes. 

Claude: Very well, so if you have it, bring it to me, you send it to me. 

Mr. Cohen: OK. 

Confidential Treatment Requested HSBC-PSI-PROD-0030877 
1900 


760611.733

Claude: [Inaudible]. 

Receptionist: [Inaudible] hello 

Claude: Yes, hello. 

Receptionist: Ah, hello ma'am ... 

Claude: Where is Mr ... 

Receptionist: In ten, fifteen minutes. 

Claude: Why? He isn't there? 

Receptionist: He is on the phonc. 

Claude: He is always on the phone Vannie, is ... 

Yannie: [Inaudible} 

Claude: So what's new huh? OK, let's go ... 

YaIll1ie: Don't hang up, don't hang up, hello, don't hang up. 

Mr. Cohen: Hello. 

Claude: Hello. It seems like you are always on the phone. I told him that the phone 

is your life. without the phone, you cannot survive. 

Mr. Cohen: [Laughs] 

Claude: Did you get the fax that I sent you yesterday? 

Mr. Cohen: Yesterday, yes I got it. 

Claude: Alrig.ht, now I'm going to send you, . .listen carefully to what I am going to 

send you. I am going to send you the new account openings but at the same time, I am 

going to send you all of the copies that I have here, the ones that they didn't sign and 

everything. That way you havc them and you cnn change whatever you want. 

Mr. Cohen: There we go, You put in the names, I'll do the signatures, 

Confidential Treatment Requested HSBC~PSI~PROD-003Q891 
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760611.734

Claude: I am going to put absolutely nothing. I am going to send the copy that I 

have here and you, you look at it. If you want to change it, you can do whatever you 

want, alright? 

Mr. Cohen: OK. 

Claude: It's better like that, no? 

Mr. Cohen: Alright. OK, tell me something else, do you do companies? 

Claude: Comp31lies, yes. We do companies, BVI company" Panamanian and 

Bahamian, whatever you want, what do you want. The VMC, trusts. 

Mr. Cohen: What is better to replace \Vhitebury? 

Claude: I am going to tell you honestly .. 

Mr. Cohen: Yes. 

Claude: ,., it's Trust. 

Mr. Cohen: What is Trust? 

Claude: It's from the Trust company. 

Mr. Cohen: Not a Trust 

Claude: You don't want it? You want to change Vlbitebury comp1etely? 

Mr. Cohen: Yes, yes, 

Claude: And who., Habib still has to sign? 

Mr. Cohen: Not always the same ones yes, but it wiH be Habib and my wife and ... 

Claude: And who? 

Mr. Cohen: And my son and my daughter. 

Claude: And without you? 

Mr. Cohen: Without me. 

Claude: Now Whitebury is BV!? 

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Mr. Cohen: Yes, but what can we put? 

Claude: We can chEl11ge 'Whitebury to Bahamian. 

Mr, Cohen: The Bahamas? 

Claude: Yes. 

Mr. Cohen: AJld the shares are bearer shares? 

Claude: No. The shares are no longer bearer shares, now they are always registered 

shares. 

Mr. Cohen: No ... 

Claude: We no longer accept that. 

Mr. Cohen: Or there is .. I am told that there are the Panamanians. 

Claude: Panamanian, yes there is Panama but they're not really like Bahamian. 

The Bahamas ... 

Mr. Cohen: So it's Panama~ the share is still a bearer share. 

Claude: But we no longer accept that; there is going to be a law, now it's a law, 

they no longer accept bearer shares. They want registered shares. That's why I'm te11ing 

you. 

Mr. Cohen: Yes, but for the moment no, 

Claude: It's over in six months, three months; now they already started to have 

all, .. now I have two that are bearer shares, they changed them to registered. They no 

longer accept bearer shares. Because that can get lost, that can ... Anybody can take the 

bearer share and come, .. 

Mr. Cohi.."ll: In the Bahamas they do bearer shares, Bahamas no 

Claude: Panamanian yes I know, I know, 1 know .. 

Mr, Cohen: Leave Panamanian as bearer shares. 

Claude: I know Mr. Cohen but they no longer accept that now, it's." 

Mr. Cohen: Mine are bearer shares. 

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Claude: I know, but now they no longer accept that, probably within six months, 

three months, they always want registered shares; they no longer want bearer shares. 

Mr. Cohen: Eh listen., there are banks that take it.. 

Claude: I know, I know but this is how it is, there is a law now .. 

Mr. Cohen: But you are going to lose clients. 

Claude: No, no they are in the process of changing them, a.ll bearer shares, to ... 

Mr, Cohen: In Switzerland its bearer shares. 

Claude: What went to the bearer remains with the bearer, but for the new ones 

now, they no longer accept that for the new ones, 

Mr. Cohen: Ah alright. I have companies of other companies, I'm going 10 see wha.t J 

am going to give you. 

Claude: Alright 

Mr. Cohen: OK? Send me all of that. 

Claude: Alright. 

Mr. Cohen: Let's go, send it today, eh? 

Claude: But no, I'm sending it to you; Pm also sending you the appraisal, the 

original not the copies that I sent you, [inaudible] I'm sending it to you, 

Mr. Cohen: OK, alright. 

Claude: OK. Bye. 

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HSBC-BNU 0045457. txt FrOIl{: GYANE.N KUMAR/HBUS/HSBC 

s<ne 12/23/2008 9:57:13 M To: DENIS E 0' BRIEN!HSUS/HSSC cc: OiRISTOPHER~lOK@U$~HS8C.COK 

SubjeCt": Fw: usn cash 1 n kex1co 

O~n;sl 

FYI ... please refe(' below. 

much 

I hotvt. not be"en told anythin9 fin!. as" to why thiS" 'decision is being taken as' as it is I. drastic change:. MY instincts, tell .e 'that pe.rhaps this hilS 'something to dG with compliance: Perhaps you aay want to reach out to your counterparts to check. foe- deta.ils. 

Thank you 

Gyanen 

----- Fo.-.arded bY"yanen Ku....r/HsuS/HSBC on J.2/231200a 09:52 N< -----

.... rio '--""'AAICA/tlBI<X/HS8ali1SBC04 

U/22/2008 07:lD PM 

To. . Gyanen K1JrI1arlH6US/~Sd)Z 

Gonralu/HBUS/KSBC@HSBC02. ~el 

cc Ghadiam/HBus/HSaCOHssc02, la;ro '. 

Haa;lUr/HSKX/HSacotSBC04. Rita. nicholil.Staylorehsbc.cOGf. javier fernandez . Subject 

uso cash in MeXico 

Dear Gyanen. 

This 

taken is 

by .I.n 

HSBC 

";nfor-a.tive Mexico.. ll3.il for" tou to know abo1It 5~ n!cent, lPStJ caSh ~1id~ 

upda~ed~ 

l'11fs is "not an official mail but r 'IQr1ted you ·t.o be . " 

. HSse 

bank. Mex1co·~a.geasent 

will has re.cently announ.ced t:hat as of January.l. 2009. the 

network, no .1O«lger be re.ceiving \ISO cash deposits in any fooaat (bra.~ cash piCk. UP. etc_): ·1l1t~. instruction COtneS direaly f.rce O(..Ir $eIIior· 

we 

sanagement have already and i~ 

COIItmUnicated currently be:i~ illplemea:ted .fn all H$8C buSinesses in Me~co* > this new policy to all f?f our clients. 

We. know 'that you now have some. elCisting and POtential Olstome.rS in Mexico lilher:e lIso·cash UPOr"t services .are offered~ As far as I :k.now •. 1:his instruction has just been announced'a.t HSac l4e;Xico level but we. do not know if it will be e.xte.nded 'to global 'business~ with Mexican c1fent.s~ We be.lieve that it is 

you 

illpo.rtant for your product to lmdef"Stand ~e depth of·the decision to llake ·sur.e take proper a.cr1ons. 

As 

continue of ttlday. we have. obta.1 ned approva.l fr"OlQ our CEO an4 fro. T~ HCCarhty _ to offering' the Ban~llOus produCt 'to B~. Banorte and Ixe~ 

r am attaching !:he press re.lease (in Spanish) that outlines the new policy. 

eest regards. ....ge 1 

Confidential - FOIA Treatment Requested by HSBC N_ Amenca Holdings,lnc.: HSB080i2653 

Confidential .• FOIA Treatment Requested by HSBC Bank, USA, NA HSBC acc 1691899 

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HSBC-BNLE 0045457. txt 

~i~!~t~;n~a.~~~tudones Financieras 

Global Banking and Pl.a.rk.ets HsaC .Mex:ico Phone: (SISS) 5721-2630 

HEXICO.-A 1 erta;hsbc. COll,.ftO( Medio oficial de oifusi6n de Informaci6n 'fmergente 

Page 2 

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760611.739

OooW.Jed.IH8US1H5BC 

05I31J'2007 10:00 PM 

Alan I Gy.l~~_ 

To .-.m T KaHayIHBUS'HSBC 

'" _ Kwm<lHBtJs.I1SBC@HSBC 

be<: 

SUbject BH-NY.\ Casa De Cartti) f'uebla n Mexia;) 

This is to brielly .summarluJ our disaJ:ssiOh yesterday. 

Gyanon called us from Miami 10 Infoon us lhallnld. """mas ....... reaontly _sed .;gnificanlly willi 

ea.. De Carob<> _in Mexlal. When Gyonon conIacted the =-or '" dIscu .. u.. ct>ang.o. MIs W'italEtJOt& GUtiIi!i:i'TQi faled til return hb: cab In (I HmeIy manner, ¥dlk:;h W<lS unusual ~ When Ihey finally 

spoke,. Jose ~ Gyanen that the camblo wn cun8f1dy baing audited by Banco de Mexico C¥uding 

KYc on the Mse",S aI3tomers) and they had' noI glYen Ileir ~ with us to any other competitors.. but . 

Joss did not provide any reasons roc the change fn adMty. . 

Gyanen Informed us IhBt Wec:horia had tenninatod Ihei' ac.C:x.mt. wlltI COCP In.Mexico and tbeIc aa:::t for- trade: setdemom: wtttJ us W3$ ftOW with Harris In Ch(cago.. He also kldlcatDd 1ha1. he had :lOttIe concerns 

(AMl &. Reputational Risk) Bbout ourrelatlonsNp wtIh CDCP and planned to vi::Itt them k'I Mexico on 

, 1-JurHJ1lorhis annuat she 'rlsil to dbc.s£:$1he re.aaons b tha dlanges In 1he1r adtvIty with us. 

We saki we woukI review JQCeI'\f.;!IoMty with them and mon1tcr any Julin: ~ Vf!lf'j dos.ely. We 

wouldlwlll ~(. any unusual ... potontlolly wsp;cious adM!y a=rdlngly • 

I understand that eff'ec:5ve today, wv ant SlIsponcflflg &1 iII:U..ity'with this MSB ~m&r'" M~ Mat 

te~ until hla ....£sIt and our dsc:uss.Ionfagreement fSgBrding the rata!lonshlp .betNMn HSBC and CDC? 

Daniel Jac:k, VP - AML Cttnp,6ance 

Gbbol ea_ & M""''' Tdephone: 212-525-8685 

i 

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Confidential - FOIA Treatment Requested by HSBC N.-Amerfca Holdings,lnc. HSB08072692 

Confidential - FOIA Treatment Requested by HSaC Bank, USA, NA HSBC acc 7691938 

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""'" T KoI!4ylHausMSBC 

O5I3tJ2007 t 1:38 AU. 

bee 

.~~~~ 

SubjQd. Fro Cas:a 0.. cambIo ~ 

wm. mrnedlate &ffod. we.ll" Buspendlog all ac:2fvky'\Wkh the subjedOI8llf.. 

IwfI speaktcyoo In 1he rMming'li'Wttb rnprD ~tBil:5. 

Please b"eat!his matte( as tonIkIcoliaL 

Thanks 

Gyanen 

! 

i 

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I 

I 

I 

I 

! 

I 

I 

I 

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FrOlll! DANIEL JACX/H6US/HSSC' 

Sent: 6/6/Z0074:47:06·PH· 

flSBC-OCc..£ 0189672. txt 

To: AlAN T KETLEY/H8USjHSBC@HSSC CC; ALAN P WIll.IAI<SON/".US/HSBC@HSBC Subject! Hsac in Mexico - AML .compliance. &I Gsa de Cambia' 

Alan. 

AS 

Leopolda we discussed Barroso. briefly, following is a. summary of lilY conversation today .with the Head of AML fol'" HaM)( in Me.xico (9-011-52.55-5721-5414). 

"they 

He said have that HSMX: has a few OOAS and a. loa.n with casa De Cambio puebla. and been .t .cunOll'ler for over (; years (pre-HSSC). His office monitors actwity and reports any alerts on unusual transactions to the MLD Committee. \1Ih;ch Meets on a monthly basis, for a.ppropriate action. A ci rcular was sent t:o 

~! Mex:ican lc~~f~ regulations 

l:s~~)Ct~e~~~~r~na concerning ~{l~~~ KYC. n:~e~e~~~;~:~~ c!!~~!/~t~O~~6~~i ~;~~ activi ty RIOnitoring & reporting on their custOlllers. 

Leopolda indicot.ted that there had been some recent articles and much speculation about the source of uso cash imported to and exported from cambios in Mexico .. including concerns from the us Treasury (e.g. 8MPE). He lIIentioned an article in the News Herald in Florida bUT: could not remember the date. I checked this website & could not: find any relat~ article.s - http://'fIIrI'W~ne,,shera ld.cOllJj 

!e d~~c~~il~e~!!o~~~ec~~ (!ebi~r~r~~ ~~c~h~~~ ~1riS~ e~c~~ u~;. unusual activity 

~~~~!~'\~:~ COnduct any d 

further 

-J~lY c~!:: transactions ~~e d~;1 ~~i ~i~~~s t~1 t:~~~ ~ ~~~s h~a~~~~m!!n~:~ :: ~~~) 

close our with CCP. He: asked if we could let hi"" know if relationship. 

He said he did not re.alize that HBUS exrrted USD cash shipments fro~ Mexico to 

~~~u~~~n~li~~i:d a~~i~~~S & (~c;~~~c!!s ~!~h~~_ th~ ~~t~s~~~ f~Bi ~~ul d 

along 

provlde. wit:h h111l with a-list" of' our HBUS Banknote custoners in Mexico.(banks & MS8.s) 

were privacy their .... olumes of uso exported fro" Mex;co into USA. I told him there issues but I would see what info I .could give him. 

please let lie know if you ha .... e any quest:ions or would like IROre info • 

• ___ ~=B_~~ 

oardel lad., VP - AML CQIJlPlia.nce Global Banknotes " Metals Telephone: 212-525-8686 

~===-------------==-

---- Fof""lli.lrded by Daniel Jack/H8uS/HSBC on 06/06/2001 1l:4S PM -----

Daniel la.ckjHBUS/HSBC 06/05/ZOO7 03:52 PM 

To 

Leopolda R. BARROSO/H8MX/HSBC 

subject 

R.e: HSBC in Mexico - AHL compliance &- casa de cambia page 1 

Confidentlal.I'OIA Treatment Requested by HSBC N. America Holdings, Inc. HSB08072696 

Confidential-FOrA Treatment Requested by HSBC Bank, USA, N.A. HSBC DCC 7691942 

Confidential Treatment Requested HSBC-'PSI-PROD-0095912 
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HSBC-OCc.....E 0189612:.txt 

Leopolda - Thank you for the. quick reply. 

~ii1l~/!!~k¥~~ {~~~r~i~~t~oon NY time. unless you want to call lie toda.y. I 

The customer is Casa. de cambio puebla. S.A·. de LV. i.n Mexico. They have been an HBUS sanknote customer since Nov-2004. Generally. we have been purchasing lar~e shipments of USD (used banknotes) f.-om thell!. The KYC documentation indlcates that. volume depends on ~ican workers in the us repatriating their salaries to families liYing in "'exico. 

~t~~d~~i~t:~a~u~;~i~~~~Sh!~:a~~l\~~~!e w~~~:h~a~kd y:~ted to ask you some 

-:-:--~'=-=, 

Daniel Jack., VP - AML COfIIpliance Global aanknot.es & Metals Telephone: 2U-S2S-86S6 

Leopoldo R BARROSOjHBMX/HSBC 06/05/2007 U: 17 PM 

Daniel. 

To 

Daniel Jad::/HBUs/HSBC(lHSBC cc 

Subject 

Re: HSSC in Mexico - M'lL cOlllpli anCe & Casa de ca.mbio 

'It. is ,correct. I a:JIl the Head .Q.f..AML for HBMX • .I woulst like t.o Kn;tW which "rasa de Cambio~ yOll are refer-ring to~ so thai I can,ler more ,nfOf1lJatlon for our 

~~~~~~t!~nil~~ ~~i~~:ggo~i~t it might e preferable to ha .... e a chat 

Regards 

Leopoldo 

Daniel Jack/HBUS/HSBC 05/06/2007 U:07 a.' •• 

TO 

Page Z 

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"HS8C-OCCE 0189672. tXt leopo 1 do R BARROSO/HBMX/HSBC~S8C 

CC 

subject 

HSBC i: n Mexi co - AAL Comp 1; ilnce & Casa de Camb; 0 

Leopoldo, 

According to the HSBC Group cOll'1pliance website/ir1tranet~ you are the Anti-Money Laundering Director for HSBC in Mexico. -

ca~ you confirm this7 

questions 

I am the AMi. LCD for the H8US Global Banknotes business and want as.k you il few about a casa de cambio in Mexico who is a cust:otDerS of ours. 

please let lIIe know when is a good time to call you today t:o discuss this mutual customer in Mexico. 

T11ank you. 

I)aniel Jack, V-P - AML Compliance Global Banknote.s &- Metals T.elephone: 211-5Z5-B686 

Page 3 

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To: Ianet Burak. Regional Compliance Officer 

David Bagley. Head of Group Compliance 

David Dew. COO. HUSI 

From: Carolyn Wind. EVP and Chief Compliance Officer. HUS( 

Date: 26OCTo7 

Report: 3007 Compliance Report For PFS. CMB. GTB and GPB 

I. Issu<s Arl>lng 

(0) NEW Issu£S 

Redacted by the 

Permanent Subcommittee on Investigations 

Confidential· FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB08072700 

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2 

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Redacted by the 

t Subcommittee on Investigations Perman en 

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760611.748

Redacted by the 

Permanent Subcommittee on Investigations 

HB us Bananotcs/CBS8 De Camblo Pueblo (RED 3S10): No Il2risactions have been 

conducted with Can de Dmbio Pue:bla SA de CY in Mexico since JJUN07~ 

Although HBMX conliDues to deal with this Money Services Business, HBUS plans 

to formally ternlinate lhe Banhotes relationship soon. 

Redacted by the 

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ConfidenUal - ForA Treatment Requested by HSBC N. AmeriCa Holdings, Inc. HSB08072703 

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by 

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on Investigations 

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760611.750

( 

From: OEN1SeAREIlt YlHBUSlHSBC 

Sent 7/12'20Q1l:l:22:~ AM 

To: DOUGLAS STOlBERGil"iBUsJKSBC@HSBCAMERICAS 

CC: JOE.HAA.~STER@RNB.COM;MICHAEl B GALLAGHERlHBUSJHSBC@HSBDAMERIC!\S 

SUblac:t Ra: Bank Melli 

ThE\ fullowing memo is backgrol.Jnd. ilforrna\Ion on the: Bank Me!li OOsll'le!1.s, 

prep.ared by John. RlclulIQs, Group Representath,le Iran. Addilionl.llly, in a 

Ilooferente cal! ttud Joe Harpster, CQl1'Ipllance !lhd ll'lad ~1:tI HBEU :md Richardson 6t27. i1W<!~ rel<'lved to us Iflal the Group '-.Mill Iile backing or Bond) was 

looking to significantly grow our presence in fran. CUrrefllllr-u!s of cradlt 

were reported \0 bD S50Dm. trade lines of ~15(lm and growth was antlcipa!en in 

trade, cash manogement find Internet banldng. ThE' Bank ME:1\i drr.tfing was viewod 

by Richards and o!t\efS as- no! only pro~fable as a s-tMdalone put also key 10 

w.lnning addmon?lr busines$. 

From: Jehl'll RICHARDS!HSBUHSBCAPAC Tel: 96212041.14151 

Mail Size: 4106 

To: Brian W R!CHAROSIMOSKlHSSC@HSBC 

Subject:' Th~ Central Bank oj Iran 

Oll.a.rBft3n 

w~ have been approl!lched by the Central Bank of IraI'! tota}!.e bacJ.lheir USD 

clearing busines-:; from Natwest. 10 pril'lGlpal j am keen to do U,is bul on the clBarpraviso Ihallt can bC" done profitabl)' and on a sustainable ha$is. 

One of nut key objecliyes lor lheytar fs to develop HSBC's A.'>set M~n.,gement 

act1vitiesln l;.on and -W!!n Ihe Ce-nlraJ BanI; now managIng Ihe 011 price: 

stabaiiZi:1tion fund amouo!lng!o$ome USD10bn ihl!1'e is oonsidcrable scope for 

this. Obviously tT'Jany foreign banks- are ~ha51nQ the stj;mc bUs-lnCS5 and so we need 

1odemom.trale some cornpe[iJ!Ne or reilltional adv;,.nIBgi:. 'file prop~ill f(crt) '!he 

Centra! Bank was therefore- riot u.nw£!icome. 

I had an in!!ial meeting \.,.,th Mr Nowballar Director Inti Dep! of tha C~ntral 

Bank yeslerday afongwith Nigel Weir who is: VISiting Tehran.! empha~s!l"d that 

If we were able to do this wo would !Iced 10 hilVC; dr.:tal!ed discus~lDns 60 that 

we are clear what is .e~uired of liS and wtJi"1 we reql.!ite of t!lem. The Centr",! 

Banlt mBnI'lge their tr'Jr)sactfons ttut;lush Saok Melli Landon <"f\d the IntentfDO 

would be thaI neg-otialions are held wilt1 Mr Saderighfar. 

f ...... Quld likn to ent;! up wilh a wrinen agr!l"ernent so thai al! P3rtles aft" aware 

ofWh-atthey are committin910. PJthough negotiaGng with Iranians is,, 

fnJs.tra~rtg activity we are in a strong position. They have become dtsatisfied 

wilh Nl!-tVVest ilnd with the ~ception 01 Uoyds, who will hilv!l the ~ame i&-:;ue& we 

~rliS PAGE CONTAINS ANNOTATIONS 

Redacted Material 

Confidential- FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB02545267 

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760611.751

( 

hlve there ~'s little cOf'lPe'tiliof"l.1 also assume thaI lJur te<:hnolvgy aovam::e-s 

\W! make Ihe pusiness more all!al:1ive than It was in llit: pilsL 

I Sh31! be grateful for your thoughts on this and your ad'w'ice on how I should 

take ttll::; forward Nigel Is hera until Thurod~y ;md if PIl$sitJe I shaU be 

gri':lleful for your inlll~1 fuedbn-CK before tw leaves: fiO that! C<l11 dl:;c;u.sslhe 

malleI further with him, I am sure that he will Ish lhi5 up withyoo hlmsolr 

but I'll the end oflhe day l1e51Q~aiions wi!! b~ held ill london and WIll be 

dlil,l~n by you. 

r..'iJSSE:f and Iv.iJ be h!he UKon Feb 14th l{;th to help host <I pfcse"mtiO;'lIO 

a nurnbt!r of Iranian Bank Manag\l'lg Directors in association with Robert Gray and 

the !m-esllTlen! banI(. Sl1hJect tQ your 'Jiews ~ tan join <ll'\y nenonntion meetings 

lhat are aU"i;inged over thi.illime, 

In s:u~ry if we can make !his bJ.1sin~s~ indepl!ndanUy proii!able and 

susta1nable tf1e benefils ltmtwe<:an derive partlcularlY hmllhe ire<ls'Jry, 

Asset M.mllgllment zmd !r.vestroer,t tJanking spit! ol!!. will we subs.t-ar;ti<;t ! want 

therefore 10 agree a s:ra1egy Qfhow ue g:) fO;w.tfd <lad nhQ \/'IC in~c:Ve t;,!!Q(~ we 

l1lalo:E ilny fu!~"er r,..nni..1ct so. thai! ilm aWOItc of~!! L~ Po i.<;(';lJes inv(')lved 

Br..stregards 

John 

Doug!;;s ,stolberg 

11 JuI200118;23 

To: O~ni:;e A Re:lly/HBUStHSSC@HSBCAMER!CAS 

~ J;3C,Harpster@mb.ccn: 

MichaelS GaI~agneffHBUSIHS8C@\-,;SBCAM£c\ICA$ 

Svbjoe~t: R~: Bank Melli 

DerIise and ethers. 

\'\lith l-'le amount of smoke CQrrlng off oft!t;s -gun, remind me ilQain why we think. 

we: should he suppGrting this bU5:ness? 

Denis;: A Reilly on 11 Ju! 20i.1117:16 

Note 

11 Ju!208117:')S 

From: Dcni~e A Reilly Tef: 302,636.2500. Del 

TlUe; Senior Vice President 

WorkGroup: 

Payment S&rvices 

Location~ 

Mail Size: 

De!awanJ 

'33351 

To: D01J5Iias StolberglHBUS/r:SSC@HSBCA,J.,.iERICAS 

Confidential· ~OIA Treatment Requested by HSBC N. America Holdings, Inc. HSB02545268 

Confidential· FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC OCC 0616084 

Confidential Treatment Requested HSBC-PSI·PROD-0096130 
1919 


760611.752

("'" 

\ ... 

Gc:JDeJiarpsler@rnb.com 

M;chael B GaJ1aght"r/HSUSfHSSC@HSBCAMER1C\S 

SlJbj~t:t: Bank Me:fi 

This is an ~uc tha.! yol../ should be ;Jware of. />os described In Carolyn's memo, 

we havP.' hfld ongol:1g discU!isiorrs on Un: topic of Iranian payments bnUl 

inlem<'llty, wi\t1 H6EU and "lith HBME IF/N. HBUS ComrHanc~ ar'ld nBEU have <'1151] 

cansultt!d v-iltl external counsel. The ge!lL'S'!j [D' lne clsl;Llsslon W!'i$ atl RFP for 

HBEU Trt:3s0ryto handl!! BanK MeW's: usn clearill[l. From an operabonat 

pe!"Specllvil', 'M'! wi1l1oJjo\V Compliance's dircct;<m as to whelherwe should 

support Lhl" llusines~ and if "greed, ",,'ill BS!ilb!fsh any r~qul!ed cpera60!1ill 

wnlrol5. 

Given the level (If "tt~iion this- ts now geWng. i: 'n3)' be laisC'd at the SMC 

and vfJI be in<:luded in Ihe quarterly Compli<ln~ r~port 

I win Mep you apprised. 

---•• Fc""ard(td by;:)cnlse A RemyJHi3US/HSBC (In 07/1 112001 

00\:.37 PM .. -.-"".---- Carolyn Wind on 11 Jul2D(l1 11:13 

Noie 

11 JIJ120~'1 11:13 

From cll.rtllynWlnd "fef: 2125255503 

Tills: Executi .... e \lice President local1on; ~52 5!.1. Ave, Fbar 01 

WorkGroup; 

RNYC Cornolf'.oIflC{\ Mail Size-: 29902 

To: M~ttt',ew JVJ KING/HGHQli-IS8C@I-JS8C 

cc: Pa!.J( l Lae!HBU5JHSeC@HSBCAMERICAS 

Anne UddyftIBUSlHSBC@HSBCAMER1CAS 

Elil:ahcth Protol113!itrolHBUSIHSBC@HSBCAMERICAS 

Den:Se A Reill),!H9USfrlSBC@HSBCAMFHfCAS 

S'JhjcCf: 8;:101/; Melfi 

Matthew, !his e~mai1 is to surnm<lriZe Ihe is'fllle~ we di~(,"\Jssc-d yesterday 

regarding HBEU Bank Melli proposal. A$ yot! know. HBLIS WtlS Initi01l1y apprrlill;:he!l 

in January 2001 with the proposa; that HBEU wuuld usc j~ USO account wllh HBUS 

b" cfear USP ~a)'mel1.ts for 8.iI1k ~I.elii. St.;t>sequenlly. there ha;:; been extllnsi',le 

review-of U~e" m::ltler, iocllJcinQ input trom two outside us !eg;u ~rlT-.s. The 

g,st jssu~ Willi whether or no-t!he urrde-rlylng transactions originated by 8nl'1k 

MeUi are petrnlsslbfe under the Iranian IransacijOflS Rcg1Jl<lllon~. The 

tegl.l!.~,bonS" pro",ide a gehern! license for trttfl5acijons \l'ml me<!llnl;! "U·Tumw 

; 

cc:-n51J\lcl~dalldformtltl(!d, 

underlyhg Imr;s1\ction aclUalr,r Meel .. the "U-Tum-requirement !I is flO! 

apparenlltla\ HBE;U will be able to c;.on~rm that eac.'l pll}men~ meets 11e 

rQqlJirerne-n~'!i, In an eNortlo f;'H;i!t{sle ~s!JajohHhroU!lh procl!Sslng", It now 

appears that hBEU willlrilin Bo:II\~ MeJij Oil forma~n!1 the piI'(ITlBnls and that we 

will be relying on Bank MeUi 10 en$ure thaI Qi11y qualilyinil payments me 

prncessed through HBEU's; account witll HBUS. (See alta,,:hed leiter lQ Bil(\!c 

Redacted Malerial 

Confidential· FOIA Treatment Requested by HSBC N. America Holdings, Inc. HS802545269 

Confidential- FOIA Treatment Requested by HSBC Bank, USA, iliA HSBC ece 0616085 

Confidential Treatment Requested HSBC-Psr·PRoD-0096131 
1920 


760611.753

( 

\ .. 

Melli), It QFAC ide."Jlifies III trans.a::;tion1ral dct-s net qu:lhfy, it m~9-1,1 lIiflW 

HSeC's actions do.J.e tolh& non-discJ(lSure ~1> hll'I!"9 invDl,,~~ vAUfi.ll1f~regard 

o(e .... asicn. Gi~en the hlrg~ d:el\a( ilmO\ln'~ ilnd volume of lIcllvity l»op<l'Sed 

pOO.400 lransa<Otions per day}, If OFAC tonk suoh a view, pOlenliaJ li .. blUties 

could be s.ubstantial and would certainly IrJlllac! HOUS'!:; lelalionship v.ftt1 OFAC. 

Sotoreoop: 

A) Do~s this structvre as proposed meet the V-l\lm requirement for 

procl!ss!ntfi' If Bank Mem and Ihe second forc~gfl bank do not appear on the 

l..rrZ02 processelj by HBUS. hnw de we del~fmlm' thill the !'Iaymenl is in ra .. t a 

U-turn',> 

B) HSUS will not mow \tIe forei.gn banks Dnd, there.1Dre, w.n r'.tlt be !:lore to 

manitof kIT compliance. Will MellI be lnform]ng HElEU 01 the sc{:cnd foreign b:<lnk? WiH HBEU !Ie! tip a function ta monitor tt~e$e paymen1s fOf compli.!flI::e 

v.rith Ihe U-turn provision? 

C) II H6EU .,.,;'j set up OJ Ii...rnc~oJ"l !o mO·'1l\-or !I'.e paymen1s. it is p05.5ible 1hat 

OFAC may nol find It acceplablll' for 1-l8US (Q Il!ly an HSEU 10 mcnilor paymer1ls 

for ~oli"r'lce ,·.Nr the U-rurro, 0) If \.fl~ foreian b~nkS irwa!ved are not djscfcs,ed 0rJ !he Mi202 plocessed by 

HElUS. and nei(her HBEU nor H3!:S is mOl~iLclillg U">.e p<tymer;!5 for cclJlplienc~, 

OFAC could !eler~o the s.edion of :h: ft!j;ulation H:l/3fding "n"'asion~ (Seetlon 

'S50.2CiJEvj!sians; atterT:p3). 

1} Def.nHion oflhe perrT'ined -U~lt;rn· transaction under;he Iranl111'1 

l):!Jlctlons: 

lRANsAcnON DETA!L 

BEl!O\'o' lire summarie.s of h BUS' underst:md!n9 of me fi!.'!lt ptopbSed transaction 

Rowand \he tatesl proposaL 

E;,(!'uTlple I: U-TURN TRANSACTIQN 

''::"";:i1IS· PAGE CONTAINS ANNOTATIONS 

Redacted Material 

Confidential. FOIA Treatment Requested by HSBC N. America Holdings, Inc, HSB02545270 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A, HSBC ecc 0616086 

Confidential Treatment Requested HSBC-PSI-PROD-0096132 
1921 


760611.754

( 

1. Bank Melli sends inslrur:tiom. to HBEU to; 

debit Bank Melli's account at HBEU 

credit HBEU nostro with H8US 

2. HBEU send$- jnslruction:; t'O H6US to: 

debit HGEUaccounl .,."th HBUS 

credit any foreign bank (via a USA c«TMOpondenl for Ihe foreIgn ban}:) 

for fiJrt:ler credit to the ultimate benenciary 

Note; Original HBEU suggestion on pa)'liicnt format would nol mention Bank Me!lj 

as the Originating bank 

Exam'p1e U; Cover Payments (MT202 & MT1 00) 

1. Bank MeHi. London S-I!nd$ insWCU0l15 to HBEU (0: 

debit their EceoUn1 With HSEU and 

creditH6EU no&trov.ilh HBUS 

L. HBEU wi!! send an MT20210 H8USto: 

debit HBEU's t'l!:cI)Unt v.ith HBUS 

credil-any fureign b.mk (either on our books or via a USA correspondent for 

the foreign bank) 

Note: Cun~nt H8EU recommendation on formClt would not rncnfion Bank Melli but 

would coolain some reference identification on til!! specHirr kansaction being 

seltled between Bank. Mel!! and tbelr customer, 

J. HBeU wHl also simultaneously s.cnd an MT100 to the foreIgn bMk (credit 

party) refereflced in the above MT202. supplying them with baneficiilry 

del.aHs for applying the funds receJ\led tom HBUS 

Note: The MT100 Is o'ften processed prior to \he MTZ02 dLJeto time diff~renc!!".s 

betweefl the US and Ihe bcnenc;iary"s cDuntry. 

J) HBEU Inslruc1ior\s to Bank. Melli regarding how 10 forma1 payments: 

See "ttacned ern~l of2BJUN01 from John R \M.lklnson wilh i!I ~opy oftl1e lerter 

senl\o Bank Melli wilh Ins.tructions on how 10 forma! the SIJIJIFT me5.5iIge3. 

From: John R WLKINSONfHBEUJHSBC Tol; 7!1a 4>14'66 

«2072604466 

Mail Size: 23330 

To: Denise A Reifty/HBUS/HSBC@HSBCAMER1CAS 

cc: Joc.Harpsler@rnb.com 

Anne UddyJHBUS1H.SeC@HSBCAr.tER1CAS 

John L R1CHAROSIHSBLlHSaCAPAC@HSBC 

Brian W RICHARDSlMOBKfHSBC@HS8C 

Quentin R AYlWARDJMOBKlHSBC@HSBC 

Terry J BELtAMYJMD8KlHSBC@KSBC 

Nicl>: J GILLGAASSlMD8KlHSBC@HSBC 

Confidential- FOlA Treatment Requested by HS8CN. America Holdings, Inc_ 

ConfidentiaL- FOIA Treatment Requested by HSBC Bank, USA, N.A. 

HS802545271 

HS8C OCC 0616087 

Confidential Treatment Requested HSBC·PSI-PROD-Q096133 
1922 


760611.755

( 

Peter C BLENKJHBEUIPSBC@HSBC 

S,)bj~ct: Re; a"nk Mdij 

Per ourcOIlf€lrence-e.aU tOday, please find attach~d Ihe letter 30fIPR01 sent by 

ourP:lyme-nls dept{MPD)1O Bank Melli !ran lon/kln, 

Once the proposition goes live wrJ have instNt:led Sank: Melli to alter Ihe 

fDrmat oflfs payments to adliel/e straight through prcoce5Sing. Tt)e Aeld 52 

input of 'One of Olir clients' il;> a standard phT~St- used by MPO in these 

sitl.latiQr'lt;. 

Sint:e SOlr.dil1g the lel1er We have further asked them to ollly put 'One tlf ow; 

clients'in field 52, U1US rernovin:::J the t:hance of them inpufljil9 an'lranlan 

referenced' cu~tomer name, that ~(Wge5 mil OUI (Jf tl,a (;OVN payment sent to 

HBUS and 11 brei'lc;!, of OFAC reS.Jiati()ns, 

ThIs method vias. suc.:essfull)' tested la!::t mCl1th {In G 1.1T202 (bank t{l bar k) and a 

MT100 [rommer-cia!] payment 

i can understa~d your ooncerr;s- !cllowlng 1'1~ I.et:ent fonnMiJng ~r[()r t1elailed 

in "'efer B enk's. email 1SJUNOi ,however I muslprovidl: Mm~ b<lc~grour:d rei 

'tOlL 

rlPD Gonfirm 11131 Bank Mcjfi halle not yel aone iive 01\ the- new lnethnd 01 

b;m;rhing payments. as we l'iaU'r!: no\ yet lllken on me n\'!w business. Ek'Ink Melri 

are ~till formatting paymenls in the!, usual me-thod, In this instance MPD 

failed to spot the poor input 1rhd did not follow {heil normal procedure of 

altering Ule PlIYment, hence it wasbjoekecl, MPD have again L't'nfirmlld Ille new 

fp(matHng method will achieve 5tr~i9ht thr()lIgh processing and overcome lhese 

r.liflit:U!lies. 

! hoI'\! 1M obov<l d£!ail is sufficient for ')'our pUrpC51*1 Md '100u lIfe able l" 

progress Ihis milllef forward as Intimated in ytKJrenrlief ripprcvaL 

.A.t1f1ooment: rl200105fl1 fm MPD to EKBC re formattJng.doJc.2ip 

Confidential· FOIA Treatment Requested by HSBC N. America Holdings, Inc. 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. 

HSB02545272 

HS8C DCC 0616088 

Confidential Treatment Requested HSBC-PSI-PROO-0096134 
1923 


760611.756

( 

( 

From: DENISE A REllLY/HBUS/HSQC 

Sent: B/31/2001 9:19:30 AM 

HSBC-BNU caSS729<txt 

To: JOHN L RICHARDS!HSBL/HSBCAPAC@HSBC 

CC: ALAN WILKINSON/HD HTV ASP/HBAP/H'BC@HSBC;QUENTIN R AYLWARO!MDBK/H5BC@H5BC;CAROlYN 

M WIND/HBUS/HSBC@HSBC: 

MATT;JEW J W KIt~G/HGHQjHSBC@HS8C;ELlZP<BETH ?ROTOMAI1HO!HBUS/HSBC@HSBC 

Subject: Re: Bl.lnk Melli 

Thank you for reviewfng the document O1nd providing feedbvck. Given that :I'rerc 

i .. :,=upport fO( the proposal} W'i! (ecommend thot <l conferehce 'Call be scheduled 

after our meeting ''',11th OFAC (6 Se.pt). Abc, Monday is a holid;)y in th€ US. 

Please advise dates the week of 10 September lhat Me CC!1venje.:lt for a 10 

a.rn./3 p.m. meeting and we w)li thc'l1 fjnil1ilt~. 

John l BICHARDS@HSBC 

30 A"g 200111:58 

Te; Dp.nise I\. Reilly/HBUS!HSBC@HSBCAMEiiICJ\S 

a:: AI.n WILKINSON!HD HTV ASP/HBAP!HSBC 

Quentin R AYLWARD/MD8K/HSBC 

Carolyn M Winu/H8US!HSBC 

Matthew J W XING!HGHQjHSBC@IISDC 

Elizabeth Protomastro/HBUS/H$BC 

Subject: Re: Bank Me!!) 

D~ar Oenise 

We have ft:vit::weu your document and confirm our support of the prcpoS::J.l you 

make. It VeI'Hi be the first time that;)o Iranian h~nk n<lme h<ls been mentioned in 

a payment mt?ssaf,e, as far il5 we are aware but provided you can ccmmit to d s::;une 

day payment service proposition and OFAC give J green light we can actu<llly usc 

thf!: melhodology developed to ollr competatlVe Jdvantage.lt S~OW5 that Iran can 

haiti its head up il'l.ln".:ernationiillrade, de5pltf! t',e 5tlnctions. rather being 

forced to operate more furtively. 

I will be out of town on Friday but could join a CDt'lference call on Monday at 

"he same time, 

PagEl 

Confidential- FOIA Treatment Requested by HS8C N. America Holdings, Inc. HS802545285 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HS8C acc 0616104 

<Confidential Treatment Requested HSBC-PSI-PROD-0096147 
1924 


760611.757

HSBC-BNIJ 00657 29.txt 

Pleas~ let me know how you wish to proce~d, 

Best regards 

fohn l Richards 

Group Representative Iran 

Page 2 

Confidential. FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB025452S6 

Confidential - FDIA Treatment Requested by HSBC Bank, USA, N.A. HSBC acc 0616105 

Confidential Treatment Requested HSBC-PSI·PROD-0096148 
1925 


760611.758

( 

( 

HSBC-BNI_E 0071494.lxt 

From: EUZABETH PROTOMASTRO/HBUS/HSBC 

Sent: 5/5/2005 1:11;13 PM 

To: TERESA PESCE/HBUS/HSBC®H5BC;DENISE A REILlY/HBUS/HSBC@HS~C;ANNE UDDYIHBUS/HSB(@HSBL 

CC: GRACE C SANTIAGO-OARVISH/HBUS/H5BC@HSBC 

Subject: Fw: Payment rejected re Melli Bilnk PLC M uso 362,000 

Grace asked me to forward on the attached as an FYI in light of some discussion 

hel d earlier t.oday. 

W~ ______ • __ • ____ ~_ FDrwarded by Elizabeth PI ulurHo:-itro/HBUSjHSBC on 

OS/OS/2005 02:10 rM -------.---------.---

Elizabeth Pl'otomastro on 05 May 200513:57 

Note 

OS Mav Z005 13:57 

From~ Elizabeth Prot-omilstro Tel: 212-525-6692 

Title: Vke President locatjon~ 452 5th Ave, Floor 07 

WorkGroup: COMP/ANTI-MONEY lAUNDERING Mail 51,e: 7915 

To: John ALUSON/HGHq}H5BC@HSBC 

cc: Susan A WRIGHT/HGHQjHSBC@HSBC 

Grace C Santiago-Darvi,h/HBUS/HSBC@HSBC 

Nancy Hedge,!HBUSjHSBC@HSBC 

Jose MatiasjHBUS/HSBC@H5BC 

Subject: Fw: Payment rejected re MeUi Bank PlC - USD 362,000 

Please be advised that we are rejecting/returning the following payment per 

Internal procedure. This payment was originally rejected on 4/19/05 {attached) 

~nd re-submjtted byPLCon 4/22.JO~. 

3rd party; Credit Suisse, Zurich 

ORG; Melli Bank PLC 

8BI: Ace/Our Ref MPAY1710 19AprOS 

USD 362,000 

Page 1 

Redacted by Ibe Permanent 

Subcommittee on Investigations 

Confidential· FOIA Treatment Requested by HSBC N. America Holdings, Inc. HSB02545308 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, N.A. HSBC ace 0616134 

Confidential Treatrnent Requested HSBC·PSI·PROD-0096170 
1926 


760611.759

{ 

C 

HSBC-BNI E 0071~9U"t 

On 4/22/05, we suspe.r.ded th~ payment and sent a SWIFT to PlC reque5ting full 

dl'iclosure of the name and address of the originator and thE' beneficiary. Two 

followwup messages were sent on April 28 and May 4. 

To dote, no re:>ponse has been received. 

We also wish to rer-lind you that we will be returning the $6.9 mllJlan payment 

if we do not receive an anSWer fro11 Credit $'Uisse within the next few days. A 

rr:e,5sage requesting further details was sent May 3 to Credit SlIi5se, 

. -.~---.~~-"------ rOr\varded by Eli"zabeth ProtoTl'l:;astro/HBU5/HSBC on 

05(05/20(501:36 PM ------------.-.-----

Elizabeth protom:astro on 19 Apr 200512:11 

Note 

19 Apr 200512:11 

From: Elizabeth Protomastra Tel: 212·525-6692 

Title: Vice President Location: 452 5th Ave, Fluor 07 

WorkGroup: COMP!ANTi-MONEY LAUNDERING Mail $1,.: 2634 

To: John ALLISON!KGHO/H59C@HSSC 

ee: Susan A WRIGHT!HGHO/HSBC@HSBC 

Grace (Sanlago-Dorvish!HBU5!HSBC@H5BC 

Sub jcct: Payment rejected re Bank Me;ll ano "do not mention OUT name in Nt:w 

York"" U5D 362,000 

Ple-a.se be advh:ed that the follmfJing payment nas been fE!Iected due to internal 

retL')ons, Though the payment does meet the Iranian u·turn requir~ment, it does 

not disclose the name of the originator and beneficiary parties and includes in 

the Bst field the note IOdo not mention our name in New York". As you know/ 

our procedure is to reject paYmer,ts: with such references. 

As you are aware from past disciJs}ions of the Iranian pavments, such payments 

should be. fully disclosed as to the names of the origln.tltor and the 

bendiciary. FYI, we have -confirmed with the other New York ~orrespondent bank 

th'l t they 13[50 require the name ofthe or.1ginator Md b€'neficlary before they 

wiIJ prDcess lln Iranian lHurn payment. 

~oU owing are details. 

r.ge 2 

Confidential - FOtA Treatment Requested by HSBC N_ America Holdings, Inc. HSB02545309 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, NA HSBC OCC 0616135 

Confidential Treatment Requested HSBC-PSI-PROD-0096171 
1927 


760611.760

( 

(' 

HSBC-BNLE 007H94,txt 

19-A ..... r-zoos SRN 

IRN 

Deb! : an I 

Creda: Bank of NY, NY 

3rd party: Credit Suisse, Zurich 

ORG: Mellf Bank PLC, London 

6BI: PJs do not mention our name rn New York 

USD 362,000 

please let us know if you havE i:!ny questions. 

Thank you, 

- = Redacted by the Permanent 

Subc:ommittee on Inveltillltl_ 

Page 3 

Confidential - FOIA Treatment Requested by HS8C N, America Holdings, InG. HSB02545310 

Confidential - FOIA Treatment Requested by HSBC Bank, USA, NA HSBC acc 0616136 

Confidential Treatment Requested HSBC-PSI-PROD-0096172 
1928 


760611.761

From: LEsi..EY MIOZAlNIHBUSlHSac 

Sent 4!Z71200e 11;57:48 PM 

To: AU S KAZM'/JH6USlHSBC@HSBCOZ 

CC: ANNE UDDYIHBUSlHSBC@tiSBC<lZ 

SUbject Re'. Merdl200B" Country Risk l:-ist Re\lisiDn 

Approved. 

Thanks, 

Lesley 

lesley Midzaln 

EVP & Chief Compfiance- Officer I HSBC BANK USA, NA 452 5th Ave. 71h R, 

New York. r-t( 10018 

Phone 2t2.525-6410 

Fax 212~52S-5769 

• Mobl1e 917-892-4967 email LesJcy.Midzain@UsJJsbc.com 

Ali S KazmyIHBUSlHS8C 

04/25/2008 02:12 PM 

To 

lesley M;dzainIHBIJSlHS8C@HSBCOZ 

co 

Anne UddyIHBUSlHSBC 

SUbject . 

Mardt 2008 Country Risk list Revi$l'on 

Attached for your approval Is the r-eMs;ed Country Ris;k tJst as 01 March 31. 

2008. It is consistent YAlhc Group ratings and has been concurred to by J.\nne 

Uddy. 

TIle three changes to the revised malrht. are summarized below; 

...,. 

~ attached below-is the detaUed research c;ottducted against each country i!.lld 

recommendalicns leading to. the ratings aOotled. The .te.l;Onr;t tab Oh the 

attadled fife sIlcrws the new groups of rating as weiJ as the present ratinO. 

Your consideration to thls matter is Clppreciated. 

Confidentlal- FOIA Treatmerit Requested by HSBC N. America Holdings, Inc. HSB03965859 

Confidential- FOIA Treatment Requested by HSBC Bank, USA, NA HSBC OCC·3580217 

:onfidential Treabnent Requested HSBC-PSl-PROD-l1096398 
1929 


760611.762

MADE SEALED EXHIBIT 

by 

Permanent Subcommittee 

on Investi2ations 

HSBC-PSI-PROD-0096399 - HSBC-PSI-PROD-0096441 
1930 


760611.763

KYC Banknotes: AL RJ>.JH! BANK!NG & INVESTMENT CORP 

Know Your Customer Profile - Banknote Information 

HSBC Bank USA, N.A. 

Reference: .. Banknote Profile Aj>proval SlaWs: ~;!WlIliilJ _________ .... 

--- Redacted by the PermaDent 

Country Risk Status: High Risk Subeommittet on InvestigatiotU 

High Risk Client Type: Special Category of Client 

Client Name: AL RAJHI BANKING & INVESTMENT CORP ij 

Coontry: SAUDI ARABIA 

• Changes to these fiefds on "Approved" Prof~es roquire ReRapprovaL 

Banknotes Activity 

• For HSBC Office: Hong Kong 

0112312012 02:15;44 PM 

Confidential Treatment Requested 

.. Banknota MMty StW.Is; Deactivated 

Deactivation Data: 10/29/2010 

Deadivalion Rtason: 0 KYC {Compliance Reason 

• Bus.iness Rea~on 

OOlher 

Comments: HSBC group wide docfs"ion to exit the Baflirnotes busIness 

Initial Tl'8de dats: 01129/2009 

Currenci.s1rad~d~ LZJ MairtlyNQn USD 

BRITISH POUND STERLING, El!RO, INDIAN RUPEE, 

INDONESIAN RUPIAH, PHILIPPINES PESO, SAUDI RIYAL 

Month Trade Volume Estimates: 

, SIlas b HSBC: 

200,000 

1.000.000 

16,000,000 

us, TheyseH 

their nationwide retail network find those 

workers, tourists and business-men are the 

I utilize OUI services fClr their retail 

Iba"koo"""",·,ilife,olily, In the meantime, dient is one of Ills: 

Page 1 

HSBC-PSI.PROD·0102304 
1931 


760611.764

KYC Banknotes. AL RAJHl BANKING & INVESTMENT CORP 

counterpall to liquidate our Middle East currencies surpluses 

lhatwe purci1ase from other markets 

Above figures are obtained from our dealings with dient during 

Mar 2009 - Feb 2010 and are in original currencies. If all 

currencies indueJf!d, the monthly average of our sale was 

;' about USD4,500.000 

Whm will bSr'iknot9JI be shipped ttl: Client 

Wher. will banknotu be shipped from; HBUS 

If yet.. indicate er.dit line tmount: S3,000,OOO 

lfyeS.C«IIditapprOYalr6Ot~: eYesONo 

lfyes, da~ «edit line approved: 0210212009 

Method of Settlement 

DIlIbitlCntdit I-ISSC 8CUluntnumber ~ ... ia HBUS Nostro NC 

NaMa ofR8fslionshi Mana ar RM tor KYC 6val! Christopher Lok 

Date of most recent KYC review: 0310812010 

Banknotes Signature Section 

Ban""otoTrade, {BT)!\jIp(OV1lI~ 05126120081052 AM 

Regional He~d Of Sankn,otes (RB) ~rovat! 08 09:32 PM 

Funetio(lItlHal:dofBusine" (IS) Appnt\hll; i115AM 

R.I8ti~hIp Manager, (~ML~pprovt.l:· Not Required 

'" Institutional 8anking J ,Te8m Leadet (18) .Approval: Christopher Lol<. 

Regional Money Laundering ConftOl Officet (CO) Approval: Alan P Williamson 

APPROVE/DENY !:@lQBY; 

Created: 02l09!2007 04:55:16 PM Betty F S NG 

aT Approved: (Old Status In Process), 041181200804:19 PM: Betty F S NG Exising customer with London Office with ;;;:ltisfactory record 

R-B Denie{1:(Oid-StaK.'S'BT App;';~ed):-o4t18/2008 06: li"p-M: GarYC-HYEUNG NoCommenLS 

BT Approved: (Old Status RB Denied), 04/21/200802'27 PM: John N H NG 

No Comments 

RB Approved: (Old Status BT Approved), 04/211200802:51 PM' Gary C H YEUNG 

No Comments 

0112312012 02:1S:44PM 

Confidential Treatment Requested 

O!lf29!2QOS 0 !:23 PM 

07l1B!200807:18 PM 

Page 2 

HSBC·PSI-PROD-Ol02305 
1932 


760611.765

KYC Banknotes: AL RAJHl BANKING & INVESTMENT CORP 

!B Denied: (Old StalUS is I\pproved). OS/22i2008 01 57 PM: Christopher Lok 

Update background info as to why praspect{existing client of HBUS LON) wants to stan a rela1ionship with HBUS HKG 

BT Approved. (Old S1atuo;; 18 Denied), 05126f2008 10:51 AM: Betty F S NG 

Profile sand far re-approval wilt1 update comment 

RB I\pproved: (Old Status BT Approved), OS/2612008 09 32 PM, Gary C H YEUNG 

No Comments 

IS ApproVEd: (Old Status RB Approved), 05/291200811:15 AM David M Wilens 

No Comments 

IB Approved: (Old Statu..<; IS Approved). 05!2[1/20OS 01'23 PM: Christopher Lok 

No Comments 

Approved: {Old SLarus 18 Approved):D7i1moo-a-07:18 PM:Alan P Williamson 

Nole that historir.aliy we Ilave been and will be careful aboutel:pandmg expos1..1J€ to this dient Discussed with management and 

seClJfed opinion from Business InteHigenClO Division 

Revision History 

Erllklr 

Daniel Jack 

John N H NG 

John N H NG 

Jahn N H NG 

John N H NG 

John N H NG 

JotmN H NG 

JohnNHNG 

BettyF SNG 

01/23/2012 02:15;44PM 

Confidential Treatment Requested 

Date 

11/01/201009.39.53 PM 

03/08/2010 06'17.49 PM 

0]108/201004:1656 PM 

04107/200905:40;51 PM 

041071200910'.49:18 AM 

01/29/2009 05"31: 10 PM 

05/23/200802.15.04 PM 

05f23/200810:48.09 AM 

02/09120070609.51 PM 

Rt!a>;anfof U[Jdat~ 

ProFile Deactivated 

Marketer eodorsed, BT approve and send to next approver 

Annual review update 

BT approve and send to next approve! 

Profile review update 

change from nprospectn to "Active~ and update initial trade date 

Info update - fElnSOn fro dealing bankndtell 

Info update - reasons fOf dealing banlmotes and credit approval date 

Info Update - Reasons for dealing banknotes 

Page 3 

HSBC-PSI-1'ROD-0102306 

760611.766

g 

5: 

I 

I 

i 

I 

:z: 

!il 

o 

'c 

!!! 

'c 

'" o 

Entity Case 

HSBC ill ""eM'id, 

QAdd ctren! 

o Enlrty Search 

o My DeLaM; 

4) AMLIn intr;;lflet 

; 

f,)r GS l!nd 

Eflllt,' Type 

Submission Date Sllbmrt\e.d8y 

Ju!5.2OD8a.40AM 

AMLlD_By»l:em 

StaffSubmlssiol1Petaiis 

Entered By 

Country 

Ent!lyType 

Nature of Ci;snt's Business 

Le,galAddress 

"" PcsVZlpCode 

COllotryofOffice' 

Transa.:;tionOf RetationshlpOetalts 

O!herReputat;onalConcems 

links Sumtml'Y Sy",,:?m 

W<>rkflowSlep 

Assignee 

Al:Islgne<lOllte 

https:!lcomplianee,sysiems.uk.hsbe/ AML 12&enti ty 1434 

.. 

Gklar!l;.;j)o.il.la!i2!JjJ 

, ... -

H

No SCCR&qult .. d 

SHWETAPASVPUREDD

Na.11.2011j153AM 

Dec(l,2(l11200PM 

-,.. Red.ned by the Pel'lll.n

Subtommittee on Invati
1934 


760611.767

Entity Case - Summary 

Case Status 

Staff Submission Details 

Entered By 

Your role with this 

cli&nt* 

Divis/on'" 

Country 

Client Details 

Entity Type 

Role Status 

Type" 

AMl1D_System 

Unspecified 

Global Banking and Markets 

UNITED KINGDOM 

Non Persona! 

Client 

Corpora1:l;'! 

Page 1 of2 

_... Redacted by the Permaollnt 

Subcommittee on In"tltigatJonI 

Nature of Client's 

Business 

Sector'" 

Banking - Other Monetary intermediation (eg Banks & Credit UniOnS). 

Name" 

Account Name 

other Name 

Legal Address 

City 

Post/Zip Code 

Country of Office· 

AI Rajhi Banking and investment Corporation 

AI Rajhi Bank 

Head Office, Al Akariya Building 

Oleya Street 

POBox2B 

Riyadh 

11411 

SAUDI ARABIA 

Transaction or Relationship Details 

TCRld 

Code Name 

Transaction or Activity 

Summary 

Is Inside Information 

involved? 

Business Owner 

HSBC Role 

AML Threat 

Criminal Links 

other Reputational 

Concems 

rYes C No 

15 there any reason to bellew! that any associated company or individual is or has been linked to 

crime, however indirecUy? 

AI Rajhi Banking and Investment Corporation 

Please explain why this Threat has been updat(ld. Limit your input to factual information. 

I No WC Hit AI Rajhi Bank is refusing to assist the US in its investigation of an organization 

I b:1ie.ved to nave .been supporting a deSigna.ted Foreign T error!sl Organization. II wa.s served 

with a subpoena m July, 2009. Pursuant to subpoena, Ju~tice Department sough! all records 

relatmg to a Mar 2000 deposit of$i51,OOO In checks by the rlOW defunct al Haramatn Islamic 

i Foundation. http://www.lnvestigativeprojecLorgf1753fsaudi-bank-refuses-to-coopetate-in-us 

L __ .. 

Connected Party 

If you can think of any other reason why thiS proposal may give rise to any reputationa! concerns, 

please give brief deteits here 

hltps:llcompliance.systems.ukhsbc/AMLID/entityCaseitab/summary.action?entityld=1434.. 12/812011 

Confidential Treatment Requested HSBC·PSI-PROO..{J102341 
1935 


760611.768

Entity Case - Summary PageZof2 

AI Rajhi Banking and Investment Corporation 

Connected Party 

Name Type Address City Country 

Khonian, HH Personal SAUDI 

Sheikh Abdullah ARABIA 

AI Ghafees, Dr Personal SAUDI 

Youssef ARABIA 

Fraud Threat 

Connected Parties 

Threats 

Other Reputatlonal Details 

Concerns 

Other Reputational Details 

Concerns 

Guidance. AU the Connected Parties to this Case File 

These could be people involved with the client, eg as shareholders, trustees etc, or companies related (but not identical) to it, e9 a 

subsidiary or parent company 

ID Name Type Address City Country Threats 

1432 AI-Rajhl,Sulaiman Personal Riyadh SAUD! ARABIA Details 

1-433 A1.RaJhi, Saleh Personal Riyadh SAUDI ARABIA Details 

19509 AI Ghafees, Dr Youssef Personal SAUDI ARABIA Other Reputational Details 

Concerns 

19510 Khonian, HH Sheikh Personal SAUDI ARABIA Other Reputational Details 

Abdullah 

Case Status 

Rlsk~ 

Calculated Threat 

Concerns 

AML 

Threat Score 10 

Threat Override 

Threat Override 

Comment~ 

Screening Record 

Case File Summary 

I G. MO CMF' h.'d.,e. q. ~e .. sted. SCC status of major shareholders in AI Rahji family in View of allegations 

of_~e~ro!isl fina~cm~~ ~._ _ 

I 

=:06DeC2011: No SCC required as the chairman, the non-e:.:ecutive director and AI Rahji family does 

nol appear on GMO CMP IIsl (2011). fJ.s per previous review - '81 confirmed Aug09that the lawsuit 

was dismissed In 2005' No new concerns reported on the bank. The bank is regulated by Saudi 

Arabian Monetary Agency. 

'Case discussed with KD 

SWIFT: Contact: Rose D'Silva. Named in the trillion-dollar lawsuit filed by 

families of victims ofthe September 11 attacks, accused of .financing terrorist actwities. The bank 

d_:~~the charges and B~::!irme~ugO~_~~!~_wsUit was dismIssed in 2005. No new 

Please limit your inpul to factual mformatlon 

__ ... Redadtd by tbe Permanent 

Subc:emmittee on Innstigafions 

https:llcompliance.systems.ukhsbc/ AMLID/entityCaseitab/summ ary. action ?enti ty Id= 1434.. 12/8/2011 

Confidential Treatment Requested HSBC-PSI-PROD-ll102342 
1936 


760611.769

Reference: ... 

Know Your Customer Profile 

HSBC Bank USA, N.A. 

Client profile Approval Status: Approved 

Country Risk Status: Standard Risk __ "" Redadw by the Permanent 

Subcommittee on InvaligattoDl 

Client Name: Hokuriku Bank, Ltd. 

Country: JAPAN 

* Changes to these fields on "Approved" Profiles require Re~approval. 

i. General Information 

f!onfidential Treatment Requested HSBC·PSI·PROD.j)102415 
1937 


760611.770

Know Your Customer" Hokuriku Bunk, Ltd. 

12109/2011 04:47:59 PM 

Confidential Treatment Requested 

--:: Redacted by the Permanent 

Subc:ommittee on Investigations 

established as the Kanazawa 12th Na~onal Bank 

with the House of Kegs-Maeda providing 7Q% of the 

Bank was the creBUon of the family established by 

ii the founder of the Kaga clan. The Bank was 

7/3111943, Thisi:::; when four banks, including 

ISank mergad to form Hokuriku Bank. 1119/1961 

Tokyo Stock Exchange. In 912003 Hokugin 

formed and Hokuriku became a subsidiary of 

in 912004, the Group integrated management 

I Bank and the Group name changed from Hokugin 

Financial Group, Inc 

Page 2 

HSBC-PS!-PROD-Ql02416 
1938 


760611.771

Know Your Customer: Hokurik:u Bank, Ltd 

II. Ownership/ManagemenVBusiness Information 

III. RefelTal Information 

12109/2011 04:47:59 PM Page 3 

Confidential Treabnent Requested HSBC-PS!-PROD-0102417 
1939 


760611.772

Know Your Customer: Hokunku Bank, Ltd 

IV. Visitation 

V. Purpose/Nature of Activity 

CH (Clearing House) Money Ma"'e! RP (Account Reconciliation) Securities Lending 

sset Management Swaps 

Check Collection (Cash Letter) Daily Sweep Overnight Investment 

CheckslDemand Drafts Time Deposits 

Clearing (Funds Transfer) Dally Trading. Banknotes ~ 

b;~"':~:;:~::;~",,;;::;'~::::~rn='n:::m::e::;nt---I---------II7-

n:;:t~~~-+ _______ ~~~"adiin~g~~:i~~i~~·~~~;~;~c:~a~~~e_-+ _______ -+ Agreements ITracling - Futures 

Trading· Securities (Treasury) 

GUarantees (CD offset, 

Deposits) 

Intra Day Exposure limlt 

Letters of Credit I Bankers 

Acceptances 

Loans 

Lockbox 

12f09!2011 04'47:59 PM 

Confidential Treatment Requested 

Occasionally 

rading/Lendlng - Precious/Base 

Metals 

Zero Balance Account 

Pege4 

HSBC-PS!-PROD-C102418 
1940 


760611.773

Know Your Customer, Hokuriku Bank, ltd 

I I 10"'''' * Refer to Client's file for anticipated volume of activity. 

VI. Financial Summary 

VII. Documentation Checklist 

VIII. Summary of Reasons 

We have reviewed the information provided above in the context of the bank's "Know Your Customer" 

policy and "due diligence" requirements and criteria. Based on the following summary of reasons, we feel 

omfortable recommending this client for banking business. 

a' thea ti i ate 

urpose" Cash Letter, Funds Transfer, lel1er 01 Credit 

12/0912011 04:4759 PM PageS 

Confidential Treatment Requested HSBC·PSI·PROD-ll102419 
1941 


760611.774

Know Your Customer: Hokuriku Ba'lk, Ltd 

007 Revenue: $47,290 (aeet 50385-$19,868 & aeet 34738-$27,422) 

e!ivlty Monitoring 

aria nee Report Results· The June 2008 report of transactional activities (Treasury, Third Party Transfers, Cash Letter, and Drafts) 

rom the dates of 712007- 6/2008 (actuai) versus 7{2006 - 6{2007 (expected) showed no variance based on current pnrametet"S. A copy 

!.:~;*~R?!:~~ located in the client file. 

ef email from Client Services dated 219/09, acct 50385 was dosed on 02/06/2009 and the balance transferred 10 34738. 

wnersh ·C w 's. (n andre utation: 

okuhoku Financial Group Inc, 

he Hokuhoku Financial Group, Inc. was established in 2003 and is composed of the holding company and 15 consolidated 

ubsidiaries and one affiliate Their core business is banking and they also provide credit cards. leasing services, venture capital, and 

Iflancing products. The Group is publically traded on the Tokyo & Sapporo Stack Exchanges 

source' 2007 annual tepol1;> 

a erne I -Comme 10 r' of SSI n Ism e artisa ·0 u·vas: 

Shigeo Takagi, President 

Mr Shigeo Takagi has been serving as President and Representative Director of Hokuhoku Financial Group, Inc, as well as President 

nd Representative Direclorin a subsidiary, Hokuriku Bank" since September 2003. He used to serve as Director ofTotal Planning, 

Manager of Secretarial Offic:e and M~nager of Pay Master OHice in the subSidiary, Hokuriku Bank In March 1971, Mr Takagi 

raduated from Waseda Umversity With a degree in Commerce 

M~~~:t~~~~~'~a~~~~ ;:~i~:~~ing as D!rectar of Hokuhoku Finandal G~O'.JP, Inc .. sinc~ Sep1ember 2004. He is also serving as 

on-Executive Director In Hokkaldo Bank, as well as Executive Vice PreSident, Chief Director of Sales Promotion and Representative 

irectorof Hokuriku Bank. Mr Kawai joined Hokuriku Bank in Apn11971, where his previous tJtles include SenIOr Managing Director, 

ireclorof Sales, Manager of Branch Offices, Manager of Sales Planning and Director. In March 1971, he graduated from Hitotsubashl 

niverslty With a degree in commerce 

ideaki Haoka, Senior Managing Director 

~:~n~~i~~k~~:co~~:a~::rnas:;6~r~~~~~~~0;U~k~~k~~~k~r:::~ea~~i~la~r~~~~~~~s~~~a~~~~e~~~~~~~~aeg~r~:!~~i~~~~~eniOr pirectorof Human Resources and Manager of Tllkefu Office. In March 1973, Mr, Haneoka graduated from Kyoto University WIth a 

egree in economics. 

source: www.marketsfLcom;> 

isitatio ~ U III ri i r tai CI n ·0 a d' n C n rts etc: 

~n site visittook place on 9/12/2008 wllh HSBC's atlendees Matsumoto-san and Machiko M. Yamashita and Client's attendees Mr 

akahashi, GM and Mr. Takarada, Deputy MGR of Intematlonal Operatlons Center 

urpose: Cash Lelter 

iscussion 

~e conveye~ the message that we understand that AML process is appropriately taken by Hokuriku Bank as Anthony commented and 

he pOint we Intended to discuss is how we enhance process to avoid unnecessary Internal process on our side 

puring the discussion, we confirmed again the background of relevant transactions 

Most of their customers related to this issue are used-car dealers for Russian buyers who are cash account holders of Hokuriku Bank 

hrough appropriate AML process 

The dealers are doing cash on delivery type of deals with buyers in thl::; market therefore cash or TCs are 'lormally used to 

ccommodate those deals As such Hokuriku Bank considers it is difficult for its customers to shift meir payment method to wire 

ransfers or commercjol check from TCs 

HBUS is currently the sale Cash Letter provider for Hokuriku Sank and if we stop providing this service to Hokuriku Bank, it needs 

easonable grace period 10 find out alternative service provider and re-adjust lis system Which IS currently arranged/designed to meet 

BUS's requirement and also make sure the new internal process with all relevant brancheS/offices. 

Si'lce relevant customers are limlted around 20 - 25 names and they are all cash account holders of Hokuriku Bank, Hokuriku Bank is 

ell prepared to cooperate with HBUS by providing necessary informatiofl I arranging operational process in order to help HBUS to 

12109/2011 04·47:59 PM PageS 

Confidential Treatment Requested HSBC-PSI-PROD-0102420 
1942 


760611.775

Know Your Customer. Hokunku Bank, Ltd 

lreamjine the process. As such if there are any mp.asures to reduce your processing burden. they am open to discuss on that. For 

hat, they wish to understand what is exactly the issue in your processing of the TCs in problem. They have already been following 

our requirement on high value deposit (exceeding USD20k per deposit), under which they have been providing their customers' 

nformalion including name, address and bUSiness as well [lS amount and number of TCs If HBUS requires further more information 

nd/or different process, Hokuriku Bank is ready to discuss on thaI. 

12109/2011 04:47'59 PM 

Confidential Treatment Requested 

economy 

I center. Although the Japanese 

go"m,oem 000"'"""\0 strengthen legal institutions to penni! 

I enforcement of financial transaction laws, Jspan 

substantial risk of money laundering by organized crime 

olh,,, dome,,\i\i, "od international criminal elements The 

sources of laundered funds are drug trafficking and 

I crimes: illicit gambling. loan-sharking, extortion, abuse 01 

activities,inlernetfraudactivWes, and all 

related crimes, often linked to Japan's criminal 

liS law enforcement invesllgDtIons periodicelly 

a link between drug-related money laUndering activities in 

U.S. and bank accounts in Japan. The number of 

Internet-related money laundering cases involving Japan is also 

increasing In some cases, crimmal proceeds were concealed in 

bank accounts obtained through an Internet market. laws enacted 

in 2004 make online sales of bank accounts illegal 

On November 17, 2005, the Japanese government's headquarters 

f~nh' P'co".'otion of Measures against Transnational Organized 

Crime and Other Related Issues and the headquarters for 

International Terrorism agreed that relevant ministries would 

submit a bill 10 the 2007 ordinary session of the Diet to enhance 

compliance with the FATF Forty RecommendatIOns and the FATF 

I Recommendations on Terrorist Financing It is now 

these recommendations will be promulgated by 

,gIVen the I fortheAnti-Money 

~~::~:n~~"L,~~:,~~~~:I'~iil~'the ~~a~;~~~;h;e~~~O~:~~~i:~~s of 

, Anti-Money Laundering Law will include a wider 

range of sectors required to submit suspicious transaction reports 

(STR), induding accountants, real estate agents. dealers in 

precious meta!s and stones, and certain types of company service 

Page7 

HSBC·PSI·PROO.!J102421 
1943 


760611.776

Know Your Customer' Hokunku Bank, Ltd. 

12/09/2011 04"47:59 PM 

Confidential Treatment Requested 

The government of Japan is also considering measums 

the FATF's Special Recommendation Nine, which 

cross-border currency reporting requirements 

11,2001, Japan has regularly searched for and 

any accounts that might be linked to 

and lerrorist organizations listed on the 

Comminee's consolidated list 

systems operate widely in "p,m, e'pe''''''y i' Such systems violate 

i Exchange Law. There have been a large 

of ;cwe,t;g";eo" 'oto underground banking networks. Reportedly, 

have been trEmsferred abrOl'ld, 

N~;,;';'b~; 2004"',, ,~. North and South Korea, and Peru. In 

Page 8 

HSBC-PSI·PROD-ll102422 
1944 


760611.777

Know Your Customer: Hokuriku Bank, Ltd 

J::;;~"f-; Date· ofmost racimi KYC"review: 0810412008 

Signature Section 

APPROVE/DENY HISTORY: 

Created. 05/29/2001 10.20.23 AM COflverted from Epic 

<Address:> 

2-26, TSUTSUM1CHO-DOR! 

1-CHOME TOYAMA-SHI 930 

JAPAN 

<Status> 

<:Clienl Name:> 

-A-Approved 

.HOKURIKU BANK LTD. (THE) 

341341 

Kgomotso X Hargraves 07/221200803:00 PM 

Not Required 

Not Required 

Anthony Julian 08/041200801:21 PM 

Not Required 

Not Required 

<:Acc! offr code> 

<Accl--offr;: 

<:ApprovaCacct~ofticep 

<Unit. offr_sode> 

<Uni!_mgp 

<Approval~unicmgp 

<Exec~depl> 

<Approval_exec __ dept> 

<Legal .. dept> 

.**~ Fisher 8eth .~. 3115/9813-00:44'153 

341575 ' 

«Approval Jegal_ d epl> 

«Legal dep comments:> 

.H Reuben, Michael H~ 2118/9801:17'31:496 

Purpose of account changed from: 0 \0: [Funds Transfer, Cash Letter, DC Reimbursement] 

Name af principals changed from: [PUBLICLY TRADED (18,430 SHAREHOLDERS),FUJI BANK,YASUDA LIFE INSURANCE 

CO"THE DAllCHt KANGYO BANK] to: (FUJI BANK,YASUDA LIFE INSURANCE co, ,THE DAt ICHI KANGYO BANK,Dai Ichi 

Mutual Life Insurance ,Hokurku Electric Power CO,Nippon life Insurance CO,Nichido Fire & Marine Insurance Co,AsahJ Mutual Ufe 

Insurance CO,lndustriEiI Bank of Japan) 

Ownership percentago changed from: [3.4,3.1,2.8J to: {3.42.3.11,2 84,2.48,2.1,2.08,1 87,1.62, 1.59J 

1210912011 04:47:59 PM Page9 

Confidential Treatment Requested HSBC·PSI·PROD-0102423 
1945 


760611.778

Know Your Customer: Hokuriku Bank, Ltd. 

License Country(1) changed from: [J to. [JAPAN] 

Transaction Activity changed from: [DailySee Bank notes Activity SectionOccasionallyOccasionallyj to· [Daily Daily OccasionallySee 

Bank notes Activity SectionOccasionallyOccastonsllyJ 

AMAppm;ed-{Old'Stal~s~"P;;~ess), 11/19/200106:15 PM Nanayo~Ryan 

No Comments 

RM Denied: (Old Status AM Approved), 11f20/200110-:0-8AM:8elh Flst;'r 

In 1inancialsoction, denomination should be "millions". 

AM-Apprc;v~~((Old Statu~RM D~"[;iecjY,·-11f20!20011iA7 AM: Nanayo Ryan 

Amended 

Approved: (Old Status AM Approved), 11/20/2001 11'57 AM.-Seth Fisher 

No Comments 

Other Accounts changed from: D to [000034738 Funds Transfer, Cash Leiter in Tokyo Japan] 

AM Approv~:{6IdS~t~;"!n Process)",-0112412002-12"26PM: Nanayo Ryan 

Added dda#000034738 to 1 Generallnform<ltlon 

Approved: (Old Stalus AM Approved), 02l0ii200210:13AM: Beth F;;he;:- No Comments 

In Proce;;s' (O!d Status Approved), 12116/20031258 PM' Nanayo Ryan 

Customer is sent back forre-approval 

AMApprov~d:'"(6idSta-I~~'ln-Pr~~e~~~-02j15;26(j4-b237-PM: Naneyo Ryan 

KYC Updated 

RM Denied_ (Old stltusAM j\:p;;;:Oved}~27i8mf6403:S6P-M~"Be~thFisher 

update 

AM ApprO"ed (Old StatuSRMb~-;:'-;-d),-02719!20041i:-24AM~;nayo Ryan 

updated 

In Process: (Old Status Approved);-06127/200506:46 PM Nan<lYo RY<ln " 

Name of princip<3ls ch<lnged from' fMizuho Corporate Bank,Hokuriku electric Power Co Toyama,YASUDA Mutual LIFE INSURANCE 

CO ,Nichido fire & Marine Insurance CO,D<li Ichi Mutual Life Insuram.:e ,Nippon Mutua! Life Insurance CO,Sumi!omo Mutual life 

Insurance CoJ to: !Hokuhoku Financial Group Inc, Toyam<l, Jap<lnj 

Ownership percentage changed from" (5 46,2 24,2 24,154,1.45,1.41,1.41] 10: (100J 

AM Approved. (Old St;;tU;-!n'-p~;~~-;j':~OB/27/2005 06:"47 p'M:-N~n-<lY~ Ryan 

updated 

APP~~d:(OidSt-8tus ,ii;j:;;IApproved), 06/3012.005 10:38 AM: 6ath Fishllf 

CIBM Transaction Sector Managed relationship 

fri-Process: {OldSlatus App~;vCdC07i14!2ifo812:04PtX-Kg~~Ot~"(;-XHargraves 

Name ofprincip<lls changed from: (Hokuhoku Financial Group Inc, TOY<lma, Japan] 10: [ Hokuhoku Financial Group Inc, Toyama, 

Japan) 

AM Approved: (Old Status In Proces~y,~67!22/2008 fi25-pM:-Kg~~otso X Hargraves 

Annualreviewupdale 

RM~ied:(61(TSlatus AMApprolledl-:07f22f2008 02:09 PM WayneW-Ferguson 

No Comments 

12109/2011 04:47:59 PM 

Confidential Treatment Requested 

Page 10 

HSBC·PSI·PROD·0102424 
1946 


760611.779

Know Your Customer: Ho!(unku Bank, Ltd 

AM Approved" (Old Status RM Denied), 07f2212008 03.00 PM' KgOfTIOlsO X Hargraves 

Annual Review 

Approved' (Old Status AMApp;UVed~08jMr20()8 01 :21 PM:Anth~ny Juhan 

No Comments 

Revision Hislory 

Editor 

Shannon MJones 

DanielleX Fawra 

Danielle X Fawra 

KimZinszer 

G'A-endolyn X Morris 

Shannon MJones 

KimZinszor 

Kgomotso X Hargraves 

Kgomotso X Hargraves 

Kgomolso X Hargraves 

D'le 

09/03/201006:48.41 AM 

08f18f2010 01:05:58 PM 

08/1712010 02:00:18 PM 

02109/200901:56'13 PM 

12111/200801:01:15 PM 

11/13/200810:04:52AM 

09/251200810.56:59AM 

09/17/2008 04:22:45 PM 

08/041200803:10'28 PM 

07/221200802.59:10 PM 

Reason for Update 

updated certification dale and business address 

updated new RM~-prev memo incorrect 

update for potential exit of relationship 

updated closed acctinfo 

Review Date 

updated visitation summary with AML discussion info 

updated 9/12/2008 visitation delails 

~Annual Review· updated visilatton date 

Updeted review date Emd PAC date 

Annual Review- Updated RM name to Tony JuHan 

Last Updateo By/On Update Type{Fle)dIGe[1eralj Old Value 

Shannon M Jonee> - 09,'0312010 6:4B:15 AM rpt epic_addrl!:ss1 

rpl_eplc_address2 

epicCliy 

1210912011 04:47:59 PM 

Confidential Treatment Requested 

1-2-26,Tsl.llSl.lmiclJ.o_Dorl 

ToyamaCrty 

New Value 

2·10, NihonbashlMuromachl 

3-Chorne,Chuo!<u, 103-0022 

Tokyo 

Page 11 

HSBC-PSI-PROD-0102425 
1947 


760611.780

Call Report CV 

Call Report 

Cllene Sociallnveslment Bank 

I G1obal-Links I I Forward I 

R&lated CAOs and 

Deals 

Page lof2 

:::.~~~~ .. ~,~!~~I:! ........................................................................ , ...................................................... .. 

27 September 2009 

Bangladesh 

Sub Products 

Location details 

Date of Call" 

Products 

Country of Call· 

TItle· 

Can type 

Periodic coutesy call and AML issues 

Client Meeting at Client 

Reported on behalf of RODRIGUES Virgil P 

N3Ima JobTltla country 

,REZA, Sadique J,4ANAqEFfis arid' Bangl,!desh HSS 

ASST. 

HASAN, Ekramul RELATIONSHIP Bangladesh 

MGR,IB 

Other attendees 

(not stored in the system) 

Client attendees Executive role 

Chairman Iii 

Treasurer Iii 

Chent attendees Ir~"@ 'liliii'lllilRllll 

Name Job Tltla Country 

;~SHADQ~AN:- ::~~nagjn~ ~~~! ~'E;~ln~~~~h ._- - I 

FARHAD,A Executfve Vice 

President Bangladesh 

At1endees from other Cltents ~ llrw~_ 

Na",. JabTltia country Client 

Chief Exec.utive iii Chief Financial Officer Ii Officer 

Head ofM&A iii 

.~.'??t.~!!?~. ~~.~.~~!~~~'?~ ..................................... , .......................... , .................................... , ............................ . Existing Attachments 

Had a courtesy call with Mr. K.M. Ashaduzzaman, Managing Director and Mr. A.M.M. Famad. Head of Intemational 

Division. They are very much in need of a credit line from HSBC. Upon the available credit Une SIBL will increase their 

business share with us. SIBL could be a prospective customer for DAK IB as they are doing a good number if business. 

There has been no recent changes In their Senior Management after the last new Deputy Managing Director. 

On a question of opening any new exchnage house, they informed that they are not in a verge within a short while to open 

any exchange house or in the process with any other Olmpany to start any arrangement of money transfer. They added, 

they are no! seeking for an offshore banking license as they do not intend to do off share banking within a short while. 

When asked about any further changes in their shareholding structure,they infonned that there has been no change in the 

shareholding structure from our last record. 

Regarding their AML procedure and policy;there has been no change in the AML policy from last questioner completion. 

They have not sent any reporting to the Central Bank regarding AML transaction issue. They have an Internal quarterly 

training on AML, ranging from the officer level to Managers. They are also very well aware of the OFAC sanctioned 

countries and mentioned that they do not have any relationship or business with those countries. 

Few other trade related issued and disputes were discussed and both of them agreed to take care of the issues from their 

end. 

http://clientvision.systems.uk.hsbclrslopenCallReport.do?_ wid= 1257345269713&objectL.. 11/04/2009 

Confidential Treatment Requested HSBC-PSI-PROO.(l102615 
1948 


760611.781

Call Report CV. • Page 2 of2 

.... ,.~::~~:::r..:.-:::~~ ...................................................................................................................................... .. 

Description Assignee Priority Statuti Date due 

::.~!?~.~!:~J.~.~~.~?~~!'f.~!~ .............................................................................................................................. . Global·Llnks Referrals 11:!HQj~fil q!f!\11111!11 

Referral Date Referred By RafelT&d To 

.:.~':'::~~~ ..................................... , .................. " .................................... , .................................................... . 

.0 Does this document contain any particularly sensiU\I'e Infonnation1* 

I G Yes @i No 

Consent Given: The Client or Client Group has given Consent 10 share information 

!;:~J!!I..m for Client specific consent comments. 

o Reader rights 

If] Account OWner 

ffi The Deal Team e Named HASAN, Ekramul ; RODRIGUES, 

Bj Client Service Team 

~ r~Oh~ ~:~~r::th editor rights) 

IS] All of Global Banking globally 

o Edlto' ,Ighto 

Editor list· 

~ Al! Users 

Individual readers Virgil 0 ; REZA, Sadique 

o Add tho CST to 

the list? 

Assistants (of the 

Iii people with Edllor 

Rights) 

.~.~~~.t~!X .................. , ..... ., ................ , ........ , ................ " ..................................................................... . 

http://clientvision.systerns.uk.hsbc/rsiopenCallReport.do?_wid=1257345269713&objecU...11/0412009 

Confidential Treatment Requested HSBC·PSI·PROO-ll102616 
1949 


760611.782

Call Report cv 

Call Report 

Client" 

Date ofCall~ 

Products 

Country of Call* 

TlHe~ 

Call typo 

Socia! tnvestmenL6.an.k 

10 June 2009 

Bangladesh 

Periodic counesy call 

Client Meeting at Client 

I G!obal-Unks I I Forward I 

Related CADs and 

Deals 

Sub Products 

Location details 

Page 1 of2 

.~.~~~.~.~~~.~ ........... , ............................... , ............. " ............................................................................. . Reported on behalf of RQQBlm,LES Virgil 0 

~ Cbent attendees L"~ 1:1 I~I i1111111 Name Job TItle Country 

Attendees from other Chents ~~ ,I %1) 11_ 

Name JobTltla Country Client 

Other attendees 

(not stored in the sysfem) 

Cile-nt attendees Executive roleChairman iii Chief Executive iii Chief FinancIal Officer Ii Officer 

Treasurer Iii Head ofM&A Iii 

.~.~.~~!~?~.~~.~~~~.~~~.~ ................................................................................................................................ .. 

Existing Attachments 

It was a periodic courtesy call to Sociallslaml Bank. Limited ,where they wante to discuss some charges that were 

deducted in their Nostro account without [.my trace. 

Mr. Md. Abu! Shahjahan joined SIBl as DMD on 08 March 09. 

The meeting was called by Social Islam! Bank Ltd for not understanding a charge that was portrayed in the USD Nostro 

statement held with HSBC, NY. It was found out that they charges mentioned as QBalance shortfall fees~ were 

misinterpreted by them and they were quite annoyed with the issue and they requested us to waive the account 

maintenance cost. 

It was rnentiOl1ed in the Account Proposal about deduction of charges and we wm be informing them about that and we 

wi!! propose them ~CreditDeduct" product. The existing PI charge for SIBl is USD 120 of which USD 30 Is provided to SIBl as rebate and the rest USD 90 is shared within DAK and HBUS. We propose that the cost structure as following, PI 

charge USD 130. Rebate to SIBl USD 35, Soft Rebate to SIBl USD 5, and the rest usa 90 is shared within DAK and 

HBUS. Which, in tum will encourage them to increase our PI volume alld minimize their account maintenance cost? 

.~.~.~~!~~;~p..!.r;;r:~.~ ......................... , ................. ' ............................... .. 

Description Assignee Prtority Status Datudu(t 

http://clientvision.systerns.uk.hsbc/rsiopenCallReport,do?_wid=1257186064022&ObjecU...11/0212009 

Confidential Trnatment Requested HSBC·PSI·PROD.j)102617 
1950 


760611.783

Call Report CV Page 2 of2 

.:.~!~~.~~~~~~.~~. ~~.~~!'!.~!~ ................ , ................................................................... ' .. ', ............. , ".,'" .............. ,'. 

Referral Date Referred By Referred To 

.:.~~.:~~!:¥ ....................... , ............. , ........................................................................................................... . 

o Does this document contaIn any particularly sensltivB Informatlon?* 

I (j Yes ® No 

Consent Given: The Cllent or Cllent Group has given Consent to share information 

Clllt.k.hf;!~~ ior dienl specific consent comments. 

o Reader rlghts 

I1i Account Owner 

(i The Deal Team o Named Individual RODRIGUES, Virgil D ; 

Ii Cllant Service Team 

Ii ~;~~~~:~:r::ith editor rights) 

Iii Ail of Global Banking globally 

o Editor rights 

EditorUst* 

iii All Usors 

readers AHMAD, !shtiaque 

o Add tho CST to 

the list? 

Assistants (of the 

I3i people with Editor 

Rights) 

http://clientvision.systems.uk.hsbc/rs/openC.llReport.do? _ wid= 1257186064022&obj ecU... 11/02/2009 

Confidential Treatment Requested 

I 

HSBC-PSI-PROD-Ol02618 
1951 


760611.784

.Call Report CV 

Call Report 

.... MainOetaiis 

Date of Cal!· 

Products 

Country of CaW 

Title· 

Call type 

.... Attendees 

24 September 2009 

Bangladesh 

KYC & AML Issues 

eflen1 Meeting at Client 

Reported on behalf of AHMAD !shtiague 

Name JohTitJe Country 

RODRIGUES, Virgil 

0 

SHOHIDUUAMAN, Division Head Bangladesh Muhammad 

ASST 

AHMAD, IshUaque RELAnoNSHIP Bangladesh 

MANAGER,IB 

Other attendees 

(not s!or~d In [be SysttHtl) 

.:. ~~,~~~~.~. ~~.~~~~ ~~~~.~ ... 

Existing Attachments 

Related CAOs and 

Deals 

Sub Products 

locatlon details 

Nam. Job ntlV' 

Name Job ntle 

Page 10f2 

Country 

Country Client 

The visit was inilialed to follow up the present status of IIRQ in SIBl's shareholder owners' list. Mr. Iqbal confinned that 

nothmg has changed so far and they are complying witll Bangladesh Bank and Securities Exchange Commission {SEC} 

dIrectives, 

Mr. Iqbal sought our support in TSC related issues, We confirmed thaI SIBL can count on our service standard and 

requested him to increase the PCM transactions in botl1 HBUS and lNM accounts. 

Description Assigna8 Priorlty Status 

o Does thIs document contain any particularly sensitive information?" 

Consent Given: The Client or Client Group has given Consent \0 shafllinformation 

Click here for c~!@.nl specl/fc consent comment!'> 

Date duo 

Jake Houseknecht htlp:llclientvision.systems.uk.hsbclrslopenCallReport.do?_ wid= 12315.. 01/0912009 

Confidential Treatment Requested HSBC-PSI-PROO.(l102619 
1952 


760611.785

Call ReportCV 

o Reader rights 

w.i Account Owner 

Iii The Deal Team 

~ Client Service Team 

~ ~~~~ ~:~:~:lth editor rights) 

F: All of Global Banking globally 

o Editor rights 

Editor List· 

~ All Users 

o Named 

individual 

readers 

o Add the CST 

to the list? 

Page2of2 

RODRIGUES, Virgil D; AHMAD, 

Ishtiaque ; SHOH1DUZZAMAN, 

Muhammad 

Assistants (of the 0. people with Editor 

Rights) 

lake Houseknecht http://clientvision.systems.uk.hsbc/rslopenCaIlReportdo?_ wid~12315... 0110912009 

Confidential Treatment Requested HSBC-PSI-PROD-0102620 
1953 


760611.786

• • 

PARTICULARS OF DIR£CTOR OF SIBL 

FATHER' S l"~AME 

NOTH.tRS' $ NAME 

DATE: OF B1RTH 

EDUCATIONAL OU~LIFlCATION 

~REstN'r ADDRESS 

PER}!...AN"£NT' P-ODRESS 

BUSINESS 

Marne of firms/Companies 

""he~e the interest is 

inllolved 

A.bdul A"'a1 Pat-wary 

B,A. 

Chairman: 

Redacted 

Redacted 

Redacted 

Redacted 

Redacted 

Patwary cold Storage Ltd 

Pat:wary Pot-ato Flakes Ltd 

G:;ee-ntech GcaenHouse Bangladesh Ltd 

Managing DirectQr: 

PHONI1: NUM9SR 

HOf'lE 

OFF'ICE/BUSIHESS 

MOBLL£ 

Signatute~ ..;-hf"oysal Shopping Complex Lt:d. 

Propt1etor: 

Foysal Tradet"s 

Redacted 

(Abdul Awa~ Patwaryh, . 

,.". 

'--____________________ ~c·<U., ... _ ... _ .. 

Confidential Treatment Requested HSBC-PSI-PROD-1l102626 
1954 


760611.787

• 

Particulars of Director of SIBL 

Name 

Father's Name 

Mother's Name 

DatcofBirth 

Educational Qualification 

'Present 

Permanent 

Name of firms/Companies 

Where the interest is 

involved 

Hotne 

OfficefBusiness 

Mobile 

.'. Md. Sayedur Rahman 

Redacted 

Redacted 

Redacted 

B.A 

Redacted 

Redacted 

Managing Director: 

-II ~e9taF ClIlIIllllt*S Ltd. 

t! Mfs Lodestar fasbians. Ltd . 

• .MIs Mid Asia fashions Ltd. 

1/ MIs Jessore fishery 

Redacted 

Redacted 

Redacted 

Sign:lfure: -==~~\ 

(MIL Sayedur R.b .... ) 

Confidential Treatment Requested 

• 

-

HSBC·PSI-PROD-1l102627 
1955 


760611.788

ABOUT US > > Board of Directors 

LIST OF DIRECTORS OF "CHE BOARD 

1. Mr.Alhal NASIRUDDIN 

Chairman 

2. Mr. Munshl Akhtarruzzam 

Vice Chairman 

3. Mr. Md. Sayedur Rahman. 

Vice Chairman 

4. Mr. Abdul Awal Patwary. 

Director 

5. Mr. Md. Hum.yun Kablr Khan. 

Director 

http://www.siblbd.com/htmlJboard_ of_ directors.html 

Confidential Treatment Requested 

I 

HSBC.PSI·PROD-Ol02628 
1956 


760611.789

------- ::Social Investment Bank Ltd:: • 

6. Major (Retd.) Dr. Md. Rezaul Haque. 

Olrector 

7. AlhaJ Sultan Mahmood Chowdhury. 

Director 

8. Hamdard laboratories (Waqf) Bangladesh 

Represented by: Mr. Anisul Hoque. 

Director 

9, Mrs. Nargis Mannan. 

Director 

10. Mrs. Zohra Alam. 

Director 

http://www.siblbd.comlhtmllboard_oCdirectors.html 

Confidential Treatment Requested 

• Page 2 aD 

HSBC-PSI-PROD.()102629 
1957 


760611.790

----:- ::Sociallnvestment Bank Ltd:: • 

11_ Mr. Kamaluddin Ahmed. 

Director 

12. Alhaj SK. Mohammad Rabban Ali. 

Director 

13. Mr. A. Jabbar Mollah 

Director 

14. Mr. K. M. Ashaduzzaman_ 

Managing Director 

Mr. Mahamud Hassan 

Company Secretary 

http://www.siblbd.comlhtmllboard_of_direc!ors.html 

Confidential Treatment Requested 

• Page 3 of3 

I 

HSBC-PSI-PROD-ll102630 
1958 


760611.791

SOCIAL INVESTMENT BANK L Tn. Head Office. Dhaka 

DIRECTOR'S BUSINESS INFORMATION 

SI. Name Name or Firms! Companies Nature or Business 

No. 

L Mr. Abdul Awal Patwary, Chairman *Potato Preserve Center 

Chairman *Patwary Cold Storage Ltd. ·Petrol Pumps. 

Proprietor *Garments 

*FoysaJ and Company ·Shipping 

*Teste, S. Fair. "'Int'} Shipping Lines. 

*Foysal Shipping & Navigation 

.A.A. Maritime Int'] (BD) Ltd. 

*FoysaJ Marble Corp. "'Importer of Marble, 

Granite and Sanitary Goods. 

Chairman. 

'Ginza Int'l (BD) Ltd. "'Trading & 

"'Airport Int'l Hotels and Faysal 5 Star Residential Hotel. 

Shopping Mall 

2. Alhaj Nasir Uddin, Managing Director *Import And Export 

Vice Chairman "'J,A.N. Corporation Ltd. 

Proprietor "'Trading 

*Nams Trade Corporation 

*Nasim Tradimt Comoanv 

3. Mr. Md. Syedur Rahman, Managing Director: *Readymllde Garments 

Vice Chairman "'MiS Lodestar Garments Ltd. Industry 

*MJS Lodestar Fashions Ltd. -do-

*MJS Mid Asia Fashions Ltd. -do-

·Mls Jessore Fisherv *Pisciculture 

1

4

. 

M.jor (Retd.) Dr. Md. Rezau1 Chairman' *ReaJ Estate Business 

Haque, DireCtor "'Little House Limited. 

"'Forum Co- operative Sodety "'Computer Training and etc 

SRonsor Director: 

I 'Continental Hospital Ltd. "'Hospital Business 

5. Alhaj Sultan Mahmood Proprietor *Industry 

Chowdhury. Director *Progati Rice. Dal. Flour and Oil 

Mills ·Industry 

Managing Director 

*ProQ:3ti Metal Industrv 

6. Hamdard Laboratories Director Finance & Accounts Herbal Medicine 

(WAQF) Bangladesh Hamdard Laboratories & Waqf 

Represented by: Mr. Anisul Bangladesh Ltd. 

Haque 

291 fl ,Sonargaon Dhaka. 

7. Mrs. Nargis Mannan, Director Housewife 

8. Mrs. Zohra Alam, Director HouseWife. 

9. Mr. Kamal Uddin Ahmed, Proprietor: 

Director '" AUf Commodities House. "'Import and export. *Sonalj Trading Corporation. *C&FFinn. 

Confidential Treatment Requested HSBC·PSI·PROD-lJ102631 
1959 


760611.792

L ______ " 

10. 

II. 

12. 

• 

Mr, Ahmed Akbar Sobhan. 

Director 

Alhaj Sk. Mohd. Rabban Ali, 

Director 

Mr. Munshi Akhtaruzzaman, 

Director 

13. Mr. Md. Humayun Kabir 

Khan. Director 

14. Mr. K.M Asaduzzaman 

Managing Director 

Confidential Treatment Requested 

Director: 

"'Holy Crescent Hospital Ltd. 

"'FAB Plus (Pvt.) Ltd. 

• 

Chairman & Managing Director. 

+Basundhara Group of Companies 

Sena Kalyan Bhaban (14th floor) 

195, Motijheel CIA, Dhaka-lOoo 

"'East West Property Dev, (Pvt) Ltd. 

"'Bashundharn Import Export Ltd. 

*Frey Schmidt Tissue Ltd, 

+Meghna Cement Mills Ltd. 

"'Bashundhara Paper Mills Ltd. 

*Shahjalal Newsprint Industries Ltd. 

Managing Director. 

*Rabbani Trading Company Ltd. 

·Shamlon Industries Ltd. 

*Shama Poly Yam Industries Ltd. 

Managing Director 

Inland Navigation Dev. Corporation 

Moinamoti Ice & Cold Storage Ltd. 

Co·owner 

Rahman Mansion, 

Proprietor: 

MIS. Akhter Enterprise 

Chainnan 

Smooth Corporation 

"'Hospital 

·Embroidery. 

*Real Estate and Housing 

*lntemational Trading 

House 

·Soft and Special Grade 

Tissue Paper making 

*Clinker Grinding Cement 

Mills, 

'Recycle Pulp and 

Newsprint Making 

Industries. 

*Import of Petro· Chemica! 

Product! ChemicaL. Food 

Grains etc. 

"'Manufacturer of Nylon 

*Filament yarn. 

"'Manufacturer of Poly yam. 

"'Coastal Cargo Vessels 

"'ImpoI1 of Various Items, 

Trading 

HSBC-PSI-PROD-Ol02S32 
1960 


760611.793

NOImfERNGENERdL l!VSVRANCE. • co. LTD. • PROSPECTUS 

1. AI-haj Nasiruddin: 

A~hai Nasiruddin is the son of late Jamal Ahmad, was born in 1962 at Chittagong. He has 

completed his graduation in arts. He has Jong 20 years of business experience, He is a sponsor 

Director of Social Investment Bank Ltd. He is also the proprietor of MIs. Nasim Trading Company 

and MIs Nams Trade Corporation. He is the Chairman of the Claims Committee of the Northern 

General Insurance Co. Ltd. He has attl!Ched with various educational and socia -cultural activities. 

J. Ms. Thamina Rahman; 

Ms, Thamina Rahman is the daughter of Alhaj KhalHur Rahman, comes from a respectiJblc Muslim 

family of Chitta gong. She has almost 8 years experience in the different sector ofbusiocss.She has 

a p1casant personality. 

4. Mr. S.M. Ayub Ali Chowdhury: 

Mr. S.M. Ayub Ali Chowdhury has a long 25 years of experience in various types of business. He 

is the Managing Director of City Pharmaceuticals Limited. He is also the Director of Hi-Fashion 

Limited, K.B.Knit Fashion Limited, Fortune Fashion Limited and the proprietor of MIs 

Chowdhury Construction. He is a business graduate. He was born in 1949 at Chittagong. 

5. Mr. Abdul Matin: 

Mr. Abdul Marin was born in the year 1944. He has a long 35 years of vast business experience in 

different field of business. He has obtained diploma in Textile Chemistry. He is the Chairman of 

Narsingdi Hatchery and fisheries Ltd .• Managing Director of Modern Dyeing & Screen Printing 

Limited, Director of Metropolitan Medical Center Limited, Rupali Life Insurance Co. Limited, and 

Proprietor of Modem Textile Mills. He is also a member of the Board of Governors o.fPrimc Asia 

University. He is the president, Institution of Textile Engineers and Technologists Bangladesh. He 

is a very amiable person. 

6. AI-haj Mohd. Saiful Alam: 

A~hai MoM Saiful Alam was born in the year 1959 in a respectable muslim fiunily of Chitta gong. 

He is a renowned business personality. He is the Chairman of the S. Alam Group and First Security 

Bank Ltd .. He has long 20 yelIfS experience as a leader in the indusby. Other than Northern 

Generallnsuranoe Co. Ltd. he is the Director ofS. Alam Cold Rolled Steel Limited, S. Alam Steels 

Limited, S. Alam Cement Limited, S. Alam Vegetable Oil Limited, S. Alam Super Edible Oil 

Limited, S. Alam Bag Manufacturing Mills Limited, S. Alam Hatchery Limited, S. Alam Luxury 

Chair Coach Service Limited, S. Alam Brothers Limited, S. Alam Poultry Feeds Mills Limited and 

S. Alam Trading Company (Pvt.) Limited. He has keen interest in various educational and socio· 

cultural organizations. He has a very pleasant personality. 

7. Mr. Arshadul AlBm: 

Mr. Arshadul Alam is the son of AI-haj Md. Abdul Maleque. comes from a respectable muslim 

family of Chittagong. He has completed his BBA. He is the Director of ZESCO Bangladesh 

Limited. He has interest in various socio~cultural activities. 

8. Mr. Foysal Ahmed Patwary: 

Mr. Foysal Aluned Patwary is a young. energetic and dynamic entrepreneur and businessman of 

the countJy. By birth, he came of an industrialist family. He is engaged in different business such 

as export, import and shipping since long. Because of his dynamism mtd excellent leadership in 

several prestigious sectors, he is popuJar in the business community. Other than Northern General 

Insurance Co. Ltd., he is also a director of Patwary Potato Flakes Limited and Greentech 

Greenhouse Bangladesh Limited, both are 100% export oriented agro-based industry. He is very 

much active using his tremendous leadership to the progress and development of the insurance 

30 

Confidential Treatment Requested HSBC-PSI-PROO-U102633 
1961 


760611.794

01 Name: Mohammad Sayedur Rahman 

02 Father's Name: I 

OJ. Mother's Name: 

Redacted 

Redacted 

04. Position: Vice-Chairman, RANS Real Estate Ltd. 

05. Address: I Redacted 

Redacted 

06. Date Of Birth: Redacted 

07. Nationality: Bangladeshi by birth. 

Redacted 

http://ransrealestate.comlvice%20chainnan.htm 

Confidential Treatment Requested 

Page 1 of2 

HSBC·PSI·PROO.()102634 
1962 


760611.795

------- Untitled Document .. 

Redacted • Page 2 of2 

10. Qualification: 

a) Passed the S.S.C Ii H.S.C b) Science Graduate 

11. Experience: : 

a) Vice Chairman, Social Islamic Bank 

b) Vice Chairman, RANS Real Estate ltd. 

0) Managing Director, lodestar Fashions ltd. 

d) Managing Director, Midasla Fashions ltd. 

e) Managing Director, Midasia Washing ltd. 

f} Managing Director, Midasia Embroidery Ltd. 

g) Managing Dfrector, loadstar Packagjng 

h) Managing Director, Blue Bell Shipping. 

http://ransrealestate,com/vice%20chainnan.htm 

Confidential Treatment Requested HSBC-PSI-PROO-0102635 
1963 


760611.796

I 

Particulars 

• 

of Direitor of SmL 

Name 

F-ather's Name 

Motber's Name 

D.te of Birth 

Educational Quantlcatlon 

Present 

Permanent 

Business 

Name offirms/Companies 

Where the interest is 

involved 

HOlne 

OfficelBosiness 

Mobile 

Md. Soye4ur Rahmllll 

Redacted 

Redacted 

Redacted 

B.A 

Redacted 

Redacted 

Managing Director: 

fo M~dest'n GaFilleRtsl.t:& 

II MIs Lodestar fashions Ltd . 

• MIs M.id Asi~ f.ashioD5 Ltd. 

• Mis Jessore fisbery 

. Redacted 

Redacted 

Redacted 

Sigrmturo: \;/-.~ 

-=~o;;;=< . (Md. Sayed"r RllhmaD) 

Confidential Treatment Requested 

• 

HSBC-PSI-PROD-l)102636 
1964 


760611.797

------- Wele 

Board of Directors 

Tri.\d!ng Policy 

Trading SY5lem 

Ustlng Rc-qulrcment 

Rules & Regulations 

Listed Companies 

Mor)letln1Of"maticn 

Incentives 

Member.:! 

1-',.bl1c..t"U<)n 

New Issues (IPO) 

Pre!l9 ReleMe 

Career@ CSE 

SEC; Dirct:tlves 

~F-eedb.;:("k 

i CSE NE~:;~:;~~ 

Pagelof2 

• CHITIAGON,G S:rOC!l; !i::XCHAN,GE L Tn. 

Al'XSP 

appleterror 

RECENT NEWS RECENT IPO ~ 2009 

'" L4.0B.09; Sf.c.J1cw.beL~.d on hongsty and !Qtegcttv .. DHAKA INSURANCE UMITED (Oecember 06, 200')-

b.¥....tDJ;:..Au~(:.~'(es_J1\.!.r:!ng~~9f. DccemberlO, Z009} II E.~i{POF,162SK8}» 

~!1..» 

'"-ffiOVATI INSURANCE COMPANY! IMITED (November 15, 

2009~November 19, 2009) II ~PDF, 3536 KB) II Book Building Systems .;u~!~:~~~~I~E;o~a~;::~~dln~5.t~rn 

I (User Manual) .. 14.07.09: ~aded Trad!og Software with mo.ce. *J:~[il.JMmfh~ (October 04, 2009-OCtober 18, I Diiiil~:l:!!I!~c:!l":"ii~l::CIil,~~~Ii:~t]~:iI~!l!;5j::.::.:.~.,.~~ ~~~~i;~;., EBI. Flril Mutual Fund .. 18.06,09: ~.d..e.-'iQJ1Jme hit a!! time high 

OYer 150 c~de at CSE » 

RPM!! lifE !NSIIH"JI.'b[ 

SA V Lf:AS1NG & INVESTMENT 

'" 09.05.09: CSE awarded Cert!ncllt~s. » 

'" 20.05.09: president oftbe both bourses pledged best 

efforts for Capita! Mar1<~pmcnt told at eSE-PSE 

Joint Press Conference > > 

'" ISLAMl INSURANCE SANG! ADfSH ! IM!TfQ 

(16/0B/2009~20/D8/2009) !l f~(PDF, 1421 KB} 

.. Matico Bangladesh! frn!ted (Al.i!;lust 2-August 6, 2009) 11 

Prospectus{PDF, 1714 KB):» 

'" ESt fIRST MtffiJA! FIIND {June 2l·)une 25, 2009) l! 

.. 20.05.09: SEC Chairman yows full support to theJlmu:s..e.s Prosoectus(PDF, 50;! KB) ,.,. 

PrimeFlunteFirstMutua!FllmI 

BSRMSleelJUmltel! 

H£1!.!.I.!:!!!~hls\lnnct Company pd. 

,'l.:A TlQNAL HQUSINC FINANCE AND 

'"19,05.09:~tWLs.~ 

Oddvar Hesledal CEO-GP at CSf Meet!ng~» 

.. 10.05.09: CSE rEviewed CSE·30 lnr:lex » 

http://www.csebd.com/cse/start.html 

Confidential Trea"bnent Requested 

*...RU.E611 LIFE INSURANCE COMPANY LIMITED (May 03-

Mily 07, 2009) l! Prcspectus(PDF, 3.67 1'16) » 

.. ASIA INSIlRANCE tIM.JTI.C: (Apn!19-Aprll 23, 2009) jj 

frcspectus(PDF, 1992 KB»> 

.. PlUME BNANq; flRST MUTUAL FUND (January 4. 

.. ...MX.J.fASING & INVESTMENT UMITED (Januilry lB· 

Jalluary 22, 2009) II ~g:..!&(PDf. 1503 1(5) » 

HSBC.PSI-PROO.c102642 
1965 


760611.798

~--~--- Company Information 

View Dividend Information of listed companies 

Download dividend information: 

Excel format (size: 146 KB) 

View Seleted 3D Companies 

; http://www.csebd.com/cse/companyinfo/company.asp?s=l 

Confidential Treatment Requested 

Page 1 of 1 

HSBC-PSI-PROD-1l102643 
1966 


760611.799

-•.• -.- Company Name 

I> 2> 3> 

Insurance 

Names of Securites 

1. 1.QQQ.1 Delta Life Insurance Company Ltd. 

2. 10001 Delta Life Insurance Company Ltd. 

3, 10002 National life Insurance Company Ltd. 

4. .1QQ..Q.J Sandhanl Life Insurance Company Ltd 

5. 1.QQQ1 Popular Ufe Insurance Company Ltd. 

6. .1.QQQ..2. Fareast Islaml Life Insurance Company Ltd. 

7. 10006 Meghna Life Insurance Company Ltd. 

8. lPJ)QZ Progressive Ufe Insurance Company Ltd. 

9. 10008 Pragati Life Insurance Ltd. 

10. 10009 Prime Islami Life Insurance Ltd. 

11. 1QQlQ Rupali Life Insurance Company Ltd. 

12. .il..Q..QI Peoples Insurance Company Limited 

13. t1.QQJ. Green Delta Insurance Company Ltd 

14. 11004 Reliance Insurance Ltd. 

15. .l1..QQ.2 Janata Insurance Company Ltd. 

16, .l.l..Q.Q..6. Central Insurance Company ltd. 

17. J1QQl Federal Insurance Company Ltd. 

18. llQ,lQ Bangladesh Genera! Ins. Company Ltd. 

19. ll.Qll Pragati Insurance ltd 

20. 1..lQU Phoenix Insurance Company Ltd 

21. .l.l..Q.H Eastern Insurance Company Ltd' 

22. UQl5 Eastland Insurance Company Ltd 

23. ]"~H!.l.6 Prime Insurance Company Ltd. 

24. 11017 Pioneer Insurance Company Ltd. 

25. 11021 Nitol Insurance Company Ltd. 

26 . .11.Q1Z Asia Pacific General Insurance Company Ltd. 

27. 1.1Q2.4 Sonar Bangia Insurance Ltd. 

28. .l.l.Q1Z Paramount Inurance Co. Ltd. 

29. llill City General Insurance Co. Ltd. 

30, 11029 Continental Insurance Ltd, 

31. 11030 Takaful Islaml Insurance Ltd. 

32, 11031 Standard Insurance Ltd. 

33, 11032 Norhern General Insurance Co. ltd. 

34. .l.1..Q.n Republic Insurance Co. Ltd, 

35. 11034 Mercantile Insurance Company Ltd. 

36, 11~35. Asia Insurance Ltd. 

Textile. & Clothing 

1. l2.QQl GMG IndUstrial Corporation Ltd 

2. 1.2..Q.Q1 Prime Textile Spinning Mills Ltd 

3. lliJl1 Apex weaving & Finishing Mills Ltd 

4. l.£QJM Apex Spinning & Knitting Mills Ltd. 

5. 12005 M.Hossain Garments Was.& Dy. Ltd 

6, 12006 Dulamia Cotton Spinning Mills Ltd 

7. UQQl! Bexlmco Synthetics Ltd 

8. 1lQl1 Bextex Ltd 

9. .1.?.Q1l Sajib Knitwear and Garments Ltd 

10. 1lQ1J Chlctex Ltd . 

11. 1.2lli.1 Sreepur Textile Mills Ltd 

12. 12015 Manno Fabrics Ltd 

13. 12016 Eagle Star Textle Mills Ltd 

14. 12017 Alltex Industries Ltd 

15. J.lQ1e Bangladesh Dyeing & Finishing Ind. Ltd. 

http://www.csebd.comlcseJcompanyinfoICornpanyName.html 

Confidential Treatment Requested 

Page I of7 

I 

HSBC-PSI-PROD-II102644 
1967 


760611.800

-----~- Company Name 

Banking 

1. l2Qm AB Bank Ltd 

2. 22003 National Bank Ltd 

J. 220M United Commercial Bank Ltd 

4. £2005 RupaIi Bank Ltd 

5. 22006 The City Bank Ltd 

6. 22007 PubaIi Bank Ltd 

7. 22008 Islami Bank Bangladesh Ltd 

8. 22010 IFIC Bank Ltd 

9. 22ill.l AI-Arafah Islarni Bank Limited 

10. 22013 Prime Bank Ltd. 

II. 22014 Dhaka Bank Ltd. 

12. 22015 Southeast Bank Ltd. 

lJ. 22016 National Credit & Commerce Bank Ltd. 

14. nilll Dutch- Bangia Bank Ltd. 

15. 22011. Mutual Trust Bank Ltd. 

16. 22020 Standard Bank Limited 

17. 22021 One Bank Ltd. 

18. 22022 Bank Asia Ltd. 

19. 22023 Mercantile Bank Limited 

20. 22024 Uttara Bank Ltd. 

21. 22025 Eastern Bank Ltd. 

22. 22Q2.Q Exim Bank Ltd. 

23. Ullll Sociallslarni Bank Ltd. 

24. 22028 Jamuna Bank Ltd. 

25. 22029 BRACK Bank Ltd. 

26. UllIQ Shahjalallslarni Bank Ltd. 

27. 21031 The Premier Bank Ltd. 

28. 22 On Trust Bank Ltd. 

29. 22033 First Security Islami Bank Ltd. 

http://www.csebd.com/cse/companyinfo/CompanyNarne.html 

Confidential Treatment Requested 

Page I of! 

HSBC-PSI-PROD-ll102645 
1968 


760611.801

PagelofS 

CIBM - Institutional Banking 

Part One - Medium Risk 

DECO FATF web site 

KYC Profile Reference Number: 

Institutional Client Name: 

A Basic Identification Detaifs 

Address: 

Country/T erritory: 

Telephone: 

FaGsimile: 

WebSite: 

HSBC Entity 

Industry Sector 

Type of Client: 

What is the client's principal !ine(s) 

of business? (Please click here to 

see Explanatory Note 22) 

CountryfTerritory in wnich the client 

\s incorporated' 

Confirm thaI the client is regulated: 

By which body is the client regulated 

Detail regulatory body role and' 

[Jowers within the broad financial 

infrastructure of the country (Please 

dick here to see Explanatory Note 

31F) 

-

Sociallslami Bank Limited 

-_... Redacted by the Permanent 

Sal)mmmWee on lnvestilatlmu 

Head Office, 15, Dilkusha Commercial Area 

Dhaka-lOOO, Bangladesh 

Bangladesh 

88 029559014, 9568098, 9568275 

88029559013,9564764 

www.siblbd.com 

Italy 

Banks 

Publicly quotedlwidely held 

Social Investment is a Islami Shariah based bank. The principle lines of 

business include export- import, credit and investment. deposit 

collection. The loans are both in the manufacturing and service industry. 

The manufacturing customers include textiles I garment, checmicals and 

transportation while distribution makes up the service sector. 

Bangladesh 

Yes 

Bangladesh Bank 

The Banks in Bangladesh is regulated by the Bangladesh' Bank 

(country's Central Bank). The Central Bank has statutory objectives 

relating to the financial system: maintaining market confidence: 

promoting public understanding; protecting consumers; and reducing 

financial crime. Bangladesh Bank operates a principles based 

regulatory regime and has authorisation, enforcement, supervision and 

rule making functions relating to firms, The Central Bank has the power 

to issue fines for breaches of its regulations both against firms 

themselves and their senior management and, in extreme cases, could 

suspend or cancel a firm's license to conduct banking business, 

http://emea-apps.systems.uk.hsbclcoreappsIKYC/ghqkyc. nsfl AdvSearchl77 6CQBD8F65FCDCC80257 57 4005AB4EB?. 

Confidential Treatment Requested HSBC-PSI-PROO-lll02646 
1969 


760611.802

Page 2 of8 

Confirm that certified copy of On file 

banking licence/certificate of 

incorporation is on file and that there 

are no restrictions and that thls h8S 

been reviewed: {please click here to 

see Explanatory No1e 20) 

Connrm that it is not a Shell Bank: Not a Shell Bank. 

(A Shell Bank has no physical 

presence in any jurisdiction, and no 

affiliation to a regulated bank which 

does) (Please click here to see 

Explanatory Note.4) 

Confirm that it is not an Offshore Not an offshore bank 

Bank: (Please click here to see 

Explanatory Note 26) 

Year in which the cHent was 1995 

established: 

Client's rank in country: 18th (as per Almanac 2000) 

Is the client traded on an exchange? Yes 

{Please click here to see 

Explanatory Note 6) 

Which exchange? (Please click here Dhaka & Chittagong Stock Exchange 

to see Explanatory Note 6) 

Dale Relationship wilh local office 09/01/2006 

commenced (ddimm/yyyy): 

B Ownership/Management 

Do the activities and or/reputation of 

any disclosed sharenolder(s) 

increase the risk profile of the client: 

(Please click here to see 

Explanatory Note 1) 

Confirm that you have verified the 

Identity of each principal owner, and 

confirm that an approprlate level of 

due diligence with regard to such 

ownerfl has been performed: 

(Please dIck here to see 

Explanatory Note 2) 

No 

Not applicable., No single individual/entity has more than 10% stake in 

the bank. 

It's worth mentioning here that, the U.S. Department of the Treasury, on 

AUG06, designated the Philippine and Indonesian branch offices of the 

Saudi-based International Islamic Relief Organization (IIRQ) in OFAC 

sanction list. 

Saudi base IIRO is one of the sponsor shareholders of Social 

Investment Bank, although there is no established connection between 

IIRQ's Dhaka office and offices in Philippine and Indonesia. Based on 

the feedback from SlBl, IIRQ's role remains that of a minority 

http://emea-apps.systems. uk.hsbclcoreapps/KYClghqkyc.nsfJ AdvSearchl776COBD8F65FCDCC80257 574005AB4EB? ... 

Confidential Treatment Requested HSBC-PSI-PROO.()102647 
1970 


760611.803

Would any of the principal 

ownersJcontroUers of the client be 

classified as special category clients 

(SeC) ? (Please Glick here to see 

Explanatory Note 25) 

Confirm that membership and 

composition of the Board is 

appropnate 

Detai!s Chairman and Chief 

Executive 

If appropriate conduct World Check 

(or similar) search on the Chairman 

and Chief Executive (please click 

here 10 see Explanatory Note 29) 

Page 3 of8 

shareholder that does not seek to engage in the management nor to the 

board ofthe bank. 

No 

Membership and composition of the board Is appropriate and as per Bangladesh Bank guidelines. 

Worfdcheck has been completed on Major Dr. Md Rezaul Haque 

(Retd.), Chairman, and Mr.K M Ashaduzzaman, Managing Director. No matching entry was found for either names. 

C MOlley Laundering Control Policy, Procedures and Controls 

Confirm that measures are taken by 

the client to ensure that they do not Yes 

provide financial services to listed 

terrorists End/or sanctioned names 

notified by competent Authorities 

(Please click here to see 

Explanatory Note 23) 

Please provide details: Social Investment Bank (SIBL) recognizes that terrorist financing needs 

to be combated and confirm efforts are made to prevent this. SIBL 

screen potential clients against the terrorist lists as part of the account 

opening process. They periodically check their customer base against 

the lists. they have an active Compliance Department. who are 

monitoring the activities (even during the time of account opening) of the 

account through out the year. 

Confirm that measures are taken by 

the client to ensure thai they do not Yes 

make funds available to listed 

terrorists and/or sanctioned names 

notifIed by competent Authorities 

(please click here to see 

Explanatory Note 24) 

Please provide details: SIBL monitors client payments to prevent terrorist financing. Although 

they don't have real~time payment screening process/system, like other 

banks in Bangladesh, right at the moment (as their branches are not 

online). but the branch Compliance Offrcers are regularly monitoring the 

payment behavior of their customers, whiCh scams whether any of the 

listed names appear in payment messages are in the terrorist lists or 

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Confidential Trea'bnent Requested HSBC-PSI-PROD-ll102648 
1971 


760611.804

Does the client's country endorse 

"The Recommendations of the 

Financial Action Task Force on 

Money Laundering"? (even though it 

may not be a memberofFATF, see 

explanalory note 7 arid the DECO 

web site) 

Confirm that FATF principles 

regarding client identification; 

anonymous accounts: client activity 

monitoring; a risk-based approach 

to products/geographies: employee 

training; and audits of controls are 

incorporated in the client's policy. 

procedures and controls; 

Describe how the policy, procedures 

and controls are communicated and 

enforced effectively in the client's 

netwo(\(' of domestic and 

international offices: (Please click 

here to see Explanatory Note 3) 

not. If they find any suspicious name, they immediately take action. 

Yes 

Although Bangladesh Is not a FATF member, it follows the 

FATF recommendations. The "Money Laundering Prevention 

Act 2002" covers the recommendations. AU scheduled banks 

are required to strictly follow the act. All banks check the 

identity of the clients, their activities and the locations they 

are operating. SIBL does provide "Anti Money Laundering" 

training to their staff as and when required. They have 

Compliance Department. which is located in their head office 

and they also formed compliance team at the branch level to 

incorporate the "Anti Money Launderingn policies and 

procedures. The teams are monitoring the day-to~day 

activities of their client. 

The bank considers Money Laundering es high risk and 

takes active actions in reducing and eliminating such risk by 

following their internal guidelines and compliance with 

administrative requirements enforced by the Bangladesh 

Bank (Central Bank), We note that more stringent anti 

money laundering rules were brought by the govemment in 

APR02 (2002 Money Laundering Prevention Act). 

Like other Bangladeshi Bank, SIBl strictly follows account 

opening procedure as prescribed by the Bangladesh Bank. 

Detailed infonmation of the applicant, copies of passport and 

permanent address are obtained. -Two copies of passport 

size photogrephs of the epplicant duly attested by the 

introducer are obtained,-!ntroduction by a person known as 

acceptable to the bank.-Account is opened by the bank 

being satisfied about the information of the applicant 

mentioned above.- Name of the Nominee is required while 

opening account- Besides the above, according to Money 

Laundering Act and Bangladesh Bank guidelines possible 

transaction profile of the customer needs to be recorded. 

Monitoring -SIBl's book of accounts, transaction and records 

are audited intemally annually. Besides this, as per legal 

requirement an external annual audit has to be undertaken 

by a Chartered Accountants firm, Bangladesh Bank and 

other Govt. agencies also undertakes regular/surprise 

audits. In compliance with the Bangladesh Bank recent 

circulars in line with the recently enacted Money Laundering 

Prevention Act, SIBL has already formed en anti ML 

committee at head office, headed by an Executive Vice 

President, who is also the board secretary. They also formed 

compliance team at the branches. As per the AML Act 

Bangladesh Bank has entrusted with the responsibility of 

providing training to the banks on ML deterence, Bangladesh 

Bank has already issued some guidelines. in !ine of which 

Page 4 of8 

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Confidential Treabnent Requested HSBC-PSI-PROO.()102649 
1972 


760611.805

SIBl also taken initiative to train their staff. SIBl organizes 

seminarftraining program for their staff semiannually at their 

head office and regional offices. SIBL states that there are 

no anonymous account in their book. Also note that Central 

Bank has already issued circulars disallowing new sate or 

renewal of existing Bearer Certificate of Deposit (BCD). SIBl 

is in compliance with this rule of Bangladesh Bank. 

Confirm specificaUy that client's Yes 

policy prohibits relationships with. 

and payment processing for. Shen 

Banks: (Please click here to see 

Explanatory Note 4) 

o Client Visiting 

Confim that a visit/contact wi!! be 

made by the Global Relationship 

Manager, Regional Relationship 

Manager or 3 Product Specialist in 

the first year of the rel(ltionship: 

(Please click here to see 

Explanatory Note 5) 

Once a year 

E Additional Local Regulatory Requirements 

If applicable: (Please dick hera to 

see Explanatory Note 19) 

Financial Institutions in Bangladesh ara under the 

supervision of Bangladesh Bank and the Ministry of Finance. 

Regulations and ordinances from these regulatory bodies 

have suggested the government's power to exercise tight 

foreign exchange control as well as to supervise the usage 

of foreign exchange resources. The account activities 

(current account as well as capital account) are under the 

strict foreign exchange control and reporting requirement. 

Bangladesh Banks stringent regulations on FE;.X flows 

minimise the possibility of money laundering. At present, 

Bangladesh Taka (BOT) is nol fully convertible. All FEX 

transaction undertaken by commercial banks are govemed 

by the "Guidelines for Foreign Exchange Transactions" 

published by Bangladesh Bank. As per the rules 

incorporated in the guidelines, for Inward remittance a return 

called "From C" has to be submitted to Bangladesh Bank 

detailing the purpose of the remittance. There are some 

exceptions, but are subject to submission of proper 

documents and. ceilings. The gUideline.s also imposed 

restriction on outy.;ard remittance have to be made through 

opening of letter of Credits (LC). Banks are mandated to 

obtain credit report of beneficiary before opening of LC. 

Banks are also required to check the profonna invoice I 

indents cerefully before opening of Les. This minimises the 

possibility of over/under invoicing. For other purposes, like 

buying books, study materials, medical and travel and 

training some flexibilitles are allowed. Again. these are 

Page 5 of8 

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Confidential Treatment Requested HSBC-PSI-PROD-ll102650 
1973 


760611.806

F Global Relationship Manager 

Global Relationship Manager 

Part Two - Transaction Activity 

A Transactional Details 

subject to submission of documents. The guidelines also 

advise the nature and type of accounts that can been 

opened by the commercial banks. The guidelines call for 

proper Identification before opening of such accounts. Prior 

approval is required if an account does not tally with any of 

the features/criteria mentioned in the Guidelines. 

Bangladesh Bank gives a separate license (named 

Authorised Dealership License) to selected bigger 

commercial bank branches to allow them in dealing with 

foreign currencies. This license CQuid be subject to 

suspension or withdrawal an Bangladesh Bank's detection of 

non-compliance. Bangladesh has passed the AML Act 2002 

in APR, where all responsibilities have been entrusted with 

Bangladesh Bank to investigate and monitor ML cases in the 

banks. Bangladesh Bank has advised the banks to submit 

bi-monthly and quarterly returns all ML issues, 

Mahbub Ur Rahman, Senior Corporate Banking Manager, HSBC 

Bangladesh 

Page 60f8 

Nature of account/relationship (tick Trade 

where appropriate): 

Other, please state: 

Is this a Banknote Client? 

Client's stated use/purpose of the 

account/relationship: 

Confirm that the client will be the only 

operator of the relationship, (Please 

click here to see Expl3n~tory note 21) 

B Transactional Activity 

The Know Your Customer policy 

requires a listing of the client's 

No 

Trade related services 

Yes 

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Confidential Treatment Requested HSBC-PSI-PROD-ll102651 
1974 


760611.807

approximate business activity wifh 

HSBC and subsequent monitoring of 

actual business against it 

Page 7 of B 

Please Note that it is against policy to accept payment instruction from Shell Banks direct, or via relationships 

with us, 

Type of Transaction: Advising of unconfirmed Des 

Frequency' Spot transaction 

Volumelvalue: Usd 390K 

C Additional information required for Banknote clients 

o 'Approval Section 

Name of Relationship Manager 

recommending: 

Mauro Polinori 

I have reviewed the information provided above, in the tontext of HSBC's KYC polk.)' and due diligence criteria. 

am satisfied that the client's money laundering deterrence policy, procedures and controls are of a sufficient 

standard for me to recommend this client for banking business and that transactions are consistent with the 

customer's known legitimate business activity. Please click here to see Explanatory Note 18 

If approval is subject.to certain 

conditions. include details here: 

Dale completed: (dd/mm/yyyy) 

DatE! f-or next review (mmfyyyy) Please 

click here to see Explanatory Note 17: 

Senior Manager/Regional Manager 

Institutional Banking approving: 

Name and date: 

Head of Institutional Banking/Regional 

Sector Head concurring: (Only required 

for High Risk countries. where one or 

more of the principal owners/contro!lers 

are classified as an see, or for Offshore 

Banks/Financiallnstitutions) 

Name and date: Please click here to see 

Explanatory Note 26 

0910312009 

0312011 

Gerd C Pircher ~ Head of Client management 

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Confidential Treabnent Requested HSBC-PSI-PROD-II1D2652 
1975 


760611.808

Compliance officer (RMLCO in Asia 

Pacific) concurring: (Only required for 

High Risk countries) 

Name and date: 

Please indicate if lt1e profile has been 

declined or approved: 

Decline Reason: 

Date form completed: (ddimmlyyyy) 

Author Details 

Document Edit history 

Revision No. 

Approved 

N/A 

10103/2009 

Editor 

Gerd C PIRCHER 

Mauro POUNORI 

I Date and time 

0311012009 07;43;00 GMT 

03109/2009 17;20;10 GMT 

Page 8 of8 

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-----------------------_____________ ~J 

Confidential Treabnent Requested HSBC-PSI-PROD~102653 
1976 


760611.809

• Re: Fw: Compliance Conditions: Soclallslami Bank Ltd ~ 

Virgil D RODRIGUES to: Jon K Jones 051181201003:57 AM 

Cc: Ahmed SAAD, Ishtiaque AHMAD, Sadique REZA, Hersel Mehanl 

Dear Jon, 

Please note commments on you mail In GREEN. 

Regards 

Virgil D RODRIGUES Assistant Relationship Manager, Institutional Banking! HSBC BANGlADESH 

Dhaka Main Office,Anchor Tower,7th Floor 

--"" Redacted by the Permanent 

Subcommittee on In\lestigations 

108, Blr Vitam C.R DoHa Road,Dhaka·1205 

Phone. +8802 9660536-43 X 720 

Fax. +880 2 8626560 

Mobile. 

Email. vlTtlJldrodrioues@hsbc·combd 

Internet. ht!rr/lwww hsbMPffi bd 

Sadique REZAlHSS DAKlHBAPIHSBC 

Sadlque REZAfHSS 

DAKlHElAPIHSBC 

HSS DAKIHEIAP 

To Virgil 0 RODRIGUESIIB DMOIHBAP/HSBC@HSBC03 

051091201003:49 PM cc Ishtiaque AHMAOIIB DAKlHBAP/HSBC@HSBCOO, Ahmed 

SAADIIB DAKlHBAP/HSBC@HSBC03 Phone No. 880 2 9660536 X 

260 Subject Fw: Compliance Conditions: Social Islami Bank Ltd 

Mail Size: 12916 Our Ref 

Your Ref 

Virgil 

Address this issue immediately. 

regards 

Sadique REZA DIVIsion HeadllnsUtutlonal Banking: & Securtl/es Servlce'Sj The HOI'lgkong and Shanghai Banking COrporauon L1mlted 

Anchor Tower71h F! 108 Blr Utfam C.R. DI..Itta Road I Dhaka -12051 Bangladesh. 

Phone. 8802 9660536 X 770 Fa> 880 2fiiiM MobJle. 

Email. sadigueren@hsbc.com bd 

- Forwarded by Sadique REZA/HSS DAKlHBAP/HSBC on 05/09/2010 03:48 PM 

.IonK 

JonesIHBUSIHSBC@HSBCO To 

2 Jon K JonesIHBUS/HSBC@HSBC02 

08 May 2010 02:15 Mall S~: cc Hersel Mehanl/HBUSfHSBC@HSBC02, Ishtiaque 

Confidential Treatment Requested HSBC.PSI·PROD~102737 
1977 


760611.810

9794 AHMADIIB DAI<!HBAPIHSBC@HSBC03, PSRR@HSBC02, 

Sadique REZAlHSS DAI<!HBAPIHSBC@HSBC03 

Subject Re: Compliance Conditlon:s: Soclallsfaml Bank LtdGri 

Hi Ishtiaque: 

More Options 

Our Ref 

Your Ref 

Were the below issues addressed with Sociallsfami? 

Thanks for your assistance, 

Jon K Jones 

Senior Analyst I HSBC Bank USA 

90 Christiana Road, New Castlo, DE 19720 

Phone 302-327-2017 

021091201003:39:17 PM 

From: Jon K Jones/HBUSlHSBC 

To: Sadique REZNHSS DAKlHBAP/HSBC@HSBC03, Hersel Mehani/HBUS/HSBC@HSBC02, 

Ishliaque AHMADIIB DAI<!HBAPIHSBC@HSBC03 

Cc: 

Date: 

Subject: 

!shtiaque, 

Ali S KazmyIHBUS/HSBC@HSBC02,Gillian E Baci1stein/HBUSIHSBC@HSBC02, 

PSRR@HSaC02 

021091201003:39 PM 

Compliance Conditions: Sociallslami Bank ltd 

Thanks for your help; the KYC for this account has been fully approved. Compliance, however, has added 

conditions for approval as is listed, below, Please be advised there are 30 days to fulfill these conditions: 

1 - Pursuant to 3/812005 CS condition, annual HSBC CEO approval is required to maintain this 

relationship. Confirmation is required if this condition has been met. (Please Provide) Will be informed to 

you shortly. 

2 ~ Confirmation required if the Board of the bank has ousted the IIRO as previously confirmed, (Last 

confirmation was "no" ~ August 2009) As local law does not permit unilateral omoading of shares ; after 

relevant approval from the Board of Directors ,the bank has filed a petition with High Court ,in this 

regard .The matter is currently under judidal process . 

3 - Fresh confirmation is required that no dividends have been paid to tiRO, (Last confirmation - August 

2009) 

All dividend and other benefits arising from the holding has been suspended vide Central Bank 

Directive dated 10th December ,2006 

Thanks and regards, 

Jon K Jones 

Senior Analyst I HSBC Bank USA 

Confidential Treabnent Requested HSBC-PSI-PROD-010273B 
1978 


760611.811

90 Christiana Road, New Castle, DE 19720 

Phone 302-327-2017 _ Forwarded by Jon K JoneslHBUS/HSBC on 02/09/2010 03:32 PMFrom: 

To: 

Cc; 

Date: 

Subject: 

All S KazmyIHBUSlHSBC 

Jon K Jones/HBUSIHSBC@HSBC02 

HBUS KYC System Admin 02/0812010 07:28 PM 

KYC Customer Profile is Approved with Condition: Soclallslami Bank Ltd 

A KYC Customer Profile has been approved with Condition for this client In BANGLADESH. 

The Condition: 

1 • Pursuant to 3/8/2005 CS condition, annual HSBC CEO approval is required to maintain this 

relationship. Confirmation is required if this condition has been met. 

2 - Confirmation required if the Board of the bank has ousted the IIRO as previously confinned. 

3 - Fresh confirmation is required that no dividends have been paid to IIRQ, 

You may dick on the following link to the profile: 

~ 

Confidential Treatment Requested HSBC-PSI-PROD~l 02739 
1979 


760611.812

Re: EDD Report of Findings: AB Bank Limted in Bangladesh (PCM) ~ 

All S Kazmy to: Daniel Jack 051181201009:03 AM 

Cc' Bria:n R Miloscia. Denis E O'brien, Joanna S Flanagan, Jon K Jones, 

• Judy P Stoldt, PSRR 

History: This message has been forwarded. 

Dan, 

Before Jon addresses the issues raised in the report, speciftcallywlth regards to the recommendation to 

"exit" the relationship, lets discuss internally as SAS needs to clarify their stand. Recommending to the 

business to exit a relationship, without complete and thorough analysis and in the absence of consultation 

with the lCO is a knee jerk reaction and reflects a silo'd approach to AML risk mitigation, Could you 

please set up a meeting/conference cali. 

Regards, 

AK. 

From: 

To: 

Cc: 

Date: 

Subject: 

Jon, 

Daniel JacklHBUSfHSBC 

Jon K JonesI1-tBUS/HSBC@HSBC02 

PSRR@HSBC02, AJj S Kazmy/HBUSlHSBC@HSBC02. Joanna S 

FlanaganIHBUSIHSBC@HSBC02, Denis E O'bnenIHBUSIHSBC@HSBC02,Judy P 

Sto!dt/HBUSfHSBC@HSBC02, Brian R Miloscia/HBUS/HSBC@HSBC02 

051171201009:09 PM 

EDD Report of Findings: AS Bank Umted in Bangladesh (PCM) 

Please review this ROF and provide us with a response to the negative info on this PCM Monly client, 

including the following: 

"Due to the above red flags identified in this review including the reputational and AML risks 

associated With AB Bank, its chairman and senior executive management, we recommend that this 

relationship be exited." 

We realize this client Is already an sec due to PEP, KYC profile ->I!b But we need 

clarification/resolution on the EDD ROF issues. And due to the reputational risk to HSBC, you should 

obtain strong management support ff PCM plans to continue this relationship. 

Thanks and regards, 

Daniel Jack Vice President· Compliance Officer, GTB 

HSBC Bank USA, NA 452 Fifth Avenue, 7111 floor, New York. NY 10018 

Phone. 212·525-8686 

EmaiLdanieUack@US.hsbC.com 

Forwarded by Daniel Jack/HBUSfHSBC on 05117/2010 08:51 PMConfidential Treabnent Requested HSBC·PSI-PROD-lll02740 
1980 


760611.813

From: FIG HBUS@HSBC03 

To: Jon K Jones/HBUS/HSBC@HSBC02 

Cc: 

Da.te: 

Daniel JacklHBUSIHSBC@HSBC02,FIG HBUS@HSBC02,AliS Kazmy/HBUS/HSBC@HSBC02 

051171201005:13 AM 

Subject: 

Sent by: 

Report of Findln9S: AB Bank Umted; FRU 

Krishna K PentapaUi @ HSBC03 

Please find attached report of findings on AB Bank Limited. 

* Please note that/or your conJlenience, space/or Compliance Officer and/or Business Unit 

comments has been reserved at the bottom o/this report. 

[attacbment" AB Bank Limited-Final.doc.zip" deleted by Ali S KazmyIHBUSIHSBC] 

Please feel free to contact Brian Miloscia (212-5254214) if you have any queries. 

Confidential Treatment Requested HSBC-PSI-PROD.()102741 
1981 


760611.814

Compliance Conditions: Sociallslami Bank Ltd 

Jon K Jones 10: ~~~;,::~ REZA, Hersel Mehan!, Ishliaque 0210912010 03:39 PM 

Cc: Ali S Kazmy. Gillian E Bachstein, PSRR 

Ishliaque, 

Thanks for your help; the KYC for this account has been fully approved, Compliance, however, has added 

conditions for approval as is listed below. Please be advised there are 30 days to fu!fill these conditions: 

1 ~ Pursuant to 3/8/2005 CS condition, annual HSBC CEO approval is required to maintain this 

relationship. Confirmation is required if this condition has been met (Please Provide) 

2 M Confirmation required if the Board of tha bank has ousted the IIRO as praviously confirmad. (Last 

confirmation was "no" - August 2009) 

3 ~ Fresh confirmation is required that no dividends have been paid to IIRO. (Last confirmation· August 

2009) 

Thanks and regards, 

Jon KJones 

Senior Analyst I HSBC Bank USA 

90 Christiana Road, New Castle, DE 19720 

Phone 302-327-2017 

- Forwarded by Jon K Jones/HBUSIHSBC on 02109/2010 03:32 PMFrom; 

To: 

Cc: 

Date: 

Subject: 

Ali S Kazmy/HBUSlHSBC 

Jon K JonesIHBUSIHSBC@HSBC02 

HBUS KYC System Admin 

02l0Bl2010 07:28 PM 

KYC Customer Profile is Approved with Condition: Social Islaml Bank ltd 

A KYC Customer Profile has been approved with Condition for this dient in BANGLADESH, 

The Condition: 

1 ~ Pursuant to 3/8/2005 CS condition, annual HSBC CEO approval is required to maintain this 

relationship. Confinnation is required if this condition has been met. 

·2 - Confirmation required if the Board of the bank has ousted the IIRO as previously confirmed. 

3 - Fresh confirmation is required that no dividends have been paid to IIRO. 

You may click on the following link to the profile: 

!;ll 

Confidential Treabnent Requested HSBC-PSI-PROD~102742 
1982 


760611.815

~~~<m~~~ - ~ ~ ~~I JW.rSOCIAL INVESTMENT BANK LIMITED 

Ref: SIBLfHO/ID/F· 120091110.1. 

Date: 08.03.2009 

Mr. Sadique Reza 

Division Head 

International Department 

Head Office, Dhaka. 

Institutional Banking & Security Services 

The Hongkong and Shanghai Banking Corporation Limited, 

Dhaka. 

Sub: Information regarding Bank's ownership for KYC purpose. 

Muhtaram, 

Assalamu Alikum Wa- Rahmatullah. 

Thanks for your letler dated 26.02.2009,Below is our comment on ownership details. 

[J Ownership Details: 

The current Share holding of Intemationallslamic Relief Organization (IIRO) in our bank is 3.85%. II is of 

mention tIlat the bank doesn't have any transactions with this organization as share holder except that this 

organization purchased sponsor shares of the bank when it was ftoated and reteived initial bonus shares, 

An executive Director of tIlis company having listed in the US Sanctions has been viewed with due 

concem by the management and the Board of the bank. The matter is taken to the notice of Bangladesh 

Bank and Securii)' Exchange commission for permissions to dispose of the share holdings of this company 

since the company did not respond to the bank's 'request to offload their shares, The central bank has 

issued instruction to withhold application of any bonus shares, issue right shares and pay .any cash 

dividend on the share holdings of the company until further instructions, However, the bank shall obtain 

authority of the Share holders of the bank in the Annual general Meeting to offload the shares of tile 

company, as per authority of the articles of association of the bank, if the company doesn't come forward 

to offload their share holding or the bank shall seek for the honorable High Court's permission in this 

regard. We believe that there should not be any misunderstandings as to the share holdings,.\lcthe 

company, whiclh happened by chance for this company for purchasing the sponsor shares at the inception 

of the bank, We categorically inform this bank is in no way connected to any transactions with this 

company. 

Head Office: 15, Dilkusha CIA, Dhaka~1000, Bangladesh, ~hone: ~ABX : 9559014, 9565647, 9557499, 9568275, 9559276, 9560785 

Telex: 671557·8 SIBL BJ, Email: sibl@bdonline.com, Website: www.sldlbd.com. SWIFT: SOIVBDDH 

Confidential Treatment Requested HSBC-PSI·PROD-IJ1 02743 
1983 


760611.816

O'fl~~<m~~t~ - ~ ~ ~~I JW.,..... 

SOCIAL INVESTMENT BANK LIMITED 

As perthe Share holding position as on 31.12.2008, one entity, Social Fund Trust holds above 5% share.ollhe 

bank, which is 6.779% .We, have attached herewHh a statement 01 Share holdings lor Ihis entity issued by the 

Share Department 01 the bank. Social Fund trust is a social welfare organization sponsored by Ihe Directors of 

the bank. Social Investment Bank is a publicly traded company and is enlisted wilh Dhaka Stock Exchange 

and Chitlagong Stock Exchange. . 

D Management Details- As for the management details we have attached herewith brief bio-datas for Mr. 

Abdul Awal Patwary Chainman of Ihe board of Directors of the bank and Mr. Md. Syedur Rahman, Vice 

'Chainman of the board of Directors of Ihe Bank as sought for in your letter. 

D We have also attached herewith Ihe duly filled MTS Questionnaire. 

We believe the above infonmatlonl documents shall serve your purpose. Should you need further infonmalion I 

document or clarifications on any point, please do not hesitate to contract me. 

We believe the existing excellent relationship between our two organizations shall develop further in the days 

ahead. 

Thanks for your support. 

Sincerely yours, 

~ Executive Vice President 

Tel: 7174246 

Enclose: As stated above 

Head Office: 15, Dilkusha CIA, Ohaka~1000, Bangladesh, Phone: PABX: 9559014, 9565647, 9557499, 9568275, 9559276, 9560785 

Telex: 671557-8 SIBL BJ, Email: ~ibl@bdonHne<com. Website: www.sidlbd.com. SWIFT: SOIVBDDH 

Confidential Treatment Requested HSBC-PSI-PROO-IJ102744 
1984 


760611.817

~-- holding position .. on 31.12.2008 

SLt# Faun BOlD NAME 

INT, ISLAMIC RELfEFORGANIZATION 

P,O. BOX# 14843.1EDDAH-21434. KINGDOM 

OF SAUDl ARABIA 

TObiI: 

Pera:lltage: 

.. Redatted by the Permanent 

- Subcommittee on Investigations 

Confidential Treatment Requested 

FOUOSJIARE 

504.450 

504,450 

100.00 

Page lofl 

CDBLSIlARE TOTAL (" 

504.450 3.85112 

504,450 l.851I 

% .... " 

HSBC·PSI·PROD.u102745 
1985 


760611.818

Confidential Treatment Requested 

n; boldjng position as gn 31 12 2008 

SOCIAl. FUND nun 

SOC1ALIN'VESlMEHTBAm:LID.~ !5 

Oll .. KUSHA CJA DHAIUI.I~ 

__ .. RedHted by the PtnnlUtl'nt 

Subcommittee 011 1m"ltigatiDDl 

213,000 

lU,OOO 

Puge 1 ofl 

qlBL SHAR£ (%) 

614,915 Ba7,97S 

674,975 887,975 tl.17')] 

HSBC·PSI·PROD-II102746 
1986 


760611.819

P~hCULARSOFDlR£CTOR01'SmL 

NAME 

FATHER'S NAME 

• MOTHERS t S NAME 

DATE OF BIRTH 

• EDUCATIONAL QUALIFICATION 

PRESENT ADDRESS 

• PERMANENT ADDRESS 

• BUSINESS 

Name. of firms/Companies 

where the interest is 

involved 

PHONE NUMBER 

HOME 

OFFICE/BUSINESS 

MOBILE 

Signature :' 

(Abdul ~ Awa~ Patwary) 

Confidential Treatment Requested 

Abdul Awal Patwary 

B.A. 

Chairman: 

Redacted 

Redacted 

Redacted 

Redacted 

Redacted 

Patwary Cold Storage Ltd 

Patwary Potato Flakes Ltd 

Gr:eentech GreenHouse Bangladesh Ltd 

Managing Director: ' 

Foysal Shopping Complex Ltd 

Proprietor: 

Foysal Traders 

Redacted 

HSBC-PSI-PROD~1D2747 
1987 


760611.820

ranlCUlars UI VlreCWr OJ ~lnL 

! Name 

! 

Fatber's Name 

! Mother's Name 

Date of Birth 

Educational Qualification 

Present 

Permanent 

Business 

Name of firms/Companies 

Where the interest is 

involved 

Home 

I 

OfficeIBusineS5 

Mobile 

Md. Sayedur Rahman 

Redacted 

Redacted 

Redacted 

B.A 

Redacted 

Redacted 

Managing Director: 

*l\fls :Lodestar CamuRtsl::td. 

• MIs Lodestar fashions Ltd. 

• Mis Mid Asia fashions Ltd. 

• Mis Jessore fishery 

Redacted 

Redacted 

Redacted 

Signature: \::/~ 

(Md. ==~- SayedurRahman) 

Confidential Treatment Requested 

-

HSBC·PSI·PROO'()1 02748 
1988 


760611.821

t. '\ T I. In kL"" 15u p'l' "I-b./MoHlh!~/Vk.JI,t,rt..n\oJt~h Customer Name:'JOt.lo, lTliJl:JI .71 O"~ '!Jelty, Country: ~'_~_' ___ :-_"=-___ ~<J' 

HSBC Business: (BN. PCM, cia, etc.) ___________ Date: 

This queslionnaire may be used to gain an understanding of how our client maneges its AML risk associated with 

being an agem fora MMe-y Trans(erServfce company and should be kept in ourKYC me. 

1. Which non~bank Money Transfer Service company(s) do you act as an agent for: (please list all) 

o LJ1;f:;L?<.}rtffi2 §dwn/~ MiX'" fe.t-/ lIP Pia u'd NKCorfp~rr(d-"DTl' 1'/.)'; vS4 

=-~. -'lJ--"Jr/4ltJ 1"--;-

2. 15 any of this activity routed through HSBC ~ank USA? __ 'fu" __ No 

If yes, please desCribeCot1~M ~~ trmu \ futl.>~h H.s ~Q.., rrr(rvb,d-ru. MtJ Jo ':, t8L,If·o, 

3. Can the money transfer seNices be used by: (check aU that apply) 

I Jy.pes of Cu~§tomers 

R¥tail I Indl-MG'als 

Wholesale I Businesses 

No 

4. Do you payout funds as an agent for the money transmitter? 

5, Do you send funds thro~gh the money transmitter? _ Yes _ V 

6. Does your current AML program apply to these' fypes of transactions? _ <. _ No'· (check one) 

7. Must the user of these services have an account with your institution? _ ~ _ No'" (check one) 

"If the response to questions 6 or 7 is wNo~, please answer the following questions: 

What is the maximum U.S. dollar amount that you allow to be paid out? 

___ per day, ___ per month, ____ per year 

Do you obtain identification on the receiver/beneficiary of funds? _ Yes _ No 

Do you obtain identification on the sender of funds? _ Yes _ No 

At what dollar amount do you obtain identification? $ __ _ 

How do you monitor these types of transactions? 

Other Comments: 

Updated: March 2007 

Confidential Treabnent Requested 

page 1 of 1 

HSBC·PSI·PROD-0102749 
1989 


760611.822

i(;--=:' H .... I M.hanIlHBUSIHSBC 

~,~':'::: 021231200902:02 PM _,' \ /-r:--. V~: 

"Jacob 

To ~acob'KHou5eknechtlHBUSIHS8C@HSBC02 

CC AhsDn H QUAZIIIB DAK!HBAPIHSBC@HSBC03, Jennifer E 

Kel!eher/HBUSfHSBC@HSBC02, Sad;que REZAfHSS 

DAI<!HBAPIHSBC@HSBC03, Denis E bee 

Subject Re: Social Investment Ba~k ltd (Banglade5h)~ 

We have a big file on this specific shareholder "IIRO", 

The subject shareholder is not officially recognized by Dhaka local central bank, we should cross 

reference the information accordingly 

please see attached email from Denis to Gillian dated Nov 13.2008 

The rest of information requested should be obtained from Dhaka. 

Hersel Menani Senior Vice Preslderrt I HSBC Bank USA NA 

Glob.,1 Payments i;lnd Cash M.magement 

452 Fifth Avenue, Floor 21, New York NY 10018. USA 

Phone 

Fn 

Mobile. 

Email. 

Internet 

+1·212·525-6239 

+1·212·525·5699 , hersetmehani@us.hsbccom 

HSBC Global Payments and Cash Management 

Hsac GIQbal Site 

__ "" ltedacted by the Permanent 

Subcommittee on Investigations 

Forwarded by Hersel MehanilHBUS/HSBC on 2310212009 01 :14 PM--

Denis E Q'brienJHBUS/HSBC 

131111200804:11 PM To Gillian E BachsteinlHBUS/HSBC@HSBC02, Shannon M 

JoneslHBUS/HSBC@HSBC02,Anthony 

Jufian/HBUS/HSBC@HSBC02, Hersel 

MehanilHBUS/HSBC@HSBC02 

Danie! JacklHBUSfHSSC@HSBC02, Alan P 

WiUiamson/HBUS/HSBC@HSBC02, Anne 

LiddyIHBUSIHSBC@HSBC02, Denis E 

o 02; Denise A 

2,DonaldW 

SBC02, Gloria 

CodjoeJHBU 

Salvatore/H 

HugheslHBUSIHSBC@HSBC02 

, Jessica 

A 

Subjed FW:.Update Re: OFAC Distribution #047~OS. Anti-Terrorism 

Designa'tion [SDGi}Update 

While the LN KYC for Social Investment Bank Ltd, Bangladesh clearly identifies rationale for continued 

business, I would appreciate if we can look into updating site visit information; wit/"] AMl discussion 

included, removal of Beth Fisher as RM and update as to the minority ownership with recertification Ulat 

they exert neither management control nor have board representation. 

Confidential Treabnent Requested HSBC-PSI·PRDD-0102750 
1990 


760611.823

Mary Anne, please centralize any comments from OFAC as it relates to Socia! Investment Bank through 

Me. 

COMPLIANCE's ACTIONS denoted in the LN KYC: 

As of 08/03/06, client's USD PCM account has been placed on a debit block subject to the receipt of a 

response from Sr. Management of SIB and HSBC, D~aka. 

On 08/07106 Compliance's issued an email as follows: 

After reviewing the information provided by HSBC Dhaka my provisional decision is that this relationship 

be alloWed to continue. It will be designated as a SCC Category 4 (reputational risk) with immediate effect 

and will be subject to closer monitoring as a result 

IIRO's shareholding is a minority holding and information received indicates that they exert neither 

management control nor have board representation. While this entity clearly represents a heightened 

reputational risk to the bank, I believe that with the knowledge we have today and the controls that are 

being implemented we have mitigated that risk adequately. 

The block on outbound payments that was imposed on 08103/06 may be lifted and the account returned to 

normal operation. 

CLIENT'S RESPONSE 

On 9/19/06 cnent was visited by Hersel Mehan!, Iftekhar Alam', Richard Boyle and GRM, Muhammad 

Shohiduzzaman regarding the US Treasury announcement on IlRO, Client provided the following 

information regarding their relationship with IIRO: 

- they do not have any contact with the liRa. only a PO Box and therefore referred this matter to 

their Security Exchange Agency, indicating that they wish to remove them as a shareholder. 

- they do not like having an association with a shareholder which is listed OFAC and do not wish to 

be associated with the IIRO in anyway. 

- they are not aware of any Nominee shareholders relationship or other ownership structure which 

would entitle IIRO to hold more than 8% of SociallnvestiT)ent Bank. 

- they are not aware of any actions taken by I,IRO in response to the US Treasury Department. 

- IIRO do not maintain or operate any accounts w.!~h the bank. 

- liRa is not involved in the management of the bank or is not represented on the Board of 

Directors. 

~ there have been no dividend payout to IIRO 

- they seek guidance from the Security Exchange Agency in Bangladesh and they advised they 

have the power to oust them in the next board of director meeting, 

Compliance advised on 09129{06 that the responses provided were satisfactory arid that the fact that IlRO 

has no involvement in the running of the bank, is not a client of the bank and will likely be ousted as a 

shareholder give considerable grounds for comfort. 

ROF was received on 08/10106, with no further additional information, that was not already mentioned in 

the previous findings. The most recent information, was the US Treasury announcement, that was stated 

above under Important News Release, which Compliance was aware of. 

Thanks and regards, 

Denis E O'Brien 

Vice President, Head of Global Transaelion Banking Complianee,,[ HSBC;,~ecurities {USA} Inc. 

1152 FIfth Avenue. New Yo"", NY 10019 

Confidential Treatment Requested HSBC·PSI·PROD-ll102751 
1991 


760611.824

<"'"------------ Phone. 2125251147 

~~~~< g~;==@US.hSbt com 

: ~ __ = Redacted by the Permanent , i SulKommittee on Investigations I 

--Forwarded by Denis E O'brienJHBUSIHSBC on 1111312008 03:49 PM 

Mary A CaskJoIHBUSlHSBC 

111131200803:26 PM 

Mal)' Ann Caskin 

VP Compliance 

HSBC Bank USA NA 

452 Fifth Ave Floor 7 

NY. NY 10018 212,525-5530 

To Denis E O'brienlHBUS/HSBC@HSBC02.JudyP 

StoldVHBUSIHSBC@HSBC02 

Subject Fw: Update Re: OFAC Distribution #047-08, Antj... Terrorism 

Designalion [SOGT}Update 

-~- Forwarded by Mary A CaskinlHBUS/HSBC on 11/131200803:25 PM -

Bi:zabelh 

ProtomastrolHBUSlHSBC 

11/131200801:29 PM 

To Andy H InvHBUSIHSBC@HSBC02 

Alan P WillialT'l$onlHBUStHSBC@HSBC02, Moe 

Liddy! SBC02. Denis E . 2, Denise A 

.DonaldW 

A 

Caskin/HBUS/HSBC 

Cadjoe/HBUSfHSB Richard 

Salvatore/HBUS/HSBC@HSBC02 

Subject Re: Update Re: OFAC Distribution #047-08, Anti-Terrorism 

Designation [SDGT}Update~ 

let me contact OFAC and ask for their view on the Social Investment Bank Ltd, Bangladesh in light of the 

inform'ation you've found. Will advise, 

Andy H ImlHBUSIHSBC 

, .' l' Andy H ImlHBUSlHSBC 

". .. •. 1111312008 11 :39 AM 

Confidential Treatment Requested 

To Donald W MCPhersOnlHBUSlHSBC@HSBC02, Elizabeth 

ProtomastrolH8USlHSBC@HSBC02, Mary A 

GaskinlHBUSIHSBC@HSBC02 

cc Gloria StrazzafHBUSlHSBC, Denise A 

nne 

enis E 

O'brien/HBUS Alan P 

WiUiamsonfHBUSiHSBC@HSBC02. Richard 

SelvaloreIHBUSIHSBC@HSBC02. Monique 

CodjoeIHBUS/HSBC@HSBC02. Jessica 

HSBC·PSI-PROD-lll02752 
1992 


760611.825

OubenskylHBUS/HSBC@HSBC02 

Subject Update Re: OFAC Distribution #047-08, Anti-Terrorism 

DesignaOon [SDGT1-Update~ 

Hello, 

We've searched the systems we have access to and have found the following: 

1) Union of Good 

w member of Union of Good, Mohammed KahHfa, established the Intemationallslamic Relief Organization 

(!lRO) and the IIRO has an 8.62% ownership of Socia! Investment Bank Ltd, Bangladesh (OOA 

open), Kye data mentions Social Investment Benk was designated sec category 4 

(reputational risk), 

Please let us know if you have any questions. 

Regards. 

Andy H 1m AVP. AMl Compliance. HSBC BanI!: USA, NA 

452 FtfthAvenue, Tower 7 

New'York, NY, 10018 

Phone. 212·525.a1J9 Fax. 212·525-5769 

EmaiLandy.h.im@u5.hsbc.com 

Hersel Mehani 

Senior ViC8 President I HSBC Ba.nl!: USA N.A 

Global Payments Bnd Cash Management 

452 FtfthA\lenue, Floor 21, New York NY 10018. USA 

Phone, +1·212·525-6239 

FID;, +1·212·52-5-5699 

Mobile. 

Em;'lil. hefsel.mehani@lJs.hsbc.com 

Internal HSBC Globa! Payments. and Cash Management 

HSBC Global Site 

Jacob X HouseknechUHBUS/HSBC 

~ JacobX 

HouseknechtJHBUS/HSBC 

2310212009 11 :20 AM 

--=- R",act", by the Permanent 

Subcommittee on lQl'tstigalions 

To Sadique REZNHSS OAKlHBAP/HSBC@HSBC03,Ai1san H 

QUAZII!B DAKlHBAP/HSBC@HSBC03 

CC Hersel MehanilHBUS/HSBC@HSBC02, jennifer E 

Kellehern-tBUS/HSBC@HSBC02 

Subject Socia! Investment Bank Ltd (Bangladesh) 

Sadique/Ahsan, 

Confidential Treatment Requested HSBC·PSI·PROO-Q102753 
1993 


760611.826

Good morning. We are in the process of the annual review for the client Social Investment Bank limited 

in Bangladesh and there Is a few items of information/documentation we request your assistance with: 

1.-Audited- Financials - The most recent audited financial statement that indudes the independent 

auditor's report. 

2. OWnership Details ~ According to Banker's Almanac the only owner of the bank with more than 

5% ownership is International Islamic Relief Organization IIRO, Jeddah (8,6 %). Please confirm that 

information is accurate. Also, please indicate if the remaining shares are all privately held with less than 

5% ownership or if there is a portion of publicly traded ownership. 

3. Management Details - Please provide a brief bio for Mr. Abdul Awa! Patwary and Mr. Md. 

Sayedur Rahman. 

4, MTS Questionnaire - In order to stay current with the client's business, please have them fill out 

the attached MTS Questionnaire. 

[attachment "MTS QUESTIONNAIRE REVISED03.07.doo" deleted by Hersel MehanilHBUSIHSBCj 

Thank you, 

Jake Houseknecht 

PSRR 

HSBC Bank USA, NA. 

90 Christiana Road 

New Castle, DE 19720 

(302) 327-2520 

Jacob X HouseknechVHBUSIHSBC 

Confidential Treabnent Requested HSBC-PSI-PROD~102754 
1994 


760611.827

Shannon M. Jones 

101021200607:19:28 AM 

Princely P MurolHBUS/HSBC 

09/29/06 03:55 PM 

FYI ~ Princely 

To Shannon M Jones!HBUS/HSBC@HSBC 

PSRR@HSBC 

bee 

Subject Fw: Soclallnvestment Bank ~ nRO 

.. -- Forwarded by Princely P MurolHBUSfHSBC on 09/29/06 03:52 PM .•.•. 

Alan T KetleylHBUS/HSBC 

09/29/0603:49 PM 

Hersel. Sharyn. GiIHan 

To HerseJ Mehani/HBUS/HSBC@HSBC, Sharyn 

Malone/HBUS/HSBC@HSBC, Gillian E 

Bachsteln/HBUS/HSBC 

"Andrew Rizkalla~ <andrew.rizkalla@us.hsbc.com>. 

"George Tsugranes" <george,tsugranes@us,hsbc,com>. 

Princely P Muro/HBUS/HSBC@HSBC 

Subject Social Investment Bank· IIRO 

I'm satisfied with the answers provided by Social Investment Bank to the questions posed by Hersel 

on his recent visit. The fact that IIRO has no involvement in the running of the bank, is not a client 

of the bank and will likely be outsed as a shareholder give considerable grounds for comfort. 

Please monitor the ownership of this bank closely - all things being equal. once IIRO ceases to be a 

shareholder we should be able to drop the see status. 

Alan T, Ketley 

Senior Vice President, Anti Money laundering 

Tel: 212 52561471 Fex: 212 382 7580 

--_. Forwarded by Alan T Ketley/HBUS/HSBC on 09/29/2006 03:44 PM --

Horsel Mehani/HBUS/HSBC 

09/27/200604;22 PM To Alan T Ketlev/HBUS/HSBC@HSBC 

MAndrew Rizkalla K <andrew.rizkaUa@us.hsbc.com>, 

Angela CasseU-Bush/HBUS/HSBC@HSBC, GlIlJan E 

BllchsteinfHBUS/HSBC@HSeC, Stephanie L 

Napier/HBUS/HSBC@HSBC 

Subject Re: Complience issues from Trip Dhaka~ 

Note related to Kye We asked all the question listed in your email 

Sociallnvastment Bank· International Islamic Relief Organization Which is on the OFAC list owns 

B%. They are not on the board. do not receive dividends, do not have voting rights and do not 

exen any control. IIRO never responded to their request to provide a full address rather than a PO 

Confidential Treatment Requested HSBC·PSI·PROD~1D2755 
1995 


760611.828

Shannon M. Jonss 

10/02/200607:19:28 AM 

box and they will use this to oust them by November which is allowed according to their Articles of 

Association which I have a copy given by them to me. { will send it to Stephanie for her files} 

I) Please describe what actions bank has taken with respect of the US Dept ofTreasury's 

announcement about lIRQ on August 3, 2006? 

I was infonned that the bank does not have any contact with the IIRQ only a PQ Box and 

therefore referred this matter to their Security exchange Agency indicating that they wish to 

remove them as a shareholder. 

2) How does the US Dept of Treasury announcement about IIRQ affect the way Social 

Investment views this entity? 

They do not like having an association with a shareholder which is listed by QFAC and do not 

wish to be associated with the lIRQ in any way 

3) Is the bank aware of any Nominee shareholder relationship or other ownership structure which 

would entitle IIRQ to hold more than 8% of Social Investment Bank? 

No they are not 

4. Is the bank aware of any actions taken by lIRQ in response to the US Department of Treasury 

announcement? 

No they are not as mentioned they do not have any contact with lIRQ 

5. Is IIRQ a customer of the bank and does the bank conduct any cross border transactions for 

lIRQ? 

lIRQ has no relationship with the subject bank and do not maintain or operate any account with 

the bank 

6. Given that lIRQ is the bank's largest shareholder, please reconfinn that lIRQ is not involved in 

the management of the bank or represented on your Board ofDirectofS. 

No representation of any sort 

7. When was the last time lIRQ received a dividend in respect of its ownership in the bank? 

Presently they do not pay them any dividend 

8. Prior to the US department of Treasury's announcement, IIRO's name had been linked in the 

media to terrorist financing issues .. how did Social Investment react to those news stories and 

what actions were taken? 

They ask for guidance for the Security exchange Agency in Bangladesh and they have the power 

to oust them in the next board of director meeting. 

Hersel Mehani 

Senior Vice President 

____________________________________ ~I 

Confidential Treatment Requested HSBC-PSI-PROO-lll 027 56 
1996 


760611.829

Shannon M. Jones 

10/02/200607:19:28 AM 

Global Payments and Cash Management 

Alan T Ketley/HBUS/HSBC 

To Hersel Mehani/HBUS/HSBC@HSBC 

Alan T Ke1IeyJ}fBUSIHSBC 

Tel: 212~525~6147 

09/26/200601:52 PM Angela Cassell·8ush/HBUS/HSBC@HSBC, Gillian E 

Bachstein/HBUS/HSBC@HSBC. Stephanie L 

Napier/HBUS/HSBC@HSBC, "Andrew Rizhlla" 

< andrew .rizkaUa@us.hsbc.com:> 

Subject Ae: Compliance issues from Trip Ohakalli'l 

Hersel 

I'd like to see answers to each of the individual questions please. 

Thanks 

Alan T. Ketley 

Senior Vice President, Anti Money laundering 

Tel: 212 525 61471 Fax: 212 382 7580 

Hersel Mehani/HBUS/HSBC 

Harsel Mehani/HBUS/HSBC 

09/26/200608:47 AM To Stephanie l Napier/HBUS/HSBC@HSBC 

Angela Casse!l-Bush/HBUS/HSBC@HSBC, Alan T 

Ketley/HBUS/HSBC@HSBC. Gillian E 

Bachstein/HBUSfHSBC@HSBC 

Subjact Compliance issues from Trip Dhaka 

I have a few documents with me on Social Invest Bank which I will I send as well 

Hersel Mehani 

Senior Vice President 

Global Payments and Cash Management 

••••• Forwarded by Het'sel MehclniIHBUS/HSBC on 09{2-6/2006 08:40 AM _ww 

iaJam@hsbc.com.bd 

Tel: 

09/26/200603:19 AM 

Confidential Treabnent Requested 

hersel.mehanl@us.hsbc.com, 

To richard.c.boyle@us,hsbc.com. 

mshohiduzzaman@hsbc.com.bd 

Subject >Call Report: Social Investment Bank H KYC 

I 

HSBC·PSI·PROO-Ol02757 
1997 


760611.830

Shannon M. Jones 

10102/200607:19:28 AM 

client: Social Investment Bank 

t1SBC attendees: MEHANI, HeIsel; ALAM, Iftekhar; BOYLE, Richard C; 

SHOHIDUZZAMAN, Muhammad 

Client attendees: ISLAM, Md.; SOHEL, Abu Sadek; ASADUZZAMAN, K; SHAMSUDDOHA, A 

Attendees from other Clients: 

Detailed description: 

Herse~ discussed few issues related to lIRO, who is one of their sponsor 

shareholders. HBUS raiDed some concern in the past & also in recent past. It's 

worth mentioning here that, on July 2006 US Treasury put IIRO :in OFAC sanction 

list. The meeting was initiated to have the opinion of SIBL' 5 management in 

this regard. The management informed. us that, IIRO doesn' t have any 

representation in their board (not even in the past) and neither they are 

involved. in thei.r management. Manaqemcnt is also with the opinion that, if 

required, they will arrange to forfeit IIRO's share through AGM/EGM. Their 

memorandum of articles (copy provided to Hersel) also snpports such actioD.. 

Click on this link to see this i tern in ClientVision! 

http://clientvision.systems.uk. hsbc/rs/autoLogin.do?objectId""%7BACE6056B-AC19-

4. 944-97 8 0-2l22A 78 606F9%7D 

[attachment "CallReport.pdf" deleted by Hersel Mehani!HBUS!HSBC] 

•• _- Forwarded by Her-siI':!l Mehani/HBUS/HSBC on 09/2612006 08:40 AM --

Iftekhor ALAMIIB DAK/HBAP/HSBC 

Tel: B80 2 9660536 x 290 

09/26/200603:39 AM 

To Hersel MehanifHBUS/HSBC@HSBC 

Richard C Boyle/HBUS/HSBC@HSBC, Muhammad 

SHOHIDUZZAMANII8 DAKIHBAP/HSBC@HSBC 

Subject Fw: USD Account with HBUS 

Please follow the doclink to the Call Report. 

I1lI 

•• _- Forwarded by Iftekhar ALAMJIB DAK/HBAP/HSBC on 09126/2006 01 :41 PM _ •• 

Description I Purpose: USD Account With HBUS 

RelationShip Manager: Aftab HAIDER/IB DAK/HBAP/HSBC 

Benk Representetive/51: Iftekl1ar ALAMIIB DAK{HBAPfHSBC 

Customer Representative/a}; Mr. Abu Harlif Khan. Managing Diretttor. Mr. Md. Mokhles.ur Rahman. Additional Managing 

Director. Mr. Md:Monibur Rahmetn. First Assistant Vice President &. Head of Treasury, Mr. 

Confidential Treatment Requested HSBC.PSI-PR(m-Q102758 
1998 


760611.831

Shannon M. Jones 

101021200607:19:28 AM 

Hassan Mahmud Tariq. Executive Officer. !nternational Division 

NatuHl of Contact: Meeting on Customer's Pramlsas 

Product Discussad: 

Discussed issues raised by Compliance Department of HBUS regarding shareholders and senior 

managers relationship among themselves, which they clarified . In reply to our query, Mr . Khan 

informed us that they have internal AML Guideline. which was approved by their board as well 

They described us their system of disbursing of inward remittance fund to the customers in 

Bangladesh. 

MD confirmed us that the bank is going for IPO within this year. 

Requested DC confirmation limit from HSBC to conduct more business . In reply, we indicated that 

upon satisfectory share f1oatlon through IPO and conducting of resonable business through the 

nostro account {to be opened by HBUS), we will actively consider extending DC confirmation line to 

Premier Bank. 

Confidential Treabnent Requested HSBC-PSI·PRO~102759 
1999 


760611.832

Shannon M. Jones 

081071200610:24:05 AM 

Princely P Muro/HBUS/HSBC 

08/07/06 10:08 AM 

FYI 

To j;~::/~:~~~~~a:~~~Us~~SBe@HSBC. Shannon M 

PSRR@HSBC 

bee 

Subject Fw: Socia! Investment Bank 

--- Forwarded by Princety P Muro/HBUS/HSBC on 08/07/0610:08 AM "-" •. 

Alan T Ketley/HBUS/HSBC 

08/07/0609:47 AM Hersel MehaniJHBUS/HSBC@HSBC, Sflaryn 

To Ma!one/HBUS/HSBC@HSBC 

.. Andrew Rlzkalla" <andrew.rizkalla@us.hsbc.com>, 

"George Tsugranes· <george.tsugranes@us.hsbc.com>, 

Princely P Muro/HBUSJHSBC@HSBC 

Subject Social lnvestmeflt Bank 

Hersel, Sharyn 

After reviewing the information provided by HSBC Dhaka my provisional decision is that this 

relationship be allowed to continue. It will need to be designated as an sec Category 4 (reputational 

risk) with immediate effect and will be subject to closer monitoring as a result (George" an ALT of 

$50,000 should be applied). 

I am not willing to commit to the 6 months suggested by Hersel and we will review activity and 

determine what further action may 'be required as events warrant. !n this regard, the timing of 

Hersel's upcoming visit is fortuitous and give the bank some more time to react to the Treasury 

announcement. We will have some specific questions for Hersel to ask the bank when he visits 

them next month (George/Andrew please draft appropriate questions). We will review the status of 

the account in the light of the information Hersel brings back with him as well as any news received 

in the interim. 

By copy of this note would George please confirm that the names contained in the Treasury 

announcement last week are now in our peyment filter. 

IIRO's shareholding is a minority holding and information received indicates that they exert neither 

manegement control nor have board representation. While this entity clearly represents a heightened 

reputational risk to the bank, I believe that with the knowledge we have todey and the controls that 

are being implemented we have mitigated that risk edequately. 

I see that an EDD RoF is pending and have asked FIG if they can hasten its production. 

The block on outbound payments that was imposed on Thursday may be lifted (and teh account 

returned to normal operation) as soon as George confirms that the names are in the filter. 

Alan T. Ketley 

First Vice President, Anti Money Laundering 

Confidential Treabnent Requested HSBC.PSI·PROD.()102760 
2000 


760611.833

Shannon M. Jones 

08/071200610:24:05 AM 

Tel: 212 525 6147 

Fax: 212 382 7580 

Confidential Treatment Requested HSBC-PSI.pROD-II102761 
2001 


760611.834

Shannon M. Jones 

08/071200610:30:18 AM 

Princely P Muro/HBUS/HSBC 

08/07{O6 10:08 AM 

FYI 

Gillian E BachsteinfHBUS/HSBC@HSBC, Shannon M 

To JonesfHBUSfHSBC@HSBC 

PSRR@HSBC 

bee 

Subject Fw: Sociallnllestment Bank 

--- Forwarded by Princely P Muro/HBUS/HSBC on 08/07/0610:08 AM --_. 

Alan T Ke11eylHBUS1HSBC 

OB/07/06 09:47 AM To ~:'~~eiHe;~~j~:~~;~:~~HSBC, Sharyn 

~ Andrew, RizkaUaft < andrew .rizk.alla@us.hsbe.com:>, 

ftGeorge Tsugranesft <george.tsugranas@us.hsbc,com>, 

Princely P MurolHBUS/HSBC@HSBC 

Subject Social Investment Bank 

Hersel, Sharyn 

After reviewing the information provided by HSBC Dhaka my provisional decision is that this 

relationship be allowed to continue, It will need to be designated as an SCC Category 4 (reputatlonal 

risk) with immediate effect and will be subject to closer monitoring as a result (George - an AL T of 

$50,000 should be applied). 

I am not willing to commit to the 6 months suggested by Hersel and we will raviaw activity and 

determine what further action may be required as events warrant. In this regard, the timing of 

Hersel's upcoming visit is fortuitous and give the bank some more time to react to the Treasury 

announcement. We will have some specific questions for Hersel to ask the bank when he visits 

them next month (George/Andrew please draft appropriate questions), We will review the status of 

the account in the light of the information Hersel brings back with him as well as any news received 

in the interim. 

By copy of this note would George please confirm that the names contained in the Treasury 

announcement last week are now in our payment filter. 

IIRO's shareholding is a minority holding and information received indicates that they exert neither 

management control nor have board representation. While this entity clearly represents a heightened 

reputational risk to the bank, I believe that with the knowledge we have today and the controls that 

are being implemented we have mitigated that risk adequately, 

I see that an EDD RoF is pending and have asked F!G if they can hasten its production. 

The block on outbound peyments that was imposed on Thursday may be lifted (and teh account 

returned to normal operation) as soon as George confirms that the names are in the filter. 

Alan T, Ketley 

First Vice President, Anti Money Laundering 

Confidential Treabnent Requested HSBC·PSI-PROO-0102762 
2002 


760611.835

Shannon M. Jones 

08/071200610:30:18 AM 

Tel: 212 525 6147 

Fax: 212 382 7580 

Confidential Treatment Requested HSBC·PSI·PROD-Ill02763 
2003 


760611.836

Printed by; Rhonda Lee-Thom~ 

HSBCID 

From: 

TItle: 

WorkGroup: 

Geol'90 Tlugnlnes 

Vice President 

AML Compliance 

To: Rhonda Lee-Thomas 

Hersel MehanilHBUS/HSBC@HSBC 

Nanayo Ryan/HBUS/HSBC@HSBCAMERICAS 

Sharyn MalonelHBUSIHSBC@Republic 

Subject: Re: F~: Social Investment Bank Ltd E1I 

Ronda - HRC designation is fine. 

Rhonda Lee-Thomas on 16 Apr 2005 12:25 

Rhonda Lee-Thomas on 16 Apr 2005 12:25 

From; 

This: 

WorkGroup: 

Rhonda lee--Thomas 

Officer 

Client Ser.rices • Flnanciallnstltutions 

To: George Tsugranes. e1 81 

cc:: Nanayo Ryan. et 81 

Subject: F ..... : Socialln,!estment Bank Ltd 

George/Herset. (KYC Linkl-··· > CI 

Note 

1 B Apt 2005 08;06 

Tol: 302·636-2044 

Location: De/aware OPS1/2. Floor 2 

Mal/Stu: 10297 

Note 

16 Apr 2005 12:25 

Tel: 302-636-2077 

Location; Delaware 

Mallsal't: 6717 

Based on the additional support of the CEO and his recommendation, please advise how to proceed 

with the KYC., whether or not It Is okay to .. AM Approve". 

George, also please confirm if this client must be fe-categorized as a sec, or is the current HRC 

status satisfactory. 

Thanks, 

Rhonda 

_~~H~' •• _.H __ H ______ Forwarded by Rhonda Lee--Thomas!HBUS/HSBC on 04/16/2005 09:55 AM -.----------------.--.-•• 

Steve BANNER on 16 Apr 2005 04:09 

TIde, 

WorkGroup: 

Steve BANNER 

To: Nanayo Ryan 

cc: Rhonda Lee-Thomas. et al 

Subject: Social Investment Bank Ltd 

Nanayo, 

Confidential Treatment Requested 

Memo 

16 Apr 2005 04:09 

Tal: aao 2 9660536 x 511 

location: 

MBnSlze: 2639 

HSBC-l'S~PROD'()1027G4 
2004 


760611.837

Printed by: Rhonda Lee-Thom ....... _ 

I refer to your correspondence with Shohid regerding Social Investment Bank Ltd (SIBL). 

I have been in Bangladesh for only 2 months and have not yet met any of the executives from SIBL. 

Based,on mv discussions with Shohid. however, t can see no reason why we should flot cQntinue 

the relationship as at present. 

It would be useful, however, if Hersel were to visit SIBl during his time in Dhaka and provide me 

with his first hand views. 

Thanks and regards. 

Steve Banner 

CEO HSBC Bangladesh 

Confidential Treabnent Requested HSBC-PSI-PROD-Ill02765 
2005 


760611.838

Printed by: Rhonda Lee~Thorr. .. _ 

FIG Investigations 

Rhonda, 

I am providing a copy of our Report of Findings for SOCIAL INVESTMENT BANK LTD ., as 

you requested, which includes my RemarkslRecommendations and a Summary prepared by Laura 

Spadanuta, and investigator for the FIG [fyou have any questions, please do not hesitate to 

contact Laura or myself. 

FINANCIAL INTELLIGENCE GROUP (FIG) 

REPORT OF FINDINGS 

SUBJECT: Social Investment Bank Ltd. 

REMARKS / RECOMMENDATIONS 

AJthough the allegations presented in this report, primarily against the IntemationaJ Islamic Relief 

Organization (lIRO) and the Lajnat aJ -Birr Al Islamiah, are highly adverse, no U.S. or foreign 

government law enforceme!1t or regulatory body has stated, unconditionally. that these 

organization are under sanction> The reputational risk is significant, however. and the possibility 

that furtherinvestigations by U.S. authorities may ultimately uncover substantiating proof of a 

connection to terrorism. The risk of future sanctions and the reputational risk based on the 

allegations noted in this report should be measured against the current risks involved in our 

relationship when ultimately deciding a course of action. 

Kind Regards, 

Peter Javier 

Director, FIG 

... 

SUMMARY OF FINDINGS 

INVESTIGATOR: Laura Spadanuta 

ENTITIES: lotemational Islamic Relief Organization, Islamic Charitable Sodety Lajnat 

aI-Birr AI Islam, Dr. M.A. Mannan, Mohammad Aum, Late Abdul Majid, Abdul Matin 

Khan, Rukhsana HabibuU.h, Late Mun.bi Fazlur Rahman, Mohammad Ismail 

Confidential Treatment Requested HSBC·PSI·PROO.()102766 
2006 


760611.839

Printed by: Rhonda Lee-Thorr,~~-

REQUESTOR: Rhonda Lee-Thomas 

An ALE search was requested for the shareholders of Social Investment Bank Ltd. Enhanced due 

diligence was performed on the shareholders whose names appeared on the FIG databases and on 

the Woria-chock database. 

International Islamic Relier Organization (lIRO) 

IIRO is a Saudi-Arabian charity. The Muslim World League, which is an organization dedicated 

to spreading Wabhabism that is funded by the Saudi government, is the parent organization of the 

IIRO. It has been reported that the IIRO claims on its website to have a relationship with the 

United Nations High Commissioner for Refugees. 

The IIRO was named in the 2002 lawsuit brought forward on behalf of family members of victims 

of the September II, 2001 terrorist attacks. The IIRO was accused of having "played key roles in 

laundering of funds to terrorist for the 1998 African embassy bombings" and having been involved 

in the "financing and aiding and abetting ofterrorists in the 1993 World Trade Center bombing." 

The IIRO has also reportedly funded aI -Qaeda directly, as well as several of its satellite groups 

Osama bin Laden's brother-in-law, Mohammed Jamal Khalifa, headed the Philippine branch ofthe 

IIRO in the 1990's. The Philippine government has charged that the group contributed to 

terrorist causes there IIRO opened its U.S. branch (under the name International Relief 

Organization) in 1991 at the 555 Grove 5t, complex in Herndon, Virginia that was raided in 

March 2002 by the F .B.I. in a counter -terrorism investigation. Several other Islamic charities 

were also raided in the sam~ complex. Money received by the International Relief Organization 

by the Saudi government was used to set up Sana Bell Inc ., which was responsible for investing 

the money. Sana Bell Inc. was accused of giving $3.7 million to BMI Inc. from 1992-1998. BMJ 

Inc, was a New Jersey investment company that adhered to Islamic principles One ofBMI 's 

chiefinvestors, Yasin Qadi, was designated by the U.S. and the U.N. as a "specially designated 

terrorist" for his support ofal-Qaeda and Hamas. Another ofillvll's major investors was Harnas 

leader Mousa Abu Marzook. BMI's founder, Soliman S . Bihein, was indicted in 2003 by the 

U.S. government for immigration violations. 

Furthermore, Israeli forces reportedly found a large collection of documents in the West Bank 

with the IIRO logo and a list of aid recipients including the highlighted names of families of 

suicide bombers. Additionally, it has been reported that the IIRO has sent at least $ 280,000 to 

the Tulkann Zakat Committee, a Hamas ~affiliated organization in the w.est Bank, IIRO has also 

been linked to several other orgl:lnizations that have been accused of terrorist financing. including 

AI-Sharnal Islamic Bank (which was supported by Osarna bin Laden), and the SAAR Foundation, 

which is related to the al -Rajhi family (who have also been named in the September 11 families 

lawsuit). 

It has been further reported that the Success Foundation is the successor to the U.S. office of the 

IIRO. The Success Foundation was directed by Abdur Rahman Alamourn, a Muslim -American 

activist who was indicted on October 23, 2003 on money laundering. tax, immigration and 

customs-fraud charges. Mr, Alamoudi is also being investigated for his connections to the bin 

Confidential Treatment Requested HSBC-PSI-PROD-lI102767 
2007 


760611.840

Printed by: Rhonda Lee~Thom __ 

Mahfouz family and Yaqub Min.a, which have been accused of supporting terrorists. 

Islamit Charitable Society Lajnat A-Birr AI Islam 

Lajn.t aI-Birr AI I,lami.h was established in 1987. It has been ,tated thafLajn.f a1 ~Birr AI 

Islamiah was the original name of the Benevolence Intern.tional foundation, and that it originally 

had offices in Saudi Arabia and Pakistan. According the U.S. government, among the purposes of 

Lajnat was to "raise funds in Saudi Arabia to provide support to the Mujahadeen then figbting in 

Afghanistan," as well as to provide "cover for fighters to travel in and out of Pakistan and obtain 

immigration status." Benevolence Internationa1 has been tied to terrorism and its director, Enaam 

Amaout, was indicted in 2002 with conspiring to defraud his group's donors by secretly providing 

fin.ncial and logistical help to al-Qaed. for a decade. , The indictment alleged th.t the group was 

originally Lajnat al -Birr AI Islam, although the defense la"1'ers claimed that the groups are 

separate. Additionally it has been aUeged that Lajn.t al -Birr took over a "health project" for 

Makbtab al-Khidemat, the precursor to al-Qaeda, which was active in the 1980's. 

MIS Rabbani Trading Co. 

Rabbani Trading Co. appears to be a trading company headquartered in Dubai, UAB. No adverse 

information was found regarding the company . There is a Mohammad Rabbani of Afghanistan 

who has been designated as a terrorist by the U.N. and the U.K., but there is no evidence that he 

is linked to the company. 

Dr. M.A. Mannan, Ph. D. 

Dr. MA Mannan was the chairman and founder of Social Investment Bank Ltd. He was fired in 

2000 after fault was found with his banking procedure. It was alleged that he created an obstacle 

to the team of Bangladesh Bank during their visit to Social Investment Bank Ltd. Additionally, he 

was accused of interfering with bank administrative work and with harassing a bank employee 

Additionally, an individual named M.A Mannan was also the Bangladeshi minister of Labor and 

Employment. He was charged in a 2002 government white paper with illegal spending of 

government money. Because M.A. Mannan appears to be a common name in Bangladesh, it is 

unclear whether the two individuals are one and the same. The Social Investment Bank Ltd. has 

not been mentioned in any articles about the Mannan who was Labor Minister, which might imply 

that they are separate individuals. 

Mohammad Azam 

There is a Mohammad Azam of Kashmir who is reportedly a leader ofthe terrorist organization 

Lasbkar-e-Toiba. It is important to note that Mohammad Azam is a fairly common name and 

there is no evidence linking the terrorist to Social Investment Bank Ltd. 

Late Abdul Majid 

There has been an Abdul Majid from Singapore that is reported to have been arrested by the 

Confidential Treatment Requested HSBC-PSI-PROO.IJ102768 
2008 


760611.841

Printed by: Rhonda Lee-Thon. __ 

Singapore government for terrorism -related activities. No adverse information was found 

regarding a "Late Abdul Majid." 

Rukhsana HabibuUah 

Nothing adverse was found regarding any individual named Rukhsana Habibullah An individual 

by the name "Habibullah" from Singapore is believed to have been arrested by the Singapore 

government on terrorism-related charges. There is no evidence that this individual is related to 

Rukhsana Habibullah. 

Late Munshi Fazlur Rahman 

An individual named Fazlur Rahman from Pakistan was reportedly a pro -Taliban cleric. He was 

placed under house arrest from 2001 through 2002. There is no evidence that his name was 

actually "Late Munshi Fazlur Rahman." 

Mohammed Ismail 

A Mohammed Ismail of Connecticut was indicted by the U.S. Attorney's Office for dealing in 

firearms. This individual does not appear connected to the Social Investment Bank Ltd. 

In conclusion, it is of significant concem that the leading shareholder of Socia] Investment Bank 

Ltd. (at 8.62%), International Islamic Relief Organization, has been accused in both the 

Philippines and in America ~ffunding terrorist groups. The group is currently under investigation 

by the F.B.I. Another of the bank's shareholders, Lajnat al-Birr Allslam (at 1.54%) has also been 

connected to terrorist groups Additionally, the bank's founder and chairman was let go on 

allegations of interference and harassment Other adverse connections to individuals with the 

names ofthe bank shareholders could not be confirmed and were quite possibly merely cases of 

two individuals having the same name Finally, it is important to note that Social Investment 

Bank Ltd. is located in Bangladesh, which was ranked as the world 's most corrupt nation by 

Transparency InternationaL 

Michael Ellis on 08 Mar 2005 15:30 

Michael Ellis on DB Mar 2005 15:30 

From: 

Tn'a; 

WorkGroup: 

MIchael Ellie 

Assistant Vice President 

COM?fANTI-MONEY LAUNDERING 

To: FIG HBUS 

Noto 

DB Mar 2005 15:30 

Tel: 

LDcatlon: 

Mail Size: 

212-525-8931 

452 5th Ave, Floor 07 

6945 

Subject: Fw: Social Investment Bank Ltd Bangladesh AC •••••• 

Confidential Treatment Requested 

__ .. Redacted by the Permaaent 

Su.bcommiHH on IJnlntipdons 

HSBC-PSI-PROD-U102769 

J 
2009 


760611.842

Printed by: Rhonda Lee~Thorr 

~~~-~~~~-~--~~~-~-~~~ Forwarded by MiChael Ems!HBUS/HSBC all 03/0S/2005 03:28 PM ~--~--~~~~~-~-~~~*-*-*---­

Nanayo Ryan. on 08 Mar 2005 15:11 

From: 

Title: 

WorkGroup: 

ft!a.na'lof!)'~ 

Vice President 

Client Services - Rnanciallnstitutions 

No .. 

DB Mar 2005 15:11 

Tel: 302·636-2108 

L()cation: Delaware 

Mati Size: 6096 

To: Michael Ellis 

Rhombi Lee~ThDmElis 

Subject: Fw: Soc.iallnvestment Bank Ltd aangladesh AC ••••• 

Hi Michael, 

Could you please treat this as a special request as we needed this as soon as possible. 

Thanks, 

Nan 

~~ ___ •• w __ .~~~~~.~~~.~ Forwarded by Nanayo RYiln!HBUS/HSBC on 03/OBI2oo5 03:06 PM ~~~_~~w_w."._~ __ ~_~~~_~ __ ~ 

Rhonda Lee-Thomas on 08 Mar 200514:32 

Note 

08 Mar 2005 14:32 

From: Rhonda ~&-Thoma8 Tel; 302*636·2077 

ntle: Officer Location: Deleware 

WorkGfOlJp: Client Services. Finanelallnstitutions MallSlza: 2S23 

To: Fmancio1lnteUigence Group 

Ct: Nanayo Ryan 

Subject: Social Investment Bank Ltd Bangladesh AC •••• 

As I am updating the KYC, would you please run an "updated" EDD on the !sited "high risk'" client. 

I have attached the KYC Link below for your reference:~-~·*;. Iill 

Social Investment Bank Ltd, Dhaka, Bangladesh 

Best regards, 

Rhonda 

Confidential Treatment Requested 

- = Redacted by the Permanent 

Subcommittee on Investll"dolll 

HSBC-PSI-PROO-IJ102770 
2010 


760611.843

Printed by: Rhonda lee-Thomas 

HSBC~ 

To: Rhonda Lee~ThomasfH8US/HSBC@HSBC 

Nanayo Ryan/HBUS/HSBC@H·SBC 

Gloria Straua/HBUS/HSBC@HSBC 

Teresa Pesce/HBUS/HSBC@HSBC 

Alan T Ketley/HBUS/HSBC@HSBC 

Lynda J Cassell/HBUS/HSBC@HSBC 

FIG HBUS@HSBC 

Note 

10 Mar 200518:02 

Subject: Report of Findings ~ Social Investment Bank Ltd ~ FIG (UPDATE) 0. 

CONFIDENTIAL 

••• FOR INFORMATIONAL PURPOSES ONLY'" 

FINANCIAL INTELLIGENCE GROUP (FIG) REPORT OF FINDINGS (UPDA TEl 

SUBJECT: Social Investment Bank Ltd 

ENTITIES: Social Investment Bank Ltd __ .., Redac:ted by the Permanent 

Subcommittee on InnstigRtions 

REQUESTOR: Rhonda Lee-Thomas, Nanayo Ryan 

DEPARTMENT: Banknotes 

ACCOUNTS: Social Investment Bank Ltd Acct# •••• 

A report of findings in support of enhanced due diligence for Social Investment Bank Ltd was 

conducted in November of 2003. The text of that report has been pasted belQ"\~ As of today, 

March 10, 2005, we have conducted an update review for this bank to detennine if there have 

been any reports of criminal activity surrounding this corporation, or any notable news or 

changes, since November of2003. Our findings are as follows· 

-----------------------------------------

Confidential Treatment Requested HSBC-PSI-PROD.ij102771 
2011 


760611.844

Printed by: Rhonda Lee-Thor" .... _ 

Recommendation 

In consideration of the below -mentioned allegations of terrorist financing against Social 

Investment Bank's largest shareholder, the International Isl.ntic ReliefOrganization,we strongly 

recommend that a relationship with Social Investment Bank not be approved until the matter is 

discussed with Senior Compliance Management. 

International Islamic Relief Organization (IIRO) 

Of prima;r.y concern in the November, 2003 report was the issue of Sociallnvestment Bankls 

majority shareholder, the International Islamic Relief Organization (IIRO), and the IIRO's alleged 

connections to terrorist organizations such as AI Qaeda. 

According to the Bankers Almanac profile published on Lexis -Nexis on February 14,2005, the 

lIRO remains the largest shareholder of the Social Investment Bank, with an 8.62% stake in the 

bank. The Bankers Almanac profile provides a very specific breakdown of the shareholders. 

naming ·dozens of individual shareholders who hold a smaller than 1 % stake in the bank. Of all 

the shareholders named, the IIRO is the only shareholder that claims a 5%-or-larger stake in 

Social Investment Bank Ltd. 

As the November, 2003 report made clear, the International Islamic Relief Organization is alleged 

to have provided funding to terrorist groups such as Al Qaeda in the past The group endorses 

Wahhabism, a strict interpretation of Sunni Islam that values martyrdom Wahhabism is the 

school of Is Jam that OSatna: Bin Laden is reported to have practiced. While the group has avoided 

any official sanctions ITom a governing body, they are still widely reported as being suspected of 

terrorist financing. Based on the frequency with which the group is connected to terrorist 

financing in the press, it is likely that their activities will always be under scrutiny, and future 

government sanctions against the group are highly probable. 

As recently as February, 2005, the Associated Press reported that the US expressed concern wlten 

the nRO took part in Tsunami relief efforts in Indonesia The assistant secretary for terrorist 

financing at the US Treasury Department was quoted in the article as saying that the IIRO's 

presence could lead to extrentist ideologies gaining a foothold in the region and establishing a 

foundation for terrorist activity. 

Reporting on the IIRO's Tsunami relief efforts on February 25, 2005, the "Associated Press II 

stated that the lIRO is alleged to have acted as a cover for Al~Qaeda operations in the Philippines, 

"The Manila Standard" reported on January 22, 2005 that Filipino law enforcement has adopted 

measures to cut off funding to an alleged new Islamic fundamentalist group that trains its 

members in terrorism and has already plotted a bombing in Manila, which was foiled by police 

Filipino officials believe funding for the group, and other fundamentalist groups in the region, 

comes from Al-Qaeda linked organizations. The only such organization named specifically in the 

article was the International Islamic Relief Organization, which is alleged to provide funding for 

Islantic Fundamentalist groups in the Philippines by channeling the funds to local Islamic 

non~governmental organizations. 

Confidential Treatment Requested HSBC-PSI-PROD-Cl02772 
2012 


760611.845

Printed by: Rhonda lee-Thor,,~ 

The World-Check profile on the lIRa classifies the group as a terrorist entity, based on reports 

that the lIRa has funded groups that are acknowledged by the federal government and the United 

Nations as haying aided and abetted terrorism. 

On January 10, 2005, it was reported that the lIRa had merged with the Muslim World League 

World-Cheek's profile on the Muslim World League classifies the group as a terrorist entity 

World-Check claims that the group was initially funded by Osama Bin Laden and, like the lIRa, 

is alleged to have funded groups that aid and abet terrorism Additionally, partial funding to the 

groups responsible for the 1993 World Trade Center bombing has reportedly been traced backto 

both the lIRO and the Muslim World League. 

In conclusion, the lIRO is rarely mentioned in the press without it also being alleged that the 

group is a source of terrorist financing. Even the frequent reports on the group's charity activities 

and relief efforts make mention ofthe group's link to terrorism. These allegations have yet to lead 

to government sanctions against the group, and none of the reports found have made mention of 

Social Investment Bank Ltd in any manner. 

Social Investment Bank Ltd 

Social Investment Bank Ltd maintains headquarters at 15 Dilkusha Commercial Area, Dhaka 

1000, Bangladesh. According to the Bankers Almanac 'profile published on February 14, 2005, 

the bank is ranked 12th in its country and 2,257 in the world. In 2003, the bank reported $ 359.9 

millionjn total ass.ets.. 

Kamaluddin Ahmed is the current Chairman ofthe bank, with Kazi Anwarul Mahbub listed as the 

bankts lli'iiaging Director. The bank's correspondent banking relationship"'s do not extend far 

beyond its relationships with the global branches of Standard Chartered Bank and American 

Express Bank Ltd. Its relationships with these two corporations does extend the bankts pre"sence 

into most of the global banking regions, but it should be noted that Social Investment Bank Ltd 

does not appear to have correspondent relation,hips with many of the other major global banking 

corporations. 

Our review found no evidence of criminal activity directly related to Social Investment Bank Ltd 

or its management Social Investment Bank Ltd does not appear on World-Check. 

The Bankers Almanac profile of Social Investment Bank Ltd published on FebruarY 14, 2005 on 

Lexis-Nexis reports that the International Islamic Relief Organization (IIRO) is the bank's largest 

shareholder with an 8.62"/0 stake in the bank. As detailed above, the lIRO is alleged to have 

provided funding for numerous terrorist organizations, including Al Qaeda. 

See below for November, 2003 report of findings. Feel free to contact me with any questions 

regarding this report. 

Bob Powers 

Confidential Treatment Requested HSBC-PSI-PROD.()102773 
2013 


760611.846

Printed by; Rhonda lee~ThOIi~ 

HSBCID 

From: 

Tldo, 

WorkGroup: 

George Tsuijranea 

Vice President 

:. )~,ML Compliance 

To: Rhond'~ lee-Thomas 

Hersel Mehani/HBUSJHSBC@HSBC 

Nanayo Ryan/HBUS/HSBC@HSBCAMERICAS 

Sharyn Malone/HBUS/HSBC@Republic 

Subject: Rs: Fw: Social Investment Bank Ltd I:j, 

Ronda ~ HRC designation is fine. 

Rhonda Lee-Thomas on 16 Apr 200512:25 

Rhonda Lee-Thomas on 16 Apr 200512:25 

From: 

Title: 

WorkGroup: 

Rhonda Loo-Thomil" 

Offk::er 

Client Sel'\'tces - Finnncial Institutions 

To: George Tsugranes. at 81 

cc: Nanayo Rvan. et al 

Subject! Fw: Socia! Investment Bank ltd 

George/Hersel. fKYC link)~~"~>El 

Note 

18 Apr 2005 08:06 

Tal: 

ltIc;:atiQn: 

Mall Size: 

Nota 

302*636~2044 

Delaware Of:"S1I2~ Floor ~ 

10297 

16 Apr 200512:25 

Tel: 302-636-2077 

Location: Delaware 

MaU$lza! 6717 

Based on the additional support of the CEO and his recommendation. please advise how to proceed 

with the KYC., whether or not it is okay to "AM Approve". 

George, also please confirm if this client must be re-categorized as a SCC, or is the current HRC 

status satisfactory_ 

Thanks, 

Rhonda 

~ ____________ w_~ __ Forwarded bv Rhonda Lee-Thomas/HBUSIHSBC on 04/1612005 09:55 AM --"--"---"""-"-"--""-""~-­

Steve BANNER on 16 ~pr 2q05 04:09 

M.= 

16 Apr 2005 04:09 

From: StevlII BANNER Tel: 880 2 9660536 )( 511 

Title: Location: 

WotkGroup: Mail Slze: 2639 

To: Nanayo Ryan 

cc: Rhonda Lee-Thomas. et at 

Subject: Sociallnvastmem Bank ltd 

Nanayo, 

Confidential Treatment Requested HSBC-PSI·PROD~102774 
2014 


760611.847

Printed by: Rhonda lee-Than 

I referto your correspondence with Shohid regarding Social Investment Bank ltd (SIBl). 

I have' .... b~e. n in l3.angl~Jl:~eSh for only 2 months and have not yet m.et an. V.' at fh~',~~~~.~q~\"}r~i~ ~~aL .. Based Q~l"m¥ d;scli!>~lons with Shohtd, however, t can see no reasarr w~V: #~.iQRWlkl!¥~thi'l~e. 

the ~~it~'r~~ip as··ill- pr8s~nt. . . 

It woulif:tti~:useful, 'ho~ever, if-Hersel were to visit SIEJ'L~uring'hi~;titritt'lrntOha:-~~~:r$rovrclime with his. first hand views. . 

Thanks and regards. 

Steve Banner 

CEO HSBC Bangladesh 

Confidential Treatment Requested 

I 

HSBC·PSI.PROD-lllD277S 
2015 


760611.848

Angelo Cassell~Bush08/03/2006UO:44:2' PM 

Sheryn MaIDne/HBUSIHSBC 

OB/03J06 05:34 PM 

Angela, 

To Angela Cassell~8ushfH8US/HSBC@HS8G 

PSRR@HSBC. Gillian E Bacnstein/HBUSJHSBC@HSBC 

bee 

Subject I"'W: ~Ia! Investment tlanK, tJanglClOesn 

Pis note the attached. The last approval was back in Oct. 2003. Plaase treat this profile with a 

priority. advising Princely when he returns from vacation on Monday U believe Gillian is officially on 

vacation at the time of this writing). 

Thanks 

~~~~--~~---~--.-.-.--- Forwarded bV Sharyn Malona/HBUS/HS6C on OS/0312006 05:30 PM -~~-----------------~-----­

ShoOlryn Ma!one on OJ Aug 2006 17:07 

Note 

03 Aug 2006 17:07 

From: ShM'f'l Malone Tal: 212·636·2106 

ntle: First Vice Presiderrt locution; Delaware OP51/2, Floor 2 

Wo,kG,oup: Client Services Support MaiJSlzo: 15230 

To: Stephanie L Napier, et al 

cc: Gllllan E Bacl1st6ln. et aI 

Subject: Social Investment Bank, Bangladesh 

To all. 

__ "" Redacted by the Permanent 

Subcommittee 011 Investigations 

Based on the attached U.S. Treasury announcement designating "the Philippine & Indonesian branch 

offices of the Saudi·based International Islamic Relief Organization (IIRO) for facilitating fundraising 

for al Qaida and affiliated tje.rro.,.i,.t .'.OUIS", we have today (8/3/06) placed a debit block on Social 

Investment Bank account I 

IIRO holds a 8.62% stake in Social Investment Bank{SIB). Bangladesh who is a US PCM client of 

HBUS since Oct. 2003. Their value to US PCM is $44k annualized, split betwaen BOP income & 

NIl. Also, SIB holds USD accounts with Amex & Stanchart N.Y. 

After speaking with Compliance, we have placed a debit block on outgoing payments subject to the 

Confidential Treabnent Requested HSBC-PSI·PROD-<J102776 
2016 


760611.849

Angela CasseU .. Bush08/03/2001J0!S:44:21 PM 

receipt of a response from Sr. Managament of SIB, and HSBC, Dhaka. Stephanie Napier is 

managing the block, tharefore GFT Risk should only accept authorization to release from either 

Stephanie or myself. 

If you have any-questions-, please let Stephanie or I know. 

August 3, 2006 

hp-45 

Treasury Designates Director, Branches of Charity Bankrolling AI Qaida Network 

The U.S. Department of the Treasury today designated the Philippine and Indonesian branch 

offices of the Saudi-based International Islamic Relief Organization (lIRO) for facilitating 

fund raising for al Qaida and affiliated terrorist groups. Treasury additionally designated Abd 

AI Hamid Sulaiman AI-Mujil, the Executive Director oflhe Eastern Province Branch of 

lIRO in the Kingdom of Saudi Arabia. 

"Abd AI Hamid Sulaiman AI-Mujil, a high-ranking IIRO official in Saudi Arabia, has used 

his position to bankroll the aI Qaida ne1Work in Southeast Asia. AI-Mujil has a long record 

of supporting Islamic militant groups, and he has maintained a cell of regular financial 

donors in the Middle East who support extremist causes," said Stuart Levey, Treasury's 

Under Secretary for Terrorism and Financial Intelligence (TF1). 'Today we are holding him 

to account." 

The lIRO was established in 1978 and, according to its website, the organizalion has branch 

offices in over 20 countries in Africa, Europe, Asia, and the Middle East. 

"It is particularly shameful when groups that hold themselves out as charitable or religious 

organizations defraud their donors and divert funds in support of violent terrorist groups," 

said Leyey, "We have long been concerned about these llRO offices; we are now taking 

public action to sever this link in the al Qaida network!s funding chain. 11 

Todays action was taken pursuant to Executive Order 13224, which is aimed at detecling 

and disrupting financial flows to terrorists. Under this authority, U.S. persons are prohibited 

from engaging in transactions with the designees, and any assels they may have under U.S. 

jurisdiction are frozen, 

IDEN~RU&ORMATION 

Abd AI Hamid Sulaiman AI-MujiJ 

____ , __________ ---1 

Confidential Treabnent Requested HSBC-PSI-PROD~102777 
2017 


760611.850

Angela CDssell·Bu~08/03/20UWti;44:21 PM 

Abd AI Hamid Sulaiman AI-Mujil (AI-Mujil) is the Executive Director of the lIRO Eastern 

Province (lIRO-EP) branch office in the Kingdom of Saudi Arabia. AI-Mujil has been called 

the "million dollar man" for supporting Islamic militant groups. 

AI-Mujil provided donor funds directly to al Qaida and is identified as a major fundraiser for 

the Abu Sayyaf Group (ASG) and Jemaah Islamiyab (ll). Both ASG and II are al 

Qaida-associated terrorist groups in Southeast Asia designated pursuant to the authorities of 

E.O. 13224. These terrorist groups are also on the United Nations 1267 Committee'. 

consolidated list of individuals and entities associated with the Taliban, al Qaida andlor 

Usama Bin Ladin, 

In 2004, AI-Mujil invited a Philippines-based II supporter to Saudi Arabia under the cover of 

traveling for the hali (the Muslim pilgrimage), and planned to provide him with cash to carry 

back to the Philippines to support organizations including n. 

AI-Mujil was also present in Mghanistan in the late 1990s and personally knew Usam. Bin 

Lawn and deceased al Qaida co-founder Abdallah Azzam. Al-Mujil traveled continuously to 

meet with members of Bin Ladin's organization in Arab countries. In the 1990s, AJ-Mujil 

established a relationship with senior al Qaida operational planner Khalid Shaykh 

Muhammad. 

AI-Mujil has a long history of providing support to terrorist organizations. He has 

contributed di'ettfinanci.1 assisraneno' ASGleaders;'including Abdurajak Janj.lani:' 

(deceased). 

The Indonesian and Philippine. branches of IIRO have received support from IIRO-EP, 

which in turn is controlled by AI-Mujil. Indeed, he is often responsible for authorizing 

payment transfers for lIRO Philippines (lIRO-PHL) and lIRO Indonesia (lIRQ-ION). 

Name: 

AKA" 

DOB: 

Nationality: 

Abd al-Hamid Sulaiman AI-Mujil 

Dr. Abd al-Hamid AI-Mujal 

Dr. Abd Abdul-Hamid bin Sulaiman AI-Mu'jil 

Dr. Abd AI-Hamid AI-Mu'aljal 

Abd al-Hamid Mujil 

A.S. Mujel 

Abu Abdallah 

Saudi Arabian 

L-__________________________________________________________________~ 

Confidential Treatment Requested HSBC-PSI-PROD-II102778 
2018 


760611.851

Angela CS!lSelJwBush08/03/20tJatJ6:44:21 PM 

International Islamic Relief Organization, Philippines Branch Offices 

The IIRO-PHL is • source of funding far the aI Qaida-afliliated ASG. Illio.,PHL has SerYed 

as • liaison for the ASG with other Islamic extremist groups. A former ASG member in the 

Philippines familiar with IIRO operations in the country reported that a limited amount of 

foreign IlliO funding goes to legitimate projects and the rest is directed to terrorist 

operations. 

The Philippine branches of the lffiO were founded sometime in the late 19805 or early 19905 

by Muhammad Jamal Khalifah, wha is Usama bin Laden's brother-in-law and has been 

identified as a senior aI Qaida member. lffiO-PHL's director, Abd aI-Hadi Daguit, is a 

trusted associate ofKhalifah. 

While working as the director ofllliO-PHL, Khalifah maintained close connections with aI 

Qaida through his relations with senior aI Qaid. supporters, including Specially Designated 

Global Terrorist (SDGT) Wa'el H.rnza Julaidan. At the time Khalifah directed the 

IlRO~PHL, he employed an ASG intelligence officer as the provincial director of the 

IIRO-PHL in the Tawi~Tawi region of the Southern Philippines until that officer's death in 

1994. 

In the mid 1990s, a major ASG supporter, Mahmud Abd AI-Jam Afif, served as the director 

ofthe IlliO·PHL and used the organization to funnel money to terrorist groups including the 

1{Su.AfifWl!Simplicatell·in<he·assassinatiorrofFatherSalvatore Carzeda'inSan J oseBusu;' 

Zambaanga City, Philippines on June 20, 1992. 

AKAs: 

Confidential Treabnent Requested 

International Islamic Relief Agency 

International Relief Organization 

Islamic Relief Organization 

Islamic World Relief 

International Islamic Aid Organization 

Islamic Salvation Committee 

lffiO 

The Human Relief Committee of the Muslim World League 

World Islamic Relief Organization 

AI Ig.tha AI-Is1amiya 

H.yat aI.Aghatha aI-Islamia .I-Alamiya 

Hayat aI-lgatha 

Hayat AI-'Igatha 

Igh.tha 

Igatha 

Igassa 

Igas. 

----..l 

HSBC·PSI·PROO.a102779 
2019 


760611.852

Angela Cassell~Bu9h08/031201 "6:44:21 PM 

Add ...... ' 

Other Locations: 

Ig.se 

Egassa 

International Islamic Relief Organization, Philippines Offices 

201 Heart Tower Building 

108 Valero Street 

Salcedo Vill.ge, Makati City 

Manila, Philippines 

Zamboanga City, Philippines 

Tawi Tawi, Philippines 

Marawi City, Philippines 

Basilan, Philippines 

Cotabato City, Philippines 

lnlernationallslamic Relief Organization, lndonesia Branch Office 

The IIRO Indonesia director has channeled money to two Indonesia-based, II-affiliated 

foundations. Information from 2006 shows that IIRO-IDN supports II by providing 

assistance with recruitment, transportation, logistics, and safe~havens. As onate 2002. 

IIRO-IDN allegedly financed the establishment of training facilities for use by at Qaida 

associates, 

AKAs: 

Confidential Treabnent Requested 

Intern.tion.l Islamic Relief Agency 

International Relief Organization 

Islamic Relief Organization 

Islamic World Relief 

International Islamic Aid Organization 

Islamic Salvation Committee 

lIRO 

The Human Relief Committee oflhe Muslim World LeagueWorld 

Islamic Relief Organization 

AI Ig.th. AI-Isl.miya 

H.yat aI-Agh.tha al-Islamia aI-Aiamiya 

Hay.t aI-Igatha 

H.yat AI-' Igath. 

Igh.th. 

Ig.tha 

Igassa 

Igasa 

Igas. 

Egassa 

--' HSBC·PSI-PROO-<Jj 02780 
2020 


760611.853

Angela Cassall-BushOB/03/20 5:44:21 PM 

Address: International Islamic Relief Organization, Indonesia Office 

Jalan Ray. Cipinang Jaya No. 90 

East Jakarta, 13410, Indonesia 

P.O. Box 3654 

Jakarta, Indonesia 54021 

-30-

Confidential Treatment Requested HSBC.PSI.PROD'()1027Bl 
2021 


760611.854

Know Your Customer: Socia! Islam! Bank Ltd 

--"" Redacted by the Permanent 

Subcommittee on Investigations 

------~~now Your Customer Profile 

HSBC Bank USA, N.A. 

Reference: •••• Client Profile Approval Status: IS Approved 

Country Risk Status: High Risk 

High Risk ClientType: Special Category of Client 

Client Name: Sociallslami Bank Ltd 

Country: BANGLADESH 

• Changes to lIlese fields on "Approved" Profiles require Re-approval. 

I. General Information 

02107/2012 10:12:58 AM Page 1 

Confidential Treatment Requested HSBC-PSI-PROD.()102782 
2022 


760611.855

Know Your Customer: Soclallslami Bank Ltd 

02107/2012 10:12:58 AM 

Confidential Treatment Requested 

IS~;~:;:'~";::"~:~,Umited provides various commercial banking Is, esh, It offers banking services through 

opening of various types of deposit and investment accounts, 

finandng trade, providing letters of guarantee, opening letters of 

credit, collection of bills effecting domestic and international 

transfer, leasing of equipment and consumer durables, hire 

purchase and installment sale for capital goods, investment in 

low-cost housing, and management of real estates, as wen [lS 

partidpatolY investment in various indusllial, agriculUJral, 

transport, educational, and health projects. The company also 

Involves In cash WAQF Certificate; and the development and 

managemen1. of WAQF and MOSQUE properties, and trusl funds, 

as well as provides lockers, debit cards, and online banking 

Page 2 

HSBC-PSI·PROO-o1027BJ 
2023 


760611.856

Know Your Customer: Socia! !slami Bank Ltd 

02107/2012 10:12:58 AM Page3 

Confidtmtial Treatment Requested HSBC-PSI·PRDD-lI102784 
2024 


760611.857

Know Your customer: Socia! Islami Bank: ltd 

02107/2012 10:12;58 AM Page 4 

Confidential Treatment Requested HSBC-PSI-PROD-01D2785 
2025 


760611.858

Know Your Customer: Socia! Islam! Bank Ltd 

02107/2012 10:12:58 AM 

Confidential Treatment Requested 

to clarify the issue, The bank explains that the liRa 

shares of the bank. when it was floated and 

i bonus shares, The liRa currently has a holding of 

bank has no transactions and are in no way 

organization. Bank is still seeking to offload 

on 09/29106 that the responses provided 

and that the fae..1 IhalliRO has no involvement in 

I of the bank, is not a client of the bank and will likely be 

shereholder give considerable grounds for comfort. 

announced on August 

and Indonesian branch 

S,udi·b,,,'" 'ntem'tian,' islamic Relief 

fundraising for 81 Qaida and 

addltiooaUy designated Abd AI 

Exerutive Director of the Easlern 

the Kingdom of Saudi Arabia 

i lhattheyexerlneifher 

have board representation, 'vVhile this 

heightened repUlationa! risk to the 

the knOWledge we halffi today and the 

ng implemented we have mitigated that risk 

activity lhrol..lgh HSBC Bank USA: nCaverfunds 

HSBC. NY (Nos\ro NC) 10 SIBl. Ha." No funds 

sent, AMl plUQRlm applies to these funds and user musl have 

account. 

6/10/2011 that RM/GRM has been queried several 

resolution to this issue and the only response we have 

that they are awaiting rsspon.',e from the dient 

acknowledgea Ilia response. 

Page 5 

HSBC·PSI-PROD-Ol02786 
2026 


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Know Your customer: Sociallslami Bank ltd 

(2) that the charity has absolutely no board Of 

m:~::'==l~~':~.~~~~ end (3) that the Bllngiadesill government (n , the central bank and Ministry of Finance) is 

an URO ownen;hip stake poses difficulty for any 

i bank with such <l relationship and has worked hard to 

II. Ownership/Management/Business Information 

02107/2012 10:12"58AM Page 6 

Confidential Treatment Requested HSBC-PSI-PROD-II10Z787 
2027 


760611.860

Know Your Customer: Soclallslamj Bank Ud 

III. Referral Information 

IV. Visitation 

V. Purpose/Nature of Activity 

.,', ,'_",,,p,:"< <"'<'~F 

CH (Clearing House) 

AMP (Account Reconciliation) 

AS$et Management 

heck Collection (Cash Letter) 

heckslOemand Drafts 

leafing (Funds Transfer) Dally 

COtnmercialUne 

ommitments 

ontro! Disbursement 

urrentAccount 

0210712012 10:12:58 AM 

Confidential Treatment Requested 

1MOM)' Ma".' 15ecUritlesLending 

waps 

Sweep Overnight Investment 

meDe:poslts 

rading - DerIvatives 

Trading M Emerging Markets 

rading - Equities 

Page 7 

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Know Your Customer: Soclallslaml Bank Ltd 

Derivatives fading ~ Fixed Income 

adoring radlng ~ Foreign Exchange 

Orward Rate Agreements radlng w Futures 

f'I<>ba'zalion Trading - Securttles (Treasury) 

=:"'(CDoffset, radlnglLending - Pl'9CiouslBase 

Meta" 

~El<pOS""'Lim;t Zero Balance Account 

thar: . Refer to Chents file for anticIpated volume of actIVIty . 

VI. Financial Summary 

VII, Documentation Checklist 

Bank Client and Not a Central Bank 

02107/2012 10:12:58 AM Page 8 

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2029 


760611.862

Know Your Customer: Social Jslami Bank Ltd 

VIII. Summary of Reasons 

We have reviewed the Infonnatlon provided above In the contel<l of the bank's "Know Your Customer" 

olley and "due diligence" requirements and Cllteria. Based on the following summary of reasons, we feel 

comfortable recommending this client for bankina business. 

he purpose of this account is to clear USD wire tmnSt3crions and DC Trade related activity, The expected DC volumes are 30*35 DCs 

DeT month, valuing from USDSK 10 USD 300K. The anticipated activity fur MT103l202lypewire transfers is between 10 to 20 

ransactions per month. 

ection 312 Variance 

he DecembEJ( 2010 report of transactional actlviLles (Treasury. Third Party Transfers, Cash LeUer, and Drnrts) from lhe Dates of 

1/01/2010-1213112010 versus 01101/2009-12131/2009 reflected Treasury varlance (71%) in BCtual vis expected activity (see exhibit 10 

n client's file), 

~en queried 02.120/2011, Virgil D Rodrigues responded, In Bangladesh the banks maintain USD Bcrounls with the Central Bank 

hrough which they can settle local USD payments, In 1I1e last few years, because of the better quality of backward linkage supply for 

eady-made garments (RMG) has Significantly risen in the local market it has resulted in a growing need fur local DC settlements. 

Fonsequently, Ihe banks require adequate funds in their inter bank dearing account to settle \hose bUIs and they prefer to maintain 

fundS in their Central Bank accounts to meet those local DC payments. As such, swap Imnsactions are settled through inter bank 

pccounts instead of nostro accounts and as a result such variance of treasury actlvity in that specific pefiocl. 

~.~'Sponsor'slDirect6r'SM(8IHess than &%) ~ 2.2.06% 

oreign Sponsor's (aU l~s Ihan 5%) - 5.18% 

ublicly traded with less than 5% ownership - 72.76% 

ota! 100,00 

s perthe Share holding posltlon as on 31,07.2010, we do not have any sharehOlderl1aving 5% Of above share to any single personJ 

roup, 

source: Email received from Virgil D Rodrigues on 0212012011> 

Not~: Although the 11130 ~as less IhallS,*, ownership,. it Is listed here With details due to_the m:~~ureof the organizatlo~> 

~!:~~~~i!!~:'::J.t!?:~**~.~~~!.£~~?,,~~~~*~ (IIRO) 1.69% OWnership of Sodal Islami Bnnk 

stablished in 1978 as a humanitarian nongovernmental organization (NGO) 10 provide assistance 10 victims of natural disasters and 

NBrs all over the world. IIRO was elso created after it was discovered that 80% of refugees and victims were Muslims, 

~e major part of llRO's financia! COfliributions come from private dono,tions in SaudI Arabia. An endOW"ment fund (Sanabi! AJ-Khai:) has 

o,een established to generate a stable income to finance its various activities. Headquartered in Jeddah, HRO Is structured into venous lba;::u:. =~i~e;~a~~~ ~:~:n~~~::~oo~;~~e~~e~~e~tRo~~~:jt~~IDA~~~I~~t ~~=~ao7!~j~e6~~~:nt nglneering Consultancy: and the ~Our Children project". 

he llRO's relief programs are directed towards the provision of medical, educational and socia! support of those in despemls need. It 

Iso encourages enlrepreneurs by sponsoring viable economic projects and small businesses that can help victims find employment 

nd earn a Uving. To fulfill these objectlves, the URO has eslabllshed a wide network of national and International contacts with various 

slamic and non-Islamic relief organizations, institutions and individuals, operating in severnl countries in Europe, Asia and Africa. 

reference is given to providing asslstance to victims of natural disasters and wars, 

<source: www.gm-unccd.orglfisldfngoliirolres.htm> 

ie t's 

02107/2012 10:12:58 AM Page 9 

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Know Your Customer: Sociall-slami Bank Ltd 

amalUdd n Ahmel j.. Chairman 

amaluddin Ahmed has 34 years of business experlence to his credit. He is the chairman of Alif Group of Industries, former 

lce~President of FBCCl and former President of Chfttagong Chamber of C<lmmerce and Industry (CCC!), 

Sourte: http]JWww.thefinaIiCia1e)tp~ss~bd.CQmrmote.pnp?dat$=20n ..Q6...14&l'Iews _id=139179:" 

nisul HOQue- Vice Chairman 

r, Anisul Haque B. Com (Han's) In Accounting from Dhaka University in 198R He has completed CA Course in 1991 from ICAB. 

e joined Hamdard Laboratories as an Accounts Officer in 1991. He is member of Boar-d of Directors of Social Investment Bank 

imited (SIBL) on behan- of Hamdard Laboratories and he also member of Finance & Investment Committee of Socla! Investment 

ank ltd. He is the Secretary of P.F. Trustee Soard and President of Hamdard Officers Kallayan Samrry (HOKS). He traveled 

~oUand, Germany, England, Moscow, Singapore, Dubai and USA 

Source: http:f{www.hamdarctcom.bd/newilndex.php?option=com_contant&view=article&id=129<emld=58> 

ohammad Azam.* Vice Chairman 

r. MoM. Azam was born in the year 19641n a respectable Muslim family at Chittagong. He is an arts graduate. He hes 11 years of 

xperience in the various fields of bUsiness. He Is the proprietor of MIs Zia & Brothers & Bushra Trading and sponsor shareholder of 

Oela! Investment Bank Umited. He is attached with many social and cultural organizations. 

Source: http://wv..w.ngid.comlboard_directors.php> 

tha' Na iruddin· Director 

r. Nasiruddin was elected Vice Chairman of SIBL at the bank's 126lh board meeting in Dhaka, on April 26, 2006. He was born in 

hlttagong in 1962. He has completed his graduation in arts. He has 20 long years of business experience. He is, also, the proprietor 

fM/s Nasim Trading Company and MIs Nams Trade C<lrporation. He is the Chairman of the Claims Committee of the Northern 

enera! Insurance Co. Ltd. He is involved with various educational and socio-cultural activ!ties. 

source: Northern Genernllnsurance C<lmpany Limited Prospectus> 

:5 urRahmatr 

DB: 01/03/1952 

~~~~I~~~j~~~r: Lodestar fashions Ltd.; Mid Asia fashions Ltd; Jessore fishery 

ayedur Rahman isthe Managing Director of Lodestar Fashions Ltd. and Mid Asia Fashions LId. He is rerated with many social 

rganizations 

source: Provided by client.htlp:tfWWW.sibfbd.comiphplnewsipopup.php?yz=45> 

si 

nhanced Due Diliaence Visit. 08123{2010 

lient: Sociallslami Bank Limited 

~~BC attendees: 

shtiaque Ahmed, Relationship Manager (lA) 

irgll RODRIGUES, Assistant Relationship Manager (VR) 

lient attendees 

.M.M Famad, Executive Vice President, international Division (AMMf) 

~!a~eede~~~:~~~~nged to administer an enhanced due dlligence on the client. Outing the meeting, the following issues has been 

lscussed and details are given below 

ntroduclion of New Business and Branch expansion' 

MMF informed that slnoo June,2009, SOctallslami Bank Ltd did not start any substantial new line of bUsiness, there hiSS been only 

orizonta! expansion of products and networK which includes 3 new branches and Central Remittance Processing Unit(CRPU)and they 

re going to launch their Islamic Credit Card very soon. 

0210712012 10:12'58 AM Page 10 

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Know Your Customer: Socia! Islam! Bank Ltd 

nership Changes: 

ere has not been no major change in the Banks ownership. AMMF confirmed that no individual, family or institution is holding mO!1l 

han 5% of the Bank's total shareholding 

hange in AMl PQIicy: 

MMF advised that they have prepared their internal AML Policies and Guidelines according 10 the requi!1lments of those acts which 

ave been outlined by the Centra! Bank as Money Laundering Prevention Act,2009 and Anti Terrorism Act,20Q9, 

n the meantime they have not implemented any new AML procedures or transaction monitoring toois. 

lien! on-boarding process 

MMF informed that they have a very regularized and formal way in the form ofchecktists while opening an account. 

oca! ellen! on boarding procedu!1lis maintained as per the Centra! Bank AML guideline. Necessary KYc documents and transaction 

rofite is obtained. FOf Exchange Houses Of Money Exchange accounts, the bank follows Central Bank procedures which require 

king approval from Central Bank before establishing such relationships. During this approval process, detail documents of the client 

re submitted to the Central Bank for their approva!. 

oela! Islami Bank does not have any non resident foreign accounts. For local individuals and corporate entities, all related documents 

fe checked by the Brarlch Anti Money Laundering Compliance Officar (BAMLCO) checks aU documents with the checklist outlined by 

he Central Bank such as photo lD ofthe customers like passport, driving Ucense etc, In recent days, copy of National Identification 

ard is preferred, Two copies of customers' photographs duly attested by the introducer, who is an existing customer/acceptable 

rson to the Bank is obtained, Same procedures are followed while on-boarding local corpomte entitles for each of the 

lrectorsiSponsors.). If (s)oo thinks that the!1l is an suspicion and further endorsement they send it to the Chief Anti Money Laundering 

ompliance Officer (CAMlCO) in the Head Office for endorsement, 

ollcy and status regarding Money Business & other high risk customers: 

MMF informed that Social Islami Bank does not accommodate any shell banks. There are stringent regulatory restrictions in dealing 

ith any shell bank. Social Islami Bank maintains relationships with some Exchange Houses{Placid NK Corporatfon, Lotus Forex Ltd, 

emit Master SDN BHD, Fast Remit SDN SHD, Western Union) to facilitate inward remittances from different countries. These 

9 these accounts with Socia! Islami Bank efter obtaining elldorsement from the Centra! Bank. 

sactlng with money exchange houses as high risk and prescribed specific guidelines to deal with this. 

icense issued by the Central Bank or other appropriate authOrity of its country of domicile, Credit report 

~ge.f\~y, i:ly~"ited finan~i31j of l!'!~(!h~e y~a~LP~,~!E!_C1f.,'!\Ltt:e5Iir:ector~, et~. ~!~ ~_~_l1i~.~~?L ___ _ 

learance from the Bangladesh Consular Office in the country of domicile of the Money Service is required before commencing the 

elationship with them. There are no preciOUS metal or gem traders in Sociallslaml Banks customer-base 

ML Policy & screening process of restricted clients while on-boarding and transactions 

MMF added operations releted to AML and other updated circulars pertaining to AML are circulated through the branches on a 

ontinuous basis. AMMF informed that they have not installed any filterin.g system for AML recently. The Kst ofrestrlcted counterparties 

s received from the Centra! Bank and is distributed electronica!ly to al! the branches from the office of the CAMLCO (ChIef Anti Money 

aundering Compliance Officer), They scan all wire transactions by their names, acccunt numbers and remitting bank details and try to 

atch it with the list provided by the Central Bank. If he thinks that there is any suspicion and further endorsement they send it to the 

hief Anti Money Laundering Compliance Officer (CAMLCO) in the Head OffIce for andorsement. Alter sending the updated list from 

he Central Bank to all the bmnches and SME centers they ask aU branches to submit a feedback if there is a match. According to their 

wn policy, ]fthere is a match they are supposed to send a report to the Central Bank. AMMF added operations !1llated to AML and 

ther updated circulars pertaining to AMl are circulated through the branches on a continuous basis and they scan transactions from 

FAG countries 

orrespondent bankIng and payable tIlrough accounts: 

ociallslami Bank Ltd is not a!lowing any of their customers to provide correspondent banking services through their account 

aintained with HSBC Bank USA, N.A. Payable through account is also not permissible within the Banking guideline of the country. 

AMLCQ' 

r. Md, Shafiqu! Islam, Executive Vice President Is the Chief Anti Money Launderlng Compliance Officer. He reports to the Managing 

irector of the Bank. 

ontactdetails· 

MMF requested us to direct the future queries and documentation requests to hlsattentton, His contact details are furnished below' 

r. Md. Shaliqul Islam 

xecutive Vice President & Chief Anti Money Laundering Compliance Officer 

oeia! Islam! Bank Limited 

slephone: 8802 9556664 

mali: sibl@bdonllne.com 

02f07f2012 10:12:58 AM 

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Knew Your customer: Social !slam! Bank Ltd 

bn.site Vi.,i a ·on -03f09J201 

[~e main purpose ofthe visit was to meet Md. Moinuddin Hossain{Nobel), Assistant Vice President (MMH), and introduce Ms. 

hagufta Zabin Khan(SK). He joined recently from EXIM Bank, MoUjheel branch and was happy to see us also providing 

orrespondent services to SISl-as weI!. H& already has tested-our sei'Vtoos and reqtle$ted us10 provicte tM -sama-selViee-and 

tandard. \/lie informed that we will assist them as much as we can, SUbsequently, we also requested him to roule more DC and 

Faymen! business in his new bank and bade him best of luck in his new endeavor. MMRTwanted to know whether we have done any 

r:.velopment with their Credil Une, I answered we have tin date but am working on it and will try our level best to as soon as possible -te adde~ that they are getting a lot of requests tor "Confirmed" DC's but unfortunately he cannot provide us those as we don't have 

ny Credit Line facinties With them 

n ita Visit", ion ~11104/2010 

~~ vjsitwas to invite Mr, Farhad and Mr. Muhammad All, Managing D!redorof SIBL for dinner hosted for Mr. Cam Adams, Regional 

ead of Financial Institutions Sales, Global PCM, A'Sia Pacific. 

r. Muhammad Ali joined SIBLasthe Managing Director on 01 NOV10, hence it was a courtesy visit to me him too. 

r. Famad and Mr. Muhammad Ali was very muc!1 grateful for being invited to the dinner and stressed that HSBC Is a wond reputed 

~.nk and they are very happy to bank with us. Mr. AJi who banked with HSBC fr:om o~er ba.nks, expressed "'e w1!l ,continue to bank 

ith HSBC in the current bank and expected to have a wln-wln situal!on from thIS relatIOnship. We answered we w!l1 try our level best 

o provide the unparalleled service that we have been giving them and try to foster this relationship 10 higher grounds. 

02/07/201'2 10:12:58 AM 

Confidential Treatment Requested 

Ii 

Bangladesh Bank (Cenlral Bank). 

to identify clients at the 

, not offering anonymous accounts 10 

the source of opening credits to accounts, 

approach 10 products and geographies, 

that unusual activity can be alerted, 

i aCl!vity reported to the criminal authorities, 

i money laundering control training to lIs employees, an 

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Know Your Customer: Sociallslaml Bank Ltd 

0210712012 10:12"58 AM Page 13 

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Know Your Customer: Socia! Islam! Bank Ltd 

dient as a sec, for reputa!ional risk, 

monitoring threshold of$50,000, effecti ... e 08107/06 

Signature Section 

APPROVE/DENY HISTORY: 

AM Appro ... ;;d; (Old Status In ProceSS), 10/1Siz00305:35 PM: Rhonda Lee-Thomas 

New Account. Requires immediate attention! 

Appro"';d~(OldSlatus AM APp~:~;~~"dC"1Qj20!2003"05:23-PM-:-ri~~::';~f'H"u~"ng 

Group intra-net KYC has been completed. 

jn"P~~~s;: (Old-StatusApprovedj," 12i1s/20041"o:1TF'-M: R~I~;;da'L~-ihOmas 

Customer Is sent back far re-approval 

AMAppr~;~d'-(oid Status 1~P;Ucess~1mfz005 of"03PM:Rhonda Lee-Thomas 

Updated CaU visil. 

CS Denied: (Old Status AM Approved), 03fOB120Q5 11 :46 AM: Sharyn Maione 

02107/2012 10:12:58 AM 

Confidential Treatment Requested 

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Know Your Customer: Soctalls1ami BanK Ud 

-Update revenue informatiOfl - ac:lual 2004 i/o anlicipatecl in 200312004 

- Obtain HSBC CEO's written approval to retain (annually) 

-Ask for another EOD Report to determine if anything has occurred during the la51 year. 

,Under EDD Section you mention yearly visits (yet only have Dec 04 Usted - what happen to the inWal visit? 

AM·-.kpp~;;d: (Old Status CS [i"enled), 06/291200703:03 PM: Shan~~-M Jones 

No Comments 

CS Denied: (Old Status AM Approved), 071031200701:<18 PM: Gillian E Bachslein 

Pis provide follow-up on the Banks attempt tolinterest in ous!{ing) IIRO as a shareholder. Additional revisions required, as 

discussed 

AM Approvecl: (Old Status CS Denied), 07/0312007 04:04-PM: Shannon M Jones 

Updated as required. Will send email to RM to follow-up on the status of IIRO shares. 

CS"Approved: (Old Status AM Approved), 08/031200706:56 PM: Gillian E Bachstein 

No Comments 

IS ·Approv~: {Old Statu~-6Sl\Pprov~~·o87161200iT1:51";O;:M:-&;b SheUy 

Agree based on clarfficatioos on EDD, worldwide group realtionship 

IB Approved: (Old Status IS Approved), 08118/200703;03 PM:BeihFiSh;r 

Based on the continued support, knowledge, and monitoring from/by HSBC Bangladesh & HBUS PCM. 

Approved: (Old Status lB Approved), 08/17/200701:51 PM: Alan T K~il~-Y· 

Please indude some comment about the current political sibJation in Bangladesh and how it may impact the business climate in this 

profile 

The variance between expected and actual volumes of Treasury payments is materiel but does nol represent a high AMl risk. 

In Process' (61d-S~t~ Approv~03J1172009 04:44 PM: Jacob X Hou-~knecht 

Owrrershlp percentage changed from: [8.62,8.19,83.19] 10: [3.85,6.78,89.37] 

AM Approved: (Old Status In Process), 11/041200909:49 AM: Joo K j~n;s 

No pending items 

Cs Approved:(Old" Status AM Approved), 11/30/2009 02:36 PM: Gillian E Bachstein 

NoCommenLs 

lSApproved: (Old S~;CS Approved), 11/30lioo9 03:39 PM: Bob Shetty 

Relying on GRM support, recent visit and compliance viaw on the minority owner 

IB Approved: (Old Status IS Approved), 0110&201010:44 AM: Anthony Julian 

No Comments 

APPr"~';~:(O!dStatU5iBAPP;:OVedT.02i08J20100725-PM:-,.i.iTsK;';';:'Y--

1 - Pursuant to 318/2005 CS condiUon, annual HSBC CEO approval is required to maintain this relallonshlp. Confirmation is required 

if this condHiOll has been met. 

2 - Confirmation required if the Board of the bank has ousled the !lRO as previoll5!y confirmed. 

3 - Fresh conlirmation is required that no dividends have been paid to !lRO. 

In Process: (Old Status Approved), 0310312011 02:14 PM-:-:ion K-.:k;n~·--

NamE! of principals changed from: [Social Trust Fund,Publicly Traded; Widely Held· None with 5% or:> holdings] to: [Publicly 

Traded· Widely Held - None with 5% Of" hrndingsj 

Ownership percentage changed from: [6 78,93.22J to: [ 100] 

license Type(l) changed from: [Commercial Bonking License] 10: [BankingJ 

AM Approved: (Old Status In Process), 03103/201102:15 PM: Jon KJones 

No Comments 

cs .Appmved;(OidSt~tu-~"AM·APproVoo), Ojl03.l2011 03:25 -pM:Gilli;n E Bachstein 

No Comments 

IS Approved: (Old Status CS Appr;Ned), 03/04/2011 09:30 AM: Bob Shetty 

No Comments 

02l07f2012 10:12:58 AM 

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Know Your Customer: Social Is/ami BanK ltd 

IS Approved: (Old.-Status IS Approved), 03f29i201110:12 AM: Tom lazaridis 

NoCommenls 

co "6;;;ied: (Ojd·S~-t~~·!B)\pprovedr.-o4.ii siiol"l12:32"PM:RDaleSWlri it is no\. cleaf whell'ter -the disposal- of the small IIRO slak-e has-been cumpleted. The 201Feb,/2011-1elter,states- tha-Hoo SlBl Board of 

Directors vOled unanimously on 30/Junel10 to dispose of the liRO stake; however, SIBl has not yetcoofirmed whether this action 

has been completed. Funhermore, the letter says that SISl approached the High Court asking permiSSion to the sel! shares on 100 

open market and placing the proceeds in escrow, Again, the oulcome of this request is not revealed, 

Approval is denied until we receive from SIBl eilhera statement confirming unequivocally that IIRO no longer holds its ownership 

Slake in SISl, or untlllhe bank provides us with a firm date by which the disposal of this ownnership stake win have been completed 

AM Approved: {Old Status CO Denied), 07/221201101;23 PM: Jon KJolles 

Approved by direction of Compllance 

CSAPPro~d:(6id Stat~;-A"M-AP;;-Ove~o7125tTo1111:52 AM: Greg X Boston 

Banking references should be more current, followup with IIRO stack to continue 

is -App'ro-;"ed: (OidSta"t~~-CS ~Ap~;~:"~~-o7125i2o-i"1 "01 :53 PM: kthon-y Julian 

Please correct the double negative comment under ownership changes. 

Reyjsion History 

Editor Date 

Jon KJones 071221201101:23;40 PM 

Jon K Jones 07/21f2011 05:25:30 PM 

Shannon M Jones 071'21/201104;42:59 PM 

Sunil X Anchan 07/211201110:03:43 AM 

Jon K Jones 071201201104:19:52 PM 

Sunil X Anchan 07/20/2011 02:39:44 PM 

Jon K Jones 06117/2011 10:49;58 AM 

Shannon M Jones 05/061201108:43:19 AM 

Jan K Jones 031031201102:15:10 PM 

UllithaX ChlntlltapaiL ________ 0212.212m110:0~;3ZAM 

CRR Revision History 

02ID7{2012 10:12:58 AM 

Confidential Treatment Requested 

Rea50ll for Update 

Available documenalion refreshed to CUTTen! 

minor updates 10 Genera! Comments 

duplicate 

Update Mana~ement 

Update for Compliance declsion on liRO 

Update Visitation, Financals & Mgmt. 

update on CO Denial to General Comments 

updated certification date 

Annual Review Complete 

updated - GRM ,5l!pport.oY!'-'1~!'!hj.RJ)_etails~ 

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CONFIDENTIAL 

... FOR INFORMATIONAL PURPOSES ONLY IFORINTERNAL USE ONLY'" 

INYESIIGATIVE CONTROL & REPORTING OFFICE (ICRO) 

REPORT OF FINDINGS 

RESEARCH AS OF: September 8, 2008 

lNVESIIGATOR: David Wagreich 

SUBJECT: Abdul Rahman Saleh AI-Raj hi 

ENIITlES: Abdul Rahman Saleh AI-Rajhi, Russa Abdulaziz Mohamed 

AI Fayyad, Kh.lid Abdulrahman Saleh AI Rajhi, Badr 

Abdulrahman Saleh AI Rajhi, Saad Abdulrahman Saleh AI 

Rajhi, Turki Abdulrahman Saleh AI Rajhi, Basma 

Abdulrahman Saleh AI Rajhi, Sharooq Abdulrahman Saleh AI 

Raj hi, Arwa Abdulrahman Saleh AI Rajhi 

REQUESTOR: Mih.ela W. Nistor 

DEPARTMENT: Compliance 

A report of findings was conducted for Abdul Rabman Saleh AI-Raj hi, the former owner 

of A.I-Rajhj Trading -EstabllSlimeiit~ ils~welr as his W1fe,flussaAbdulanzMohamed AT 

Fayya, and his children, Khalid Abdulrahman Saleh Al Rajhi, Badr Abdulrahman Saleh 

Al Rajhi, Saad Abdulrahman Saleh Al Rajhi, Turld Abdulrahman Saleh Al Rajhi, Basma 

Abdulrahman Saleh Al Raj hi, Sharooq Abdulrabman Saleh Al Rajhi and Arwa 

Abdulrahman Saleh Al Rajhi. 

This department has completed previous reports on Al Rajhi Banking and Tnveslment 

Corp.) most recently in December of2007. The text of those previous reports is provided 

below for your-reference: 

These previous reports have listed numerous allegations against Al Rajhi Bank of 

terrorist support, but the bank has reportedly never been officially sanctioned. However, 

there was a published "Wall Street Journal" article titled "U.S. Tracks Bank Favored By 

Extremists" which offered a review of previously secret intelligence reports that state 

plainly that the Bush administration and US agencies have debated whether or not the 

bank should be sanctioned for what is perceived as a history of support of Muslim 

extremists 

As is detailed below, no definitive information was found to confirm or deny a link 

between the subject in question and AI Rajhi Bank or Sulaiman AI Rajhi. 

Please note that there is limited information available in our res(mrces on entities 

residing outside of the United States. The information which we couldfind and confirm 

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760611.871

as involving your client has been included in this report. However, we canJ10t cO'1firm 

that all iriformation that im'olves your client has been uncovered and reported in this 

report. 

Abdul Rahman Saleh AI-Rajhi 

Press 

Bahrain-based Al Rajhi Holdings W.LL and Al Rajhi Partners (together "AI Rajhi") 

represent the business interests of Saudi Arabian royal Sheik Abdulrahman Saleh AI 

Rajhi and his immediate family. AI Rajhi is a private investment company and has 

investments in financial services, infrastructure, mining, healthcare, biotechnology, real 

estate, oil and gas. Key investments include Bank AI BHad, DanaGas, Saudi Telecom, 

Saudi Cement and Procare hospitals. Khalid al Rajhi, CEO of Al Rajhi, is a director of 

each of these companies. In the Daily Telegraph article, it was noted that it is not 

known whether the sheik is related to Saudi billionaire Sulaiman AI Raj hi, the 87 

year old patriarch of Saudi Arabia's wealthiest non-royal family. Sulaiman Al-Rajhi is 

one of the richest men in the Middle East and has 31 children. Hi, Islamic charity 

network was investigated in 2002 by US federal agents for suspected links to Osama 

Bin Laden. (lhe Daily Telegraph (Australia), load date: 6/1/08; PR New""'ire, load 

date: 51l010S) 

There were approximately 5 corporate profiles that listed Abdul Rahman Al Rajhi as the 

General Manager of AI Rajhi Group, which is located at King Fahad Area, Prince 

Ahmed-Bin Abdulaziz Street, P.O. Box 55155, Riyadh 11534, Saudi Arabia, The profile 

alsost~tedthat Khaled SalehH~~ajhi is the, President, (WWP-Report on Engineering 

Construct & Plant Operations in the Developing World, load date: 4JII04) 

According to the website for AI Rajhi Bank, www.alrajhibank.com.s1l. Abdulrahman 

Saleh AI Rajhi or any known possible variation of his name was not found on its list of its 

Board of Directors and Management Team. 

As per Muslim narning conventions, the name Abdul Rahman Saleh AI-Rlijhi would 

imply that this individual's father's name is Al Rajhi. We note that a Saleh Al Rajhi is 

noted'irrth~ press a"me'of Saudi'Arabia',; richest men and brother to Sulaiman AlRajhi 

and the cofounder of Al Rajhi Banking and Investment Corp. He is known to have 61 

children. No other information was found in our sources to contirm or deny a link 

between Abdul Rahman Saleh Al Rajhi and Ai Rajhi Bank or Sulaiman Al Rajhi. 

Please note that there were multiple articles in the press and on the internet that state that 

Abdul Rahman Saleh Al-Rajhi is a royal sheik in Saudi Arabia. 

No further information of note was found regarding Abdul Rahman Saleh Al-Rajhi in our 

sources, which include searches of regulatory actions, World-Check profiles, corporate 

affiliations and US legal filings. 

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Hussa Abdulaziz Mohamed AI Fayyad No information was found regarding Hussa Abdulaziz Mohamed A1 Payyad in our 

sources, based on the identifying information provided. This includes searches of 

regulatory actions, World-Check profiles, corporate affiliations, US legal filings .. well 

as press and internet searches. 

(Source: httl.:0www.danar:as.ae!charman8.htm) 

A "Khalid Sulaiman AI Rajhi" was listed as a defendant in 16 United States District 

Court filings related to 9/11/01 in New York AI R,ybi was one of numerous defendants 

in each of these suits that are known terrorists including Osama bin Laden and Saddam 

Hussein. Please also note that AI Rajhi Banking and Investment was named as a 

defendant in each ofthese 15 civil suits. The suits include a $75,000 personal property 

civil suit, a $9.9 million Racketeering (RICO) civil suit, 5 personal injury class action 

civi1 suits, 2 torts to land civil suits, an airplane personal injury civil suit, an airplane 

crash statutory action, a $9.9 million personal injury breach of contract civil suit, a $50 

million personal injury breach of contract civil suit, a personal injury Racketeering 

(RICO) civil suit, a $9.9 million personal injury class action civil suit and a $1 billion 

"ersonal injury Racketeering (RICO) civil suit. 

B"';de.a~partial n.mem.teh; no further information w~found ttt link~ Khalid-Sulaiman~ 

Al Rajhi to Khalid Abdulrahman Saleh AI Rajhi 

No information was found regarding Khalid Abdulrahman Saleh Al Rajhi in our searches 

of regulatory actions and World-Check profiles~ 

Corporate Affiliations 

Khalid Abdulrahman Saleh AI Rajhi, along with individuals who appear to be the subject 

in. question.with. various..name_ permutations,-.app-ear-. to_be-affiliated. with_approximately 

30 companies in industries such as telecommunication, oil and gas, banking and 

construction, among others. These companies were found to be located in Saudi Arabia, 

Switzerland, Italy, Bahrain and the United Arab Emirates. 

Press 

There are numerous articles found in the press and on the internet that state that Khalid 

Abdulrahman AI Rajhi is the CEO of Bahrain-based AI Rajhi Holdings W.LL and Al 

Rajhi Partners (together "AI Rajhi"). As mentioned above, Al Rajhi is a private 

investment company and has investments in financial services, infrastructure, mining, 

healthcare, biotechnology, real estate, oil and gas~ Mr, AI Rajhi was also noted to be the 

CEO of Abdulrahman Saleh Al Rajhi & Partners Co. Ltd, Saudi Arabia, a member of the 

Board of Bank Al BiLad, member of the Board of Saudi Cement Company and is a 

founder of a number of companies in the Gulf Cooperation Council (Gee). It is also 

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760611.873

noted in numerous articles that Khalid Abdulrahman Saleh AI Rajhi is a Saudi Arabian 

royal Sheikh. 

Khalid SulailnanAI-Rajhi, w.ho is listed as the Managing Director for AI-Rajhi Group of 

Industries in Riyadh, Saudi Arabia according to the US. Department oj Agriculture 

Reports, was noted in numerous articles as a defendant in numerous 9111 lawsuits. In 

these articles it was stated tbat 500 family members and survivors of the September lIth 

attacks filed legal action against senior Saudi political and business figures, international 

banks, Islamic foundations, !lcharities1! and their subsidiaries, individual terrorist 

fmanciers, the Saudi bin Laden Group, three Saudi princes and the government of Sudan 

for bankrolling al Qaeda, Osama bin Laden and the Taliban. (Middle F11St Economic 

Digest, load date: 9/3/02) 

A business profile was found for Khalid Abdulrahman AI-Rajhi on the website for 

DANA Gas, http://www.danagas.ae/charman8.htm.TheprofilestatedthatMr.AI-Rajhi 

was born in 1971 and received a Bachelor!s Degree in Finance from the King Fahd 

University for Petroleum & Minerals, Saudi Arabia. 

Please note that no information was found to either confirm or deny that Khalid 

Abdulrahman Saleh AI-Rajhi and Kh.lid Sulaiman At Rajh~ the individual who was 

identified as a defendant in numerous 9/11 litigation, are the same individual or even 

related to one another if they are not the same individual. 

However. based on Muslim naming corn'entiom.', it would appear that the above 

iiidiiiiauals-halle' dif/e'rerit JaiJieis arid are -separate 'individuals.-

Badr Abdulrahman Saleh Al Raihi 

Badr Saleh Al Rajhi was listed as a 3'" partner and one of the top shareholders for the 

company, Saleh Abdul Aziz Al Rajhi & Co. Ltd. (Middle East Newsfile, load date: 

12/11/01) 

No further information was found regarding Badr Abdulrahman Saleh AI Rajhi in our 

source~-Dased-orl the identifYing- -Information -provided~ --Tfiis irichides'- searcfie's of 

regulatory actions, World-Check profiles, corporate affiliations, US legal filings as well 

as press and internet searches. 

Saad Abdulrabman Saleh Al Rajhi 

No information was found regarding Saad Abdulrahman Saleh Al Rajhi in our sourees, 

based on the identifying information provided. This includes searches of regu1atory 

actions, World-Check profiles, corporate affiliations, US legal filings as well as press and 

internet searches. 

Turki Abdulrahman Saleh Al Rajhi 

Litigation and US Public Records 

Please note that due to the limitations of our sources it cannot be confirmed that all 

actions that involve the entity in question hWle been included in this report. 

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760611.874

A "Turki A. Alrajhi" (DOB 10124174) was listed as the defendant for a traffic citation in 

Orange County, CA Superior Court on 8/9/01. The status of the case was not disclosed 

throUgh.OULSOurceS. 

Press 

Turki A. Alrajhi was listed as the contact name for the company, National Polyester Fiber 

Factory, in NonwovellS Industry 2008 International Buyers' Guide. According to the 

buyers' guide, National Polyester Fiber Factory is located at P.O. Box 42185, Riyadh 

11541, Saudi Arabia and has the website, www.alrajhigroup.com. (Nonwovens Industry, 

load date: 7/31108) 

Turki A. Al Rajhi was listed as the General Manager and contact name for the company, 

AI Rajhi Foam & Plastic Factories in two directory listings on the websites, 

http://www.rockonindia.comfEximPolicy/tradeopp/October 12-18 2002.asp and 

http://dgft.delhi.nic.inlzjdgftcaVtradeenq3.asp. According to the listings, Al Rajhi Foam & 

Plastic Factories is located at P.O. Box 42185, Riyadh 11541, Saudi Arabia. No further 

information was listed regarding Mr. Al Rajhi or the company in the directory listings. 

Turki Saleh Al Rajhi was listed as one of the top shareholders for the company, Saleh 

Abdul Aziz Al Rajhi & Co. Ltd. (Middle East New~ftle, load date: 12111101) 

No further information was found regarding Turki Abdulrahman Saleh Al Rajhi in our 

sources, based on the identifying information provided. This includes searches of 

regulatory actio~s,JfQd<icCl?e"kprofiles,~ c()rporate llfliliatiQllS, US legal filings~a~Y-'ell. 

as press and internet searches 

Basma Abdulrahman Saleh AI Rajhi 

No information was found regarding Basma Abdulrahman Saleh Al Rajhi in our sources, 

based on the identifying information provided. This includes searches of regulatory 

actions, World-Check profiles, corporate affiliations, US legal filings as well as press and 

internet searches. 

Sharoog Abdulrahman Saleh AI Rajhi 

No information was found regarding Sharooq Abdulrahman Saleh Al Rajhi in our 

sources, based on the identifying information provided. This includes searches of 

regulatory actions, World-Check profiles, corporate affIliations, US legal filings as well 

as press and internet searches. 

Arwa Abdulrahman Saleh AI Rajhi 

No information was found regarding Arwa Abdulrahman Saleh Al Rajhi in our .onTces, 

based on the identifying information provided. This includes searches of regulatory 

actions, World-Check profiles, corporate affiliations, US legal filings as well as press and 

internet searches. 

Should you have further questions regarding this request, please contact me. 

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David Wagreich 

Investigator Financial Intelligence Group (FIG) 

452 Fifth Avenue, Tower 7 

Mail Code (31) 

P212-525-8653 

F.212-525-5769 

This report is confidential and is intended solely jar the use oj the HSEe business to 

which it is addressed and those who need to know the information pursuant to that 

business' internal procedures. This report is not to he disseminated to any other person 

or entity. Our investigative findings are, in part, based upon information available to us 

through a variety oj third-party providers at the time our search is performed While 

every attempt is made to find all substantive infonnation, we make no representation that 

the information provided to, or gathered by, us is complete. This is not a credit or lien 

report and should not be used as such. The information contained herein is intended as a 

supplement to the Know Your Customer information gathered by the HSBC business unit 

and may not be considered when determining the creditworthiness of a customer (see 

Regulation E, 12 CFR 202.7) or to determine the lien status qf property. 

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Text of Report of Findings on Al Rajhi Banking and Investment Corp. (AI Rajhi Bank) 

From Decemher 2007: 

CONFIDENTIAL-

"'FOR INFORMATIONAL PURPOSES ONLY 1 FOR INTERNAL USE 

ONLY"· 

INVESTIGATIVE CONTROL AND REPORTING OFFICE (ICRO) 

FINANCIAL INTELLIGENCE UNIT 

Research as of: 12104107 UPDA TE 

SUBJECT: Al Rajhi Banking and Investment Corp 

ENTiTlES: AI Rajhi Banking and Investment Corp (AKA AI Rajhi Bank) 

REQUESTOR: Daniel Jack 

DEPARTMENT: Bankootes 

A report of findings in support of Enhanced Due Diligence was conducted for AI Rajhi 

Banking and Investment Corp. This department completed previous reports on this 

bank, most recently in October of 2006. The text of those previous reports is provided 

below for your reference. 

As our previous reports state, there have been numerous allegations of terrorist support 

against A1 Rajhi Bank, but the bank has never been officially sanctioned. Since the 

previous report of findings, however, there was published a lIWall Street lournall! article 

titled flU.S. Tracks Bank Favored By Extremists" which offered a review of previously 

secret intelligence reports that state plainly that the Bush administration and US agencies 

have debated whether or not the bank should be sanctioned for what is perceived as a 

history of support of Muslim extremists. A brief summary of this article is provided 

below, and the .filll articlej, app'eQd~dfor.yourreference. 

While it is not clear that this newly released information will lead to any official 

sanctions against the bank, it is likely that there will continue to be references in the 

press to the allegations of terrorist support against the bank, and for this reason 

there remains a level of reputational risk attached to any relationship with AI Rajhi 

Bank that should be taken into consideration. 

Only items impacting adversely on money laundering, terrorist financing or other 

substantive criminal activity concenlS will be detailed in this report. 

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Al Rajhi Banking and Investment Corp 

Most Cu"ent Ownership Breakdown Found: 

Partners of ARCCEC the predecessor 52% 

New Founders of the Bank 5% 

Employee!s Fund 2% 

Public 41% 

(Bankers Almanac, Profile Upload: November 26, 2007) 

Most Cu"ent List of Top Executives Found: 

Sulaiman Bin Abdulaziz AI Rajhi, Chairman & Managing Director 

Abdullah Sulaiman Al Rajhi, Chief Executive Officer 

Mr. Saeed Mohd Al Ghamdi, Deputy Chief Executive Officer 

Mr. Mohammed Fazal Haque, Acting Head Financial Institutions 

(Bankers Almanac, Profile Upload: November 26, 2007) 

Notable Information Regarding the Financial Institution, its Ownership or its Top 

Executives: 

A "Wall Street Journal" article published in July 2007, titled "U.S. Tracks Bank Favored 

By Extremists,11 offered a review of previously undisclosed intelligence reports by the 

CentraDntelligence Agency and "iherVS'AgenCles, deilliI1ng fof the first tinie'howmuch 

the U. S. knew about the use of AI,Rajhi Bank by alleged Muslim extremists and how 

U.S. officials debated over how to respond to this knowledge. The reports state that the 

spread of Muslim extremism is dependent upon the Saudi banking structure, and that the 

Bush administration has repeatedly debated whether to take action against AI Rajhi Bank 

in particular. Ultimately, the administration would choose to lobby Saudi officials 

quietly instead of instituting official sanctions. (!he Wall Street Journal, Article-date: 

July 26, 2007) 

Key excerpts from the July 2007 article are as follows: 

nThe U.S. intelligence reports, heretofore secret, describe how AI Rajhi Bank has 

maintained accounts and accepted donations for Saudi charities that the U.S. and 

other nations have formally designated as fronts for a1 Qaeda or other terrorist 

groups. I! 

HIn addition,,:Mr. AI Rajhi and family members have been major donors to Islamic 

charities that are suspected by Western intelligence agencies of funding terrorism, 

according to CIA reports and federal-court filings by the Justice Department." 

"A 2003 CIA report claims that a year after Sept. II, with a spotlight on Islamic 

charities, Mr. AI Rajhi ordered Al Rajhi Bank's board 'to explore financial 

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instruments that would allow the bank!s charitable contributions to avoid official 

Saudi scrutiny. Iff 

If A few weeks earlier, the report says, Mr. Al Rajhi 'transferred $1.1 billion to 

offshore accounts usrn~g commodity swaps and two lebanese banks "citIog a concern that U.S. and Saudi authorities might freeze his assets.! The report was 

titled! Al Rajhi Bank: Conduit for Extremist Finance.!H 

(The Wall Street Journal, Article-date: July 26, 2007) 

The article notes that US agencies have never obtained proof that bank executives 

knowingly facilitate terrorism, I1despite what they describe as extensive circumstantial 

evidence that some executives are aware the bank is used by extremists. H But the article 

also included the fact that the 2003 CTA report concluded: "Senior A1 Rajhi family 

members have long supported Islamic extremists and probably know that terrorists use 

their bank" (The Wall Street Journal, Article-date: July 26,2007) 

The article goes on to state that US officials considered various actions to take against the 

bank, ipcluding listing or threatening to list the bank as a supporter of terrorism. 

Ultimately, the Bush administration chose instead to appeal to bank officials privately. 

(The Wall Street Journal, Article-date: July 26, 2007) 

The article also provides a history of the bank's relationship with the Saudi Royal Family; 

as well as a history of the accusations against the bank We have appended the text of 

this article to this report, for your reference. (The Wall Street Journal, Article-date: July 

26; 27Hf7) 

Information Found Regarding this Financial In,~titution, it,~ Ownership or its Top 

Executives that Warrants SCC Consideration: 

No additional information was found that would warrant additional see consideration. 

*** Should yau find any discrepancies between the ownership and/or executives named 

in this report and those named in y(mr current, ·up-to-date KY-C information; please let Wj 

know so that we may check any differing names for items impacting adversely on money 

laundering, terrorist financing or other substantive criminal activity concerns. 

Please feel free to contact me with any questions regarding this report. See below for text 

of the July 2007 "Wall Street Journal!! article as well as the text of previous reports on Al 

Rajhi Banking and Investment Corp. 

Bob Powers 

Financial Investigator 

Investigative Control and Reporting Office (fCRO) 

452 5th Avenue, Tower 7; New York, NY 10018 

Telephone: (212) 525-8089 

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This report is confidential and is intended solely for the use of the HSBC business to 

which it is addressed and those who need to know the information pursuant to that 

business' internal procedures. This report is not to be disseminated to any other person 

or entity. Our investigafiYICfindings are, in part. based upon informatiQII avajlable to liS 

through a variety of third-party providers at the time our search is performed While 

every attempt is made to find all substantive information, we make no representation that 

the information provided to, or gathered by, us is complete. This is not a credit or lien 

report and should not be used as S/.Ich. The information contained herein is intended a~ a 

supplement to the Know Your Customer information gathered by the HSBC business unit 

and may not be considered when determining the creditworthiness of a customer or to 

determine the lien status of property. 

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Text of July 26, 2007 "Wall Street Journal" article on newly disclosed intelligence 

reports concerning At Rajhi Bank: 

The Associated Press 

July 26, 2007 Thursday 2:50 PM GMT 

U.S. tracks Saudi bank favored by extremists 

BYLINE: By GLENN K SIMPSON, The Wall Street Journal 

SECTION: BUSINESS NEWS 

LENGTH: 2669 words 

JIDDA, Saudi Arabia In the 19405, two Bedouin farm boys from the desert began 

changing money for the trickle oftraders and religious pilgrims in this then-remote and 

barren kingdom. It was a business built on faith and trust, Sulaiman Al Rajhi once told an 

interviewer, and for many years he would hand gold bars to strangers boarding flights in 

Jidda and ask them to give the gold to his brother on their arrival in Riyadh. 

Today, Mr. Al Rajhi is a reclusive octogenarian whose fortune is estimated at $12 billion. 

And Al Rajhi Bank grew into the kingdom's largest Islamic bank, with 500 branches in 

Saudi.Arahia.and.more.spread.acrossthe.Muslim.world.. 

Following the Sept. 11,2001, attacks, the bank also set off an intense debate within the 

U.S. government over whether to take strong action against its aUeged role in extremist 

finance. ConfIdential reports by the Central Intelligence Agency and other U.S. agencies, 

reviewed by The Wall Street Journal, detail for the first time how much the U.S. learned 

about the use of AI Rajhi Bank by alleged extremists, and how U. S. officials agonized 

over what to do about it 

A£teL911l,lhe Saudi monarchy pledged its fulLsupport inlhe fight against global 

terrorism. And following violent attacks inside the kingdom in the next two years, the 

Saudis did launch major strikes against militants operating on their soil. But the Saudi 

government has been far been less willing to tackle the financial infrastructure essential 

to terrorism. U.S. intelligence reports state that Islamic banks, while mostly doing 

ordinary commerce, also are institutions that extremism relies upon in its global spread. 

As a result, the Bush administration repeatedly debated proposals for taking strong action 

itself against Al Rajhi Bank:, in particular, according to fonner U.S. officials and 

previously undisclosed government documents. Ultimately, the U.S. always chose instead 

to lobby Saudi officialdom quietly about its concerns. 

The U.S. intelligence reports, heretofore secret, describe how Al Rajhi Bank has 

maintained accounts and accepted donations for Saudi charities that the U.S. and other 

nations have formally designated as fronts for al Qaeda or other terrorist groups. 

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In addition, Mr. AI Rajhi and family members have been major donors to Islamic 

charities that are suspected by Western intelligence agencies of funding terrorism, 

according to CIA reports and federal-court fIlings by the Justice Department. 

A2003TIAreport claims thai a year after Sept. 11, with a spotlight on Islainic charities, 

Mr. Al Rajhi ordered AI Rajhi Bank's board "to explore financial instruments that would 

allow the bank's charitable contributions to avoid official Saudi scrutiny." 

A few weeks earlier, the report says, Mr. Al Rajhi "transferred $1.1 billion to offshore 

accounts using commodity swaps and two Lebanese banks citing a concern that U.S. and 

Saudi authorities might freeze his assets. I! The report was titled ItAI Rajhi Bank: Conduit 

for Extremist Finance. It 

Al Rajhi Bank and the Al Rajhi family deny any role in financing extremists. They have 

denounced terrorist acts as un-Islamic. The bank declined to address specific allegations 

made in American intelligence and law-enforcement records, citing client confidentiality, 

In 2002, the bank sued The Wall Street Journal Europe after an article said Saudi 

authorities were monitoring some Al Rajhi Bank accounts at U. S. request, in a bid to 

prevent them from being used, wittingly or unwittingly, for funneling money to terrorist 

groups. The bank dropped the suit in 2005 and the Journal published a statement saying 

its article hadn't reported any allegation that the bank supported or financed terrorism. 

Also in 2005, a U.S. judge dismissed Al Rajhi Bank from a lawsuit filed by relatives of 

Sept. II victims. The ruling said banks couldn't be held liable for providing routine 

:seryi.c~s.!O 2~.oE.~~.who ~rned out.~o be t~~ri~t~, ~ a.~tatement.in ~,~~ponse to q~estions 

about sus'pectecl terrori'sts·anl0ng-it·s~cnents, the 'bank-notelftliaTnAI RajlllBarik-nasa' 

very large branch network, and a very large retail customer base. H 

U. S. law-enforcement and intelligence agencies acknowledge it is possible that extremists 

use the bank's far-flung branches and money-transfer services without bank officials! 

knowledge. The U.S. has never obtained proof that the bank or its owners knowingly 

facilitate terrorism, according to documents and former officials, despite what they 

describe as extensive circumstantial evidence that some executives are aware the bank is 

used by. extremists. The 2003 CIA report concluded: "Senior Al Raj hi family members 

have long supported Islamic extremists and probably know that terrorists use their bank n 

Most major banks around the world are bound by a patchwork of treaties and agreements 

that, in effect, require them to know their customers and report any suspicious activities 

to regulators. The rules are designed to fight terrorism, money laundering and narcotics 

trafficking. It's generally acknowledged that Saudi banks are bound by these rules, 

although experts differ on when compliance became mandatory, 

The top counterterrorism official at the U,S, Treasury Department, while declining to 

comment on Al Rajhi Bank specifically, says Saudi officials haven't met a promise to 

create a commission to oversee Saudi charities, many of which bank with AI Rajhi. 

lIThey are also not holding people responsible for sending money abroad for jihad," says 

the Treasury official, Stuart Levey, HIt just doesn't happen." 

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The Saudi government maintains it has been working diligently with the U.S. and others 

to counter terrorism. It cites its arrests of several alleged terrorist fund-raisers in recent 

years. The Saudis didn't respond to specific questions about their efforts to counter 

terrorist- finan€e or Qversee banks. 

A White House statement said that lithe Saudis continue to be a strong partner in the War 

on TerrOL ... We have made significant progress on numerous fronts including the 

freezing of assets and the shutdown of known conduits of (terrorist) funding." A CIA 

spokesman said "publishing details of how our government seeks to track extremist 

financing H could undermine those efforts. 

For the ruling Saud family, any confrontation with the Al Rajhis could be politically 

treacherous. To stay in power, the Sauds rely on the tolerance of clerical and business 

elites, many of whom view the royal family as corrupt. The wealthy Al Rajhis are a clan 

long at odds with the royal family. And U.S. intelligence flles show the Al Rajhis also 

have close ties to another group critical of the royals: Saudi Arabia's conservative clerics. 

The AI Rajhi empire includes hotels, housing developments, commodities trading, 

shipping, aviation leasing and poultry. Its core is the bank, with more than 500 branches 

in Saudi Arabia and other offices abroad, from Pakistan to Malaysia. For 2006, the 

publicly held institution reported $1.9 billion in profIt and $28 billion in assets. 

Sulaiman Al Rajhi grew up in the Nejd desert, the birthplace of a severe form ofIslam, 

called Wahhabism, that forbids birthday parties, musical instruments and photographing 

people. In the 1940s, he and a brother, Saleh, went to the Saudi capital city. "From' 

liter.lly-nothing-making ~changeon-what ~werethenthetlirtstTeets'ofR;yadh Sulaim"" 

and Saleh al Rajhi built the Al Rajhi Bank," Sulaiman's lawyers told a U. S. court in New 

York in 2005. 

Sulaiman described the business in a rare interview with Euromoney magazine in 1983. 

With two other brothers, he and Saleh began changing money for pilgrims taking camel 

caravans across the desert to the holy cities of Mecca and Medina. When throngs of 

migrant workers came to Saudi Arabia during the 1970s oil boom, the Al Rajhis helped 

them send their eru:~.i~gs ~~me to places like Indonesia and Pakistan. 

In 1983, the brothers won permission to open Saudi Arabia!s first Islamic bank. one that 

would observe religious tenets such as a ban on interest 

But relations with the ruling family frayed. The government-controlled press in 1992 

publicized At Rajhi Bank!s tangential role in an international scandal of that era, that of 

the bank called BCCI, U.S. diplomats reported. Then in 1994, an infant relative of the Al 

Rajhis died in a kidnapping. Official press accounts said the kidnappers slit the child's 

throat, but Saudi dissidents claimed police shot the child. Mr. Al Rajhi blamed the royal 

family, the CIA report says. 

Although Al Rajhi Bank continued to make a show of support for the Sauds annual 

reports had flowery tributes to the royal family the bank began refusing to make loans to 

the Sauds or to finance their projects, U.S. diplomats said at the time. 

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With its Islamic procedures, the bank was a magnet for the clerical establishment, which 

grew rich from alms amid the oil boom. As the clerics! charities spread, they became 

entwined with AI Rajhi Bank and the conservative AI Rajhi family!s Own extensive 

financial support.for ·Islamic causes. 

There is no reliable estimate of how much the Al Rajhis have given to promote Islam 

over the years, but an endowment holding much of Saleh Al Rajhl1s wealth gives an 

indication of the scale. Its Web site details nearly $50 million in direct donations within 

the kingdom to Islamic causes and at least $12 million in donations abroad. The overseas 

money went to aid embattled Muslims in Kosovo, Chechnya and the Palestinian 

territories and to finance Islamic instlUction. 

There are indications not all the giving was for such purposes. The Al Rajhi name 

appeared on a list of regular financial contributors to al Qaeda that was discovered in 

Sarajevo, Bosnia, in 2002. The list was authenticated for the Federal Bureau of 

Investigation that year by America!s top judicial witness against al Qaeda, a onetime al 

Qaeda business manager named Jamal Al FadI, who is in the federal witness-protection 

program. He called the contributor list the !!golden chain." 

A 2003 German police report said Sulaiman AI Rajhi and other family members had 

contributed more than $200,000 in 1993 to a charity that financed weapons for Islamic 

militants in Bosnia, in addition to providing humanitarian aid. 

The 2003 CIA report tells of efforts by two AI Raj hi brothers to keep some giving secret. 

It says that Sulaiman and Saleh transferred $4 miHion to parties in Germany and Pakistan 

in December··199& using ~a unique·eemputer: code to send· funds -at regu-l-af -intefVal-s--tG 

unspecified recipients, suggesting they were trying to conceal the transactions and that 

the money may have been intended for illegitimate ends.!! 

The report says extremists "ordered operatives in Afghanistan, Indonesia, Pakistan, Saudi 

Arabia, Turkey, and Yemen" to use Al Rajhi Bank. Mamduh Mahmud Salim, convicted 

mastermind of the 1998 embassy bombings in Kenya and Tanzania, was carrying records 

of an AI Rajhi account (number 001424/4) when arrested in Germany in 1998, German 

police found. 

In 2000, the CIA report says, AI Rajhi Bank couriers !ldclivered money to the Indonesian 

insurgent group Kompak to fund weapons purchases and bomb-making activities." 

A U.S. intelligence memo dated Nov. 16,2001, says a money courier for Osama bin 

Laden1s second-in-command, Ayman al-Zawahri, traveled on a visa that the bank had 

obtained for him. The memo adds, however: "Reporting does not indicate whether bank 

management was wittingll of the courier's terrorist connections, 

Al Rajhi Bank maintained at least 24 accounts and handled unusual transactions for AI~ 

Haramain foundation a charity that Treasury officials say has acted as a front for al 

Qaeda in 13 countries until the Saudi government ordered the charity shut down in late 

2004, according to intelligence and law-enforcement reports. The United Nations has 

designated top officials of AI-Haramain foundation as terrorists, and most of its offices 

now are closed. 

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According to a federal indictment in Oregon, a top AI-Haramain official in 2000 carried 

$130,000 in $1,000 traveler's checks from Portland to Riyadh and deposited them with Al 

Rajhi funds the indictment says were for the ultimate benefit of al Qaeda fighters in 

Chechnya.-The indicted official, Soliman AI-Bulhe, now works for the city of Riyadh. In 

an interview, he confirmed carrying the checks and depositing them with Al Rajhi Bank 

but said that they weren't for al Qaeda and that he did nothing wrong. 

A Jidda-based charity called the International Islamic Relief Organization, or IIRO, 

arranges for donors to send their donations directly to the Al Rajhi Bank. The IIRO's 

chairman, Adnan Khalil Basha, says the charity is "absolutely apolitical" and has 

elaborate spending controls to prevent illicit diversions, The charity says it works with At 

Rajhi Bank simply because its fees are low and its service is best. 

However, the U.N. has labeled two of the IIRO's branches and some of its officials as al 

Qaeda supporters. In 2004, the IIRO solicited donations through Al Rajhi Bank for the 

Iraqi city ofFallujah, then largely under the control of insurgents and the base of the late 

Abu Musab al Zarqawi, who led al Qaeda in Mesopotamia. The IIRO's workers oversaw 

construction of a trauma clinic in an insurgent-controlled area ofFallujah, The U.S. saw 

the clinic as a haven for insurgent fighters, and Marines destroyed it in November 2004. 

That was Ita big tragedy for us,!! says the IIRO's chairman, Mr. Basha. 

He denies the charity had any involvement with the Iraqi insurgency. Charity officials 

complain that the U.S. has produced no evidence of their alleged ties to terrorism. 

Two years earlier, federal agents raided the Virginia offices of a network of charities 

funded-by-Sulaiman-Al Rajhi thatworkedelosely-with the IIROand that-accorilingto 

Justice Department court filings provided funds to Palestinian terrorists. No charges have 

been filed. 

A year after the 9/11 attacks, U.S. authorities began to lament the lack of Saudi action in 

taking down terrorists' financial infrastructure. A November 2002 CIA report said the 

Saudi government Hhas made little independent effort to uncover terrorist financiers, 

investigate individual donors, and tighten the regulation of Islamic charities,!1 largely 

because of Hdomestic political considerations.!! 

The report advised against a noisy confrontation: "A key factor for continued successful 

counterterrorism initiatives with the Saudis, whose society is by tradition private, closed, 

and conservative, will be to ensure that their cooperation with the United States is 

handled discreetly and kept as much as possible out of the public eye.!! 

The U.S. began to rethink that approach after an al Qaeda attack in Riyadh in May 2003 

that killed 26 people, including nine Americans. Deputies from the National Security 

Council, CI~ Treasury and State departments debated a proposal for legal and political 

action against A1 Rajhi Bank, including the possibility of covert operations such as 

interfering with the bank's internal operations, according to Bush administration 

documents and former US. officials. 

One idea kicked around was lllisting or threatening to list" Al Rajhi Bank as a supporter 

of terrorism. Such a listing can be done if recommended by a committee representing the 

Treasury, State and Defense departments and the CIA and NSC, and signed by the 

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president. The designation bars U.S. companies from doing business with the named 

entity> A US> designation also nonnally is forwarded to the U>N., and if that body puts 

the name on its O\"n terrorist-supporter list, all member states are obliged to freeze the 

entityfs.assets~ 

Other ideas U.S. officials discussed included enlisting friendly countries to step up 

scrutiny and regulatory action against the AI Rajhis. The CIA report said that Ha 

successful effort against the Al Rajhis would encourage efforts against other donors, or at 

a minimum, would discourage private funding of Al Qaeda. II 

Ultimately, the Bush administration again chose merely to continue privately exerting 

pressure on the Saudis to stiffen their oversight. 

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Text of Report ~r Findings on AI Rajhi Banking and Investment Corp. (AI Rajhi 

Bank) From October 2006: 

CONFIDENTIAL 

••• FOR INFORMATIONAL PURPOSES ONLY'" 

FINANCIAL INTELLIGENCE GROUP (FIG) 

REP OR T OF FINDINGS (UPDATE) 

Research as of: 10/16/06 

INVESTIGATOR: Michael Cohen 

SUBJECT: Al Rajhi Banking and Investment Corp. (AI Raj hi Bank) 

ENTITIES: Al Rajhi Banking and Investment Corp. (AI Rajhi Bank) 

REQUESTOR: Gordon Brown 

DEPARTMENT: PCMlBanknotes 

An updated Report of Findings in support of Enhanced Due Diligence was conducted for 

the AI Rajhi Banking and Investment Corp. This is an update to previous reports prepared 

for this bank on 12/04 and 10/03, which are also provided below for your reference. Only 

it~rruLimp~ctjnR~dy~[s~~Y_9ILIJLOney laJJt:t9~J.:i!1g,_1~trQri~tJi~~nciJ;lg ,or qther _~ubst~ntiv~_ 

criminal activity concerns will be detailed in this updated report. 

UPDATE: 

AI Rajhi Banking and Investment Corp. (AI Rajhi Bank) 

Most Current Ownership Breakdown Found: 

Partile,sofiiie 'ARCCECthe'jired"ecessoi\52%) 

Public (41%) 

New Founders of the Bank (5%) 

Employee's Fund (2%) 

(Bankers' Almanac, Date Accessed: 10/16/06) 

No further information was found in our ordinary sources identifying the specific names 

of the individuals who make up the aforementioned sharcholding entities. 

Most Current List of Top Executives Found: 

Sulaiman Bin Adulaziz AI Rajhi, Chairman and Managing Director 

Abdullah Sulaiman AI Rajhi, Chief Executive Officer 

Fahad Abdullah AI Rajhi, General Manager, Treasury and Financial Institutions 

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Cassim Docrat, AGM Head, Financial Institutions 

Syed Maqbul Qader, General Manager, Corporate Group 

Rizwan Shaker, General Manager, Finance Group 

Kishore Dash, General Manager, Investments & Private Banking 

Anand Anchan, AGM Treasurer, Treasury Department 

Isamail Odeah, Head of Compliance 

Saeed Mohd AI Ghamdi, General Manager, Retail Banking 

(Bankers' Almanac, Date Accessed: 10116/06) 

The following list of executives was found on a Dun & Bradstreet Business Information 

Report: 

Suliman Bin Abdulaziz Al Rajhi, Chief Executive and Managing Director 

Saleh Bin Abdulaziz AI Rajhi, Chairman 

Ahmed Al Hosan, Director 

Abdullah AI Suliman Bin Abdulaziz AI Rajhi, General Manager 

Fahad Abdullah Al Rajhi, Manager 

Salah Abdullah Abdulkhail, Deputy General Manager 

Abdulrahman Bin Oghai!, Deputy General Manager 

Saleh AI Shaity, Branch Manager 

Nassar Bin Mohammed AI Subaiy, Deputy General Manager 

Ismail Hussein, Officer 

(Dun & Bradstreet Business Information Report, Load Date: 8124/06) 

AWJ>bmdQuhebankJists theXollowi]1gj~djy!cluals~mQngst its boarcl.oJ'dire£tors,. 

World-Check also confirms their positions as follows: 

Saleh Abdul Aziz AI Rajhi, Director 

Saeed Orner Qasim Alesayi, Director 

Salah Ali Aba Al Khail, Director 

Mohamed Abdullah AI Rajhi, Director 

Naser Mohammed Al Subai'y, Director 

Mohammed Osman Al Bishar, Director 

Sulaiman Saleh AI Rajhi, Director 

Mohammed Ibrahim Alissa, Director 

Mohammed Abdul Aziz AI Rajhi, Director 

Ali Mohamed AI Rajhi, Director 

Abdullah Abdul Aziz AI Rajhi, Director 

Abdullah Yahya Al Mouallimi, Director 

Ali Ahmed Al Shudy, Director 

(World-Check, Date Accessed: 10116/06) 

Notable Information Regarding the Financial Institution, its Ownership er its Top 

Executives, Subsequent to the Previous Report of Findings: 

It was recently reported that AI Rajhi Banking and Investment Corporation changed their 

name to Al Rajhi Bank. The change took place in order to upgrade their brand identity 

while paving the way for regional and international expansion ("Middle East Company 

Confidential Treatment Requested HSBC-PSI-PROD~102830 
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760611.888

News Wire," Load Date: 10/16/06). Specifically, the bank has a license to operate in 

Malaysia and has announced plans to open dozens of branches there ("The Banker," 

911106). 

It was reported that civil suits were brought in U.S. District Court on behalf of victims of 

the Sept. 11,2001 attacks against many Saudi Arabian financial institutions for having 

involvement in terrorist financing. A U.S. District Court judge overseeing the lawsuits, 

dismissed Saudi Arabia and Al Rajhi Banking and Investment Corp., amongst others, as 

defendant's in six civil lawsuits accusing it of providing !!massive1! financial and 

logistical support to the AI-Qaeda network (www.aljazeera.com. on World-Check, Date 

Accessed: 1/19/05). 

Sulaiman Abdulaziz Al Rajhi, the bank's Chairman and Managing Director, is listed 

under the "terrorism" category on World-Check The report says that he, "financially 

supports terrorism and its main contributors" (World-Check, Date Accessed: 10/16/06). 

Details of Sulaiman Abdulaziz AI Rajhi's alleged links to terrorist financing are included 

in the prior Report of Findings from 10/2003, which is attached below for your reference. 

It was also reported by World-Check that Abdullah Abdul Aziz Al Rajhi, a board 

member, is a Politically Exposed Person (PEP) because of his political involvement as a 

member in the Northern Borders Provincial Council (World-Check, Date Accessed: 

10/16/06). No further, specific information could be found in our ordinary sources that 

would confum or detail Abdullah Abdul Aziz Al Rajhi's membership in a political party, 

J~~~f9I~L.YQ~ __ ~~Y __ \Y!§P_!g 5t~!fyJJ}J.~_~~~e~ _~J~ ~~'.~~~'~~~.' 

No additional information impacting adversely on money laundering, terrorist financing 

or other criminal activity concerns was found subsequent to the previous Report of 

Findings, 

Information Found Regarding this Financial Institution, its Ownership or its Top 

Executives that Warrants SCC Consideration: 

According to its KYC profile, AI Rajhi Banking and Investment Corp. is classified as a 

SCC type 2 - Connected Entity. 

*** Should you find any discrepancies between the ownership and/or executives named 

in this report and those named in your current, up-to-date KYC information, please let us 

know so that we may check any differing names for items impacting adversely on money 

laundering, terrorist financing or other substantive criminal activity concerns. 

This report is confidential and is intended solely for the use ofthe HSBC business to 

which it is addressed and those who need to know the information pursuant to that 

business! internal procedures, This report is not to be disseminated to any other person or 

entity. OUf investigative findings are, in part, based upon information available to us 

through a variety of third-party providers at the time our search is performed. While 

every attempt is made to fmd all substantive information, we make no representation that 

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760611.889

the information provided to, or gathered by, us is complete. This is not a credit report 

and should not be used as a credit report. The information contained herein is intended as 

a supplement to the Know Your Customer information gathered by the HSBC business 

unit~and may not be considered. when determining the creditworthiness of the customer 

(see Regulation B, 12 CFR 202.7). 

Please feel free to contact me with any questions. 

Sincerely, 

Michael Cohen 

Financial Intelligence Group (FIG) 

Update findings sent 7113/05 

Sent by: Bob Powers 

CONFIDENTIAL •• * FOR INFORMATIONAL PURPOSES ONLY .*. 

FINANCJ&~JliT!,,~LIGENCg.(JROlJl' (Fly} 

REPORT OF FINDINGS (UPDATE) 

SUBJECT: Al Rajhi Commercial Foreign Exchange, Jeddah 

ENTITIES: Al Rajhi Commercial Foreign Exchange, Jeddah 

REQUESTOR: Kevin O'Donnell 

DEPARTMENT: AIM Support 

A report of fmdings in support of enhanced due diligence was requested for At Rajhi 

Commercial Foreign Exchange, Jeddah. The most recent update review of the Al Rajhi 

Trading Establishment in Saudi Arabia was sent in April, 2005. That update provided 

findings subsequent to the first report regarding Al Rajhi entities that was originally 

issued from this office in October ofl003. An update was conducted in December of 

2004. Text ofthe mOre recent update will be pasted at bottom. The text ofthe original 

report will be included in the attached PDF file. This current report will address recent 

information specific to Al Rajhi Commercial Foreign Exchange, Jeddah. 

Al Rajhi Commercial Foreign Exchange, Jeddah 

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760611.890

According to t!Bankers Almanac," Al Rajhi Commercial Foreign Exchange is located in 

Jeddah, Saudi Arabia. The bank has correspondent banking relationships with Land 

Bank of the Philippines and Social Investment Bank in Bangladesh. 

Our review found no profiles that would provide insight into the bank's operations. 

However, the bank's own website (www.bankalrajhLcom) names Mr. Abdul Rahman 

AA AIrajhi, member ofthe prominent AI Rajhi family, as Vice Chairman, Chief 

Executive Manager, and President. The chairman is not named on the website. 

In 2004 it was announced in numerous press reports that Al Rajhi Commercial Foreign 

Exchange would be one of eight Saudi money exchangers to merge into the new Al~BiIad 

Bank, which was expected to launch by mid-2005 with $800 million in capital. Another 

of the eight firms involved in the merger was reported to be AI Rajhi Trading 

Establishment 

"Gulf News" reported on May 2, 2005 that shares in Al Bilad Bank soared to 950 Saudi 

Riyals ($253) on its first day of trading. 

Our review found no evidence of criminal activity surrounding Al Rajhi Commercial 

Foreign Exchange or its president Abdul Rahman AI-Raj hi. 

Text of previous reports regarding Al Rajhi entities is pasted below and in the attached 

PDF document 

Please feel free to contact me with any questions regarding this report. 

Sincerely, 

Bob Powers 

FIG Investigations 

Update findings sent 4112/05 

CONFIDENTIAL **. FOR INFORMATIONAL PURPOSES ONLY .. * 

FINANCIAL INTELLIGENCE GROUP (FIG) 

REPORT OF FINDINGS (UPDATE) 

SUBJECT: Al Rajhi Trading Establishment 

ENTITIES: AI Rajhi Trading Establishment 

Confidential Treabnent Requested HSBC·PSI·PROO-ll1Q2833 
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760611.891

REQUESTOR: Paul DiBenedetto 

DEPARTMENT: Client Services - Financiallnstitutions 

-_ ... Redacted by the Penaanent 

Subcommittee OR la"atiptiou 

Accounts: Al Rajhi Trading Establishment, Banknotes -•••• 

A report of findings in support of enhanced due diligence was requested for the Al Rajhi 

Trading Establishment in Saudi Arabia. A report conducted on Al Rajhi entities was 

originally issued from this office in October of 2003. An update was conducted in 

December of2004 for Al-Rajhi Banking and Investment Corp. Text ofthose previous 

reports will be pasted at bottom and attached. This current report will address recent 

information specific to Al Rajhi Trading Establishment. 

Al Rajhi Trading Establishment 

Al Rajhi Trading Establishment has appeared in the news very infrequently in the time 

since the initial report was conducted on A1 Rajhi entities in 20m, Dun and Bradstreet 

lists Sheikh Abdul Rahman S Al Rajhi as the 100% shareholder in Al Rajhi Trading 

Establishment. 

The most significant recent press report concerning Al Rajhi Trading was published in 

"Ethnic Newswatch" in August, 2004. This article reported that Al Rajhi Trading was 

Q_~_qt~!K~!Ji~.!!~j~}n~_t~_tjons 1E_ ~~ .. ~~E~~_~.~'?_AL!~i!~~ .. !?~~ .. _,!.~~~ .. !?.~~~.i_~Ei corporation expected to launch operations in mid-200S. Al Bilad will reportedly have a 

capital of $800 million. This press report refers to AI Rajhi Trading as a tlMoney 

Changer,!! 

In April, 2005, the "EIU Riskwire" reported that Al Bilad was still waiting to open. Al 

Bilad will be the 11th commercial bank to base its operations in Saudi Arabia. 

As indicated in a chart in our 2003 review of Al Rajhi Banking and Investment, the 

owner of Al Rajhi Trading, Sheikh Abdul Rahman S Al-Rajhi, is the son of Saleh Abdul 

Aziz AI-Rajhi, founder and director of Al-Rajhi Banking and Investment Corp. 

According to business records we've found, AI-Raj hi Trading is not a subsidiary 

company of Al-Rajhi Banking and Investment, but is 100% owned by Sheikh Abdul 

Rahman S Al Rajhi. 

A review of press found infrequent references to Sheikh Abdul Rahman S Al Rajhi, 

usually in reports on his various business dealings. 

No evidence of criminal activity relating specifically to Al Rajhi Trading Establishment 

or its owner could be found in our review. 

Text of previous reports regarding AI Rajhi entities is pasted below and in the attached 

PDF document. 

Confidential Treatment Requested HSBC-PSI·PROD<J102834 
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760611.892

Please feel free to contact me with any questions regarding this report 

Sincerely, 

Bob Powers 

FIG Investigations 

************* 

13 Dec 2004 10:04 

From: Steven Pichardo Tel: 212-525-6736 

Subject: Report of Findings - AI-Rajhi Banking & Investment Corp, - FIG 

CONFIDENTIAL 

••• FOR INFORMATIONAL PURPOSES ONLY'" 

FINANCIAL INTELLIGENCE GROUP (FIG) 

REPORT OF FINDINGS 

SUBJECT: Al-Rajhi Banking & Investment Corporation 

ENTITIES: Al-Rajhi Banking & Investment Corporation 

REQUESTOR: Sally Lomas 

DEPARMENT: Banknotes 

_ ... Waded by the Permanent 

~~~I!m!.itt.e.:ufn Inwfigations 

ACCOUNTS: Al-Rajhi Banking & Investment Corporation (Reference_ 

An enhanced due diligence was conducted on Al-Rajhi Banking & Investment 

Corporation. A report of findings was sent on this company in May 2004. The objective 

of this report is to procure additional information subsequent to the filing date of the 

initial report 

AI-Rajhi Banking & Investment Corporation: 

In 2004, Al-Rajhi Banking & Investment Corporation (ARAl) filed a suit against the 

Wall Street Journal (WSJ), ARAJ alleges that the WSJ defamed the bank by accusing it 

of supporting of terrorism in article published on 2/6/02, After 30 months of active 

litigation, a settlement was reached, leading to the paper publishing a "clarification" and 

a letter from Al-Rajhi's chief executive. The clarification basically states that the article 

published by WSJ did not intend to imply an allegation that ARAJ supported terrorist 

activity, or had engaged in the financing of terrorism. 

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Under the terms of that settlement the WSJ paid no damages, nor was any order made 

prohibiting the paper from repeating the same allegations in the future. 

In all, no charges stemming from the aforementioned article have been levied against 

ARAJ. Therefore, no substantially adverse information, subsequent to the previous 

report provided for this company, was found regarding ARAJ. 

If you have any questions, feel free to contact the undersigned. 

Sincerely, 

Steven Pichardo 

Financial Investigator (FIG) 

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Comments ortbe Compliance Officer and/or Business Unit Approver: 

Comments are required if the Report of Findings contains information to suggest that any subject may be a 

YEP.or other type D/SCC or._may pres_enf reputational risk to HSBe. Comments must detail whelbeLQCnO( 

the CO or business-level approver is comfortable with the relationship, as well as the reasons supporting 

that determination. If comments are entered below, return a copy to leRO (via email to "FIG HB US " 

Jor its records. 

o I have reviewed this Report of Findings and none of the information in the Report requires 

comment. Signed on -7"C"-,--c----

(Name of Reviewer) (date) 

o I have reviewed this Report of Findings and comments were required and have been summarized 

above. Signed ---~-;---;o;o;--;--:c-------

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760611.895

FOR COMPANlES INCORPORATED IN THE BRITISH VIRGIN ISLANDS 

Ref: PIC NAME (S) 

Dear Mr xxxxx: 

The registered agent (the "Registered Agenr1 for the above named company(ies) (the "Company 

(ies)") bas contacted us reganling some.impoitantlegislative changes in the British Virgin Islands 

(BV1) affecting cOmpanies incorporated in the BVI thaI have issued bea= sbares ( "Bearer Share 

Companies" and each 8 "Bearer Share Company'1- Our records indicate that the Company(ies) 

Blare Bearer Share.Company (ies). 

As of December 31, 2009 n11 bearer shares issued by Bearer Share Companies will need 10 be held 

by an authorized custodian recognized by the Financial Services CoDl1lllssion in the BV!. The 

authorized cuslodian requires full disclosure of the beneficial owners of the shares. The 

adritinistrati,ve' Costs associated with maintaining Bearer Share Companies will increase 

significantly and will typically exceed the administrative costs essocjated with maintaining BVI 

companies thaI issue registered shares. The IlIUIUDI government fees for a company balding bearer shares 

will be up 10 USSI ,350.00 per anmnn (as compan:d to USS3SO for a company with registered shares). If 

the bean;r hlmres are held by an authorized Custodian, they caunot be released to you except in 

exchange for registered shares. After Dec 31 5t 2009, any bearer sbares still in existence and not in 

cu.w>dy will be 'diMbled'. 

Rather than incwring the additional expense a.ssociated with maintaining a Bearer Share Company, 

you may _ to consider caneeIing the bearer shares issued by-the-Company(ies}<md~ 

them with registered sbnres. 

Please also note that as of December 31" 2009, as a matter of policy, we will no longer maintain 

accounts for companies that issue bearer sheres. This . policy reflects increasing concem and 

scrutiny by regulators of accounts maintained by banks and other financial institutions for bearer 

share companies. Sbould you decide nol 10 exchange the Company's(ies') bearer shares (or 

registered shares, as of December 31" 2009, you wiII.be required 10 close any accounts maintained 

in the name of the Company{ies) with us and transfer assets in those accounts to another financial 

institution. In this connection, as appropriate, you should contact your Private Bank Relationship 

Manager as soon as possible 10 discuss existing credit facilities associated with those accounlB. 

Please also not that sbould it be necessary to clos. th" Company(ies) account(s) with HSBC, HSBC . 

will no lODger be able to assist you with the administration of the CompBOy{ics) including, without 

limitation, the payment of government and Registered Agents fees and charges. You will, 

therefore, need to make alternative arrangements including, possibly, establishing a direct 

relationship with the Registered Agent; which we can assist you with. 

Should you choose 10 replace the bearer shares issued by the Company{ies) with registered sbares, 

we can assist you. In that connection, we have contacted the Company's(ies') Registered Agent 

and, subject to your completion of the enclosed formes) and to receipt ofnecesssry documentation 

from us, they have agreed 10 facilitate the exchange of bearer shares of the Company(ies) for 

registered sbares. 

In order to proceed with the eltchange, please complete the enclosed document(s) and rerum them 

to 11.< 3.< !IDOn Ill' I'0 ... ible. We will then send 10 you the nec.ssmy Boord of Directors resolution for 

signature by the Compnny's(ies') direclOrs. Once the process has been completed, we will send 10 

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760611.896

you the newly issued shnre certificates to be signed by the dUectors. A copy of the docuinentation 

will be rnai~IlliIlt:d1>yusinour!ilc:s: Thcn:\Villlle~~n'Uil!'echargl: Qf S 1000.00 (Jler~inpany) 

10 cover our service charges and the charges orthe Registered Agent. 

Please note Ibnl we are providing ao adrninistnltive service only and nothing in this leiter is 

intended, or should be construed, as legal advice. Should you have questions with respect 10 any 

lax, accounting or legal issues associated with the above or the cnclos'ed documents, you should 

consult your own lax, accounting and/or legal adviSCIB. We accept no liability whatsoever for any 

damages, losses, cosls or eJCpe1ISes"assOcialed with any action·taken or not taken by you ·in 

connection with this leiter or the enclosed documents. 

Sincerely. 

RM 

Encs' 

Confidential Treatment Requested HSBC-PSI-PROD-0197130 
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FOR COMPANIES INCORPORATED IN THE BRITISH VIRGIN ISLANDS (BVI) 

CONSENT TO SEND RECORDS 

FOR CONVERSION OF COMPANY(IES) (the uCompany(ics)") 

NAME OFCOMPANY(IES) AND/OR ACCOUNT: ________ _ 

Dear (HSBC Bank USA, N.A.]![HSBC Private Bank International): 

IIWe hereby consenllO your delivery oftheeOIpolBle documenlS relating 10 the Company(ies) that 

you have in your possession to the Company's(ies') Registered Agent, in order to replace the bearer 

shares of the Company(ies) with registered shares. 

In connection with the above: 

I) The original Certificate(S) of Tille No(S) ___ --' ___ --' _~_-' 

_____ 1IrC enclosed. 

or 

2) The original Certificate(S) of Tille No(S):____ ---' 

related 10 the under mentioned shares of the above named Company(ies) have been lost or 

destroyed ODd J/We enclose a completed and signed 'Indemnity for Lost Certificate(s)'. 

IIWe hereby instruct the Registered AgenllO issue tha following m,w share(s) certificate(s) for the 

Company(ics) as follows: 

A. A single share certificste in the usme of: _________ _ 

or 

B. A single share certificate in the names of (as joint terumlS with right of survivorship); 

or 

C. Multiple share certificates as follows: 

NAME OF HOLPER 

Confidential Treatment Requested 

IDJMBBR OF SHARES 

OR PERCENTAGE 

HSBC-PSI-PROD-0197131 
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760611.898

The Registered Agent for !he Company(ies) is also au!hori2ed to provide you wi!h a complete set of 

revised coIpOrale documents upon completion of !he convc",ioD. 

I/We hereby inStruct and authorize [HSBC Private Bank lntemational)l[HSBC Bank USA, N.A.) to 

debit my/our aeeounl(S) with S1000.00 per Company to compensate it for its services and to pay 

the Registered Agent's charges, which are typically between $150.00 and $300.00 per Company. 

Accepted and Agreed: Accepted and Agreed 

Name Name: 

Signature: Signature: 

Date: Date: 

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760611.899

INDEMNITY FOR LOST CERTIFICATES 

To the DireclOrs of [Company Nnme) (the "Company") 

The original Certificate of Title No(s): , , , ..,.-_-:---' 

relating 10 the under mCntioned shares of the above named Company bave been lost or destroyed. 

Neither the shares nor the Certificate(s) of Title have been tnmsferred, cbarged. lent, deposited or 

dealt with in any manner affecting the absolute title thereto and the persons named in the said 

Certificate(s) is the person entitled to be on the register in respect of such shares. 

J/We hereby request that you replace the Certificate(s) of Title with new certificate(s) in accordance 

wilb mylour instruction contained in the enclosed "Consent to Send Records for Con .... rsloD of 

Personal Company (PC) dated * • and in considc:mtion of your doing so, undertake (jointly and 

severally) 10 indemnify you and the Company against all claims and any demands (and any 

expenses thereof) whiCh may be made against you or tbe Company permitting at any time hereafter 

a tnmsfer of the said shares or any 'part then:of without Ibe production of !be said original 

Certificate. 

J/W e undertake to deliver 10 Ibe Company for cancellation of said original Certificate should the 

same ever be recovered. 

PARTICULARS OF LOST CERTIFICATE 

Cert. No. Amount & Class ofSharcs In favor of "-"~- --~~~,~~~ .... 

---

Dated this _ day of _____ -', 2009 

Signed:.~--:-~ ______ _ 

Shareholder 

Signed:=--:--:-:-_______ _ 

Shareholder 

Signed: S~hare~~h~ol~d-er------------

Confidential Treatment Requested HSBC-PSI-PROD-0197133 
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760611.900

From: Palll A lliURSTON 

Sent sat Feb23 0:/0:341;44 2008 

To: Michael f GEOGHeGAN cc: SIQp/'IM K GREEf\!; MattheW J WKlNG. RictroJd E T BENNETT; David W J BAGLEY 

SubJect CNBVJFIU UpdaHl 

Importance: Normal 

Mlkll, 

Anupda\eon\hI&,Hp!ornisI'Id: 

1. FlrsIly,lDanswetyoorquesuonofWhyls!hrs belno raise<! now?11le 1ntelllgenee that we have 

been able to gath~ IIlhlai wllh Pmfdent Felipe calderon <tectaringwar on lhedrugs 9811'19S, crime and 

&OfJUplion the judicial authorities have heightened the rocus QO financial mwstigalk>tlS and Mve Deon puttlng fI'Icreaslng pteSWre on the bank ~ becauseihebank$ have boon.seen as r:ot p!oWjing 

good enough support. All U!e bankS have problems with !egaGy mes, and are hailing diffic;uIQes with the 

SItOngBf regufatlons Ittm wato pulln pJacQ a rewyaars ago{e.g. requiting physicoll vlSiis 10 ho.rnosIolflees 

fafnswcusiomenl. wry detalledaccouotopenlrlg IntormaUon, inCIudIng(!alalledprojactionsof~ 

lransaction 1lows).1M'Iile ihe CNSV tim latking!GaIl of Ute banks, HS8C has historically. and continues 10 

have, a worse: record than lheo!herbanlts,sowe h&vebecomearo~sorattenlion, TheMW Hoad of lhe 

FlU has loid uS that his staft have loki him that HS8C has been Ihe fIlO$t difficult baOk to obtaln accutala and limety data from lor the past 4 yeats. 'MIlle we haw been wcrklng to address these isstJes, and lila 

CNBV have (Jenem!!y been on side wfIh our f11O\'e3.lhe AU 1$ nol mbfled with \he progress Is nOYI 

Putl!nqpre5$U(OonIMCNBVtD:.;~;;;;.;;;"""'~"':;;I';;;"' ... _______ _ 

;~::.D:t Su=:e:.:::;Dv~tigafi~~S t~~~~ 

3. t.!anyollhal1emsralSed In the CNBVsectlon 01 me report haw boon raised beloflll and aGtio!'15 

ate beIn[J ~l1lgmssed. we. have taken much more comrc;Uve action !han they have noted. and we .believe thai we will be able to prnvkl4! laltly robust rB!>po!1S8Il. to most 01 them We shQl.lld have dralf RlsponsD:5 10 

1httSe: by Monday. alld wl9lt1en shafe: !hese Wllh 0IIw;! Bagley, 

4. Wesre investigating some of the n6W lIem:s ra!ued bylhe FlU andwUl update David Bagloy on 

1I'I8Se neXl week... II has to be said thet most oflhese have never bOOn Ident!lIed In CNBV repons or 

IllspeclJons before. oorMveltley be5fI rid3ed by us ¥tIlh lhe FlU tsowh~ 1he Head oflhe FlU maysuy that hi!! SlBffltave complained abol,l\ HSBC fertile past4 years, this has newrbeen escalated 10 us, or it 

appears, \0 the CNB\I). 

s. Waclearty have problems 11"0 ensuring Ihel .... e have a1111\e In!Qnn8lion and documents requIred fot 

nll\lll account optIninO. amI It is too 83$Y lot IX8nch 5181110 miss ouI key dGcllfOOnts. or mspe<:!ion visi!s 

wdhout lhis being idenllfiad. WJl ate impIemenlil'lg an Image- based system through which all MW account 

iiI=; will be digltRlIy copied to 4 centralGpefa{ions 5ile whell!: lhe QOWrrnml$ wiU be cheeked· thiS we'S 

dlJve/ope<l and PIlOted 10 ZHGT and Is aboUl to be Illlbd out nalionWlde, once ih81ina! Syslems capacity 

teslS are completed, New check 11s15 are being put In place to Sl,Ipport this and stronger dISCIplinary 

~ures wUl be Pllt In placa fOr branch managm who s.ign off on account opening wi!honl ptJrfinnally 

Confidential Trutment Requested 
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760611.901

checklng that the check lists have oeen completed. Once the systt!rT1 goes live this month, we the need to 

do a major clean up exercise to go back through all existing account files, In prtoritlsed ord:er. Vv'hile the 

CNBV have been Informed at these plar,s:. greater pace will now be required. 

6. Dealing With enquiries trom tJ1e FlU - aflhough thLs has n!hoar been raised with uS an issue in the 

past. ills c.lear 1f\at we have not been sufficiently qwck '0 respond to FlU enquiries nor h;v9 we always 

been vary thorough In tryin~ to find all of the itoms requested. They can, of courso always quote 

examples of exlrema delays, and we could WUHt~1 wilh examples whele we haw been much better - bul 

we erc undertaktng an analysis to get 8 repres6ntati\lB picture. Par1 of tho problom here has been 

volumes ~ all enquiries are roulsd via the CNBV. olonO wi1.h enquiries from every other government 

agency, be it rolated to paten:lal police onquirles 01 tax In ... estigatlans. (ltc. We gal more than 1000 fetters 

each week from the CNBV ask1ng for oC(;Clunt information Vlhlch can be vervdetailed (e.g. asking for 10 

years transacUon reoorClS and coples of all related eneques. ClCf1)SS multiple acccunts). We need a tetter 

process to separnte out ~nd prioritise the enquIries from different soun::es, and we need to put mere 

resources Inlo !his area. In Iho meantime. we have offered Ihe flU a ~~ect contact (as we have In other 

countries) with Qur infernal security. to provide a t.nt tmet If [here are urgent cas.es Or ,hose that may 

need more sensitive investigation. This was welcomed by them. 

7. Tho FlU have expressed oo_rn Ihat sorne of Ihls work. has bo.n ou!SOurced to tegol firms which 

may lead 10 a br.nch of confidentiality. n,is practice (Ule dalals provided by lhe bank, bulthe formal 

10gB1 responge letter Is prepared by B law firm. under client confidentlelity restrictions) has been In p!ace 

for more than 4 years, to enable us to deal wtth the volume of enquiries and we have not had a complaint 

before. HoY/ever. we wm ensure that in ftJlure, the mJre sensltJve enquirieS (thOse coming from tne FlU) 

will be tJandled entirety In house to give them "rea tel comrort. We are reviewing the wider practice of 

using lhese law firms. 

8, US bnnknoiOS • it seems thot tho pressure from the US authorities 15 not aimed spBcifictll1y at 

liSBC.bullS-a generalmru:em Bb=LtluJ llow_alliS banknDll<i rlOffiMel<lo!Land tnePlllenllalJiokage IQ 

drug related activit;,. This iSsue was raised wilh us by the Bank of Mexico, who were concerned with the 

accuracy of repo.rting and. at their request. we have been wolklng- on getting more accurate data records 

of theso transacllons. We ere currentry eon dueling our own analysis of tho nows, but initial tndlcations 

were that our US banknote handling had been slo ..... ly doclinlng over recent yearn, rathor than rlslng, This 

analysis Is continuIng and VIe Should have rrore lnformallon next weat. 

We w~1 be reviewing progress with David Bagley on Tuesday. and he anClI will let you have iii up to dale 

report in advance of the Holdings Board rr.eeUng on Frlday. 

v..'e will also be preparino our response to the CNBVIAU reports, which we Ylit! ptesnello them the 

r~lowin9 Monday. 

Please will you, and those &opied, let me know if you require anything funhel or have any additional 

comments. 

Regards 

Paul 

Confidential Treatment Requested HSBC-PSI-PROD-0197673 
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760611.902

From: Michael F GEOGHEGAN 

Sent: Tue Feb-19-22:50:45 2008 

To; Paul A THURSTON 

Cc; StepMn K GREEN; Matthew J W KING: David W J BAGLEY: Richard E T BENNETT 

Subject: Re; HBMX -ML Review 

Importance: Normal 

Paul 

TIlanks-very thorough. 

Mike 

HSBC Holdings pic 

Registered Office: B Canada Square, Loncon E14 5HQ, United Kingdom 

Registered in England number 617987 

!';!.uIAJJ:illRSJON 

- Original Message -

.. _.Fx~_-1?4ul A THURSTmL ___________ _ 

Sent: 19/02/2008 14;D6 CS'l' 

Redacted by the Permanent 

Subcommittee on Investigations 

To: t<fichae-l F GEOGBEGJI.N; P.icnar'i E T BENNETT; Mat the:.,' J ~: KIl.!G 

Cc: Dav;.d W .J CAGLEY; Stepbe:;. GRETH 

Subj .. ct: Re: IInMX -ML Revie~T 

As promised, this is where we are; 

made today. and will commence an urgent internal investigation. 

~ other new jtems raised by FlU. Group Audit LM1 (Thomson, Bentley) are conducting an initial review of 

these with HBMX COO (Rendall) 

- Update on genera! issues previously raised by CNBV, Group Audit LAM (Thomson, Bentley) are 

reviewing progress on actklns already taken by HBMX to address these, Bnd working with HBMX COO 

(Rendall) to prepare a draft response, 

- Review meeting. We (Thun;ton, Thomson, Bentley, Rendall and Grecki) will have a review meeting on 

Friday to assess the findings of the above. I will circulate a report to you all by Friday night 

Confidential Treatment Requested HSBC-PSI-PROD-0198S0S 
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Group Campijance. David Bagley will came to Mexico an Monday 25th and win stay un~1 at least March 

5th. He will review the findings, and provide any guidance from a Group perspective. We will determine 

the action to be taken against the HBMX head of Compliance, and how to strengthen the function (he is 

already working on plans for this) 

- David and I will produce an update repo~ to Mike ahead of the Board Meeting on Friday next week. 

- we are arranging lor David Bagley and 110 have a fallow up meeling with CNBVIFIU on Monday 3rd 

March (they were unao!e to do this nex1 week). 

We will keep Matthew King updated throughout. 

Regards 

Paul 

Michael F GEOGHEGAN 

--- Ori(Jinal Message --

From: M::.chae.l :- GEOGHEGA.N 

Se.nt: 02!19/.2(){)S 03:36 pr-l GM1' 

To: Hic:hard E T DENNETT; Pa'.ll A 'fRURSTOK; !'1<ltthew J 'II KING 

Cc: David W J BAGLEY; Stephe!i GHEEN 

Gentlemen 

Redacted by the Permanent 

Subcommittee on Inve.tigations 

I ha"" spoken to each of you individually today and by the end of Itle day I understand Paul Will have laid 

out what we will be doing,by when and by whom. 

Talking to the Group Chairman this morning ,whilst he was tr.a.nj'iitliin.9.in.Pia.rls.'ia.risieo.uili.hie.als.k1ed.th1a.11 David snould lead In Mexico the Comp!lance funtion review.. I I. 

-

This means D8Vid you should be prepared to l.'ifay in situ in Mexico when you visit this week.You should 

urgentty review which Group resource we put in there on a longer tenn basis. 

It is unlikely that by the Holdings Audit Committee mee~ing next Tuesday we will have sufficient 

information to accurately brief the committee but! would hope by tile Friday board meeting (29th) a 

situation report will be available (agreed by Paul and David) for me to bne! the board. 

The next time I would like to review progress cn this is on Saturday on my return to UK 

Thanks 

Confidential Treatment Requested HSBC-PSI-PROD-0198506 
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Mike 

HSBC Holdings pic 

Registered Office: B Canada Square, London E14 SHO, United Kingdom 

Registered in England number 617987 

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From: Paul A THURSTON 

~Sent Wed Feb 27 23:16:082008 

To: Michael F GEOGHEGAN 

Cc: David W J BAGLEY: Matthew J W KING: Richard E T BENNETI: Stephen K GREEN 

Subject: Re: CNBVIFIU Update 

Importance: Normal 

Mike, 

Perhaps we can discuss when we meet on Friday, 

Paul 

-- Original Message --

From: Michael F GEOGHEGAN 

Sent: 02/27/2008 03:22 PM GMT 

To: Pa";.ll A THURSTO!'J 

Cc: David W J BAGLEY; Matthew J W KING; Richard T BSNNET'l'; Stephen GRr~EN 

Subject: Re: CNBV!FIU Update 

Paul 

! think HBMX have a credibilty issue and you are going to need to bring in a third party 

Also we at Group Level would want to see a very senior person put in to overview this project which 

frankly appears to have been allowed to go un cared for for some years 

Mike 

HSBC Holdings pic 

_~_.Begi~tered Office~8 Can~cl,,~'llJare, Long_011.!'li 5Hq,J,Jflited_Klfl~"'-_ 

Registered in England number 617987 

Paul A THURSTO:-.! 

--~- Original Message --

From: Pac1 A THURSl'CN 

Sent: 27/02/2008 09:07 CST 

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To: Michael F GEOGHEG.l;N 

Redacted by the Permanent 

Subcommittee on Inv.,tigatiOllS 

Cc: "David W J BAGLEY; t1atth"ew J N KIN'G; Ridiard Z T B'ENNETT; Stephe.n GREEN 

Subject: Re: CNHV!FIU Update 

Mike, 

Thanks for your note, 

Before answering your specific questions, I should comment that all of the issues raised by the CNBV and 

FlU relate to practices that have been in place for many years and have not been chaUenged before 

2007. Indeed, in February 2007, we had a totally clean review of our internal controls by the CNBV, 

That is not to say that these practices were correct, and there are many weaknesses. Some ofihese 

were already identified internally, and we have been working on them. Each time the CNBV has raised a 

concern in fhe past 12 m:mths, however, we have responded positively with action plans to address them 

and we continue to do so. I have always had positive feedback from the Head of the CNBV on the actions 

! have been taking to improve controls and quality in this business. 

Turning to your questions: 

- our new COO, who arrived in 2H07 is overseeing the remediation programme and I believe he has the 

ability to do this effectively. \fI!nat we need is a goof programme manager, probably with experience of the 

UK DSC2 type centralisation/process streamlining work., to drive a number of key projects, including 

centralisation of account opening files and controls, automation of branch transaction processing and 

troosactioo.."ooclw>-storag" aAO+e-engmeering ol.regulatorlcenquiI¥-handi[lij.-'lVe.aJS.QIl«e~d. tQ _ 

strengthen the Compliance function management. I am reviewIng this with David Bagley. 

2. When we meet with the CNBV on Monday, we will present a detailed response to aU of their pOints and 

.. an-actionplanior·the-majoq'rojec1nve-are"ndertai<ing:'f-amnotwnvinced·thahve-neet!-art·extemat-.... · ~"-"' .... --

audit or third party review (and the quality of external firms here is not that great), but we will be better 

placed to judge this after the rneeting on Monday. We will certainly cornmit that our Group Audit function 

will be actively involved in monitoring progress on our programme of rectification. 

Regards 

-- Original Message -----

From: Michael F GEOGHEGAN 

Sent! 02/25/2008 05:14 PM GMT 

To: Paul A THlJRS1'O~ 

Cc: Davld W J BAGLEY; Matthet<.' cJ W KING; M:.chael F GEOGHEGA.N; Richard E T 

BEt-.""NETT; Stephen GREEN 

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Subject: Re: CN[3V /FIU Update 

Paul 

Thanks for the update: 

The issues am: 

1) Vv110 really senior are we going to put in, to take control of this whole process of account opening and 

back reviewing of accounts already opened- because clearly we have failed to have done that 

todate?Thls person needs to be a grade 1, reporting directly to CEO Mexico< 

2)Can our review ,in the eyes of the regulators, be seen to be independent ?Does It not need a third party 

review or a joint audit run by GMO INA and say KPMG or Deloittes , 

We need to really spec the size of the problem, agree an action plan with CNBV and then get each part of 

the action plan signed off by the third party. 

Your views please 

Best wishes 

Mike 

- ... ----.~--

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• CNJ!V!EJ\LMEETIIclG. 

Ds'MW J MGlEY to: MJtl'taal f GEOGHE.GAN 

Sel'lt by: Menon 0 ROACH 

Cc: S[ophen K G.~Ee:N. RicM;.1rd ETBE'NNBT, PiJul A 

THUA$TCN, "'at'~'le' .... J W Joi~NG 

;"'~(ory: Thillma~S1I!1Gai"B:'!I_'ee-,n_'_"",",,_d-,'d_. _________________ _ 

Mj~e 

P.aul a~Q ! motw{th CNBV ",nlf rna loCal Fjr"mc1alll'lI~IIg$l"lCdi Vnll (FlU) ),'tH;terdilY. Key l}oh~ are: 

• Paul prsi!iooLed me d~til1iQd wnttan rel!ipc1nse to.all of th~ points raised. 

• Paul ran llifough tne maIn proposed actions: 10 artctreS!J tM KYC 1eHdGnciea, 1'1"I3bly by 

cen;rollsing thg acrount op!!nl/1g pr003ts.a8 quIckly as: safety poss-lbl. and ro !'t3i'ld!e formal 

r6que~lS far im'ormatlon rec~ed fmm CN8V mom promptl'/lIncf effldel';fty. 

We madO it (lIOOf t.\l1t FlU f.f!!iot!:d enqt:lirte~ will b@ hand:ad on a pri<:lrity basts tl1(ougl1 ;j ded'icat.::d 

leSJm. thiS act:k:n I'tas been- l'ak!!n 

• CNaVe"+l"~ed !:I1eJ( (flanks fm the prompt and flJU re~pon."Ift. They also tiX{lfl!!s..seoti <J -wish to 

WJfk w~th HSMX to impro';lE'l thE'! procAss at thei{ end. 

• A fmther mGetl~ will be hcld wnh HD CNBV to re\riew progren fn .oI~6 W'dElk!l, 

T;'\~re Is an oLit5tal1rlfJ:g poirota~ \0 WhgtJG11he US6 r:d an Outside ~aw fi,m 11M br~chGd tlJoidrJij 

se<.:recy. Ci'<I9V ~nd HBMX \01111 rel,l.!ew INs. 

• WEI WQtJd nomfQlly proactNe!y ad'-ise FSA of an inc\~nt like- thls:n OJ managed way, eNSV wCt1!d 

tilre '!..IS; to dll t/1fs first ahd thElfi ~r±m;:a tI'1em. CNBV wm Ih~~ 5~<!iI. to FSA. 

ThB fl',P.e1In-g WB!! c)ltrem"ly oordia-! and 1M plOmpl re.'locl";!!.I!I aM anE<hUon, iru::h.linld at Group l&~el 

--'Naa.....-sJlJ~ ... ~------ - ---~-----

-= 

Confidential Treatment Requested 

Redatted by the Permanent 

Subcommittee on Investigations 

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Re: MEXICO BANKNOTES I High-level Timeline 

From: 

To: 

Data. 

A1tachmerrls: 

Paull,AWRENCE .c'q-r--pauJ !awrencefou::hghqlo::oh.sbc"'> 

mlmaelgecgnegan@hsbc.com 

Moo, 07 JW12010 09,20.35 "1'0100 

MEXICO ATIACHMENT PURCHASE ONLY·X!s,,'p (5.28 kB) 

As promised, here's an o:..rtlir1e of the 'key e\le1'1l~ relating to the Me~ca.() regu\8.tor:$' collCeO'l$ over U'SD ban~r')Ot.e5, leading 

~p to your meeti:lg in NOV08. Before sen&ng this, (sooke to Paui Thurstnn {PAT), David BaQl{lY (08), luis Pena and 

Emlfsol'l Alonso. 

October2Q()7: PAT Tn$t alM&, at their invrlation. with 1M CN6V. They adv!$.tl Of1helrconcefr"ls O'V(I:( a variety of internal 

con1rol weaknesses, incJud;ng credit card f~d, customer serJicel system i~tabim~.3:xt weak KYC and have reservations 

ollerthe ?crsl~errce of the. Bital-oorporate cul1Ufe~ PAT .advises of senIor managemenl changes end changes In buslness 

model to address their concerns 

Fetruary Z008; PAT metwrth theCNBV and the H~.ad otthe Financial !rrte:!i~nce Unit {FIU}of1he rtoance Ministry, They 

fe'lo'fs:ft the OCT07 issues and ac~nowledge th-e progress made QI1 imer~aj controls, tiowe,(ef, the flU hos new concerns, 

Clein~: 

oompelltors 

---.-f~ilurestcres;;;;,;cito-FiD enquirie;'ifl ~t1tne'l,y'TOOn!\er'~nd the ust! -OieiterMi fifl'Ti$TOhondle~ioch 

'eqoe>I$; 

• misslno KYC documentarion; find 

March 2008: DB spends twc weeks in Mexico, furlhef to which he amJ PAT met wifl'J the CNBV and FlU, at which we 

present a detailed wrjtlen respons.e to ell pomls raised and, 

• agree to 8Mlyse USD ban1<1'\Ota transactions: 10 a~e$S wlle:tl'\er controlIS- ale effectivtt, with imm9di~fa 

enhanced KYC for aU customers depositing over USD100k pef mO';'Tth ana a rev,e\-..- ('Jfhigh 'i'olume branches.; 

• .<lVi .. actions jJ Bddfess KYC; 

~ .agree to handle ali: FlU enquiries Dna priority bss.is,. wtlo!1y in-house; and 

laler. fhe FSA talk tOiheCNBV, who iotin'lele that they were spurred on by tOO FlU, The CNBVronfirm that they are :s.aiisOOd with OO{ rc&ctior\ and rcmedioHon plans. 

Confidential Treatment Requested 

Reda(ted by the Permanent 

Subcommittee on Inve,tigation. 

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:1,1;: ap:J .... fc"1llh<11 t"ll HB"~X I)cod oj co-n;!hnn(;'f! \Ci'Ucla) had 1101 o{(!Jlt lhe q::gu!alorllo (h; WI:! "intorn.;!d ns. r>AT .. .,d DB '1ild 

oee-n \:lI~~n 10 u""Tdc·st<::I .. d. Add Ilenull,. It'Ie CNSV Mild earl cr CJ(p.re:;sro Ics~n .. "'ltons o~cr n)ICS I.:(:mg 'Soli uChucd 10 CC'~· 

D()I"I Me.x,cc l'Ir.d Ct:nt·,\! A1~I!f)C.;t. !.Aal1<iI9c~'1' n~cOijn se thall!be MeJoco CO.,l;!; anee bnf:! .. :n !to ')( .... 110 Ih'~ l;.rlrTi! C:ll.:;!(! 

as >JltH:!~ d~o.an.f('('-"'\IS .<Jr){J ii ~j>ec'~Jon IS t.:I'o:r,!n \(, tJr r.g ,1"1 a dea,ca!etl h.::ad cI cun'p"ilnct~ (8c.J:'.O!>f!".')') IOf LAM ....... 1''lO iw)~e-s n 

Jil"lJll"Y 2OU'J rcfle-cl .'l91IlC 1,:1'.11 n(!eded Ie t:'1J n SLI ia~)l·qlJa:!1 ed (c:)i1}Ccrrcnt. Ont'e she :s .n ~..tll, tT)(: 'll.:ad of 

~q-;3.!lLC-lo.:- H81!X l$. r~t1 aLlll.e e1'Id d Mat 2QO':), ail"lc.1JQr'! G.!\(t.'l8 urY.,)eI1Cpl< "$cm~ !'.~l!l!i:.nb"tC'l WO'1I. fer LA,M al'1er 

!'"l<'l! tJ<~I~ 

Apr:! 2008. PAT aM DB mcellhc CNBV & rlu .)ga n to iJDdate on r:O~f<:-5S! 3cHms to .:KId'css the nu cc')(C(~. W"1 ch 

are occe:)tM ""th coos.is.le"·ll fee.:1Mc~.lhJ! \II.~ e,(C nww vlC"--."<2c1 pOS.l,.-c-ly Ln.e-, n APROB. PI\T le,)';i!!; Me"",,::o 

J\J~i' :tL,'ca. HaM}/; coo (Renl1)l!> ",)rovjdc~ ~ prcgfcs5 'cporl 10 tnC rcgt>~mo! OIJ':l,\ CO"Il(I'IHcc, o.Jlhf'lfIg 9 wct",~tre~n's. 'Nflr. 

~'!!i pr{,?r/l:s,," IncLtdlolJ 

• ~;ur.c{:s~~ful Jn1pi~mcnlm;on of 01 process of d'\jiln:'Sf)1h'H)! '~~~f*<l' r)cCO.ml (,;);:0'1'"'11 fnr fjl flt'll iI!'c(J,mts 

opened <.cross mt~ 1 <!SB or'Hlche!. In Mc\:co 

a 90~ reiJ,J(1'Q'1 (InYfl ).01,700103.300) [tl lhe baclo.1og c12008 CAMP ale:1<;.. 

Nc"e:'l'C:er 2'00; HEMX, COO \ R~l\ja'!! ;:If-OV de!..a ::f~"es~ rew1 h: the r6J-~1;:" ,~l\Jd'l C&l'l1'"ltec_ ,,;-J.J!'ng IJt!'1ent~e.s 

W(I''< w.% 'm(k: ........ ;;;y K ,io"r.;>S5 the sc...--..x1d ph,H,e (J 7 ,000 ;'lCC(1U"lt$ .,.,1tl'J. '/art0U$ "l~,'" f:;-->{Js-\ :-Ind It'),rd 

phase ;83.008 >lcCQ:.J'"lt'S WIn hlSlorlC CtJ.AP i) (!J1 pofDt les} of KYC fi1C'5 rc.-l./1f~ng rcrncdiatlon C)()d 

Your rr~t r-.g Yllth tnt: CNOV Cl~f;l.ir3 ViQr1JY l"lefcaher. the I...,ck of prc-grt:.'s!. innddres-5!'111 !l"\!': l,lo!t1me {It U~D bllflk'L'>k'~ '!> 

p.J:l'fl)rqicd Ii"! 1~ grAph xlllwhpd he,ow wr"\I["h !'.hr.w:o> mOnlhly IJ$D f'J.porl Vol!UIT-f!S St'lyt·!j r:orr<;l:~,'t 01 lncrt'."~d frorr. Ot.' 

tJ7lhfOlli)""I['J,.rOIJ, 

~-I 

.-J "'E~1CD .:.TT:..(,..,MEt;7 FI,JR:::w..";e: OfLY~l:::t, 

• 1 !'\~th..l,.~rl(;l<n the period t-a"'l'" CC1ob~r 2CO-; Ie NO',1em~r 2008, genJ .. ""~ prlMS wt'~e (T\'~e to addrl?SS 11"'le 

t~<J>3Iors' coocer"ls. 

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• These ~ele scceJeralcd in FebllJaf)' 2003, whe:n the FlU's concerf'l:S 'IfI"t,.">fe received. 

- At that point, the iss1JEtS were escalated to GMO an-d (-83.dy support for the: rsmedial ~fforts received. 

· A subslanlial number of remed;.el actiOns w~ "taken and tradr:.ed and early feedback from lhe r~u!atc( 

on the (emooa! Pians was JXl$itive. 

• However, the primary focus of the remed;a.1 efforts was upon {l) t\Yc and (2) respOnses 10 FlU enqulMS-, 

with a notably lowerfucu-' on lh-e FlU's. concems. relating b:: the volLrYle of USD ban\(rqotes being handll!'d by KBMX 

• In relation ro!he. taner, additional. sc.reeni:'ll{J of higho-volum.e USD customers was Imp1emen:ted. However, 

the success or ol1erwise in reducing overall usn banknote vofumes vs, market fro.'l1 FEBDS onwards was no4: efledively 

tracked and the rpaph danonstrates the flmFted !mpad -afthese measures-

• The lack of a KP! related 10 USO-volumBs-appeans. to be a maJor gap in the-tracKing of remedJai efforts, 

-We noted a genwifle be1Jet that all the problems were being fixed in line WU.h the regulators' expectations; 

their NOVOS concern that we had a clear discor'lnect over USD volumes was an-evidel)t surprise, 

p~ let me know if you need an)l1hlnog else Qf 'WOuld liketo-dlSCW;s. 

Regards. 

Paul 

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Hsnc HOLDINGS PLC 

Minutes of a Meeting or the Board of Directors of HSBC Holdings pic heJd at The Emirates 

Tower Hotel. Dubai on Friday 25 April 2008 

PRESENT Mr S K Green. Chainnan 

Tbe Baroness Dunn, Deputy Chairman 

Sir Brian Moffat, DeplHy Chaimlan 

'-'11 M F Geoghegsl1, Group ChiefExccutiyc 

The Rt Hon. TIle Lord BUller 

MrVH C Cheng 

MrlDCoombe 

Mrl LDuran ... 

MrDl Flllll 

DrWKLFung 

MT J W J Hughes-HalloU 

Mr W S H LaidlalV 

Si, Mark Moody-Stuarl 

MrGMorgan 

MrSWNe"ton 

MrS M Rabenson 

Sir Brian Williamson 

.. .... Hem 08/43 to 08M7 (by le/ephotlc) 

SECRETARY: MT R G Bmber 

--lW~VITATlON, M,·R-Hcl'-Be-HH8l1-. 

MJDJShaw 

IN ATTENDANCE: MrSTGulJiver 

ABSENT \V1TI{ 

APOLOGIES: 

M r 13 McDonagh .. 

MrYNasr ... 

Mt B Robertson .. 

Mr P A Stafford 

Mrs RA Fairheild 

... Item 08146 

. . Item 08/.+J 

.. !tern 08145 

." ... Hems tW42.2 to 08/42.4 

In the absence of R A Fairhead. J D Coombe repm1ed on the m~tters which came 

before the Group Audit Comrrunce on 18 April 2008 

D W J Bagley, Head of Group Compliance, had updated the Committee on the 

Page 1 01'2 

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issues with the banking regulators in Mexico. A robust and Illil response to the. 

matters raised has been prepared and action plans to address confirmed-areas of 

weakness presented to the regulators, \vho hm"e expressed their sn.\1srac11On with 

the Group's reoello!!. 

CHAIR1-MN 

P8ge 2 of2 

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760611.914

HSBC HOLDINGS PLC 

MinUles ofa Meeting of the Board of Directors ofHSBC Holdings pkhcld in the Boardroom, Leve) 

4],8 Canada Squnre. London EI4 on Friday, 29 November 2002 at o {Xbm 

PRESENT: Sir John Bond, Chairman 

The Baroness DUl1r~ nepllty Chairrnan 

Sir Brian Moffat, Deputy Chainmn 

Sir Keith Whitsoll, Group Cb1erE,cculivc 

'[]1C Lord BuUe1 

Dr R K F Ch'ien 

MrW RP Dalton 

MrDGEldon 

MrD] Flint 

01 WKLfllng 

MrS K Green 

Miss S HllllZe 

Mr II W Jobson 

Sir John Kemp-Welch 

The Lord Marshall 

Sir Mark Moodv-Stumt 

Mr S W Newton 

Dr/-{ Sohmcn 

]111; CTuylor 

BY lJ','VITA:trON:Mr RIC Yneiineu- Mr D J Shaw 

Mr D !'vloore, Morgan Stanley & Co Ltd - Hem 021 I ali 

Mr M Tory, Morgan Swnley & Co Ltd Itcm 0211 \lei 

IN A'rrENDANCE: Mr R G Barber, Secretary 

l\1r S D King 

MrM Il McPhee 

ABSENT WITH MJ C F W de Croisse! 

APOLOGIES: Sir BI1M Willw.Illsoll 

. Item 02/107.1 

ltem02!] 17 

111c tender oller for the acquisition of Grupo Financiero Bital closed on 

22 Novem1>er. The Group now o'wns ~9.59 per cent ofBitaL 

CHAIRMAN 

Poge I or J 

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HSBC HOLDI]'I;GS PLC 

Minutes of a Meeting of the Board of Directors or HSBC Holdings pic held in the BoardroOlTl 

GntpO Fmanciero HSBC, S.A de C V . PiL<CO de la Relorma 243, Cuanhlemoc, Mexico on Friday, 

30 Janu",,' 2004 at B.30mn 

PRESENT 

BY IN'VlTATION 

ABSENT WITH 

APOLOGIES' 

Sir John Bond, Chairman 

1l1e Baroness Dw"Ul,. Deputy Chalm1an 

Sir Brian Moffal, Deputy Chnim13l1 

Mr S K Grem, Group Chien",ecutive 

Mr W F Aldlllger 

11,e La I d Butler 

Dr R K F Ch'ien 

MrWR P Dalton 

Mr C F W Je Croisset 

MrDGEldon 

1\1r D ) Flint 

DrW KL Fw,g .... 

Ivliss S Hinve 

Mr A W Jobson 

Sir Jolm Kemp-Welch 

The Lord Marsil,JI 

Sir Mark Moody,Sluart 

lv!r S W Ne\\ion 

Dr H 50l1mBn 

Ms C T.,lor 

SirJ3riilll..1'':illim:nsorL-.~'~ _ .. 

MrD) Shaw 

:-1r R [ T l3ennell 

by telephone (Hems 0411 1004/8) 

IN Kn'Et\DA.NCE: Mr R G Barbel', Secretory 

from the I() December 2003 Group Executi\'e Committee tvfeeting 

11," Of'fice of foreign A"ets Control (OFAC) or the US Stale TreasUlY 

Deparlment ildministers 3Tld enrorces economic and trade sanctions ngainst 

targeted foreign countries, terrorisls, drug tmfTickers and those engaged in 

actl\'l1ies related to the proJiferatlOn of \l;ea]Jons of Inass destmc1Ion. No 

tr~sacjlOns in or with countries or persons proscribed hy OFAC may: 

therefore, be allowed [0 pass through systems based in tne USA. 

Consequently, to avoid contravening the OFAC restliclions on processing 

credl1 card 1r:msactions in certain eountries it will be necessary 10 eslablish 

a separote inswHarion of \VHIRL in the UK ThiS is likely to cost about 

PJge I of 2 

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lISD20 million but will not cause the loss of any jobs in the liSA, Similarly, 

alternative anangements \\ill also Jiaveto-betnaae--[o a,;;)id processing 

internci transactions from those countries in the USA 

0417 GROUP AUDlTCOMMllTEEMAlTEFJ! 

Sir Brian Moliat reported on the matters wl~ch were considered by the Group Audit 

Cnmmittee J.l its Meeting on 27 JaJ.1U3J"y 20C4 

11,e Committee received a routine report from ihe Group Genernl Manager Internal 

Audit; this induded reports Oil high-risk audits and matters arising [rom the mUlUtes of 

slibsidimy amtil conlll~ttees and from reglilatory and e,temal oudilOrs' re\'iews, There 

\\'ere no frauds reported, The Committee had talked a hilie aboul the intemal controis 

\\ilhin GF HSBC (fonnerl), OF BitaJ) "bieh, alier being part orthe Group for some 15 

months, \vas making ,'elY significant progress in raising the standards oIits controls. It 

\Viii, however, probably toke another two years to fuliy reach Group standards, From 

Cl-POriCllCC with other acquisitions this is not llllexpected, Sir Brian had met the 

jlrevious day with the KPMG Audit Pminer in Mexico, who wholly supported these 

(Dneiusions fOld acknowledged the achievements of A A Flockhart fOld his team. 

CHATRMAN 

Page 2 of2 

Confidential Treatment Requested HSBC-PSI-PROD-0198572 
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World's leading banknotes specialists with over iO years of experience 

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Products and Services 

- Competitive two-way prices for all currencies for which legal markets exist 

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can return unsold notes I 

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Value Added Services' 

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- Banknotes supplied in pre-packs of same or denominations 

- Our own security escort to collect/deliver shipm'ents 

- Cash available on request I 

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'Please note that some or all of these value-added services are only availab/e on a regional basis 

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Hugo Novaro 

Abel Ghacham 

Ingrid Keating 

Scott Keese 

Kostas Michael 

Mayra Bonet 

Glenda Wagner 

Kauko Aro Erika Rabines 

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Gyanen Kumar 

Regional Head of Banknotes 

Hanan Ofer 

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Romy Belo 

Elena Duffoo 

Jenny Infante 

Marleni Velarde Michael Baez 

Richard Lopez, 

Antoinette Angelo Correa i 

Ethel Mitre 

Paulomi Sha

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LeeWing Kin Chan Chief Executive Officer 

Simon Koh 

Korine Tan 

Michelle Lim 

Joanne Tan Glendon Goh - Dealer Tra

Cashiers/Couriers 

Robin Lee 

Henry Low 

Auw Fo Hin 

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Jenny Kong - AVP 

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2096 


760611.929

Occ-psi-00150796 

From: CHRISTOPHER LOK/HBUS/HSBC 

Sent: 11/17/2006 10:11:13 AM 

To: STEPHEN J ALLEN/HBMD/HSBCMERIDIAN@HSBCMERIDIAN 

CC: 

subject: Alrajhi 

Steve 

Just spoke to Alan. He's going to read the whole file, including the few EDD. 

He says the file is more than an inch thick and he's aware of the 'threat' you passed along. His view is Alrajhi may not really walk away if we can't 

revert by November end, which I agree. 

I told him frankly lets avoid the middlemen and go straight to the decision 

maker. WE should have an answer in the next few weeks. 

Chris 

page 1 
2097 


760611.930

From: DANIEL JACK/HBUS/HSBC 

Sent: 8/7/2007 11:04:53 AM 

Occ-Psi-00153253 

TO: MICHAEL BAEZ/HBUS/HSBC@HSBC;GORDON BROWN/IBEU/HSBC@HSBC;SALLY G 

LOMAS/HBMD/HSBCMERIDIAN@HSBC; 

HBUS KYC AP;MICHAEL KARAM/HBUS/HSBC@HSBC;JAMES S 

NATHAN/HBMD/HSBCMERIDIAN@HSBC;GRAHAM J COLLINS/PM RNH/HBUS/HSBC@HSBC 

CC: CHRISTOPHER LOK/HBUS/HSBC@HSBC;DAVID M WILENS/HBUS/HSBC@HSBC;RICHARD 

HAJDUKIEWICZ/HBUS/HSBC@HSBC; 

JEREMY A CHARLES/HBMD/HSBCMERIDIAN@HSBC;STEPHEN J 

ALLEN/HBMD/HSBCMERIDIAN@HSBC;GYANEN KUMAR/HBUS/HSBC@HSBC; 

ROGER T K SO/HD NBD RNH/HBUS/HSBC@HSBC;GARY C H YEUNG/SVP NBD RNH/HBUS/HSBC@HSBC; 

WING KIN - SG CHAN/CEO SIP/HBUS/HSBC@HSBC;ANASTASIYA SHRON/HBUS/HSBC@HSBC 

subject: AML Enforcement Actions against AmEx businesses 

KYC Managers for HBUS Banknotes & Metals, 

please review the attached AML enforcement action against two American Express entities/locations in USA, and the payments to be made by AmEx total $65 

million. The Federal Reserve and FinCEN announced civil money penalties a~ainst American Express Bank International (AEBI) of Miami, Florida for 

vlolations of the Bank Secrecy Act (BSA). In addition, FinCEN announced civil 

money penalty against American Express Travel Related services company, Inc., a money services business, located in salt Lake City, utah, for its violations of 

the BSA. 

Although it appears we do not deal with the specific AmEX entities/locations 

noted, please ensure KYC is updated and activity is monitored with the 

affiliated AmEx companies we do deal Banknotes and Metals with globally. 

Let me know if you have any questions or if you do in fact deal with American 

Express Bank International (AEBI) of Miami, Florida or American Express Travel 

Related services company. 

Thanks and regards, 

Daniel Jack, VP - AML compliance Global Banknotes & Metals 

Telephone: 212-525-8686 

Attachment: aebi_joint_release.pdf 

page 1 
2098 


760611.931

Occ-psi-00155690 From: CHRISTOPHER LOK/HBUS/HSBC 

sent: 5/1/2008 2:32:43 PM 

To: GARY C H YEUNG/SVP NBD RNH/HBUS/HSBC@HSBC 

CC: ROGER T K SO/HD NBD RNH/HBUS/HSBC@HSBC 

subject: Fw: KYC Approval needed for: AL RAJHI BANKING & INVESTMENT CORP 

Gary 

why would Alrajhi buy from you instead of their current source? And who's 

their current supplier? why would they need Thai Baht and HKDollar? All these 

have to be clearly stated. 

In case you don't know, no other banknotes counterparty has received so much 

attention in the last 8 years than Alrajhi. This name went to Group compliance in London. Followin~ 911 steve had stopped trading with them because NYK 

compliance wouldn't slgn off the KYC. only around a year ago did Group 

compliance come back and saying they're satisfied with the name and its only since then steve could resume trading. 

I'm not against you doing business with them but the KYC has to be extremely 

transparent. 

And Steve knows about this? 

Chri s 

----- Forwarded by christopher Lok/HBUS/HSBC on 05/01/2008 03:28 PM -----

David M wilens/HBuS/HSBC 

05/01/2008 03:24 PM 

To 

christopher Lok/HBUS/HSBC@HSBC02 cc 

subject 

KYC Approval needed for: AL RAJHI BANKING & INVESTMENT CORP 

A KYC BankNote profile in jSAiU.D.IIiA.RiABIA for HSBC Office Hong Kong is ready for 

your approval (Reference # 

click on the attachment to open the Profile. 

page 1 

_ = Red.,ted by the Permanent 

Subcommittee on Investigations 
2099 


760611.932

From: CHRISTOPHER LOK/HBUS/HSBC sent: 5/5/2008 2:19:20 PM 

occ-Psi-00155719 

TO: GARY C H YEUNG/SVP NBD RNH/HBUS/HSBC@HSBC 

CC: ROGER T K SO/HD NBD RNH/HBUS/HSBC@HSBC;STEPHEN J ALLEN/HBMD/HSBCMERIDIAN@HSBC 

subject: Re: Fw: KYC Approval needed for: AL RAJHI BANKING & INVESTMENT CORP 

Gary 

One condition. I want to banknotes profile updated tor reflect these facts 

please. 

chris 

Gary C H YEUNG/SVP NBD RNH/HBUS/HSBC@HSBC 

05/05/2008 05:11 AM 

To 

christopher Lok/HBUS/HSBC@HSBC02 cc 

Roger T K SO/HD NBD RNH/HBUS/HSBC@HSBC, Stephen J 

ALLEN/HBMD/HSBCMERIDIAN@HSBC 

subject 

Re: Fw: KYC Approval needed for: AL RAJHI BANKING & INVESTMENT CORP 

chris, 

I have spoken to Abdullah Darwish, senior cash Manager of Al Rajhi. 

Al Rajhi have regular demands on the major Asian currenies including THB, PHP, 

IDR, INR and HKD which Bahrain Finance is their main current supplier. They sell currenices though their nationwide retail network and the Asian overseas workers, tourists and business-men are the main buyers. 

Abdullahi approached HKG through salman Hussain, HBME and Dave Illin~ in March. 

Through the client KYC profile of London, we are well aware of Al RaJhi's 

background as you mentioned. Base on the information given, we don't think we have problem to deal with this prospective client. 

For the logistics side, we will possibly use swiss Air flight from Hong Kong to Riyadh via zurich. In fact the both transit and destination airports are to have good security record. 

Steve told that he is quite happy for us to go ahead. 

please approve the profile. 

Gary 

christopher Lok/HBUS/HSBC@HSBC02 

02 May 2008 03:33 Mail size: 6525 

page 1 
2100 


760611.933

occ-Psi-00155719 

TO 

Gary C H YEUNG/SVP NBD RNH/HBUS/HSBC@HSBC cc 

Roger T K SO/HD NBD RNH/HBUS/HSBC@HSBC 

subject 

Fw: KYC Approval needed for: AL RAJHI BANKING & INVESTMENT CORP 

Our Ref 

Your Ref 

Gary 

why would Alrajhi buy from you instead of their current source? And who's 

their current supplier? why would they need Thai Baht and HKDollar? All these 

have to be clearly stated. 

In case you don't know, no other banknotes counterparty has received so much 

attention in the last 8 years than Alrajhi. This name went to Group compliance in London. Followin~ 911 Steve had stopped trading with them because NYK 

compliance wouldn't slgn off the KYC. only around a year ago did Group compliance come back and saying they're satisfied with the name and its only since then Steve could resume trading. 

I'm not against you doing business with them but the KYC has to be extremely 

transparent. 

And Steve knows about this? 

chri s 

----- Forwarded by christopher Lok/HBUS/HSBC on 05/01/2008 03:28 PM -----

David M wilens/HBUS/HSBC 

05/01/2008 03:24 PM 

TO 

christopher Lok/HBUS/HSBC@HSBC02 cc 

subject 

KYC Approval needed for: AL RAJHI BANKING & INVESTMENT CORP 

A KYC BankNote Profile in SAUDI ARABIA for HSBC Office Hong Kong is ready for 

your approval (Reference #11" .. 11. 

click on the attachment to open the Profile. 

Page 2 _ -= Redacted by the Permanent 

Subcommittee on Investigations 
2101 


760611.934

Occ-psi-00156271 

From: GARY C H YEUNG/SVP NBD RNH/HBUS/HSBC 

Sent: 7/18/2008 9:29:38 AM 

TO: CHRISTOPHER LOK/HBUS/HSBC@HSBC 

Cc: 

subject: FW: Al Rajhi Bank, saudi Arabia 

Chri s, 

Here is the information we put in HKG Banknotes profile. 

Al Rajhi Banking & Investment corp is one of the largest banking companies in 

the Kingdom of saudi Arabia and listed on saudi Arab1a stock Exchange Market. 

client 1S an existing customer of HBUS London office. Recently, they approached us through London office and would like to set up business 

relationship in Hong Kong. Al Rajhi mainly interest in buying Asian currencies 

from us, they have regular demand for the major Asian currenC1es including THB, 

PHP, IDR, INR and HKD which Bahrain Finance is their main current supplier. They sell currencies though their nationwide retail network and those Asian overseas workers, tourists and business-men are the main buyers. They will 

utilize our services for their retail banknotes activities only. In the 

meantime, client will become one of the counterpart to liquidate our Middle 

East currencies surpluses that we purchase from other markets. 

Gary 

Gary C H YEUNG/SVP NBD RNH/HBUS/HSBC on 07 Mar 2008 10:30 

Memo 

07 Mar 2008 10:30 

From: Gary C H YEUNG/SVP NBD RNH/HBUS/HSBC 

Mail size: 31755 

TO: Salman HUSSAIN/HBME/HSBC@HSBC 

David B ILLING/HBMD/HSBCMERIDIAN@HSBC cc: Alex F TSANG/VP NBD RNH/HBUS/HSBC@HSBC 

Dave A GLUCKERT/HBMD/HSBCMERIDIAN@HSBC 

Denys K S CHAN/VP NBD RNH/HBUS/HSBC@HSBC 

Irwin C F YIU/VP NBD RNH/HBUS/HSBC@HSBC 

Jim K T HUI/VP NBD RNH/HBUS/HSBC@HSBC 

John L SCOTT/HBME/HSBC@HSBC 

Roger T K SO/HD NBD RNH/HBUS/HSBC@HSBC 

stephen J ALLEN/HBMD/HSBCMERIDIAN@HSBC 

william M K WONG/AVP NBD RNH/HBUS/HSBC@HSBC 

wing Kin - Sg CHAN/CEO SIP/HBUS/HSBC@HSBC 

Betty F S NG/NBD RNH/HBUS/HSBC@HSBC 

John N H NG/NBD RNH/HBUS/HSBC@HSBC 

our Ref: 

subject: 

salman, 

Your Ref: 

Re: Al Rajhi Bank, Saudi Arabia 

Tel: 852 2844 1387 

please lets have more information and we will talk to Abdullah for details 

later. 

Dave, 

We will prepare the banknote profile and may need your input. 

Page 1 
2102 


760611.935

occ-psi-00156271 

Thanks and regards 

Gary 

salman HUSSAIN/HBME/HSBC 

06 Mar 2008 19:38 Mail size: 27632 

Phone No. 0097317569599 

TO 

Gary C H YEUNG/SVP NBD RNH/HBUS/HSBC cc 

Alex F TSANG/VP NBD RNH/HBUS/HSBC@HSBC, Dave A 

GLUCKERT/HBMD/HSBCMERIDIAN@HSBC, 

David B ILLING/HBMD/HSBCMERIDIAN@HSBC, Denys K S CHAN/VP NBD 

RNH/HBUS/HSBC@HSBC, Irwin C F YIU/VP NBD RNH/HBUS/HSBC@HSBC, Jim K T HUI/VP NBD 

RNH/HBUS/HSBC@HSBC, John L SCOTT/HBME/HSBC@HSBC, Roger T K SO/HD NBD 

RNH/HBUS/HSBC@HSBC, stephen J ALLEN/HBMD/HSBCMERIDIAN@HSBC, William M K 

WONG/AVP NBD RNH/HBUS/HSBC@HSBC, wing Kin - Sg CHAN/CEO SIP/HBUS/HSBC@HSBC 

sUbject 

Re: Al Rajhi Bank, saudi Arabia 

Our Ref 

Your Ref 

Thanks Gary, 

I will try to obtain as much info as I can Tuesday next week. I do suggest however to as you both talk the same language. what I 

additional business / benefits to Al Rajhi account with HBUS. 

when I see Abdullah Darwish on have a direct conversation with him am trying to do is to facilitate to justify the opening of a US$ 

Dave Illing is the best person to provide you with the logistics of flights and 

securityetc .. 

Thanks and regards, 

salman Hussain 

Global Transaction Banking P.O. Box 57, Manama Kingdom of Bahrain 

phone. 

Fax. +973 

Mobile. 

Email. 

Internet. 

+973 17569599 

17569888 

Piiman.nussaln@hsbc.com 

http://www.hsbc.com 

page 2 

- = Redacted by the Permanent""'''-j 

Subcommittee on Investigations 
2103 


760611.936

Occ-Psi-00156271 

Gary C H YEUNG/SVP NBD RNH/HBUS/HSBC 

SVP NBD RNH/HBUS 

06/03/2008 01:04 PM 

phone NO. 852 2844 1387 

Mail Size: 23174 

TO 

salman HUSSAIN/HBME/HSBC@HSBC cc 

David B ILLING/HBMD/HSBCMERIDIAN@HSBC, Denys K 5 CHAN/VP NBD 

RNH/HBUS/HSBC@HSBC, Jim K T HUI/VP NBD RNH/HBUS/HSBC@HSBC, John L 

SCOTT/HBME/HSBC@HSBC, Stephen J ALLEN/HBMD/HSBCMERIDIAN@HSBC, william M K 

WONG/AVP NBD RNH/HBUS/HSBC@HSBC, wing Kin Sg CHAN/CEO SIP/HBUS/HSBC@HSBC, 

Dave A GLUCKERT/HBMD/HSBCMERIDIAN@HSBC, Irwin C F YIU/VP NBD 

RNH/HBUS/HSBC@HSBC, Roger T K SO/HD NBD RNH/HBUS/HSBC@HSBC, Alex F TSANG/VP NBD 

RNH/HBUS/HSBC@HSBC 

subject 

Re: Al Rajhi Bank, Saudi Arabia 

Entity 

HSBC Bank USA. N.A. Hong Kong Branch 

salman, 

There is no proper direct flight for the route between Hong Kong and Riyadh for 

valuable cargo at the moment. swiss Air (LX) might be the only possible flight but that transits at zurich for 6 hours and arrives Riyadh in evening at 

19:40. we have no idea about the security and ground support arrangement at 

Riyadh Airport. May London shipping give us the guidance and recommendation to 

this please. 

Apart from logistics/security, we would like to have the following business 

information from client in order to facilitate our price quote: - what is the frequency and average volume of the shipment? 

what currencies (Asian) to be ordered most? - will some Asian currency (e.g. JPY) to be sold to us? 

Do they have Reuters dealing? 

Basically, the trade term is CIF Riyadh Airport and value date is same day of 

shlpment arrival. Dave (Illing), may I know any credit the client is granted from you? 

We would be happy tD speak directly to Al Rajhi Bank for details if necessary. 

Regards 

Gary 

salman HUSSAIN/HBME/HSBC 

05 Mar 2008 21:57 Mail size: 17088 

phone NO. 0097317569599 

page 3 
2104 


760611.937

occ-psi-00156271 

TO 

Gary C H YEUNG/SVP NBD RNH/HBUS/HSBC cc 

David B ILLING/HBMD/HSBCMERIDIAN@HSBC, Denys K S CHAN/VP NBD 

RNH/HBUS/HSBC@HSBC, Jim K T HUI/VP NBD RNH/HBUS/HSBC@HSBC, John L 

SCOTT/HBME/HSBC@HSBC, stephen J ALLEN/HBMD/HSBCMERIDIAN@HSBC, william M K 

WONG/AVP NBD RNH/HBUS/HSBC@HSBC, wing Kin Sg CHAN/CEO SIP/HBUS/HSBC@HSBC 

subject 

Re: Al Rajhi Bank, saudi Arabia 

Our Ref 

Your Ref 

Dear Gary, 

Thanks for the email. I just want to let you know I will meet Al Rajhi Treasury 

Head, Banknote Manager and the FI Head next week Tuesday March 11 to discuss 

opening a US$ account with HBUS. The Banknote Manager who raised the request to do buslness with HK was kind enough to push our proposal to senior management. 

Kindly let me know the details of what the logistics issues and how we can take 

this opportunity forward. Highly appreciate your feedback. 

Regards, 

salman Hussain 

Global Transaction Banking P.O. Box 57, Manama - Kingdom of Bahrain 

phone. +973 17569599 

Fax. +973 17569888 

Mobile. 

Email. 

Internet. 

falman.hussain@hsbc.com 

http://www.hsbc.com 

Gary C H YEUNG/SVP NBD RNH/HBUS/HSBC 

SVP NBD RNH/HBUS 

05/03/2008 04:18 PM 

phone NO. 852 2844 1387 

Mail size: 11429 

TO 

David B ILLING/HBMD/HSBCMERIDIAN@HSBC cc 

Redacted by tL ;."Janent 

Subcommittee on :p'.(stigations 

John L SCOTT/HBME/HSBC@HSBC, salman HUSSAIN/HBME/HSBC@HSBC, stephen J 

ALLEN/HBMD/HSBCMERIDIAN@HSBC, wing Kin - Sg CHAN/CEO SIP/HBUS/HSBC@HSBC, Denys K S CHAN/VP NBD RNH/HBUS/HSBC@HSBC, William M K WONG/AVP NBD 

RNH/HBUS/HSBC@HSBC, Jim K T HUI/VP NBD RNH/HBUS/HSBC@HSBC 

subject 

Re: Al Rajhi Bank, saudi Arabia 

page 4 
2105 


760611.938

occ-psi-00156271 

Entity 

HSBC Bank USA. N.A. Hong Kong Branch 

Dave, salman, 

HKG actually has opened the dialogue with Al Rajhi Bank months a ago. The 

logistics seems to be our issue. We will keep you informed the progress. 

Regards 

Gary 

David B ILLING/HBMD/HSBCMERIDIAN 

04 Mar 2008 20:23 Mail Size: 6810 

Phone NO. 799 17836 

+44 (0) 20 79928044 

rn 

salman HUSSAIN/HBME/HSBC@HSBC cc 

John L SCOTT/HBME/HSBC@HSBC, Gary C H YEUNG/SVP NBD RNH/HBUS/HSBC@HSBC, Wing 

Kin sg CHAN/CEO SIP/HBUS/HSBC@HSBC, Stephen J ALLEN/HBMD/HSBCMERIDIAN@HSBC 

sUbject 

Re: Al Rajhi Bank, saudi Arabia 

Our Ref 

Your Ref 

salman, 

Great to see you last week,and thanks again for all your help. 

I believe Alrajhi may have already had initial discussions with our colleagues in HK about starting a relationship ln Banknotes but I have copied in Gary and 

WK, from HK and sinQapore respectlvely, in thlS email who will be able to advise further detalls. 

Regards 

Dave 

Page 5 
2106 


760611.939

salman HUSSAIN/HBME/HSBC 

HBME 

04/03/2008 11:52 

phone NO. 0097317569599 

Mai 1 si ze: 2467 

TO 

Occ-psi-00156271 

David B ILLING/HBMD/HSBCMERIDIAN cc 

John L SCOTT/HBEU/HSBC 

subject 

Al Rajhi Bank, Saudi Arabia 

Entity 

HSBC Bank Middle East Limited 

Dear David, 

Received a call from Abdullah Darwish, Senior cash Manager asking for 

possibility of establishing a relationship with HSBC Singapore and HK 

He would like to buy used Asian Banknote from them. is this possible, 

assist me on this and perhaps you may hook me up with them and I will 

request forward? 

By the way, 

the 

offi ce. can you take this 

I did ask Abdullah to assist in recommending us to open a US$ account who 

promised he will INSHALLAH. 

Regards, 

Salman Hussain 

page 6 
2107 


760611.940

From: DENISE A REILLY/HBUS/HSBC 

Sent: 3/8/2005 11:16:54 PM 

TO: DANIEL JACK/HBUS/HSBC@HSBC cc: 

occ-psi-00169771 

subject: Re: KYC Deactivation Report for Banknotes in Feb-OS 

Very interesting. Thanks. 

Daniel Jack on 08 Mar 2005 10:58 

Note 

08 Mar 2005 10:58 

From: Daniel Jack Tel: 212-525-8686 

Title: Vice President 

workGroup: 

Location: 452 5th Ave, Floor 07 

compliance Mail Size: 

To: Denise A Reilly/HBUS/HSBC@HSBC 

cc: Alan T Ketley/HBUs/HSBC@HSBC 

22867 

subject: Re: KYC oeactivation Report for Banknotes in Feb-OS 

There has been a surge in KYC updates in the past few months due to 

clean-up/prep for OCC. 

In Jan-OS, a total of 10 customer profiles and 59 Banknote profiles were deactivated. 

From: Denise A Reilly on 08 Mar 2005 07:16 

To: Daniel Jack/HBuS/HSBC@HSBC 

subject: Re: KYC oeactivation Report for Banknotes in Feb-OS 

IS this number of deactivations higher than normal? 

From: Daniel Jack 

sent: 03/07/2005 08:27 PM 

To: Alan T Ketley Cc: Denise Reilly;' Ronald Schmick 

subject: KYC Deactivation Report for Banknotes in Feb-OS 

Attached is a detailed report on KYC Customer & Banknote profiles deactivated 

for Banknote clients globally during February 2005. 

overall, 19 customer profiles and 21 Banknote Profiles were deactivated in 

Feb-OS. There were no PCM shared clients. 

only two were deactivated for AML/KYc/compliance Reasons (both were London 

clients): 

- = Rtdatltd by the Pennanenl 

Subeommittee on Investigations 

deactivated by each 
2108 


760611.941

Dee-psi -00169771 

Banknote office last month: 

The attached worksheets (2) provide explanations and other details on these KYC 

deactivations. 

please let me know if you have any questions or would like more info. 

page 2 
2109 


760611.942

OCC-PSI-00176030 

acc 2005-45 

Attachment 

Appendix A to 

DCC 2004-50 

Process for Taking Administrative Enforcement Actions Against Banks 

Based on BSA Violations 

Overview 

Effective bank supervision requires clear communications between the OCC and a national 

bank's senior management and board of directors. The OCC uses a variety of methods to 

communicate problems or weaknesses in a bank's systems and controls, including BSA 

deficiencies, and (0 obtain corrective action. However, as explained in this bulletin, when these 

deficiencies rise to the level of a BSA compliance program violation (12 CFR 21.21), a statutory 

mandate exists that requires the OCC to issue a Cease and Desist Order. Even when the facts do 

not support citation of a BSA compliance program violation, the OCC may take a formal or 

informal enforcement action to secure corrective action. 

In view ofBSA's elevated statutory requirements, and to ensure that the process for taking 

administrative enforcement actions based on BSA violations is measured, fair, and fully 

informed, the OCC's process includes the following stages: 1 

Preliminary Assessment of the Facts and Discussion with Bank Management 

During the examination process, preliminary facts and findings are discussed with bank 

management. Management has an opportunity to provide additional information throughout the 

examination process in response to the preliminary findings. The examiner-in-charge (EIC) will 

evaluate whether the preliminary findings include any BSA compliance program weaknesses or 

other BSA issues that need to be forwarded to the next stage of review for further consideration. 

Additional Reviews 

Potential BSA compliance program violations are considered by a review group that is generally 

comprised of representatives from bank supervision, compliance policy and legal, with expertise 

in BSA issues. The review group may request additional information [rom the EIC and the bank, 

if necessary. Ifa BSA compliance program violation is thought to exist, the EIC will discuss the 

violation (and potential consequences) with bank management, and ifnceded, direct that 

immediate corrective action be taken. 

Written Findings 

Ifthere appears to be a BSA compliance program violation, the EIC prepares a document in draft 

form describing the basis for the apparent violation. This may take (he form of a report of 

'These procedures provide only internal DCC guidance. They are not intended, do not, and may not be relied on to 

create rights, substantive or procedural, enforceable at law or in any administrative proceeding. 

While these procedures set forth the general process to be followed in enforcement cases based on BSA violations, 

the oec may nonetheless deviate from them in certain cases, e.g., where a developing situation in a bank requires 

immediate action, other unusual or exigent circumstances are present, or intervening developments require a 

different course of action. 
2110 


760611.943

OCC-PSI-00176030 

acc 2005-45 

Attachment 

Appendix A to 

aee 2004-50 

examination (ROE), a supervisory letter, or the description of the violation of law excerpted from 

these documents. The bank is given a copy of the draft document and an opportunity to respond. 

The bank's response is then considered by the review group. 

Washington Supervision Review Committee (SRC) 

If the decision of the review group is to affirm a BSA compliance program violation, the 

supervisory office and the Law Department will prepare a case for the Washington SRC 

describing, among other things, the facts, the bank's response (if any), any corrective actions 

taken by the bank or other mitigating factors, and the recommended action. The case is then 

brought before the Washington SRC for its recommendation. For community banks, the case is 

first brought before the appropriate district SRC for its recommendation (and district deputy 

comptroller concurrence) prior to coming before the Washington SRC. The recommendation of 

the Washington SRC on whether to cite a BSA compliance program violation and to pursue the 

proposed enforcement action will be conveyed to the appropriate senior deputy comptroller. In 

the absence of a consensus, the views ofthe Washington SRC members will be conveyed to the 

appropriate senior deputy comptroller. 

Final Decision 

The final decision to cite a BSA compliance program violation is delegated to the senior deputy 

comptroller for Large Bank Supervision or the senior deputy comptroller for Mid-Size and 

Community Bank Supervision, as appropriate. Any recommendation of the Washington SRC is 

considered by the appropriate senior deputy comptroller, but it is not determinative, and the 

appropriate senior deputy comptroller considers all information he or she deems pertinent, in 

reaching a decision. lfthe senior deputy comptroller decides to cite a BSA program violation, 

bank management is contacted and informed ofthe decision. 

Initiating BSA Enforcement Actions 

The final examination report and draft enforcement action are forwarded to the bank, and the 

proposed enforcement action is finalized with the bank's representatives. Ifcivil money 

penalties are warranted, the Financial Crimes Enforcement Network (FinCEN) is contacted and a 

15-day letter will be sent to the bank or the appropriate institution-affiliated parties. See PPM 

5000-7 (REV), Civil Money Penalties, dated June 16, 1993. 

Coordination with Other Agencies 

FinCEN is notified of all formal and informal enforcement actions under the terms of the 

Memorandum of Understanding between the Federal Bank Regulators and FinCEN. In cases 

involving potential criminal violations of the BSA or the money laundering laws, the OCC will 

ensure that suspicious activity reports are filed and will coordinate with the appropriate law 

enforcement agencies. 

2 
2111 


760611.944

_ - Red.cted by the Permanent 

From: ALAN KERR/HBME/HSBC 

Sent: 5/30/2006 11:32:36 AM 

Occ-Psi-00179654 L-______ s_uM __ om __ m_il_n_._o_n_ln_v_~_I_ig_al_io_n_J. 

TO: ALAN T KETLEY/HBUS/HSBC@HSBC;GARY BOON/HBME/HSBC 

CC: PALLAVI KEMPAIAH/HBME/HSBC;TERESA PESCE/HBUS/HSBC;DENISE A 

REILLY/HBUS/HSBC;SANDRA PETERSON/HBUS/HSBC; 

IAN EOEN 

subject: Re: U-Turns 

Alan, 

Pleja.s.ellc.a.l.lllu.slla.sltsoon as possible - gary's mobile is 

is. 

Thanks 

Alan 

PS We are joining a client for dinner in 30 mins. ********************************* 

1I1I1I1I ...... lIaand mine 

HSBC Bank plc Registered office: 8 canada Square, London E14 5HQ, united Kingdom 

Registered in England - Number 14259 

Authorised and Regulated by the Financial Services Authority ********************************* 

From: Alan T Ketley Sent: 30/05/2006 13:28 

To: Gary BOON; Alan KERR 

Cc: pallavi KEMPAIAH; Teresa Pesce; Denise Reilly; sandra peterson 

subject: Re: U-Turns 

Gary, Alan 

I tried calling you (Gary) but understand that you are out of the office until 

June L 

I'm unclear why you would be seeking to have HBUS handle this activity at no notice and am uncomfortable making arrangements for such sensitive activity in 

this fashion. 

As requested in my note below, I would like to receive copies of the types of 

payment orders that you propose to send to us (my fax is 212 382 7580) in order 

that we can review them. 

Given that you intend passing us as many U-Turns in a day as we would handle in a busy month I'd like to see this activity pass over a dedicated account and 

for Delaware to have the opportunity to set aside appropriate resources to 

handle this activity. For that reason I have copied sandra Peterson. 

I would like to invoke some of the protocols set out in the attached document so that this activity may be suitably monitored and controlled 

please advise who in HBME will be available to discuss this issue with HBUS and 

confirm that activity will not start to flow until we have appropriate controls 

in place. 

A 1 an T. Ket 1 ey First vice president, Anti Money Laundering 

Page 1 
2112 


760611.945

Occ-Psi-00179654 

Tel: 212 525 6147 

Fax: 212 382 7580 

Gary BOON/HBME/HSBC 

OS/28/2006 01:35 AM 

TO 

Alan T Ketley/HBUS/HSBC@HSBC cc 

Alan KERR/HBME/HSBC@HSBC 

subject 

Re: U-Turns 

Alan, as you've seen HBME is now in a situation where we now have to route the 

Iranian Payments through HBUS and our understanding from David is that this is now ok to do. 

After consultation with David, Alan and I contacted JPMC and advised them of 

the Group's decision to route payments using the serial method but we cannot do 

this for Iranian related payments as they have to be processed as cover payments (as per Group compliance) to comply with the U-Turn process. However 

in our drive to be 100% transparent (and to follow the directive on the last 

GCl re serial payments) HBME would complete field 72 on cover payments (MT202's) with the wording "Iranian transaction in compliance with OFAC 

sanctions". Following JPMC's refusal to process these specific instructions we seek your urgent assistance to get these payments processed asap through HSBC 

USA. 

we now have a requirement that wef from Tuesday 30th May - HBME need to process these payments through HBUS. It seems a good idea that we talk about this 

urgently - can we call you today? please advise appropriate number. 

Alan, I was going to copy sandra Peterson but I leave this to you. We have 40 

payments a day on average of which a majority are order a Group entity with 

about 10 a day from Bank Kesharvarzi, Iran the only a/c remaining open with 

HBME with this kid of volume. 

The good news is that we've a weekend and a bank holiday, the bad news is that we have to do this wef Tuesday as we have no other route open to us! 

Gary 

Alan T Ketley/HBUS/HSBC 

HBUS 

OS/26/2006 10:33 PM 

Mail Size: 3000 

TO 

Page 2 
2113 


760611.946

Occ-Psi-00179654 

Alan KERR/HBME/HSBC@HSBC, Gary BOON/HBME/HSBC@HSBC cc 

sUbject 

U-Turns 

Entity 

HSBC Bank Middle East Limited 

Alan, Gary 

I have received thru Terry Pesce a copy of your (Alan) correspondence with JPM 

Chase and David Bagley about your 'imminent move to serial + cover payments with field 72 completed.' 

I have asked around and we're not sure what you mean by this. My view would be 

that the move to serial payments would render a cover payment unnecessary; none of us has been able to figure out what the reference to field 72 means - even though David seems to be aware. 

Can you send me an example of two of the type of payment structure you have in 

mind so we can evaluate it properly; I'd also like you to send me examples of 

the types of payments that you have currently (as discussed previously). 

I do not see a date on which JPM Chase will stop handling these items for you - please advise on this score so we can explore establishing the necessary 

infrastructure. 

Thanks 

Alan T. Ketley First vice president, Anti Money Laundering 

Tel: 212 525 6147 

Fax: 212 382 7580 

page 3 
2114 


760611.947

Occ-psi-00188404 From: CAROLYN M WIND/HBUS/HSBC 

Sent: 8/1/2007 11:44:07 AM 

TO: DENISE A REILLY/HBUS/HSBC@HSBC 

CC: 

subject: FW: HUSI Audit Commitee- update to the Chairman on 2 Aug 07. 

so can you confirm with Nancy/sandra if we have an agreed timetable? Thanks. 

carolyn M. Wind 

EVP, General compliance & AML Director 

452 5th Avenue, T7 

New York, New York 10018 

phone: 212-525-5503 / Fax: 212-382-5963 

E-mail: carolyn.m.wind@us.hsbc.com ----- Forwarded by carol~n M wind/HBus/HSBC on 08/01/2007 12:42 PM -----

David Dew/HBUS/HSBC 

08/01/2007 12:16 PM 

TO 

Bandula wijesinghe/HBUS/HSBC@HSBC cc 

carolyn M wind/HBus/HSBC@HSBC, Michael B Gallagher/HBus/HSBC@HSBC subject 

Re: HUSI Audit commitee- update to the chairman on 2 Aug 07. 

I think that we simply must now agree on a reintroduction of full OFAC controls. I am of phase-in during when we closely monitor 

cannot continue to bypass them completely. 

Can we please agree the timetable today. 

Thanks 

David Dew 

SEVP, Chief operating officer 

HSBC Bank USA 

definitive timetable for 

receptive to the idea of some form 

the impact of the controls but we 

452 Fifth Avenue I 10th Floor I New York, NY 10018 

phone. 212-525-6951 

Fax. 212-525-8688 

Email. david.dew@us.hsbc.com 

Bandula wijesinghe/HBUS/HSBC 

08/01/2007 11:57 AM 

TO 

Mark Martinelli/HBUS/HSBC@HSBC cc 

Michael B Gallagher/HBUS/HSBC@HSBC, Mike Ebbs/HBUS/HSBC@HSBC, Carolyn M 

wind/HBUS/HSBC@HSBC, David Dew/HBUS/HSBC@HSBC, Teri Lemiesz/HBUS/HSBC@HSBC 

page 1 
2115 


760611.948

Occ-Psi-00188404 

subj ect 

HUSI Audit commitee- update to the chairman on 2 Aug 07. 

Mark. 

please see attached the write up for tommorrow's meeting. 

Regards. 

Bandula 

[attachment "GPS Audit commitee Update (Final).doc.zip" deleted by David 

Dew/HBUS/HSBC] 

Page 2 
2116 


760611.949

occ-psi-00196439 From: DENISE A REILLV/HBUS/HSBC sent: 9/11/2008 8:33:35 PM 

To: ANNE LIDDV/HBUS/HSBC@HSBC02 

subject: Re: Fw: Hokuriku Bank 

I thought the same thing. people are so down they don't even want a day out of 

the office for a team event. 

original Message 

From: Anne Liddy sent: 09/11/2008 09:07 PM EDT 

TO: Denise Reilly subject: Re: FW: Hokuriku Bank 

Exactly. 

YOU know, I was thinking about this yesterday (my new leaf again) - there are still some really good people we interact with. 

Did you happen to see Lesley's note re the event. participation is very low. 

It's a real reflection of how people feel. 

original Message 

From: Denise A Reilly sent: 09/11/2008 07:48 PM EDT 

To: Anne Liddy subject: Fw: Fw: Hokuriku Bank 

That's because it's decisive. I just can't help note how this issue got raised to the business ... 

Driginal Message 

From: Alan P williamson 

Sent: 09/11/2008 07:01 PM EDT 

TO: Anthony Julian 

Cc: Denis o'brien; Denise Reilly; Anne Liddy; Michael Gallagher; Thomas W 

Halpin subject: Re: FW: Hokuriku Bank 

What a great answer. 

Thank you. 

Alan 

Anthony Julian/HBUS/HSBC 

09/11/2008 05:51 PM 

TO 

Machiko M VAMASHITA/TKV/HBAP/HSBC@HSBC cc 

Ako KOBAVASHI/TKV/HBAP/HSBC@HSBC, Alan P williamson/HBUS/HSBC@HSBC02, Cam 

ADAMS/PCM ASP/HBAP/HSBC@HSBC, Hideki MATSUMOTO/TKV/HBAP/HSBC@HSBC, Michael B 

Gallagher/HBUS/HSBC@HSBC02, Navin GUPTA/TKV/HBAP/HSBC@HSBC, Richard JAGGARD/PCM 

ASP/HBAP/HSBC@HSBC, Takahiko KANECHIKU/TKV/HBAP/HSBC@HSBC, Thomas W 

Halpin/HBus/HSBC@HSBC02 subject 

Re: Fw: Hokuriku Bank 

page 1 
2117 


760611.950

occ-Psi-00196439 

please note that HBUS senior management has reviewed this service extensively and determined that we can not continue to support this business. Thiis is not an issue for negotiation with Hokuriku. HBUS has decided to withdraw from 

processing bulk quantities of TCs, as the regulatory burden is costly and the 

operational/regulatory risk is not acceptable. 

We respect Hokuriku's perspective, and 30 days notification should be 

acceptable for withdrawal of services (as stated in our cash letter 

documentation). 

As Cash Letter is a manual process, there should be no significant systemic issues with them shifting this business to another provider. Hokuriku 

maintains accounts with all of the major USD service providers (citi, chase, 

BoNY, wachovia, Deutsche, Amex, etc), each of whom offer competitive cash 

Letter services. They can shift this business relatively easily, and we would 

appreciate their cooperation in ceasing bulk TC deposit as soon as possible. we will return bulk TC deposits received by HBUS after october 12. 

Thanks and best regards 

Anthony Julian 

First Vice president HSBC Bank USA, N.A. 

Global Transaction Banking 

offi c e : (302 .. ) .3.2.7.-2.6.6.5 ... Mobile (BB): .W 

Machiko M YAMASHITA/TKY/HBAP/HSBC@HSBC 

09/11/2008 05:07 AM 

To 

Alan p williamson/HBUS/HSBC@HSBC02 cc 

--== Redacted by the Permanent 

Subcommittee on Investigations 

Ako KOBAYASHI/TKY/HBAP/HSBC@HSBC, Anthony Julian/HBUS/HSBC@HSBC02, Cam 

ADAMS/PCM ASP/HBAP/HSBC@HSBC, Michael B Gallagher/HBuS/HSBC@HSBC02, Richard 

JAGGARD/PCM ASP/HBAP/HSBC@HSBC, Takahiko KANECHIKU/TKY/HBAP/HSBC@HSBC, Thomas W 

Halpin/HBUS/HSBC@HSBC02, Navin GUPTA/TKY/HBAP/HSBC@HSBC, Hideki 

MATSUMOTO/TKY/HBAP/HSBC@HSBC 

subject 

Fw: Hokuriku Bank 

Dear Alan 

Matsumoto-san and myself visited Mr. Takahashi, GM and Mr. Takarada, Deputy MGR 

of International operations center to advise of your decision. 

We conveyed the message that we understand that AML process is appropriately 

page 2 
2118 


760611.951

occ-Psi-00196439 

taken by Hokuriku Bank as Anthony commented and the point we intended to discuss is how we enhance process to avoid unnecessary internal process on our side. 

During the discussion, we confirmed again the background of relevant 

transactions. 

Most of their customers related to this issue are used-car dealers for 

Russian buyers who are cash account holders of Hokuriku Bank through appropriate AML process. 

- The dealers are doing cash on delivery type of deals with buyers in this 

market therefore cash or TCS are normally used to accommodate those deals. As 

such Hokuriku Bank considers it is difficult for its customers to shift their 

payment method to wire transfers or commercial check from TCs. 

- HBUS is currently the sole cash Letter provider for Hokuriku Bank and if we stop providing this service to Hokuriku Bank. it needs reasonable grace period to find out alternative service provider and re-adjust its system which is 

currently arranged/designed to meet HBUS's requirement and also make sure the new internal process with all relevant branches/offices. 

- since relevant customers are limited around 20 - 25 names and they are all 

cash account holders of Hokuriku Bank. Hokuriku Bank is well prepared to cooperate with HBUS by providing necessary information / arranging operational 

process in order to help HBUS to streamline the process. As such if there are any measures to reduce your processing burden. they are open to discuss on that. For that. they wish to understand what is exactly the issue in your processing of the TCs in problem. They have already been following your requirement on high value deposit (exceeding uSD20k per deposit). under which 

they have been providing their customers' information including name, address 

and business as well as amount and number of TCs. If HBUS requires further more information and/or different process, Hokuriku Bank is ready to discuss on that. 

Your feedback would be appreciated. 

Regards 

Machiko Yamashita, FIG TKY 

----- Forwarded by Machiko M YAMASHITA/TKY/HBAP/HSBC on 2008/09/11 17:34 -----

Alan P Williamson/HBUS/HSBC@HSBC02 

11 Sep 2008 01:22 Mail Size: 18427 

To 

Hideki MATSUMOTO/TKY/HBAP/HSBC@HSBC, Navin GUPTA/TKY/HBAP/HSBC@HSBC, Machiko 

M 

YAMASHITA/TKY/HBAP/HSBC@HSBC cc 

Ako KOBAYASHI/TKY/HBAP/HSBC@HSBC, Anthony Julian/HBUS/HSBC@HSBC02, Cam 

ADAMS/PCM ASP/HBAP/HSBC@HSBC, Michael B Gallagher/HBUS/HSBC@HSBC02, Richard 

JAGGARD/PCM ASP/HBAP/HSBC@HSBC, Takahiko KANECHIKU/TKY/HBAP/HSBC@HSBC, Thomas W 

Halpin/HBus/HSBC@HSBC02 

SUbject 

Re: Hokuriku Bank 

Page 3 
2119 


760611.952

occ-psi-00196439 Our Ref 

Your Ref 

Gentlemen 

Can I ask for the status on this matter? 

Thank you all for your help. 

Alan 

original Message 

From: Hideki MATSUMOTO 

Sent: 09/05/2008 09:35 AM ZE9 

To: Navin GUPTA; Machiko M YAMASHITA 

Cc: Aka KOBAYASHI; Alan p Williamson; Anthony Julian/HBUS/HSBC@HSBCAMERICAS; Cam ADAMS; Michael Gallagher; Richard JAGGARD; 

Takahiko KANECHIKU; Thomas W Halpin subject: Re: Hokuriku Bank 

Navin 

RM is Yamashita san for Hokuriku Bk. 

Yamashita san 

it seems internal due date is tight for them to change structure involving their own clients. shall we move quickly to discuss on this with Hokuriku Bk. 

rgds, hideki 

Navin GUPTA/TKY/HBAP/HSBC 

05 Sep 2008 08:29 Mail size: 14141 

phone NO. 813 5203 4252 

To 

Takahiko KANECHIKU/TKY/HBAP/HSBC@HSBC, Hideki MATSUMOTO/TKY/HBAP/HSBC@HSBC cc 

Alan P williamson/HBUS/HSBC@HSBC02, Anthony Julian/HBUS/HSBC@HSBCAMERICAS, cam 

ADAMS/PCM ASP/HBAP/HSBC@HSBC, Michael B Galla9her/HBUS/HSBC@HSBC02, Richard 

JAGGARD/PCM ASP/HBAP/HSBC@HSBC, Thomas W Halpln/HBUS/HSBC@HSBC02, Ako 

KOBAYASHI/TKY/HBAP/HSBC@HSBC 

subject 

Re: Hokuriku Bank 

Our Ref 

Your Ref 

page 4 
2120 


760611.953

occ-Psi-00196439 

Kanechiku san, 

Request your support in commuincation to Hokuriku bank as below. 

Warm Rgs, Navin 

Fred SHYUR/PCM ASP/HBAP/HSBC 

09/05/2008 07:40 AM 

Mail size: 3916 

To 

cam ADAMS/PCM ASP/HBAP/HSBC@HSBC, Navin GUPTA/TKY/HBAP/HSBC@HSBC, Anthony Julian/HBUS/HSBC@HSBCAMERICAS@REPUBLIC cc 

Thomas W Halpin/HBUS/HSBC@HSBC02, Michael B Gallagher/HBU5/HSBC@HSBC02, Richard 

JAGGARD/PCM ASP/HBAP/HSBC@HSBC, Alan P williamson/HBUS/HSBC@HSBC02 

Subject 

Re: Hokuriku Bank 

Our Ref 

Your Ref 

Cam and Navin, 

FYI. please kindly work with Anthony and Alan on the AML issue below. 

Regards, 

Fred shyur 

************************************************************ 

The Hongkong and shanghai Banking corporation Limited 

whose registered address is 1 Queen's Road Central, Hong Kong ************************************************************ 

original Message -----

From: Alan P Williamson sent: 09/04/2008 11:05 AM EDT 

To: Anthony Julian/HBUS/HSBC@HSBC02; Fred SHYUR 

Cc: Thomas W Halpin/HBUS/HSBC@HSBC02; Michael B Gallagher/HBUS/HSBC@HSBC02 subject: Hokuriku Bank 

Anthony, Fred 

As you may know, compliance meets monthly with senior management in the 

Payments and cash Management AML Management Review committee. Recently we discussed the fact that Hokuriku has been sending a large number of sequential traveller's checks from a number of similar businesses through cash letter here 

in the us. 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. Hokuriku should therefore cease the activity and make 

Page 5 
2121 


760611.954

Occ-psi-00196439 alternative arrangements, such as to make the deposits by wire, by september 30. can I ask you to contact the appropriate RM's to convey this message to 

Hokuriku and confirm back that they have done so? 

Thanks for your help. please let me know if you have any questions. 

Alan will i amson PCM compliance 

212 525 8043 

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GROUP FIl'>ANCIAL SERVICES AUDIT 

REPORT ON 

HIGH LEVEL CONTROLS REVIEW OF HSBC PRIVATE BANK 

INTER."IA TIONAL 

FEBRUARY 2004 

GF A GEN 04012 

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GROUP FINANCIAL SERVICES AUDIT FEBRUARY 2004 

HIGH LEVEL CONTROLS REVIEW OF HSBC PRIVATE BANK INTERN A TIONAL 

J. INTRODUCTION 

1.1 Background 

This report covers the findings identified during our high level controls review of the activities 

of BSBC Private Bank International (BRlB). 

HRIB is a wholly owned subsidiary of HSBC Bank USA Inc (HBUS), operating as an Edge 

Act Coprporation incorporated in 1979. As an Edge Corporation, the activity of HRTB is 

governed by Section 25, Regulation K of the Code of Federal Regulations that limits 

transactions to those being for the purpose of, or incidental to carrying out international 

business activities. 

HRIB provides a highly personal range of private banking services to high net worth 

indivuduals domciled mainly in Latin and Central America. BRIE offers traditional banking 

products such as time deposits, loans, letters of credit, bill payments, cheque facilities as well 

as high quality investment products such as fixed income, equities, l-ISBC Group and 

sponsored third party funds, structured products and spot and forward exchange. 

As at December 2003, HRIB employed 112 staff with assets under management of USD 5 

billion and approximately 7,000 client accounts. For the year ended 31 December 2003, IIRIB 

made net profit before tax of USD 19million (including allocated costs ofUSDI9.6million). 

1.2 Scope and Objedives 

The high level controls review covered all activities of HRIB with the exception of the trade 

finance department which is the subject of a separate audit by Group Audit USA (GAl'). 

Local Compliance requirements have only been considered to the extent they are included 

within the Compliance Chart for the business. Our work was based on the accounting records 

as at 31 December 2003. The objectives of the review were to ensure that the business is 

operating in accordance with the requirements of the relevant Group Standards and Functional 

Instruction Manuals applicable to this business. 

The audit was carried out by V Leung, N Chawla, G Rao of GBQ GFA and Chung M Yau of 

GAU IT on various dates between 26 January and 13 February 2004. 

We wish to thank the management and staff of the office for their assistance and co-operation 

during the course of the review. 

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HIGH LEVEL CONTROLS REVIEW OF HSBC PRIVATE BANK l.'llTERNA TIONAL 

2. MANAGEMENT SUMMARY 

HRlB has had a successful year and has seen a substantial increase in the value of assets under 

management. It was pleasing to note, therefore, that management has been able to maintain a 

robust control environment during this period of growth and our review has indicated that the 

key c.ontrols within the business continue to operate in a satisfactory manner. We 

acknowledge the positive attitude and approach adopted by management to our review process 

and to the implementation of recommendations raised in the prior report. 

Full details of all issues identified during the review are given in section 5 to 14 of the report, 

whilst a summary of those issues considered to be high risk arc given in section and a 

summary of all repeat and carried forward recommcndations appear in section 4 of the rcport 

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3. 

GROUP FINANCIAL SERVICES AUDIT FEBRUARY 2004 

HIGH LEVEL CONTROLS REVIEW OF HSBC PRIVATE BA;'\K INTERN A TJONAL 

SUMMARY OF HIGH RISK ISSUES 

_.. Redacted by the Permanent 

Subcommittee on InvfstigatiolU 

3.1 DDA 

From our review of the Inactive Clients List as of 8 February 2004, we noted 11 

accounts which had had no client activity for over two years but which had not been 

classifed as dormant accounts. As a result, these accounts arc not subject to the 

stringent controls which are otherwise exercised over dormant accounts. 

(See section 7.1). 

3.2 FUNDS TRANSFER 

The authorisation limits for the Electronic Payment system which have been allocated 

to Funds Transfer staff to release payments is inappropriate given the normal payment 

activity level. The maximum transaction limits arc currently set at for 

payments to Banks and for payments to non llanks. 

(See section 8.1). 

3.3 INTERNAL CONTROL 

The planned internal control reviews, as set out in the annual Internal Control Periodic 

Review for 2003 had not been completed. We note only 60% of the planned work had 

been completed. 

(See section 12.1). 

The Internal Control Officer is required, on occasions, to support departments when 

staff are on vacation or on sick leave. This results in conflict of interest in the 

independence of the Internal Control function. In addition, work perfonned by the 

Internal Control Officer as supporting staff is not being independently reviewed. 

(See section 12.2). 

3.4 INFORMATION TECHNOLOGY 

A number of users from the other t\Vo IPB offices in the US have access to the Miami 

client database via the EPIC system without the knowledge or approval of the HRlB 

Local Security Administrator (LSA). There are currently three LSAs responsible for 

setting up user access to the EPIC system in their respective region. However. each 

LSA also has the ability to create new users and provide them with access to the client 

database of HRIn. 

(See section 14.1). 

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GROUP FINANCIAL SERVICES AUDIT FEBRUARY 2004 

HIGH LEVEL CONTROLS REVIEW OF HSBC PRIVATE BANK INTERNATIONAL 

4. PREVIOUS RECOMMENDATIONS 

4.1 Repeat Recommendations 

At the time of the audit, the following issues raised in the previous internal and external 

reviews of the business remained outstanding: 

4.1.1 Group Financial Services Audit - August. 2002 

5.5 * Client Visitation Policy 

10.1 * Amended FX Orders 

10.3 * Deal Orders 

1004' Trade Orders 

These items are considered to be partial repeat recommendations as action has been 

taken to implement the original recommendation although not all aspects of the 

recommendation had been addressed at the lime a/the review. 

4.2 Carried Forward Recommendations 

The following recommendations which have been carried fQr\vard from internal and external 

reviews are not scheduled to be implemented until after this audit: 

4.2.1 Group Financial Services Audit - August. 2QQ2 

5.3 Beneficial Ownership ofPICs via Bearer Shares 

4.2.2 Federal Reserve Bapk of Atlaota - February. 2003 

11.2 Country Risk Monitoring 

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GROUP Fll'IiANCIAL SERVICES AUDIT FEBRUARY 2004 

HIGH LEVEL CONTROLS REVIEW OF HSBC PRIVATE BANK INTERNATIONAL 

5. FRONT OFFICE 

5.1 Account Documentation 

Finding 

The blocking of accounts with critical mlssmg documentation is not being performed in 

accordance with Group guidelines. Currently, transactions can be processed across accounts 

hewing missing documentation for up to 90 days rather than up to 30 days as required by Group 

Guidelines. 

Recommendation 

No transactions across accounts with ciritical missing documentation should be permitted after 

30 days from the date of account opening. 

GPB COO Memo Oct 2003 & PBT FIM 18.3 

5.2 Authentication of Client ID 

Finding 

Guidance issued by GPB in October 2003 made it mandatory for the verified IDs of beneficial 

owner(s) to be obtained with immediate effect. However, HRIB continued to operate based on 

the dispensation granted by GPB in 2002 which did not require them to obtain verified ID in 

certain situations. In February 2004 the request for the renewal of the dispensation regarding 

the verification of IDs was declined, 

Recom mendation 

Verified IDs of all beneficial owners should be obtained. 

5.3 Beneficial Ownership of PIes via Bearer Shares 

Finding 

Certificate of Beneficial Ownership forms, certifying the beneficial ownership of offshore PIes 

oVt'ned through bearer shares, is outstanding for approximately 60 clients. We acknowledge 

that Management has made significant progress in obtaining these forms from clients and is 

tracking the missing forms through the Missing Documents List. 

Recommendation 

Management should endeavour to obtain the missing Certificate of Beneficial Ownership 

forms at the earliest opportunity, 

Carried Forward Recommendation: Group Financial Services Audit ~ August, 2002 ~ 

section 6.3 

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GROUP FINANCIAL SERVICES AUDIT FEBRUARY 2004 

HIGH LEVEL CONTROLS REVIEW OF HSBC PRIVATE BAl'lK INTERNATIONAL 

5.4 Special Service Team 

Finding 

HRlB undertook a segmentation exercise and transferred approximately 1,300 accounts with 

balances of less than USD 250,000 to the Special Service Team. A marketing exercise to 

increase AUM was undertaken in Q3 03 which involved contacting these clients with a view to 

increase the AUM. Fol1owing this exercise there were approximately 100 of these clients 

whom the RMs were unable to contact, potentially due to incorrect I outdated information 

being held on client files. 

Recommendation 

An exercise to obtain/update client information should be undertaken In those cases where 

client contact cannot be estabHshed, management should review these accounts with a view to 

blocking them where it is considered necessary. 

5.5 Client Visitation Policy 

Finding 

The HRIB client visitation policy requries clients with account activity of more than USD 5 

million and/or ADM over USD 1 million to be met annually. Visits for clients with account 

activity of more than USD 5 million is being monitored. However, we understand that due to 

the constant fluctuations in AUM. IIRIB do not believe they can effectively monitor visits for 

clients with AUM over USD I million despite the fact a report can be generated showing all 

clients with AUM over USD 1 million and where no visit has been performed for longer than 

12 months. 

Recommendation 

Client visits should be conducted in accordance with the HRlB visitation policy. 

MLPPs 

Partial Repeat Recommendation: Group Financial Senrices Audit - August, 2002 - section 

6.4 

5.6 Appointment of a Back-Up Relationship Manager 

Finding 

HRIB has a team style of relationship management, however, a back-up Relationship Manager 

(R!vI) has not been formally appointed for each account. 

Recommendation 

Back-up RMs should be formally appointed for all client relationships. The back-up R!vI, once 

appointed, should also be responsible for reviewing the daily Significant Activity Report in 

respect of those accounts for they have been appointed, 

PBTFIM 18.9 

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GROUP FINANCIAL SERVICES AUDIT FEBRUARY 2004 

HIGH LEVEL CONTROLS REVlEW OF HSBC PRIV ATE BANK INTERNA T10NAL 

5.7 Revenue Reports by Relationship Manager 

Finding 

The revenue reports (gross revenue as a percentage of assets under management) produced for 

management for each team, RM and Client Account do not take costs into consideration and 

hence it is not possible to detennine the profitability by RM and by Account. 

Recommendation 

The revenue reports currently produced should be enhanced to recognise costs, this will include 

an amount based on the time spent on each account by the RM to enable full profit infonnation 

to be produced. 

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6. 

GROUP FINANCIAL SERVICES AUDIT FEBRUARY 2004 

HIGH LEVEL CONTROLS REVIEW OF HSBC PRIVATE BANK INTERNA TIONAL 

--.. = Redacted by the Permanent 

Subcommittee on Invf5tigation. 

6.1 Credit Approval 

Finding 

From a review of 20 credit proposals, we noted five examples where the proposal had not been 

authorised in accordance with credit approval limits. However, we acknowledge that in all 

cases the proposal had been initialled by a Senior Officer as approval for any non standard 

features, such as the applicable rate. However, such sign off did not represent approval of the 

overall facility. 

Recommendation 

The Credit Department should ensure that appropriate level of credit authority is obtained prior 

to processing the facility. 

6.2 Ineligble Security 

Finding 

Collateral value has been given to two stocks which are classified, according to the rPB 

Americas Credit Guidelines Manual, as unacceptable tangible security due to the stocks having 

a value per share of less than USD 1 0, irrespective of the total market capitalisation of the 

company or.ilts.filn~anlc~iial.stlrelnlr~hl'.iIlnltlh~elclals.eio.f one facility, 50% collateral value was given to two stocks I • each having a cost of less than USD 1 0 per 

share. We acknowledge in this case that at the time of the audit it would not cause an 

undennargin position ifno collateral value is given to the unacceptable tangible security. 

Recommendation 

i) Collateral value should not be given to US stock having a price ofless than USDIO. 

ii) Notwithstanding this, management should review the appropriateness of the policy of the 

apparent arbitrary exclusion of such stock with the IPB Credit department 

IPB Americas Credit Guidelines Manual S6.! 

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GROUP FINANCIAL SERVICES AUDIT FEBRUARY 2004 

HIGH LEVEL CONTROLS REVIEW OF HSBC PRIVATE BAl"K Il"TERNATIONAL 

6.3 Allocation of Pledged Assets Across I\iore Than One Account 

Finding 

i) For those facilities where the investment product RIMA is being used as collateral, the EPIC 

system is nol capable of allocating such assets across more than one account, nor is it capable 

of updating the current collateral value of RIMA. Such functions are currently performed 

manually. We understand from management that a request for the above has been included in 

the EPIC Maintenance Request 

ii) The independent review of the update of the current market value of RIMA is not evidenced 

as performed. 

Recommendation 

i) Management should ensure that system limitations regarding the use of RIMA as collateral 

across more than one account and the automatic updating of the price of RIMA is addressed in 

the next EPIC update. 

ii) The updating of the market value of RIMA should be subject to an evidenced independent 

review. 

6,4 Loan (0 Value 

Finding 

There is no independent review of the LTV entered on to the EPIC system, except for 

Emerging Market Securities which is performed on a monthly basis. 

Recommendation 

An independent review of all LTVs given to pledge assets should be carried out on a monthly 

basis. 

6.5 CountD' Risk Approval 

Finding 

From our review of 20 credit proposals, we notcd two examples where the proposals made to 

GHQ CRf incorrectly stated the tenors of the loans. We understand from management that 

this was as a result of a misunderstanding by HRIU in the way in which loan tenors should be 

classified according to Group policy, 

Recommendation 

Management should ensure that the information provided to GHQ CRr within the credit 

proposals is accurate and consistent with the Group classification of loan tenors. 

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GROUP FINANCIAL SERVICES AUDIT FEBRUARY 2004 

IIIGH LEVEL CONTROLS REVIEW OF HSBC PRIVATE BA.'I'K INTERNA T10NAL 

7. .illlA 

7.1 Inactive Accounts ffiigh Risk) 

Finding 

From our review of the Inactive Clients List as of 8 February 2004, we noted II accounts 

which had had no client activity for over two years but which had not been classifed as 

donnant accounts. As a result, these accounts are not subject to the stringent controls which 

are otherwise exercised over donn ant accounts. 

Recommendation 

The reason for the BlMAS system not accurately identifying all dormant accounts should be 

established and rectified. 

PET FIM 22.9 

7.2 Overdraft Referrals 

Finding 

The daily overdraft referrals report which shows accounts having insufficient funds available to 

honour pending cheques is not evidenced as having been independently reviewed to ensure 

those cheques referred for payment and subsequently approved or rejected by the RM have 

been properly processed. 

Recommendation 

The independent review of the daily overdraft referrals report should be evidenced to show 

cheques were properly processed in accordance with the RM's instruction. 

7.3 Signature Discrepancies 

Finding 

An RM is able to authorise the payment of cheques drawn by clients which have minor 

signature irregularities, without the need for client contact or senior management approvaL 

Recommendation 

Local procedures should be amended to include a threshold limit above which the authorisation 

of client cheques with signature irregularities should require client contact or senior 

management approval. 

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8. 

GROUP FINANCIAL SERVICES AUDIT FEBRUARY 2004 

IIIGH LEVEL CONTROLS REVIEW OF HSBC PRIV ATE BANK INTERNA TIONAL 

FUNDS TRANSFER --= Redacted by the Perma.ent 

Subcommittee on 1nvestigations 

8.1 Electronic Payment Authorisation Limits (High Risk) 

Finding 

The authorisation limits for the Electronic Payment system which have been allocated to Funds 

Transfer staff to release payments is inappropriate given the normal payment activity level. 

The maximum transaction limits are currently set at for payments to Banks 

and for payments to non Banks. 

Recommendation 

The payments limits allocated to Funds Transfer staff for the Electronic Payment system 

should be set to more approriate levels based on the normal payment activity level. Should the 

limit need to be increased for one off exceptiona1 payments, the approval of senior 

management should be sought. 

8.2 FX Telephone Orders 

Finding 

i) For cases where the client does not have a BlMAS FX account, the Funds Transfer team will 

place FX deals directly with HSBC Canada by telephone rather than placc the trade with HBUS 

in New York or pass the trade to the IPG team for execution. 

Ii) The Funds Transfer team is responsible for deal confirmation, matching, posting entries to 

the client account and settlement in respect of the above FX trades. 

iii) Dealing Authority letters are not in place for statTwithin the Funds Transfer team. 

Recommendation 

All FX deals should be executed on the E-Treasury system. In cases where this is not possihle, 

the responsibility for placing FX deals with the broker should be transferred to the IPG team, 

8.3 Back Valued Transactions 

Finding 

i) The Funds Transfer team is able to hack value transactions for up to 90 days on the DIMAS 

system. 

ii) There is no report generated and reviewed by the Head of the funds Transfer Department of 

all back valued transactions. We acknowledge that back valued transactions require the 

approval of the Head ofthe Front Office, 

Recommendation 

i) The period for which transactions can be back valued should be reviewed and set at a more 

appropriate level, 

Ii) A regular report of all back valued transactions should be obtained and subject to an 

evidenced review by the Head of the Funds Transfer Department 

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HIGH LEVEL CONTROLS REVIEW OF nSBC PRIVATE BANK INTERN A TIONAL 

9. CIF 

9.1 Imaging of Client IDs 

f'inding 

All client documentation was imaged onto the EPIC system in 3Q 2003. From a review of 17 

client relationships we noted that IDs for nine client relationships are not sufficiently legible to 

enable a positive identification of the client to be made. 

Recommendation 

Staff should ensure that scanned IDs held on the EPIC system are legible and clear. 

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IIIGH LEVEL CONTROLS REVIEW OF HSBC PRIVATE BANK INTElL"IATIONAL 

10. IPG OPERATIONS 

10.1 Amended FX Orders 

Finding 

A summary report of amended FX orders is not maintained. 

Recommendation 

A summary report of amended FX orders should be maintained and reviewed monthly by the 

Head of Front Office and/or the Head of Operations. 

GM FIM 12.6.4 

Partial Repeat Recommendation: Group Financial Services Audit - August, 2002 - section 

7.9 

10.2 Deal BlotterslTrade Summary Reports 

Finding 

Daily blotters or trade summary reports of mutual fund trades and precious metals trades arc 

not received from IPB (NY) JAG and CTMS IT Maintenance Department respectively. As a 

result, IPG Operations is unable to reconcile daily trades placed and input into CTMS (for 

mutual funds) or reconcile back to deal tickets (for precious metal trades) to ensure 

completeness of deal capture. 

Recommendation 

Daily blotters or trade summary report for mutual fund and precious metals trades should be 

received from IPS (NY) lAG and CTMS IT Maintenance Department respectively and 

reconciled to the records held by IPG Miami. 

GM FIM 12.2.1 

10.3 Deal Orders 

Finding 

From a review of tcn fixed income deal order fanns we identified two cases where the mark~up 

was not indicated by the RM{s) on the order form and two cases where the actual mark-up was 

higher than the original mark-up recorded, however, the former had not been initialled by the 

RM(s) as approved. 

Recommendation 

Fixed income deal order forms should record the mark-up as indicated by the RJ\.l(s) and any 

change to the original mark-up should be initialled by the RM(s) as having been approved. 

Partial Repeat Recommendation: Group Financial Sen'ices Audit - August, 2002 - section 

7.7 

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GROUP F1NANCIAL SERVICES AUDIT FEBRUARY 2004 

HIGH LEVEL CONTROLS REVIEW OF HSBC PRIV ATE BANK INTERNATIONAL 

10.4 Trade Orders 

Finding 

From our review of ten income deal order forms, we notcd: 

i) one amended order where the reason for the amendment was not documented and the funds 

availability was not re-confirmed on the date of the amendment. 

ii) one trade where the time of order creation by the RM and the time of the order being placed 

by IPG was later than the time of order confirmation received from IPA lAG, Further, the 

client written instruction was not dated. 

Recommendation 

i) The reason for order amendments should be documented on the deal order fann. Where an 

order is amended on a date subsequent to the date of the original order, funds availability 

should be re-confirmed on order amendment date. 

ii) Orders should be date and time stamped in a timely manner. Client instructions should also 

be dated as received. 

Partial Repeat Recommendation: Group Financial Services Audit - August, 2002 - section 

7,10 

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GROUP FINANCIAL SERVICES AUDIT' FEBRUARY 2004 

HIGH LEVEL CONTROLS REVIEW OF HSBC PRIVATE BANK INTER,"1A TlONAL 

11. COMPLIANCE 

] 1.1 Review of Compliance Function 

f'inding 

The review of the Compliance function by the HBUS Compliance department in New York is 

not documented. 

Recommendation 

The periodic review of the Compliance function by HBUS Compliance department should be 

documented. 

Chapter 10 ;COH 

11.2 CountrY Risk Monitoring 

Finding 

The CAMP monitoring system is not capable of isolating the activity on the accounts of clients 

fTom high risk countries, for example Guatemala, We acknowledge that a half yearly review of 

all transactions over USDlm is undertaken by the Compliance department. 

We understand that the User acceptance testing has been completed and the implementation 

date has been set for April 2004, 

Recommendation 

The CAMP system should be enhanced to include the functionality to enable the isolated 

monitoring of account activity of clients from high risk countries. 

Carried :Forward Recommendation: Federal Reserve Bank of Atlanta - February, 2003 

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HIGH LEVEL CONTROLS REVIEW OF HSBC PRIVATE B~'1K INTERNA TIONAL 

12. INTERNAL CONTROL 

12.1 Internal Control Review Qligh Risk) 

Finding 

The planned internal control reviews, as set out in the annual Internal Control Periodic Review 

for 2003 had not been completed. We note only 60% ofthe planned work had been completed. 

Background 

The Internal Control Officer is responsible for devising the annual Internal Periodic Review 

schedule. We note that only 60% of the planned reviews for 2003 had been completed. 

Further, the 2003 Internal Control Periodic Review schedule was not evidenced as having been 

approved by the President. 

Recommendation 

i) Management should ensure that the reviews, as set out in the annual 1nternal Control 

Periodic Review plan are performed and the timetable adhered to. The President should be 

informed of any slippage in meeting the implementation dates. 

ii) The annual Internal Control Periodic Review Schedule should be approved by the 

President. 

12.2 Conflict or Interest (High Risk) 

Finding 

The Internal Control Officer is required, on occasions, to support departments when staff are 

on vacation or on sick Jeave. This results in conflict of interest in the independence of the 

Internal Control function. In addition, work performed by the Internal Control Officer as 

supporting staff is not being independently reviewed. 

Recommendation 

Management should ensure that the Internal Control Officer does not act as a relief staff 

member for absences in support departments. 

PBT FIM 22.19 

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HIGH LEVEL CONTROLS REVIEW OF "SBC PRIV ATE BANK INTERNATIONAL 

13. FINANCE 

13.1 Reyenue Sharing Arrangements 

Finding 

The basis of revenue sharing between the Group entities is not fomlally documented. HRIB 

receives revenue credits from IPB NY for products such as RJ\1A, Spectrum and Universal 

Investor. 

Recommendation 

Revenue sharing agreement<; between HRlB and other Group entities should be fonnally 

documented. 

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HIGH LEVEL CONTROLS REVIEW OF HSBC PRIVATE BANK INTERNATIONAL 

14. INFORMATION TECHNOLOGY 

14.1 Access to HRIB Client Database <High Risk) 

Finding 

A number of users from the other two IPB offices in the US have access to the Miami client 

database via the EPIC system without the knowledge or approval of the HRlB Local Security 

Administrator (LSA). There are currently three LSAs responsible for setting up user access to 

the EPIC system in their respective region. However, each LSA also has the ability to create 

new users and provide them with access to the client database ofHRIB, 

Recommendation 

The ability of the LSAs in New York and California to give local users access to the HRlI3 

client database should be removed. Users from the other regional offices who have a 

legitimate requirement to access the HRIB client database should submit a request to the HRlB 

LSA for their approval and action. 

Group IT Security Policy and Standards II 

14.2 Physical Security at Contingency Site 

Finding 

i) Thc contingency site is not monitored at all times. 

ii) Thc communication room at the contingency site is equipped with a regular key lock instead 

of a card -key access device, as a result, there is no audit trail for access to this room. 

Recommendation 

Consideration should be given to implementing monitoring facilities at the contingency site 

and to installing a card key access device to the door to the communication room. 

Group IT Security Policy and Standards 6.2 ;6.7 

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HIGH LEVEL CONTROLS REVIEW OF I1SBC PRIVATE BAI'iK INTERNA TIONAL 

14.3 Segregation QfDuties re TeJ¥A-Pay 

Finding 

There is a lack of segregation of duties within the IT Support team as they undertake the 

development, support, and installation of the bill pay system (Tel-A-Pay), as well as the 

issuance and maintenance of card-keys in addition to providing desktop and server support. 

Further, the rr Support Team manager has a user profile which allows data entry access in the 

Tci-A-Pay system. 

Recommendation 

i) The responsibilities of the IT support team should be organised such that there is a proper 

level of segregation of duties between the development, installation and card-keys issuance 

responsibilities and the responsibilities in respect of providing desktop and server support. 

ii) The data entry access profile to the Tel-A-Pay system by the IT Support Team Manager 

should be deleted. 

Group IT FIM 4.3 

14.4 Security of Sensitive Information 

Finding 

Sensitive information and documents such as upgrade documents (ID and passwords), the 

~software up-grade disk relating to Tciextester Ver·sion 6:4 an·d sensitive IP --a"dores-s-I-nformation 

is not being stored in a locked cabinet or drawer after working hours. 

Recommendation 

Sensitive infonnation and media disks should be stored in a locked cabinet or drawer when not 

in use or after working hours. 

Group IT Security Policy and Standards 6.13 

14.5 BIMAS System Access 

Finding 

The user access to the BI1vlAS system for two fanner bank employees and an employee who 

has been transferred to another business unit has not been deleted. 

Recommendation 

User access to the BIMAS system should be removed immediately upon an employee leaving 

the employment of the bank or when the job description of an individual changes such that 

system access is no longer required. 

Group IT Security Policy and Standards 9.2 

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HIGH LEVEL CONTROLS REVIEW OF HSBC PRIVATE BANK INTERNATIONAL 

14.6 Business Continuity Plan and Test Results 

Finding 

i) The Business Continuity Plan contains out of date infonnation. 

ii) The contingency test results do not have a summary to document whether the objectives of 

the test had been met. 

iii) The incident report, which recorded tasks that were either failed or where problems were 

encountered during the test, did not specify the date for resolution and the resolution status. 

Recommendation 

The Business Continuity Plan should be updated. The contingency test results should include a 

conclusion to indicate that the objectives have been met and where problems were encountered, 

the expected resolution date and resolution status should be recorded. 

Group IT Security Policy and Standards II 

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760611.976

Occ-psi-00211658 From: NERISSA P HALL/HBUS/HSBC 

Sent: 4/17/2007 2:41:34 PM 

To: ALAN P WILLIAMSON/HBUS/HSBC@HSBC 

CC: 

subject: Re: tomorrow's meeting regarding PCS policies/procedures 

He keeps harping on what "other divisions" have .... I'm just chatting. I've 

been trying to see Bill but he's tied up. 

Nerissa P. Hall 

Vice president, Senior Manager Anti-Money Laundering compllance HSBC securities (USA) Inc. 

452 Fifth Avenue, NY 10018 

Tel. NO. (212) 525-5579 

Fax NO. (212) 525-5769 

Email: nerissa.p.hall@us.hsbc.com 

Alan P williamson/HBUS/HSBC 

04/17/2007 03:36 PM 

To 

Nerissa P Hall/HBUS/HSBC@HSBC cc 

_ - Reda.led bv the Permanenl 

Subcommitie. on Investigations 

subject 

Re: __ tomorrow-'_s_ meeti ng_ regardi ng PCS pol i ci es/procedures ___ _ 

well, that's why we're meeting asap and asking Irene along 

From: Nerissa P Hall 

Sent: 04/17/2007 02:53 PM EDT 

To: Alan P Williamson 

subject: Fw: tomorrow's meeting regarding PCS policies/procedures 

I'm having deja vu of IIIIIIfrom internal audit. They're probably twins. 

Nerissa P. Hall 

Vice president, senior Manager Anti-Money Laundering Compllance HSBC Securities (USA) Inc. 

452 Fifth Avenue, NY 10018 

Tel. No. (212) 525-5579 

Fax NO. (212) 525-5769 

Email: nerissa.p.hall@us.hsbc.com 

----- Forwarded by Nerissa P Hall/HBuS/HSBC on 04/17/2007 02:52 PM -----

Robert X Guthmuller/HBUS/HSBC 

04/17/2007 02:37 PM 

page 1 
2144 


760611.977

occ-Psi-00211658 

To 

Nerissa P Hall/HBUS/HSBC@HSBC cc 

Alan P williamson/HBUS/HSBC@HSBC, Irene M Stern/HBUS/HSBC@HSBC 

subj ect 

Re: tomorrow's meeting regarding pcs policies/procedures 

thanks for the PCS AML policies and procedures which are certainly more detailed than the HSI pip I read from the intranet. - cleared up alot of 

observations. 

However, in reading the material, I still have some observations/questions which may frame tomorrows discussion, such as: 

3.2 Requirements of KYC - Next to last paragraph regarding file semi-annual 

review by the office of supervision Jurisdiction and branch reviews (need a little background) 

3.4 EDD - circumstances where EDD is required - SCC, HRC, or engaged in 

sensitive Industries and occupations however, section 4.4 High Risk categories list High Risk Businesses (HRB) - don't they qualify for EDD? 

4.4 High Risk categories states that just because a business is listed as sensitive ... doesn't necessarily mean its high risk (are all businesses 

designated 

~_ .sensi tive .... receive E.P!:L.OJ' just those ri si ngto t:he...Je..vel of hi gh ri sk???? 

pip wording unclear at best. 

Use of ICRO optional in completing EDD. 

when and when not to use ICRO? why? Are there guidelines 

EDD Process The New Account principal MAY ALSO request an EDD Report of 

Findings. why is it optional? Are there guidelines when and 

when not to request Report of Findings??? 

4.4 High risk Categories - sensitive Industries and occupations - "The mere fact that a customer falls within one of the sensitive industries/occupations listed below, or is located in a high-risk jurisdiction, does not in and 

of itself make a customer high risk. Rather these are additional factors to 

consider as part of the overall rating of the customer." 

If that is so, how do you document the factors and the decision as to 

whether an account is or is not high risk??? That's why I asked about a score-card that is used by some other divisions. 

DO you see my delimma? I'm trying to ascertain how PCS determines a high risk account. I read the procedures. First, I think that all sccs, HRCS, HRBS 

and 

sensitive ... are high risk (4.4). Then, a further review discloses that 

although all SCCs are high risk, HRBs may not be subject to EDD (3.4); HRCS 

and sensitive '" 

may not be high risk (4.4) but the policy/procedure do not provide for an auditable, structured methodology to determine high risk. 

Plcs/Bearer shares TO make optional that bearer shares are high risk 

does not mirror other banks policies. For at least the last 10 years, all 

private banks I 

know classify ALL bearer share PICs as high risk 

paqe 2 
2145 


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occ-psi-00211658 

CAMP Market procedures - HOw many analysts work institutional alerts? 

alerts? 

Retail 

What kind of activity triggers alerts (Rules, algorithms, scenarios etc 

???? (procedures don't state) 

What is the decision making process for selecting an alert for review? 

(procedures don't state) 

what percentage of alerts are "worked"? (procedures don't state goal) 

Manual transaction monitoring - Procedures cite the AML LCD or designees. HOW 

many people conduct manual monthly reviews? 

Scope of review is general. What is the analyst looking for. Shouldn't 

the procedures give examples of red flags (i.e.) free deliveries 

where do the results of the manual reviews gO???7 state) (procedures don't 

Revisions of policy - Following up upon your e-mail, when there are changes in 

AML policy (say in regard to SCcs) , do you immediately deseminate the change to 

RRS, 

alc principals, resident principals? 00 they sign certifications that 

they read them? If not, how does PCS compliance ensure that they read the 

revi si on?, 

and as important, understand the change without training??????? 

THANK YOU 

Page 3 
2146 


760611.979

From: ALAN P WILLIAMSON/HBUS/HSBC 

sent: 6/21/2007 6:17:27 PM 

occ~psi~00214618 

To: MARLON YOUNG/HBUS/HSBC@HSBC;MANUEL DIAZ/HBUS/HSBC@HSBC 

CC: TERESA GARCIA/HBUS/HSBC@HSBC;SUSAN HOGGARTH/HBUS/HSBC@HSBC 

subject: FW: waiver Request 

Marlon, Manuel 

fyi 

I have forwarded this to carolyn for her views but have not heard back yet. I 

am not sure how much more David needs than he already has, but I think the 

request memo should come from you with our concurrence. unfortunately I am out 

next week and carolyn is out for two weeks but we will do our best. 

Let me know what you think. 

Alan 

~--~- Forwarded by Alan P williamson/HBUS/HSBC on 06/21/2007 07:12 PM ~~---

David Ford/PBRS/HSBC 

06/21/2007 12:15 PM 

To 

Alan P williamson/HBUS/HSBC@HSBC cc 

Subject 

Re: Waiver Request 

Alan, 

Need GHQ cmp approval as well if dispensation from Group policy. suprised can open bearer share account for offshore client with no bo declaration in us. carolyn should be consulted on OCC/FED view of such a structure. 

Suggest send detailed memo to susan wright, copy me, asking for dispensation. Include why us compliance is supporting dispensation and the risks to the 

bank. carolyn's views should be included since PB part of HBUS. 

Regards, 

David 

original Message -----

From: Alan P williamson 

Sent: 06/21/2007 04:25 PM 

To: David Ford 

Cc: Susan Hoggarth Subject: FW: waiver Request 

David 

In Sue's absence I would appreciate your advice. AS you can see from the email 

string below, we have been asked to onboard a pair of Peruvian bearer share 

companies. However, the controlling family does not want to follow our bearer 

share policy. The companies and controlling family are well known to the 

page 1 
2147 


760611.980

occ-Psi-00214618 

business and compliance, which has supported the request. 

I have two questions - 1) procedurally am I correct that you would have to 

approve an exception? and 2) if so would you in this case? If you would like more information to address either question please let me know. 

Thanks for your help. 

Alan 

----- Forwarded by Alan P Williamson/HBUs/HSBC on 06/21/2007 10:20 AM -----

Marlon Young/HBUS/HSBC 06/21/2007 09:53 AM 

To 

Alan P williamson/HBUS/HSBC@HSBC cc 

Manuel oiaz/HBUs/HSBC@HSBC, susan Hoggarth/HBUS/HSBC@HSBC, Teresa 

Garcia/HBUS/HSBC@HSBC 

sUbject 

Re: FW: Waiver Request 

I approve the waiver request. 

Marlon 

Alan P williamson/HBUS/HSBC 

06/20/2007 06:49 PM 

TO 

Manuel oiaz/HBUS/HSBC@HSBC cc 

Marlon Young/HBUS/HSBC@HSBC, Teresa Garcia/HBUS/HSBC@HSBC, Susan 

Hoggarth/HBUS/HSBC@HSBC subject 

Re: FW: Waiver Request 

Thanks 

Manuel oiaz/HBUS/HSBC 

06/20/2007 06:32 PM 

TO 

Alan P williamson/HBUS/HSBC@HSBC cc 

subject 

Re: Fw: waiver Request 

page 2 
2148 


760611.981

I FULLY SUPPORT THIS WAIVER 

Manuel L. Diaz 

president & Managing Director 

HSBC private Bank International 

1441 Brickell Ave. 17th Floor 

Miami, FL 33131 

(305) 539-4747 Telephone 

Alan P williamson/HBUS/HSBC 

06/20/2007 06:28 PM 

TO 

occ-psi-00214618 

Manuel Diaz/HBUS/HSBC@HSBC, Marlon Young/HBUS/HSBC@HSBC cc 

Teresa Garcia/HBUS/HSBC@HSBC, Susan Hoggarth/HBUS/HSBC@HSBC subj ect 

Fw: Waiver Request 

Manuel, Marlon 

I have no objection to this request, however I believe the requirement to 

register bearer shares is a group mandate. I understand the process to be that 

if you want an exception we will have to go to Geneva. I am willing to pass on the request if that is what you want. 

Thanks 

Alan 

----- Forwarded by Alan P williamson/HBUS/HSBC on 06/20/2007 06:24 PM 

Teresa Garcia/HBUS/HSBC 

06/20/2007 05:29 PM 

TO 

Alan P williamson/HBUS/HSBC@HSBC cc 

subj ect 

Re: Waiver Request 

Alan, 

page 3 
2149 


760611.982

occ-psi-00214618 

Because they wish to maintain confidentiality, and they have never been asked 

by our competitors with whom they bank to do this. The, family is the 

most visible and influential family in 1I .... 1l 

Teresa 

Alan P Williamson/HBus/HSBC 

06/20/2007 05:21 PM 

Teresa 

TO 

Teresa Garcia/HBUS/HSBC@HSBC cc 

Subject 

Re: waiver Request 

- - Redacted by the Permanent 

SubeommiUee on Investigalions 

Why do they not want to register or deposit the shares? 

Alan 

Teresa Garcia/HBUS/HSBC 

06/20/2007 01:44 PM 

TO 

Alan P williamson/HBUS/HSBC@HSBC cc 

subj ect 

Re: waiver Request 

Following are the RM responses: 

The name of the accounts are: - Urigeler International S.A. Holding Company Birmingham Merchant S.A. Holding Company 

These two are companies that were established several years ago in Panama, 

which establishes companies with bearer shares. 

Thanks 

Teresa Garcia 

senior Manager specialized compliance 

Page 4 
2150 


760611.983

Occ-Psi-00214618 

HSBC private Bank New York 

452 Fifth Ave., T6, NY, NY 10018 

(PH)212-525-5014 (F) 212-525-8255 

Alan P williamson/HBUS/HSBC 

06/20/2007 11:15 AM 

Teresa 

TO 

Teresa Garcia/HBUS/HSBC@HSBC cc 

subject 

Re: waiver Request 

Thanks for the info. What are the bs companies and why are they bs? 

Alan 

From: Teresa Garcia 

sent: OS/20/2007 09:58 AM EDT 

TO: Alan P williamson 

subj ect: Fw: wai ve,--Request 

Alan, 

I would like to discuss with you. The RM is anxious for an answer since he is 

traveling to meet the client next week. 

Thanks. 

Teresa Garcia 

senior Manager specialized compliance HSBC Private Bank New York 

452 Fifth Ave., T6, NY, NY 10018 

CPH)212-525-5014 CF) 212-525-8255 ----- Forwarded by Teresa Garcia/HBUS/HSBC on 06/20/2007 09:57 AM -----

Teresa Garcia/HBUS/HSBC 

05/14/2007 03:14 PM 

Sue, 

TO 

susan Hoggarth/HBUS/HSBC cc 

subject 

waiver Request 

Page 5 
2151 


760611.984

From: ALAN P WILLIAMSON/HBus/HSBC 

Sent: 6/25/2007 5:54:34 PM 

occ-psi-00214806 

TO: MARLON YOUNG/HBUS/HSBC@HSBC;JAIME CARVALLO/HBus/HSBC@HSBC 

CC: TERESA GARCIA/HBus/HSBC@HSBC;THOMAS FLORY/HBUS/HSBC@HSBC;ANA OA 

SILVA/HBus/HSBC@HSBC 

Subject; Re; _ Family 

Marlon 

I apologise but I thought I forwarded you David Ford's response last week - I 

will again. Basically he wants us to get an exception from group. since I 

happen to be with the head of group aml I will ask her tom'w. 

Alan 

From: Marlon Young Sent; 06/25/2007 06:33 PM EDT 

TO; Jaime carvallo 

Cc: Teresa Garcia; Thomas Flory; Ana Da silva; Alan P Williamson 

subj ect: Re: _ Fami 1 y 

I have discussed w Terry and Alan Williamson and will give my support to 

exception. sorry, I was in a rush to leave friday, I forgot to send my approval. 

Regards, 

Marlon 

From: Jaime carvallo 

Sent: 06/25/2007 01:48 PM EDT 

To: Marlon-You,;'f----- cc: Teresa Garcla; Thomas Flory; Ana Da Silva 

subject: _Family 

Marlon, 

this 

Teresa Garcia must have given you heads up on the _family and the issue 

regarding their holding companies having bearer shares and the fact that they 

will not sign the BDL. 

I will see one of the family members tomorrow morning and this still seems to 

have no resolution. This is too important a family ln Peru for us not to want 

to do business with, and one that has taken a lot of my time and effort to 

convince to start a relationship with us. Joao Luiz has met members of the 

family as well. I would appreciate your involvement at this point, as this has 

become extremely sensitive. 

Thank you and regards, 

Jaime 

Page 1 

_. Redacted by the Penn.ent 

SutK:Qmmittee on Investigations 
2152 


760611.985

occ-psi-00214891 From: ALAN P WILLIAMSON/HBUS/HSBC 

Sent: 6/26/2007 5:48:45 PM 

To: MARLON YOUNG/HBUS/HSBC@HSBC 

subject: Re: Family 

Doing what I can 

From: Marlon Young sent: 06/26/2007 06:44 PM EDT 

To: Alan P Williamson 

Subject: Re: _ Family 

Thanks for your support. Marlon 

From: Alan P williamson 

Sent: 06/26/2007 06:40 PM EDT 

To: Manuel Diaz; Marlon Young Cc: Jaime car~susan Hoggarth; subject: Re: _Family 

Marlon) Manuel 

Teresa Garcia 

I don't disagree. If I think an exception does not pose undue risk to the Bank 

I will do what I can to help get it, but unless and until we can get the rules 

changed this seems to be what we have to do. 

Alan 

From: Manuel oiaz 

Sent: 06/26/2007 06:17 PM EDT 

To: Marlon Youn9 

Cc: Alan P will,amson; Jaime carvallo; Susan Hoggarth; Teresa Garcia 

subject: Re: IIIIIIIIFamily 

FEEL THE SAME WAY ....... THIS IS AN EXCELLENT FAMILY!!! I 

Manue 1 L. Di az president & Managing Director 

HSBC private Bank International 

1441 Brickell Ave. 17th Floor 

Mi ami, FL 33131 

(305) 539-4747 Telephone 

Marlon Young/HBUS/HSBC 

06/26/2007 06:09 PM 

To 

- "'" Redacted by the Permanent 

Subcommittee on InvestigatiollJ 

Alan P Williamson/HBuS/HSBC@HSBC, Jaime carvallo/HBUS/HSBC@HSBC, Manuel 

Diaz/HBUS/HSBC@HSBC, Teresa Garcia/HBUS/HSBC@HSBC, susan Hoggarth/HBUS/HSBC@HSBC cc 

subj ect Re: _Family 

page 1 
2153 


760611.986

Occ-psi-00214891 

Alan, 

Thi sis 

record. 

Regards, 

Marlon 

an important relationship for IPB and a family that has a clean 

It would be ashame if we are not able to obtain an exception. 

From: Alan P williamson 

Sent: 06/26/2007 05:24 PM EDT 

To: Jaime Carvallo; Marlon Young; Manuel Diaz; Teresa Garcia; susan Hoggarth Subject: Re: _ Family 

Marlon, Manuel, Jaime 

I spoke to susan wright, Group Head of AML. she is reluctant to grant the 

exception but will consider it. 

Jaime 

could I ask you to prepare a summary of the proposed relationship again, including details of the family and their businesses. please specifically address whether there are any undisclosed ownership interests or political connections with these accounts. Circulate it to this group for review. 

I know you already did something of this - no reason you can't re-use most of 

-;t-.--

Alan 

From: Jaime carvallo 

Sent: 06/26/2007 02:23 PM EDT 

TO: Marlon Young cc: Alan P willlamson 

subject; Re: ...... Family 

Marlon, 

--= ReQal:~cu <'.' tIll' i'nmaner" 

Subcommittee on Investigations 

I forgot to mention again that this family's liquid net worth is estimated in excess of and total net worth in the $ area. 

I hope this can be done. 

Thank you again for your help. 

waem regards 

Jaime 

From; Marlon Young 

Sent: 06/25/2007 06;33 PM EDT 

To; Jaime carvallo 

Cc: Teresa Garcia; Thomas Flory; Ana Da silva; Alan P williamson 

Subject: Re: I11III Family 

I have discussed w Terry and Ala~ williamson and will give my support to this 

page 2 
2154 


760611.987

Occ-psi-00214891 exception. 

approval. 

Regards, 

Marlon 

Sorry, I was in a rush to leave friday, I forgot to send my 

From: Jaime carvallo 

sent: 06/25/2007 01:48 PM EDT 

To: Marlon Young cc: Teresa GarCla; Thomas Flory; Ana Da silva 

subject: liliiii Family 

Marlon, 

Teresa Garcia must have given you heads up on the1lllllllfamily and the issue 

regarding their holding companies having bearer shares and the fact that they will not sign the BDL. 

I will see one of the family members tomorrow morning and this still seemS to 

have no resolution. This is too important a family ln Peru for us not to want 

to do business with, and one that has taken a lot of my time and effort to 

convince to start a relationship with us. Joao Luiz has met members of the 

family as well. I would appreciate your involvement at this point, as this has 

become extremely sensitive. 

Thank you and regards, 

Jaime 

Page 3 

_ ~ Red.<led~byth."'''rm.nent 

Subcommittee on Investigations 
2155 


760611.988

occ-psi-00217148 From: ALI S KAZMY/HBUS/HSBC 

Sent: 8/6/2007 7:47:58 AM 

TO: ALAN P WILLIAMSON/HBUS/HSBC@HSBC 

CC: ANNE LIDDY!HBUS/HSBC 

subject: Re: Fw: On Boarding Bearer Share corporation Policy Guidance 

Alan, 

Many thanks for your feedback. The minor edits within the documents are accepted. AS regards the major concerns noted below, please note that: 

we may have to do a retro review, however, over a period of reasonable time 

(one to two years possibly). A firm time frame has not been decided, as such, 

the policy Guidance does not provide for an implementation date. Going forward 

it will apply on all Bearer Share Corp. customers. AS soon as this draft is 

agreed to by all parties, we will issue it with immediate effect and advise 

wlth the Ops. circular the retro review time frame. 

I agree with your point regarding exception. NO matter how much we try not to 

devlate from the policy, we cannot still control all situations. Accordingly, I am adding a line at the end of the policy Guidance stating the following: 

Exceptions to this policy must be sought from the AML Director or designee in 

writing giving full details of the matter warranting such exception. The 

written approval must be maintained in customer file and reported to oversight & control Group upon receipt. 

At this stage, I would also like to confirm our discussion of last week, where 

you agreed that PB Mlami should not be treated any separately. That being the 

case, we will have to ascertain as to how we will arrange practical implementation of this guidance on them with about 600 high-risk Bearer Share 

C:2IIJ._ accounts,~ 

Regards, 

From: Alan P williamson on 05 Aug 2007 11:46 

TO: Ali S Kazmy/HBUS!HSBC@HSBC 

subject: Re: Fw: On Boarding Bearer Share corporation policy Guidance 

[attachment "on Boarding Bearer share corporation policy Guidance 

(comments).doc" deleted by Ali S Kazmy/HBUS!HSBC] 

Ali 

I made some fairly minor comments, mostly to emphasise the unique nature of 

bearer share companies. My major concerns are: 

I think the policy should state that it is prospective from the date of 

issuance; otherwise we may have to do a retrospective looking for bearer share 

corps. This may be a good idea but we should avoid locking ourselves in. 

There has to be an exception process. we know from experience that there is 

always a special case somewhere. That should take care of the few instances in 

markets where this may come up. 

I apologise for my lateness and lack of prior attention to this, but can you confirm that Nerissa, Teresa, clara, and Martin have reviewed? What is the 

next step? Page 1 
2156 


760611.989

occ-Psi-00217148 

Thanks as always for your patience. 

Alan 

Ali S Kazmy/HBuS/HSBC 08/03/2007 01:01 PM 

To 

Alan P williamson/HBUS/HSBC@HSBC cc 

Subject 

Fw: On Boarding Bearer share corporation policy Guidance 

per our discussion of Monday the 30th of July, this is to request your feedback on the aforementioned document. 

Thanks & regards, 

---------------------- Forwarded by Ali S Kazmy/HBUS/HSBC on 08/03/2007 01:00 

PM --------------------------- Ali S Kazmy on 25 Jul 2007 17:23 J:.I~ote~ _~ 

25 Jul 2007 17:23 

From: Ali S Kazmy Tel: 212-525-5560 

Title: vice president Location: 5TH-21 

workGroup: caMP/ANTI-MONEY LAUNDERING Mail size: 

To: Alan P williamson/HBUS/HSBC@HSBC 

Alan T Ketley/HBUS/HSBC@HSBC 

Alexine Von Keszycki/HBUS/HSBC@HSBC Anne Liddy/HBUS/HSBC Bernie Mackara/HBUS/HSBC@HSBC clara Hurtado/HBUS/HSBC@HSBC 

Daniel Jack/HBuS/HSBC@HSBC 

Deborah R price/HBUS/HSBC@HSBC Denis E o'brien/HBUS/HSBC@HSBC 

George Tsugranes/HBUS/HSBC@HSBC Judy P Stoldt/HBUS/HSBC@HSBC 

Kathleen L Gladkowski/HBUS/HSBC@HSBC 

Mary A caskin/HBUS/HSBC@HSBC 

Nerissa P Hall/HBUS/HSBC@HSBC 

Richard salvatore/HBUS/HSBC@HSBC 

Robert Abreu/HBUS/HSBC@HSBC 

salvatore Iocolano/HBus/HSBC@HSBC 

Steven J Rockefeller/HBus/HSBC@HSBC susan Hoggarth/HBUS/HSBC@HSBC Teresa Garcia/HBUS/HSBC@HSBC 

sUbject: On Boarding Bearer share corporation policy Guidance 

36166 

Thanks to all the participants of tQday's meeting. I believe we are getting close to finalizing the guidance. In this regards, please provide your final 

Page 2 
2157 


760611.990

acc-psi -00217148 

comments/feedback/suggestion/question in writing to me by Tuesday the 31st of 

July. 

For ease of reference, the draft guidance is attached. 

[attachment "on Boarding Bearer share corporation policy Guidance.doc.zip" deleted by Alan P williamson/HBUS/HSBC] 

The minor changes discussed today will be incorporated after receipt of all 

comments on Tuesday. 

Regards, 

page 3 
2158 


760611.991

From: ALI S KAZMY/HBUS/HSBC 

sent: 8/612007 10:00:01 AM 

occ-psi-00217163 

To: ALAN P WILLIAMSON/HBus/HSBC@HSBC 

Cc: 

subject: FW: miami bearer share procedures 

Here is one of the emails I received from clara regarding this matter. The 

second one follows. 

---------------------- Forwarded by Ali S Kazmy/HBus/HSBC on 08/06/2007 10:57 

AM --------------------------- From: clara Hurtado on 30 Jul 2007 09:04 

TO: Ali S Kazmy/HBus/HSBC@HSBC 

subject: miami bearer share procedures 

As promised, our procedures which were approved for use by the business last 

year byt eh AML Director. At this point, if you wish to change things, you need to reach out to the business first. The person you should speak to is Jeff 

clous, our coo, at 305-539-4810 as he is the one who had all conversations with 

Terry/sue/regulators on this. Thanks. 

clara M. Hurtado 

Director of Anti-Money Laundering compliance HSBC private Bank Miami 

ph: 305 539 4998 Fax: 305 539 4850 

FOC\'Larded_by. <;,lac,! .. Hurt,glg!HBUS/'HSBC on Oi'D_OL?OOL~.:03 AM abcdprocedure 

Section: customer service Risk: 

Procedure Name: Bearer share Accounts procedure Number: 3.053 

The use of a Bearer Share company to hold assets represents a high money laundering risk as the method of transfer of these assets merely involves the 

physical passage of share certificates. ownership passes with possession of 

the certificates. A Bearer Share company may therefore be used to conceal the 

true beneficial ownership of assets. 

If ownership of the company is held in Bearer Share form, the Bank should 

determine: 

that Bearer shares are permitted by the jurisdiction where the company is 

incorporated. 

whether the jurisdiction requires custody of the Bearer shares or not. (For example, Cayman Islands allows Bearer Shares but they must be held by an authorized custodian.) 

In order to address the risks associated with an account for a Bearer share 

Company one of the following procedures should be followed: 

clients who open or have an account which involves a company which issues 

Bearer shares must provide a beneficial ownership certificate identifying all 

beneficial owners of the account (see also requirements for personal investment 

companies in Section 12 of the MLPP). 

A new beneficial ownership certificate must be obtained by the private bank if 

Page 1 
2159 


760611.992

Occ-psi-00217163 there is a change of ownershlp of the company, change in signatory authority or signiflcant change ln account activity; In addition, the BOL form for Bearer 

Share companies with a risk assessment of High Risk or scc must be updated 

every three years. and if required by the jurisdiction where the company is incorporated, the 

Bearer shares should be held in safe custody/safe keeping with another member 

of the HSBC Group or with a third party Financial Institution acceptable to the 

HSBC Group. In all cases, arrangements must be made to ensure that the shares are not released from custody or transferred without the knowledge of the 

relevant private bank where the account/relationship is maintained. On release or transfer of the shares, the relevant private bank must obtain further 

confirmation of the 'new' ownership and undertake the appropriate controls set 

forth in the MLPP. A copy of the custody agreement must be held on file with 

the bank. 

Accounts must not be established or maintained if the customer is unwilling to 

provide an appropriately completed certificate of beneficial ownership or lodge the shares in safe custody/safe keeping. 

compliance will review activity of Bearer Share accounts that meet "High Risk" 

Assessment criteria on a quarterly basis. 

page 2 
2160 


760611.993

occ-Psi-00217164 

From: ALI 5 KAZMY/HBUS/HSBC 

sent: 8/6/2007 10:00:52 AM 

To: ALAN P WILLIAMSON/HBUS/HSBC@HSBC 

CC: 

subject: Fw: Bearer share meeting 

The second email. 

---------------------- Forwarded by Ali S Kazmy/HBUS/HSBC on 08/06/2007 10:59 

AM --------------------------- From: clara Hurtado on 29 Jul 2007 13:24 

TO: Ali S Kazmy/HBus/HSBC@HSBC 

subject: Fw: Bearer share meeting 

A few more comments. Tomorrow I will also send you the Miami procedures which were approved by Terry Pesce and Susan Hoggarth, where it was approved Miami 

would not custodize the shares. We are in compliance with the MLPPs. 

- I do not agree with having the AML Director not CEO approve all bearer share 

accounts. The CEO should be able to delegate to the Group Heads who are all 

SVPs. 

- We have added bearer share criteria into our high risk database. We will not 

be lowering the monitoring thresholds on over 600 bearer share accounts. 

- We have a Beneficial ownership Letter in use approved by corporate compliance. we cannot go back and re-paper. 

Tha.nks. 

clara M. Hurtado 

Director of Anti-Money Laundering compliance HSBC Private Bank Miami 

ph: 305 539 4998 Fax: 305 539 4850 ----- Forwarded by clara Hurtado/HBuS/HSBC on 

clara Hurtado/HBuS/HSBC 

07/25/2007 08:20 AM 

To 

"Ali Kazmy" <ali .s.kazmy@us.hsbc.com> cc 

07/29/2007 01:21 PM -----

"Martin Holy" <martin.holy@us.hsbc.com> Subject 

Bearer share meeting 

Ali 

III be out today unexpectedly but wanted to send you my comments on this 

matter. could you please forward to martin Holy the meeting invitation so he can attend in my place please thanks 

We have about 2000 PICs and I believe 600 or so to be bearer share accounts. 

We could not possibly categorize them all as high risk. what we've done in 

Miami is entered the bearer share classification into our high risk database as page 1 
2161 


760611.994

occ-Psi-00217164 an indicator and if they ALSO have high activity they will be categorized as high risk then, requiring EDD. We feel this is a good way to capture truly high risk bearer share accounts 

Miami also agreed with Terry and Susan H to not custodize bearer share 

certificates as there was no way to custodize in Miami and remotely was too 

difficult. Instead we get a Beneficial Dwnership Letter upon opening. upon 

any change in signatory, and it is updated every three years. custodizing was discussed at length and was not feasible for Miami. You can talk to Sue more about that if you like. 

Thanks 

page 2 
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760611.995

occ-psi-00217241 From: DANIEL JACK/HBUS/HSBC 

Sent: 8/7/2007 10:37:50 AM 

To: ALAN P WILLIAMSON/HBUS/HSBC@HSBC 

CC: ALAN T KETLEY/HBUS/HSBC@HSBC;ROBERT ABREU/HBUS/HSBC@HSBC 

sUbject: AML Enforcement Actions vs AmEX (Banknotes & Metals) 

Alan, 

We do not deal with these specific AmEx entities and locations noted by FinCEN 

& FRB for AML/BSA violations: 

American Express Bank International (AEBI) of Miami, Florida 

American Express Travel Related services Company, Inc. located in salt Lake 

City, utah 

However, HBUS Banknotes currently deals with the following 5 AmEx clients & 

locations: 

And HBUS Metals deals with the following AmEx clients/locations: 

I believe the RM Team Leader in CIB is Peter Nealon. Robert may have contacted 

him already. 

As you know, I monitor customer activity closely for both businesses on a monthly basis. 

Thanks and regards, 

Daniel Jack, VP - AML compliance Global Banknotes & Metals 

Telephone: 212-525-8686 

Alan P williamson/HBUS/HSBC 

08/07/2007 07:23 AM 

TO 

Alan T Ketley/HBUS/HSBC@HSBC, Anthony vassiliou/HBUS/HSBC@HSBC, christopher 

carreno/HBUS/HSBC@HSBC, Clara Hurtado/HBUS/HSBC@HSBC, Daniel 

Jack/HBUS/HSBC@HSBC, Denis E o'brien/HBUS/HSBC@HSBC, George Tsugranes/HBUS/HSBC@HSBC, Gina Drexler/HBUS/HSBC@HSBC, Jonathan 

Dean/HBUS/HSBC@HSBC, Jonathan P Morice/HBUS/HSBC@HSBC, Judy P 

Stoldt/HBUS/HSBC@HSBC, LOretta Fields-powell/HBUS/HSBC@HSBC, Lorna 

Kirwan-Bennett/HBUS/HSBC@HSBC, Margie Lopez/HBUS/HSBC@HSBC, Maria Teresa 

Carneiro/HBUS/HSBC@HSBC, Mark A Kaczynski/HBUS/HSBC@HSBC, Martin 

Holy/HBUS/HSBC@HSBC, Nerissa P Hall/HBUS/HSBC@HSBC, Robert 

Abreu/HBUS/HSBC@HSBC, steven J Rockefeller/HBUS/HSBC@HSBC, Tabitha 

patchell/HBUS/HSBC@HSBC, Teresa Garcia/HBUS/HSBC@HSBC, Todd 

Maddison/HBUS/HSBC@HSBC, Vanessa Bryant/HBUS/HSBC@HSBC, Willa 

McMorris/HBUS/HSBC@HSBC, william Wehmeyer/HBus/HSBC@HSBC cc Page 1 
2163 


760611.996

occ-psi-00217241 carolyn M wind/HBUS/HSBC@HSBC, Irene M stern/HBUS/HSBC@HSBC, Denise A 

Reilly/HBUS/HSBC@HSBC, Anne Liddy/HBUS/HSBC@HSBC subject 

enforcement actions against Amex businesses 

[attachment "aebi_joint_release.pdf" deleted by Daniel Jack/HBUS/HSBC] 

please take a look. If you have either of these specific entities as customers 

please let me know, but even if not it is instructive. 

Alan 

Page 2 
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760611.997

occ-psi-0021S3S0 From: ALAN P WILLIAMSON/HBUS/HSBC 

Sent: S/20/2007 3:49:26 PM 

To: CAMILLUS P HUGHES/HBUS/HSBC@HSBC 

Cc: 

Subject: FW: AEBI Deferred Prosecution Agreement 

----- Forwarded by Alan P williamson/HBUS/HSBC on OS/16/2007 05:15 PM -----

Jeff clOUS/HBUS/HSBC 

OS/16/2007 09:57 AM 

To 

Alan P williamson/HBUS/HSBC@HSBC cc 

Subj ect 

Fw: AEBI Deferred Prosecution Agreement 

FYI Amex has 12 full time compliance staff. AS I mentioned in our quarterly meeting - I believe we have resource constraints that impact our AML program that need to be addressed. 

Regards, 

Jeff Clous, SVP 

IPB operations 1441 Brickell Avenue, 16th floor-L}",iami 1 

nOS) 53'H810()'hcin-0 ----- Forwarded by Jeff 

Florida 33131 

(305T37C6466 (Fa)(f 

Clous/HBUS/HSBC on OS/16/2007 09:52 AM 

Jeff Clous/HBUS/HSBC 

OS/16/2007 09:37 AM 

To 

Manuel Diaz/HBUS/HSBC, Jose ortega/HBUS/HSBC, Antonio 

suarez-obregon/HBUS/HSBC cc 

clara Hurtado/HBuS/HSBC@HSBC, Martin Holy/HBUS/HSBC@HSBC subj ect 

AEBI Deferred prosecution Agreement 

please read and we should discuss these findings compared to our BSA/AML 

program. 

AEBI failed to exercise sufficient control over accounts held in the names of 

offshore bearer share corporations, and until 2004 had no policy or procedure requiring beneficial owners of such accounts to certify in writing their 

continued ownership of the bearer shares. 

we require every 3 years. This is maintained by exception list. Bearer share 

accts known. 

page 1 
2165 


760611.998

occ-Psi-00218380 

AEBI failed to conduct a risk assessment of its operations until 2002, and 

consequently was unable to and did not identify and monitor its highest-risk banking products and transactions. 

CRMS, dept heads have to identify key responsibilities and controls 

AEBI failed to develop and maintain an account monitoring program that was adequately designed to identify, detect, report and prevent suspicious activities. 

Front office staff trained and sensitized, visitations, recorded. Daily operations "significant activity report". Bankers required to review daily. Norkom. 

AEBI failed to monitor adequately the source of funds sent to customer accounts 

to identify suspicious activities. 

source of incoming funds known. See above. 

AEBI failed to independently verify information on clients provided by private bank relationship managers. 

Accts initially opened CIF verifies - eg worldcheck. 

AEBI failed to provide compliance personnel with authority to identify and 

prevent suspicious and high-risk banking activities. 

Not applicable. Management supportive. KYC Committee. 

AEBLi'ailed._to.mailltai.n .. _an. aud.i Lprogram. reasQD.abJy_desi 9ne_d._to .ensure J:b~ban!< 

s compliance with BSA I AML laws and regulations. 

several audit functions, ORU, CRU 

offshore shell corporations: The Bank had numerous other accounts held in the names of offshore shell 

corporations, many controlled through bearer shares. Many of these accounts were beneficially owned and controlled 

by supposedly legitimate corporations in south America. There are few, if any, legitimate reasons why an established business concern would need or want to 

conduct financial transactions through secret accounts held in the names of 

offshore shell corporations. Yet, law enforcement has found that the presence of such accounts is endemic to international private banking in the United 

States, including at AEBI. 

Daily Activity Report: The bank's written KYC policies and procedures set out a clear expectation that 

bank employees assess their client's transactions and ensure that those 

transactions remain consistent with the client's usual business and activities 

and make economic sense based on their knowledge of the client's source of 

wealth and use of funds. TO that end, AEBI Relationship Managers (RM'S) were tasked with conducting a monthly review of the activity occurring in all 

transaction accounts under their management using Activity Analysis Reports and 

Activity Detail Reports distributed by compliance with 

the goal of identifying any activity which appeared to be out of pattern for 

the client or which required additional investigation. However, law enforcement 

identified a number of examples of red flag actlvity or suspicious activity that was unmonitored and unquestioned by AEBI, particularly with respect to the 

questionable source of funds from south American parallel currency exchange market activity. The primary cause of this failure is that AEBI's account 

monitoring system and the detail reports provided to the RM did not identify 

page 2 
2166 


760611.999

Occ-Psi-00218380 

the country of origin or the source of incoming funds. This failure contributed 

significantly to the RM's failure to identify the massive amounts of parallel market transactions occurring in AEBI accounts. 

Even in situations where accounts breached parameters and CAMS flagged the 

account for review by the RM, the bank failed to effectively investigate the 

account activity. In general, the RM's were not given reports with sufficient 

transaction information to allow them to effectively review the activity in the 

account. On a number of occasions, instead of doing further investigation, RM's 

simply informed compliance that the activity in the account was consistent with 

the RM's knowledge of the client's business. No real review was conducted by the RM, and compliance did not independently look at the account activity to 

corroborate what the RM was reporting. 

compliance Reviews: 

The "Rules Based" as opposed to a "Risk Based" approach of monitoring activity, coupled with reliance on the RM to provide the assessment of the quality of 

account flows, without independent review and corroboration, was ineffective 

and caused AEBI to fail to identify, prevent, and report suspicious activity. Given that the account monitoring at AEBI was not a risk-based program, it was even more critical for AEBI'S compliance personnel to independently review the 

account activity. Yet, the limited "independent reviews" conducted by compliance were confined to those accounts that had exceeded external debit 

parameters; to the extent no exceptions were noted all activity was deemed to 

be approprl ate. 

It is apparent that AEBI failed to adequately review accounts during these 

reviews. one of the Targeted Accounts, for example, was reviewed through this 

process in July 2003. The compliance officer conducting the review explained that the parameter breach occurred because the customer had received payments fronLcor-POr~ te~~_s ales-_~frt-theJ'evi ewer __ fa; l~ed~ XQ~ Oo.tE~~~that during~~_tha t_mQnt~_~_ 

there were several unexplained incoming wire transfers, one of which, 

unbeknownst to the reviewer, came from a DEA undercover account and was drug 

money. 

some of the accounts being reviewed by compliance were being used to conduct 

heavy commercial activity as well as high-risk foreign exchanse transactions. A 

sample of accounts reviewed for parameter breaches showed a slgnificant number 

of accounts with commercial activity. Also, the comments provided illustrated 

that independent reviews were not actually being conducted by compliance, but 

rather were based on the uncorroborated information provided by the RM. 

Monitoring: 

the CAMS system did not consider or monitor source of wealth. Further, CAMS 

only monitored for breaches in preset parameters: it did not identify or monitor the country of origin or destination of funds 

flowing in and out of the accounts. Even the Activity Detail Reports produced by CAMS offered little in the way of detail. The information CAMS provided on incoming wires did not include originator information, so the bank was unable 

to monitor or review the source of funds sent into an account. similarly, the 

information provided for check deposits, even pouch deposits containing dozens 

of third-party checks, included only the total deposit amount, and the date and 

type of deposit. 

SAR Fi 1 i ng: Given the nature of the high risks associated with private Banking and 

specificallY with the majority of the client base in countries presenting a high-risk of money-laundering, the nominal amount of filings that resulted from 

activity monitoring are very small and represent an ineffective account 

monitoring program. 

parallel Currency Exchange Market: 

AEBI personnel were well aware of the BMPE and the prevalent use of the BMPE by 

Page 3 
2167 


760612.000

occ-psi-00218380 colombian businessmen and the nature of transactions which may be associated 

with the BMPE. Bank personnel also demonstrated sophisticated knowledge and 

understanding of parallel currency exchange markets. They also were aware that 

it was common knowledge in South America, particularly Colombia, that the 

parallel exchange markets were funded at least in part with drug money and that 

there were two main reasons to use the parallel markets: 1) tax avoidance; and 

2) a better exchange rate. At the same time, these AEBI personnel considered 

the parallel exchange market a "fact of life" in South America - not something 

to be prevented or reported - but something that any financial institution 

providing banking services to wealthy south Americans would have to accommodate 

in the ordinary course of business. 

BMPE: 

Generally, these BMPE dollar payments are: (1) made in the United States or foreign country with bulk cash (often delivered by local "couriers"); (2) involve the delivery of structured money orders, traveler's checks, cashier's 

checks, or bank checks (each usually under $10,000 in value), (3) involve 

checks drawn from United States banks in the name of, or negotiated by, some person or company not readily identifiable with the united States exporter's 

customer; or (4) are in the form of wire transfers from United States bank 

accounts that are not in the colombian or other south American customer's name. Third-party wire transfers constitute the most common form of BMPE dollar 

payments. A common thread in all forms of BMPE payments is that they rarely come directly from the person or company that ultimately receives credit for 

the payment (i.e., the colombian importer or customer). 

Actions Taken by AMEI • Implemented improved policies related to high-risk accounts. • Enhanced its Compliance department, staffed by more than 12 full-time 

employees, who are exclusively engaged in BSA and AML compliance. • 5; gn; fi cantJ~anced_i_ts--l:r:ansaction_moni tOLin9-pnLCes.s •.... __ . ________ . Conducted additional training on BMPE and other BSA and AML compliance issues. 

Regards, 

Jeff Clous, SVP 

IPB operations 1441 Brickell Avenue, 16th floor, Miami, 

(305) 539-4810 (phone) 

Florida 33131 

(305) 374 6466 (Fax) 

Attachment: AEBI Deferred prosecution Agreement.pdf.zip 

Page 4 
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760612.001

occ-Psi-00219656 

From: JEFF CLOUS/HBUS/HSBC 

sent: 9/7/2007 9:11:04 AM 

TO: ALAN P WILLIAMSON/HBUS/HSBC@HSBC 

CC: CLARA HURTAOO/HBUS/HSBC@HSBC;MANUEL DIAZ/HBUS/HSBC@HSBC;TERRY WESTREN 

subject: Re: FW: on Boarding Bearer share corporation policy Guidance 

AS you requested, IPB Miami maintains accounts for 1,679 Bearer share 

corporations of which 126 are considered High Risk. (See attached report.) These companies hold $2.6 billion in PUM and generate an estimated revenue of 

$26 million per year. I have not estimated the revenue from the related 

accounts but it would be substantially more. 

# Bearer Share PUM Bearer share Est. Margin Estimated Rev 

1679 2,626,134,512 1.00% 26,261,345 

There would be a major impact if we enacted the policy of requlrlng all bearer 

shares to be held in custody and as I pointed out below the interagency examination manual has clearly stated that periodic re-certification of the 

beneficial ownership of bearer share accounts is acceptable for well known 

established customers. (I have included the # years with the bank in the 

report.) 

Regards, 

Jeff clous, SVP 

IPB operations 1441 Brickell Avenue, 16th 

(305) 539-4810 (phone) floor, Miami, Florida 33131 

Jeff C10US/HBUS/HSBC 

09/06/2007 06:43 PM 

TO 

Alan P williamson/HBUS/HSBC cc 

(305) 374 6466 (Fax) 

Terry Westren, Manuel Diaz/HBUS/HSBC@HSBC, clara Hurtado/HBUS/HSBC@HSBC 

subject 

Re: FW: on Boarding Bearer Share corporation policy Guidance 

Alan with respect to existing bearer share accounts the BSA/AML EXAMINATION 

MANUAL has changed their comment on the mitigation of risk of bearer share 

accounts. In 2005 - custody was the only option. This changed in 2006/7 and 

re-certification is acceptable. 

EXAMINERS MANUAL 2005 - BEARER SHARE 

If ownership is held in bearer share form, the bank should maintain the 

physical control of the bearer shares either inhouse or with a trusted third 

party to ensure that the ownership of the corporate entity does not change without the bank's knowledge. 

EXAMINERS MANUAL 2006/7 - BEARER SHARE 

Page 1 
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760612.002

occ-psi-00219656 If ownership is held in bearer share form, banks should assess the risks these 

relationships pose and determine the appropriate controls. For example, banks 

may choose to maintain (or have an independent third party maintain) bearer 

shares for new clients, or those without well established relationships with 

the institution. 

For well-known, established customers, banks may find that periodically recertifying beneficial ownership is effective. 

Regards, 

Jeff claus, SVP 

IPB operations 1441 Brickell Avenue, 16th 

(305) 539-4810 (Phone) 

floor, Miami, Florida 33131 

Alan P williamson/HBUS/HSBC 

08/27/2007 07:50 AM 

To 

Jeff C10US/HBUS/HSBC@HSBC cc 

subject 

(305) 374 6466 (Fax) 

Re: Fw: on Boarding Bearer share corporation policy Guidance 

Jeff 

I think it is, with the exception of the points in red below. outstanding is 

the question of what do we do about existing bearer share accounts? 

Alan 

a) Required Documentation 

The following applies to all customers who wish to open a bearer share 

corporation account. The requirements noted below must be fulfilled prior to 

account opening: 

, client must commit to registering the shares or agree to hold bearer shares 

in custody with HSBC or an approved third party custodian*, who should be 

authorized to advise HSBC of any changes in ownership; , clients who open or have an account which involves a company which issues 

bearer shares, must provide a beneficial ownership certificate, which can be in 

the form of a beneficial ownership letter, a sample of which is attached as Appendix "c", This letter or equivalent letter on client stationary must be 

provided every three years; , Account opening request will only be processed after receiving the bearer 

shares for deposlt in custody by HSBC or after receiving confirmation from the 

third-party custodian of having received the bearer shares for safe-keeping and 

that their release will be subJect to prior notification to HSBC; 

* A list of approved third party custodians will be maintained by each business 

unit who will provide a copy of such list to the AML oversight & Control Group Page 2 
2170 


760612.003

occ-Psi-00219656 

("OCG"). The business units will also report changes to such list to the OCG 

immediately upon effective date of the change. OCG's role will be to reconcile names appearing on this list to the names reported on the semi-annual register, which is discussed below in section 6. Third-party Custodian must be subject 

to Enhanced Due Diligence ("EDD"), which includes business unit head as well as AML Director (or deslgnee) approval, ongoing maintenance of KYC information, 

and nature and background information on the custodian. EDD must be reviewed, 

updated and documented annually and retained in a file maintained by the 

business unit. 

HSBC will require disclosure as to beneficial ownership at the outset of the 

relationship and when there are changes in ownership structure. 

The Know Your Customer ("KYC") and Customer Identification program ("CIP") requirements, as detailed in the HBUS AML policy and the specific business unit 

AML procedures, must be completed. The 60 day period permitted to obtain KYC 

not obtained at account opening will not apply to bearer share accounts. 

The best way to determine if a company is a bearer share corporation, including an IBC or a PIC, is by reviewing its formation documents. Also simple questions can be asked to ascertain status of the prospective customer. sample questions include: 

· Is the company an offshore company? (IBCs and PICS are predominantly offshore com pan i es.) · HOW many beneficial owners does the company have? (Normally, an IBC or a PIC 

has only one beneficial owner.) · Country of registration? (It is common for caribbean countries to allow IBCs 

and PICS.) · Are shares of the company registered or not? (This question enables us to 

ascertain if the company is a bearer share corporation.) 

If the prospective customer is unable to provide the required documentation, 

the account cannot be opened. simultaneously, if during the account opening 

process unusual behavior or documentation is noted, the matter must be reported 

to the AML LCO, who will review the situation and take appropriate action, 

including escalation to the Investigative Control and Reporting office ("ICRO") 

for additional investigation and possible SAR filing. Employees must not 

disclose to the customer that a SAR is contemplated or filed. In order to 

assist employees in detecting unusual behavior, a list of Red Flags has been 

developed. The list is attached as Appendix "A". It is not exhaustive and is 

meant to complement, not supersede, the red flags included in the respective business unit AML procedures. 

All requirements set forth in this document supplement the requirements in 

specific business unit AML Procedures for High-Risk customers, including the 

EDD requirements. 

b) Approvals Account opening must be approved by the Head of the Business unit, AML 

Compliance offlcer and AML Director or a designee. Each approval must 

documented and retained in the customer file. A form has been created 

purpose, which is attached as Appendix "B". 

Jeff C10US/HBUS/HSBC 

08/26/2007 10:17 PM 

TO 

Alan P williamson/HBUS/HSBC@HSBC cc 

Page 

Local 

be 

for this 
2171 


760612.004

occ-Psi-00219656 

subject 

Re: Fw: On Boarding Bearer share corporation policy Guidance 

Alan, 

Effective september 1st, IPB Miami will not open new accounts with bearer 

shares unless held in custody by a trusted third party. Existing Bearer Share accounts must have BOL letter and it will be updated 

every 3 years or when changes to the account or signature arrangements are requested. 

Is that consistent with the proposed procedures? 

Regards, 

Jeff clous, SVP 

IPB operations 1441 Brickell Avenue, 16th 

(305) 539-4810 (phone) 

floor, Miami, Florida 33131 

Alan P williamson/HBUS/HSBC 

08/22/2007 06:58 PM 

TO 

Jeff clous/HBUS/HSBC@HSBC cc 

(305) 374 6466 (Fax) 

subject 

FW: On Boarding Bearer Share corporation policy Guidance 

as discussed, thanks 

----- Forwarded by Alan P williamson/HBUS/HSBC on 08/22/2007 06:50 PM -----

Ali S Kazmy/HBUS/HSBC 08/03/2007 01:01 PM 

To 

Alan P williamson/HBUS/HSBC@HSBC cc 

sUbject 

FW: On Boarding Bearer share corporation policy Guidance 

per our discussion of Monday the 30th of July, this is to request your feedback on the aforementioned document. 

Page 4 
2172 


760612.005

occ-psi-00219656 Thanks & regards, 

---------------------- Forwarded by Ali S Kazmy/HBUS/HSBC on 08/03/2007 01:00 

PM --------------------------- Ali S Kazmy on 25 Jul 2007 17:23 

Note 

25 Jul 2007 17:23 

From: Ali S Kazmy Tel: 212-525-5560 

Title: vice President Location: 5TH-21 

WorkGroup: CaMP/ANTI-MONEY LAUNDERING Mail Size: 36166 

TO: Alan P williamson/HBUS/HSBC@HSBC 

Alan T Ketley/HBUS/HSBC@HSBC Alexine von Keszycki/HBUS/HSBC@HSBC Anne Liddy/HBUS/HSBC Bernie Mackara/HBUS/HSBC@HSBC 

Clara Hurtado/HBuS/HSBC@HSBC 

Daniel Jack/HBUS/HSBC@HSBC 

Deborah R price/HBUS/HSBC@HSBC Denis E o'brien/HBUS/HSBC@HSBC 

George Tsugranes/HBus/HSBC@HSBC Judy P Stoldt/HBUS/HSBC@HSBC 

Kathleen L Gladkowski/HBUS/HSBC@HSBC 

Mary A Caskin/HBUS/HSBC@HSBC 

Nerissa P Hall/HBuS/HSBC@HSBC 

Richard salvatore/HBuS/HSBC@HSBC 

Robert Abreu/HBuS/HSBC@HSBC 

Salvatore Iocolano/HBuS/HSBC@HSBC 

Steven J Rockefeller/HBuS/HSBC@HSBC 

-SUSan HoggarthIHBUS/HSBC@HSBC Teresa Garcia/HBUS/HSBC@HSBC 

subject: On Boarding Bearer Share corporation policy Guidance 

Thanks to all the participants of today's meeting. close to finalizing the guidance. In this regards, comments/feedback/suggestion/question in writlng to 

July. 

I believe we are getting please provide your final me by Tuesday the 31st of 

For ease of reference, the draft guidance is attached. 

[attachment "on Boardi ng Bearer Share corporation pol i cy Gui dance. doc. zi p" deleted by Jeff C10US/HBUS/HSBC] 

The minor changes discussed today will be incorporated after receipt of all 

comments on Tuesday. 

Regards, 

Attachment: All Bearer Share Accounts.pdf.zip 

Page 5 
2173 


760612.006

OCC-PSI-00221959 

High Level Comparison of key Anti-Money Laundering Program deficiencies identified at American 

Express Bank International ( AEBI) and preventative control processes currently in place at HSBC 

AEBI failed to exercise sufficient control over accounts held in the names of offshore bearer 

share corporations, and until 2004 had no policy or procedure requiring beneficial owners of 

such accounts to certify in writing their continued ownership of the bearer shares. 

Bearer share accounts are known and HSBC requires written confirmation every three years. 

A decision has been taken by the business not to accept new bearer share accounts beginning 

911107. Management is considering a program to eliminate all bearer share customers. 

AEBI failed to conduct a risk assessment of its operations until 2002, and consequently was 

unable to and did not identify and monitor its highest-risk banking products and transactions. 

HSBC conducts an annual formal risk assessment. Department heads have to identify key 

responsibilities and controls. Internal Control groups have been established within IPB to 

perform independent risk assessments on an ongoing basis. 

AEBI failed to develop and maintain an account monitoring program that was adequately 

designed to identify, detect, and report suspicious activities. 

HSBC has an automated account monitoring program that was created and implemented with 

consultation from global and local compliance. Front office staff are trained in recognising and 

reporting suspicious activities. Operations produces a daily "Daily Transaction Report" which 

bankers are required to review daily. Although the Daily Transaction Report generally contains 

sufficient information for RMs to be aware of possibly suspicious activity, management might 

consider enhancing some of the information in the report. 

AEBI failed to monitor adequately the source of funds sent to customer accounts to identify 

suspicious activities. 

HSBC's account monitoring program identifies source of funds as part of its suspicious 

activity scenarios. 

AEBI failed to independently verify information on clients provided by private bank 

relationship managers. 

HSBC's account opening process independently verifies information on clients, e.g. by 

Worldcheck. Goog/e and other sources if deemed appropriate. 

AEBI failed to provide compliance personnel with authority to identify and prevent 

suspicious and high-risk banking activities. 
2174 


760612.007

OCC-PSI-00221959 

HSBC management is supportive of compliance in both centers. Best practices, such as the 

KYC Committee chaired by Miami Compliance will be exported to New York where a similar 

committee will be established soon. 

AEBI failed to maintain an audit program reasonably designed to ensure the bank's compliance 

with BSA I AML laws and regulations. 

HSBC has two Corporate audit functions and an independent Compliance Review Unit who 

review BSAlAML Compliance. These are in addition to the Quality Assurance testing programs 

within the AML compliance teams. 

AEBI did not give sufficient information to RMs to conduct a review of their client activity. 

The Daily Activity Report contains sufficient information for RM's to conduct a review of client 

activity. In addition, when compliance makes inquiries as a result of a monitoring alert sufficient 

information is shared between the RM and compliance to conduct a meaningful review. 

AEBI's account monitoring was not a risk-based program. 

HSBC'S account monltOrtng program Is risk based. 

AEBl's monitoring system did not identify or monitor the country of origin or destination of 

funds flowing in and out of the accounts. 

HSBC's monitoring system identifies and monitors the country of origin and destination of 

wire transaction funds flows. It does not identify country with respect to checks, but the pouch 

oversight process covers checks mailed to and from outside the US. 

AEBl's information on check deposits, even pouch deposits containing dozens of third-party 

checks, included only the total deposit amount, and the date and type of deposit. 

HSBC's pouch logs record detailed information regarding non-US checks received in the mail. 

All checks must be detailed on the deposit slip. 

AEBl's nominal amount of SAR filings resulting from activity monitoring were very small and 

represented an ineffective account monitoring program. 

Year to date NY and Miami have filed more SARS from activity monitoring than AEBI did. 

However, the number of SAR filings will be a focus of compliance management going forward. 

AEBI personnel were well aware of the BMPE and the prevalent use of the BMPE by Colombian 

businessmen and the nature of transactions which may be associated with the BMPE. At the 

same time, these AEBI personnel considered the parallel exchange market a "fact of life" in South 

America - not something to be prevented or reported - but something that any financial institution 

providing banking services to wealthy South Americans would have to accommodate in the 

ordinary course of business. 
2175 


760612.008

OCC-PSI-00221959 

HSBC senior management have warned personnel of the consequences of accepting BMPE as 

a 'fact of life' through email alerts and on-line training. In person awareness training is being 

scheduled as appropriate. New York is hosting an AML training session for IPB personnel on 

BMPE on 16 October 2007 led by two agents from the DEA. 
2176 


760612.009

OCC-PSI-00223637 

GROUP FINANCIAL SERVICES AND EUROPEAN AUDIT 

REPORT ON 

HSBC PRIVATE BANK INTERNATIONAL, MIAMI AND HBUS DOMESTIC 

PRIVATE BANKING - FLORIDA REGION 

OCTOBER 2007 

AUF GEN 070216 

This report is intended solely for the information and use of the management, the Audit 

and Senior Compliance Committees, and others within HSBC Group and is not intended 

for use by anyone other than these specifIed parties. 
2177 


760612.010

GROUP FINANCIAL SERVICES AND EUROPEAN AUDIT OCTOBER 2007 

HSBC PRIVATE BANK INTERNATIONAL, MIAMI AND HBUS DOMESTIC 

PRIVATE BANKING - FLORIDA REGION 

SUBJECT 

1. INTRODUCTION 

2. MANAGEMENT SUMMARY 

3. SUMMARY OF HIGH RISK ISSUES 

4. PREVIOUS RECOMMENDATIONS 

S. SARBANES-OXLEY MATTERS 

6. FRONT OFFICE 

6.1 Client Profiles (High Risk) 

6.2 Cross Border Marketing (High Risk) 

63 Source of Initial Funds 

604 Account Opening 

6.5 Control Over Fax Machines 

6,6 PerfufHIanc~Monitoring 

6.7 Expenditure Pre-Approval 

7. INVESTMENT PRODUCT GROUP 

7.1 Timeliness of Trade Input 

7.2 Investment Suitability 

7.3 Non Deposit Investment Products Committee 

8. CREDIT 

8.1 Concentration Report 

8.2 Loan to Value (LTV) 

8.3 Collateral Reconciliation 

804 Risk Rating Methodology 

8.5 Loss Given Defaults (LGD) 

8.6 Macro Level Exception Reporting 

9. AML COMPLIANCE 

9.1 Norkom System (High Risk) 

9.2 High Risk Clients (High Risk) 

9.3 Client Profiles 

9.4 GMLCO Approval 

9.5 Investigative Log 

9.6 Offshore Operating Companies 

10. GENERAL COMPLIANCE 

10.1 Compliance Staffing 

10.2 Gift Register 

10.3 Compliance Risk Rating 

lOA Overseas Bank Certifications 

3 

4 

6 

7 

8 

8 

8 

9 

9 

10 

10 

11 

II 

12 

13 

13 

14 

14 

14 

15 

16 

17 

18 

18 

18 

19 

20 

20 

20 

21 
2178 


760612.011

GROUP FINANCIAL SERVICES AND EUROPEAN AUDIT OCTOBER 2007 

HSBC PRIVATE BANK INTERNATIONAL, MIAMI AND HBUS DOMESTIC 

PRIVATE BANKING - FLORIDA REGION 

11. CUSTOMER SERVICES 

IU Beneficial Ownership Declarations (High Risk) 22 

11.2 Plastic Cards and PIN Code Storage (High Risk) 22 

11.3 Account Set Up 22 

11.4 Review of Hold Mail Accounts 23 

11.5 Pouch Activities 23 

12. FUNDS TRANSFER 

12.1 Transfer of Client Funds (High Risk) 24 

13. TRADE SERVICES 

13.1 Letter of Credit Application 25 

13.2 US Patriot Act Certification 25 

14. INTERNAL CONTROL 

14.1 Unusual Activity Monitoring 26 

14.2 Best Execution Monitoring 26 

IS. DOMESTIC PRIVATE BANK 

15.1 KYC - New Accounts 27 

15.2 KYC - Existing Accounts 27 

15.3 Staff expenses 28 

15.4 Controls Over Fax Machines 29 
2179 


760612.012

GROUP FINANCIAL SERVICES AND EUROPEAN AUDIT OCTOBER 2007 

HSBC PRIVATE BANK INTERNATIONAL, MIAMI AND HBUS DOMESTIC 

PRIVATE BANKING - FLORIDA REGION 

1. INTRODUCTION 

1.1 Background 

This report covers our findings identified during the audit of HSBC Private Bank 

International, Miami (PBUS) and the Domestic Private Banking (DPB) activities of 

HSBC Bank USA, NA (HBUS) in Florida. The PBUS office is located in Miami and the 

DPB offices are located in Boca Raton and Miami. 

PBUS is a wholly owned subsidiary of HSBC Bank USA, N.A., operating as an Edge Act 

Corporation incorporated in 1979. PBUS provides a full range of private banking services 

to high net worth individuals domiciled mainly in Central and South America. PBUS 

offers traditional banking products such as time deposits, loans, letters of credit, bill 

payments, cheque facilities; investment products such as fixed income, equities, HSBC 

Group and sponsored third party funds, structured products and spot and forward foreign 

exchange; and third party multi-manager products such as SIS/CIS and Universal 

Investor. 

As at 31 August 2007, PBUS employed 176 staff with assets under management of USD 

9.4 billion and in excess of 11,000 client accounts. For the 8 months to 31 August 2007 

PBUS made a net profit before tax of USD 34.8m (USD 45.4m) made up of revenue of 

USIJ7rrIl1(tlSU-9S:3m)-and-expeH5~f USD 3'lllm (USD 52.9m). Comparatives are 

for the 12 months to 31 December 2006. 

DPB markets and supports a variety of retail banking products and services to their 

customers, including deposit accounts and funds transfer services. A number of 

relationships were transferred to DPB in Florida from the North East Region during 2007. 

The two offices rely on DPB New York for all operational and control aspects of the 

business such as transaction approvals, account opening approvals, compliance review, as 

well as processing of third party payments and other client instructions. As at 31 August 

2007 DPB Florida had 124 client relationships, total deposits were USD 28.8m and 

investments were USD 468.Sm. Credit commitments and outstandings were USD 425m 

and USD 342m respectively. Net revenues and contribution were approximately USD 

4.4m (USD 4.4m) and USD 304m (USD 2.4m) respectively for the eight months ended 31 

August 2007. Figures in brackets are comparatives for the year ended 31 December 2006. 

DPB Florida had II staff as at 31 August 2007. 

1.2 Scope aud Objectives 

The audit covered all of the activities of PBUS, with the exception of IT, and the 

activities undertaken by HBUS Treasury in New York in relation to the investment 

portfolio which are subject to a separate audit by Group Financial Services Audit New 

York. The review of Credit was limited in scope, excluding a review of credit suitability, 

and focusing on credit administration and monitoring. The audit of DPB Florida was 

restricted to the relationship management activities since all of the operational and control 

functions including Compliance, Back Office and Credit are centralised in New York. 

Local Compliance requirements have only been considered to the extent they are included 

within the Compliance Chart for the business. Our work was based on the accounting 

records as at 31 August 2007. The objectives of the audit were to ensure that the key risks 
2180 


760612.013

GROUP FINANCIAL SERVICES AND EUROPEAN AUDIT OCTOBER 2007 

HSBC PRIVATE BANK INTERNATIONAL, MIAMI AND HBUS DOMESTIC 

PRIVATE BANKING - FLORIDA REGION 

arising from the activities of the business are being managed in an appropriate manner 

and in accordance with Group Standards. 

The audit was carried out by Paul Nolan, Mehul Parekh, Gareth Amos, Viral Shah, Kalbir 

Sahota and Helen Mountain of AUF, Vianney Trajin and Laurent Sonnay of GAl, Ralph 

Guillou of GAU, and Barbara Bums, Kim Sokolowski and Robert Guthmuller of the 

HBUS Compliance Review Unit between 16 September 2007 and 4 October 2007. 

We wish to thank the management and staff of the office for their assistance and 

cooperation during the course of the audit. 

2 
2181 


760612.014

GROUP FINANCIAL SERVICES AND EUROPEAN AUDIT OCTOBER 2007 

HSBC PRIVATE BANK INTERNATIONAL, MIAMI AND HBUS DOMESTIC 

PRIVATE BANKING - FLORIDA REGION 

Since our previous audit in July 2005 HSBC Private Bank International, Miami (PBUS) 

has experienced significant growth in assets under management (AUMs), profitability and 

staff numbers. It is to Management's credit that despite this rapid period of growth the 

business has not experienced any deterioration in the control environment and the 

business continues to operate in a satisfactory manner. 

Although we did not identify any backlogs in the monitoring performed by the 

compliance team, it is important to note that the level of Compliance staff has fluctuated 

during 2007 putting significant strain on the remaining Compliance staff, and 

Management should ensure that Compliance staffing levels remain at an appropriate 

leveL The Norkom anti-money laundering account monitoring system was implemented 

by PBUS in February 2007 and due to problems in the installation of the system and data 

feeds, the full capabilities of the system have not been used by PBUS, which has resulted 

in certain important parameters not being monitored and some of the thresholds used 

being excessive. Further, the new client risk rating methodology only considers activity 

at a client level and does not include a review of activity at an overall relationship leveL 

Due to the international nature of PBUS' business, relationship managers undertake 

regular business trips overseas, and for many of the countries visited there are no cross 

border marketing guidefmes and no consultation-is-~ocaLCompliance 

Officer (LCO). PBUS has decided to further strengthen its controls over beneficial 

ownership declarations for personal investment companies incorporated with bearer 

shares and has embarked on an exercise to obtain those that have not been renewed for 

over three years. We also noted that there are a large number of smaller accounts where 

KYC client profiles have not been updated for over three years. We acknowledge that a 

number of the above concerns were identified by Management who are in the process of 

addressing these. 

We noted control weaknesses in important areas within Operations, such as the lack of 

segregation over physical access to client debit cards and PINs, and the lack of 

appropriate controls over third party payments made on the basis of client standing 

instructions. It is disappointing that these basic control weaknesses were not identified by 

the Internal Control department ofPBUS. 

All the key operational controls for the Domestic Private Bank offices in Florida have 

been migrated to New York during 2007 and we identified one instance where an account 

was opened for a SCC client without appropriate procedures being followed. 

Full details of all issues identified during the review are given from section 6 in the 

report, whilst a summary of those issues considered to be high risk is given in section 3. 

A summary of all repeat and carried forward recommendations is also provided in section 

4 of the report. 
2182 


760612.015

GROUP FlNANCIAL SERVICES AND EUROPEAN AUDIT OCTOBER 2007 

HSBC PRIVATE BANK INTERNATIONAL, MIAMI AND HBUS DOMESTIC 

PRIVATE BANKING - FLORIDA REGION 

3. SUMMARY OF IDGH RISK ISSUES 

3.1 FRONT OFFICE 

Client profiles are not being updated on a periodic basis for standard risk clients 

(non high risk and non SCC clients). As at 28 September 2007 there were 

approximately 3,000 clients for whom the client profile has not been updated for 

at least three years, including some cases where the client profile has not been 

updated for over 10 years (See section 6.1). 

For countries outside the Individual Country Guidelines (ICG) issued by GPB, the 

LCO is not consulted in advance of business trips to meet existing clients and 

generate new business. We note that country manager approval is obtained for 

those countries where HSBC has a presence (See Section6.2). 

3.2 AML COMPLIANCE 

Significant problems have been encountered with the implementation of the 

Norkom system. Four of the 20 'detection scenarios' built into the system have not 

been turned on. As a result, there are no scenarios for monitoring high account 

t;;mover, such as reguTafmahd out' of funds. -we-alse. consider that some of the 

thresholds within the system have been set at too high a level to identify 

meaningful alert . 

Further, the functionality of the system has not been fully utilised, as high risk and 

SCC accounts are not being subjected to stricter thresholds than standard risk 

accounts; non-client initiated transaction types have not been excluded from the 

monitoring; and non-ATM cash activity is not included in the system monitoring 

(See Section 9.1). 

Where accounts are identified as high risk, other accounts for the same 

relationship are not classified as high risk (with the exception of SCCs), and 

therefore are not subject to enhanced monitoring (See Section 9.2). 

3.3 CUSTOMER SERVICES 

PBUS has 1,667 company accounts incorporated with bearer shares. Whilst 

beneficial ownership declarations are held for all cases, PBUS has identified 1,109 

accounts where the declaration is more than three years old. It is noted that PBUS 

has obtained updated declarations for the high risk accounts and is in the process 

of obtaining the declarations for the remaining accounts (See Section 11.1). 

Physical access to client debit cards and the associated PINs is not segregated. A 

single employee has access to the cards and the PINs, and is also able to activate 

the cards (See Section 11.2). 

4 
2183 


760612.016

GROUP FlNANCIAL SERVICES AND EUROPEAN AUDIT OCTOBER 2007 

HSBC PRIVATE BANK INTERNATIONAL, MIAMI AND HBUS DOMESTIC 

PRIVATE BANKING - FLORIDA REGION 

3.4 FUNDS TRANSFER 

Standard third party payment controls are not always applied. Where clients wish 

to set up standing payment instructions, no independent call backs are performed 

either to verifY the initial instruction or for any subsequent payments. Further, 

where instructions are received from other HSBC sites as Trustee, signature 

verification is performed by the RM, not Operations, and no call backs are 

performed (See Section 12.1). 

5 
2184 


760612.017

GROUP FINANCIAL SERVICES AND EUROPEAN AUDIT OCTOBER 2007 

HSBC PRIVATE BANK INTERNATIONAL, MIAMI AND HBUS DOMESTIC 

PRIVATE BANKING - FLORIDA REGION 

4. PREVIOUS RECOMMENDATIONS 

4.1 Repeat Recommendations 

At the time of the audit, the following issues raised in the previous internal and external 

reviews of the business remained outstanding: 

4.1.1 Group Financial Services Audit - July 2005 

*7.1 Timeliness of Trade Input 

4.1.2 Group Financial Services Audit - July 2005 

*6.3 Source ofInitial Funds 

4.1.3 Group Audit USA - January 2006 

*13.2 US Patriot Act Certification 

This recommendation was only partially addressed. 

4.2 Carried Forward Recommendations 

The following recommendations which have been carried forward from internal and 

external reviews are not scheduled to be implemented until after this audit: 

4.2.1 Local Regulator's Inspection Report - January 2007 

9.6 Offshore Operating Companies 

4.2.2 Group Financial Services Audit - July 2005 

6.S Control Over Fax Machines 

8.2 Loan to Value (LTV) 

14.1 Unusual Activity Monitoring 

4.2.3 Group Financial Services Audit - July 2005 

6.6 Performance Monitoring 

4.2.4 Credit Risk Review - July 2007 

8.4 Risk Rating Methodology 

8.S Loss Given Defaults CLGD) 

8.6 Macro Level Exception Reporting 

6 
2185 


760612.018

GROUP FINANCIAL SERVICES AND EUROPEAN AUDIT OCTOBER 2007 

HSBC PRIVATE BANK INTERNATIONAL, MIAMl AND HBUS DOMESTIC 

PRIVATE BANKING - FLORIDA REGION 

5. SARBANES-OXLEY MATTERS 

No issues relevant to Sarbanes-Oxley controls were noted during the audit. 

7 
2186 


760612.019

GROUP FINANCIAL SERVICES AND EUROPEAN AUDIT OCTOBER 2007 

HSBC PRIVATE BANK INTERNATIONAL, MIAMI AND HBUS DOMESTIC 

PRIVATE BANKING - FLORIDA REGION 

6. FRONT OFFICE 

6.1 Client Profiles (Higb Risk) 

Finding 

Client profiles are not being updated on a periodic basis for standard risk clients (non 

high risk and non SCC clients). As at 28 September 2007 there were approximately 

3,000 clients for whom the client profile has not been updated for at least three years, 

including some cases where the client profile has not been updated for over 10 years. 

Backgronnd 

Client visits and contact are made in line with the visitation policy and overdue visits are 

monitored by Compliance. Management has identified that a large proportion of these 

clients are SIG accounts, hence the activity level in these accounts is minimal. 

Recommendation 

Management should ensure that client profiles for standard risk clients are updated at 

least every three years. 

6.2 Cross Border Marketing (High Risk) 

Finding 

'For'cot1ntrie~tltside the Individual Gountry Guidelines (ICG) issued by aPE, the I CO is 

not consulted in advance of business trips to meet existing clients and generate new 

business. We note that country manager approval is obtained for those countries where 

HSBC has a presence. 

Recommendation 

RMs should consult the LCD before they undertake business trips to meet existing clients 

and generate new business in countries where the Individual Country Guidelines are not 

available. In the absence of specific guidelines, the LCO should consult GPB 

Compliance for guidance. 

PBI FIM - 16.4.5; MLPP - 14.1; GSM - 5.9 

6.3 Source of Initial Funds 

Finding 

RMs do not document the reason for differences between the actual source of initial funds 

and the expected source of funds. From a review of 25 new accounts, we noted two cases 

where the source of initial funds was different from the documented source, and the 

reasons for the deviation were not documented in either case. 
2187 


760612.020

GROUP FINANCIAL SERVICES AND EUROPEAN AUDIT OCTOBER 2007 

HSBC PRIVATE BANK INTERNATIONAL, MIAMI AND HBUS DOMESTIC 

PRIVATE BANKING - FLORIDA REGION 

Recommendation 

RMs should document the reason for differences between the actual source of initial 

funds and the expected source of initial funds. 

MLPP - 10 

Partial Repeat Recommendation: Group Financial Services Andit - July 2005 -

section 5.3 

6.4 Account Opening 

Finding 

From a review qf 25 existing relationships we noted one case where the source of wealth 

was not sufficiently documented and one case where there was no beneficial ownership 

declaration. The missing beneficial ownership declaration did not appear on the missing 

documents list. 

Recommendation 

Account opening procedures should be adhered to in all cases .. 

MLPP - 10; MLPP - 12 

6.5 Control Over Fax Machines 

Finding 

There are no controls to ensure that incoming taxes me teCO! ded- alld apptopl iately 

distributed and that outgoing faxes are properly authorised and effectively transmitted. 

Access to incoming and outgoing faxes is not subject to supervisory oversight. 

Background 

PBUS plans to implement an automatic fax workflow system which would route faxes to 

specific shared mailboxes. 

Recommendation 

Controls should be in place to ensure that incoming faxes are recorded and appropriately 

distributed and outgoing faxes are properly authorised and effectively transmitted. 

Access to incoming and outgoing faxes should be subject to supervisory oversight. 

PBT FIM - 22.13.4 

Carried Forward Recommendation: Group Financial Services Audit - July 2005 -

section 6.5 

9 
2188 


760612.021

GROUP FINANCIAL SERVICES AND EUROPEAN AUDIT OCTOBER 2007 

HSBC PRIVATE BANK INTERNATIONAL, MIAMI AND HBUS DOMESTIC 

PRIVATE BANKING - FLORIDA REGION 

6.6 Performance Monitoring 

Finding 

There is no measurement or reporting of client account performance. 

Recommendation 

Client performance should be reported internally and used by management as a trigger for 

reviews to be undertaken where account performance is exceptionally good or poor, in 

order to detect any inappropriate activity. 

Carried Forward Recommendation: Group Financial Services Audit - July 2005 -

section 6.2 

6.7 Expenditure Pre-Approval 

Finding 

Expenditure over USD 1,000, other than for marketing, is not pre-approved in writing. 

We acknowledge that the business trips undertaken by the RMs are pre-approved. 

Background 

A dispensation request for PB Americas has been submitted to introduce a higher preapproval threshold. 

Recommendation 

Management should ensure all expenditure over USD 1,000 is pre-approved in wnting. 

PBT FIM - 10.4.2; PBr FIM Appendix - 22 

10 
2189 


760612.022

GROUP FINANCIAL SERVICES AND EUROPEAN AUDIT OCTOBER 2007 

HSBC PRIVATE BANK INTERNATIONAL, MIAMI AND HBUS DOMESTIC 

PRN A TE BANKING - FLORIDA REGION 

7. INVESTMENT PRODUCT GROUP 

7.1 Timeliness of Trade Input 

Finding 

From a review of 75 client investment orders, 12 orders were not input into eFOS until 

over an hour after receipt of the client instruction, of which two cases were not input for 

over two hours. 

Background 

Internal Control perform an ongoing 100% review of the timeliness of trade entry and 

execution, and prepare monthly statistics of the timeliness of trade entry. Management 

has set a target of 90% processing of orders within 30 minutes of the receipt of the client 

order. We acknowledge that the completion rates have improved significantly during 

2007. 

Recommendation 

The input of trade orders should be performed on a timely basis and should be within the 

target completion rates of 90% within 30 minutes. 

PBT FIM -18.19.1 

Partial Repeat Recommendation: Group Financial Services Audit - July 2005 - section 

7.1 

7.2 Investment Suitability 

Finding 

The half-yearly review of client investment portfolios, used to identify clients holding 

investments outside their investment profile, is perfonned at a custody account level 

rather than at a total ADM level. 

Further, there is no deadline to regularise the accounts identified in this review. The 

rectification of these cases is reviewed at the subsequent half-yearly review. 

Recommendation 

i) Management should consider changing the half-yearly review of client investment 

suitability to consider suitability at a total ADM level. 

ii) Where exceptions are identified in the half-yearly review, these should be 

followed up and regularised on a timely basis. 

II 
2190 


760612.023

GROUP FINANCIAL SERVICES AND EUROPEAN AUDIT OCTOBER 2007 

HSBC PRIVATE BANK INTERNATIONAL, MIAMI AND HBUS DOMESTIC 

PRIVATE BANKING - FLORIDA REGION 

7.3 Non Deposit Investment Products Committee 

Finding 

The Non Deposit Investment Products Committee (NDIPC) meetings have been 

conducted on an annual basis, rather than a quarterly basis as designated by the 

committee tenns of reference. 

Recommendation 

The NOIPC meetings should be conducted on a quarterly basis. 

12 
2191 


760612.024

GROUP FINANCIAL SERVICES AND EUROPEAN AUDIT OCTOBER 2007 

HSBC PRIVATE BANK INTERNATIONAL, MIAMI AND HBUS DOMESTIC 

PRIVATE BANKING - FLORIDA REGION 

8. CREDIT 

8.1 Concentration Report 

Finding 

Collateral concentrations are not monitored on a daily basis as the EPIC system does not 

have the functionality to generate exception reports for monitoring concentrations. 

Weekly monitoring is performed of single securities exceeding 35% of outstanding loans 

greater than USD 5 million. Further, monthly monitoring of 25% collateral 

concentrations for outstanding loans greater than USD I million is also performed. These 

reviews require manual adjustments of other collateral (TDs, ADMs, SIS, etc.) within 

each portfolio to determine whether concentration exists. 

Recommendation 

The EPIC system should be enhanced to ensure that collateral concentration limits are 

monitored on a daily basis. The concentration limits should be reviewed in line with the 

PB credit policy (i.e excluding cash, deposits, bank guarantees & insurance should not be 

taken into consideration) and also on an overall portfolio basis. 

8.2 Loan to Value (LTV) 

Finding 

i) The input and amendment of LTV rates on the EPIC system is not subject to dual 

control. Further, there is no exception report detailing the amendments made to 

LTV rates. The Credit Administration Manager reviews a LTV report twice a 

month, however thiS does not speCifically IdentitY deviations from standard rates 

and is not subject to a complete review. 

ii) Whilst Credit Administration receives credit ratings for bonds held as collateral 

from the IPG team, these are not received on a regular basis. 

Recommendation 

i) The EPIC system should be enhanced to enforce dual control over LTV rates. 

Alternatively, an exception report should be developed to identify amendments to 

LTV rates which should be subject to a regular supervisory review. 

ii) Credit Administration should obtain credit ratings for bonds held as collateral 

from the IPG team on a regular basis. 

Carried Forward Recommendation: Group Financial Services Audit - July 2005 -

section 8.4 

13 
2192 


760612.025

GROUP FINANCIAL SERVICES AND EUROPEAN AUDIT OCTOBER 2007 

HSBC PRIVATE BANK INTERNATIONAL, MIAMI AND HBUS DOMESTIC 

PRIVATE BANKING - FLORIDA REGION 

8.3 Collateral Reconciliation 

Finding 

We noted two accounts which appear daily on the Credit Risk Reconciliation Report 

showing large discrepancies between the blocked investment managed securities in the 

custody (SEl) system and the EPIC system. However, these are not true discrepancies 

and as a result, a daily manual entry must be performed in EPIC to reconcile the pledged 

securities. 

We note that this is due to EPIC's inability to accept SEl account numbers. 

Recommendation 

Management should investigate whether a system solution is possible to prevent the 

reporting of erroneous exceptions. 

8.4 Risk Rating Methodology 

Finding 

Credit Risk Review (CRR) noted inadequacies in the existing credit risk rating 

methodology which focuses on collateral quality, ratite! thall the creditvvorthiness of the 

borrower. There have been ongoing delays in the development and implementation of a 

credit risk methodology approved by Credit Risk Management. 

Background 

We undeistalld that training has recently been provided to staffand implementation ofthe 

new credit risk rating methodology is expected by October 2007. 

Recommendation 

Management should develop and implement a new Customer Risk Rating Methodology 

for PBUS customers in conjunction with CRM, taking account of the creditworthiness of 

the client as well as collateral considerations. 

Carried Forward Recommendation: Credit Risk Review - July 2007 

8.5 Loss Given Defaults (LGD) 

Finding 

CRR noted that the LGD percentages have not been fully updated in line with the most 

recent policy agreed with CRM, and are being changed during the annual review of each 

credit facility. The required changes not yet recorded represent increases from 0% to 2% 

and 5% to 7%, affecting 9 of the 749 facilities in the portfolio. 

14 
2193 


760612.026

GROUP FINANCIAL SERVICES AND EUROPEAN AUDIT OCTOBER 2007 

HSBC PRIVATE BANK INTERNATIONAL, MIAMI AND HBUS DOMESTIC 

PRIVATE BANKING - FLORIDA REGION 

Recommendation 

Management should continue their efforts to update all the LGD percentages at the 

earliest available opportunity. 

Carried Forward Recommendation: Credit llisk Review - July 2007 

8.6 Macro Level Exception Reporting 

Finding 

CRR noted that the business unit does not conduct macro level reporting and monitoring 

of collateral or exposure covered at advance rates in excess of policy, collateral 

concentrations in excess of policy or exposure priced below stated PBUS guidelines. 

Recommendation 

Management should continue its efforts to obtain appropriate macro level reporting of 

collateral exceptions. 

Carried Forward Recommendation: Credit Risk Review - July 2007 

15 
2194 


760612.027

GROUP FINANCIAL SERVICES AND EUROPEAN AUDIT OCTOBER 2007 

HSBC PRIVATE BANK INTERNATIONAL, MIAMI AND HBUS DOMESTIC 

PRIVATE BANKING - FLORIDA REGION 

9. AML COMPLIANCE 

9.1 Norkom System (High Risk) 

Finding 

Significant problems have been encountered with the implementation of the Norkom 

system. Four of the 20 'detection scenarios' built into the system have not been turned on. 

As a result, there are no scenarios for monitoring high account turnover, such as regular 

'in and out' of funds. We also consider that some of the thresholds within the system have 

been set at too high a level to identify meaningful alerts. 

Further, the functionality of the system has not been fully utilised, as high risk and sec accounts are not being subjected to stricter thresholds than standard risk accounts; nonclient initiated transaction types have not been excluded from the monitoring; and nonATM cash activity is not included in the system monitoring. 

Background 

The Norkom system, used for monitoring client account activity, was implemented by 

PBUS in February 2007. We noted the following: 

I) From a total of 20 'detection scenarIOs', four scenarios have 1101 been switched on 

and are therefore not generating any alerts. Two of these scenarios are designed 

to identify patterns of activity such as high turnover of money coming in and out 

of an account. There are no further scenarios which would identify such patterns. 

Further, two of the scenarios which are not in use are designed to identify 

sllspicions actjyity on SCC and high risk accounts on a daily and weekly basis. 

ii) The thresholds for scenarios five and six have been set too high. Scenario five 

and six compare expected activity to actual activity for the number of transactions 

coming in and out and the value of transactions coming in and out. The threshold 

has been set to create an alert where actual activity is 300% over the expected 

levels. 

iii) Norkom allows clients to be grouped together and subjected to different 

thresholds in each of the detection scenarios, however PBUS is not using this 

functionality. As a result, the standard thresholds are applicable to the entire 

client base, including SCC and high risk clients. 

iv) The ability within the Norkom system to exclude certain types of transactions 

from the monitoring (such as account fees or corporate actions), which would not 

present a money laundering threat, has not been used. 

v) Cash activity, other than ATM activity, is not included in the ongoing monitoring 

in Norkom. As a result, four of the 20 scenarios are not working effectively. We 

note that additional procedures have been implemented within Compliance for 

cash transactions to be monitored on a weekly basis. Further, cheque, money 

order and traveller's cheque activity is not identified directly in Norkom and 

Compliance perfonn additional manual monitoring. 

16 
2195 


760612.028

GROUP FINANCIAL SERVICES AND EUROPEAN AUDIT OCTOBER 2007 

HSBC PRIVATE BANK INTERNATIONAL, MIAMI AND HBUS DOMESTIC 

PRIVATE BANKING - FLORIDA REGION 

PBUS management has notified its concerns regarding these issues to senior Compliance 

management on several occasions. Control of the thresholds used within Norkom rests 

with senior Compliance management in New York and therefore scenarios and thresholds 

cannot be changed by PBUS. 

Recommendation 

i) All detection scenarios should be active unless deemed to be 'not applicable' by 

Senior Compliance Management and the GMLCO. Appropriate thresholds should 

be agreed with Senior Compliance Management for the four scenarios which are 

not turned on and these should be turned on at the earliest opportunity. 

ii) All thresholds should be reviewed and updated, where necessary, to ensure that 

they are appropriately identifYing suspicious activity. In particular, thresholds for 

scenarios five and six should be reduced to a more reasonable level. 

iii) The 'Group' facility should be used to implement stricter thresholds for SCC and 

other high risk customers. Consideration should be given to implementing 

separate Groups for different types of client accounts, such as operating accounts. 

iv) The transaction types included in Norkom for monitoring should be restricted to 

those·transa:ction-types-wllich-llllI}'lle.~uhlect to suspicious activity or susceptible 

to money laundering. 

v) Management should consider the implementation of a system fix to allow the 

monitoring of cash, cheque, money order and traveller's cheque activity within 

Norkom. In the absence of a system fix, Compliance should continue the manual 

mOlliteriflg procedures 

MLPP-18 

9.2 High Risk Clients (High Risk) 

Finding 

Where accounts are identified as high risk, other accounts for the same relationship are 

not classified as high risk (with the exception of SCCs), and therefore are not subject to 

enhanced monitoring. 

Background 

During 2007 a new client risk rating methodology was introduced taking account of 

account activity, as well as the country of exposure, occupation/nature of the business and 

the nature of the client (e.g. offshore operating companies, personal investment 

companies). This methodology does not link together accounts belonging to the same 

relationship. 

17 
2196 


760612.029

GROUP FINANCIAL SERVICES AND EUROPEAN AUDIT OCTOBER 2007 

HSBC PRIVATE BANK INTERNATIONAL, MIAMI AND HBUS DOMESTIC 

PRIVATE BANKING - FLORIDA REGION 

Recommendation 

Where accounts are identified as high risk, other accounts for the same relationship 

should also be sUbjected to additional monitoring and review. If deemed necessary, these 

accounts should also be classified as high risk. 

MLPP ·18 

9.3 Client Profiles 

Finding 

Compliance does not perform a sample review of client profiles, using a risk based 

approach, to ensure these are up to date and complete. 

Recommendation 

Compliance should perform a sample reviews of client profiles as part of the compliance 

monitoring programme. 

MLPP-1O 

9.4 GMLCO Approval 

GMLCO approval has not been obtained for the Compliance staff responsible for review 

and monitoring ofNorkom alerts. We note that this was received during the course of the 

audit. 

Recommendation 

The responsibilities of staff designated to perform the review and analysis of Norkom 

alerts should be documented and should be approved by the GMLCO. 

MLPP-18 

9.5 Investigative Log 

Finding 

The LCO does not maintain a log of potentially SUSpICIOUS cases which have been 

escalated to Compliance but which have not been subject to a suspicious activity report 

(SAR). This would serve to substantiate the reasons for not reporting such cases. 

Recommendation 

The LCO should maintain an investigative log of cases which have been reviewed but 

have not been subject to a suspicious activity report. 

18 
2197 


760612.030

GROUP FINANCIAL SERVICES AND EUROPEAN AUDIT OCTOBER 2007 

HSBC PRIVATE BANK INTERNATIONAL, MIAMI AND HBUS DOMESTIC 

PRIVATE BANKING - FLORIDA REGION 

9.6 Offshore Operating Companies 

Finding 

Accounts relating to offshore operating companies have not been referred to Senior 

Compliance management for formal review and approval. PBUS has around 200 

offshore operating company accounts, of which around 70 have been classified as high 

risk. 

Background 

No issues were noted with the level of due diligence held for those operating companies 

deemed to be high risk. 

Recommendation 

Any accounts relating to offshore operating companies should be referred to Senior 

Compliance management for annual approval. 

Carried Forward Recommendation: Local Regnlator's Inspection Report - January 

2007 

19 
2198 


760612.031

GROUP FINANCIAL SERVICES AND EUROPEAN AUDIT OCTOBER 2007 

HSBC PRIVATE BANK INTERNATIONAL, MIAMI AND HBUS DOMESTIC 

PRIVATE BANKING - FLORIDA REGION 

10. GENERAL COMPLIANCE 

10.1 Compliance Staffing 

Finding 

While the PBUS business has continued to grow significantly the level of Compliance 

staff has remained constant at around five. We note that for a period during 2007 the staff 

was reduced to three, putting significant strain on the remaining staff. 

We have noted no back logs in the ongoing monitoring and reviews perfonned by 

Compliance. 

Recommendation 

Management should ensure that staffing levels in Compliance are appropriate to ensure 

that the required level of Compliance oversight can be maintained. 

10.2 Gift Register 

Finding 

There is no gift register to record gifts given or received by PBUS staff to ensure that they 

have been repofted and appropnate appmvatims-j)een given. - -Further, thele is lID 

profonna for completion by staff upon giving or receiving a gift. 

Recommendation 

i) Compliance should maintain a gift register to record all gifts given and received 

by PBUS staff. Gifts from elients considered to btl in e*eess of USD HlO aRd gifts 

made by an employee in excess of USD50 should require prior approval of the 

COO. 

ii) A standard fonn should be introduced for the reporting of gifts given or received 

by PBUS staff. 

PBT FIM - 10.4.14 

10.3 Compliance Risk Rating 

Finding 

Compliance Review Unit, in conjunction with Risk Analysis and Development, have 

identified cases where the compliance risk assessment is considered to be understated. 

Seven risks were identified which could be changed from 'C' to 'B', and 14 risks which 

could be changed from 'D' to 'C'. 

Recommendation 

A review of the compliance risk assessment should be perfonned and risk ratings should 

be updated where deemed necessary. 

20 
2199 


760612.032

GROUP FINANCIAL SERVICES AND EUROPEAN AUDIT OCTOBER 2007 

HSBC PRIVATE BANK INTERNATIONAL, MlAMl AND HBUS DOMESTIC 

PRIVATE BANKING - FLORIDA REGION 

10.4 Overseas Bank Certifications 

Finding 

There are no formal procedures to track renewal dates of certifications (as required by the 

USA PA TRJOT Act) provided by the seven foreign bank clients of PBUS. Further, we 

note that recertifications are not being accurately completed. Certifications were up to 

date in all cases. 

Recommendation 

Formal procedures should be put in place to track the expiration date of certifications and 

staff should ensure the proper completion of the recertification. 

21 
2200 


760612.033

GROUP FINANCIAL SERVICES AND EUROPEAN AUDIT OCTOBER 2007 

HSBC PRIVATE BANK INTERNATIONAL, MIAMI AND HBUS DOMESTIC 

PRN A TE BANKlNG - FLORIDA REGION 

11. CUSTOMER SERVICES 

11.1 Beneficial Ownership Declarations (High Risk) 

Finding 

PBUS has 1,667 company accounts incorporated with bearer shares. Whilst beneficial 

ownership declarations are held for all cases, PBUS has identifIed 1,109 accounts where 

the declaration is more than three years old. It is noted that PBUS has obtained updated 

declarations for the high risk accounts and is in the process of obtaining the declarations 

for the remaining accounts. 

Background 

PBUS is in compliance with all group requirements with regards to beneficial ownership 

declarations for bearer share accounts. 

Recommendation 

Management should continue with their efforts to obtain the remaining beneficial 

ownership declarations, for companies incorporated with bearer shares, that have not been 

updated in the last three years. 

11.2 Plastic Cards and PIN Code Storage (High Risk) 

Finding 

Physical access to client debit cards and the associated PINs is not segregated. A single 

employee has access to the cards and the PINs, and is also able to activate the cards. 

Recommendation 

Physical access to plastic cards and PINs should be segregated. Further, the process of 

activation should be segregated from those with physical access to the cards. 

PBT FIM - 22.8 

11.3 Account Set Up 

Finding 

The new account set up on EPIC and BIMAS is not subject to dual approval within the 

Customer Services team. As a result, accounts may be opened by DDA Services based 

on an instruction from a single member of Customer Services without verification that 

appropriate approvals are in place. 

Recommendation 

Approvals sent to DDA Services to open client accounts should be signed by two 

members of Customer Services. 

22 
2201 


760612.034

GROUP FINANCIAL SERVICES AND EUROPEAN AUDIT OCTOBER 2007 

RSBC PRIVATE BANK INTERNATIONAL, MIAMI AND HBUS DOMESTIC 

PRIVATE BANKING - FLORIDA REGION 

11.4 Review of Rold Mail Accounts 

Finding 

The independent review of hold mail accounts where mail has not been collected for over 

12 months only includes accounts with a balance in excess ofUSD 250,000 also having a 

net reduction in value during the period greater than USD 100,000. 

Recommendation 

An independent hold mail review should be performed on accounts where mail has not 

been collected for 12 months and which have a balance greater than USD 250,000, or 

there has been a net reduction in the balance of USD 100,000. 

PBT FIM - 22.12 

11.5 Pouch Activities 

Finding 

From a review of the new Incoming Deposit Log (revised on 10 September 2007) for 13 

days, we noted three days where country of origin information was missing. 

Recommendation 

The Incoming Deposit Log should be fully completed on a daily basis. This should be 

subject to daily approval by the Head of Customer Services. 

23 
2202 


760612.035

GROUP FINANCIAL SERVICES AND EUROPEAN AUDIT OCTOBER 2007 

HSBC PRIVATE BANK INTERNATIONAL, MIAMI AND HBUS DOMESTIC 

PRIVATE BANKING - FLORIDA REGION 

12. FllNDS TRANSFER 

12.1 Transfer of Client Funds (High Risk) 

Finding 

Standard third party payment controls are not always applied. Where clients wish to set 

up standing payment instructions, no independent call backs are performed either to 

verifY the initial instruction or for any subsequent payments. Further, where instructions 

are received from other HSBC sites as Trustee, signature verification is perfonned by the 

RM, not Operations, and no call backs are performed. 

Background 

From a review of25 third party payments we noted the following exceptions: 

i) The setting up of standard payment instructions and subsequent requests on those 

instructions are not subject to independent callbacks, even when it is a third party 

payment in excess ofUSD 250k. We noted two payments for.Yen 93m and Yen 

84m where no independent callback was performed. 

ii) Instructions from HSBC Trustee, as accounts holder, are only signature verified 

by the RM and not Opelatiolls. No-caItback~mied ·.",here there is a third 

party payment in excess of USD 250k. 

iii) Six cases where one of the officers perfonning a callback had not signed the form 

evidencing the call. 

Recommendation 

i) Where payment requests in excess of USD 250k are received, independent 

callbacks should be performed and evidenced. 

ii) Standard fund transfer procedures should be applied on all occasions. 

iii) Officers should evidence that they have performed callbacks. 

PBT FIM - 22.5.2 

24 
2203 


760612.036

GROUP FINANCIAL SERVICES AND EUROPEAN AUDIT OCTOBER 2007 

HSBC PRIVATE BANK INTERNATIONAL, MIAMI AND HBUS DOMESTIC 

PRIVATE BANKING - FLORIDA REGION 

13. TRADE SERVICES 

13.1 Letter of Credit Application 

Finding 

From a review of 16 Letter of Credit (LC) applications, we noted the folIowing: 

i) One case where material alterations were made to the application by a PBUS 

Client Service Officer, with no evidence of client approval. This included 

manually adding a tolerance level to the client requested amount. 

ii) One case where the application did not indicate who was responsible for paying 

banking charges outside the US. 

iii) One case where the wrong LC number was noted on the application. 

Recommendation 

No material changes should be made to the LC application without the client's written 

approvaL Further, all relevant details should be clearly documented by the client on the 

application. 

TS FIM - 2.4.3.1 

13.2 US Patriot Act Certification 

Finding 

From a reyjew of three export letters of credit issued by foreign banks. we noted that 

there was no evidence on file of a valid USA Patriot Act Certification (PAC). For two of 

these cases a valid PAC was registered on the Trade Services Operations (TSO) New 

York PAC Database. Written confirmation from the TSO Compliance Officer that a valid 

PAC exists for the third case was obtained during the audit. 

Recommendation 

Management should evidence in each file that a valid PAC exists at the time of 

confirming Export LCs issued by foreign banks. 

Partial Repeat Recommendation: Group Audit USA - January 2006 - section 3.1 

25 
2204 


760612.037

GROUP FINANCIAL SERVICES AND EUROPEAN AUDIT OCTOBER 2007 

HSBC PRIVATE BANK INTERNATIONAL, MIAMI AND HBUS DOMESTIC 

PRIVATE BANKING - FLORIDA REGION 

14. INTERNAL CONTROL 

14.1 Unusual Activity Monitoring 

Finding 

i) PBUS does not have an automated monitoring system, such as Concept Against 

Fraud (CAP), for identifYing potentially fraudulent or suspicious activity. 

ii) PBUS has drafted procedures to implement the GPB Fraud Detection Minimum 

Standards and is in the process of developing reports to enable manual 

monitoring. From our review of the draft procedures, we noted that in some cases 

these did not meet the requirements ofthe Fraud Detection Minimum Standards. 

Recommendation 

i) 

ii) 

Management should consider the implementation of Concept Against Fraud 

(CAP). 

In the absence of suitable systems, management should ensure that the Fraud 

Detection Minimum Standards, as prescribed by GPB HO, are monitored. In 

conjunction with GPB HO, appropriate procedures should be developed to meet 

the r~uirelll~I}ts_()fthe_FralldPetection Minimum Standards. 

PBT FIM - 19.2; MLPP 18; PBT FIM - 22.19 

Carried Forward Recommendation: Group Financial Services Audit - July 2005 -

section 9.6 

14.2 Best Execution Monitoring 

Finding 

The best execution monitoring performed by Internal Control does not compare the time 

of receipt of a trade order to the time it is accepted by HSI. We acknowledge that 

separate tests are performed on the time of receipt of order compared to the time of entry 

to eFOS, and the time of entry to eFOS compared to the time the order is accepted by 

HSI. 

Recommendation 

Internal Control should perform best execution monitoring by comparing the time of 

receipt ofan order from the client to the acceptance of the order by HSI. 

PBT FIM - 18.19.1; PBT FIM - 22.19 

26 
2205 


760612.038

GROUP FINANCIAL SERVICES AND EUROPEAN AUDIT OCTOBER 2007 

HSBC PRIVATE BANK INTERNATIONAL, MIAMI AND HBUS DOMESTIC 

PRlV ATE BANKING - FLORIDA REGION 

15. DOMESTIC PRlV ATE BANK 

15.1 RYC - New Acconnts 

Finding 

From a review of eight accounts opened since I January 2007, we noted the following: 

i) One client who was not identified as an SCC until after the account was opened. 

This account is still awaiting approval from the GMLCO. 

ii) One case where a client's second account was opened with an out of date ID, 

which was not identified as a missing item. 

iii) Two cases where the name of the person certifYing the ID document was not 

detailed. We understand that this was not a local requirement at the time. 

iv) One case where the nationality of the client on the client profile system did not 

agree with the client documentation. 

Recommendation 

i) Thorough due diligence should be undertaken prior to account opening to ensure 

-allSGC..Wen~ntWed.and..appro¥eiLApproval should he obtained from.1he 

GMLCO, and if approval is not provided appropriate remedial action should be 

taken. 

ii) Identification documents should be valid at the time of account opening. Where 

accounts are opened without critical documentation, the outstanding 

documentation should be tracked using the missing documents list. 

iii) The identity of the person authenticating the ID should be evidenced beneath the 

signature. 

iv) On-line client profiles should accurately reflect the client details. 

MLPP - 5.2; PBT FIM - 18.3; MLPP -10 

15.2 RYC - Existing Acconnts 

Finding 

From a review often accounts opened prior to I January 2007, we noted the following: 

i) One case where the account opening documentation was signed by only one 

trustee, whereas the trust deed required the approval of two trustees. 

ii) One case where identification documents of third party signatories had not been 

obtained, although these were obtained during the audit. 

iii) Visitation is monitored at a consolidated relationship level and not an individual 

account level. We noted one account where visits were not being monitored 

correctly, as the system was identifYing visits on other accounts within the 

consolidated relationship as the most recent visit. 

27 
2206 


760612.039

GROUP FINANCIAL SERVICES AND EUROPEAN AUDIT OCTOBER 2007 

HSBC PRIVATE BANK INTERNATIONAL, MIAMI AND HBUS DOMESTIC 

PRIVATE BANKING - FLORIDA REGION 

iv) One case where the purpose of the account was not documented on the client 

profile. 

v) One case where the name of the person certifYing the identification documents 

was not recorded, although it is understood that this was not a local requirement at 

the time. 

vi) Two cases where the identification documents were not legible on the scanning 

system. 

Recommendation 

i) The account opening documentation should be approved in line with the trust 

deed. 

ii) Identification documents should be obtained and verified for all account 

signatories at the time of account opening. 

iii) Visitation monitoring should consider visitation requirements at an individual 

account level and not just at a consolidated relationship level. 

iv) The purpose of the account should be documented in the client profile. 

v~e identity of the person authenticating an ID should be evfdenced:-

vi) Identification documents held on the scanning system should be legible. 

MLPP - 5.1; MLPP-14; MLPP-IO; PBT FIM -18.3 

~ Staff expenses 

Finding 

From a review of staff expense claims in 2007, we noted six cases where entertainment 

expenditure of more than USD 1,000 was not pre-approved by the CEO. Further, one 

case was noted where an employee took a first class flight which was not approved by the 

CEO. 

Background 

We understand that PB Americas has submitted a dispensation request to increase the 

thresholds for expense pre-approvals. 

Recommendation 

All entertainment expenditure in excess of USD 1,000, and exceptions to the travel 

policy, should be pre-approved by the CEO. 

PBT FIM Appendix - 22; PBT FIM - 10.4.2 

28 
2207 


760612.040

GROUP FINANCIAL SERVICES AND EUROPEAN AUDIT OCTOBER 2007 

HSBC PRN ATE BANK INTERNATIONAL, MIAMI AND HBUS DOMESTIC 

PRN ATE BANKlNG - FLORIDA REGION 

15.4 Controls Over Fax Machines 

Finding 

There are no controls to ensure that incoming faxes are recorded and appropriately 

distributed and that outgoing faxes are properly authorised and effectively transmitted. 

Access to incoming and outgoing faxes is not subject to supervisory oversight. 

Background 

DPB plans to implement an automatic fax workflow system which would route faxes to 

specific shared mailboxes. 

Recommendation 

Controls should be in place to ensure that incoming faxes are recorded and appropriately 

distributed and outgoing faxes are properly authorised and effectively transmitted. 

Access to incoming and outgoing faxes should be subject to supervisory oversight. 

PBT FIM - 22.13.4 

29 
2208 


760612.041

From: PAUL J O'SULLIVAN/HBUS/HSBC 

Sent: 12/10/2007 6:36:29 PM 

occ-psi-00226525 

To: TERRY WESTREN/HBUS/HSBC@HSBC;MASON C SALIT/HBUS/HSBC@HSBC02;TERESA 

GARCIA/HBUS/HSBC@HSBC02; 

ANTONIO SUAREZ-OBREGON/HBUS/HSBC@HSBC;JEFF CLOUS/HBUS/HSBC@HSBC;MANUEL 

DIAZ/HBUS/HSBC@HSBC; 

CLARA HURTADO/HBUS/HSBC@HSBC;PATRICK M CAMPION/HBUS/HSBC@HSBC;STEVEN 

ROCKEFELLER/HBUS/HSBC@HSBC; 

DENNIS J DUGGAN/HBUS/HSBC@HSBC 

CC: MARLON YOUNG/HBUS/HSBC@HSBC;LOUIS MARINO/HBUS/HSBC@HSBC;ALAN P 

WILLIAMSON/HBUS/HSBC@HSBC 

subject: FW: Bearer share corporation policy 

All, 

Attached is the final draft of proposed policy covering Bearer share company clients. There is a little more flexibility than was originally planned and we will be able to maintain bearer share company accounts once the requirements of 

the policy are met. 

I will follow up with each group individually (DPB, IPB NY, and IPB Miami) to 

discuss implementation steps. 

regards, 

Paul 

----- Forwarded by Paul J o'sullivan/HBus/HSBC on 12/10/2007 06:21 PM -----

Ali S Kazmy/HBUS/HSBC@HSBC 12/10/2007 04:38 PM 

To 

~-O'-s-ul Ti van/HBu5/HSBC@HSBc02 cc 

subj ect 

Bearer Share corporation policy 

Attached is the aforementioned document for implementation purposes. please 

note that we will be announcing the policy by the end of the week. 

In case of any questions, please let me know. 

Regards, 

Attachment: Bearer Share corporation Account policy Guidance (Final Draft 

082907) . doc. zi P 

Page 1 
2209 


760612.042

OCC-PSI-00226526 

HSBC~ 

Bearer Share Corporation Account 

"Policy Guidance" 

1. Overview 

Bearer shares are simply stock certificates of private corporations owned by the perso 

them; hence the name "bearer", however the ownership is not recorded on the co ooks. 

These shares are owned by and give all their rights to the holder. Bearer shares 

without endorsement and transferred by delivery; consequently bearer shares a 

controls associated with ordinary shares. As regards dividends, they are pa' 

dated or numbered dividend coupons. 

Bearer Share corporations can be used for legitimate investment or 

protection and privacy). Bearer Share Cor orations are 

'urisdiction but in the U.S. the are ermitted in the states 0 0 In and Nevada. 

Bearer Share Corporations are usually structured as In::,~~usiness Corporations ("!BCs") or 

Private Investment Corporations ("PICs"), which are diS~-;uh more detail below. 

International Business Corporation ("IBC") S? G 

Also known as International Business comp~~ !BC is a legal entity incorporated in a tax haven 

jurisdiction. Typically, the !BC cannot.lfd~usiness in the country of incorporation. They are 

offshore companies that are most com ~ed for offshore banking to conduct international trade, 

investment activities, etc. Assets o~~ are extremely private and allow the owner to retain 100% 

control. Ownership records are n ~le in any public record. In offshore jurisdictions, there is 

no !TIN' required in order to opeyn ccount for an !Be. 

* An ITIN is an IndiVidUa~T. ~dentification Number issued by IRS to individuals who are required to have a u.s. taxpayer identification n ut who do not have, and are not e/igzble to obtain a SSN. It is a tax processing nine-digit 

number that always F~ w the number 9 and has a 7 or 8 in the fourth digit, example 9XX-7X-XXXX 

Private Invest~'bJporalion ("PIC") 

A PIC is ~shore company that can be set up by an i'ndividual to own and manage an investment 

portl , in certain cases, protect the individual from capital gains and inheritance taxes. Funds 

'ng in the offshore company can be invested throughout the world and structured to give 

m tax benefit. 

2. Heightened Risk 

There are legitimate usages of bearer share corporations; however, they can also be used for the 

purpose of tax evasion. The anonymity provided makes bearer share corporations attractive to money 

launderers and terrorist financiers. Offshore bearer share companies have been known to be used in 

terrorist financing schemes. 

Page I of II 

August 29, 2007 
2210 


760612.043

OCC-PSI-00226526 

Because of the potential for money laundering, terrorist financing and tax evasion, numerous 

jurisdictions have abolished bearer shares in favor of registered shares. The owners of registered 

shares are recorded on the company's books so that physical issuance of the shares is in many ways 

needless. 

Notwithstanding the above, several jurisdictions still permit bearer share corporations. Keeping in 

view FATF's recommendation no. 51 and 33', many jurisdictions have implemented controls in place 

to identity, in a timely manner, the beneficial ownership of bearer share corporations. 

3. Requirements for Bearer Share Corporation Accounts $ 

Due to the potential for money laundering, terrorist financing and tax evasion, HSBC B , N.A. 

and HSBC Securities, Inc. (collectively "HSBC") does not encourage establishing '0 s ips with 

bearer share corporations. However, if a customer/entity who has bearer shares d s roach HSBC, 

the applicant will be evaluated on a case-by-case basis and HSBC may allo~t t to be opened, 

whether for a new client or an existing client, provided requirements set j) b ware met. These 

requirements also pertain to existing bearer share corporation accounts: 

aj Required 

The following 

Documentation 

applies to all new and existing bearer 

~~ c rporation accounts. For new 

bearer share corporation accounts, the reqUiremen~s elow must be fulfilled prior to 

account opening. For existing accounts, the ~eq i must be met within a reasonable 

time period not to exceed 12 months from e is guidance or December 31, 2008, 

whichever is later: G . • Client must COlllilirt-to -of'agree to hold bearer shares in etlstody-withHSBC or an approved third p u ian*, who should be authorized to advise HSBC 

of any changes in ownersh~'p, 

Clients who open or hav ount which involves a company which issues bearer 

shares, must provide ~)..lii e CIaI ownership certificate, which can be in the form of a 

beneficial ownership le~ a sample of which is attached as Appendix "C". This letter or 

equivalent lette~c1j,nt stationary must be provided every three years; 

For new acco account opening request will only be processed after receiving the 

bearer share:(1)r posit in custody by HSBC or after receiving confirmation from the 

third-pa~"\roian of having received the bearer shares for safe-keeping and that their 

releas'CJ~ subject to prior notification to HSBC; 

* A list of a~Sr lrd party custodians must be maintained by each business unit and must provide a copy of such list to 

the AML gh & Control Group ("OCG"). The business units must also report changes to such list to the OCG 

immedi u effective date of the change. OCG will reconcile names appearing on this list to the names reported on 

the s i- n n/ register, which is discussed below in section 6. Third-Party Custodian must be subject to Enhanced Due 

Di "EDD"), which includes business unit head as well as AML Director (or deSIgnee) approval, ongoing 

~ nee of KYC information, and nature and background information on (he custodian. EDD must be reviewed, 

i1fttij.;Ied and documented annually and retained in afile maintained by the business unit. 

HSBC requires disclosure as to beneficial ownership at the outset of the relationship and when there 

are changes in ownership structure. 

I This recommendation advises that financial institutions should not keep anonymous accounts or accounts in obviously 

fictitious names. 

2 This recommendation states that countries that anow legal persons to issue bearer shares should take appropriate measures 

to ensure that they are not misused for money laundering purposes and be able to demonstrate the adequacy of those 

measures. 

Page 2 of II 

August 29, 2007 
2211 


760612.044

OCC-PSI-00226526 

The Know Your Customer ("KYC") and Customer Identification Program ("CIP") requirements, as 

detailed in the HilUS AML Policy and the specific business unit AML Procedures, must be 

completed. 

For new bearer share accounts, all KYC documentation must be obtained prior to account 

opening, whereas for the existing accounts, the requirements must be completed no later than 

December 31, 2008. 

The best way to determine if a company is a bearer share corporation, including an IBC or~p y 

reviewing its formation documents. Also simple questions can be asked to ascertain st e 

customer. Sample questions include: 

• Is the company an offshore company? (lBCs and PICs are pr~d ~y offshore 

companies.) 

• How many beneficial owners does the company have? (Normolh~~ BC or a PIC has 

only one beneficial owner.) ~' Country of registration? (It is common for Caribbean cou~ t~lIow IBCs and PICs.) 

Are shares of the company registered or not? (This quf"'\.~ables us to ascertain if the 

company is a bearer share corporation.) ~\.J 

If the customer is unable to provide the required document.~e new account cannot be opened or 

in case of an existing account, it cannot be maintained . .s~~eously, if during the account opening 

process or during the life of the existing account rel~~, unusual documentation or behavior is 

noted, the matter must be reported to th~AM ~,who will review the situation and take 

appropriate actioo,including-escalatioo-to. live Control and Reporting..Office ("ICBO") 

for additional investigation and possible SA~ . Employees must not disclose to the customer 

that a SAR is contemplated or med(f.I ,rd¥o assist employees in detecting unusual behavior, a 

list of Red Flags has been developed. . is attached as Appendix "A". It is not exhaustive and 

is meant to complement, not supe2">.~e, red flags included in the respective business unit AML 

procedures. " 

All requirements set fortb.. ~ tlis document supplement the requirements in specific business 

unit AML Procedures ~~-RiSk customers, including the EDD requirements. 

b) APproval~a Account open~'n barer share accounts must be approved by the Head of the Business Unit, AML 

Local Compl' e 0 ficer and AML Director or a designee. Each approval must be documented and 

retained in .t(~u orner file. A form has been created for this purpose, which is attached as Appendix 

"B,,~.n lie. ),rexisting accounts, the approvals already secured will suffice, however, all approvals in 

plac us be reported to the AML Director or designee within the semi-annual report, the first of 

~~ be due as of March 31,2008. If it is determined that the existing approvals are inadequate, 

th~ Director or designee will advise corrective measures. 

4. Risk Classification of Bearer Share Accounts 

Bearer share corporations carry with them a heightened level of risk, requiring enhanced (i) account 

opening approval, (ii) due diligence and (iii) transaction monitoring. However, there are certain 

factors which, if present, reduce the risk associated with bearer share corporations, these include: 

Page 3 of II 

August 29, 2007 
2212 


760612.045

OCC-PSI-00226526 

Risk classification of ultimate beneficial owner (i.e., non-SCC, non-High-Risk Country, nonSensitive Industries/Occupations etc.); 

HSBC's involvement in the creation of the Bearer Share Corporation (if HSBC created the 

corporation, then the Relationship Manager will already have significant customer knowledge, 

which must be documented); 

Bearer Shares are deposited with HSBC or an approved third party custodian; 

Length of time the beneficial owner of the Bearer Share Corporation has been a client; 

Non transactional account (i.e. TDA, Loan, etc.); and, 

• Level and nature of activity in the Bearer Share Corporation account. ~ 

When one or more of the factors noted above are present, consideration may be given~*ng a 

"standard" risk classification, however, all such classifications supported by reas' ust be 

documented and retained in the business unit client file. "" ... 

The AML LCO, together with the bus mess unit Semor Management, will ma~ ... )'nal risk rating 

determination with regards to "Standard Risk" claSSification. ~ .,.. 

"'" .~~" of .",".m~';o",d f~",.' ,",fom'~ Im=o '" b, b~"400,,"'''"", m owo;o, 

bearer share corporations must be classified as "High-Risk". 

5. Transaction Activity Monitoring ~ a 

Transaction activity monitoring is a key component of Jln"\.~ Program. By effectively monitoring 

transaction activity, through the combined use oftecllflb~and manual analysis, HSBC can identifY 

and report suspicious activity. Lower transactio~~ring thresholds should be applied to bearer 

~-GGFjlGmtion~ ~~ 

6. Relationsbi Monitorin an 

Each business unit maintaining rel~sh s with bearer share corporations must maintain a separate 

register of all such accounts and re t em to the AML Oversight & Control Group on a semi annual 

basis; March & September ~i~cq,ye r. This reporting will be on a spreadsheet form, the template for 

which will be furnished by ~ML Oversight & Control Group . 

. . ant for and report suspicious activity. If an employee believes that a 

attern of transactions represent, or a customer behavior reflects, potentially 

the employee must report the event immediately to the AML LCO. It is also 

ployees periodically review the "Red Flag List" in order to maintain awareness on the 

money laundering, terrorist financing and other illicit activities. The Red Flag list is a 

v ped to assist in the implementation of the AML monitoring program, particularly with 

the detection of unusual activitylbehavior. 

7. Account Closing 

If, after an investigation, it is identified that a bearer share corporation has been used as a possible 

vehicle or conduit for money laundering or terrorist financing, the AML LCO, in conjunction with the 

business unit, will determine the appropriate action, including escalation to the Business Unit Head 

and the AML Director and possible closing of the account or placing of the account on an "On Watch 

Status". Action to close an account shall be taken promptly and in a commercially practical manner. 

The AML LCO will review the circumstances to determine if SAR filing is warranted. 

Page 4 of II 

August 29, 2007 
2213 


760612.046

OCC-PSI-00226526 

Exception: 

In the event a law enforcement agency specifically requests in writing that the account remain open as 

part of an ongoing investigation, the account will remain o~en for the duration of the request. All such 

requests must be approved by the AML Investigations Unit. 

In case of needfor further clarification, please contact your AML LCO. 

3 For further details on responsibilities of AML Investigations Unit, please see Section 2.2 of the HBUS AML 

Policy. 

Page 5 ofl 1 

August 29, 2007 
2214 


760612.047

OCC-PSI-00226526 

Appendix "A" 

List of Red Flags 

The Red Flags list (approved by the AML Director) is a guide developed to assist in the implementation of the 

AML monitoring program, particularly with regard to the detection of unusual activityibehavior. The list is not 

exhaustive and is meant to complement, not supersede, the red flags included in the respective business unit 

AML procedures. It is updated and approved on a semi-annual basis. 

The mere fact that a red flag is detected either at account opening or through ongoing transaction ..('aAi~g does not in and of itself indicate money laundering or terrorist financing. However, it may in~Vcount 

activityibehavior that requires further review, investigation, andior escalation. Red flags, If''I'Iw~xp!ained 

through further review, research, and investigation, must not be ignored. As per the A~ ~y, it is the 

responsibility of all employees to be alert to unusual activity. Any unusual~C( . r ~st be reported 

immediately to the designated AML Local Compliance Officer ("LCO") of the busines 

Any questions regarding the Red Flags list may be directed to your AML LCn:Oe' etail AML Compliance 

Helpline on (716) 841 -4100, or the AML Oversight and Control Group. ~ 'Y 

Customer unwilling to provide required account opening inforrnati~ Qr documentation; 

A customer presents a photocopy of photo ID when opening ~~ount4; 

Two or more persons use the same identification; (~ 

Customer exhibits unusual concern for secrecr, . ~ with respect to hisiherJ(ielltity, type of business, 

assets or dealing with firms (defensive stance~ ning); 

ID documentation are expired or appear ~Ycannot be readily verified by the Bank; 

A prospective customer presents ~Qatic passport from a high-risk country, where such passports are 

easily obtained for modest amount~money. The passport may be genuine but the holder may be involved 

in illicit activities; ~ 

Customer requests tha~~tation standards may be waived; 

Custom~r h~s ~Q descnbing their business, the stated purpose of the account and the expected 

transactIons In t~ount; 

• The fim~~.ements of the business appear to have questionable accounting standards; 

• C.Jli\!o~rovides inconsistent information when questioned; 

.~~mer is a trust, shell-company, Private Investment Company ("PIC"), or an Internationa! Business 

~rporation (,,!BC") that is reluctant to provide information on controlling parties and underlying 

beneficiaries. 

4 Only original photo IDs, drivers licenses. passport etc .• or other identification documents are to be accepted at account opening. however, It 

is important to note that photocopying technology makes it easy ·to add a new photo to origilaJ documentation 

Page 6 of II 

August 29, 2007 
2215 


760612.048

OCC-PSI-00226526 

Appendix "B" 

Bearer Share Corporation Account Information Form 

Name ofCorpora~on 

Type of Corporation (I.e. PIC, mc, 

etc.) t'~ Coimtry ofIncorpofation .... ~a"" Date of Incorporation ,~ Purpose of Bearer Share. Corporation ~'V ._-- .. 

~ Purpose of Account With. HSBC ~a ~'\. ~ _ist all Beneficial OWners List Name & Specify if sec imd What Two of sec (i.e. PEP m.h Level 

lM'ilitary Pef$onnel, etc.) 

~v 

a 

~ 

lName & Complete Address 

(Including street, city~ state, country) 

of Third Party Custodilm or HSBC 

Office custodizing the share( s) 

Is 3rd Party CustodilmApproved by 

HSBC 

Numoer of Bearer Shares Issued 

5 The SenSItive industry/OccupatIOn List can be accessed on the mtranel via this link: 

http://connectus.hsbcihnah_compliance/pdf/sensitiveindustrydoc 

Page 7 of 11 

August 29, 2007 

.. 

Beneficial Owners Line of 

" .... ,',. 

Mark "X".if onsitive Industryl 

AIlllendix "D'~)s 
2216 


760612.049

OCC-PSI-00226526 

!Par Value of Each Bearer Share 

ssued 

Is Bearer Share Corporation Shifting 

Account From Another FI 

--

Expected Level & Nature of Activity @ .~a'? 

List Cpuntries With Whom 

~~T 

Transactions 

Type of Transactions 

Will Take Place & ~ 

~~ Date Form Completed: ~". 

~cs Approval: AML LCO (Name & Signature): :{:::> G 

Approval: Business Unit Head (Name & ~~): 

Approval: AML Director or DeSig~9.me & Signature): 

~' 

a~ 

~G 

# 

~ 

August 29, 2007 

Page 8 of 11 

Date: _____ _ 

Date: _____ _ 

Date: _____ _ 
2217 


760612.050

OCC-PSI-00226526 

Appendix "C" 

Beneficial Ownership Letter 

To: HSBC Bank USA, National Association or HSBC Securities, Inc. (collectively "HSBC") 

(Full Street Address) 

Re: (Company Name) a company organized under the laws of 

_____________ ("Company") ~ 

Each of the undersigned certifies to HSBC that the persons listed below are the sole benefi~ers ;"Bene~cial Owners") of 100% of the Company's issued and outstanding shares ("Sha~~th 

especllve percentages as set out: 

A '\.~ ""'~ % 

B .,...., ) % 

C ""X % 

D 

--~ % 

E ". % 

I Total .. '-'-' % 

~T Form of Share Ownership. .i ~'? o Bearer: r~ 

o Registered: V 

ca:ctrofthe Be-nefici"lll OWners certifies to M~~SovenantnVitIJHSBe-thatiTisiherrespel:tive bearer Shares are held in custody with (Nam~~lodian) _________ . 

Each of the Beneficial Owners agre;es 0 & the Bank immediately if, at any time, any Shares are 

sold, assigned, delivered or transfe e . luding without limitation by operation of law), any bearer 

Shares are held by any other natural legal person, new Shares are issued, the percentage ownership 

changes, or any of the matt~cerWfted above ceases to be true, accurate or complete for any reason. 

This Letter will be bind' :t~e Beneficial Owners' heirs, executors, successors and assigns, and 

will inure to the ben tot e Bank, its subsidiaries, affiliates, successors and assigns. This Letter will 

be governed by N law. 

SIGNATU~F BENEFICIAL OWNER(S) #' Signature (Date. MM·DD-YYVY) 

"9 Signature (Da": MM-DD-YYYY) 

Signature (Date MM-DD-YYYY) 

Signature (Date: MM-DD-YYYY) 

Signature (Date: MM-DD-YYYY) 

Signature (Date'MM-DD-YYYY) 

Signature (Date. MM-DD-YYYY) 

Page 9 of II 

August 29, 2007 
2218 


760612.051

OCC-PSI-00226S26 

Appendix "D" 

Sensitive Industries/Occupations 

As per the AML Policy, risk rating the customer base is an integral component of the AML process. 

It enables HBUS to identifY categories of customers whose transactions and banking activities may 

pose potential increased risk for money laundering and/or terrorist financing activity. Risk ratings 

may be based on the business unit and celtain customer characteristics; such as geography, 

industry/occupation, account type, transaction type, etc. c.... 

To that end, the AML Director, through the AML Policy has designated certain bu&-:-nt'ts, 

jurisdictions, and client types (Special Categories of Clients SCCs) as high risk. In a~~Ycrtain industries/occupations are deemed sensitive to money laundering and/or tcrrorist fi~~ 

The mere fact that a customer falls within one of the sensitive industries/oc~u ~sted below, or 

is located in a high-risk jurisdiction does not in and of itself make the eu I~""bigh risk. Rathcr, 

these are additional factors to be considered as a part of the overall risk r~g the customer at the 

inception of the relationship or dnring the conrse of ongoing m~1ri1\lg (i.e. in the event that 

nnnsnal or snspicions activity is being reviewed, a review to de~ I if the cnstomer falls into 

one of the sensitive industries/occupations categories would ~~ eted). A customer risk rated 

overall as high requires enhanced due diligence and monitOri~ ~ 

The following are sensitive industries. This factor is ¥i~~Plied when an individual and/or theIr 

family (spouse, chtldren) earn or has acqUired mcom~ from any of these industnes 

• _ hUJQ!l1QJjye_pealers (mcl!l<l\Cs:..cJl.IJl.nd ~'~e.illll~hip_~) Cash Intensive Businesses, such as: A~ restaurants :a..... V 

pnvately owned ArM?,\~no machlOes 

contractor/constru~\..) 

gas statton '\. 

parking lot ~ 

telephone c.ar'1is distributor 

ticketbr~Y 

fastf~~in 

b~Grlor CorP 'ons located in High-Risk jurisdictions *: 

,-j -<:';.. reign Financial Institutions 

' .... '\-International Business Corporations (IRCs) (entities formed outside of a person's 

country of residence which can be used to maintain confidentiality or hide assets) 

.<"'\ I, Offshore Management Services Companies 

. V Diamonds, Jewelry, Precious Metals/Stones (Wholesaler, Retailer, Manufacturer, 

TraderiDealer, Mining, Import/Export) 

Electronics (Import/Export, Wholesaler, Retailer) 

Internet _ ..Investment Vehicle 

Internet:- Online Gambling (prohibited) 

Manufacturer of Credit Cards, Stored Value Cards, Identification Cards 

Non-Governmental Organizations/Charities or Religious Organizations 

Non-regulated, non-registered financial service/provider (such as hedge fi.mds, private equity 

investor, venture capital entities) 

Page 10 of II 

August 29, 2007 
2219 


760612.052

OCC-PSI .. 00226526 

Pawnbroker/Shop 

Private Investment Companies (PICs)/Bearer Share Corporations (further analysis is required 

to make the final determination of risk level, see below) 

Privately Held (excluding mutually held) Insurance Company that sells cither Annuities or 

Life Insurance 

Telemarketers 

Travel Agency 

In addition to the ahove, the following are sensitive occupations: c.. 

L Accountant (acting as an intennediary or advisor for investments) ~~ 

Attorney*** c:::..:: 

Pilot for non-commercial airline ~ 

Real Estate Broker! Agent ("'\ 

Retired individuals from sensitive industries/occupations (retired 1eSS~han l~s) Student from a jurisdiction designated as high-risk for terrorist financin 

Student with sourcc of funds from a sensitive industry or occupation 

* 

Notes: 

rligh nsk jurisdiettons include those countnes deemcd hN' ~~ , as well as those countries 

that have a high ("H") rating for Offshore Financial,~ er the AML Country Risk 

Matrix. s,~ 

.* Jurisdictions designated as high-risk for terrorl,~'5ng are indicated with a "Y" in the 

Terrorist Financing column of the AML COl&k Matrix. 

*** _6_~nSiliye_~ttomey\YOUld..l!~I}.1!tt0I11~~ is.if1.1!~'-lllilJJJl.I"ctic,~(ta<lliJIS..JQjJ~_<:QI1siQeryd __ 

include: less than 5 attorneys, criminAt)tlse attorney, dcals in cash, acts as an intermediary 

for clients regarding investment~ ~te or other asset purchases). 

!'JC§lBearer ~an,_Corporations: a 

Factors to be considered to dcter$f a PIC/Bearer share corporation is high-risk include: 

Risk classificati9{1~mate beneficial owner 

Involvement ~¥ in the creation of the Bearer Share corporation (iflISBC created the 

corporatio, h' e significant knowledge ofthc client, therefore less risk) 

;) Number 0 cc unts the Bearer Share client maintains (if the only account with HSBC is the 

p[!~r~r hare corporation), then the client will most likely be considered high risk) 

Le tit ~ime Bearer Share corporation has been a client (>2 years less risk) 

l~' ld nature of activity in the Bearer Share corporate account(s) (minimal activity related 

to urchase/sale of investments less risk) 

a er no circumstances will accounts for PICs/Bearer Share Corporations be opened or 

l'~intained without required identity information on the ultimate owner(s)!bcneficiary(ies). 

Page It oft I 

August 29. 2007 
2220 


760612.053

OCC-PSI-00226813 

HSBC Private Bank 

HSBC Private Bank International 

FSA /\udit Issues 

STATUS REPORT 

Tuesday, December 11, 2007 Page 1 of 14 
2221 


760612.054

OCC-PSI-00226813 

----Redaeted-bytbe··--

Permanent Subeommitteeon Investigations 

page 2 of14 

Tuesday, December 11, 2007 
2222 


760612.055

OCC-PSI-00226813 

Redacted by the 

Permanent Subcommittee on Investigations 

11.1 ~ Beneficial Ownership Declarations (HR) MIAMI FSAAUDIT 2007 02/28/2008 

PBUS has 1,667 company accounts mcorporat~ with-bearer shares. I/IJhjlst beneficial ownership declarations are held for all 

leases, PBUS has Identified 1,109 accounts where the declaration is more tnan three years old. It is noted that PBUS nas obtained 

:updated declarations for the high risk accounts and is in the process of obtaining the declarations for the remaining accounts. 

!Background 

I~BUS is in compliao:e with all gr?up reguiremenls w.~~~.regards to .beneficial ow~ershi~ ~edaration~Jor b.~?~r shar~ acc9u~ts 

l~~;f~~_~;i~~~~?~~~~_~~~;;,~~~~~~~~~~;l;.i~a~tb~;~~:~~~~_r~~_~~:~j_~:~~~:r~.comp:~.:_~~ - i~~~~~~o~-r;u~~~~fal~~~ted Be~-efici~I-O~':;Grsh-fp -D~~ations fmth~ -:;-'" .,,:-:C'; ;~;'--C-'-; !this project by end of Feb 2008. 

, 

~~~~~:~:Ip~::.~~ D~~:~~~~~:~ ~n expiry date in EPIC and will appear on the monthly Missing Documentation Report 

JJ 

Tuesday, December 11, 2007 Page 3 of14 
2223 


760612.056

OCC-PSI-00226813 

Redacted by the 

Permanent Subcommittee on Investigations 

Tuesday, December 11, 2007 Pages 4-11 of 
2224 


760612.057

OCC-PSI-00226813 

9.1 - Norkom System (HR) MIAM! FSA AUDIT 2007 12/31/2008 

Si~nTricant proble-~;· h~~--bee-n-e~;;oun-te~ed;ith-th~i;;;;!e~e;:;tatio; oTth~- N~ko'm SY~t~;;;:-:-F-our·;;fthe '20 ;detect;.o;:;~~~a-rio;,-"· 

bUilt into !he system have not been turned on. As a result, there are no scenanos for monitonng high account turnover, such as 

regular 'in and out' of funds. We also consider that some of the thresholds within the system have been set at too hIgh a level to 

!identlfy meaningful alerts. 

iFurther, the functionality afthe system has not been fully utilised, as high risk and sec accounts are not being SUbjected to stricter 

I

threShOldS than st~ndard risk acc?unls; non-client initia,ted transaction types have not been excluded from the monitoring; and nonATM cash activity IS not included In the system monitonng. 

iBackground 

IThe Norkom system, used for monitoring client account actlvlty, was implemented by PBUS in February 2007. We noted the 

following: 

i) From a total of 20 'detection scenarios', f-our scenarios have not been switched on and are therefore not generating any alerts. 

iTwo of these scenarios are designed to identify patterns of activity such as high tumover of money coming in and out of an 

jaccount. Th.ere are no fu.rt~er scenarios which would.identify such patterns. F.urther, two of the scenarios which are not in use are 

,designed to Identify SUSPIClOUS activity on sec and high risk accounts on a dally and weekly basis 

ijj)The thresholds for scenarios five and six have been set too high. Scenario five and six compare expected activity to actual 

lactivily for the number of transactions c?ming in and out and the value of transactions coming in and out. The threshold has been 

Iset to create an alert where actual activity is 300% over the expected levels. 

liii)NOrkom allows clients to be grouped together and subjected to different thresholds in each of the detection scenarios, however 

IPBU~ is not using this functionality. As a result, the standard thresholds are applicable to the entire dien! base, including SCC and 

,high risk clients. 

:iv)The ability within the Norkom system to exdude certain types of transactions from the monitoring (such as account fees or 

!corporate actions), which would not present a money laundering threat, has not been used 

,v)Cash activity, other than ATM activity, is not included in the ongoing monitoring In Norkom. As a result, four of the 20 scenarios 

j~~e ~~~~oOrZ!n;n e:~c~~~~ b::.n~~~~=;, a~~~~:~~~~:dour~e:r ~~~et~a~~~I!;:~:~:~e~~i~~~ i~~~~~:~~:~r d~:~I~~~~aOc!~~ to 

land Compliance penorm additional manual monitoring 

i~~~~o~o~~~~~~:~~~~~ ~~~~e!I~~i~~n~r~f~~ ~:;~srd~~t~ ~::i~:~~~~~l~~~;i~~~~;:~:~~~n ~~:~~~ke~~~~hse~~~~~~ ~~~~i~~:'and ~~~~.olds can~ot b~.~~.~.!;!~9. by P~L!~ .. ___ ......... _ __~._"___ _ ~" __ . _________ . __ ._._.__ _ ______ .... _ ...... _ 11)AI! detection scenarios should be actIVe unless deemed to be 'not applicable' by Senior Compliance Management and the 

!GMl-eo.--Approprratethreshoicts Shooltj-be-agreed-with-SeniorD-ompliance-Management fur-the- ffiuf-s-eenafios"wl'liW-are·not 

iturned on and these should be turned on at the earliest opportunity 

:ii)AI! thresholds should be reviewed and updated, where necessary, to ensure that they are appropriately identifying suspicious 

'activity. In particular, thresholds for scenarios five and six should be reduced to a more reasonable level. 

l~~~~~ '~~og~~~~a~~Ji~~;~eO~~n~~gU~:~~~a~~~~:~~t f~~i~i;~::~~~;~~~s :7~!~~(a~~~~~~s~rs~~~ ;~~~~~~~ge~s~;uOn~:~deration i]v)The transaction types included in Norkom for monitoring should be restricted to those transaction types which may be subject 

Ito suspicious activity or susceptible to money laundering. 

/v)Management should consider the implementation of a system fix to allow the monitoring of cash, cheque, money order and 

itrave!ler's cheque activity within NorKom. In the absence of a system fix, Compliance should continue the manual monitoring 

:procedures 

I_~LPP. 1~ ______ ._" ______ ."""_~ __ _ 

rllt(m~.!l~~~~. Re?P9J1!??2. ______ "_" "' . ___ ... _._._" ____ "". ___ . ___________ . ____ •. "" " ____ .. " _____ _ 

~i~e:~~t:~~B~:~a~~Oasc~i~~!i~g ;;~~ n!~ ~ ~~~0~~t~~enneadri~~·1 ~~~~a;i~~;!~ nae~~ ~o~: e~~~~gsi~:~~~~ t~nedn~~~k~h~~!~~I~~~~entIY imCanigful in terms ofidenlifying potential suspicious activity. These 2 scenarios have not been activated elsewhere in GPB. 

ii) Corporate compliance has reviewed the thresholds for all scenarios. 

!ScenariOs 5 and 6 require more analysis. In conjunction with the lowering of thresholds for scenarios 5 and 6, we afB working on 

iimp!ementing customer level thresholds with the goal of producing more risk focused alerts and lowering general thresholds. This 

lwill be worked on during 2008, with delivery by 4008. 

I 

ilii) In early November, reduced thresholds were implemented for sec and HR accounts for targeted scenarios. During 100e we 

~iH consider/analyze the possibility of implementing different groups for different types of accounts. 

I 

'IV) Non-relevant transaction data feeds were turned off in October 2007. Resolved 

!V) This project wi!! be priorltlzed for completion in 40 2008. It should also be noted that the cash activity in Miami monitored against 

;vario~s structuring ~cenarjos by the. C~M~ monitoring team in Buffalo. This i~ performed by the Atchley surveillance system. !n 

t~_~t!!~~£l_: !_~~~_~~e!'an_~J~_~_r~Ll~~~§'_~~\::.~~L?ontinu_e_ !~-,e~~:~l_m~~~s~_rve!na~~~~_~ _a0~~_~"_~_ .. __________ -, __ . __ 

CH 

Tuesday, December 11,2007 Page 12 of14 
2225 


760612.058

OCC-PSI-00226813 

Redacted by the 

Permanent Subcommittee on Investigations 

Tuesday, December 11, 2007 Pages 13-14 of 14 
2226 


760612.059

To: 

From: 

OCC-PSI-00227523 

COMPLIANCE CERTIFICATE 

Carolyn Wind, AML Director for HBUS 

Daniel Jack, AML LCO for Global ilanknotes 

I certiJYthat to the best of my knowledge and belief: 

(a) save as disclosed to you below, no company, division or branch (as listed on the Compliance Chart) 

or any of its employees is or has at any time during the period June J, 2007 to December 31, 2007 

been in material or significant breach of any applicable law, code, rule, regulation or standard of 

good market practice (as listed on the attached Compliance Chart); 

(b) there is no other law, code, rule, regulation or standard of good market practice carrying signifIcant 

compliance risk which is applicable; 

(c) save as disclosed to you and detailed on the attached schedule, no company, division branch, (as 

listed on the attached Compliance Chart) nor any employee of such company, division or branch 

has been the suhject of any disciplinary measures or investigation (not including a routine 

inspection visit) by a regulatory body; 

'-(Ci) save as disclosed tii-yo-iilJeiow there have been no customer complaInt, eVIdenCIng bad ~-­

malpractice or impropriety by a Group employee or which individually or collectively indicate a 

significant systemic problem; 

(e) save as disclosed to you below there have been no internal frauds which taken alone or with other 

similar frauds may involve monetary loss of US$750,OOO (or equivalent) or more and/or may 

involve a material or significant breach of any law, code, rule, regulation or standard of good 

market practice andior may reflect adversely upon the control systems in place within the company 

or branch concerned; 

(f) save as disclosed to you below there has been no irreconcilable disagreement with line management 

over any significant compliance issue; 

(g) in respect of every breach which is not of a material or significant nature, remedial action has been 

taken or initiated and/or the relevant regulatory authority notified if appropriate. 

(h) there are no other matters which should be drawn to your attention. 

NB: For RCO/GCO certificates, Compliance Charts need not be attached. 

HilUS Compliance Certificate page 1 of6 
2227 


760612.060

OCC-PSI-00227523 

_ - Redatied by the Permanent 

Subcommittee on Innstigations 

Disclosure Statement (if any) for matters arising during the reporting period, including brief 

particulars of remedial action taken and/or notification made to relevant regulatory authority: .-

Status reports on any items disclosed in previous Compliance Certificates and still outstanding at 

the beginning oftbe reporting period: .-

Regulatory issues since the previous certificate (including any impending significant regulatory 

development and how it will be addressed; any topic which regulators bave indieated as a priority: 

and any significant matter affecting the relationship with regulators): 

• In response to a request ITam the Financial Crimes Enforcement Network (FinCEN) of the US 

Treasury, on 20-Jul-07 the AML LCO and Banknates management met with FinCEN research 

specialists to discuss our wholesale banknates business with clients in Mexico as well as our AML 

_PloJSr~l'l,_CTRjlHng and other relattCd issues. After a few follow-up~honc caLls,_ weha"e 

established a working relationship with FinCEN to assist each other in our AML efrorls. We also 

met with an analyst ITom the National Drug Intelligence Center of the US Dept of Justice to explain 

our business and AML program along with discussing cross-border issues (on 17-Jul-07). 

Daniel Jack -:----:---:--------------- Christopber Lok 

Signature (LCO for Banknotes) Countersignature (Head of Global Banknotes) 

DeceITlber 20.ZQQ_7 _________ _ Dec"lDQer 20,_~~ __________ _ 

Date Dale 

page 
2228 


760612.061

OCC-PSI-00227S23 

Schedule oflnvestigations and Disciplinary Actions 

Company Name and Location: 

Employee Name (where applicable); 

Category' , 

Investigating! Actioning Authority: 

Purpose ofInvestigation: 

(Do not include routine inspection visits) 

Date of Alleged Offence: 

Dates ofInvestigation 

from , ... to .... : 

Date and Details of Sanction: 

None. 

-------~~~ .. ---~~-.. - .. - ------~ 

Commentary2 , 

(Continue on separate sheet if necessary) 

Categories are:~ 

(A) Investigation by a Regulator. 

(D) Criminal Conviction or possible criminal action. 

(C) Requirement to produ~ books and papers to Regulator (only where a Group company or employee is the target - rather 

than a mere infonnation source), 

(D) Any other non-routine regulatory actions including any fmc of the equivalent of US$1,500 (or equivalent) or morc, 

censure, warning a<; to future conduct, discipline or public criticism by, or Court Order at the instigation of, any regulatory 

authority not covered by A, B or C above. 

(E) Any civil action which by virtue either of the size or the basis of the claim is likely to be of interest to a regulator a<; 

reflecting on a Group company's or employeets fitness and properness. 

This should covcr:-

For Category (A) items - a status report including the reason for the investigation and including details of any disciplinary 

sanctions 

For Category (B) items - a status report including the nature of the offence, the court handing dO~TI the conviction and the 

penalty imposed. 

For Category (C) items ~ the nature of the data requested and the basis for the request. 

For Category (D) items - the nature of the action and the basis for it. 

For Category (E) items - the rca,<;on for possible interest to a regulator. 

HBUS Compliance Certificate page 3 of6 
2229 


760612.062

OCC-PSI-00227523 

Money Laundering Statistics 

From: Daniel Jack, AML LCO for Global Banknotes Region: US & Global 

Money Laundering Report for Half-year Ended: December 31,2007 

1,1 CAMP or other automated monitoring system 

Country Number I Number of Number I Number of reports Number of reports 

of alerts reports sent validated by I wbere review / submitted to 

generated I toMLRO MLRO. validation by Authorities more 

I 

for I MLRO is tban 7 days after 

validation outstanding for validation. 

---- I more than 30 days 

,----Q~obal 344 I I 1 o (none) o (none) 

i 

I 

L. -- I 

-B--!\1anualReportji------· 

-C;;~-;'try T Number of ----I .--"-~ 

Number Number of reports Number of reports 

manual reports validated by where review / submitted to the i 

I received MLRO validation by MLRO Authorities more I is out~tanding for than 7 davs after 

I more than 30 daX~ v.I;.!';'"n --""-

Not applicable I--

--- -----t--

I 

2.1 Money Laundering Related Reportable Events 

page 
2230 


760612.063

OCC-I'SI-00227S23 

- - Redacted by tit. r ....... M.t 

Subcommltt .. on lnvntlgation. 

2.2 Update of Reportable Events reported to the CMLCO and still outstanding at the end of 

the previous half-year. 

Country 

I Details and Current Status 

USA 

2.3 Update of Reportable Events reported to the CMLCO during the half-year. 

~ GHQ 

Country Reference 

USAiMexico _ 

Date of Details and Current Status 

Report 

25-J un-07 Law 

Enforement Agency) interest in our trading ''lith 

Casa de Cambio Puebla (CC?), an MSB in Mexico. A 

seizure order was also filed against CCP and their accounts 

at Wachovia Bank were closed. CCP was also a client of 

HSBC Mexico with whom close liaison is maintained. 

Banknotes ceased trading with CCP 011 I-Jun-07, 

conducted a site visit on II-Jun-07, and has terminated the 

AML Key Performance Indicators 

_. __ .__ KPIs [ Dctail;-' 

Current failure rate (shown as a percentage) in respect ofloeal regulatory identification I' 0% 1 and veri fication requirements. 1 

sec Policy - Number offailures to i~entifY eli,ents correctly as sec, to follow sec 'I' 0 I pro~_~dures or t~ meet re~latory reqUirements 10 respect 0 r SC<;:s. ~-------r----""~ 

Confinn the percentage of employees who have received AMI.. training during the I 99% : 

previous 12 months. . ,_. ,,______ ! I 

C, onfinn percentage of staff employed in high-risk areas who have received AML 100% i t~Lning during the previous 12 months. -'-c--------,,---------+--~-~ 

Currency Transaction Reporting - Number offaiIures to repmi and/or aggregate 0 I transactions for the pUrpose ofCTR re~irements as required by jocallegislation. ---1 Confirm the number of SARs validated during the reporting period subject to one or 0 I more previously validated SARs. -------.J Confirm the n.~mber of relationships exited as a result of more than one validated SAR. -Om.! 

Confinn the number of relationships the subjcct of more than one validated SAR that 0 1 are to be continued. ________ J 

HBUS Compliance Certificate page 5 of6 
2231 


760612.064

OCC-PSI-00227S23 

Business Unit Name: Global Banknotes Date: December 31, 2007 

Certification of Regulatory Changes I New Requirements Applicable to 

Business Unit 

Covering Period: June 1, 2007 - December 31, 2007 

I hereby certify that procedures have been implemented or revised to address all new regulatory 

requirements/changes that are applicable to my business unit. 

RAR Number Title 

NIL 

HBUS Compliance Certificate page 6 of6 
2232 


760612.065

occ-psi-00239206 

From: DANIEL JACK/HBUS/HSBC 

Sent: 5/30/2008 10: 44: 52 AM 

To: ALAN P WILLIAMSONjHBUS/HSBC@HSBC02 

CC: 

subject: KYC BN profile pending co approval for: AL RAJHI BANKING & INVESTMENT CORP 

Alan, 

Al Rajhi Bank is already an approved & active customer for HBUS London 

Banknotes. Gordon recently updated the linked KYC Customer Profile after you CO approved it: 

Approved: (Old Status IB Approved), 04/01/2008 05:42 PM: Alan P williamson 

AML risk should be discussed in visitation/call report, including whether MSB 

payout agent. Note that like prior approval, this is limited to banknotes only 

Revision 

History 

Editor Date 

Gordon BROWN 

issues. 

Reason for Update 08/04/2008 14:17:30 

Gordon BROWN 25/03/2008 16:56:01 

Gordon BROWN 25/03/2008 16:28:16 

comments), Section 

VIII (management). Gordon BROWN 28/02/2008 12:18:03 

updated with co Approval (1 April 2008) 

updated 2007 financials. 

updated incsr 2008, Section I (general 

updated site visitation 23 July 2007 shariq 

siddiqi. 

christopher BAYLISS 

Christ6pner-BI\YUSS 

06/02/2008 12:01:19 Annual Review - grammar check 

D6j02jl008-YT:11:<r:U')- -Arinua I-Revi-ew-~-c upl1at(!c1owneT,hi~p 

I think it will always be an SCC, and we have been diligent with KYC and 

activity monitoring. 

so I recommend you CO approve the Banknote Profile for Hong Kong to begin trading with them now. 

Thanks and regards, 

Dani el Jack 

vice president - compliance officer 

HSBC Bank USA, NA 

452 Fifth Avenue, 7th floor, New York, NY 10018 

phone 212-525-8686 

Email daniel.jack@us.hsbc.com 

Alan P williamson/HBUS/HSBC 

05/30/2008 08:03 AM 

TO 

Betty F S NG/NBD RNH/HBUS/HSBC@HSBC cc 

christopher.lok@us.hsbc.com, Colin W L HUI/VP NBD RNH/HBUS/HSBC@HSBC, Daniel 

page 1 
2233 


760612.066

occ-psi-00239206 

Jack/HBUS/HSBC@HSBC02, Denys K S CHAN/VP NBD RNH/HBUS/HSBC@HSBC, Gary C H 

YEUNG/SVP NBD RNH/HBUS/HSBC@HSBC, Jim K T HUI/VP NBD RNH/HBUS/HSBC@HSBC, John 

H NG/NBD RNH/HBUS/HSBC@HSBC, Joseph C TAI/NBD RNH/HBUS/HSBC@HSBC, Roger T K 

SO/HD NBD RNH/HBUS/HSBC@HSBC 

subj ect Re: Fw: KYC BankNote Profile is IB Approved for: AL RAJHI BANKING & 

INVESTMENT 

CORP 

Betty 

I will have to spend some time looking at this and discuss with Dan. There are long standing issues with Al Rajhi as I am sure you are aware. 

Thanks 

Alan 

Betty F S NG/NBD RNH/HBUS/HSBC@HSBC 

OS/29/2008 09:29 PM 

To 

Alan P williamson/HBUS/HSBC@HSBC02 cc 

"""1{oger TK-SO!RD-NBlTl<NR/H8US/RSBC@RS~WYEUNG1SVP"MlURNH/HBUS/HSBC@HSBC, Denys K S CHAN/VP NBD RNH/HBUS/HSBC@HSBC, colin W L HUIjvP 

NBD RNH/HBUSjHSBC@HSBC, Jim K T HUI/VP NBD RNH/HBUSjHSBC@HSBC, Joseph C TAI/NBD 

RNH/HBUSjHSBC@HSBC, John N H NG/NBD RNH/HBUS/HSBC@HSBC, 

christopher.lok@us.hsbc.com@HSBC, Daniel Jack/HBUS/HSBC 

subj ect Fw: KYC BankNote profile is IB Approved for: AL RAJHI BANKING & INVESTMENT 

CORP 

Dear wi 11 i amson 

Kindly review and approve the banknote profile of the subject prospect client 

(Reference: 1000157). Thank you. 

Best Regards 

Betty 

----- Forwarded by Betty F S NG/NBD RNH/HBUS/HSBC on 05/30/2008 09:09 AM -----

christopher LokjHBUS/HSBC@HSBC02 

30 May 2008 01:23 Mail Slze: 2055 

To 

Betty F S NG/NBD RNH/HBUS/HSBC@HSBC cc 

SUbject 

KYC BankNote Profile is IB Approved for: AL RAJHI BANKING & INVESTMENT CORP 

page 2 
2234 


760612.067

Occ-Psi-00239206 

our Ref 

Your Ref 

A BankNoce profile in SAUDI ARABIA for HSBC office Hong Kong, has been IB 

Approved (Reference #1000157). 

click on che attachment to link cO the BankNote profile. 

************************************************************ 

HSBC Bank USA, N.A. Hong Kong Branch 

whose registered address is Room 226 North Office Block 

superterminal I, HongKong Incernacional Airport Hong Kong SAR 

************************************************************ 

page 3 
2235 


760612.068

PBUS KYC Committee Meeting 

Paul O'Sullivan 

Marlon Young 

MasonSalit 

Dennis Duggan 

Steve Rockefeller 

Terry Westren 

Absent: 

JRuM<irino 

April 18, 2008 

11:00 12:30PM 

425 Fifth Avenue, 6th Floor 

Meeting Minutes 

Bill Prichason 

Patrick Campion 

Mihaela Nistor 

Stefan Hardy 

Alan Williamson 

1. Approval of Minutes 

On the Phone: 

Manuel Diaz 

Antonio Suarez-Obregon 

Clara Hurtado 

JeffClous 

Paul O'Sullivan opened the meeting with an overview of the agenda. The first item was 

the approval of the minutes for the February 13th meeting. A correction regarding 

Stefan's name as the person confirming the acceptable percentage for past due visitation 

was noted. 

2. Audit Issues 

DPB Visitation and KYC updat~ 

Bill Priehason presented the current status of the DPB visitations. He noted that the past 

due visitations situation has been resolved and the audit issue addressed. A graph 

showing the decrease in the number of past due visitations from month to month was 

distributed and discussed. 

Bill also gave a brief update on the development ofa system solution for visitation 

tracking. It is expected that RMD2 will be the host system for a visitation tracking 

module to be developed in the 3rd or 4th quarter of2008. Bill has met with Hitesh 

Ghandi, the RMD2 Project Manager, to discuss business requirements. The KYC updates 

OCC-PSI-00241046 
2236 


760612.069

are part of the visitation process and the system solution for tracking the KYC updates 

will be developed at the same time as the visitation tracking module. 

The quality of call memos is improving, although issues remain mainly due to the fact 

that many of the clients KYC profiles are part of the remediation project (RMs will not 

update the KYC profile after a visitation if the profile is scheduled to be remediated). 

Marlon asked ifthe same quality issues have been noted with the IPB call memos. 

Mihaela and Teresa confirmed that in recent Compliance testing the quality of the call 

memos for IPB was found to be good. 

The identification of the population of clients due to be segmented has been largely 

completed. The migration of these clients though will take a longer time than originally 

planned. 

IPB NY Visitation and KYC updates 

Mason Salit presented the current status of the visitations and calls overdue. Although the 

business continues to make progress in performing required visitations and KYC updates, 

due to a tight travel schedule a small number of visitations have been delayed. The status 

is as follows: 

Clients over $5 million in AUMs requiring a face-to-face visit: 37 (or 10%) 

overdue, compared to February 5.65% overdue (due to delays in travel) 

- clients below"S) miIIioiilnAUMsrequmng a phoneCalETI%ovemue, 

compared to February 6.04% overdue. 

With respect to the past due KYC updates, Mason announced that the action plan to bring 

the KYC profiles up-to-date is practically completed. This has been a great success, as 

the backlog was 1350 past due KYC updates last November, and by April there were 

only 79 profiles still left. Manuel asked iftherc is a quality control in placc for the KYC 

updates. In Miami Clara is doing the quality control and works with the bankers to make 

corrections if ncccssary. In IPB NY Teresa is doing the quality control. In the latest test 

of 15 KYC profiles 3 were retumcd to the bankers for additional information. In DPB the 

KYC updates are part of the larger remediation projcct. 

IPB Miami Visitation and KYC updates 

Currently there are no issucs with the visitation and the KYC updates in Miami. 

High risk client definition 

The new risk rating methodology has been reviewed and agreed on by David Ford, the 

GF A, and was subsequently approved by the HBUS AML Dircctor. With respect to the 

implementation, Compliance is working very closely with the Project Office and the IT 

teams to get the risk caleulation methodology into production as an integral part of 

RMD2. The initial IT cstimates were 7 man months for the entire project. A decision wa~ 

OCC-PSI-00241046 
2237 


760612.070

made to have the risk calculation developed first, with an estimated delivery time of July 

2008, and the reporting functionality to be developed in the next stage, with an estimated 

delivery time of end of 3 rd quarter 2008. 

The initial plan was to have IPB migrate to the RMD2 platform this year, but it appears 

that this initiative has been delayed. Marlon commented that RMD2 might not be selected 

as the system of choice for the Private Bank platfoml. Currently all systems are being 

evaluated. There is also a new head of the IT unit Chen Picard who will need time to 

assess the systems. 

The intention is to have consistent procedures between the business units. There is going 

to be a bifurcated approach initially between IPB and DPB, as DPB will implement the 

new risk rating methodology first, as soon as it's developed in RMD2. lPB will continue 

to use the existing risk rating methodology. 

California Audit Issues 

All action plans have been closed: 

Number of Action Plans 

Action Plans Closed 

22 

22 

Steve mentioned that in DPB the only other outstanding audit issues in the New York 

Audit Report pertain to the high risk account definition, still awaiting official publication 

of the procedures. The business must identify the high risk accounts and monitor them 

appropriately. For the accounts in remediation the identification of the correct risk rating 

will be done at the time of the remediation according to the new risk rating methodology. 

The monitoring of high risk accounts is dependent on the implementation ofNorkom 

later this ycar. A more detailed discussion on Norkom to be led by Paul next. 

Narkom updates 

In IPB scenarios 14 -16 have been turned on with the result that the number of alerts has 

risen significantly (for example, in Miami there have been more than 1000 alerts 

generated for the month of March including qumterlies). A fix for scenario 6 was put in 

by Geneva. Further analysis is required to fine tune the customer level thresholds, which 

is expected to yield substantial benefits by reducing the number of alerts for regular 

activity thus allowing us to focus on and investigate the more unusual activity. 

In DPB the monitoring of the transactions is performed by the teaJ11 in Buffalo using 

CAMP. The DPB business is expected to migrate to Norkom in the 3rd qumter of2008. 

A steering committee for the Norkom implementation is being assembled to provide 

proj ect leadership. 

OCC-PSI-00241046 
2238 


760612.071

Patrick Campion expressed his discomfort with the date for migration to Norkom. He 

pointed out the RMD2 will not have been fully populated by the time Norkom is 

implemented. It is estimated that only 16% of the clients will have been rcmediated and 

updated in RMD2; however this represents 85% of the asset. Also, with so many critical 

projects going on at the same time it seems that it would be a waste of resources to divert 

them to work on Norkom much earlicr than it would be necessary. He proposed that 

DPB continues to remain on CAMP until the KYC remediation is completed. Stefan 

asked if, as an alternative, CIF can be used as the basis for Norkom monitoring. Patrick 

responded that the CIF data is stale and the most recent information is in RMD. 

3. Bearer Share Companies 

HI3US introduced a Policy requiring custody of the Bearer Sharcs by the end 0[2008. 

This policy poses significant implementation challenges for the Private Bank and 

discussions arc being held with HBUS. Since there is a separate industry requirement 

that the BYI shares are required to be registercd by the end of 2009, the business 

proposes that the BYI bearer shares companies are allowed to be registered under these 

requiremcnts. Our other bearer share clients have clearly expressed their concerns with 

plans to entrust thcir bearer shares to a Panamanian company, as a third party custodian. 

A solution is still being workcd on. 

~~specIa1Tiitegones of CIiCIillJSCCsI 

The formal annual review of all the SCC clients took place on March 28th and was 

very successful. The details of that meeting and the resulting decisions are documented 

separately as part orthe SCC review process. Marlon asked that Alan reports up the 

Compliance chain such that senior Compliance executives are aware of the SCC review 

process undertaken in the Americas Private I3ank. 

5. Metrics 

Paul discussed the Metrics report, noting the increase in the number of monitoring alerts 

to record levels. We arc still working through the backlog. March has also been a record 

month for new accounts opened across all business units. Nevertheless, the AML team 

has managed to kcep the average turnaround lime to lcss than I day. There have been 10 

SARs filed for the month. Other metrics discussed were the accounts Returned to RM for 

additional infonnation, Pouch reviews, and Reviews of KYC processes. 

6. Operating Companies 

Paul informed the Committcc about the Regulator concerns regarding Operating 

Companies. There is an expectation that the business is aware of the purpose of the 

OCC-PS I -00241046 
2239 


760612.072

company and the nature of transactions, and that the activity is closely monitored. Marlon 

proposed a review of the top 10 operating companies in each business unit, with a focus 

on the ones where there is no private wealth being managed for the principals of the 

business. He expects Compliance to make recommendations targeted at reducing the risk 

to the bank. 

7. Any Other Business 

There was no other business to discuss and the meeting was adjourned. 

OCC-PSI-00241 046 
2240 


760612.073

Occ-psi-00246334 

From: DANIEL JACK/HBUS/HSBC sent: 9/23/2008 9:11:03 AM 

TO: ALAN P WILLIAMSON/HBUS/HSBC@HSBC02 

CC: DENIS E O'BRIEN/HBUS/HSBC@HSBC02 

subject: OFAC MATCH - IIRO - KYC on social Investment Bank Ltd. in Bangladesh (PCM) 

Alan, 

Do you want me to ask Gillian/valerie in PSRR to follow-up on current ownership, or have you asked already? 

social Investment Bank Ltd. in Bangladesh has been a PCM client since Oct-03 ---> 

The KYC profile indicates the last annual KYC review was on 08/17/2007 

(overdue). 

" Name of principals or Beneficial Owners: (List all shareholders with 10% or more ownership. If Corporate client not publicly traded, special Category 

Client or High Risk country, then list all shareholders with 5% or more ownershi p): 

• % of ownership: 

Int'l Islamic Relief organization (IIRO) 

social Trust Fund 

publicly Traded; widely Held - None with 5% or > holdings 8.62 

8.19 

83.19 

Thanks and regards, 

Daniel Jack 

vice president compliance officer 

HSBC Bank USA, NA 

452 Fifth Avenue, 7th floor, New York, NY 10018 

Phone 

Email 

212-525-8686 

daniel.jack@us.hsbc.com 

Forwarded by Daniel Jack/HBUS/HSBC on 09/23/2008 10:00 AM -----

Alan P williamson/HBUS/HSBC 

09/23/2008 06:32 AM 

To 

Denise A Reilly/HBUS/HSBC@HSBC02, Mary A caskin/HBUS/HSBC@HSBC02, Anne 

Liddy /HBUS/HSBC@HSBC02, Glori a Strazza/HBUS/HSBC@HSBC02, "Dani el Jack" 

<daniel.jack@us.hsbc.com> cc 

subject 

Re: POSITIVE OFAC MATCH - IIRO -KYC NOTES DATABASE 

will do. 

Page 1 
2241 


760612.074

----- ori~inal Message ----- From: Denlse A Reilly sent: 09/23/2008 06:10 AM EDT 

occ-psi-00246334 

To: Mary Caskin; Anne Liddy; Alan P williamson; Gloria Strazza 

subject: Re: POSITIVE OFAC MATCH - IIRO -KYC NOTES DATABASE 

I think we should first confirm that IIRO is still a shareholder - email below 

indicates that they were to be "ousted" and the KYC profile may not be up to date. Alan, can you cover this? 

If they are still a shareholder, I do think we need to check with OFAC. 

----- original Message From: Mary A Caskin sent: 09/23/2008 05:59 AM EDT 

TO: Anne Liddy; Denise Reilly; Alan P Williamson; Gloria strazza subject: FW: POSITIVE OFAC MATCH - IIRO -KYC NOTES DATABASE 

Do we want to review the activiity on this account? 

If you want me to refer it to OFAC for thei r gui dance, 1 et me know. 

----- ori9inal Message From: Monlque codjoe sent: 09/22/2008 10:22 PM EDT 

To: Gloria Strazza 

Cc:oanlel Jack ; Mary . Caskin;An-cry-rmSubject: POSITIVE OFAC MATCH - IIRO -KYC 

Dear Gloria, 

--= Redacted by the Pe.-manent 

Subcommittee on Investigations 

NOTES DATABASE 

I am just writing to put you on alert that after reviewing the 9/15/08 KYC 

Notes OFAC report I have found one positive match to the IIRO (International 

Islamic Relief orgaQJz~tion ? They are a minority owner of social Investment 

Bank Ltd. Account It appears to be ok as the below was noted in 

their KYC profile. J SL wanted to alert you to the existence of this positive OFAC match that appeared in my report. please let me know if you have any questions or concerns. Thanks. 

General comments: COMPANY BACKGROUND 

social Investment Bank Ltd. (SIBL) was incorporated on 5th July, 1995 as a result of dedicated efforts of a ~roup of established Bangladeshi entrepreneurs and international import personallties. The bank started commercial operations on 22nd November, 1995, with a clear manifesto to demonstrate the operational meanings of economy, banking and financial activities as an integrated part of 

Islamic code of life. 

SIBL is beginning a new era of Islamic Banking having social, ethical and moral 

dimensions in each of its activities ranging from credit to construction, 

trading to transport, farming to fishing, manufacturing to mining and so on. Some renowned personalities and institutions are sponsors and directors of this 

bank. 

SOURCE: ~vw.siblbd.com 

»>GRM support was provided on 06/28/07 by Anthony Julian 

IMPORTANT NEWS RELEASE 

page 2 
2242 


760612.075

Occ-psi-00246334 

The U. S. Department of the Treasury had announced on August 03, 2006, the 

designation of the philippine and Indonesian branch offices of the saudi-based 

International Islamic Relief organization (IIRO) for facilitating fundraising for al Qaida and affiliated terrorist groups. Treasury additionally designated Abd Al Hamid sulaiman Al-Mujil, the Executive Director of the Eastern Province 

Branch of IIRO in the Kingdom of saudi Arabia. 

COMPLIANCE's ACTIONS 

AS of 08/03/06, client's USD PCM account has been placed on a debit block 

subject to the receipt of a response from Sr. Management of SIB and HSBC, 

Dhaka. 

On 08/07/06 compliance's issued an email as follows: 

"'··"After reviewing the information provided by HSBC Dhaka my provisional decision is that this relationship be allowed to continue. It will be 

designated as a SCC Category 4 (reputational risk) with immediate effect and 

will be subject to closer monitoring as a result.·o_." 

,,,,.** "II RO 's shareho 1 di ng is a mi nori ty hol di ng and i nformati on recei ved 

indicates that they exert neither management control nor have board 

representation. while this entity clearly represents a heightened reputational risk to the bank, I believe that with the knowledge we have today and the 

controls that are being implemented we have mitigated that risk 

adequately.'o"". 

''''.i''*The block on outbound payments that was imposed on 08/03/06 may be lifted 

and the account returned to normal operation.*'··'_· 

CLIENT'S RESPONSE 

-'Uri-9l19 T06t 1-; ent-wasvts't1:el:lby trI"FS'eT1"fe~ft"I<:mrr-'f\.ldl1l,-tITclTant-BUyte----­

and GRM, Muhammad shohiduzzaman regarding the US Treasury announcement on IIRO. Client provided the following information regarding their relationship wi th IIRO: 

they do not have any contact with the IIRO, only a PO BOX and 

therefore referred this matter to their security Exchange Agency, indicating that they wish to remove them as a shareholder. - they do not like having an association with a shareholder which is 

listed OFAC and do not wish to be associated with the IIRO in any way. they are not aware of any Nominee shareholders relationship or other ownership structure which would entitle IIRO to hold more than 8% of 

social Investment Bank. 

they are not aware of any actions taken by IIRO in response to the 

US Treasury Department. 

IIRO do not maintain or operate any accounts with the bank. 

IIRO is not involved in the management of the bank or is not 

represented on the Board of Directors. 

there have been no dividend payout to IIRO 

they seek guidance from the security Exchange Agency in Bangladesh and they advised they have the power to oust them in the next board of dlrector 

meeting. 

compliance advised on 09/29/06 that the responses provided were satisfactory and that the fact that IIRO has no involvement in the running of the bank, is 

not a client of the bank and will likely be ousted as a shareholder give considerable grounds for comfort. 

ROF was received on 08/10/06, with no further additional information, that was not already mentioned in the previous findings. The most recent information, was the US Treasury announcement, that was stated above under Important News 

Release, which compliance was aware of. 

Page 3 
2243 


760612.076

occ-psi-00246334 

RAU * .. :,~',1:**** 

In an e-mail dated 08/26/2008, RAU found no matches on OFAC. However, they did 

find a match on world-check for International Islamic Relief organization with 

the following description: "Terrorism-linked non-profit organisation. Established by Mohammed Khalifa (1978). Member of the world Muslim League network and of the union of Good. purported links to Osama bin Laden, al-Qaida, 

Hamas and the palestine Islamic Jihad (PIJ). connected to plots to assassinate 

Bill clinton, the pope and attacks on the Lincoln Tunnel and the Brooklyn Bridge. operated extensively in Afghanistan during Taliban regime. considered 

major sponsor of Afghan terrorist training camps. [IDENTIFICATION] 

Based in Jeddah, saudi Arabia. Secretary general - Dr Adan Basha. Former 

secretary general - Mohammed Khalifa. 

[FUNDINGJ 

suspected of engaging in whole or in part in the misappropriation of 

charitable funds to flnance terrorist activity in the Middle East. Believed to 

receive funding from saudi Arabia. Reportedly involved in providing financial 

support to and money laundering for al-Qaida, Hamas, PIJ and Islamlc 

fundamentalist groups in Mindanao, philippines. [REPORTS] 

1993 - reportedly linked with world Trade Centre bombing in the u.s. 1997 - offices raided by FBI as part of a Hamas laundering investigation. Feb 2002 - declared to be an unlawful organisation by the Israeli government. Dec 2002 - 1 

of 10 non-governmental organisations indicted in a class action lawsuit by the 

families of the 9/11 world Trade Centre victims. 2007 - reported to fund the 

Yala Islamic college in southern Thailand. May 2008 - declared to be an illegal organisation by the Israeli government for a second time. " 

Kindest Regards, 

Monique codjoe AVP Manager, Reporting & Analysis unit - AML compliance I HSBC BANK USA, N.A. 

452 5th Avenue, Tower 7, New York, NY 10018 

phone 

Fax 

Email 

212-525-6712 

212-525-5769 

monique.codjoe@us.hsbc.com 

page"4 
2244 


760612.077

occ-Psi-00246337 

From: DANIEL JACK/HBUS/HSBC 

Sent: 9/23/2008 9:23:04 AM 

To: ALAN P WILLIAMSON/HBUS/HSBC@HSBC02 

CC: DENIS E O'BRIEN/HBUS/HSBC@HSBC02 

subject: Re: Fw: social Investment Bank 

Alan IS Gillian aware of this? 

PSRR staff need to do an annual KYC review on this PCM client asap - including 

ownership & mgmt, visitation, financials, AML program/changes, etc. 

Thanks and regards, 

Daniel Jack 

vice president - compliance officer 

HSBC Bank USA, NA 

452 Fifth Avenue, 7th floor, New York, NY 10018 

phone 

Email 

212-525-8686 

daniel.jack@us.hsbc.com 

Alan P williamson/HBUS/HSBC 

09/23/2008 10:12 AM 

To 

Daniel Jack/HBUS/HSBC@HSBC02, Denis E o'brien/HBUS/HSBC@HSBC02 -----LC----

subject 

Fw: social Investment Bank 

fyi 

Forwarded by Alan P williamson/HBUS/HSBC on 09/23/2008 10:11 AM 

Hersel Mehani/HBUS/HSBC 

09/23/2008 08:37 AM 

shohid 

To 

Muhammad SHOHIDUZZAMAN/IB DAK/HBAP/HSBC@HSBC03 cc 

Anthony Julian/HBUS/HSBC@HSBC02, Alan P williamson/HBus/HSBC@HSBC02 

subject 

Re: social Investment Bank 

please can you send us an update on SIB as requested below. Last call report 

appear to be from May 2007 

call Report KYC issues 

page 1 
2245 


760612.078

occ-psi-00246337 client social Investment Bank Deal or CAO 

Main details 

Date of call 29 May 2007 

Products 

Country of call Bangladesh location Details 

subject KYC issues 

Call type Client Meeting at Client 

Attendees 

Reported on behalf of SAAD, Ahmed 

Internal (HSBC) SAAD, Ahmed MEHANI, Hersel ; 

SHOHIDUZZAMAN, Muhammad 

External Attendees ISLAM, Md. Azharul; SOHEl, Abu 

Sadek Md.; ASADUZZAMAN, K M' 

IQBAL, Mohammad 

Other attendees 

Detailed Description Existin~ Attachments 

Had a dlScussion about their AMl and KYC issues. We inquired the status of 

ousting IIRO which is on OFAC suspension ist. social Investment Bank 

could not manage to oust IIRO yet due to some regulatory complexities. However, as per the central bank and SEC'S directive they have stopped all 

transaction on the share holding (ie. buy/sell of the shares, issuance of 

bonus/right shares, payment of dividend). 

Mr. Asaduzzaman appreciated our continuous support and ensured us that they will also continue and grow their USD PCM volume with HSBC. 

Fo 11 ow-up Tasks 

Hersel Mehan; 

senior Vice President 

Global payments and Cash Management 1212 525 6239 office 

1212 961 6614 cell phone 

Alan P williamson/HBUS/HSBC 

23/09/2008 07:50 AM 

TO 

Anthony Julian/HBUS/HSBC@HSBC02, Hersel Mehani/HBUS/HSBC@HSBC02 cc 

subject 

soclal Investment Bank 

Tony, Hersel 

Can you provide an update on the status of IIRO and SIBl? The last visit seems to have been in May and the situation was still up in the air. 

Thanks 

Alan 

social Investment Bank ltd. (SIBl) was incorporated on 5th July, 1995 as a result of dedicated efforts of a group of established Bangladeshi entrepreneurs 

page 2 
2246 


760612.079

Occ-psi-00246337 and international import personalities. The bank started commercial operations on 22nd November, 1995, with a clear manifesto to demonstrate the operational meanings of economy, banking and financial activities as an integrated part of 

Islamic code of life. 

SISl is beginning a new era of Islamic Banking having social, ethical and moral 

dimensions in each of its activities ranging from credit to construction, 

trading to transport, farming to fishing, manufacturing to mining and so on. Some renowned personalities and institutions are sponsors and directors of this 

bank. 

SOURCE: www.siblbd.com 

»>GRM Support was provided on 06/28/07 by Anthony Julian 

IMPORTANT NEWS RELEASE 

The U. S. Department of the Treasury had announced on August 03, 2006, the 

designation of the philippine and Indonesian branch offices of the saudi-based 

International Islamic Relief organization (IIRO) for facilitating fundraising for al Qaida and affiliated terrorist groups. Treasury additionally designated Abd Al Hamid Sulaiman Al-Mujil, the Executive Director of the Eastern Province 

Branch of IIRO in the Kingdom of saudi Arabia. 

COMPLIANCE'S ACTIONS 

AS of 08/03/06, client's USD PCM account has been placed on a debit block 

subject to the receipt of a response from Sr. Management of SIB and HSBC, 

Dhaka. 

On 08/07/06 compliance's "issued an email as follows: 

"*"***After revi ewi ng the i nformati on provi ded by HSSC Dhaka my provi si ona 1 

~eE4~w~nat--4i-s---r"~l-ati-oR5hlf}--ae-ttl+oweG--te-EGn~~--"-­

designated as a SCC Category 4 (reputational risk) with immediate effect and 

will be subject to closer monitoring as a result.*·*"** 

**-·-*IIRO'S shareholding is a minority holding and information received 

indicates that they exert neither management control nor have board 

representation. while this entity clearly represents a heightened reputational risk to the bank, I believe that with the knowledge we have today and the 

controls that are being implemented we have mitigated that risk 

adequately.*****·* 

****''''The block on outbound payments that was imposed on 08/03/06 may be lifted 

and the account returned to normal operation.·-**-** 

CLIENT'S RESPONSE 

On 9/19/06 client was visited by Hersel Mehani, Iftekhar Alam, Richard Boyle and GRM, Muhammad shohiduzzaman regarding the US Treasury announcement on IlRO. Client provided the fOllowing information regarding their relationship with IIRO: 

they do not have any contact with the IIRO, only a PO BOX and 

therefore referred this matter to their security Exchange Agency, indicating that they wish to remove them as a shareholder. - they do not like having an association with a shareholder which is 

listed OFAC and do not wish to be associated with the llRO in any way. they are not aware of any Nominee shareholders relationship or other ownership structure which would entitle IIRO to hold more than 8% of 

social Investment Bank. 

they are not aware of any actions taken by lIRO in response to the 

US Treasury Department. 

lIRO do not maintain or operate any accounts with the bank. 

IIRO is not involved in the management of the bank or is not 

represented on the Board of Directors. 

page 3 
2247 


760612.080

and they meeting. 

occ-psi-00246337 there have been no dividend payout to IIRO 

they seek guidance from the security Exchange Agency in Ban~ladesh 

advised they have the power to oust them in the next board of dlrector 

compliance advised on 09/29/06 that the responses provided were satisfactory and that the fact that IIRO has no involvement in the running of the bank, is 

not a client of the bank and will likely be ousted as a shareholder give considerable grounds for comfort. 

On site visit took plac€ on OS/29/2007. 

HSBC attendees, Muhammad shohiduzzaman- Manager, Hersel Mehani- RGNL sales 

officer, Ahmed Saad- Assist Manager sales met with client attendees, Mohammad 

Iqbal- SVP, Md. Azharul Islam- AVP, K M Asaduzzaman- Managing Director, and Abu 

Sadek Md. Sohel Dep Managing Director. 

Detai 1 s: Had a discussion about their AML and KYC issues. We inquired the status of 

ousting IIRO which is on OFAC suspension ist. social Investment Bank could not 

manage to "oust" IIRO yet due to some regulatory complexities. However, as per the central bank and SEC's directive they have stopped all transaction on the 

share holdin~ (ie. buy/sell of the shares, issuance of bonus/right shares, 

payment of dlvidend). 

Mr. Asaduzzaman appreciated our continuous support and ensured us that they will also continue and grow their USD PCM volume with HSBC 

page 4 
2248 


760612.081

OCC-PSI-00248215 

GROUP FINANCIAL SERVICES AND EUROPEAN AUDIT 

REPORT ON 

HSBC PRIVATE BANK INTERNATIONAL - NEW YORK 

OCTOBER 2008 

AUF GEN 080195 

This report is intended solely for the information and use of the management, the Audit 

and Senior Compliance Committees, and others within HSBC Group and is not intended 

for use by anyone other than these specified parties. 
2249 


760612.082

GROUP FINANCIAL SERVICES AND EUROPEAN AUDIT OCTOBER 2008 

HSBC PRIVATE BANK INTERNATIONAL - NEW YORK 

SUBJECT 

1. INTRODUCTION 

2. MANAGEMENT SUMMARY 2 

3. SUMMARY OF HIGH RISK ISSUES 3 

4. PREVIOUS RECOMMENDATIONS 5 

5. SARBANES-OXLEY MATTERS 6 

6. PRIV ATE BANKING FRONT OFFICE 

Redacted by the 

Permanent Subcommittee on Investigations 

6.S Bearer Share Accounts 12 

Redacted by the 

Permanent Subcommittee on Investigations 
2250 


760612.083

GROUP FINANCIAL SERVICES AND EUROPE~~ AUDIT OCTOBER 2008 

HSBC PRIVATE BANK INTERNATIONAL - NEW YORK 

Redacted by the 

Permanent Subcommittee on Investigations 
2251 


760612.084

GROUP FINANCIAL SERVICES AND EUROPEAN AUDIT OCTOBER 2008 

HSBC PRIVATE BANK INTERNATIONAL - NEW YORK 

1. INTRODUCTION 

1.1 Background 

This report covers our findings identified during the audit of HSBC Private Bank 

International- New York (lPB NYK) which is a division ofHSBC Bank USA (RBUS). 

IPB NYK offers a range of private banking services to non-US resident high net worth 

individuals, including investment advice, foreign exchange, funds, structured products, 

deposits and loan/overdraft facilities. In addition, advice on ofTshofe trust structures is 

provided by Global Wealth Solutions. 

The client base consists mainly of Central and South American nationals and Middle 

Eastern clients, principally from Israel. A number of lower value clients are scheduled to 

be transferred to HSBC Private Bank International in Miami. IPB NYK also has four 

Representative Offices based in Uruguay, Chile, Argentina and Israel. These offices have 

not been visited as part of this audit as they are covered by separate audits. 

As at 31 July 2008, [PB NYK has 191 staff. The total Assets Under Management (AUM) 

as at 31 July 2008 is USD 10.22billion (USD 10.23billioll) and the total approved credit 

facilities total USD I.3billion. [PB NYK has approximately 1,800 client relationships. 

For the 7 months to 31 July 2008, IPB NYK generated an operating profit of USD 

21.1 million (USD 34.5million) attributed to revenues of USD 42.5million (USD 

73.2million) and expenses of USD 21.4million (USD 38.7million). Comparatives are for 

the 12 months to 31 December 2007. 

1.2 Scope and Objectives 

The audit covered all of the activities of IPB NYK, with the exception of [nfornlation 

Technology. The Investment Advisory Group, who provide support to all of Private 

Banking Americas, was covered in the audit of the Fiduciary Activities of HSI3C Private 

Banking Americas, which was performed concurrently with this audit. Local Compliance 

requirements have only been considered to the extent they arc included within the 

Compliance Chart for the business. 

Our work was based 011 the accounting records as at 31 July 2008. The objectives ofthe 

audit were to ensure that the key risks arising from the activities of the business are being 

managed in an appropriate manner and in accordanee with Group Standards. 

The audit was carried out by Alain Amann, Laurent Ulrich and Vianney Trajin of GAJ; 

Gareth Amos, Viral Shah, Chirag Parekh, Dhairya Kapadia, Kailash Bhatia and James 

White of AUF; Ralph Guillou of GAU and Alana Lapena of the CRU, between 15th 

September and 3rd October 2008. 

We wish to thank the management and staff of the office for their assistance and 

cooperation during the course of the audit. 
2252 


760612.085

GROUP FINANCIAL SERVICES AND ElJROPEAN AUDIT OCTOBER 2008 

HSBC PRIVATE BAc1\lK INTERNATIONAL - ~'EW YORK 

Redacted by the 

Permanent Subcommittee on Investigations 

2 - 11 
2253 


760612.086

GROUP FINAt~CIAL SERVICES At"ID EUROPEAN AUDIT OCTOBER 2008 

HSBC PRIVATE BANK INTERNATIONAL - )'I,'EW YORK 

6.8 Bearer Share Acconnts 

Finding 

There are 21 cases, from a total of 610 bearer share accounts, where the beneficial 

ownership declarations are overdue by more than one year. There are 31 overdue in all as 

at September 2008. Further, we note that no beneficial ownership declarations have been 

obtained from clients with bearer share companies based in the BV! and the location of 

these bearer shares is not known in all instances. We understand that under BVI 

regulations all shares will be registered during 2009. 

Recommendation 

Management should ensure that beneficial ownership declarations are obtained for all 

bearer shares accounts on a regular basis. 

AML Procedures for Private Bank Americas 2008 3.2.2 

Redacted by the 

Permanent Subcommittee on Investigations 

12 
2254 


760612.087

GROUP FINANCIAL SERVICES AND EUROPEAN AUDIT OCTOBER 2008 

HSBC PRIVATE BANK INTERNATIONAL - NEW YORK 

Redacted by the 

Permanent Subcommittee on Investigations 

13-22 
2255 


760612.088

GROUP FINANCIAL SERVICES AND EUROPEAN AUDIT OCTOBER 2008 

HSBC PRIVATE BAl\'K INTERNATIONAL - NEW YORK 

10. COMPLIANCE 

10.1 NORKOM Monitoring (High Risk) 

Finding 

A review of the list of aged alerts from the NORKOM system as of 21 September 2008 

revealed that work had not commenced on a number of alerts that were outstanding for 30 

days or greater. These outstanding alerts included several SCC and High Risk alerts. 

Further, the monitoring of client transaction across a number of accounts belonging to the 

same Beneficial Owner I group of Beneficial Owners is not yet in place, even though this 

functionality is now available. 

Background 

i) As of 21 September 2008, 64 alerts were outstanding for 30 days or greater, of 

which 43 were outstanding for 52 days or greater. These outstanding alerts 

included four SCC and 26 High Risk alerts. We noted that during our audit, the 

backlog identified as of21 September 2008 has been reduced. 

ii) The plan is to implement the CROll iimctionality locally during Q2 2009. 

Recommendation 

i) Management should ensure that work commences on the transaction alcrts 

highlighted by the NORKOM system in a timely manner, prioritising the high risk 

cases. 

ii) Management should ensure that the monitoring of client transactions across 

accounts with the same Beneficial Owner I group of Beneficial Owners is 

implemented. 

Private Banking FIM - B.9.6 

10.2 NORKOM Alerts 

Finding 

We have noted from our review that several NORKOM alerts were closed without 

appropriate the appropriate due diligence having been conducted or WorldCheck being 

perfomled on the correct names. These weaknesses all related to one temporary mcmber 

of staff. This was subsequently detected by Management and rectification action took 

place. 

Background 

A review of 55 NORKOM alerts was conducted, of which 31 had a status of closed, five 

were confimled to be reported and 19 were closed and reviewed by Quality Control. 

Within our sample, we have identified that there were six names that were not properly 

entered into the exact match mode on the WorldCheck database search and one reviewer's 

23 
2256 


760612.089

GROUP FINANCL<\L SERVICES A1~D EUROPEAN AUDIT OCTOBER 2008 

HSBC PRIVATE BANK INTERNATIONAL - NEW YORK 

comments were not supported by any documented due diligence conducted (i.e. Google 

Search, World-Check search, etc). 

There arc three temporary emp loyees reviewing alerts from the transaction monitoring 

system. We noted that alerts identified during the audit as not being properly documented 

have been closed by a former temporary employee. 

Recommendation 

Management should ensure that personnel (full time or temporary) are sufficiently trained 

before reviewing alerts on the transaction monitoring system. Consideration should be 

given on the appropriateness of the use of temporary staff to perform key Compliance 

tasks. 

Redacted by the 

Permanent Subcommittee on Investigations 

24 
2257 


760612.090

GROUP FINANCIAL SERVICES At"ID EUROPEAN AUDIT OCTOBER 2008 

HSBC PRIVATE BANK INTERNATIONAL - NEW YORK 

Redacted by the 

Permanent Subcommittee on Investigations 

25-28 
2258 


760612.091

From: TODD MADDISON/HBUS/HSBC 

Sent: 11/14/2008 11:05:17 AM 

occ-Psi-00248782 

TO: ALAN P WILLIAMSON/HBUS/HSBC@HSBC02 

Cc: 

subject: Re: Bearer share question 

Roger. I haven't discussed with aboutat all , so I'll set in touch with 

them. I'm on a conf. call right noW II I I alerts as well, 

hopefully will have updated news for you on tn,s. 

Todd C. Maddison, CAMS 

AVP, AML Compliance HSBC securities (USA), Inc. 

452 Fifth Ave. New York, NY 10018 

212-525-5360 Fax 646-366-2528 

todd.maddison@us.hsbc.com 

Alan P williamson/HBUS/HSBC 

11/14/2008 10:21 AM 

Todd 

TO 

Todd Maddison/HBUS/HSBC@HSBC02 cc 

subject 

Re: Bearer share question 

- -= Redacted by the Permanent 

Subcommittee on InVestigations 

Ok, please put some time on my calendar. Also note we'll have to discuss 

w/pershing if not already done so. 

Alan 

----- original Message From: Todd Maddison 

Sent: 11/13/2008 04:50 PM EST 

To: Alan P Williamson 

subject: Fw: Bearer share question Alan, 

when you're back in, please let me know when you're available to discuss. 

private Banking needs to know if we are providing dispensation for the 80 or so bearer share accounts that they have. I think this decision has been made 

already, but I just want to confirm with you before I tell Scott definitely 

yes. I say I think the decision has been made based on this email from Teresa 

Garcia to Terry Westren that was forwarded to me by Jacques Herman: 

Terry, 

The policy is part of the AML Business Unit procedure located on the I-Net - policies & procedures - AML procedures. I copied and pasted this section for 

you. : 

Bearer share corporation Account 

page 1 
2259 


760612.092

Occ-Psi-00248782 

Bearer shares are simply stock certificates of private corporations owned by the person who holds them", however the ownership is not recorded on the 

company's books. These shares are owned by and give all their rights to the 

holder. Bearer Share corporations can be used for legitimate investment or operating purposes (i .e. asset protection and privacy) and are usually structured as International Business corporations ("IBCS") or private Investment corporations ("PICS"). Due to the potential for money laundering, terrorist financing and tax evasion, HBUS does not encourage establishing relationships with bearer share corporations. However, if a customer/entity who has bearer shares does approach the Bank, the applicant will be evaluated on a case-by-case basis. The account to be opened, whether for a new client or an existing client, will be subject to additional documentation requirement per guidance approved by the AML Director. 

However, the AML Director through the approval of these procedures, has allowed 

the following exceptions to PB Americas: 

· Since BVI authorities have granted till December 2009 for all bearer shares 

to be registered, all BVI bearer share corporations within PB Americas will 

follow this time frame; · High risk bearer share accounts will provide an annual recertification of the 

beneficial owners through a properly executed BOL; · standard risk bearer share accounts will provide beneficial ownership recertification every three years through a properly executed Beneficial 

ownership Letter ("BOL"); and · clients must attest that they will notify the bank of change in ownership, as and when it takes place. A new BOL will be required from the new beneficial owner. 

The complete Bearer Share corporate Account "policy Guidance" can be viewed at 

the link appearing below: 

http://connect.us.hsbc/hnah_compliance/pdf/bearershare_guidance.doc 

can you confirm for me? Thanks Alan, 

Todd c. Maddison, CAMS 

AVP, AML compliance HSBC securities (USA), Inc. 

452 Fifth Ave. New York, NY 10018 

212-525-5360 Fax 646-366-2528 

todd.maddison@us.hsbc.com 

----- Forwarded by Todd Maddison/HBUS/HSBC on 11/13/2008 03:36 PM -----

Scott J watson/HBUS/HSBC 

11/13/2008 12:49 PM 

TO 

Todd Maddison/HBuS/HSBC@HSBC02 cc 

subject 

Re: FW: 2 reg r items 

That's appropriate. I was just confirming it was the GBM not PB opinion. 

Scott watson 

First Vice President 

Page 2 
2260 


760612.093

occ-Psi-00248782 

Director specialized compliance HSBC Bank USA, N.A. 

452 Fifth Avenue, 6th Floor 

New York, NY 10018 

work 212-525-6247 

Fax 716-630-1826 

BlackBerry 516-439-9979 

Todd Maddison/HBUS/HSBC 

11/13/2008 12:27 PM 

TO 

Scott J Watson/HBUS/HSBC@HSBC02 cc 

subject 

Re: FW: 2 reg r items 

I want his opinion and think he would want to give it b/c he's GBM and not PB 

anymore. 

Todd C. Maddison, CAMS 

AVP, AML Compliance HSBC securities (USA), Inc. 

452 Fifth Ave. New York, NY 10018 

212-525-5360 Fax 646-366-2528 

todd.maddison@us.hsbc.com 

scott J watson/HBUS/HSBC 

11/13/2008 12:05 PM 

TO 

Todd Maddison/HBUS/HSBC@HSBC02 cc 

subject 

Re: Fw: 2 reg r items 

Yes. Is Alan oplnlng because of GBM or because of PB? If it is PB, then paul 

not Alan should opine. 

Scott Watson 

First vice president Director - specialized compliance HSBC Bank USA, N.A. 

452 Fifth Avenue, 6th Floor 

New York, NY 10018 

work 212-525-6247 

Fax 716-630-1826 

page 3 
2261 


760612.094

Occ-psi-00248782 BlackBerry 516-439-9979 

Todd Maddison/HBUS/HSBC 

11/13/2008 10:14 AM 

TO 

Scott ] watson/HBUS/HSBC@HSBC02 cc 

subj ect 

Re: Fw: 2 reg r items 

Scott, I left you a voicemail as well. 

Before you take it as an absolute yes, let me reconfirm with Anthony and Alan 

Williamson as well. Alan is out until Monday, can you wait for an answer until 

then? 

Todd C. Maddison, CAMS 

AVP, AML compliance HSBC securities (USA), Inc. 

452 Fifth Ave. New York, NY 10018 

212-525-5360 Fax 646-366-2528 

todd.maddison@us.hsbc.com 

Scott J watson/HBUS/HSBC 

11/13/2008 07:28 AM 

To 

"Todd Maddison" <todd.maddison@us.hsbc.com> cc 

subject 

FW: 2 reg r items 

Todd, 

Does Anthony's comment about you resolving bearer share issue mean that our current dispensation will include brokerage accounts opened by existing PB 

clients? 

Scott Watson 

First Vice president Director- specialized compliance 

HSBC Bank USA, N.A. 

452 5th Ave, 6th Floor 

New York, NY 10018 

Work 212-525-6247 

Fax. 212-525-0611/0612 

Page 4 
2262 


760612.095

BlackBerry 516-439-9979 

----- original Message From: Anthony M verga Sent: 11/12/2008 09:57 PM EST 

occ-Psi-00248782 

TO: Scott] Watson/HBus/HSBC@HSBC02@HSBC02@HSBC 

subject: Re: 2 reg r items 

.-------~-"'-~, 

_ = Redacted by the Permanent 

Subcommittee on Investigations 

According to Todd he resolved the bearer share account issues. 

I posed several questions to Bruce and Steve Newman regarding the 

questionnaire, Bruce was supposed to provide me with a copy of the 11111111111111 

questionnaire, which I have not seen, 

please see if you can follow up with Bruce, Thanks. 

----- original Message From: Scott] watson Sent: 11/12/2008 06:56 PM EST 

To; Anthony M ver~a 

subject: 2 reg r ,tems 

Anthony, 

At the 4:00 status meeting I was asked to follow up with you on 2 items; 

1) 1IIIIIIIIIstatement questionaire - I believe you were taking one last look. 

2) Bearer share accounts being opened in HSI, I believe 80 or so need to be 

opened so Todd was supposed to discuss with you whether HBUS dispensation will 

apply for these HSI PB accounts too. 

Thanks, 

Scott Watson 

First vice president Director- specialized compliance HSBC Bank USA, N,A, 

452 5th Ave, 6th Floor 

New York, NY 10018 

Work 212-525-6247 

Fax. 212-525-0611/0612 

BlackBerry 516-439-9979 

Page 5 
2263 


760612.096

From: JANET L BURAK/HBUS/HSBC 

Sent: 2/15/2010 10:43:51 AM 

Occ-psi-00256833 

To: LESLEY MIDZAIN/HBUS/HSBC@HSBC02 

Cc: 

subject: Re: Advice requested 

Lesley, 

I coincidentally was on the telephone with David Bagley when I received your email. We agreed that it would be sufficient for you to provide an update on the occ expanded banknotes exam only, and indicate that "there have been no other significant developments other than that communicated by Janet to David 

by email dated 4FEB, which she will update today if it is appropriate to do 

so" . Not knowi ng where you are and what sort of technology you have access to, I have attached below the email I sent to Brendan for GMB last week which 

is largely based on what you provided me--obviously it is missing last 

Thursday's OCC/FRB meeting, but may provide a basis for you to respond to Ivor 

Cand if it is not helpful just ignore it). Happy skiing!! 

The OCC commenced a regularly scheduled banknotes examination on 20JUL09. The 

OCc's field work was completed 28AUG09. On 3SEP09 we were informed verbally that the OCC was expanding their banknotes exam, but had not yet set the scope or line of inquiry. 

On 21SEP09 we received a request for an extensive amount of additional 

information, from 1JAN04 to the present, on 25 Latin America-based financial 

institutions, for all activities occurring in banknotes, correspondent banking and fx businesses. In addition, significant information regarding HBUS' 

policies, procedures and programs was requested. 

On 290CT09, the OCC raised concerns that cash letterCtravelers' checks) monitoring was lacking sufficient analysis of suspicious activity, based on one week samples from each of 2007, 2008, and 2009. We immediately undertook a detailed review of all cash letters from 2009 (280 items), and determined as a result to now file 2 additional SARS (althou~h at the time of the transactions 

there was no negative information on the indlviduals at the time of the 

transactions). 

on 9NOV09, the examiner team was increased from 2 to 9, and now includes FRB 

examiners as wel-' as OCC examiners. On 10NOV09, presentations were made to the 

OCC/FRB regarding the banknotes, PCM and fx businesses and their compliance 

programs. Based on the questions asked, the regulators appeared to be focused on resources, sufficiency of due diligence and monitorin9 with respect to HSBC 

affiliates, and linking information and processes across business lines. 

Between 12NOV09 and 2FEB10 we received 8 additional requests for information, 

including: subpoenas received for banknotes clients from 2004 to the present; all enhanced due dili~ence on banknotes clients in Mexico following the change in Mexico's country rlsk; a list of all affiliates conducting a banknotes 

business; the monitoring program for affiliates; results of targeted Compliance reviews in PCM, including a review of HBMX; to conduct and provide 2008 and 

2009 wire searches for 32 entity names (money services businesses/casa de 

cambios); information on all banknotes and PCM clients, including HSBC 

affiliates, from 2005 to the present, in paraguay, uruguay, Ecuador, Panama, El 

salvador and the Cayman Islands; KYC and activity information for specific financial jnstitutions in Uruquay, paraquay, Ecuador. El salvador (including 

HSBC afflllates as well as _.1 •• 1 1 

Throughout this process, the occ declined to identify what their objectives or underlying concerns were, indicating a number of times that they were not 

authorized to do so. These comments led us to conclude that the OCC was conducting this expanded examination at the request of some enforcement 

page 1 

- = Red.<led by the Penna.e.t 

Subcommittee Oft rnvestigalions 
2264 


760612.097

Occ-Psi-00256833 a%ensr' We were also aware that at least one other financial institution , and probably others, were being subjected to a similarly rigorous 

reVlew in the same areas as ours. 

on 7JAN10, the examiners finally provided us with some general comments/concerns, but no specifics. These issues were: --adequacy of SAR process --policy/procedures for foreign correspondent business 

--weakness in due diligence and monitoring in banknotes program --backlogs in PCM monitoring and enhanced due diligence, and resources 

We have a 2 hour meeting scheduled with the occ on 11FEB at which time they have indicated that they will provide more specifics around their concerns. 

Janet 

Janet L. Burak 

SEVP and General counsel 

HSBC North America Holdings Inc. 

HSBC USA Inc. 

HSBC Bank USA, N.A. 

452 Fifth Avenue, 7th Floor 

New York, NY 10018 

(T) 212-525-6533 

(F) 212-525-8447 

email: janet.l.burak@us.hsbc.com 

Lesley Midzain/HBUS/HSBC 

02/15/2010 09:13 AM 

Janet, 

TO 

Janet L Burak/HBUS/HSBC@HSBC02 cc 

subject 

Advice requested 

- = Redacted by the Permanent 

Subcommittee on Investigations 

GMO compliance (Ivor Godfrey-Davies) has asked me for an update about expanded BN examination. This is needed for Douglas Flint today. I can easily update on regulator matters, but not sure how would you like me to 

convey the other matter? I could draft a complete note, and send to you for 

onward forwarding? or do we need to suggest that David needs to give a verbal 

update to Douglas on that other aspect? 

Lesley 

Lesley Midzain 

Executive Vice President & chief compliance officer 

452 Fifth Ave, New York, NY - 7th Fl. 

phone. 

Fax. 

212-525-6410 

212-525-5769 

page 2 

HSBC Bank USA 
2265 


760612.098

occ_psi-00256833 

MO~b'~l~·l~e~. ____ ~SZS~L~e~S~\~e~y~.~M~i~d~z~a~i~n:@=u=S~._h_S_b_C_._C_o_m ____________ ------------- E:ail. • 

page 3 

_ III Redacted by the Pennanent 

Subcommittee on Invtstiga.ioas 
2266 


760612.099

OCC & Chicago FED update Meeting February 11, 2010 

Attendees: 

HSBC: 

Janet L. Burak, SEVP 

Lesley Midzain, EVP 

Camillus Hughes, SVP 

Wyndham Clark, SVP & AML Direetor 

Denis O'Brien, Director 

OCC Supervision: 

Monica Freas, Washington OCC Enforcement 

Sally Belshaw 

Kerry Morse 

OCC Exam Team: 

Joseph Boss 

Bert Gregg 

Ray Pruszkowski 

Teresa Tabor 

Rita Watts 

Manny Torrijos 

Chicago Fed Exam Team: 

Mike Jarrell 

Pat Brunner 

Grace Rihani 

Sally Belshaw thanked the Bank for arranging the meeting and explained they have not 

requested an earlier meeting with Management because ofthe extensive details of 

material under review and to ensure productivity. Sally emphasized and wanted to covey 

material concerns which should be deemed as "Signifieant". The exam is not over and 

will be ongoing. 

Joseph Boss addressed the framework for the meeting as an "Informative forum" - not 

for extensive dialog at this time. Joe mentioned that our last meeting was in January with 

Cam, Wyn & Denis wherein a "general" discussion was had as the OCC was unable to 

provide details at that time. Joe stated he would provide some content at this time: 

1. Pouch Exam - In November 2009 (Joe! Elsa) tested the Cash Letter Process, 

methods and analysis. The concerns identified relate to possible violations of 

103.176 of the U.S.A. Patriot Act as it relates to "Due Diligence" of 

Minlltes DCC Meeting February 11,2010 

Draft ~ Private & Confidential 

Drafted by Denis O'Brien lof8 OCC-PSI-002569 1 6 
2267 


760612.100

_ = Redacted by tbe Permanent 

Subcommittee on Invtstij!ations 

Correspondent Accounts; detailed procedures and escalation of open issues - no 

process documented to suspend activity, file a SAR or close the account. 

a. Joe acknowledged that a presentation was made Tuesday, February 9, 

2010 to the exam team and he was pleased to report enhancements that 

were implemented as wcll as an internal look-back of cash letter activity 

for Travelers Checks and Money Orders. However, Procedures must be 

enhanced to reflect the changes inclusive of a process suspend activity, file 

a SAR or close the accounts when adequatc responses to our queries are 

not rcceived in a timely manor so as to comply with 103.176 .. 

b. Joe also verbalizcd concern as it relates to II pending reviews that datc 

back to early 2009 and requested the Bank to enhance Procedures for 

clarity on how alerts are cleared Aged items first. 

c. Additional concerns are if we have adequate resources to effectively 

manage the backlog of alerts and will be having further conversations with 

the AML Director as to how we propose to have proper resources in place. 

Janet Burak asked if there is a specific instancc or a failure. 

Joe stated - One example is HSBC needed further information from Bank • 

•••• who hid behind privacy law. The OCC contends there is no privacy 

issue with Canada; there were multiple instanccs with no resolution or action 

taken by the Banle HBUS should include escalation procedures for remediation 

when appropriate in accoi-dance with 103.176 of the US Patriot Act. 

2. Joe went on to discuss the Banknote Accounts sampled - and stated there is 

concern as it relates to; 

a. Adequacy of the level of analysis . 

....... as detailed in the LN KYC ownership / principalsfounder and owner of in the US to 

provide services to Spanish clientele. 

Cam asked for further explanation. 

Joe stated - some level of enhanced due diligence or an indication that the 

common interests of ownership should have triggered additional 

research - which was not documented in the file. 

b. Rita Watts stated that HSBC Policy as it relates to Enhanced Due 

Diligence for High Risk Customers. Whereas, Banknotes being a 

extremely High Risk Business our customer base of Cautionary and 

Medium Risk clients "seems" to water down the Policy & Procedures. 

Rita further questioned the Banks determination to classify the Dominican 

Republic as "Cautionary Risk" in particular notation to our handling of 

............. illl.Dominiean Republic and a~ 

owner. Rita asserted that the Bank is vague on the level of research 

performed on the Board, an internet search revealed a website for the 

Minutes GCe Meeting February 11, 2010 

Draft -- Private & Confidential 

Drafted by Denig O'Brien. 2of8 OCC-PSI-00256916 
2268 


760612.101

- = Redacted hy the Perm:lrfl~t 

Subcommittee on Investq;.ltions 

_ owner that indicated they deal in "Real Estate". The website was 

under construction and subsequently shut down - (Desire to look further). 

c. Rita also commented on the level of due diligence as it relates to EDD 

performed on I Chile no info on 

beneficial ownership inadequate info Bank ownerInadequate Review & Lack of Analysis was cited. 

d. Pat Brunner discussed a review of Mexico EDD did not 

denote identification and decision regarding a potential P.E.P. association; 

from the LN KYC Profile it seems the same individual noted to be the 

CFO, of_also shows as CEO of ••••• 

Joe Boss added it appears the Principals & Owners of 

listed with a connection to ••••••••• 

Pat Brunner noted the common link of 

Minutes oce Meeting February J I, 2010 

Draft ~ Private & Confidential 

Drafted by Denis O'Brien 

Redacted by the 

Permanent Subcommittee on Investigations 

30f8 OCC-PSI-00256916 
2269 


760612.102

__ = Rcuilctcll u. {he Permanent 

Subc:ommittee on Investigations 

Cam asked if we are certain they arc the same individuals. Joe responded that based on 

the information available in the LN KYC and documented in the files, that they are the 

same individuals. 

e. Grace Rihani addressed a review of the KYC for ••••• b:md stated 

that the RoF documented a Director is connected to a former Director that 

was accused in a criminal complaint related to violations ofBSA and 

misuse of confidential information. Grace added that the review has not as 

yet been completed and further information will be requested of Gillian 

Bachstein and Denis O'Brien. 

f. Joe Boss stated as it relates to the Dominican Republic, that it appears 

Compliance is not getting information to adequately address K YC. -

~~~~~~~~~IIIIII~~~~~~~~~~~~;acCOrdingto file, we conduct pcr month in Banknotes activity. When 

the OCC asked Gyanen Kumar a specific question related to the 

percentage of remittance business; he responded that 40% - 50% attributed 

to remittance business. Joe went on to state the Business, who conduct the 

visitation calls, have wealth of information that does not always make it to 

the Profile of the customer and it appears that it is not shared with 

Compliance. 

g. Joe further observed that Risk Rating Client and Monitoring is mainly 

based on the Country Risk Matrix and that Compliance does not 

necessarily have all the information to perform adequate due diligence to 

rate the Customer. That there should be consideration for "Reputational 

Risk" under the SCC category and perhaps that would result in a different 

Risk rating if the Reputational Risk is considered heightened. 

Janet asked ifhe thought the Business was withholding information. Joe replied that he 

has no proof of that and it seems that information is not evenly being shared. 

h. Joe went on to state that the issue is with the Due Diligence: 

••••• /isitation 2/09 narrative reflected •••• I~ust 

ceased doing business with : HSBC Rep stated he 

knew about the current media; and despite this, was 

onboarded. There was no information on why exited, 

no due diligence, no 23b request, etc ... (Implied HSBC Rep was 

aware but went forward anyway). File did not show adequate 

due diligence on Media and rationale to open business. 

Cam inquired as to how many Banknotes customers were reviewed. Joe responded that 

many were reviewed but their scope "Targeted" •••••••••••••••• 

Minutes oce Meeting February 1 J, 2010 

Draft - Private & Confidential 

Drafted by Denis O'Bnen 40f8 OCC-PSI-00256916 
2270 


760612.103

r-------------------, Rf'dnr' 'l hv tht' P('rm:Wt'l,; 

SI.lI.J.~u'UJntt·lee on Investigations 

Rita also commented on the Analysis of Clients, projected volumes and how we 

validate. She further stated that in a discussion with Banknotes staff, Michael Baez stated 

he does not maintain or retain these records. 

i. Ray Pruszkowski provided additional commentary on ••••••• 

•••••• Dominican Republic stating that the State Department 

has deemed the Dominican Republic as vunerablc to Money Laundering 

yet no Due Diligence was identified in his review to deternline if our 

customer base dealt with Casa de Cambios or other MSB's. The KYC 

Profile discussed possible exposure to money transfer businesses in 

general; but they did not consistently consider the extent of that particular 

exposure or to other businesses identified as facilitators of money 

laundering. 

Risk Ranking of Clients 

1. Joe Boss commented that the reviewers deemed that HSBC relies too 

heavily on thc Country Risk Matrix to assess customer risk. Another 

category of risk reputational risk, should be "higher risk". He noted 

that we rate many Banknotes customers as SCC's but, as it relates to 

the Dominican Republic, a "Jurisdiction of Primary Money 

Laundering" with concerns - "Vulnerable of Money Laundering" and 

in consideration that Banknotes is a High Risk Business, we should 

reassess our Customer Risk methodology. Also, in certain instances, as 

it relates to Country Risk rating matrix - particular rating may not be 

accurate. 

Lesley asked if this is based just on the State Department information or are there other 

factors or information that can be shared with us. Joe referred back to as one 

example - Ownership, across borders, connections with MSB's & Casa di Cambios .... 

2. Joe stated they have not, as yet, started what he proposed to be 

"extensive work" on Affiliate transactions. Policy Proccdures silent 

on monitoring of Affiliate transactions, as well as KYC on affiliates on 

products and services. 

Sally asked if there was a specific policy as it relates to KYC/CIP and monitoring of 

Affiliates. Janet commented that it may vary. Lesley added Policy does not segregate 

affiliates. Business Unit Procedures and Desk Instruction Manuals note different 

procedures on affiliates as we have more comfort on controls. Sally followed up with a 

question on KYC standards. Lesley responded that it's a little different as we know the 

ownership - 50% or more is clear, for under 50% we follows HSBC standard. 

Banknotes Monitoring Program 

Joe commented that HBUS methodology for monitoring is tracking Sales and Purchases, 

Spikes trigger alerts; but there is no other aspect of the review. He further stated that it 

should be reasonable and expected to do more what other products & services is the 

Minutes ace Meeting: February 1 L 20 lO 

Draft - Private & Confidential 

Drafted by Denis O'Brien 5 or8 OCC-PSI-00256916 
2271 


760612.104

--= Rtdact('dbythePcrm~plf''''· 

Sq!'", 'ittc(' (In II\\CHIl;atwns j 

customer utilizing - just as one example. The Bank cannot continue to justify the activity 

as "Tourism" or "Remittances, etc" with no further explaination. 

PCM Monitoring Program 

_____ Joe Boss stated that his team identified -and_ unacceptable ... patterns of activity as it relates to 

A. Manny Torrijos commented on his observations of •••••• 

The account was opened January 2009 - with minimal activity up to 

October 2009. Sudden onset of pattern of activity concentrated to a 

single Beneficiary. Various (30) moncy remittances companies and 

Casa di Carnbios sending funds to a single beneficiary at _ 

_ 1.3 million U.S. Dollars daily - 19 million to a singlc 

Bcneficiaryat Also of note were originator's which 

wcrc previously subject of negative media: 

December 2009 had a similar pattern. However, 1'/, timcs the volume and 

value of transactions. It was also noted that bascd on thc alert pattern, our 

thresholds would only pick up half of thesc transactions. 

Denis commcnted that this pattern was identificd by the Monitoring team, wc had 

preliminary mectings and have this pattern under review. 

B. Grace & Ray commented on a review of stating that a 

pattern of Structured - Multiple originators to a single beneficiary was 

identificd, commonly known as "Shotgun" transactions. 1bis pattern 

was identified in transactions from 2004 - 2009 with multiple 

originators to one Beneficiary and the same individuals on both sidcs 

of the transaction. This Structuring was also below the thresholds in 

the AMS system. 

Janet commented that this is ofintcrest, wasn't"'recently approved for a failed 

bank acquisition by the FED? 

BANK PROFILES 

Joe Boss made additional comments as exanlplcs of how infornmtion in the profiles could 

be used in the enhancement of our monitoring program . 

••••• lihas an asset size of 744 million .~. yct the activity through wires 

July October was minimal; In November it was 776 million - 500 million 

incrcase, December is $1. 7 billion. Based on the assct size, does this activity 

Minutes OCC Meeting February 11,2010 

Draft ~ Private & Confidential 

Drafted by Denis O'Brien 6of8 OCC-PST -00256916 
2272 


760612.105

_m --, -_:::: Red~vt··· v the Perm,,;"l( 

, :"iL,",,,,.,,,.e. un Inv""gations I 

make sense? stated in 2009 that they cleared 70.5 billion in FX 

transactions for the year; that would relate to 3.2 million individual transactions . 

•••• was a Banknote only client with an asset size of only 179 million; yet 

from 2006 2009 - sold 1.6 billion to HSBC. 

Cam stated the account was closed. Joe commented that yes, it may have been closcd but 

did the relationship make sense to onboard. 

Michael Jarrell commented on material concern as it relates to Reports of Findings and 

backlogged alerts. Out of 89 requests, 51 RoF's were still outstanding as of October 2009 

also noteworthy was the fact that it took an excess of 100 days to accomplish the reports 

of Finding. 

Pat commented as it related to_EDD was requested in June 2009, the report was not 

completed until October 2009. KYC was approved contingent on no negative findings. It 

was noted that there is no process in place to go back for re-approval. 

AMSALERTS 

Joe noted a Significant Backlog in alerts and is aware that the Bank (WynJothers) are 

working toward a solution to control and handle the backlog. Sally is also concerned and 

is working with Wyn. This is a Big Risk and must be cleared quickly as we are 

"Working out ofa deep hole". 

Pat and Grace commented on the Quality of Alerts as it relates to _as well as what 

the Policy/Procedures are to ensure that aged alerts are cleared first. Manny commented 

that they are unable to assess the potential vulnerabilities' with AS the alerts 

from November 2009 have not been worked. 

Joe and Ray stated concerns - failure to file SARs as it relates to: 

BARTON ADAMS - 5/2005 - 12/2008 various accounts in the U.S., Canada, Hong 

Kong and China for himself, his children, wife and business. Material concerns with the: 

depth, breadth scope of review 

review of activity prior to alert activity 

12/2006 - 30K wire to Philippines 

5 check dep. Less than 10K in 12/2006 

Employee contacted customer to ask on wire 

!-.1inutes oec Meeting February ll, 2010 

Draft - Private & Confidential 

Drafted by Denis O'Brien 70f8 OCC-PSI-00256916 
2273 


760612.106

Did not ask why 5 checks from Jefferson Savings 

Janet asked for a clarification 

._ = Redatled by the Perma.enl 

Subcommittee on lnvestigations 

Joe commented that the Bank did not perform a comprehensive look-back, nor across 

other Business Units - did not consider similar activity previously processed in 2007, 

2008 or 2009. SAR analysis did not consider wire activity 3 Bank to Bank wires for 9K 

to same checking l\JC that alerted. 

Concerns to monitoring process did not analyze on overall customer relation basis. Over 

3 Million Dollars through HSBC of which 2.3 Million to offshore entities. Potential 

"Layering Money Laundering" was not deemed suspicious or questioned and not 

discussed on case alerts. The quality review requested and suggested additional review 

which was not documented as being done. 

World Check showed a possible match for medical fraud. 

The alert narrative, stated not a match to our customer. Different address. But 

alert also shows customer just moved from another address .... 

November 2008 reflected a hit, exact name and country - which showed that it 

could not be confirmed as there was no date of birth whereas, EPLs listing 

matched the name and DOB of the banks customer. 

General strong examples - SAR should have included all activity. 

Joe stated that SAR's arc not being completed in a timely manner. The AMS Alert 

constitutes a trigger, Branch referrals, etc. - the bank was past the 30 day. Joe also 

commented that there is a potential deficiency in the "Accuracy of filings" and r!BUS has 

informed foreign affiliate of filings. 

Teresa Tabor commented on Brazil KYC 

Profile and EDD. She stated that there was negative Money Laundering news on the 

customer. It was not directly related to the MSB, but on the ~ndividual that owned 

the MSB. Banknotes staff had verbally stated they had a letter refuting the informationit has yet to be provided. 

Teresa Tabor commented that she is in the process of reviewing FX and has provided 

GBM FX 55 questions from a review of the FX Procedures and monitoring provided. She 

has requested a response on February 17, 2010. 

Minutes ace Meeting February 11,2010 

Draft ~ Private & Confidential 

Drafted by Denis O'Brien 80f8 OCC-PSI -00256916 
2274 


760612.107

Date: 

To: 

From: 

Topic: 

David: 

OCC-PSI-0028S742 

MEMORANDUM 

July 14,2008 

David Dew, Chief Operating Officer 

Lesley Midzain, EVP Compliance/AML Director 

Cam Hughes, Sr. VP Specialized Compliance 

Debra Bonosconi 

GIB AML Matters 

Per your request, I am providing you with an update of our status regarding the follO\ving: 

• Alert disposition progress, 

• Staffing issues, and 

• Libya's account information. 

ALERT DISPOSITION 

As shown in the chart below, we currently (as of7115) havc a total of 1,793 open alerts which is 

a reduction of 1,519 from 3,312 on June 27th. There are a total of 203 that are open in excess of 

120 days and 147 open in excess of90 days (350 combined) and we are concentrating our efforts 

on reducing those first. We are closing an average of 84 alerts daily (including Saturdays) and 

based upon current projections, we should have total of I ,499 pending alerts when the OCC 

arrives on July 21,2008. 1 

Jan" 

08 & Feb- AprEarlier 08 Mar-08 08 May-08 

91- 30-

>120 120 61-90 60 

Actual Total Days Days Days Days Current 

---00 470 =- . ''''''7<fr- 1-"7~r' ""878' 

07/11/2008 2 051 227 153 490 509 67L 

07/1512008 1793 ?QL r----l<lL 422 407 ." ,,~ 

Estimates, (based on current average 

oroduction) . 

..Q2/16;2008 1709 175 119 413 398 • 605 ! 

07/17/2008 1625 147 _2.L 403 388 5jJ5"" 

07/18/2008 1541 119 63 394 379 586 

07 19/2008 1499 105 49 389 374 581 .. 

FINAL ESTIMATE 

07/21/2008 1499 105 49 389 374 581 

I This does not include June alelts which we should have on July 21, 2008. 
2275 


760612.108

OCC-PSI-00285742 

Kathy Gladkowski's team (five staff) has been graciously providing assistance to us with our 

alerts since last week and will continue to do so for the near term. Our staff is currently working 

overtime and Saturdays to address both the backlog and aged alerts. We will continue to 

maintain this work schedule until we have reduced the number of alerts to a manageable level. 

STAFFING 

Currently, OlB has a total of 8 FTEs, two temporary staff, and one intern. As you are aware, 

senior management approval has been obtained to hire two additional FTEs in Buffalo, NY and 

those positions will be fully dedicated to alert management. We arc currently interviewing for 

these positions and anticipate that they will be filled by August 15, 2008. 

On June 25, 2008, the Libyan People's Bureau submitted a letter to OIB requesting the closure of 

the Money Market account and the remittance of the funds by cashier check. On June 30, 2008, 

OlB acknowledged the receipt of the letter and advised the Ambassador that OIB would also be 

closing the remaining checking account (balance $5,011,818.71 as of June 30, 2008) by July 30, 

2008. The Money Market account, with a closing balance $22,304,521.51, has been closed as of 

June 30th 2008. 

The Libyan Embassy has indicated that it has ceased issuing new checks and expects most 

oUl'itanding checks to clear by July 30, 2008. Nevertheless, the account will be closed on July 

30,2008. 

Please advise if you have any questions. 

2 
2276 


760612.109

. 

MEMO 

To: 

From: 

Date: 

OCC-PSI-00292367 

Lesley Midzain 

AIiS.Kazmy ~ ;I 

July 3, 2008 

Subject: Modifications to the Approved Private Bank Americas AML Procedures 

The following modifications have been made to the Private Bank CPB") Americas AML 

Procedures for 200712008. 

1) Bearer Shares 

Since BVI authorities have granted till December 2009 for all bearer shares to be 

registered, all BVI bearer share corporations within PB Americas will follow this time 

frame; 

High risk bearer share accounts will provide an annual recertification of the beneficial 

owners through a properly executed BOL; 

Standard risk bearer share accounts will provide beneficial ownership recertification 

every three years through a properly executed Beneficial Ownership Letter ("BOL"); and 

Clients must attest that they will notify the bank of change in ownership, as and when it 

takes place. A new BOL will be required from the new beneficial owner. 

2) Visitation Schedule 

Client Risk Domestic Clients International Clients 

Category/Product 

Face to Phone Face to 

_ .. _- Face Face _._--

All All 

Special Categories of 

Clients (SCCs) 

High Risk All All 

>$5MM 

>$15MM 

Standard/Medium Risk 

$3-$15MM <$3MM 

All 

Approved Intermediaries 

Memo: Modifications to the Approved Private Bank Americas AML Procedures 

Page 1 ofl 

All 

Phone 

I _ .. _--.-

$1-$5MM 

<$1MM 

Minimum 

Timing/Period 

I··············· .-.~ 

Annual 

Annual 

Annual 

Every 2 years 

Every 3 years 

Annual 
2277 


760612.110

OCC-PSI-00292367 

3) International Private Bank (Miami) Risk Rating Methodology 

The Intemational Private Bank will risk rate categories of customers to establish appropriate 

levels of EDD. Clients are identified as Special Categories of Clients (SCC), High Risk, and 

Standard Risk based on products and services, activity, type of business or entity, occupation, 

and geographic location. The risk assessment is performed at the time of account opening and is 

updated on a quarterly basis based on changes in account activity. 

For a new account the initial risk assessment is completed by the RM upon account opening 

using a Risk Assessment Worksheet. The final assessment as calculated on the Worksheet is 

entered into the CUSTOMER RISK RATING field in the Account Profile/Purpose Tab of the 

KYC Form. New accounts that are classified as SCC or High Risk require a completed EDD 

checklist prior to account opening. 

Risk Factor 1 - Industry I Occupation 

Certain Industries and/or Occupations are deemed to have a higher risk of money laundering 

potential. As determined by the AML Director. Given world circumstances and the developing 

intricacies of money laundering and terrorist financing, this listing is subject to amendment at any 

time. 

Risk Factor 2 - Country of Exposure 

Using the Group Countries list as a starting point, the AML Oversight Committee reviews the High 

Risk Country listing as necessary. Again, the world political and financial situation can affect this 

listing and it should be carefully monitored for change. 

Risk Factor 3 - Product I Transaction Type & Volume 

The client's actual usage of high risk products and services are tracked by client and are 

considered along with other factors to determine the overall client risk assessment 

Risk Factor 4 - Customer's Corporate Structure for Business Activity 

Certain types of structures are considered high risk when combined with high activity (Offshore 

Operating Shell Company, Personal Holding Company, Personal Operating Account) are 

considered along with other factors to determine the overall client risk assessment 

Clients who match any of the following six conditions are considered High Risk Clients: 

High Risk Occupation And High Risk Activity And High Risk Country 

Or High Risk Occupation And High Risk Activity 

Or High Risk Occupation And High Risk Country And Total Debits>=$500,OOO 

Or Offshore Operating Company And High Risk Activity 

Or High Risk Activity And Personal Holding Company 

Or High Risk Activity And Personal Account or Personal Operating Account 

Your consideration to this matter is appreciated. 

Thanks & regards, 

Memo: Modi6C8lions to the Approved Private Bank Americas. AML f'rocedures 

Pagc2of2 
2278 


760612.111

OCC-PSJ-00299323 

<<<DRAFT ONLY»> 

OF AC Pre-penalty Notice 

~eactive Statement:: .. 

HSBC abides by all OFAC rules and regulations and seeks clarification from OFAC when 

needed. 

In 2006, HSBC Bank USA. NA (London Branch) processed one gold bullion transfer instruction 

based on a good-faith and reasonable interpretation of OFAC rules. It has since rejected simHar 

transfer r-eque&!s-io.§l!ld.ctlOns. 

Background Talking points only/Not for attribution: 

» HSBC abides by all OFAC rules and regulations and seeks clarification when needed. 

» Transfer occurred because of a good-faith and reasonable interpretation of the legal 

requirements pertinent to the exemption provided at Sect 560.516(a) (1) 

}> HSBC self disclosed the transaction to OFAC. 

}> This type of transfer has only-happened ~once_~·-and--Ao further similaueque-sls 

transfers oU.bl§.~haye been processed. 

)=> There was no physical deliyery of gold to Iran or direct dealings 9Y HSBC with Iran. 

)=> HSBC only acted on authenticated instructions transmitted electronically via SWFH 

f.?YYJELto make book entry payments between accounts.! 

Q: If asked, why did it take OFAC so long to issue a Pre·Penalty Notice on this matter? 

We cannot comment for OFAC. Please direct this question to their office 

- FOR INTERNAl¥ USE ONLY -

BACKGROUND _. What happened; 

o " .. n ~MiaYil2i14~. 2~Oii06t' the HBUS London branch received an instruction from OI~·its clients--

~ rl Paris- to transfer (32,000 ozl of gold to an acco,uun~tiOf""'=~~ London which was held by _ in the US (acting as cearer).,:,: !ient was, 

favouring Bank Markazi !ran. The transaction did not involye the physical movement of gold and 

was solely book entries 

An internal assessment was made at the time by HSBC UK compliance,~.l~:based on information 

contained on the U.S. Treasury web site ..... -.-:r--tlerefo.fe,-UK compliance aUowed this-the transaction 

to take place. 

When HBUS London branch received a second such instruction the next day, May 25, it decided 

to reconfirm the positbn and verify the interpretation of the OFAC rules in relation to gold dearing 

activity. 

On Friday, May 26, HSBC rejected the second transfer. 

Subsequently, on Tuesdav May~OF.~q_~onfirmed on-30*' -¥:aY-t~at this tra~s~ctj9~ was _n9t. 

permitted and should be rejected. 

_:0 Redllcted by the Permanent 

Subcommittee on lonsligations 
2279 


760612.112

OCC-J'SJ-00299323 

Full details were self-disclosed !2YJ::i.~"~_to OFAC in a letter dated 27th June 2006, On 8th May 

2009, OFAC issued a Pre-Penalty Notice with a proposed penalty of $125,OOO . ....9JLLlJD8 ,t 2009 

HSBC ?ent a response letter to OFAC and is currently awaIting feedback from OFAC 

Q&A 

Note: If a penalty is aGGessedassessllQ, the fine will ~posted on the OFAC'-5 website. ~e 

4;--2~~rn-.a-ffi-SflO'f\4le{tef-1o-·GFAC-aM--i-s·Gll-ffefti.+y-awa-iOO.g faet:lbaGk-from--O-F-AC. 

Did HSSC sell gold to Iran? 

No. As a "clearing bank", HSBC Bank USA N.A. acted on a SWIFT standard payment instruction 

from in Pads to transfer "unallocated" metal to for the account 

of 

There was no physical delivery of gold to Iran or direct dealings with iran. HSBC only acted on 

authenticated instructions transmitted electronically via SW~IET to make book entry payments 

between accounts. 

HSBC's involvement was limited to acting as a clearer between ~nd __ Bank. 

Why did HSBC allow this transfer? 

HSBC Bank USA, NA (London Branch) processed one gold bunion transfer instruction based on 

a good-faith and reasonable interpretation of OFAC rules 

HSBC acted as a clearer between_ and_BanK The transaction was flagged by 

HSBC's internal systems and referred to compliance for approval 

Why did HSBC not process subsequent transfers? 

The second transaction was rejected after HSBC London conferred with US compliance, which in 

turn referred to OFAC on 25th May2006. 

Qn.;2.6.t~ May.20Q!3, HSBC rei~~J~9 ~~e secon~ transaction and no further dea!iI1gs tC:0.k place. 

On 30th May, OFAC confirmed that the U-turn rules applied to cash but not gold and therefore 

I the t[.?nsactlon shou!d be rejected 

When did HSBC report this violation? 

Full details were self disclosed to OFAC in the letter dated 27th June 2006 (date has been 

confirmed) 

Has HSBC been fined? 

NO. On 8th May 2009, OFAC issued a Pre-Penalty Notice with a proposed penalty of $125,000. 

! \~·flrte---BaR-.oo·up---te---2x-tAe-->a<a1He-e~1~AsaGl:too-------lr+thfs.-Gase--S44FWB 

I HSBC .has 30 days to contest the ruflng~~nt its resoon~e letter to OFAC on_June 4 4.Q.~ 

,tiSBC IS currently awaiting feedback from OFAC" 

r------------

--= Redacted by Ule Permanent 

Subcommittee on Investigations 
2280 


760612.113

OCC-PSI-00299323 

Timeline 

24th May 2006: Date of the original transaction. 

25 May 2006: Date of the proposed second transaction. 

25th May 2006: HBUS Compliance discussed the transaction with OFAC 

25th May 2006: HBUS applied for a licence to process the transaction 

2St!l May 2006: HSBC rejected the second transaction. 

30th May 2006: OFAC advised the J.jg!~application would not be approved and the transaction 

should be rejected {which HSBC had already done}. 

27th June 2006: Full details of the first transaction were ~self·disc!o5ed in a letter to 

OFAC -\f\·the·!etter -dated 

8th May 2009: OFAC issued a Pre-Penalty Notice with a proposed penalty of $125,000 

£:.Junf:l'~ 2.009: HSB,C. f~spond~d to-'.et~r a~~.j~ ~alting furth~rf~~d.back f~()r!"l OF~:. 

Glossary: 

Unallocated account - an account where specific bars are not set aside and the customer has 

genera! entitlement of the metal. 

Background: what is the U-turn exemj:tion? 

Before it was amended in November 10, 2008, the Iranian Transactions RegUlations authorized 

transfers ordered by a non-US bank from its own account in a US bank to an account held by a 

second US bank for a second non-US bank. This is commonly referred to as the ·'U-tum" 

exoemption. 
2281 


760612.114

Occ-Psi-00304783 

From: "PAUL K. STECKER" <PSTECKER@PHILLIPSLYTLE.COM> 

Sent: 8/8/2008 3:56:45 PM 

To: ELIZABETH PROTOMASTRO/HBUS/HSBC@HSBC02 

CC: ANNE LIDDY/HBUS/HSBC@HSBC02;DEBBIE M D'AUBNEY/GMO/HSBC@HSBC;JOHN M 

HALLIDAY/HGHQ/HSBC@HSBC;LESLEY MIDZAIN/HBUS/HSBC@HSBC02; 

MARY A CASKIN/HBUS/HSBC@HSBC02;MICHAEL T RYAN/HBUS/HSBC@HSBC02;PATRICIA 

KOPF/HBUS/HSBC@HSBC02;SUSAN A WRIGHT/HGHQ/HSBC@HSBC 

subject: RE: USS cole Case (RUX) 

Thank you, Elizabeth; please let me know what MS. Lawlor tells you, as this is an issue the bank counsel as a group are trying to decide how to 

address; and the sooner we know OFAC's position, and what if any role 

they plan to play in the lawsuit, the better. 

-----ori~inal Message----- From: ellzabeth.protomastro@us.hsbc.com [mailto:elizabeth.protomastro@us.hsbc.com] 

Sent: Friday, August 08, 2008 4:14 PM 

To: Paul K. Stecker 

Cc: Anne.Liddy@us.hsbc.com; debbiedaubney@hsbc.com; johnhalliday@hsbc.com; Lesley.Midzain@us.hsbc.com; mary.a.caskin@us.hsbc.com; michael.t.ryan@us.hsbc.com; patricia.kopf@us.hsbc.com; susanwright@hsbc.com Subject: RE: USS cole Case (RUX) 

I was told by OFAC that (A) the funds cannot be transferred without a license and (B) that they needed to see if the Executive Branch has any issues with this. I was told that OFAC should have some information 

for 

us by next week. (we we were originally told they would have a prelimary 

answer for us today, but that did not happen.) 

I will follow up with OFAC (Lorraine Lawlor) on Monday. 

"Paul K. Stecker" 

<PStecker@phillip 

slytle.com> 

To 

Anne Liddy/HBUS/HSBC@HSBC02, Susan 

08/08/2008 03:55 A WRIGHT/HGHQ/HSBC@HSBC 

PM 

cc 

Lesley Midzain/HBUS/HSBC@HSBC02, 

Mary A Caskin/HBUS/HSBC@HSBC02, 

-Hi zaoefhprotomastro/HBus/HSBC@HSBC02, 

Michael T RYAN/HBUS/HSBC@HSBC02, 

Page 1 
2282 


760612.115

patricia Kopf/HBUS/HSBC@HSBC02, 

Debbie M D'AUBNEY/GMO/HSBC@HSSC, 

John M HALLIDAY/HGHQ/HSBC@HSBC 

subject 

RE: USS cole Case (RUX) 

Occ-psi-00304783 

Anne, Susan et al. - I am on a conference call with the other bank 

counsel right now, and one of the issues we are discussing is whether a license from OFAC is needed to transfer the funds, as there is some uncertainty as to whether the TRIA statute preempts the license 

requirement. would whomever was advised by OFAC that it is their 

position that the funds cannot be transferred to the court without a license (as described below) please give me further details about what 

OFAC said, and whether we have any sense as to what action OFAC is 

expected to take (e.g., issue a license or challenge the court's order). 

-Paul 

paul K. stecker 

phillips Lytle LLP 

3400 HSBC Center 

Buffalo, NY 14203-2887 

Direct tel.: 716.847.7044 

Fax: 716.852.6100 

-----original Message----- From: Anne.Liddy@us.hsbc.com [mailto:Anne.Liddy@us.hsbc.com] 

sent: Friday, August 08, 2008 3:37 PM 

TO: susanwri9ht@hsbc.com 

Cc: Lesley.Mldzain@us.hsbc.com; mary.a.caskin@us.hsbc.com; elizabeth.protomastro@us.hsbc.com; michael.t.ryan@us.hsbc.com; patricia.kopf@us.hsbc.com; debbiedaubney@hsbc.com; johnhalliday@hsbc.com; Paul K. stecker 

subject: uss cole Case 

. Susan, as-p-er-our conversation onl'nursaayafter'ribbn -pl·s-see-ffieDe~ 

On October 12, 2000, the USS cole was attacked in Yemen resultin9 in the 

deaths of 17 u.s. sailors. The families of these victims have flled 

suit 

page 2 
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760612.116

Occ-Psi-00304783 

and are awaiting compensation. 

under the subject lawsuit, the family members seek to collect the 

judgment 

they obtained against the Republic of sudan out of blocked funds HBUS 

and 

other banks are holding pursuant to OFAC'S sudanese sanctions 

Regulations 

(SSR). HBUS holds four wire payments blocked pursuant to the SSR 

totalling 

$3,?65,151.58 which are subject to be turned over to the court's 

reglstry 

by August 25, 2008 in compliance with this order. These four payments involve HSBC Group Members: 

1.) HSBC Hong Kong $300,000; 

2.) British Arab Commercial Bank Ltd $58,442.25; 

3.) HSBC Dubai $367,770; and 

4.) HSBC Johannesburg $2,538,939.33 

pls see the attached spreadsheet detailing the blocked payments. 

(see attached file: sudan Blocked Funds.xls.zip) 

We have been advised by our external and internal legal counsel that we should notify the affected Group entities and their lmpacted customers 

of 

this court action prior to August 25th. Background on the court order, 

issued on July 29, 2008, as well as dates requiring specific action are included below. We will need your advice regarding the manner in which we 

should contact the Group entities. We can certainly contact them 

directly 

ourselves, or would you like us to work through GrOUp compliance? OFAC 

has 

advised that the funds cannnot be released until a license is issued. 

We 

have spoken with OFAC today and they indicated they will be providing us details regarding this issuance next week. 

(see attached file: order Regulating proceedings.pdf) 

Key Dates: 

By August 25, the banks are ordered to release and transfer the 

blocked 

funds to the court's registry. By september 25, the banks are required to send formal notice to 

impacted parties. Formal notification is being drafted by the banks 

and 

reviewed by the court. 

Our legal counsel has confirmed that HBUS is permitted to provide informal notification to the impacted parties prior to september 25. 

Impacted parties will have 60 days in which to take action and submit 

objections to the court. 

I will be out of the office on Monday and Tuesday. During that time 

plse 

contact Mary Ann Caskin on 212 525 5530 if you have any questions. Thank 

Page 3 
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760612.117

occ-psi-00304783 

you. 

Anne Liddy 

SVP, AML compliance I HSBC Bank USA, N.A. 

452 5th Avenue, Tower 7, New York, NY 10018 

phone 

Fax 

Email 

212-525-5906 

212 525 5769 

anne.liddy@us.hsbc.com 

****************************************************************** 

This E-mail is confidential. It may also be legally privileged. If 

you are not the addressee you may not copy, forward, disclose or use any part of it. If you have received this message in error, 

please delete it and all copies from your system and notify the 

sender immediately by return E-mail. 

Internet communications cannot be guaranteed to be timely, secure, error or virus-free. The sender does not accept liability for any errors or omissions. 

****************************************************************** 

SAVE PAPER - THINK BEFORE YOU PRINT! 

****************************************************************** 

This message originated from the Internet. Its originator mayor 

may not be who they claim to be and the information contained in 

the message and any attachments mayor may not be accurate. 

****************************************************************** 

page 4 
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760612.118

Occ-Psi-00307701 

From: ALI S KAZMY/HBUS/HSBC 

Sent: 2/26/2007 4:22:13 PM 

To: MARY A CASKIN/HBUS/HSBC@HSBC 

CC: NERISSA P HALL/HBUS/HSBC@HSBC;CAROL J HARVEY/HBUS/HSBC@HSBC;ANNE 

LIDDY/HBUS/HSBC@HSBC; 

ALAN P WILLIAMSON/HBUS/HSBC@HSBC;ALEXINE VON KESZYCKI/HBUS/HSBC@HSBC 

subject: Re: APC Interim procedures 

I have the following comments/suggestions: 

At present, we do not have a standard Bearer Share policy. I am actually working on it and expect it to be finalized this week, however, it will requirE senior management approval. I will try my best to secure that as well, but 

believe that we should have a note on the training deck that a Bearer Share 

policy will apply and that for the time being the one in existence being that 

of PB Americas should be utilized. 

Three months (90 days) is reasonable for a site visit. I concur with carol. 

If the initial deposit is a check and it ends up being sent on collection, I 

believe there are certain disclosure requirements regarding the time frame it 

takes to collect proceeds of a collection item. A reference to that effect is 

in order to deter customer dissatisfaction/complaints. 

No mention is made of OFAC check. 

proper documentation, including that which relates to work done to ascertain 

customer identification, type of government issued ID, KYC requirements, etc., 

must be maintained in the customer file. This should also include any reports generated by ICRO, EDD reports, etc. Additionally documentation related to 

resolution of discrepancies (ID numbers, address, etc.) must be maintained in 

the file as well. 

Regards, 

From: Mary A caskin on 26 Feb 2007 15:57 

TO: Nerissa P Hall/HBuS/HSBC@HSBC 

carol J Harvey/HBUS/HSBC@HSBC Anne Liddy/HBUS/HSBC@HSBC Alan P Williamson/HBUS/HSBC@HSBC 

Alexine von Keszycki/HBUS/HSBC@HSBC Ali S Kazmy/HBUS/HSBC@HSBC 

subject: APC Interim procedures 

Nerissa and I worked up a revised document reflective of carol's suggestions, indicated with tracking. There are some comments that need to be addressed to 

help with clarity: The Visitation policy needs a management decision. There was an original 

suggestion to require the visitation within 6 months of account opening. carol 

is asking that we consider a 3 month window, instead. we included a call report, modeled after the IPB call Report. We still need a decision on the "Hold All Mail" policy. 

Also, it is important to note that HSBC has the capability to assist the 

customer ln the establishment of a PIC or IBC. This issue is addressed in this 

proposed procedure. 

page 1 
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760612.119

Occ-Psi-00307701 

please send any additional comments as soon as possible so we can draft a training deck. 

Mary Ann Caskin vp 

AML compliance HSBC Bank USA NA 

452 Fifth Ave Floor 7 

NY, NY 10018 

212-525-5530 

Nerissa P Hall/HBUS/HSBC 

02/26/2007 03:03 PM 

To 

Mary A caskin/HBUS/HSBC@HSBC cc 

subject 

Fw: APC Interim Procedures (draft) 

Nerissa P. Hall 

vice president, senior Manager Anti-Money Laundering compllance HSBC securities (USA) Inc. 

452 Fifth Avenue, NY 10018 -,e~K'o-:- tnT) -YZS~~Y~ 

Fax NO. (212) 525-5769 

Email: nerissa.p.hall@us.hsbc.com 

----- Forwarded by Nerissa P Hall/HBUS/HSBC on 02/26/2007 03;03 PM -----

carol J Harvey/HBUS/HSBC 02/26/2007 02:25 PM 

Neri ssa, 

To 

Nerissa P Hall/HBUS/HSBC@HSBC cc 

subject 

Re: APC Interim procedures (draft) 

I made some comments and questions that I high-lighted in yellow: 

page 2 
2287 


760612.120

Occ-psi-00307701 

[attachment "APC Interim procedures (draft) 26FEB07.doc" deleted by Mary A 

caskin/HBUS/HSBC] 

Carol] Harvey, CAMS 

senior compliance officer 

AML Retail compliance 

1441 Brickell Ave, 16th floor 

Mi ami, FL 33131 

phone: (305) 536-8113 Fax: (305) 539-4910 

Email: carol.J.Harvey@us.hsbc.com 

Nerissa P Hall/HBUS/HSBC 

02/26/2007 09:52 AM 

To 

Caro 1 J H'arvey /HBUS/HSBC@HSBC, Anne Liddy /HBUS/HSBC@HSBC, Alan P 

williamson/HBUS/HSBC@HSBC, Mary A Caskin/HBUS/HSBC@HSBC, Alexine Von 

Keszycki/HBUS/HSBC@HSBC, Ali S Kazmy/HBUS/HSBC@HSBC cc 

subj ect 

APC Interim procedures (draft) 

All, 

Mary Ann and I drafted interim APC procedures for your review. We tried to 

consider all previous comments. The one topic we did not address is the "hold 

all mail" issue which we need to research further. 

please provide you comments no later than end of day, 2/26, so that we may obtain appropriate sign off and plan the training document reflective of the --fi'na-l-llraft-;-~-·-··- --~~'~---'--'-"'-------'---- ---. 

[attachment "APC Interim procedures (draft) 26FEB07.doc" deleted by Carol] 

Harvey/HBus/HSBC] 

Thank you 

Ne ri s sa P . Hall 

vice president, senior Mana~er 

Anti-Money Laundering Compllance HSBC Securities (USA) Inc. 

452 Fifth Avenue, NY 10018 

Tel. NO. (212) 525-5579 

Fax No. (212) 525-5769 

Email: nerissa.p.hall@us.hsbc.com 

Attachment: APC Interim procedures (draft) 26FEB07 carol edits.doc 

page 3 
2288 


760612.121

From: ALAN P WILLIAMSON/HBUS/HSBC 

Sent: 5/9/2007 8:14:15 PM 

occ-Psi-00312153 

To: GEORGE TSUGRANES/HBUS/HSBC@HSBC 

CC: ALAN T KETLEY/HBUS/HSBC@HSBC;ANNE LIDDY/HBUSjHSBC@HSBC;DENIS E 

O'BRIEN/HBUS/HSBC@HSBC; 

DENISE A REILLY/HBUS/HSBC@HSBC;ROBERT x GUTHMULLER/HBUS/HSBC@HSBC 

subject: Re: Fw: visit ,to Brooklyn Ops 

George 

I am sorry I have not had a chance to comment before on your proposal. Couple of questions: 

How much effort/manhours would it be to institute the process Alan described 

forllllland one other client of equivalent size, if BrooklYn recorded the info 

rather than you using check image? 

HoW much time do you estimate could be saved by revising the process for group 

members? 

How much time do you estimate would be added by your heightened monitoring 

process for sec's? 

Thanks 

Alan W 

George Tsugranes/HBUS!HSBC 05/09/2007 01:49 PM 

To 

Alan T Ketley/HBUS/HSBC@HSBC cc 

- "" Redlcted by the Permanent 

Subcommittee on Investigations 

A 1 an P will i amson/HBUS/HSBC@HSBC, Anne L i ddy/HBUS/HSBC@HSBC, Den-; s E 

O'brien/HBUS/HSBC@HSBC, Denise A Reilly/HBUS/HSBC@HSBC, Robert X G~tbTll"ul_l er LHBUS/HSBC@HSBC subject---- ------

Re: FW: visit to Brooklyn ops 

Alan I had Bill wehmeyer do a quick analysis on ....... account and the stats for the last 5 days - average of 22 checks per day. using the data for the 

last 5 days and incorporating the process noted below would take about 2+ hours 

each day. 

This process if instituted would make the cash letter review process a 6+ hour 

per day process absent some relief in other parts of the daily cash letter man; tori ng. 

Analysis below: 

--F"rom--Ma:y--zmJ --to -May--8-t-h--, account.b~ ____ _ deposit on each day. None of these deposits had an iTem count on the cash 

letter deposit ticket. I used check image to obtain the exact item count for 

each day, this process was time consuming. I have summarized each day below. 

Items Doll ars 02May 14 101,837.00 

Page 1 
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760612.122

03May 26 76,311.14 

04May 26 33,820.83 

07May 21 63,498.41 

08May 21 37,617.00 

regards, 

George 

Alan T Ketley/HBUS/HSBC 05/09/2007 10:26 AM 

To 

occ-Psi-00312153 

George Tsugranes/HBUS/HSBC@HSBC cc 

Alan P williamson/HBUS/HSBC@HSBC, Anne Liddy/HBUS/HSBC@HSBC, Denise A 

Reilly/HBUS/HSBC@HSBC, Robert x Guthmuller/HBUS/HSBC@HSBC, Denis E 

o'brien/HBUS/HSBC@HSBC 

subj ect Re: Fw: visit to Brooklyn ops 

George 

--"" Redacted by the Permane~t 

Subcommittee on Investigations 

We have been asked by the OCC what specifically we are going to do about the 

monitoring for cash letter. I think the suggestion below is a good start but we need some more detail. 

How feasible would it be to pull everyone of the _ cash letters and record on a spreadsheet the names of the makers of the cash letter items? The 

spreadsheet should identify items that were made payable tOll separate.l. y fro .. m .. other items; it should record the names and address of the purchasers and 

··'the·..J'la.m<os-·of-the-pu+chasus-. oLtheo.ffic.iaL.che.cks •.. Th.e...r.ec.Dn .. cOllli:t.b.eI1.~ ... reviewed mon.1b.l.li: and we would create some rules governing escalation such as we will ask....-about names that we see more than x times with values greater than y dollars where 'x' and 'y' may vary according to instrument type. 

we could incorporate this iton our risk based model by applying the same monitoring to any us bank that offers a remittance service and gives us cash 

letter. 

Alan T. Ketley senior vice president, Anti Money Laundering Tel: 212 525 6147 / Fax: 212 382 7580 

George Tsugranes!HBUS/HSBC 

.QS/D.U2Q_QZ Q?~18J'i'i.. 

To 

Alan T Ketley/HBUS/HSBC@HSBC cc 

Alan P williamson/HBUS/HSBC@HSBC, Anne Liddy/HBUS/HSBC@HSBC, Denise A 

Reilly/HBUS/HSBC@HSBC subject 

Page 2 
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760612.123

occ-psi-00312153 Re: Fw: visit to Brooklyn ops 

Alan - I have discussed the issues with the Delaware AML team and asked for some input on ways to improve our cash letter monitoring. Below are some recommendations which will allow for both operational benefits and a more risk 

based monitoring approach. 

Immediately revise the daily process to exempt check reviews for group members receivin~ checks from large Fortune 100 names (provide Albert the list). Apply thlS exemption to. Bank checks deposited through HSBC HK - example below. Appear trade related transactions and average 5-6 checks every other day. 

[attachment "HSBcHK_wachovia.pdf" deleted by Alan P williamson!HBUS!HSBC] 

Revise the HSBC Group deposit limit for deposit reviews to $1,000,000 for Group members in non HRCs. 

Revise the dollar limit for review on SCC accounts to $100,000 

List of sccs with 2006 activity below: 

SCC clients with cash Letter Activity! 2006 volume 

r-------_. 

--= Redatted b) the Permanent 

Subcommittee on Investigations 

Total Hokuriku Bank (Japan) and deposits and MIFS and compare to subtotals on the daily ICS reports - eliminate the check by check comparison and only investigate if an apparent MIF was not included. 

Have the team do a review of the prior months daily cash letter activity on ...... This will allow us to trend deposits, possibly ask -- ''1U''~'{)fl-sand I ca~ __ +epoI'Lthe..re.vie.w .fjndings .. monJ;h_ly-,-

To summarize we would be focusing more on SCC clients, cutting back on some Group reviews in non HRCS and also tracking I office 

activity each month. 

please review and we can discuss at your convenience. 

page 3 
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760612.124

regards, 

George 

Alan T Ketley/HBUS/HSBC 04/27/2007 02:17 PM 

To 

occ-Psi-00312153 

"Anne Liddy" <anne.liddy@us.hsbc.com>, "Alan Williamson" 

<al an. p. wi 11 i amson@us.hsbc.com>, Deni se A Rei 11 y /HBUS/HSBC@HSBC, "George Tsugranes" <george. tsugranes@us.hsbc.com> cc 

sUbject 

Fw: Visit to Brooklyn ops 

Food for thought. 

George please review and let me have your comments. I will read later and try 

to dlgest. 

We will look to have a meeting with Bob next week to discuss further. 

Alan T. Ketley senior vice president, Anti Money Laundering Tel: 212 525 6147 / Fax: 212 3827580 ----- Forwarded by Alan T Ketley/HBUS/HSBC on 04/27/2007 02:11 PM ----- -Robert-x-GttthmtM+er-fHBusfHs.BG04/27/2007 12:52 PM 

TO 

Alan T Ketley/HBUS/HSBC@HSBC cc 

subject 

Re: visit to Brooklyn opsLink 

"JusLfinished"aJl~ghle;yeJC.E'cvj~\'I of cash letter processing with Albert Halley, Jonathan Dean and Mi ke MCMann. wel1avelifen-tifiea-tne~ty)le5-oHtems"-p~sset:l 

and where the compliance monitoring takes place or doesn't take place. I'll 

give you a memorandum next week on the review but here is the Readers Digest version of what we agree on. Four opportunities to brainstorm: 

1) Procedures treat all clients the same. This department processes 

page 4 
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760612.125

occ-psi -00312153 

cash letter items, including remote deposit capture items, as well as foreign 

mail teller items and PCM customer items from high risk clients, medium risk 

clients and low risk clients. We should be drillin~ down on qur hieh risk customers (i.e.) middle east, Latvia etc and less tlme on the'... 

-=hecks. We shoul d take the hi gh ri sk cl i ent 1 i st from PCS tor starters, 

matCJllJp volume fiqures for each, identify those clients that in the past have sent a large number of sequentially numbered travellers checks or high volume 

of money orders or personal checks and monitor accordingly. 

2) Albert Halley and staff of three have "divided loyalty". Their main ~ob is processing checks - 5:00PM deadline. But they are also asked to be the 

'front line" for monitoring, refering items to Delaware for further 

i nvesti gati on. One job focusses on pushi n~ items th rough, another is to go 

slower, review items, ask themselves questlons - is it suspicious? - contact Delaware - what for a response - hopefully before 5:00PM. 

one solution is to have a full time compliance person reviewing items 

FULLY, that means internet searches, OFAC, wordcheck etc. Additionally, the compliance person could drill down on the high risk accounts. 

3) Must improve Trend analysis. Nothing done in Brooklyn. Very new process started in Delaware regarding money orders. (Lotus Notes database). We 

have reportedly had all travelers checks $20k and over (from MIF) on Excel for 

4 years but haven't used/sorted items for trend analysis. Lets start looking at it. WHAT ABOUT SEQUENCIALLY NUMBERED TRAVELERS CHECKS AGGREGATING SAY $15k 

per day, same payee; WHAT ABOUT OFFICIAL CHECK TRENDS/PATTERNS????? 

4) 

regarding 

searches, 

etc. 

Must improve EDD in Delaware. B~sed upon our conv~rsation 

we must lmprove EDD, more lnternet 

calls on high risk clients asking questions, use of certifications, 

operati onal probl ems: 

1) At least one client - in Turkey submits over 50 cash letters in a day (something about Embassy requirement that individuals must have $14k in us funds in order to buy a car???!! t!l!. Time consuming 2) Volume on Mondays 2 to 2 and a half times Tues through Fri. . Just the way it is! I!! 

Reviewed above with Emilio Ruiz, site mgr. 

Alan T Ketley/HBus/HSBC 

04/2412007 04:32 PM 

To 

--= Redacted by the Permanent 

Subcommittee on Investigations 

Robert X Guthmull er /HBus/HSBC@HSBC, Jonathan' Dean/HBUS/HSBC@HSBC cc 

"George Tsugranes" <george.tsugranes@us.hsbc.com>, Denise A 

ReillY/HBUS/HSBC@HSBC, Emilio RU1Z/HBUS/HSBC@HSBC, Mark 

Balawender/HBUS/HSBC@HSBC 

Subject 

visit to Brooklyn ops 

page 5 
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760612.126

occ-Psi-00312153 

Bob, Jonathan 

Can you make your arrangements to visit with the Brooklyn IPG Group on Friday April 27. 

The purpose of the visit is to ~ain a thorough understanding of what is 

processed through Albert Halley s area with a specific focus on what items are reviewed and how as well as to get an understanding of whether anything that is 

not PCM ever flows through the department. 

I will try to set up a conference bridge either tomorrow or Thursday to give 

you both a more thorough briefing. 

Thank you both in advance for the time allocated to this 

Alan T. Ketley senior Vice president, Anti Money Laundering Tel: 212 525 6147 / Fax: 212 382 7580 

page 6 
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760612.127

Occ-psi-00316956 From: ALI S KAZMY/HBUS/HSBC 

Sent: 8/9/2007 7:18:33 AM 

TO: ALAN P WILLIAMSON/HBUS/HSBC@HSBC 

CC: ANNE LIDDY/HBUS/HSBC@HSBC 

Subject: Re: Fw: On Boarding Bearer Share corporation policy Guidance 

Alan, 

In order to finalize the captioned policy, we need to agree on all prov,s,ons thereof. I have concurrence from all other business partners and now await 

PB's as well. AS such, your early response/feedback will be appreciated. 

At this juncture, your cognizance is drawn to the recently issued enforcement 

action against American Express entities, who were penalized up to $55 million 

for BSA/AML violations including those associated with Plcs/bearer share 

accounts. For ease of reference, copied below are the exact wording of the 

regulatory findings: 

FRB action: "AEBI did not maintain effective control measures for bearer share 

and other PICs". 

FinCEN action: "Measures to fully identify account relationships involving private Investment companies (PICS) and bearer share account, to assess and 

manage the potential risk for money laundering in these accounts were not 

effectively implemented". 

American Express also has a Deferred procession Agreement due to the referenced 

violations of the BSA. My email of 7th August refers in this respect, which I 

will be forwarding to PB Miami following this note for their review and 

necessary action. 

Thanks & regards, 

From: Alan P williamson on 06 Aug 2007 13:29 

--'fO·~---A-l4-S--Kai!n1}'/+lBUS/H~~-·--

cc: Anne Liddy/HBUS/HSBC@HSBC subject: Re: FW: On Boarding Bearer Share corporation policy Guidance 

Ali 

Thanks for the full disclosure, unfortunately I now question my prior inclination to make them be consistent. 

Let's talk later 

Alan 

From: Ali S Kazmy 

sent: 08/06/2007 11:07 AM EDT 

TO: Alan P williamson _. Cc: ... Ann!!. .. UJlgy ________________ .. __ subj ect: Re: Fw: On Boardi ng Bearer share corporat, on Po I, cy CulOance----

I have forwarded 2 emails from clara's prior to this one. she has concerns and 

do not think she can go back to "re-paper" all high risk bearer share corp. 

accounts. 

page 1 
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760612.128

occ-psi-00316956 

Teresa's has been in all meetings reviewing the variaus drafts af this palicy and she is an baard with it. 

Yaur invalvement is naw requested to. finalize the issue. 

Thanks, 

Fram: Alan P Williamsan an 06 Aug 2007 10:53 

To.; Ali S Kazmy/HBUS/HSBC@HSBC 

cc: Anne Liddy/HBUS/HSBC@HSBC Subject; Re: FW; On Baarding Bearer Share carparatian palicy Guidance 

Ali 

The retra will cast same resaurce so. has to. be planned separately. 

In principle we shauld have cansistency but its clara wha's gaing to. be mast 

impacted. If she has nat specifically cammented r wauld like to. send to. her 

and Teresa befare signing aff. 

Alan 

Ali S Kazmy/HBus/HSBC 08/06/2007 08:47 AM 

Alan, 

To. 

Alan P williamsan/HBUS/HSBC@HSBC cc 

Anne Liddy/HBUS/HSBC subject 

Re: FW: On Baarding Bearer Share Carparatian palicy Guidance 

Many thanks far yaur feedback. The minar edits within the dacuments are accepted. As regards the majar cancerns nated belaw, please nate that: 

we may have to. do. a retra review, hawever, aver a peri ad af reasanable time 

(ane to. twa years passibly). A firm time frame has nat been decided, as such, 

the palicy Guidance daes nat pravide far an implementatian date. Gaing farward 

it will apply an all Bearer Share carp. custamers. As saan as this draft is 

a9reed to. by all parties, we will issue it with immediate effect and advise 

wlth the Ops. circular the retra review time frame. r a9ree with yaur paint regarding exceptian. NO. matter haw much we try nat to. _ dev.late-fral1LIhe_puLic)L,_.we . canno.L stiJLcontroLalJ_sj.:tw!:tions.8c.co ["din9ly,.:r:. am adding a line at the end af the Palicy Guidance stating the fallawing: 

Exceptians to. this palicy must be saught fram the AML Directar ar designee in 

writing giving full details af the matter warranting such exceptian. The 

written appraval must be maintained in custamer file and reparted to. oversight 

page 2 
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760612.129

Occ-Psi-00316956 

& Control Group upon receipt. 

At this stage, I would also like to confirm our discussion of last week, where 

you agreed that PB Miami should not be treated any separately. That being the 

case, we will have to ascertain as to how we will arrange practical implementation of this guidance on them with about 600 high-risk Bearer Share 

corp. accounts. 

Regards, 

From: Alan P Williamson on 05 Aug 2007 11:46 

To: Ali S Kazmy/HBus/HSBC@HSBC 

subject: Re: Fw: On Boarding Bearer Share corporation policy Guidance 

[attachment "On Boarding Bearer share corporation policy Guidance 

(comments).doc" deleted by Ali S Kazmy/HBus/HSBCl 

Ali 

I made some fairly minor comments, mostly to emphasise the unique nature of 

bearer share companies. My major concerns are: 

I think the policy should state that it is prospective from the date of 

issuance; otherwise we may have to do a retrospective looking for bearer share 

corps. This may be a good idea but we should avoid locking ourselves in. 

There has to be an exception process. We know from experience that there is 

always a special case somewhere. That should take care of the few instances in 

markets where this may come up. 

I apologise for my lateness and lack of prior attention to this, but can you confirm that Nerissa, Teresa, Clara, and Martin have reviewed? what is the 

next step? 

Thanks as always for your patience. 

Alan 

Ali S Kazmy/HBUs/HSBC 

08/03/2007 01:01 PM 

TO 

Alan P williamson/HBUs/HSBC@HSBC cc 

subject 

Fw: On Boarding Bearer share corporation policy Guidance 

per our discussion of Monday the 30th of July, this is to request your feedback on the aforementioned document. 

page 3 
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760612.130

Occ-psi-00316956 

Thanks & regards, 

---------------------- Forwarded by Ali S Kazmy/HBUS/HSBC on 08/03/2007 01:00 

PM --------------------------- Ali S Kazmy on 25 Jul 2007 17:23 

Note 

25 Jul 2007 17:23 

From: Ali S Kazmy Tel: 212-525-5560 

Title: Vice President Location: 5TH-21 

workGroup: CaMP/ANTI-MONEY LAUNDERING Mail Size: 

To: Alan P Williamson/HBUS/HSBC@HSBC 

Alan T Ketley/HBUS/HSBC@HSBC 

Alexine Von Keszycki/HBUS/HSBC@HSBC 

Anne Liddy/HBUS/HSBC 

Bernie Mackara/HBUS/HSBC@HSBC 

clara Hurtado/HBuS/HSBC@HSBC 

Daniel Jack/HBUS/HSBC@HSBC 

Deborah R price/HBUS/HSBC@HSBC Denis E O'brien/HBUS/HSBC@HSBC 

George Tsugranes/HBus/HSBC@HSBC Judy P Stoldt/HBUS/HSBC@HSBC 

Kathleen L Gladkowski/HBUS/HSBC@HSBC 

Mary A Caskin/HBUS/HSBC@HSBC 

Nerissa P Hall/HBUS/HSBC@HSBC 

Richard Salvatore/HBUS/HSBC@HSBC 

Robert Abreu/HBUs/HSBC@HSBC 

salvatore Iocolano/HBUS/HSBC@HSBC 

Steven J Rockefeller/HBus/HSBC@HSBC 

Susan Hoggarth/HBUS/HSBC@HSBC 

Teresa Garcia/HBUS/HSBC@HSBC 

subject: On Boarding Bearer Share Corporation policy Guidance 

36166 

Thanks to all the participants of today's meeting. I believe we are getting 

close to finalizing the guidance. In this re~ards, please provide your final --{Oommems~*~t-Wfl.,4j_~"i"Il-Wf'~-w "me----b¥-"+uesd<l¥--tl:!e-~f 

July. 

For ease of reference, the draft guidance is attached. 

[attachment "On Boarding Bearer share corporation policy Guidance.doc.zip" 

deleted by Alan P williamson/HBUS/HSBC] 

The minor changes discussed today will be incorporated after receipt of all 

comments on Tuesday. 

Rega rds, 

page 4 
2298 


760612.131

From: TERRY WESTREN/HBUS/HSBC 

Sent: 12/11/2007 11:36:28 AM 

occ-Psi-00327917 

TO: PAUL J O'SULLIVAN/HBUS/HSBC@HSBC02 

CC: ALAN P WILLIAMSON/HBUS/HSBC@HSBC;ANTONIO SUAREZ-OBREGON/HBUS/HSBC@HSBC;CLARA 

HURTADO/HBUS/HSBC@HSBC; 

DENNIS J DUGGAN/HBUS/HSBC@HSBC;JEFF CLOUS/HBUS/HSBC@HSBC;LOUIS 

MARINO/HBUS/HSBC@HSBC; 

MANUEL DIAZ/HBUS/HSBC@HSBC;MARLON YOUNG/HBUS/HSBC@HSBC;MASON C 

SALIT/HBUS/HSBC@HSBC02; 

PATRICK M CAMPION/HBUS/HSBC@HSBC;STEVEN J ROCKEFELLER/HBUS/HSBC@HSBC;TERESA 

GARCIA/HBUS/HSBC@HSBC02; 

STEFAN HARDY/HBUS/HSBC@HSBC 

Subject: Re: FW: Bearer share corporation policy 

paul, 

If I read this correctly, it is saying that one year from the issuance of this 

policy, we have to have all outstanding bearer shares (currently with clients), 

either registered or in the hands of an approved custodian. Is this correct? 

I recall when the OCC was here, they asked for this. AML compliance was able to negotiate for this requirement to be applicable only to High Risk accounts. We 

then complied with this. It looks like this is now expanded to all outstanding bearer shares? of course, with the new BVI rules coming into play in 2009, 

they will have to do this anyway, but I think it should be noted this could be a considerable exercise. 

Thanks and regards, 

Terry Westren 

SVP, Head of International operations, HSBC private Bank 

452 Fifth Ave. 6th Floor, New York, N.Y. 10018 

phone. 

Fax. 

Email. 

212-525-5325 

212-525-1680 

terry.westren@hsbcpb.com 

Paul J O'sullivan/HBUS/HSBC@HSBC02 

12/10/2007 06:36 PM 

TO 

Terry Westren/HBUS/HSBC@HSBC, Mason C salit/HBUS/HSBC@HSBC02, Teresa 

Garcia/HBUS/HSBC@HSBC02, Antonio Suarez-Obregon/HBUS/HSBC@HSBC, Jeff 

clouS/HBUS/HSBC@HSBC, Manuel Diaz/HBUS/HSBC@HSBC, Clara Hurtado/HBuS/HSBC@HSBC, 

patrick M campion/HBus/HSBC@HSBC, Steven J Rockefeller/HBUS/HSBC@HSBC, Dennis J 

Duggan/HBUS/HSBC@HSBC cc 

Marlon YOung/HBUS/HSBC@HSBC, Louis Marino/HBus/HSBC@HSBC, Alan P 

williamson/HBUS/HSBC@HSBC 

subject 

Fw: Bearer share corporation policy 

All, 

Page 1 
2299 


760612.132

occ-Psi-00327917 

Attached is the final draft of proposed policy covering Bearer Share Company clients. There is a little more flexibility than was originally planned and we will be able to maintain bearer share company accounts once the requirements of 

the policy are met. 

I will follow up with each group individually (DPB, IPB NY, and IPB Miami) to 

discuss implementation steps. 

regards, 

Paul 

----- Forwarded by Paul J o'sullivan/HBuS/HSBC on 12/10/2007 06:21 PM -----

Ali S Kazmy/HBuS/HSBC@HSBC 12/10/2007 04:38 PM 

TO 

Paul J o'sullivan/HBus/HSBC@HSBC02 cc 

subject 

Bearer Share corporation policy 

Attached is the aforementioned document for implementation purposes. please 

note that we will be announcing the policy by the end of the week. 

[attachment "Bearer Share corporation Account policy Guidance (Final Draft 

082907).doc.zip" deleted by Terry westren/HBUS/HSBC] 

In case of any questions, please let me know. 

Regards, 

Page 2 
2300 


760612.133

OCC-PSI-00328384 

HSBC GROUP PRIV ATE BANKING NORTH AMERICA 

COMPLIANCE REPORT 14 DECEMBER 2007 

ISSUES ARIS!J'IG 

(A) NEW ISSUES 

(i) HSBC Private Bank Division of HSBC Bank USA ('HBUS-PB"), 

New York and California - DPB 

Compliance is working closely with the DPB Retrospective Review 

Committee as a plan is prepared for Phase 2 of the Retrospective 

Review project. The earlier draft is being updated for comments 

received. Compliance is working to finalize the definition of "High 

Risk" client which is important in terms of prioritization of the 

remediation work in phase 2. 

(ii) HSBC Private Bank International Miami (PBUS) 

The Atlanta Fed concluded the on-site review of Miami PB on 29 

November 2007. An exit meeting was not held (it will be scheduled for 

January). 

Compliance Management and the Miami LCO had a meeting with the 

Examiners on November 20,2007 to understand how the examination 

had gone. The following are the major themes: Norkom - we need to 

continue the work to make scenarios more granular, tum on the 

remaining scenarios where appropriate, address issues raised by GFA 

in the November audit. Bearer Share Companies - they will await the 

;,evis~l;-f'~mad"H.-w~ntaboyt the recectifications.-

More NY oversight visits, review of specific issues (evidence thereof) 

and review of operating companies. Offshore accounts - no comments 

for now as they had not spoken with the examiner handling this area. 

High Risk Methodology Fed agreed with our approach in this area. 

Staffing levels and experience - still a concern. They are also looking 

at Compliance compensation levels. Audit coverage I CRU 

independence they need to talk further with GFA and consider this. 

They mentioned some client activity which they had identified from the 

data mining they had performed. It is clear that they have performed 

more work than in the past - but they were not necessarily pointing to 

any new control weaknesses they had identified. 

-{iiit--Bear_-ShaFe-C-{)mpany-·P-oIky-Changc~ 

The HBUS Board of Directors has approved a revised Bearer Share 

Company policy. The changes are not as restrictive as expected and the 

changes permit the opening of and maintaining of accounts for bearer 

A-I 
2301 


760612.134

OCC-PSI-00328384 

share companies under strictly controlled conditions. Compliance 

management and PB Business management will be discussing next 

steps over the next week. 

(B) MATTERS REPORTED PREVIOUSLY 

(i) RSBC Private Bank Division of RSBC Bank USA ("RBUS-PB"), 

New York and California and RSBC Private Bank International, 

Miami ("PBUS") 

Planning Meeting with PB Americas Management: A planning 

meeting was held to discuss and agree Priorities, Issues and 

Resources going forward. Several issues were discussed and agreed 

including: 

(i) Centralize the AML CMP functions for DPB and IPB in NY and 

Miami respectively, (ii) increase the Miami CMP resources from 5 to 

8, including a General CMP resource in Ql 08 to allow for a build up 

prior to migration, (iii) unlike DPB where stage 1 and 2 monitoring are 

performed in Buffalo, IPB monitoring will remain within the IPB 

AML CMP teams, (iv) Establish a KYC Committee chaired by CMP in 

NY by December 31, (v) Consider increasing the scope of the ORU 

function to cover business documentation and KYC matters. CRU 

scope would then be adjusted accordingly based on ability to rely on 

ORll work, and (vi) AML CMP Management are in the process of 

reviewing the definition and classification of high risk accounts with 

the GMLCO before the relevant audit issues can be addressed. Target 

dates for these items are therefore being delayed. Progress is being 

-rruttie-em-;;everat-ofthe-aOOve issues. ---- -----------

Bearer Share Company - Policy Changes: HBUS Compliance 

Management has undertaken a review and is likely to announce 

significant changes to the Bearer Share Company policy. These 

changes are likely to include a prohibition on the opening of new 

bearer share company relationships and a retrospective review of all 

current bearer share company relationships with a view to having such 

relationships transition to a non-bearer share structure within a defined 

period. The changes are likely to be announced over the next month 

and will apply to HBllS and subsidiaries including HSBC Bank 

International. HBllS will seek comments from the impacted business 

units including Private Banking regarding an implementation plan and 

dates. 

RBUS -PB California 

A-2 
2302 


760612.135

OCC-PST-00328384 

Domestic Private Banking West Coast AML Program: GFA Audit 

completed an audit of the DPB California region and, as previously 

reported, identified a number of serious issues regarding timeliness of 

reviews, updating of client information, and filing of suspicious 

activity reports. An action plan to address these issues has been 

implemented and a status report was distributed to management on 

10/31/07. All issues should be resolved by year end with most due to 

be resolved by end November. Compliance Review Unit (CRU) visited 

California in early December 2007 and confirmed that all actions due 

to have been completed had been. Compliance is planning to 

implement in the near future a revised structure under which AML 

Compliance support will be provided to California region from the 

AML team in New York. 

2. COMPLIANCE PRIORITIES 

(i) HSBC Private Bank Division of HSBC Bank USA ("HBUS-PB"), New 

York and California and HSBC Private Bank International, Miami 

("PBUS") 

• The Norkom transaction monitoring system was implemented in 

International Private Bank Division on 6 February 2007. PBUS continues 

to review the scenarios and workflows to ensure the most effective results 

are produced; 

• A project has commenced to review compliance resource needs for the US 

PB operations. This project is part of the IIBUS 1509 initiative which 

includes an analysis of cost allocations. HBUS-PB and PBUS is in the 

-process of restructurirrg--its'opctatiollS and cCllbalizing certain functions. 

As part of this restructuring, resource needs and allocations are being 

evaluated; 

• Compliance is working with the Legal Department to evaluate the 

documentary requirements associated with business referred to other 

Group Private Banking Units. As part of this review, referral agreements 

in place between HBUS/PBUS and other booking centres are being 

evaluated; 

Continue to work with legal, business and US and Group Compliance 

towards developing an approach to make HSBC CIBM research materials 

available for private banking clients; 

• AML Compliance is participating in the weekly Retrospective Review 

Steering Committee. Compliance, Business Risk, and the Operational 

Review Unit have committed to jointly review the first 100 completed files 

to~ensufeanorlrSOC feqUlfemehtsatclJelngnrtly TtieT.l'lrerevlew\Jftlre 

first 100 files is now complete and the Steering Committee is now 

reviewing feedback received regarding the plan for phase 2 of the 

Retrospective Review project. 

A-3 
2303 


760612.136

OCC-PSI-00328384 

3. REGULATORY EXAMINA nONS 

(i) HSBC Private Bank Division of HSBC Bank USA ("HBUS-PB") and 

HSBC Private Banking International, Miami ("PBUS") 

The OCC (Custody and Personal Trust & Pouch): The OCC had 

perfonned anti-money laundering examinations of the Custody and 

Delaware Personal Trust businesses and Pouch activity (which refers to 

any monetary instrument or document received or sent in the mail through 

any means such a, regular mail, overnight delivery service, 

courier/messenger service) for all of Private Bank Americas. The major 

issues identified included the status of the retrospective review, which had 

been identified by Group Financial Audit in their October 2005 audit, and 

policies/procedures and monitoring/controls over the Pouch activity. The 

OCC was generally satisfied with the Retrospective Review plan but will 

review progress in their next examination. In the OCe's "Report of 

Examination as of 31 March 2007" ("the Report"), the Pouch matter was 

elevated into a Matter Requiring Board Attention ("MRBA") as a firm 

wide issue. This is being addressed by a cross-business, cross-disciplinary 

task force under the leadership of AML Compliance. Private Banking is 

actively participating and has implemented all the agreed actions/ 

procedures by the deadline of 10/31107. 

• The OCC (Consistency of Execution): It was stated in the Report that 

HSBC business units "lack consistent, vigilant adherence to BSAlAML 

policies. Bank policies are acceptable; however the execution of these 

policies in the various business lines requires strengthening." This 

observation arose out of the OCC's reviews over the last few years, and is 

not linked to any spccific review. David Dew, the COO of the Bank, is 

:;punsming<m' effm'lto add, ess the-issue-worlcirrg-with-t\M'b€omptimtce--

and the business COO's. "Best Practices" recommendations to address this 

point were issued to business COO's on 18 September 2007. Of particular 

relevance to PB are the recommendations that there be a KYC quality 

control program within each business and that there be measured 

accountability for KYC issues within each business. PB will review its 

policies and procedures to meet these recommendations. 

4. RESOURCING 

(i) HSBC Private Bank Division of HSBC Bank USA, N.A. ("HBUS-PB") 

and HSBC Private Banking International, Miami ("PBUS") 

.-AMI; 'ComplimIce:~--A~canUidate-tras-becn"idelltified, alld~arr-uffer-hasbeen made to join the AML Compliance team in Miami. Candidate has 

accepted and will start on 2/4/07. One New York based AML Compliance 

Officcr is on medical leave. One New York based AML Compliance 

Officer position was eliminated in November 2007. PBUS is up to 

A-4 
2304 


760612.137

OCC-PSI-00328384 

planned staffing levels. Compliance management is reviewing the impact 

of IPE business consolidation plans. The senior compliance officer in 

California will not be replaced. 

A-S 
2305 


760612.138

From: PAUL J O'SULLIVAN/HBUS/HSBC 

sent: 1/31/2008 5:31:52 PM 

Occ-Psi-00331923 

To: ALAN P WILLIAMSON/HBUS/HSBC@HSBC;CAROLYN M WIND/HBUS/HSBC@HSBC 

Cc: 

subject: Fw: De- risking 

FYI 

----- Forwarded by paul J o'sullivan/HBus/HSBC on 01/31/2008 05:30 PM -----

paul J O'sullivan/HBUS/HSBC 

01/31/2008 05:16 PM 

clara, 

To 

Clara Hurtado/HBUS/HSBC cc 

subject 

De- risking 

De-Risking Strategy for Miami 

I was talking with carolyn and Alan about the Fed and the comments about the 

high risk nature of our client base. We agreed some action steps: 

can we get / prepare and analysis of the Mr. V. related accounts. (Inflows 

/outflows / where to / where from and why 7) 

Assess the reports from HSBC BI and work out what we should do based on these 

? we will work out a strategy based on the results and then approach David. 

- Same process for the Mr. D. accounts 

- Identify the operating companies where we do not have the principals personal -aEC-{}ti~-·~t~ to EemeAt-4fle--Fe-l-at4-oo5~e-t~ho~.~. 

and work out a strategy to de-risk the bank by terminating some relationships. 

- same for some High Risk Bearer share companies. 

- Lets discuss any other accounts you think we should disengage from. 

- Lets discuss any other thoughts you may have that would reduce AML risk in 

the business. 

regards, 

paul 

page 1 
2306 


760612.139

From: DANIEL JACK/HBUS/HSBC 

Sent: 6/2/2008 7:13:33 PM 

occ-Psi-00343451 

To: ANNE LIDDY/HBUS/HSBC@HSBC02;DENISE A REILLY/HBUS/HSBC@HSBC02;GLORIA 

STRAZZA/HBUS/HSBC@HSBC02 

CC: ALAN P WILLIAMSON/HBUS/HSBC@HSBC02 

subject: Banknotes with Al Rahji Banking in S.A. 

All - to provide more info in response to Alan's note: 

AS noted in the KYC Customer profile, they are a long-standing Banknotes-London 

customer: 

"Initial date of activation was 1 January 2001, relationship exited and 

deactivated on 2 February 2005 due to TF issues (see Section VIII AML under 

Reputational Risk controls) as agreed with AML compliance New York. However 

this bank had a long-standing 25+ years relationship with Banknotes, London 

until that time. Also this client still has relationships with HSBC in the UK, 

UAE, France, Hong Kong and Italy. Approved as a London Banknotes customer 4 

December 2006 after TF issues were cleared through AML compliance New York." 

NOW they want to deal with us in Hong Kong - mainly buying Asian currencies 

from us, as noted in the KYC Banknote profile (for HK) now pending co Approval: 

"Client is an existing customer of HBUS London office and would like to set up business relationship in Hong Kong. Al Rajhi is mainly interested in buying Asian currencies from us, they have regular demand for the major Asian 

currencies including THB, PHP, IDR, INR and HKD which Bahrain Finance is their 

main current supplier. They sell currencies though their nationwide retail 

network and those Asian overseas workers, tourists and business-men are the 

main buyers. They will utilize our services for their retail banknotes 

activities only. In the meantime, client will become one of the counterparts 

to liquidate our Middle East currencies surpluses that we purchase from other 

markets. The projected trading volume are in original currency and the monthly 

average of purchase and sale was about USD3,000,000 and USD8,000,000 

respectively." 

Monthly Trade volume Estimates: 

Currency: Sales by HSBC: Purchases by HSBC: 

USD currency: 0 0 

other MajJ:Jr~rency' THAI BAI:l.L40 OOO,OOO .. _uO~ __ -r.-_ 

Other Major Currency: HONG KONG DOLLAR 2,000,000 0 

Other MaJor Currency: SAUDI RIYAL 30,000,000 0 

Thanks and regards, 

Daniel Jack 

Vice president compliance officer 

HSBC Bank USA, NA 

452 Fifth Avenue, 7th floor, New York, NY 10018 

phone 

Email 

212-525-8686 

daniel.jack@us.hsbc.com 

.. ATanP wilT, amson/RBuS/HSBC· 

06/02/2008 06:45 PM 

To 

Anne Liddy/HBUS/HSBC@HSBC02, Denise A Reilly/HBUS/HSBC@HSBC02, Gloria 

page 1 
2307 


760612.140

Dcc-psi-003434S1 Strazza/HBUS/HSBC@HSBC02 

All 

cc 

Daniel Jack/HBUS/HSBC@HSBC02 

subj ect 

al Rahji 

I am being asked to approve a HK Banknotes profile for Al Rahji. we will be dealin~ the same products from a different office, so from one point of view 

there 1S no expansion of risk, but I know from prior discussions there is 

sensitivity around this name. please let me know if you have any concerns. 

Thanks 

Alan 

Page 2 
2308 


760612.141

From: JUDY P STOLDT/HBUS/HSBC 

Sent: 2/18/2010 4:30:21 PM 

To: DENIS E O'BRIEN/HBUS/HSBC@HSBC 

Occ-psi-00378989 

CC: CAMILLUS P HUGHES/HBUS/HSBC@HSBC02;WYNDfiAM S CLARK/HBUS/flSBC@HSBC02 

subject: Re: June 2008 Audit - payment services 

Denis, 

we need to discuss with cam before you go back to Pat but I responded to the 

questions below with the information I have now. 

Judy P stoldt 

vice president, AML compliance I HSBC Bank USA, National Association 

One HSBC Center - 24th floor 

Buffalo, New York 14203 

phone. 

Fax 

Mobile 

Email. 

(716) 841- 6425 

,212) 382 - 75\6 

Judy.p.stOldt@us.hSbc.com 

From: Denis E o'brien/HBUS/HSBC 

TO: Judy P Stoldt/HBUS/HSBC@HSBC02, camillus P Hughes/HBUs/HSBC@HSBC02 

Cc: wyndham S Clark/HBUS/HSBC@HSBC02 

Date: 02/16/2010 06:00 PM 

subject: June 2008 Audit payment services 

- = Redactcf; ;he Permanent 

Can we discuss first thing in the AM? SUbcOml1i :'..:eonlnvestigrlti":ms 

Thanks and regards, 

Denis E O'Brien 

Director, Head of Global Transaction Banking compliance, I HSBC Bank USA, -I>Ia~i~d"tion ______ . ___ . ________ . _______ _ 

452 Fifth Avenue, New York, NY 10018 

(212) 525-1147 

9 (917) 229-5257 

phone. 

Fax. 

Mobil e. Email. denis.e.o'brien@us.hsbc.com 

Forwarded by Denis E O'brien/HBUS/HSBC on 02/16/2010 05:58 PM -----

From: patricia A Brunner/HBUS/HSBC 

To: Denis E 0'brien/HBUS/HSBC@HSBC02, Joseph BOSS/HBUS/HSBC@HSBC02, Michael X 

Jarrell/HBUS/HSBC@HSBC02 

Date: 02/16/2010 05:52 PM 

Subject: June 2008 Audit - Payment services 

Denis, 

Based on research of audit workpapers related to the June 2008 Payment services 

GAU GEN 080013 - examiners identified a memo titled "wall Street Journal 

page 1 
2309 


760612.142

Occ-Psi-00378989 

Article Regarding wachovia" , which provides information regarding sigue Corp. AS such, we have some follow-up questions regarding the escalation process related to this Memo: 

1. who else was aware of this memo besides Denise Reilly, Judy stoldt and 

Gloria Strazza? Was this Memo escalated further up? I have no knowledge of the memo being passed to anyone. 2. What was the rational and/or thought process to not add sigue to the wire 

filter? please provide documentation noting the rational to not add sigue to 

the wire filter. The rational is documented in the attached memo (last bullet 

under sigue). I have no other documentation regarding this decision. 

3. What documentation do Judy or Gloria have about what FIG did in response and/or regards to the information provided in the aforementioned Memo? I have no documentation on actions FIG took in response to the memo. 4. Are there committee minutes reflecting any sort of discussions over the 

content of this Memo? It is my understanding that you checked the minutes and 

the content was not discussed at the committee. 

5. Was a review performed on HSBC Mexico's account for the other products and 

services that HBUS provides in light of the negative information regarding 

customers of HSBC Mexico - namely sigue? TWO reviews were conducted on HSBC Mexico's account activity. The first looked 

at 1Q08 acti vi ty and No formal wS; te-~R was done. 

The second reviewed looked at 4Q08 actlVi ty and .. ...... They should have this on the database but the write-up 1S attac ed. 

Attached is the memo for your convenience: 

per Joe BoSS, please provide answers to these questions by COB 02/17/10. 

Thank you in advance for your help with this matter, 

pat 

Attachment: HSBC Mexico Write up 4th quarter 2008.doc.zip Attachment: Targetted Review_wachovia summary 1MAY08.doc.zip 

__ = Redacted by the Permanent 

Subcommittee on Investigations 

paqe 2 
2310 


760612.143

From: DENISE A REILLY/HBUS/HSBC 

Sent: 3/19/2002 3:53:04 PM 

occ-psi -00381727 

To: JOE HARPSTER/HBUS/HSBC@HSBCAMERICAS 

CC: ALBA KHOURY!HBUS/HSBC@HSBCAMERICAS;MICHAEL B GALLAGHER/HBUS/HSBC@HSBCAMERICAS 

subject: Re: Al Rajhi Trading establishment 

The questions I need answered are: 

What is the target date of transfer? 

Does transfer include establishing the account(s) on WDA? 

who holds the client documentation today? What activity occurs over the account, e.g. products and services? 

What special handling is required, e.g. all activities that require manual 

intervention? 

Given compliance concerns, is there any special monitoring or reporting required? 

What is the revenue from the account and billing specifics? I presume transfer to Delaware includes future revenue. Maintaining the account in Delaware means assignment of an account officer in 

addition to pure operational support from Funds Transfer and Investi9atlons? 

If IPB retains relationship management responsibility, what interactlon is 

required between Delaware and IPB? 

perhaps Alba can assist. with replies. As we get in more deeply, there may be 

additional questions. 

Joe Harpster on 19 Mar 2002 14:54 

Note 

19 Mar 2002 14:54 

From: Joe Harpster Tel: 212-525-6347 

Title: Executive vice president Location: 

workGroup: RNB Intl ops Administration Mail size: 

To: Denise A Reilly/HBUS/HSBC@HSBCAMERICAS 

c c: A~lc-ba-Kc-ho-u-ry-;H BUS;-H-S-BC-@-HS-BCAM:::E::::R-::CIC:O:A-::-Ssubject: Re: Al Rajhi Trading establishment 

452 5th Ave, Floor 5 

18322 

sandy Flockhart has agreed to the recommendation to maintain the account in 

Delaware. Alba Khoury, the account officer, will be transferring this account to Delaware 

Joe 

Denise A Reilly on 19 Mar 2002 12:32 

Note 

19 Mar 2002 12:32 

From: Denise A Reilly Tel: 302.636.2500 Del 

Title: Senior vice president Location: Delaware 

workGroup: 

- - -----paymentserviTes----1'1al'l3iL~-l:®l)3 

To: Joe Harpster/HBuS/HSBC@HSBCAMERICAS Subject: Al Rajhi Trading establishment 

Page 1 
2311 


760612.144

occ-psi-00381727 Can you advise if any furcher discussion/correspondence has caken place on chis 

topic? 

Thanks. 

---------------------- Forwarded by oenise A Reilly/HBUS/HSBC on 03/19/2002 

12:31 PM --------------------------- carolyn M Wind on 11 Mar 2002 16:25 

NOce 

11 Mar 2002 16:25 

From: carolyn M Wind Tel: 212-525-5503 

Title: Executive 

workGroup: 

Vice President Location: 

Corporace compliance Mail Size: 

TO: Denise A Reilly/HBUS/HSBC@HSBCAMERICAS subject: Al Rajhi Trading escablishment 

15552 

452 5ch Ave, Floor 07 

---------------------- Forwarded by carolyn M wind/HBUS/HSBC on 03/11/2002 

04:25 PM --------------------------- carolyn M Wind on 11 Mar 2002 14:32 

NOce 

11 Mar 2002 14:32 

From: carolyn M Wind Tel: 212-525-5503 

Title: Execucive 

workGroup: 

vice President Locacion: 

Corporate compliance Mail size: 

TO: Camillus P Hu~hes/HBUS/HSSC@HSBCAMERICAS 

subject: Al Rajhl Trading escablishment 

FYI 

14197 

452 5ch Ave, Floor 07 

---------------------- Forwarded by carolyn M wind/HBUS/HSBC on 03/11/2002 

02:32 PM ---------------------------

Douglas stolberg _L~MilL2DJ1LU9~ 

To: sandy Flockharc/Hsus/HSBC@HSBCAMERICAS 

cc: Niall SK Booker/HBus/HSBC@HSBCAMERICAS 

Joe Harpster/HBus/HSBC@HSSCAMERlCAS carolyn M wind/HSUS/HSBC@HSBCAMERICAS 

subject: Al Rajhi Trading establishmenc 

sandy, 

As we discussed previously, compliance has raised some concerns regarding the 

ongoing maintenance of operating/clearing accouncs for Al Rajhi group. The accounc relacionships are presently managed direccly by IPB, yec che nature of 

che account accivity suggests a more systemic approach cO account monitoring is 

appropriate. Harpscer has worked direccly wich compliance and IPS'S RM, and 

recommends thac: 

1. The accounts be maintained until furcher due dilligence can be conducted on -cne--grOlJp an-d-dLcoul"lt-U5"age-;----~---~- --------~------~-~-~---~- ---~~--

2. Retain IPS as che relacionship management domicile for concinuicy purposes, and as we understand there is interest in furcher developing private banking 

business with family members. 

Page 2 
2312 


760612.145

Occ-psi-00381727 

3. oomicile the actual accounts with Deleware where HBUS's most robust account 

screening capabilities reside. 

I concur with Harpster's suggestions, but believe you may wish to discuss with 

Paul Lee and Niall Booker as this has become a fairly high profile situation. 

compliance's concerns relate to the possibility that Al Rajhi's account may have been used by terrorists. If true, this could potentially open HBUS up to 

public scrutiny and/or regulatory criticism. SABB are understandably keen to 

maintain the relationships. 

AS this matter concerns primarily reputational and compliance risks, we felt it 

appropriate for SMC members to be briefed on the proposed way forward so that 

they may opine on the acceptability of the plan. please advise how you would 

prefer us to proceed. 

Regards, 

Doug 

---------------------- Forwarded by Douglas Stolberg/HBUS/HSBC on 03/11/2002 

08:56 AM --------------------------- Joe Harpster on 06 Mar 2002 18:46 

Note 

06 Mar 2002 18:46 

From: Joe Harpster Tel: 212-525-6347 

Title: Executive Vice president Location: 

workGroup: RNB Intl Ops Administration Mail size: 

To: Douglas Stolberg/HBUS/HSBC@HSBCAMERICAS 

cc: carolyn M wind/HBUS/HSBC@HSBCAMERICAS 

Alba Khoury/HBuS/HSBC@HSBCAMERICAS Michael B GallaQher/HBUS/HSBC@HSBCAMERICAS 

subject: Al RaJhi Trading establishment 

452 5th Ave, Floor 5 

4934 

AS you are aware, International private Banking Department (IPB) has requested Institutional Banking to agree to the transfer of two accounts to our Delaware 

_.facility ALRaih~~D~a well established saudi Arabian m~ 

exchanger owned oy Abdul rahman sal eh A1-RaJhi that hasnaa-ii "reTailonshi p w~ 

HSBc/Republic for over 20 years. compliance Dept. is concerned with the 

operating accounts being housed in IPB due to the nature of their activities 

and the lnability for IPB to properly monitor. The most recent concern arose when three wire transfers for small amounts($50k, $3k and $1.5k) were transferred through the account for names that closely resembled names, not 

exact matches, of the terrorists involved in the 9/11 World Trade Center 

attack. 

Republic had a policy of not dealing with Money Exchangers but an exception was made in 1994 for Al Rajhi and seven other saudi based exchange houses. 

Approval was given by the Chairman of the Board and the vice Chairman - International Banking based on the long relationship with the bank, their 

knowledge of the stiff penalties(death) for drug trafficking and money launderlng within the country and the general good reputation of exchange houses in saudi Arabia. 

The profile of the main account reflects a doubling of wire transfer volume 

-s"'Tfte-WUr,-aTarge--rllTmoerofTf'd17effir-<>Ll1eLKs-i:rn·r-wttt.-...-etativ<:'lylow-valueand some check/cash deposits. According to the account officer, traffic 

increased because the~ have chosen to send us more business due to their 

relationship with Bank and the added strength of HSBC versus Republic. The travel ers checks represent less than 1% of the volume($132M in 

page 3 

_ z Redacted by the P.rm ..... t 

Subcommitt .. on I .... tigatloas 
2313 


760612.146

occ-psi-00381727 1/02) but the average balance is a bit high at $1,750/check. The cash/check 

deposits need to be reviewed to better understand their profile. There is a second account with minimal activity that is used for FX transactions. 

I recommend we transfer both accounts to be serviced by our oelaware payment 

center. oelaware has installed the CAMP system to monitor payment patterns which is actively managed by experienced compliance staff independent of the 

business and the account officer. Therefore, traffic will be well screened 

and controlled addressing compliance's concern. IPB supports this 

recommendation since they realize they can not adequately monitor the payment traffic and their hi9h confidence in the integrity and operations of the 

customer. Maintainlng our business with this name is strongly supported by 

oavid Hodghinson of SABB and Andre Dixon, Deputy Chairman of HBME. Niall 

Booker and Alba Khoury also support. 

There remain some" loose ends" that need to be done over the next few months 

in order to complete our due diligence 

1. Review the traveller checks and cash/check deposits when received from 

Saudi Arabia. I will arrange with Alba. 

2. Review the anti-money laundering plan and account opening procedures of Al 

Rajhi and incorporate into our KYC file. Alba has requested and the customer 

is forwardi ng. 

3. Perform a background check through the compliance Dept on the owner and his 

son, the Manager of the overall operation. compliance will arrange. 

4. Finally, detailed monitoring of the account once transferred to Delaware on an ongoing basis. 

In summary, this is a well established client in a sensitive business located 

in a country under close scrutiny. At this time, there is insufficient evidence 

to support closing the account but further due diligence and monitoring is 

necessary to ensure, to the best of our ability, that Al-Rajhi Trading remains a suitable customer. Our findings over the next two to three months should 

crystallize their status. 

__ ===-=_====~-=---EOl"w.arJiecLhy __ cacolY.r:L~dLHa!.LSLJ::LSJ~-';_Q!L QlL11[2002. __ _ 

02:32 PM --------------------------- sandy Flockhart on 11 Mar 2002 14:05 

Note 

11 Mar 2002 14:05 

From: sandy Flockhart Tel: 716.841. 7937 

Title: Senior Exec vice president Location: 

WorkGroup: Commercial Banking Admin Mail Size: 

TO: Douglas Stolberg/HBUS/HSBC@HSBCAMERICAS 

cc: Niall SK Booker/HBUS/HSBC@HSBCAMERICAS 

Joe Harpster/HBus/HSBC@HSBCAMERICAS 

carolyn M wind/HBus/HSBC@HSBCAMERICAS 

subject: Re: Al Rajhi Trading establishment 

CTR 24 

1492 

Eoug_~_~_ 

----TSUppo r't ---rne app roacn-611Tlinea-tn-you r-memo-o-r-lll"lJ>;Ranaal~'-oconsider that the saudi authorities will have improved their surveillance post 

9/11. 

sandy 

Page 4 
2314 


760612.147

From: JONATHAN DEAN/HBUS/HSBC 

Sent: 7/16/2008 12:11:39 PM 

To: MARY A CASKIN/HBUS/HSBC@HSBC02 

Occ-psi-00407498 

CC: ANNE LIDDY/HBUS/HSBC@HSBC02;DENISE A REILLY/HBUS/HSBC@HSBC02;GEORGE 

TSUGRANES/HBUS/HSBC@HSBC02; 

JUDY P STOLDT/HBUS/HSBC@HSBC02 

subject:- Re: Hokuriku Bank 

Mary Ann, 

please see attached twelve month volume report. We are averaging 7,800 T/CS 

monthly, dollar value $ 7,428,000.00/ month. All deposits are Travellers 

checks, no Money Orders found. 

Jonathan Dean 

AVP AML compliance Officer I HSBC Bank USA 

90 Christiana Road New Castle, Delaware 19720 

phone. 

Fax. 

Email. 

302-327-2055 

212-382-5573 

jonathan.dean@us.hsbc.com 

Mary A caskin/HBUS/HSBC 

07/10/2008 01:47 PM 

TO 

Alan P Williamson/HBUS/HSBC@HSBC02, Daniel Jack/HBUS/HSBC@HSBC02, Judy P 

stoldt/HBUS/HSBC@HSBC02, George Tsugranes/HBUs/HSBC@HSBC02, Jonathan 

Dean/HBUS/HSBC@HSBC02, Nerissa P Hall/HBUS/HSBC@HSBC02 cc 

Denise A Reilly/HBUS/HSBC@HSBC02, Anne Liddy/HBUS/HSBC@HSBC02, Richard 

Annicharico/HBUS/HSBC@HSBC02 

Subject ________ Hnkuriku Bank 

In light of the recent concerns expressed about the volume of traveler's checks 

passing through Hokuriku Bank, we need to delve a little bit deeper into their 

banking patterns. 

We need to do a transaction volume analysis for the following: Incoming and outgoing wires (to/from whom, frequency and value) 

volume of Traveler's Checks/ Money orders submitted on a monthly basis 

BankNotes activity (currency, volume) 

FX activity (volume, currency) 

We are looking to see if they are relying upon cash to transact withllll~~11 and subsequently with HSBC. They seem to sell traveler's checks which -- "al!!!r'e·u"'s!!le~d:i- fo pu rcnaSe -cars--in-:Ja]J<!T'-lhe-puTchasers elf--the--caTs-of.ten--j}FGv-i-de ---- Russian passports as ID. The BankNotes activity may shed some light on the 

issue. 

please let me know if/when you will be able to supply some feedback. 

page 1 
2315 


760612.148

Mary Ann Caskin 

vp compliance HSBC Bank USA NA 

452 Fifth Ave Floor 7 

NY, NY 10018 

212-525-5530 

occ-psi-00407498 

Attachment: Hokuriku-Average.xls.zip 

page 2 
2316 


760612.149

Date: 

To: 

From: 

Topic: 

David: 

OCC-PSI-00409095 

MEMORANDUM 

July 31, 2008 

David Dew, Chief Operating Officer 

Lesley Midzain, EVP CompliancelAML Director 

Cam Hughes, Sr. VP Specialized Compliance 

Debra Bonosconi 

GIS AML Matters 

Per your request, I am providing you with an update of our status regarding the following: 

OCC review conclusions 

Alert disposition progress, 

Staffing, and 

Libya 

OCC REVIEW 

The OCC just concluded their review of the GIB AML Compliance function today. They stated 

that they were quite pleased with the new controls that had been implemented and that the only 

concerns they had were minor (apart from the systems issue). These were some of the issues 

that they asked us to focus on prior to the commencement of the 2009 exam in April: 

1. Alert Monitoring - When the OCC arrived on July 21 st, they expressed some concerns 

about the alert levels and our existing alert backlog. Specifically, they expressed concern as 

to the sufficiency of existing staff levels to manage the number of alerts generated. 

In order to mitigate their concerns, we provided them with both our short term plan to 

address the existing alert backlog (target date 9/15) as well as our long term plan to manage 

_ .. --<Ilerts~.QJ1g.oing...ba.si.s~BQtb.p.la.!l.s..Lru;ll.!.daJheJQilQ).yj.ng compon~~' _____ _ 

Risk Based Alert Management: "Risk Buckets" of alerts to be assigned to specific 

staff based upon level of experience; 

Staffing: The addition of 2 FTEs (Buffalo) fully dedicated to alert management; 

Alert Management Forecasting: a proactive process that projects alert levels as a 

result of staff changes and alert levels and, 

Measurable Performance Management: Target number of alerts to be completed by 

staff during a specific period. 

The OCC stated that this plan was a very positive step in managing alert levels on a riskbased basis (for both short and long term) and they advised us that they will be reviewing 

this area again when they return in April. 

2. Pouch/PUPID - They expressed concerns on the quality of the comments in the 

Pouch/PUPID log.SpecTfically,Theynoted thatthe commentsShouldbemoreconc7is-e-a-n--cdcyet adequately convey the primary issue. 
2317 


760612.150

OCC-PSI-00409095 _ = Redac:led by the Permanent 

Subcommittee on Investigations 

We agreed with this comment and advised them that we had also recognized concerns with 

not only the comments but the process for populating the Pouch/PUPID log. We further 

advised them that we had already planned to have a revised PouchlPUPID log in place by 

year end 2008. 

3. RESA Relationship Summary - They made some minor suggestions on 4 provisions of 

the draft RS, including the possibility of a maximum cap on total cash withdrawals allowed 

over a given period. We explained that the RS includes maximums for petty cash 

throughout the document but a maximum allowable cash ceiling does not currently exist. 

We advised them that we will take this issue under consideration. 

4. The OCC asked that we continue to provide AML knowledge and training 

(internal and external) to_as. adjusts to. new role. They are in full agreement 

that _risk management skills are an integral part of the GIB AML Compliance process but 

that_needs to fully understand the laws, regulations, and expectations of a sustainable 

AML program. We agreed with this and have already implemented a process to ensure 

ongoing knowledge transfer as well as attendance at AML conferences and web seminars, 

as available. 

ALERT DISPOSITION 

As shown in the chart below (as of 7/31) we currently have a total of 1 ,486 open alerts. We are 

closing an average of 71 alerts daily and we anticipate, based upon our current progress, that 

we will be up to date with all alerts by September 15th . As noted previously, the OCC is aware 

of our progress and agrees with our approach to address existing and future alerts. 

GIB Open Alerts 

Overdue Cu rrent TotalOpen 

Alerts A Ie rts Alerts 

(Feb-OS & (March & 

Earlier) April) 

6/13/2008 1,129 1,599 2,728 

6,l20,'2002 S-7n 1 " .. "" 

., """ 

6/27/2008 850 1 584 2 434 

7/11/2008 380 999 1,379 

7/15/2008 350 829 1,179 

7/16/2008 289 721 1,010 

7 /17 /2008 243 660 903 

7/18/2008 202 601 803 

ADD May& (Apr-OS & (May & 

June Alerts> > Earlier) )u ne) 

7/21/2008 715 1,046 1,761 

7/28/2008 484 1,135 1 619 

7/29/2008 438 1,112 1,550 

7/30/2008 392 1,094 1,486 

STAFFING 

GIB has identified two individuals for the two open alert management positions in Buffalo. One 

individual is an HBUS employee (located in Buffalo) and is currently working alerts in Kathy 

2 
2318 


760612.151

OCC-PSI-00409095 

Gladkowski's group, which will allow us to immediately benefit from his experience. The other 

individual (an external candidate), will require some training but we feel that his previous 

education and experience will benefit our group. Offer letters will be sent to both candidates 

next week and we expect them to begin on 9/1/08. 

Libya 

As of 7/31/08, the checking account (balance of $31,136.14) and the credit card (balance 

$46,920.53) are open. However, the balance in the checking account will be liquidated and 

applied toward the credit card and the checking account will be closed on 8/1/08. The credit 

card will be suspended and no transactions will be permitted. The Ambassador has been 

advised that the remaining balance on the card must be paid immediately. The money market 

account (balance $22,304,521.51) was closed on 711 0/08. 

Please advise if you have any questions. 

3 
2319 


760612.152

occ-psi-00453499 From: ALI S KAZMY/HBUS/HSBC 

Sent: 2/3/2010 6:31:04 PM 

To: JON K JONES/HBUS/HSBC@HSBC02 

CC: PSRR@HSBC02;CAMILLUS P HUGHES/HBUS/HSBC@HSBC02;JUDY P STOLDT/HBUS/HSBC@HSBC02 

Subject: Re: Islami Bank Bangladesh Ltd - Poss SCC 

The information appearing below does merit scc classification. 

Regards, 

Ali S Kazmy Vice president/senior Manager - Anti-Money Laundering policy I HSBC BANK USA, 

National Association 

452 Fifth Avenue, 7th Floor, New York, NY 10018 

phone. 

Fax. 

Mobil e. Email. 

212-525-5560 

212-525-6994 

ai,.s.kaZmy@us.hsbc.com 

From: Jon K JOnes/HBUS/HSBC 

To: Ali S Kazmy/HBUS/HSBC@HSBC02 cc: PSRR@HSBC02 

Date: 02/03/2010 04:33 PM 

--= Redaeted by thz ~\ .. rm:ment 

Subcommittee on Inl<'estigations 

subject: Islami Bank Bangladesh Ltd - Poss SCC 

Ali, 

In my review and research of the above client, I'd like to point out the below 

items and ask for your opinion on SCC status with regard to the above client: 

-'ti-G~-lll&R- aAd--lO%-o~I,si f Abd"ll ab al-RajhL.-Gen"-t'al ~geLQf .. ____ _ Al-Rajhi company for Industry & Trade, K.S.A. Earlier, he performed duties of 

Branch Manager and project Finance Manager of Al-Rajhi Banking and Investment 

corporation from 1987 to 1995. 

At least three Owners (ownership confirmation currently underway) for approx. 30% are connected to the al-Rajhi family / businesses. 

Other Owners (listed as of now): 

Islamic Development Bank 

The public Institution for social security - Kuwait Finance House 

listed as a PEP 

owned by Government of Kuwait 

49% owned by Kuwait 

Al-Rajhi Banking and Investment corp., a client of CIB and Banknotes is SCC. 

Al-Rajhi Bank ~ot it's start as a money chainin~ network and (chairman, suleiman al-RaJhi appeared on the "Golden Chain' of wealthy investors who _S~P1l9rj:~cl~~-"l1la Qin_12-_<:J.<e n...,l 

Negative press: per prior EDD ROF - "a notice of cause was issued by the Bank 

of Bangladesh to the CEO of Islamic Bank in March 2006 to explain accounts owned by suspected Islamic Militants. client was subsequently fined by Bangladesh Bank and take measures against 20 officers for their involvement. 

Page 1 
2320 


760612.153

Occ-psi-00453499 Sources suggest this was the third time Islami Bank Bangladesh Ltd was fined 

for covering up militants transactions." 

current internet searches found no additional items. 

please review and advise, 

Jon K Jones 

senior Analyst I HSBC Bank USA 

90 christiana Road, New castle, DE 19720 

phone 302-327-2017 

page 2 
2321 


760612.154

occ-psi-00610498 From: ELIZABETH PROTOMASTRO/HBUS/HSBC 

Senc: 1/9/2007 1:08:39 PM 

To: TERESA PESCE/HBUS/HSBC@HSBC 

CC: ANNE LIDDY/HBUS/HSBC@HSBC;DONALD W MCPHERSON/HBUS/HSBC@HSBC;GRACE C 

SANTIAGO-DARVISH/HBUS/HSBC@HSBC; 

JOHN ALLISON/HGHQ/HSBC@HSBC subjecc: Re: OFAC - wire paymencs blocked from HSBC offshore encicies - USD 32,000 

(re SDGT) and USD 2,538,939.33 (re sudan) 

I was speaking wich Grace abouc chis. Ic appears chac che reason may be due cO 

che facc chac che filcers offshore are on a differenc seccing, i.e., chey will 

only scop a name and address macch. If che address does noc macch, or chere 

is no address provided, che filcer will noc Scop che icem. The filcers here 

in che U.s. are sec cO Scop on a name macch only. 

Neicher one of chese blocked encicies had an address provided on che paymenc. 

Teresa Pesce/HBUS/HSBC 

12/15/2006 09:59 AM 

TO 

Elizabech procomascro/HBUS/HSBC@HSBC cc 

Anne Liddy/HBUS/HSBC@HSBC, Donald W Mcpherson/HBUS/HSBC@HSBC, Grace C 

sanciago-Darvish/HBUS/HSBC@HSBC, John ALLISON/HGHQ/HSBC@HSBC 

subj eeL 

Re: OFAC - wire paymencs blocked from HSBC offshore encicies USD 32,000 ere 

SDGT) and USD 2,538,939.33 ere sudan) 

How is ic chac chese paymencs concinue cO be processed by our affiliaces in 

liqhc of che GCLS? 

Teresa A. Pesce 

EVP/Managing Direccor 

Anci-Money Laundering Compliance HSBC Norch America Holdings 452 Fifch Avenue 

New York, NY 10018 

ph - (212) 525-6099 

fax- (212) 525-5769 

Elizabech procomascro/HBUS/HSBC 12/14/2006 06:02 PM 

To 

John ALLISON/HGHQ/HSBC@HSBC cc 

+e"~S<l-j>,"sce/HBu':>/H!>BC@HS8(T-Anne.·L·i<kJy!HB1Js-/H-S<lc~B~F*",·-t---~~~-~ 

sanciago-Darvish/HBUS/HSBC@HSBC, Donald W McPherson/HBUS/HSBC@HSBC 

subj eeL 

OFAC - Wire paymencs blocked from HSBC offshore encicies - USD 32,000 (re 

SDGT) 

Page 1 
2322 


760612.155

occ-psi-00610498 __ = Redacted by the Permanent 

Subcommittee on Jnvestigatloas and USD 2,538,939.33 (re sudan) 

This email is to inform you of the following offices, and blocked due to OFAC sanctions. 

terrorist sanctions. The second was blocked 

SDN. 

value date 9-Nov-2006 

two payments, initiated by HSBC 

The first was blocked under 

due to involvement of a sudanese 

Debit: HBME Ramallah Br., Ramallah palestine credit: JP Morgan chase, Tampa, FL 

3rd party: Arab Jordan Investment Bank S.A., Amman, Jordan 

ORG: HBME, Ramallah, Palestinian Territory, occupied BBI: Acc/For further credit to Palestine Investment Bank Head office Ramallah 

branch accountlllll for further credit to Al Aqsa Islamic Bank 

USD 32,000.00 

Note that Al Aqsa Islamic Bank was designated by OFAC on 4-Dec-2001 as a "specially desi~nated ~lobal terrorist". The press release from Treasury stated that it 1S a "dlrecc arm of Hamas, established and used to do Hamas 

business. 1I Below are links to the press releases. 

http://ustreas.gov/press/releases/p0837.htm 

http://ustreas.gov/offices/enforcement/ofac/actions/20011204.shtml 

http://ustreas.gov/press/releases/p0841.htm 

The payment was held at the direction of OFAC and additional information 

requested. On 20-NOV-2006, HBME sent a SWIFT message to cancel the payment as it was sent in error. On 7-Dec-2006, OFAC instructed HBUS to block the funds. 

Details are below on the payment blocked under the sudan sanctions. 

value date 6-Dec-2006 

Debit: HSBC Bank PLC (JOH) , Johannesburg branch ~~C1"eCItt: <lNPt'aFWas-~K---- ---- ~----~~~ ----

3rd party: BNP Pari bas (suisse) SA, Geneva 

4th party: sudanese petroleum corporation ORG: Ethiopian Petroleum Enterprise OGB: Commercial Bank of Ethiopia, Ethiopia 

OBI: Inv/M/10/2006.Dated Nov 05/06 

USD 2,538,939.33 

"sudances petroleum corporation" is listed by OFAC as an SDN under the sudan 

program. 

please let us know if you have any questions or need any further information. 

Thank you. 

page 2 
2323 


760612.156

Occ-psi-00610597 From: ELIZABETH PROTOMASTRO/HBUS/HSBC 

Sent: 1/11/2007 9:56:41 AM 

To: ARUP ROY/HCZA/HSBC@HIBM 

- = Rodaded by tb. Permanent 

Subcommittee on Inns ligations 

CC: ANNE LIDDY/HBUS/HSBC@HSBC;GIMHANI TALWATTE/HCZA/HSBC@HIBM;GRACE C 

SANTIAGO-DARVISH/HBUS/HSBC@HSBC; 

HENK CROUSE/HCZA/HSBC@HIBM 

SUbject: Re: FW: Funds frozen in USA - payment on behalf of Commercial Bank of 

Ethlopia (HBUS ref :1IIIIIII-06DEC06). 

I just called the Licensing Division at (202)622-2480. 

Arup ROY/HCZA/HSBC@HIBM 

01/11/2007 01:04 AM 

C 

To 

Anne LiddY/HBUS/HSBC@HSBC cc 

Elizabeth Protomastro/HBUS/HSBC@HSBC, Gimhani TALWATTE/HCZA/HSBC@HIBM, Grace 

santiago-Darvish/HBUS/HSBC@HSBC, Henk CROUSE/HCZA/HSBC@HIBM 

subject 

Re: Fw: Funds frozen in USA - payment on behalf of commercial Bank of 

Ethiopia 

(HBUS ref: _-06DEC06). 

Thanks Anne / Elizabeth. we shall now follow up from our side. can you let us have the contact number of OFAC ? 

Regards 

An.JjJAnne Liddy/HBUS/HSBC@HSBC 

10/01/2007 11:17 PM 

To 

Arup ROY/HCZA/HSBC@HIBM cc 

Henk CROUSE/HCZA/HSBC@HIBM, Gimhani TALWATTE/HCZA/HSBC@HIBM, Elizabeth 

protomastro/HBus/HSBC@HSBC, Grace C santiago-Darvish/HBUS/HSBC@HSBC subject 

Fw: Funds frozen in USA - payment on behalf of commercial Bank of Ethiopia 

(HBUS ref: 1IIIIIIl06DEC06). 

Arup, pls see the attached. Elizabeth Protomastro of our our OFAC compliance 

Page 1 
2324 


760612.157

occ-psi-00610597 

--." Redacted by the Permanent 

Subcommittee on Investigations 

team contacted OFAC today regardi ng your 1 i cense appl i cati on. ----- Forwarded by Anne Liddy/HBUS/HSBC on 01/10/2007 04:11 PM 

Elizabeth protomastro/HBUs/HSBC 01/10/2007 03:30 PM 

To 

Anne Liddy /HBUS/HSBC@HSBC cc 

Dona 1 d W Mcpherson/HBUs/HSBC@HSBC, Grace C santi ago-Da rvi Sh/HBUS/HSBC@HSBC 

subject 

Re: Fw; Funds frozen in USA - payment on behalf of commercial Bank of Ethiopia 

(HBUS ref : _-06DEC06). 

I was able to get the following information from OFAC Licensing. 

1) The license app,lication was received December 19, 2006. 2) The status is 'pendi ng" . 3) The case number is "SU-2108". 4) Further documentation pertaining to this application should be sent to the attention of "Elizabeth Farrow, Assistant Director for Licenslng". 

The case number should be included on all correspondence sent to OFAC Licensing. 

I mentioned this to Grace when she called earlier this afternoon. she said that they need to stress the validity of the underlying trade transaction and provi de the supporti ng documentati on. (The appl i cati on, on page 3, does state that "copies of documents related to the underlyng transaction, i.e .. invoices, bills of lading, original payment instructions, etc., should be included with the application.) 

Anne Liddy /HBUS/HSBC 01/10/2007 11:45 AM 

To 

Elizabeth Protomastro/HBUS/HSBC@HSBC cc 

Grace C santi ago-Darvi Sh/HBUS/HSBC@HSBC, Donal d W Mcpherson/HBUS/HSBC@HSBC 

subj ect Fw: Funds frozen in USA - payment on behalf of commerci a 1 Bank of Ethi opi a (HBUS ref : __ 06DEC06) . 

--E 1 iElbet h,· ·attached--is· .the .. li.(.""se...app.l.i.cal;.ion..and .. under 1 \Ling .d"tails_ oL1:h e .. Sudan petroleum blocked transaction. As we discussed this morning. can you 

pls contact the licensing section of OFAC and obtain confirmation that the application was received, status (is anyone working on it), case number, and an QFAC contact name to whom HSBC south Africa can send further documentation re the t ransacti on. Any i nformati on you can obtai n woul d be greatly appreci ated page 2 
2325 


760612.158

--"'" Redacted by the Permanent 

Subcommittee on Investigations 

Dcc-psi -00610597 

by all. Thanks. ----- Forwarded by Anne Liddy/HBUS/HSBC on 01/10/2007 11:32 AM -----

Arup RDY/HCZA/HSBC@HIBM 

01/10/2007 11:15 AM 

TO 

Anne L i ddy/HBUS/HSBC@HSBC cc 

Henk CRDUSE/HCZA/HSBC@HIBM, Gimhani TALWATTE/HCZA/HSBC@HIBM 

subject 

(HBUS 

Funds frozen in USA - payment on behalf of Commercial Bank of Ethiopia 

ref: ........ 060EC06). 

Dear Anne, 

It was indeed a pleasure talking to you and Grace today and we wish to take 

this opportunity to thank you for your valuable advice. 

As discussed, I append below the following: 

a) A scanned copy of our application to the US Department of Treasury 

[attachment "SKMBT_50006122714340.pdf" deleted by Elizabeth 

Protomastro/HBUS/HSBcl [attachment "SKMBT_50006122714350.pdf" deleted by El i zabeth Protomastro/HBUS/HsBcl 

b) A scanned copy of the instruction received from commercial Bank of Ethiopia, an IB customer of ours requesting us to make payment to the debit of their account. Based on this instruction, the subject remittance was effected. 

[attachment "SKMBT _50006122714351. pdf" del eted by El i zabeth 

Protomastro/HBUS/HSBcl 

shall be grateful if you could take up the matter with your contact in DFAC 

and let us know whether the application has been received / being processed the relevant reference number allotted if any. Based on your feedback and contact details, we shall take up the matter directly and will only involve 

shou 1 d we fai 1 to make any progress. 

please forward a copy of the mail to Grace as I do not have her address. 

We shall look forward to your support in addressing this particular case. 

Best regards 

Arup ROY 

Head of Transaction Banking HSBC Bank plc 2 Exchange square, 85 Maude 

Sandown, sandton 2196 

Street 

page 3 

and 

you 
2326 


760612.159

south Africa Te1phone + 27 (11) 6764534 Email arup.roy@za.hsbc.com 

George Da 11 y /HBUS/HSBC@HSBC 22/12/2006 08: 16 PM 

To 

occ-psi -00610597 __ "'" Redacted by the Permanent 

Subcommittee on Investigations 

Kri shna PATEL/HCZA/HSBC@HIBM, Sandy WYND/HIBM/HSBC@HIBM cc 

Rob MCCALL/HCZA/HSBC@HIBM, Glen ROBERTS/HCZA/HSBC@HIBM, Arup 

ROY/HCZA/HSBC@HIBM, Henk CROUSE/HCZA/HSBC@HIBM, sangita DESAI/HCZA/HSBC@HIBM, Loui s JORDAAN/HCZA/HSBC@HIBM, carmel Ki sten/HCZA/HSBC@HIBM, sandra peterson/HBUs/HSBC@HSBC 

subj ect Re: Fw: PCM operational error. Funds frozen in USA - payment on behalf of commercial Bank of Ethiopia (HBUS ref: _-06DEC06). 

Here are the answers to the below questions: 

Question A: The time frame various geographically, however, once OFAC has 

received the proper form for a license we can reach out to our contact in 

washington DC for a possible time frame for the release of the block payment in question. 

Question B: It is industry standard to place these funds in a Time Deposit at a compatible rate. 

Question c: Your question related to the documentation, a copy of the original 

payment instructions is sent to OFAC compliance programs Division in washington DC. Any additional documentation requi red would be requested from OFAC. 

Tf~~ you-l1ee&~-,,"y furth e r-=sTstana>~;-v h,ase-contactme ~ d4f"e~lyc-~ 

Thanks. 

sandra Peterson/HBUs/HSBC 12/22/06 10:15 AM 

To 

George Da11y/HBUS/HSBC@HSBC cc 

SUbject 

Fw: PCM operational error. Funds frozen in USA payment on behalf of commercial Bank of Ethiopia (HBUS ref: _-06DEC06). 

can you i nvesti gate and get me the detail s. 

page 4 
2327 


760612.160

Dcc-psi -00610597 

sandra Peterson SVP, Global payments & Cash Management 500 stanton christiana Road 3rd Fl. 

Newark, DE 19713 

302 636-2500 

sandra.Peterson@us.hsbc.com 

__ = Redactell b't tnt 

Subcommit-tee Oil Investigations 

----- Forwarded by sandra peterson/HBuS/HSBC on 12/22/06 10:14 AM -----

Arup RDY/HClA/HSBC@HIBM 

12/22/06 08:44 AM 

TO 

sandra peterson/HBuS/HSBC@HSBC, sandra peterson/HBUS/HSBC@HSBCAMERICAS cc 

Russell G GRAHAM/PCM ASP/HBAP/HSBC@HSBC, Richard C Boyle/HBUS/HSBC@HSBC, Gimhan'j TALWATTE/HClA/HSBC@HIBM 

Subject 

Fw: PCM operational error. Funds frozen in USA payment on behalf of 

Commercial Bank of Ethiopia (HBUS ref: ....... -06DEC06). 

Dear sandra, 

I refer to the appended mail and seek your guidance on the following: 

a) We have already forwarded our application seeking release order so that the 

funds can be sent back to the remitting bank/ remitter. Based on your experience, Can you please let us know the approximate time frame it could take to enable us to keep the remitting bank posted. 

b) We understand that the funds are held at HBUS in a Fixed Deposit account pending receipt of a release order. please let us know the rate of interest 

being paid on the same. 

cT '--Tnougff-tneappllCilxiOllfo-rTe'le;;se--onter,tcres-TTot--slJecifi-caHy-eaH--fu1---~­

underlying documents, should we obtain the same from the remitter / remitting bank (ie lnvoice / contract etc) in order to substantiate the fact that the 

transaction relates to a genuine trade payment? 

If you are not the right person, please forward this request to the relevant 

person with a request to revert to us today. Needless to say that we are concerned on this matter and will look forward to your support in addressing the matter at the earliest. 

We take this opportunity to wish you a Merry christmas and a very happy new year ! 

Richard - wanted to speak to you in this regard and left a message in your voice mail box. Shall be grateful for any assistance you could extend in this 

regard. 

ArUP ROY 

Head of Transaction Banking 

page 5 
2328 


760612.161

occ-psi-00610597 HSBC Bank plc 

2 Exchange Square, 85 Maude Street 

sandown, sandton 2196 

south Africa 

Telphone + 27 (11) 6764534 

Email arup.roy@za.hsbc.com 

----- Forwarded by Gimhani TALWATTE/HCZA/HSBC on 2006/12/22 02:00 PM 

Gimhani TALWATTE/HCZA/HSBC 

HCZA 

2006/12/18 10:18 AM 

Mail Size: 13772 

To 

Sandra Peterson/HBUS/HSBC@HSBC cc 

subject 

FW: PCM operational error. commercial Bank of Ethiopia Entity 

--- Blank ---

Oear sandra 

Funds frozen in USA payment on behalf of 

I refer to the email below which explains the transaction in question. 

I would appreciate your assistance in findin~ out how long it usually takes for 

frozen funds to be released back to the origlnating party 

please let me know when you come in to work so I may call you 

Many thanks 

Gimi 

Gimhani Talwatte 

Manager operations Global Transaction Banking HSBC Bank plc - Johannesburg Branch 

Tel: 27-11-676-4541 

gimhani.talwatte@za.hsbc.com 

----- Forwarded by Gimhani TALWATTE/HCZA/HSBC on 2006/12/18 10:15 AM -----

Russell G GRAHAM/PCM ASP/HBAP/HSBC@HSBC 

2006/12/15 10:13 PM 

Mail size: 10405 

-------'Fe ---------------------- ,---,---

Gimhani TALWATTE/HCZA/HSBC@HIBM, Allen L Y WONG/PCM ASP/HBAP/HSBC@HSBC cc 

subject 

Re: PCM operational error. Funds frozen in USA - payment on behalf of 

page 6 
2329 


760612.162

Occ-psi-00610597 commercial Bank of Ethiopia Entity Bl ank ---

Gimi 

I would recommend contacting sandra peterson who runs HBUS'S Payments operations in Delaware regarding this. 

Russell 

From: Gimhani TALWATTE 

sent: 12/15/2006 05:33 PM ZE2 

TO: Russell G GRAHAM; Allen L Y WONG 

subject: FW: PCM operational error. Funds frozen in USA - payment on behalf of commercial Bank of Ethiopia 

Dear Russell/Allen 

At the risk of providing you with too much information on a local issue and 

perhaps also addressing the problem to the wrong people I am forwarding an issue we had at PCM in JOH for your information. 

please let me know the appropriate person who I should deal with on issue such as these. 

AS you know I just took over responsibility for PCM and have just started 

looking at procedures and knowledge levels which need attention. 

unfortunately, we already had a sltuation where a staff member released a payment to a country that has sanctions. The payment has now been frozen in 

the USA and we are uncertain as to how long it will take for us to have the 

funds returned. We have applied to the office of Foreign Assets control and I ~iI~~ful that they will respo~d~on_. __ ~~ __ 

However, in the interim I am forwarding you a note I sent to our CEO and COO 

explaining the problem. we would greatly appreciate any guidance you can provide, specially in the way of when we could expect funds back. 

I am concerned with the reputational risk involved here in addition to the 

problems we may face having the funds released 

Best regards 

Gimi 

Gimhani Talwatte 

Manager operations Global Transaction Banking HSBC Bank plc - Johannesburg Branch 

Tel: 27-11-676-4541 

gimhani.talwatte@za.hsbc.com 

----- Forwarded by Gimhani TALWATTE/HCZA/HSBC on 2006/12/15 04:51 PM -----

Gimhani TALWATTE/HCZA/HSBC 

HCZA 

Page 7 
2330 


760612.163

2006/12/14 06:07 PM 

Mail Size: 5516 

TO 

Occ-psi-00610597 

Krishna PATEL/HCZA/HSBC@HIBM, sandy WYND/HIBM/HSBC@HIBM cc 

Rob MCCALL/HCZA/HSBC@HIBM, Glen ROBERTS/HCZA/HSBC@HIBM, Arup ROY/HCZA/HSBC@HIBM, Henk CROUSE/HCZA/HSBC@HIBM, sangita DESAI/HCZA/HSBC@HIBM, 

Louis JORDAAN/HCZA/HSBC@HIBM, carmel Kisten/HczA/HSBC@HIBM 

subject 

PCM operational error. Funds frozen in USA payment on behalf of 

Commercial 

Bank of Ethiopia 

Entity 

--- Blank 

Krishna, sandy 

PCM received an instruction from Commercial Bank of Ethiopia (CBE) on the 06th 

of December 2006. The instruction was for USD2,538,939.33 to be paid out to 

BNP paribus in switzerland for the account of sudanese petroleum corporation. The instruction came in the way of a SWIFT message from CBE . 

PCM staff turned the payment instruction around and released a telegraphic transfer to HBUS for further payment to BNP Paribus. The outgoing TT messa~e 

was stopped by WOLF which flags all sanctioned countries/terrorist organisatlon 

etc. However, in this instance the staff member released the payment in error. 

The payment hit HBUS and the funds were immediately frozen as per the 

guidelines set out by the us department of treasury. The funds now remain 

with HBUS in a fixed deposit. HSBC Johannesburg has to independently apply for the release of these funds from the Office of Foreign Assets control in 

the us department of Treasury. 

we have completed the application for the release of funds and will courier it 

to the USA tomorrow morning. 

We understand that CBE was aware that this payment may not go through as they have attempted to make this payment via their other corespondent banks and 

failed. We need to decide what communication we make with CBE in this regard. 

At PCM, I have spoken to the staff concerned and realise that it was a genuine error in an attempt to push the days work through before the cut-off time. I 

believe the loss of three staff in the department leaving only two permanent staff remaining is causing then to work towards clearing their queues rather 

than slow down to read the warnings such as these. Staff are also used to 

seeing warnings often seeing that most of the business we conduct is with CON 

and RST countries. They assumed the warning here was for CBE (which also 

get's flagged by our systems for being Constrained - high risk or sensitive 

country) Havin9 said that I also feel it is a matter of training where 

seeing the word sudan' alone should have been warning enough. 

At HTV we have discussions each time new sanctions come out so the entire 

department is aware of the sanctions and of HSBC'S stand on these sanctions. 

We have clear guidelines on how to handle payments to certain countries with 

sanctions. We hope to start similar sessions with PCM and I will conduct the 

first such training next week. I see this as a transition phase where PCM 

Page 8 
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760612.164

occ-Psi-00610597 

first needs to be staffed and then trained up 

We will await the outcome of our application and I will keep you informed as and when we have some news 

Regards 

Gimi 

Page 9 
2332 


760612.165

occ-Psi-00617514 

From: ALI S KAZMY/HBUS/HSBC 

Sent: 6/18/2007 8:11:48 AM 

TO: ANNE LIDDY/HBUS/HSBC 

Cc: 

subject; FW: Job Ai d - Bearer share 

FYI 

---------------------- Forwarded by Ali S Kazmy/HBUS/HSBC on 06/18/2007 09:11 

AM --------------------------- From: Clara Hurtado on 18 Jun 2007 08:25 

TO: Ali S Kazmy/HBUS/HSBC@HSBC 

cc: Teresa Garcia/HBUS/HSBC@HSBC 

subject: Fw: Job Aid - Bearer share 

Miami also has a large number of bearer share accounts. I too disagree with 

making these SCCs. 

We are also getting an updated BOL every 3 years, not 2 years. 

Before anything goes out to the units, we need to be careful that we do not 

change the agreed upon policies/procedures which have been put in place based on local regulator requirements. 

Thanks. 

cl ara M. Hurtado 

Director of Anti-Money Laundering Compliance HSBC Private Bank Miami 

ph: 305 539 4998 Fax: 305 539 4850 ----- Forwarded by Clara Hurtado/HBUS/HSBC on 06/18/2007 08:23 AM -----

Teresa Garcia/HBUS/HSBC 

06/15/2007 11:05 AM 

TO 

Ali S Kazmy/HBUS/HSBC@HSBC cc 

Alan P Williamson/HBUS/HSBC@HSBC, Anne LiddY/HBUS/HSBC@H5BC, Steven J 

Rockefeller/HBUS/HSBC@HSBC, susan Hoggarth/HBUS/HSBC@HSBC, Clara 

Hurtado/HBuS/HSBC@HSBC 

subject 

Re: FW: Job Aid - Bearer share 

Ali, 

IPB-NY has about 500 non-high risk bearer share accounts. There is no way we --are_rnak ing __ a.lL. th_e5J~_.ac_cQJ,lD t5 ___ 5CC5_. __ 

Teresa Garcia 

senior Manager specialized compliance 

Page 1 
2333 


760612.166

Occ-psi-00617514 HSBC private Bank New York 

452 Fifth Ave., T6, NY, NY 10018 

(PH)212-525-6014 (F) 212-525-8255 

Ali S Kazmy/HBUS/HSBC 06/15/2007 11:01 AM 

TO 

Alan P williamson/HBUS/HSBC@HSBC cc 

Anne Liddy/HBUS/HSBC@HSBC, Steven J Rockefeller/HBUS/HSBC@HSBC, Susan 

Hoggarth/HBUS/HSBC@HSBC, Teresa Garcia/HBUS/HSBC@HSBC 

subject 

Re: FW: Job Aid - Bearer Share 

The intention is to apply to all HBUS business units, including PB. perhaps we could have a discussion on the potential bearer share exposure in Markets. 

Thanks, 

From: Alan P williamson on 15 Jun 2007 10:54 

TO: Ali S KazmY/HBUS/HSBC@HSBC 

cc: Anne Liddy/HBUS/HSBC@HSBC Steven J Rockefeller/HBUS/HSBC@HSBC 

Susan Hoggarth/HBUS/HSBC@HSBC Teresa Garcia/HBUS/HSBC@HSBC 

subject: Re: Fw: Job Aid - Bearer share 

Just for clarity's sake then, the job aid applies to which business units? It 

appears not to apply to PB, and I am sure it doesn't apply to Markets. 

Al an 

Ali S Kazmy/HBUS/HSBC 06/15/2007 10:29 AM 

TO 

Alan P williamson/HBUS/HSBC@HSBC cc 

Teresa Garcia/HBUS/HSBC@HSBC, Steven J Rockefeller/HBUS/HSBC@HSBC, Susan 

Hoggarth/HBUS/HSBC@HSBC, Anne Liddy/HBUS/HSBC@HSBC sUbject 

Re: FW: Job Aid - Bearer share 

page 2 
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760612.167

occ-Psi-00617514 

Alan, 

Thanks for your note. FYI - Anne & I are discussing additions to the AML 

policy with regards to this as well as other topics. 

Regards, 

From: Alan P Williamson on 15 Jun 2007 09:52 

To: Teresa Garcia/HBUS/HSBC@HSBC 

cc: Ali S Kazmy/HBUS/HSBC@HSBC 

steven J Rockefeller/HBUS/HSBC@HSBC 

Susan Hoggarth/HBUS/HSBC@HSBC Anne Liddy/HBUS/HSBC@HSBC subject: Re: Fw: Job Aid - Bearer share 

Ali 

I think this may represent a policy change. probably a good one but not sure we are ready for it. 

Alan 

Teresa Garcia/HBUS/HSBC 

06/15/2007 09:48 AM 

To 

Ali S Kazmy/HBUS/HSBC@HSBC cc 

Susan Hoggarth/HBUS/HSBC@HSBC, Alan P williamson/HBUS/HSBC@HSBC, Steven J 

Rockefeller/HBus/HSBC@HSBC 

subject 

Re: Fw: Job Aid - Bearer Share 

Ali, 

In IPB we do not classify Bearer shares accounts as sccs, unless the nature of 

the beneficial owner warrants it. 

This Job Aid is somewhat similar to the IPB-NY Bearer Share Policy. However, we request that the shares held in custody should be with an approved non-us resident third party custodian, who is authorized to advise HSBC of any changes in ownership. 

Beneficial ownership Letter should be every three years. We do not see the need 

of doing it every two year. we hardly ever see changes in the ownership. 

Teresa Garcia 

Senior Manager specialized compliance 

Page 3 
2335 


760612.168

HSBC Private Bank New York 

452 Fifth Ave., T6, NY, NY 10018 

(PH)212-525-6014 (F) 212-525-8255 

Ali S Kazmy/HBUS/HSBC 

06/14/2007 04:34 PM 

To 

occ-Psi-00617514 

Alan T Ketley/HBUS/HSBC@HSBC, Alexine Von Keszycki/HBUS/HSBC@HSBC, Bernie 

Mackara/HBUS/HSBC@HSBC, clara Hurtado/HBuS/HSBC@HSBC, Deborah R 

price/HBUS/HSBC@HSBC, Denis E o'brien/HBUS/HSBC@HSBC, George Tsugl'anes/HBus/HSBC@HSBC, John P Chri sti ansen/HBUs/HSBC@HSBC, Neri ssa P 

Hall/HBUS/HSBC@HSBC, Richard salvatore/HBUS/HSBC@HSBC, Robert 

Abreu/HBUS/HSBC@HSBC, salvatore Iocolano/HBus/HSBC@HSBC, Steven J 

Rockefeller/HBus/HSBC@HSBC, susan Hoggarth/HBUS/HSBC@HSBC, Teresa 

Garcia/HBUS/HSBC@HSBC cc 

Alan P williamson/HBUS/HSBC@HSBC, Anne Liddy/HBUS/HSBC, Denise A 

Reilly/HBUS/HSBC@HSBC, Georgia stavridis/HBCA/HSBC@HSBC02 

subj ect FW: Job Aid - Bearer Share 

Just a memory jogger that feedback on this matter is due by 15th June 2007. 

After addressing all concerns, the Job Aid will be submitted to the next line 

of senior management for approval by the 19th of June 2007. 

Thanks, 

---------------------- Forwarded by Ali S Kazmy/HBUS/HSBC on 06/14/2007 04:29 

PM --------------------------- Ali S Kazmy on 05 Jun 2007 11:59 

Note 

-{) "" ······~-2.(}G7_+lc:_59_ 

From: Ali S Kazmy Tel: 212-525-5560 

Title: vice President Location: 5TH-21 

WorkGroup: CaMP/ANTI-MONEY LAUNDERING Mail size: 

TO: Alan T Ketley/HBUS/HSBC@HSBC Alexine von Keszycki/HBUS/HSBC@HSBC Bernie Mackara/HBUS/HSBC@HSBC 

Clara Hurtado/HBUS/HSBC@HSBC 

Deborah R price/HBUS/HSBC@HSBC Denis E O'brien/HBUS/HSBC@HSBC 

George Tsusranes/HBus/HSBC@HSBC 

John P chrlstiansen/HBus/HSBC@HSBC 

Judy P Stoldt/HBUS/HSBC@HSBC 

Nerissa P Hall/HBuS/HSBC@HSBC 

Richard salvatore/HBUS/HSBC@HSBC 

_RoherLAh['euLlislJ.SiHSll<::.@HSJK. __ _ salvatore Iocolano/HBUs/HSBC@HSBC 

Steven J Rockefeller/HBuS/HSBC@HSBC 

Susan Hoggarth/HBUS/HSBC@HSBC 

Teresa Garcia/HBUS/HSBC@HSBC 

Page 4 

62458 
2336 


760612.169

Occ-Psi-00617S14 cc: Alan P williamson/HBUS/HSBC@HSBC 

Anne Liddy/HBUS/HSBC Denise A Reilly/HBUS/HSBC@HSBC Georgia stavridis/HBCA/HSBC@HSBC02 

subject: Job Aid - Bearer share 

Attached is a Job Aid on Bearer Shares. It was previously circulated and 

comments received have already been incorporated. This opportunity is availed 

to seek comments/suggestion from a wider audience prior to presentation to the 

AML Director for final approval. 

[attachment "Bearer Share Job Aid v3 OS2S07.doc" deleted by Teresa 

Garcia/HBUS/HSBC] 

please reply along with reasoning if you do not believe the Job Aid to apply to 

your business unites). In either case, please provide comments/suggestions/feedback by June 15, 2007. 

Thanks & regards, 

paqe 5 
2337 


760612.170

From: PETER G MAY/HBEU/HSBC sent: 8/9/2007 7:13:10 AM 

occ-Psi -00620281 

To: ANNE LIDDY/HBUS/HSBC@HSBC 

CC: ALAN T KETLEY/HBUS/HSBC@HSBC 

subject: Re: Arab Investment company Reportable Event _Notification 

Hi Anne, 

I think it's important we are all comfortable with the issues here and for me to comment, I need to understand the questions HBUS have posed to TAlC and be 

clear on their responses. 

If this cannot simply be forwarded, then let's have the call, but be aware that 

this alone 'is unlikely to bring this to a suitable conclusion. 

Thanks, 

PGM 

********************************* 

HSBC Bank plc Registered Office: 8 canada square, London E14 5HQ 

Regi stered in Engl and Number 14259 

Authori sed and regul ated by the Fi nand a 1 servi ces Authority 

* *** *"* ** ******** * * * * ***"* ****** *** 

From: Anne Liddy Sent: 09/08/2007 08:03 EDT 

To: Peter G MAY 

--== Redacted by the Permanent Subtommittet on In\'estigati9111 

Cc: Alan T Ketley subject: Re: Arab Investment company Reportabl e Event _Notifi cati on 

Peter, I thought we could discuss that over the phone however if you require the written correspondence prior to our call then unfortunately it will have to wait: until Alan Ketley returns from vacation on Aug 13th, as I am not confident - thalc--I have.· €ac-h-. .pi=e-o£-cor-JOeSpondence __ I .will-<lS.k. AlarL1:<Lfur.wanL.a] 1.~ ____ ~_ . applicable correspondence upon his return then we can set up a call. Hope this 

is ok with you. Thanks. 

Peter G MAY/HBEU/HSBC 

08/07/2007 12: 48 PM 

Hi Anne, 

To 

Anne Liddy/HBUS/HSBC@HSBC cc 

Alan T Ketley/HBUS/HSBC@HSBC subject 

Re: Arab Investment company Reportabl e Event -'otifi cation 

Thanks for the explanations but this does not really cover the issue of the 

page 1 
2338 


760612.171

Occ-psi-00620281 client not answering the questions from HBUS to a satisfactory level. 

I would like to see the correspondence between HBUS and TAlC which provides their explanation before we take any further action and before we have the call. 

Happy to join a call next week. 

Thanks, 

PGM 

Anne Liddy/HBUS/HSBC HBUS 

07/08/2007 14:45 

Mail Size: 28215 

To 

Peter G MAY/HBEU/HSBC@HSBC cc 

_ .... _ .. _._--_._-----, _ = Redacted by the Permanent 

SuiKommittee on Investigations 

Alan T Ketley/HBUS/HSBC@HSBC subj ect Re: Arab Investment company Reportable Event 1IIIIIIN0tification 

Entity 

HSBC Bank plc - HBEU 

Peter, below is the summary and detailed information that was input into RED on 16JUL07 for RE ~ Hopefully, this helps you to understand a little better 

the situation at HBUS. With regards to your request for details of the 

response from the client, rather than send you a flurry of emails I think it 

would make more sense for yourself, myself and my colleague, Alan Ketley (who 

has been dealing with the business re this matter) get on a call to walk you through the history. Alan is currently on holiday and returns the week of --AU9U"'\:-l-~ h.· --I'+.s-+et ... me.koow.--i f ,Lwllen-you ~-bea\tailab]"-_1:o spL.wj.th us. during the course of that week. Thank you. 

summary: 

Multiple sudan-related payments have been directed over this account by Arab 

Investment Company. The majority were reported by other banks suggesting that 

HBUS has been processing cover payments for this client. The only payment where 

the Sudanese connection was apparent was stopped and blocked by HBUS. PCM is not satisfied with the explanations provided by the client and is aiming to have the account closed effective August 1, 2007. 

please refer to the details below for a full description of this issue. 

Detai 1 s: 

The Arab Investment Company SAA ("TAlC"), TAlC Buil di ng 2309, Road 2830 A 1 seef 

Di sui ct 4~it~<l~~~~' B~~tr:.~~~~l~a~M~~_c~~r~~s~n~~g~,~~gk~ ~~o~~m~ NO. 

indicating that seven wire payments requested to be processed for this account, 

by TAlC, were prohibited due to u.s. sanctions against sudan, although we had no knowledge of this information at the time the wire transfers were processed or requested to be so processed. The events upon which we obtained this 

Page 2 
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760612.172

occ-psi-00620281 knowledge of the possib1e involvement of "sudan" are summarized below. 

In May 2007, HBUS responded to two '602' letters received from the office of 

Foreign Assets control ("OFAC") informing HBUS that it had processed two wire 

payments for TAlC in which the underlying transactions were related to Sudan. It is noted that both wi re payments, as processed by HBUS upon i nstructi on provi ded by TAIC, i ndi cated no reference to "sudan" or any other sancti oned 

interest. The two intermediary u.s. banks receiving the payments from HBUS 

rejected and blocked the payments, as required, in compliance with u.s. sanctions against sudan. The intermediary u.s. banks reported the rejected and 

blocked payments to OFAC as requi red by regulation (since they apparently received i nformat; on from the; r respect; ve customers that ent; ti es located in 

Sudan were involved). OFAC in turn contacted HBUS requesting an explanation as to how each payment was handled by the Bank (which was done). 

Below are details on the two wire payments referred to 

1) value date 25-Aug-2006 Amount: USO 36,900 

Debit Bank: The Arab Investment Company SAA 

Intermediary Bank: Bank of America NY 

originator: State Bank of India, Murnbai "111111!1"'''. Beneficiary: state Bank of India, Mumbai, A/C~ 

Beneficiary Bank: state Bank of India Export Bills Receivable 

Note: OFAC letter COMPL 0700200 indicated that Bank of America rejected the 

payment because the underlying transaction involved an export bill drawn on Alhaitham chemical and pharma Co. Ltd., of Khartoum, Sudan. 

2) value date 21-Dec-2006 

Amount: USD 20,300 

Debit Bank: The Arab Investment Company SAA 

Intermedi ary originator: 

Benef; ci ary: 

Bank: sum; tomo Mi tsui Bank; ng Corp., NY 

Sumitomo Bankin9 Corp., seoul 

sumitomo Mitsul Banking corp., seoul 

Note: OFAC letter COMPL 0700245 indicated that the funds transfer was initiated on behalf of "Sudan Telecom company" . 

. HBtJ5-1'e5perujed·t<l-OFA£-t hat----bot fl.-wi r-e--j>a'f!R"'"u,~""",,·s-<.,4.by..Wllls.~=n taine.d .. no reference to "sudan", 

After responding to these two OFAC letters, two additional wire payments sent upon the instruction of TArc were, subsequently, again returned by Bank of 

America due to OFAC sanctions against sudan. Again, neither payment as processed by HBUS contained any reference to "sudan". Details on the payments are given below. 

3) val ue date 15-Jun-2007 

Amount: USD 631,532.70 Debit Bank: The Arab Investment Company SAA 

Intermediary Bank: Bank of America N.A. 

originator: State Bank of India, Indore, India 

Beneficiary Bank: state Bank of India, Export Bills Receivable AIC 

Beneficiary: State Bank of India, Indore, India 

4) value date 15-Jun-2007 

.Amount.: ..... USD..l54JliO •. 6.L... _ .... __ .. _____ . Debit Bank: The Arab Investment Company SAA 

credit: Bank of America N.A. 

originator: State Bank of India, Indore, India 

Beneficiary Bank: state Bank of India, Export Bills Receivable Alc 

Beneficiary: State Bank of India, Indore, India 

Page 3 
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760612.173

occ-psi-00620281 

Upon review, we identified three additional wire payment instructions (note where wire transfers were not processed) received from TAlC which may have 

involved a sudanese interest. Details are given below. 

5) value date 16-May-2006 Amount: USD 485.22 

Debit Bank: The Arab Investment company SAA 

credit: Bank of New York, oriskany, NY 

originator: The Arab Investment company SAA 

Beneficiary: Farmers commercial Bank, Khartoum, sudan 

--"" Redacted by the Permanent 

Subcommittee on Investigations 

Note: This payment was blocked and reported by HBUS to OFAC on 16-May-2006, due to the involvement of the sudanese bank. "Farmers Commercial Bank, 

Khartoum, Sudan" is listed as a blocked entity by OFAC under the sudan program. 

6) value date 10-oct-2006 

Amount: USD 34,505.00 

Debit Bank: The Arab Investment company SAA 

credit: wachovia Bank NA - New York 

Intermediary Bank: wachovia Bank, N.A. collections clearance Account, NY, NY 

Beneficiary Bank: The Bank of Kyoto, Ltd., Kyoto, Japan 

Note: The payment was returned b wachovia to HBUS on 17-oct-2006 with the 

notation "Return your SSN Val 10/10/06 for our collection O/B (ordering bank) is sudanese French Bank, su an. cannot process due to sanctions." 

7) value 21-Feb-2007 

Debit: The Arab Investment company SAA 

Credit: Bank of America, N.A., NY, NY 

Beneficiary Bank: state Bank of India (Export Bill Receivable) originator: state Bank of India, Mumbai 

USD 287,158.75 

Note: The payment was returned by Bank of America to HBUS on 23-Feb-2007 with 

the notation "Drawee is a sudanese entity and that comml pymts involving sudan 

cannot be proc under sanction." 

The relationship with TAlC is currently under review by HBUS PCM and PCM in 

·_-wh+d;-has ·loca1 call i 119 I es~'l4ty-f6f'-B'd:E·and·a·~Ma.ti.olf-·ha.sbeen made by HBUS compliance that the relationship be exited. The Group KYC on TAlC indicates that there is a treasury and trade relationship; it also 

indicates that TAlC has OFAC monitoring systems in place and that any transactions with OFAC names are rejected - our experience suggests this is no longer correct. 

In summary, it is noted that the above seven (7) wire transfer requests possibly involving entities located in sudan were all rejected by the U.s. 

banks and were not, therefore, processed. 

Peter G MAY/HBEU/HSBC 

08/07/2007 06:46 AM 

.1'0....-.. -.... _._. _____ _ 

Anne Liddy/HBUS/HSBC@HSBC cc 

subject 

Re: Arab Investment Company Reportable Event 1IIIIINotification 

paqe 4 
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760612.174

occ-psi-00620281 

Anne, 

I received no responses in your absence and would appreciate your assistance in 

providing me with information requested. 

Many thanks, 

PGM 

Anne Liddy/HBUS/HSBC HBUS 

06/08/2007 14:27 

Mail size: 13407 

To 

Peter G MAY/HBEU/HSBC@HSBC CC 

...------_ .. _-_ .... _ .. _ =- Redacted by thi: Permanent 

Subcommittee on Investigations 

subject 

Re: Arab Investment company Reportable Event ..... Notification 

Entity 

HSBC Bank plc - HBEU 

peter, I have just returned from my vacation and saw this email. Do you still 

need this information? 

peter G MAY/HBEU/HSBC 

07/27/2007 10:58 AM 

To 

Anne Liddy/HBUS/HSBC@HSBC cc 

Alan T Ketley/HBus/HSBC@HSBC, carolyn M Wind/HBUS/HSBC@HSBC, Ian 

EDEN/HBME/HSBC@HSBC, Joe E BROWNLEE/IBEU/HSBC@HSBC, susan A 

WRIGHT/HGHQ/HSBC@HSBC subject 

Arab Investment Company Reportable Event 1IIIIINotification 

Dear Anne, 

Re the below, I have not been able to obtain all the relevant information on the event within HBUS and from our records, we don't have anything from HBEU 

with the client in question. 

page 5 
2342 


760612.175

occ-psi-00620281 

please could you shed some further light on this, including providin~ us with 

details of the response from the client, so that we can review the sltuatlon 

with all the facts. Additionally, I believe we are only the Re~ional 

Relationship Manager for the customer, who will have a GRM withln HBME who 

should be kept in the loop. 

Thanks, 

PGM 

peter May 

Global Relationship Manager Public Sector & Reserve Managers HSBC Bank plc 

corporate, Investment Banking and Markets 

Level 17 

8 canada square London, E14 5HQ 

phone: + 44 (0)20 7992 3721 

fax: + 44 (0)20 7992 4480 

mobile: +44 (0)7767 006186 

r-------.. -- --= Redacted by the Permanent 

Subcommittee on Investigations 

email: peter.g.may@hsbcib.com ----- Forwarded by Peter G MAV!HBEU!HSBC on 27 Jul 2007 15:42 ----- Giovanni FENOCCHI/HBEU/HSBC on 27 Jul 2007 07:54 

Forwarded by Giovanni FENOCCHI!HBEU!HSBC on 27 Jul 2007 07:54 ----- Joe E BROWNLEE!IBEU/HSBC @ HIBM on 26 Jul 2007 18:14 

Memo 

26 Jul 2007 18:14 

From: Joe E BROWNLEE!IBEU!HSBC @ HIBM 

Mail size: 2252 -sent·'!Tr.--rBftI··'CF AMB SIGNATURE-MffHBlU·"F¥@lf.£.l!M-·-· 

subject: Reportable Event #3948 Notification 

Event DETAILS :-

Event Title: Arab Investment company - sudan OFAC issues 

Status: open Region: North America 

Business: HSBC securities services 

Location: united States 

Exec summary: Multiple Sudan-related payments have been directed over this account by Arab Investment company. The majority were reported by other 

banks suggesting that HBUS has been processing cover payments for this client. 

The only payment where the sudanese connection was apparent was stopped and 

blocked by HBUS. 

PCM is not satisfied with the explanations provided by the client and is aiming to have the account closed effective August I, 2001. . 

.... pleas.e...ref..e r....to ... the .drtai.Ltab .. f~.La fulLQ-,,_s.cr;Jl:tiQlL oLt .. Date occurred: 

creation Date: 16 Jul 2007 12:53 

Event Number:_ 

page 6 
2343 


760612.176

occ-psi-00620281 

RED link: http://intranet.uk.hibm.hsbc/IRIS/logon.do?eventld=30003077 

THIS PAGE IS 

INTENTIONALL Y 

LEFT BLANK 

page 7 
2344 


760612.177

Events (RED) 

placed in 

RED in 

January 08 

Redacted by the 

Permanent Subcommittee on Investigations 

Redacted by the I 

Permanent Subcommittee on Investigatlons , 

OCC-PSI-00631007 
2345 


760612.178

Redacted by the 

Permanent Subcommittee on Investigations 

Other: OFAC Audit complet.d. 

+ ___ .. , __ ~ ~. _9FAC ~.ompli~!1se De~~book ~~.!ted an~.submitted to t~am for ~pproval 

• 3 sessions of OFAC training completed for Private Bankingtoratotafof 46 partiCIPants ~--.. 

OCC-PSJ-00631007 
2346 


760612.179

To: Lesley Midzain, EVP 

cc: Alme Liddy 

From: Elizabeth Protomastro, OF AC Compliance 

Date: 4/2/08 

Report: Management Report For IQ2008 for OFAC Compliance 

1. Issues Arising 

Ca) NEW ISSUES 

Include in this section: 

• New Reportable Events 

On 30JAN08, HBUS disclosed to OFAC the facts surrounding the processing of a 

wire transfer transaction ofUSD 29,428. 32from HSBC Egypt on 7DEC07 which was 

subsequently blocked by under sanctions against Sudan. The 

transaction did stop in the OFAC filter queue, but was released due to human error. 

HBUS faces paying a potential penalty under the Sudanese sanctions for processing 

this payment. (RED #4710) 

Redaded by the 

Permanent Subcommittee on Investigations 

OCC-PSI-00633713 
2347 


760612.180

On 28FEB08, HBUS to OFAC the facts surrounding the processing ofa 

wire transfer transaction ofUSD 44,211.64 on 5NOV07 which was subsequently 

returned/rejected by in compliance with sanctions against Sudan. The 

payment did stop in the OFAC queue, but released due to human error. HBUSfaces 

a potential penalty under the Sudan sanctions for processing this payment. (RED 

#4797) 

OCC-PSI-00633713 
2348 


760612.181

I Redacted by the I , l'erm'HH'llt Subcommittee on Investigations; 

(b) MATTERS REpORTED PREVIOUSLY 

See Schedule A attached. 

2. Compliance Plan 

(a) Deviations from Compliance Plan 

Nil. 

(b) Activities Outside of Plan Requiring Significant Compliance Support 

Nil 

3. Significant Accomplishments for the Period 

Four OFJlC Training 2007 make up sessions were presented to 59 staff members oJIPE 

and DPB (NY and Miami). Two OFAC Training sessionsJor 2008 were presented to 44 

AMb-Retail--C-{}m~ .• tajfba.ea.m Viwg,Jndia~ 

4. Resources 

Nil 

5. Significant Legislative Action 

The OFAC SDN list was updated 15 times during 1 Q08. Updates/additions and changes 

were made under the following programs: Global Terrorism (5); Narcotics Trafficking 

and Drug Kingpin (3); Non-Proliferation (1); Iraq3 (1); NPWMD (I); Burma (3) and 

Lebanon/Syria (I). 

OlllL\FE~Qf A.C.QyQlim"d"Q]J.idance Onj21lJities .. O\\ned ByJ'.ersol1s Who$c 

Property And Interests [n Property Are Blocked :. 

OCC-PSI-006337! 3 
2349 


760612.182

On 6MAR08, OFAC published "Guidance on the Blocking ofPropel1y ofCerlain 

Persons Undennining the Democratic Processes or Institutions in Belarus by Executive 

Order 13405," This specifically addressed the Guidance of 14FEB08 and its applicability 

to the Belamsian State Concern for Oil and Chemistry ("Bclneftckim"), an entity which 

was designated on 13NOV07, and any dealings, direct or indirect, with entities in which 

this blocked party has a 50% or greater O\\1lership interest. 

OCC-PSI-00633713 
2350 


760612.183

Redacted by the 

~)ermanent Subcommittee on Investigations 

OCC-PSI-00633713 
2351 


760612.184

occ-psi-00652829 From: ALI S KAZMY!HBUS/HSBC 

sent: 6/24/2009 2:09:55 PM 

TO: ANNE LIDDY/HBUS/HSBC@HSBC02@HSBC 

CC: 

subject: Re: FW: Group CRRT and us country Risk Assessments 

The 2009 INCSR's report on Mexico was worst than that of 2008. The report does 

not apply a risk rating on countries, however, the report itself provides details of findings, which assists in such a process. For example, the 2009 

reports provide the following new information: 

During 2008, various Mexican government officials have come under investigation for alleged corruption and money laundering activities; 

In November 2008, government agents of the special Group for organized crime 

(PGR) apprehended the former Deputy Attorney General of the offlce of the 

Attorney General (SlEDD); 

Eight enforcement agents from Federal preventive Police (PFP) and PGR were apprehended and accused of leaking confidential information to drug cartels; 

The IMF'S mutual evaluation report on Mexico conducted on behalf of FATF 

identified deficiencies, including a lack of criminal liability for legal 

persons and a lack of investigations for money laundering and cross-border cash 

smuggling; 

AS of November 2008, bulk-cash seizures amount to $53 billion; 

For the past two years, u.s. authorities have observed a significant increase 

in the number of complex money laundering investigations by SlEDD, with support from the UIF and in coordination with u.S. officials. The number of 

investigations rose from 152 in 2004 to 198 as of October 2008 (In 2007, 85 of 

112 apprehension orders corresponded to money laundering operations, this 

information was previously not available.); 

There were a number of noteworthy cases during 2008, which were reported in the 

2009 INCSR: 

In the beginning of 2008, the u.S. Government froze funds belonging to the 

Mexican money exchange house casa de cambio Puebla as part of a money laundering case filed in u.S. District court in Miami against Venezuelan 

national Pedro Jose Benavides Natera, who participated ln a complex money laundering scheme. criminals used clean funds to purchase high-performance 

turbo-prop aircraft for drug smuggling operations. Drug proceeds from Venezuela were sent to Cas a de cambio Puebla where cooperating individuals sent the funds on to the u.s., into buffer accounts, operated by individuals who served as fIJll1LSc fQLYenez.u~elaJLlirJl9.-!rilJfi ckers~._Ib~ buff~r account hol ders then __ transferred funds to aircraft brokers for the purchase~aircraft~e 

criminals then cancelled the aircraft registrations and had the aircraft 

shipped to front men in venezuela. 

In October 2008, at a mansion in Desierto de los Leones near Mexico city, PGR 

and PFP apprehended 15 major drug dealers and money launderers, 11 of them 

colombians, with links to the Beltran Leyva brothers. The leader of the group, Teodoro Mauricio aka "El Gaviota", is under investigation for money laundering and narcotics trafficking. In November 2008, SlEDD arrested Jaime Gonzalez Duran, aka "The Hummer", one of 

the most wanted criminals in Mexico and allegedly one of the leaders and 

founders of the criminal group "LOS Zetas" (considered to be the armed branch 

of the Gulf Cartel). Gonzalez was apprehended in Reynosa, Tamaulipas where he 

had smuggled drugs into the u.S., on organized crime, drug smuggling, money launderlng, and possession of weapons charges .. 

please let me know if the above suffices. 

From: Anne Liddy@HSBC02 on 22 Jun 2009 17:37 

Page 1 
2352 


760612.185

occ-Psi-00652829 

To: Ali S Kazmy/HBUs/HSBC@HSBC02@HSBC02@HSBC 

subject: Re: FW: Group CRRT and us country Risk Assessments 

Ali, did any of the agencies you reference in your email downgrade Mexico 

recently as a result of the issues Mexico is currently experiencing? What does 

INCSR have Mexico labelled as and is it worse than the previous rpt. I'd' like 

to give susan some more concrete examples she could use with the other Group offlces. Thanks. 

----- original Message From: Ali S Kazmy 

sent: 06/19/2009 12:37 PM CDT 

To: Anne Liddy subject: Re: FW: Group CRRT and us country Risk Assessments 

Anne, 

I am basically providing the same summary I did for our catherine Bussery during May 2009, with a slight update. 

A number of sources are reviewed, a majority of which are government and 

international agencies, such as world Bank, IMF, FATF, CFATF, BIS, Central 

Banks, Transparency International, etc. in order to determine risk levels 

inherent in each U.N. recognized country and affix a rating. With regards to 

u.s., we rely on reports issued by the Department of State, Department of 

Treasury and other similar governing agencies. The u.s. Department of State 

issues detailed annual assessment of each country via the International 

Narcotics Control Strategy Report highlighting, inter alia, money laundering, terrorist financing, corruption, and regulatory regime/oversight. An excerpt of such a report on Mexico, which also lnclude some of our independent research 

findings, is attached below. 

[attachment "country Report 2009.doc.zip" deleted by Anne Liddy/HBUS/HSBC] 

As a result of events occurring in Mexico during the past several months with 

respect to drug trafficking and money laundering, as well as the ~eneral unrest 

these developments have caused, we have downgrade Mexico to "high risk. The 

-lifCterioratel:L5iJ::uatiolLis.J'eLogniz.e!Lby ~YJ,J'nment of Mexi co as~evi denced 

through the involvement of agencies tasked with the Anti-Money Laundering and 

counter Financing of Terrorism (AML/CFT) efforts towards drafting an AML/CFT 

National Strategy. This strategy is expected to be issued sometlme during 2009. It is expecced to oUcline Mexico's AML/CFT short and long range objectives and, amongst other, examine emerging money laundering trends and 

identify and propose legal and regulatory measures to mitigate gaps. our rating is in conformity with the view of the u.s. law enforcement. 

Regards, 

PS: sorry for the delay. I have been busy with CTP issues. 

From: Anne Liddy@HSBC02 on 18 ]un 2009 16:52 

subject: FW: Group CRRT and us Country Risk Assessments 

Ali, can you pls pull this info together for summarization to susan. Thanks. 

Page 2 
2353 


760612.186

----- original Message ----- From: Susan A WRIGHT 

Sent: 06/18/2009 02:29 PM GDT 

occ-psi-00652829 

TO: Anne Liddy/HBUS/HSBC@HSBCAMERICAS Subject: Group CRRT and US country Risk Assessments 

Anne, 

It has been drawn to my attention that in the latest US Country Risk Assessment 

Mexico has gone from a lower risk to high. I have received a number of queries from around the Group as to the reason for what they see as quite a dramatic 

change. 

Whilst I appreciate the risks involved in doing business with Mexico I would be 

grateful for some further and more detailed clarification as to why the change has been so dramatic. This will enable me to deal with a number of these 

queries. 

Many thanks and regards 

Susan Wright 

page 3 
2354 


760612.187

occ-psi-00672571 From: CN=Wyndham S clark/OU=HBUS/O=HSBC sent: 5/9/2010 6:36:30 PM 

TO: CN=Curt X cunningham/ou=HBUS/O=HSBC@HSBC02 subject: Re: AML Townhall 

curt, 

Thanks for your note. It was exactly on point. Essentially now being made without AML SME. This will be very apparent 

wyn 

wyn clark 

Anti-Money Laungering Director 

HSBC North Amerlca 

452 Fifth Avenue, 7th Floor 

New York, NY 10018 

(212) 525-8025 

wyndham.s.clark@us.hsbc.com 

----- original Me~sage ----- From: Curt X cunnlngham sent: 05/09/2010 12:02 PM CDT 

To: corbin Lirot; Anthony Gibbs 

AML decisions are to the regulators. 

cc: "gpeterson" <gpeterson@imagny.com>; wyndham S Clark 

subject: Re: AML Townhall 

corbin, 

we need to start including wyn in these discussions. He is the na AML 

director. He is ultimately accountable for the AML program. 

In that vein, we have a standing meeting regarding AML with the regulators this 

Tuesday. We need to discuss who will cover what topics at that meeting as well. 

I suggest a meeting early tomorrow, that includes all on this note plus wyn to discuss both topics. 

Curt 

----- Origjnal M~ssage ----- From: Corbln C Llrot sent: 05/09/2010 10:44 AM CDT T{}:··AFlt~5T .{;~1'Ighamcc: gpeterson@imagny.com subject: Re: AML Townhall 

Yes, you me, curt and Gary should meet to discuss the town hall .... others 

(Karen Grom?)? I agree we need to draft speaking points/materials. 

The main objective is to try to summarize where we are with AML backlog with 

the regulators and in building the AML BAU team to meet the current worklog (I would think this should include the impact of the CTP on AML). From there, we need to develop a clear view on the go-foward roles and responsibilities in AML 

BAU processing (under wyn) and roles related to the many projects and contractors. off the top of my head, the short list is IMAG on Governance and 

Quality, Deloitte on Backlog, Mark shaw on Backlog, BOOZ on AML Risk 

Assessment, Booz on Norkom (analyst and running the scoping session) and Pwc in 

compliance program Review (deeper dive on Fair Lending) and possible staffing of some of the BAU opens (batch clearing and filter tuning work). We should 

provide a HR Recruiting Update (comp update?). We should consider getting a communi cat; on5 person from Laura Gei bb to help go-forward post Townha 11 keepi I\-g __ -p~onthe ____ Sjj.l!l~L.R.<l9g __ iJL1h~_Ar"'b_2Lace, " there are alot of 1 ocati ons to manage and communi cate with. . .. .. -....... -------------.-.-.-.. -.------ ------------------------

Irene wants to put it out there that this is what we know, what is going on and 

open for Q&A so that people believe we are being open an honest and working 

WITH them to address the issues and fix the problems. Irene is the one drlving 

Page 1 
2355 


760612.188

occ-Psi-00672571 

this townhall and the sense of urgency to do by this Friday. 

Kind Regards, 

Corbin C Lirot 

Chief Financial officer, HTSU I HSBC Technology & services cos I HTS, North 

America 

26525 N. Riverwoods Drive, Three North East, Mettawa, IL 

phone. 

Fax. 

Mobile. 

Email. 

224 544 6639 

224 522 6639 

224 622 6075 

corbin.c.lirot@us.hsbc.com 

From: Anthony R Gibbs/HBUS/HSBC 

To: Corbin C Lirot/HBUS/HSBC@HSBC02 

Date: 05/09/2010 09:43 AM 

subj ect: Re: AML Townha 11 

Just wanted to let you know all logistics have been completed and invitations 

sent to all. The only open item is content. please let me know how I can help with that. As background, I usually work with the management team and others to 

accumulate info and draft speaking points for Janet's Townhalls, so I can share 

what I provide in the past or help as needed. Thank you. 

Anthony Gibbs 

EYP, Chief operating officer 

HSBC North America Legal & compliance phone (224) 544-3547 

Executive Assistant 

Isabel Trayer (224) 544-4970 

privileged/confidential information may be contained in this message. If you ~dressee j rui~e~thi5 .. =a!Jl!-.COLJ".es[1QnS.i hle.JoL_deli.Y.eDL-o£. 

the message to such person), you may not copy or deliver this message to 

anyone. In such cases, you should delete this message and kindly notify the 

sender by reply email. please advise immediately if you or your employer does 

not consent to Internet email for messages of this kind. opinions, conclusions 

and other information in this message that do not relate to the official 

business of HSBC shall not be understood as neither given or endorsed by it. 

From: corbin C Lirot/HBUS/HSBC 

TO: Anthony R Gibbs/HBUS!HSBC@HSBC02 

Cc: Curt X cunningham/HBUS/HSBC@HSBC02, Karen K Grom/HBUS!HSBC@HSBC02 

Date: 05/06/2010 09:31 AM 

subject: Re: AML Townhall 

···yesTFene ··ano·Gary· PeLeFso-nsnolJictDe 1 nVl ted. 

Many thanks and warm regards, 

corbi n L i rot 

(sent via Blackberry) Page 2 
2356 


760612.189

occ-Psi-00672571 

----- original Message From: Anthony R Gibbs 

sent: 05/06/2010 09:17 AM CDT 

TO: corbin Lirot cc: Curt cunningham; Karen Grom 

subject: Re: AML Townhall 

Absolutely corbin. I will get right on scheduling. Outside of AML CMP 

personnel, senior management team, and you, was there anyone else that should 

attend from your meeting? i.e., Irene Dorner? consultants? 

Thank you. 

Anthony Gibbs 

EVP, chief Operating officer 

HSBC North America Legal & compliance phone (224) 544-3547 

Executive Assistant 

Isabel Trayer (224) 544-4970 

privileged/confidential information may be contained in this message. If you are not the addressee indicated in this message (or responsible for delivery of 

the message to such person), you may not copy or deliver this message to 

anyone. In such cases, you should delete this message and kindly notify the 

sender by reply email. please advise immediately if you or your employer does 

not consent to Internet email for messages of this kind. Opinions, conclusions 

and other information in this message that do not relate to the official 

business of HSBC shall not be understood as neither given or endorsed by it. 

From: corbin C Lirot/HBUS/HSBC 

To: Curt X Cunni ngham/HBUS/HSBC@HSBC02, "Anthony Gi bbs" 

<anthony.r.gibbs@us.hsbc.com>, "Karen Grom" <karen.k.grom@us.hsbc.com> 

Date: 05/06/2010 09:10 AM -l>bi~~--~ownha1lIrene and Janet have requested that we conduct a townhall with the extented AML 

team. The venue is to be NYC 11th floor and vc connection to remote site. 

Anthony, Janet says you organize for a broader team quarterly and know how to 

contact to make this happen. can you reach out to schedule logistics for Friday May 17th? 90 minutes with time for Q&A. 

Many thanks and warm regards, 

corbin Lirot 

(sent via Blackberry) 

page 3 
2357 


760612.190

occ-psi-00672582 From: cN;wyndham S clark/oU;HBUS/O;HSBC 

Sent: 5/10/2010 6:03:10 AM 

TO: CN;Anne Liddy/oU;HBUS/Q;HSBC@HSBC02 subject: Re: AML Townhall 

Thanks. With every passing day I become more concerned ... if that's even possible. 

Wyn Clark 

Anti-Money Laungering Director 

HSBC North Amerlca 

452 Fifth Avenue, 7th Floor 

New York, NY 10018 

(212) 525-8025 

Wyndham.s.clark@us.hsbc.com 

NO. 

----- original Message From: Anne Liddy Sent: 05/09/2010 08:03 PM CDT 

TO: wyndham S clark 

subject: Re: AML Townhall 

----- original Message From: wyndham S Clark 

Sent: 05/09/2010 01:30 PM CDT 

To: Anne Liddy subject: Fw: AML Townhall 

Is this model working? 

wyn clark 

Anti-Money Laundering Director 

HSBC North America 

452 Fifth Avenue, 7th Floor 

New York, NY 10018 

(212) 525-8025 

wyndham.s.clark@us.hsbc.com 

-~~~gin~sa9€-=.~ 

From: Curt X cunningham Sent: 05/09/2010 12:02 PM CDT 

To: Corbin Lirot; Anthony Gibbs cc: "gpeterson" <gpeterson@imagny.com>; wyndham S Clark 

subject: Re: AML Townhall 

corbin, 

We need to start including wyn in these discussions. He is the na AML 

director. He is ultimately accountable for the AML program. In that vein, we have a standing meeting regarding AML with the regulators this 

Tuesday. We need to discuss who will cover what topics at that meeting as well. 

I suggest a meeting early tomorrow, that includes all on this note plus wyn to 

discuss both topics. 

Curt 

---~- original Message --~-­

From: corbi n C Ll rot---

Sent: 05/09/2010 10:44 AM CDT 

TO: Anthony Gibbs; Curt cunningham cc: gpeterson@imagny.com subject: Re: AML Townhall 

page 1 
2358 


760612.191

occ-Psi-00672582 

Yes, you me, Curt and Gary should meet to discuss the town hall .... others 

(Karen Grom?)? I agree we need to draft speaking points/materials. 

The main objective is to try to summarize where we are with AML backlog with 

the regulators and in building the AML BAU team to meet the current worklog (I would think this should include the impact of the CTP on AML). From there, we need to develop a clear view on the go-foward roles and responsibilities in AML 

BAU processing (under wyn) and roles related to the many projects and 

contractors. off the top of my head, the short list is IMAG on Governance and 

Quality, Deloitte on Backlog, Mark Shaw on Backlog, BOOZ on AML Risk 

Assessment, BOOZ on Norkom (analyst and running the scoping session) and PwC in 

compliance Program Review (deeper dive on Fair Lending) and possible staffing of some of the BAU opens (batch clearing and filter tuning work). we should 

provide a HR Recruiting update (comp update?). We should consider getting a communications person from Laura Geibb to help go-forward post Townhall keeping people on the same page in the AML space ... there are alot of locations to 

manage and communicate with. . 

Irene wants to put it out there that this is what we know, what is going on and 

open for Q&A so that people believe we are being open an honest and workin~ 

WITH them to address the issues and fix the problems. Irene is the one drlving this townhall and the sense of urgency to do by this Friday. 

Kind Regards, 

Corbin C Lirot 

Chief Financial officer, HTSU I HSBC Technology & Services COS I HTS, North 

America 

26525 N. Riverwoods Drive, Three North East, Mettawa, IL 

phone. 

Fax. 

Mobile. 

Email. 

224 544 6639 

224 522 6639 

224 622 6075 

corbin.c.lirot@us.hsbc.com 

£ro=~5./HB.~ .. __ TO: corbi n C L i rot/HBUS/HSBC@HSBC02 

Date: 05/09/2010 09:43 AM 

Subject: Re: AML Townhall 

Just wanted to let you know all logistics have been completed and invitations 

sent to all. The only open item is content. please let me know how I can help with that. As background, I usually work with the management team and others to 

accumulate info and draft speaking points for Janet's Townhalls, so I can share 

what I provide in the past or help as needed. Thank you. 

Anthony Gibbs 

EVP, Chief operating officer 

HSBC North America Legal & compliance phone (224) 544-3547 

Ex~tutive Assi~tant 

Isabel Trayer (224) 544-4970 

privileged/confidential information may be contained in this message. If you are not the addressee indicated in this message (or responsible for delivery of 

the message to such person), you may not copy or deliver this message to 

anyone. In such cases, you should delete this message and kindly notify the 

page 2 
2359 


760612.192

occ-Psi-00672582 

sender by reply email. please advise immediately if you or your employer does 

not consent to Internet email for messages of this kind. opinions, conclusions 

and other information in this message that do not relate to the official 

business of HSBC shall not be understood as neither given or endorsed by it. 

From: corbin C Lirot/HBUS/HSBC 

To: Anthony R Gibbs/HBUS/HSBC@HSBC02 

Cc: curt X cunningham/HBUS/HSBC@HSBC02, Karen K Grom/HBUS/HSBC@HSBC02 

Date: 05/06/2010 09:31 AM 

subject: Re: AML Townhall 

Yes Irene and Gary peterson should be invited. 

Many thanks and warm regards, 

corbi n L i rot 

(Sent via Blackberry) 

----- original Message ----- From: Anthony R Gibbs 

sent: 05/06/2010 09:17 AM COT 

To: corbin Lirot 

Cc: Curt cunningham; Karen Grom 

subject: Re: AML Townhall 

Absolutely corbin. I will get right on scheduling. outside of AML CMP 

personnel, senior management team, and you, was there anyone else that should 

attend from your meeting? i.e., Irene Dorner? consultants? 

Thank you. 

Anthony Gibbs 

EVP, chief operating officer 

HSBC North America Legal & compliance ~Ph=Mr24) 544 3547 ~ 

Executive Assistant 

Isabel Trayer (224) 544-4970 

privileged/confidential information may be contained in this message. If you are not the addressee indicated in this message (or responsible for delivery of 

the message to such person), you may not copy or deliver this message to 

anyone. In such cases, you should delete this message and kindly notify the 

sender by reply email. please advise immediately if you or your employer does 

not consent to Internet email for messages of this kind. opinions, conclusions 

and other information in this message that do not relate to the official 

business of HSBC shall not be understood as neither given or endorsed by it. 

From: corbi n C Li rot/HBUS/HSBC _~--.Cur:LlLcunningharnL!iJllisLl:!.saC@l:iSJlCO..L-"l\ntJ1Qn)Uii~bbL~~_~ __ ~ 

<anthony.r.gibbs@us.hsbc.com>, "Karen Grom" <karen.k.grom@us.hsbc.com> 

Date: 05/06/2010 09:10 AM 

subj ect: AML Townha 11 

Page 3 
2360 


760612.193

occ-psi-00672582 

Irene and Janet have requested that we conduct a townhall with the extented AML 

team. The venue is to be NYC 11th floor and vc connection to remote site. 

Anthony, Janet says you organize for a broader team quarterly and know how to 

contact to make this happen. Can you reach out to schedule logistics for Friday May 17th? 90 minutes with time for Q&A. 

Many thanks and warm regards, 

corbin Lirot 

(Sent via Blackberry) 

Page 4 
2361 


760612.194

Occ-psi-00676731 

From: CN=wyndham S clark/oU=HBUS/O=HSBC 

Sent: 7/14/2010 1:00:54 PM 

TO: CN=Oavid W J BAGLEY/OU=GMO/O=HSBC@HSBC 

subject: Re: Follow-up to our discussion 

Oavid, 

Thank you for your note. I will not take any action until we have had the 

opportunity to discuss and determine how best to proceed. 

Thanks, 

Wyn 

wyn Clark 

Anti-Money Laundering oirector HSBC - North America 

452 Fifth Avenue, 7th Floor, NeW York, NY 10018 

phone. 212-525-8025 

Fax. 

Email. 

212-642-1543 

wyndham.s.clark@us.hsbc.com 

From: Oavid W J BAGLEY/GMO/HSBC@HSBC 

To: wyndham S clark/HBUS/HSBC@HSBC02 

Date: 07/14/2010 01:27 PM 

subject: Re: Follow-up to our discussion 

wyn 

My thanks and all very clear. AS I said I am grateful for your honesty and 

candour. Although I do agree that as we move forward the reporting line needs 

to be looked at I do think that our challenges are more deep rooted. 

Having said this I recognise that the responsibilities of the role are such ~-y~ll.¥--neerl--UWleLOlllfo,-tahle. 

I am grateful for you agreeing to stay on in the role while We recruit. I will 

commit to you that we wlll inltiate the recruitment with all due speed. 

We also need to agree how we advise the OCC and FRB. perhaps we could discuss 

this next week as it is clearly essential that We tell them as soon as we can but also in a managed and consistent manner. 

We should speak again when I am back. 

Regards 

********************************* 

HSBC Holdings plc Regi stered Office: 8 canadasquare, London El4 5HQ, Uni ted Kingdom Registered in England number 617987 

----- Original Message 

page 1 
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760612.195

From: wyndham S Clark 

sent: 14/07/2010 11:25 EDT 

TO: David W J BAGLEY 

occ-Psi-00676731 

subject: Follow-up to our discussion 

David, 

As discussed yesterday, I wish to relinquish my title as Anti-Money Laundering Director of HSBC North America and appointed BSA officer for HSBC's U.s. legal entities. I understand that HSBC is required to have a Board appointed BSA 

officer, so I commit to remaining in this position until a duly qualified replacement is identified. 

My decision to step down from these designated roles was not taken lightly, but 

the bank has not provided me the proper authority or reporting structure that 

is necessary for the responsibility and liability that this position holds, 

thereby impairing my ability to direct and mana~e the AML Program effectively. This has resulted in most of the critical decislons in compliance and AML being made by senior Management who have minimal expertise in compliance, AML or our regulatory environment, or for that matter, knowled~e of the bank (HBUS) where 

most of our AML risk resides. Until we appoint senlor compliance management that have the requisite knowledge and skills in these areas, reduce our current 

reliance on consultants to fill our knowledge gap, and provide the AML Director 

appropriate authority, we will continue to have limited credibility with the 

regulators. 

Goin~ forward, I hope to serve in a role with HSBC where I can provide value, 

speclfically in my areas of expertise in BSA/AML and regulatory compliance. 

Thank you for your understanding and I look forward to discussing this with you further. 

Regards, 

Wyn 

Wyn clark 

Anti-Money Laundering Director HSBC - North America 

452 Fifth Avenue, 7th Floor, New York, NY 10018 

phone. 

Fax. 

Email. 

212-525-8025 

212-642-1543 

wyndham.s.clark@us.hsbc.com 

Page 2 
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760612.196

From: MARLON YOUNG/HBUS/HSBC 

Sent: 8/23/2007 9:25:31 AM 

occ-psi-00698461 

To: CAROLYN M WIND/HBUS/HSBC@HSBC;LOUIS MARINO/HBUS/HSBC@HSBC;MANUEL 

DIAZ/HBUS/HSBC@HSBC; 

JeFF CLOUS/HBUS/HSBC@HSBC;CLARA HURTADO/HBUS/HSBC@HSBC;JANeT L BURAK/HBUS/HSBC@HSBC; 

DAVID FORD/PBRS/HSBC@HSBC 

CC: ALAN P WILLIAMSON/HBUS/HSBC@HSBC;CAMILLUS P HUGHES/HBUS/HSBC@HSBC;STeFAN 

HARDY/HBUS/HSBC@HSBC; 

NANCY LUGO/HBUS/HSBC@HSBC;JOSEFINA CANILLAS/HBUS/HSBC@HSBC 

subject: Re: File Note on Meeting with Federal Reserve Bank of Atlanta 

The reason for setting up a branch of the Edge in CA was to allow the sole 

banker in SF (cassandra) to operate and be serviced by IPB-Miami. our apologies for not keeping you posted on this. 

Marlon 

From: carolyn M wind 

Sent: 08/23/2007 07:45 AM EDT 

To: Louis Marino; Marlon Young; Manuel Diaz; Jeff clous; clara Hurtado; 

Janet Burak; David Ford cc: Alan P williamson; camillus Hughes; Stefan HARDY; Nancy Lugo; Josefina 

canillas 

Subject: Re: File Note on Meeting with Federal Reserve Bank of Atlanta 

one further note, they were aware of the application recently filed for the 

Edge to open a branch in CA. Alan and I were not aware at the time of the 

branch application so could not offer any particular comment other than we would follow up. 

From: carolyn M wind 

Sent: 08/23/2007 07:39 AM EDT 

To: Louis Marino; Marlon Young; Manuel Diaz; Jeff clous; clara Hurtado; 

Janet Burak; David Ford 

Cc: Alan P Williamson; camillus Hughes; stefan HARDY; Nancy Lugo; Josefina 

canillas 

subject: Re: File Note on Meeting with Federal Reserve Bank of Atlanta 

we spoke briefly about the fact that the business was moving to a more consolidated/centralized approach and considering moving aspects of the 

business to Miami. The focus of the conversation was on how compliance was responding to the business changes, such as moving from regional to a more centralized functional approach and movin~ resources as warranted from one geographic location to another as the bUSlness finalizes its plan. 

From: Louis Marino 

Sent: 08/23/2007 06:59 AM EDT 

TO: Marlon Young; carolyn Wind; Manuel Diaz; Jeff clous; clara Hurtado; 

Janet Burak; David Ford cc: Alan P williamson; camillus Hughes; stefan HARDY; Nancy Lugo; Josefina 

cani 11 as subject: Re: File Note on Meeting with Federal .Reserve Bank _of Atlanta 

_GilLeD-thei."--CommenLJ:egacdin~tbings..al1'lay~chang,in9L<lt_. !:!2!lC~_Lwa2.Jl1Qnderil19.-...­

whether the issue of transfering additional accounts from NY and california to the Edge was raised. This would obviously be a significant change. 

Regards 

page 1 
2364 


760612.197

occ-psi-00698461 

From: Marlon young Sent: 08/22/2007 09:48 PM EDT 

To: carolyn wind; Manuel Diaz; Jeff Clous; clara Hurtado; Janet Burak; David Ford 

Cc: Alan P williamson; camillus Hughes; Louis Marino; Stefan HARDY; Nancy Lugo; Josefina canillas 

subject: Re: File Note on Meeting with Federal Reserve Bank of Atlanta 

carolyn, 

Thank you for the update on your meeting w the Fed. Given the comments made by the Fed, I suggest we have a conference call wall the relevant parties to 

discuss the implication of their comments to the way we currently conduct our busi ness. Manuel - may I ask you to organize a call to discuss this matter. 

Regards, 

Marlon 

From: Carolyn M wind 

Sent: 08/22/2007 06:18 PM EDT 

TO: Marlon Young; Manuel Diaz; Jeff Clous; Clara Hurtado; Janet Burak; 

Davi d Ford 

Cc: Alan P williamson; camillus Hughes subject: File Note on Meeting with Federal Reserve Bank of Atlanta 

on Friday, August 17, 2007, Alan williamson and I met with several officials 

from the Federal Reserve Bank of Atlanta-Miami Branch: Mayte Diaz, senior 

International Examiner; Jay Repine, Senior Examiner; and Steven Dandes, 

Directing Examiner. They have conducted the examinations of the HSBC Miami 

Edge Bank over several years. Also attending were Anne Golden, our resident CPC 

from the Federal Reserve Bank of New York and Jennifer Hicks, member of our resident FRBNY team responsible for oversight of compliance activities. This 

meeting had been requested by the Federal Reserve Bank of Atlanta (FRBA). 

steve Dandes was the primary speaker and indicated that the FRBA is meeting with many of its larger clients to discuss the lessons of the recent action 

against American Express. They also wished to meet with Alan and I as the new senior Corporate AML compliance officers responsible for overseeing the HSBC EtlgeBaTTl<.-P;Mt]JTOgT<Illr.-~ 

The meeting was friendly but several comments were pointed. They note that 

there is a general acceptance of "parallel market activities" in the Latin 

American Markets by International Private Bankers across the industry, but that 

the American Express case shows that even accepted "normal" business practice can attract the attention of prosecutorial authorities. one of their concerns as regulators is that they do not necessarily know what the criminal 

authorities may be looking at for their next case. They were pleased to hear 

that HSBC was well aware of the American Express case and that management was proactively reviewing points within the case against our own business 

acti vi ti es. 

specifically with respect to our office in Miami, they praised the current 

management team. They went further and said that HSBC was a notable and 

admirable example of a bank which has consistently avoided trouble. Nevenheless,~they ~said that~ "if you_ take th~~~facts from the Amedcan Express_ case and lay them over our last report of HSBC, they are all there." They ~--suggest€~~caL~management-anj:LcompljancL:team£.--Yihil~QJllpej:"n:Land_~ 

forward looking, should take another look at the risks in their market place, for example, bearer share companies. They believe that getting NY management more actively involved and aware of the Miami business rlsks would facilitate 

the second look initiative. This is the rationale for some of the corporate 

governance recommendations in the most recent report. They also expressed 

page 2 
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760612.198

Occ-psi-00698461 continued concern about the scope of transactional monitoring relative to the 

risks within the portfolio and indicated that they would be reviewing our new Norkom system during the annual visit scheduled for late this year. Additionally, they expressed concern with the level of experience in the Miami 

compliance group. 

Alan and I explained our recent successful recruiting efforts relative to US 

private bankin~ compliance and our plans for a more centralized and less 

regional compllance structure, which we believe will address their 

recommendation for more involvement by Corporate Compliance. They appreciated the concept, however they countered that in the history of examining HSBC, 

thin9s are always changing - they would like the dust to settle. We assured the 

examlners that we were sensitive to the risks associated with change and were working to make appropriate adjustments to the compliance pro9ram ln response 

to changes within the business and the environment. The meetlng ended on a cordial note, with the examiners noting that they were going on to another NY 

bank to make similar points. 

carolyn wind 

EVP, General Compliance & AML Director 

452 5th Avenue, T7 

New York, New York 10018 

phone: 212-525-5503 ! Fax: 212-382-5963 

E-mail: carolyn.m.wind@us.hsbc.com 

page 3 
2366 


760612.199

From: JANET L BURAK/HBUS/HSBC 

Sent: 10/25/2007 6:37:06 PM 

Occ-Psi-00704789 

To: DAVID W J BAGLEY/HGHQ/HSBC@HSBC 

CC: 

subject: Fw: carolyn Wind 

David, 

Further to my earlier email, I thought it would be useful to provide you with a "memo to fil e" whi ch refl ects a conversati on whi ch I felt compe 11 ed to have 

with carolyn. I look forward to discussing this with you. 

Best regards 

Janet 

Janet L. Burak 

sEvP/General counsel and Secretary HSBC USA Inc. 

HSBC Bank USA, N.A. 

452 Fifth Avenue, 7th Floor 

New York, NY 10018 

(T) 212-525-6533 

(F) 212-525-8447 

email: janet.l.burak@us.hsbc.com ----- Forwarded by Janet L Burak/HBUS/HSBC on 10/25/2007 07:33 PM 

Janet L Burak/HBuS/HSBC 

10/25/2007 12:44 PM 

TO 

Janet L Burak/HBUS/HSBC cc 

subject 

carolyn wind 

Memo to file: 

I met today with carolyn wind from 11:55am-12:15pm. 

I indicated to her my strong concerns about her ability to do the job I need 

her to do, particularly in light of the comments made by her at yesterday's audit committee meeting, and the reaction of the audit committee as expressed by them in executive session with Mike Geoghegan and paul Lawrence and in my conversation with Dick Jalkut this morning. I noted that her comments caused 

inappropriate concern with the committee around: our willingness to pay as necessary to staff critical compliance functions (specifically embassy banking AMLsupport)~~-,~and the -~posi ti on of 'the DCC wi th respect~ to 'the merger of ~AMt-

_andj,eneral c-",mplianc~. ~ indicated that this was the sec::ond Audit <::ommittee 

meetlng::arwtllar--=ern:; abmrt'the strengttr-or-rhFLompTTanCe FUIiCtIOIl, ~amtthe abllity of carolyn to manage it, were raised, and that there clearly was a loss of confidence in Carolyn by the Audit committee. 

I made it clear to carolyn that this, in addition to the issues raised by David 

page 1 
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760612.200

Gcc-Psi-00704789 

Dew, were causing me now to have concerns as to whether she was capable of 

managing a combined AML/General compliance function, to say nothing of leading the compliance organization and driving change in a very different and 

difficult environment. I also conveyed my concern that it may not be possible 

to restore in either the Board, or in David, any confidence in her. 

Because I had a scheduled call with the DC GCC at 12:15pm, I told her that we would have to continue our discussion later, and asked her to schedule some time. Other than apologizing to me twice for putting me in this position, she 

made no comments. 

Janet L. Burak 

SEvr/General counsel and secretary HSBC USA Inc. 

HSBC Bank USA, N.A. 

452 Fifth Avenue, 7th Floor 

New York, NY 10018 

(T) 212-525-6533 

(F) 212-525-8447 

email: janet.l.burak@us.hsbc.com 

Page 2 
2368 


760612.201

From: JANET L BURAK/HBUS/HSBC 

Sent: 7/2/2008 8:53:52 PM 

TO: BOB MARTIN/HBUS/HSBC@HSBC02 

occ-Psi-00725897 

subject: Re: Federal Reserve Bank of Atlanta Review of HSBC private Bank Miami 

February of this year. 

original Message 

From: Bob MARTIN 

Sent: 07/02/2008 02:39 PM CDT 

TO: Janet Burak 

subject: Re: Federai Reserve Bank of Atlanta Review of HSBC Private Bank 

Miami 

since when Janet? 

original Message 

From: Janet L Burak 

Sent: 07/02/2008 03:29 PM EDT 

TO: Bob MARTIN; David Dew 

CC: Mark Martinelli; David W BAGLEY/HGHQ/HSBC@HSBC; Peter GEORGEOU/SM GFA 

GHQ/HGHQ/HSBC@HSBC 

Subject: Re: Federal Reserve Bank of Atlanta Review of HSBC private Bank 

Miami 

Bob, 

CRU reports in to the shared services organization headed by Anthony Gibbs. 

Best regards, 

Janet 

original Messag-e 

From: Bob MARTIN 

Sent: 07/02/2008 10:14 AM CDT 

TO: David Dew Cc:~M-ark Martlnel h; Janet" Burak; DavlClWTBAGLEY/HGHQ/HSBC@HSBC; Peter 

GEORGEOU/SM GFA GHQ/HGHQ/HSBC@HSBC 

subject: FW: Federal Reserve Bank of Atlanta Review of HSBC private Bank 

Miami 

David 

please see below AUF'S earlier memo on this report. Peter G has advised me today that he intends to provide input (on the basis outlined below) to PB'S 

reply shortly. Basically we will a~ree to FRB Atlanta's request on an exceptional basis to avoid prolonglng discussions and in the meantime if the 

CRU reporting line changes to a HNAH function then this should fully address 

their concers. 

we will continue to use CRU resources for other audits as other regulators are comfortable with our approach, subject to the recently issued internal guidance (adequacy-of-samp-l e-si zes, sub-testi-ng- etc)--by- AUN on--thi smatter. 

--Regards--

Bob 

----- Forwarded by Bob MARTIN/HBUS/HSBC on 07/02/2008 07:54 AM -----

Page 1 
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760612.202

Mark Martinelli/HBUS/HSBC 

06/25/2008 12:32 PM 

To 

Bob MARTIN/HBUS/HSBC cc 

subject 

occ-Psi-00725897 

Fw: Federal Reserve Bank of Atlanta Review of HSBC private Bank Miami 

Bob: FYI 

mark.martinelli@us.hsbc.com 

office: 212 525 7459 

cell: 917 647 4276 

original Message 

From: Peter GEORGEOU 

Sent: 06/25/2008 03:26 PM GOT 

TO: Matthew J W KING 

Cc: Jean-Pierre HOLZER; Ian MCMILLAN; prit BIRKE; Liz A TESTER; Mark 

Martinelli 

subject: Federal Reserve Bank of Atlanta Review of HSBC private Bank Miami 

Matthew, 

I attach a copy of the FRBA's report on the Miami Edge Act Bank in Miami. 

The examiners' overall assessment is the bank is satisfactory. 

The FRB appear to use a different methodology from the occ in respect of their findin~s. The OCC refer to their more significant issues as Matters Requiring Attentlon. The FRB have two categories, Required Actions and Observations. 

_Requi red Ac~e",defi ned a~--'-rr!.Mt.e.~Dginq from concerns of the hi ghest priority to issues of lesser priority that must be addresse~senior ,- management. Management must respond to all Required Actions and specify a timeframe for implementation'. observations 'represent examiner su~gestions for 

enhancements to policy or practice that are optional for the organlsation to implement. Nevertheless, management should provide a response to observations 

outlining the decision as to the adoption of observations'. 

The FRB have raised a total of 13 iterms within the Required Actions cate~ory. 

The FRB require a response within 30 days in respect of both Required Actlons 

and Observations. 

of the 13 Required Actions, I consider the following to be more material and 

wish to bring to your attention ; 

Account Activity Monitoring There are three issues in this area in respect of the Norkom account monitoring 

system. spe'ci fi cally ,"['he alerr parameters shoul d be more account'speci fi cand 

the approval process for threshholds specified. There should also be more '<::\e'ratiel:lprlrced1:rres"uevFt-opert-tor-docarrrent:in" tile lev i ew-u-r-exceprionsthat-a;eidentified by Norkom. 

client Risk Assessment 

page 2 
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760612.203

acc-psi-00725897 There are 4 issues in this area. Improved controls and risk mltlgation are required in respect of bearer share accounts and accounts held in the name of 

PICs. In addition, policies and procedures should be enhanced for 

i dentifi cati on and the revi ew of hi gher ri sk accounts. 

There is also a Required Action in respect of Internal Audit. This is not 

considered material but I draw your attention to it as we are required to 

formally respond agreeing to the action. The FRB made reference to Internal 

Audit under Independent Testing on page 12 of their report as follows ' ... was subject to an audit in October 2007. This was a comprehensive audit of all 

business functions, including a review and assessment of (PB Miami)'s BSA / AML 

program. The scope of the internal audit was adequate, and internal audit staff 

is considered knowledgeable. However, examiners noted the need to review the 

utilisation of compliance Review Unit (CRU) staff in internal audits and reassess the frequency of the BSA / AML portion of the audit'. 

The examiners are of the view that as the CRU and the Miami compliance function 

ultimately report to the same individual in the parent bank, Head of Legal and 

compliance HBUS (Janet Burak), there is the potential to compromise audlt's 

independence. The FRB aCknowledge that both ourselves and CRU believe the 

arrangement does not compromise our independence as CRU staff report and work 

for internal audit during their audit review and that we control the report 

comments and ratings. 

It should also be noted that the same arrangement is in place with regard to 

both our and AUN's use of CRU for audits of HBUS units and the Head of HBUS PB 

AML, Alan williamson, advised this week that acc are happy with the 

arrangement. 

With regard to the audit cycle, the FRB acknowledge we have a risk based 

approach, are aware that the timing of the next audit factors in various 

criteria, but they are still of the view that the potential cycle of 18 to 24 

months between audits is not sufficiently frequent. 

Accordingly, the FRB have raised the following Required Action in respect of 

Interna 1 Audit 

Audit management should adjust the frequency of the BSA / AML audit cycle to be 

in compliance with the guidance provided by the FFIEC BSA/AML Manual (which iruii cates a eyel e not to exceed 12 to 18 months) and reevaluate the utn i sati on of CRU staff as audit resources. 

I propose that we respond to PB Miami management, who are responsible for 

collating the responses for the report, to confirm that we shall adopt the 12 

to 18 month cycle between audits and we shall not use CRU for reviews of BSA / 

AML for future audits but perform the work ourselves. 

The FRB have also made an observation that we do not risk grade each area. 'Currently, internal audit reports only provide an overall rating, with 

significant deficiencies noted as a 'high risk' issue in the report' They have 

suggested that we consider individual ratings for areas reviewed, although we explained that if an area(s) was weaker than others we would make this clear in 

the summary and cover letter. Nevertheless, risk grading each key department such as front office, BSA / AML compliance, payments, etc. is an approach we already use in New York for acc regulated businesses and we shall agree to the same approach_in Miami. 

~egards 

Peter 

Page 3 
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760612.204

From: BRENDAN MCDONAGH/HBUS/HSBC sent: 7/22/2008 9:40:38 PM 

To: JANET L BURAK/HBUS/HSBC 

subject: Fw: 2nd Half Costs 

original Message -----

From: Michael F GEOGHEGAN 

Sent: 07/23/2008 03:17 AM GDT 

occ-psi-00727922 --- Redacted by the Permanent 

Subc:ommittee on Investigations 

TO: Sandy Flockhart; Stuart T GULLIVER; Emilson ALONSO; Brendan MCDonagh; Dyfrig D J JOHN; Clive C R BANNISTER; Youssef Nasr 

Cc: stephen GREEN; Z ] CAMA; Chris MEARES; Ken HARVEY; Douglas FLINT 

subject: 2nd Half costs 

Gentlemen 

AS we discussed at GMB yesterday and today, the battle we have to fight for the 

remainder of the year is to bring our costs in flat, second half on first half 

in an inflationary environment. 

We all know that this will not be easy but it needs to be done. 

We have agreed that we will have a headcount freeze until the end of the year, focusing on the 80000 plus people who turnover each year within the Group. 

Also we are beginnin~ to recognise that collectively we have to be more resolute in streamlinlng our management structures across the Group in a consistant way. 

Now you have the tool ( with PeopleSoft fully loaded) to really understand the 

make up of your labour costs and make lasting savings. 

Equally with our committment to pay market pay, we have the responsibility and 

the opportunity to glve accurate assessment feedback and seek out under 

performers and less committed colleagues, In thls half year appraisal season. 

Apart from staff costs we need to look at other discretionary expenditure and 

cu,rtai 1 or: stop __ i~ the next Ji v:. m_o_n_t_h .. s_ ... ___ . _____ ... ____ ... _ .. _ .. ______ .. ______ ._ 

one thing for me that sticks out is our annual $SOO+m worth of travel 

expenditure and within this is the amount of departmental and businesses 

conferences that we believe we must have. 

I suspect after the holidays there will be an urge in these areas to meet up etc for AOP purposes!! please resist approving this travel expenditure and 

focus people on using the investment we have made in global video conferencing, to achieve the same result. 

AS regards One HSBC, we are forging ahead in a number of areas, in regards to a global consistency of approach, but we need now to really push on to ensure a finality of a common global approach, which leads to clearly defined staff 

reductions. 

we have accepted a challen~e of $1.0b cost cuts in 2009 from One HSBC and we need·-tD spec-· thi SDut nOW'l n the· remaini ng ·months Df the· year ·SG--that -we can announce our future cost cuts with our results in 2009. 

AS you are aware zed has given you an aide, to challenge your team to look for 

the necessary savings, and I will certainly be quizzing you on this during our upcoming Business Reviews- so please come prepared! 

Page 1 
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760612.205

In closing I want, on a positive because collectively it was very because of that energy I know a this changing market. 

occ-psi-00727922 

note, to thank you for the 

good result in a difficult 

team, as good of ours, can 

first half's result 

environment- and 

adapt quickly to 

That determination to be ahead of the curve is what we need to display for the 

second half and I know I can count on you in this regard. 

I have briefed the Group Chairman tonight on what the above will do, in the 

short term, for some growth areas and he fully supports this tactical slowdown 

in expenditure (even ln growth areas) for the rest of the year 

Best wishes 

Mike 

********************************* 

HSBC Holdings plc Registered Office: 8 Canada square, London E14 SHQ, United Kingdom Registered in England number 617987 

********************************* 

page 2 
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760612.206

COMPLIANCE CERTIFICATE 

Date: 

To: 

From: 

RE: 

January 8, 2010 

David Bagley, Head of Group Compliance 

Janet Burak, SEVP, RCO & General Counsel, HSBC North America Holdings Inc. 

William M Wong, Regional Compliance Officer - Americas 

Christopher O'Donnell, Managing Director/ChiefCompliance Officer 

Global Banking and Markets Half Yearly Compliance Certificate June 1,2009-

December 31,2009 

I certiJY that to thc best of my knowledge and belief:-

(a) save as disclosed to you below, no company, division or branch (as listed on the attached Compliance 

Chart) or any of its employees is or has at any time during the period 0lJUN09 to 3IDEC09 been in 

material or significant breach of any applicable law, code, rule, regulation or standard of good market 

practice; 

(b) there is no other law, code, rule, regulation or standard of good market practice carrying significant 

compliance risk which is applicable; 

(c) save as disclosed to you and detailed on the attached schedule, no company, division branch, nor any 

employee of such company, division or branch has been the subject of any disciplinary measures or 

investigation (not including a routine inspection visit) by a regulatory body; 

(d) save as disclosed to you below there have been no customer complaints evidencing bad faith, 

malpractice or impropriety by a Group employee or which individually or collectively indicate a 

significant systemic problem; 

(e) save as disclosed to you below there have been no internal frauds which taken alone or with other 

similar frauds may involve monetary loss ofUS$ 750,000 (or equivalent) or more and/or may involve a 

material or significant breach of any law, code, rule, regulation or standard of good market practice 

and/or may reflect adversely upon the control systems in place within the company or branch 

concerned; 

(f) save as disclosed to you below there has been no irreconcilable disagreement with line management 

over any significant compliance issue; 

(g) in respect of every breach which is not of a material or significant nature, remedial action has been 

taken or initiated andlor the relevant regulatory authority notified if appropriate. 

(h) there arc no other matters which would be drawnio yourattenticiii. 

NB: For RCO/GCO certificates, Compliance Charts need not be attached. 

OCC-PSI-00783419 
2374 


760612.207

Disclosure Statement (if any) for matters ansmg during the reporting period, including brief 

particulars of remedial action taken and/or notification made to relevant regulatory authority: 

Redacted by the 

Permanent Subcommittee on Investigations 

OCC-PSI-00783419 
2375 


760612.208

Status reports on any items disclosed in previous Compliance Certificates and still outstanding at the 

beginning ofthe reporting period: 

Redacted by the 

Permanent Subcommittee on Investigations 

Office of Foreign Assets Control (OFAC) Pr&-Penalty Notice (RED #677p On 04JUN09, HBUS 

responded to OFAC "Prepenalty Notice", FAC Now. dated 08MAY09, from 

the OFAC Penalties Division. 

- - Red",,'ed by the Permanent 

Subcommittee on Investigations 

OCC-PSI-00783419 
2376 


760612.209

- = Rtdacted by the Permanent 

Subcommittee on Innstiptions 

The proposed penalty (USD125, 000) concerns the clearing of gold bullion by HBUS London for the 

benefit of an Iranian bank in MA Y06. The HBUS London branch had acted as "clearer" for a trade in 

32,000 ounces gold bullion (value USD20, 560,000) between two foreign banks, in 

Paris (HBUS customer) and ~ in London. The transaction did 

not involve the physical movement of gold and was sOlely book entries. Although HSBC knew at the 

time that the ultimate beneficiary was Bank Markazi in Iran, it had believed that the transaction was 

permissible (as a 'U-Turn' transaction) under OFAC rules. This matter was logged as RED #2303 by 

Stcve D. Smith (HBEU Compliance) on 05JUN06. 

The proposed penalty amount is calculated in accordance with OFAC tariffs and reflect OFAC's 

conclusion that the alleged violation was 'non-egregious'. We were given 30 days to respond to the 

Notice. HBUS Compliance consulted with counsel in preparing its response and presenting its 

position to OFAC on the appropriateness of the penalty. The response described facts and 

circumstances that may help to clarify the matters and mitigate OF AC's intention to levy penalties. On 

21TIJL09, HBUS receivcd verbal notification from the OFAC Penalties Division that it intends to add 

four other open cases to this pre-penalty settlement. The cases are RED #'s 4374 (Sudan)," 

•••• Ii •••••• ~·nd 5895 (Burma). There are no further updates to this matter. 

Redacted by the 

Permanent Subcommittee on Investigations 

OCC-PSI-00783419 
2377 


760612.210

=rom: JANET L BURAK/HBUS/HSBC 

,ent: 2/6/2010 7:48:20 PM 

occ-psi-00787479 

ro: "BRENOAN MCDONAGH" <BRENDAN. MCDONAGH@US.HSBC.COM> 

>ubject: Expanded "Banknotes Exam" 

3rendan, 

rhis may be more than you need/want, but it provides a complete picture of the 

JCC banknotes review . 

• he occ commenced a regularly scheduled banknotes examination on 20JUL09. The 

JCC's field work was completed 28AUG09. On 3SEP09 we were informed verbally that the OCC was expanding their banknotes exam, but had not yet set the scope or line of inquiry. 

Dn 21SEP09 we received a request for an extensive amount of additional 

information, from 1JAN04 to the present, on 25 Latin America-based financial 

institutions, for all activities occurring in banknotes, correspondent banking and fx businesses. In addition, significant information regarding HBUS' 

policies, procedures and programs was requested. 

On 290CT09, the occ raised concerns that cash letter(travelers' checks) monitoring was lacking sufficient analysis of suspicious activity, based on one week samples from each of 2007, 2008, and 2009. we immediately undertook a detailed review of all cash letters from 2009 (280 items), and determined as a result to now file 2 additional SARS (althou~h at the time of the transactions 

there was no negative information on the indlviduals at the time of the 

transactions). 

On 9NOV09, the examiner team was increased from 2 to 9, and now includes FRB 

examiners as well as OCC examiners. on 10NOV09, presentations were made to the 

OCC/FRB regarding the banknotes, PCM and fx businesses and their compliance 

programs. Based on the questions asked, the regulators appeared to be focused on resources, sufficiency of due diligence and monitoring with respect to HSBC 

affiliates, and linking information and processes across business lines. 

Between 12NOV09 and 2FEBIO we received 8 additional requests for information, 

including: subpoenas received for banknotes clients from 2004 to the present; all enhanced due dili~ence on banknotes clients in Mexico following the change in Mexico's country rlsk; a list of all affiliates conducting a banknotes 

business; the monitoring program for affiliates; results of targeted Compliance reviews in PCM, including a review of HBMX; to conduct and provide 2008 and 

2009 wire searches for 32 entity names (money services businesses/casa de 

cambios); information on all banknotes and PCM clients, including HSBC 

affiliates, from 2005 to the present, in paraguay, uruguay, Ecuador, Panama, El 

Salvador and the Cayman Islands; KYC and activity information for specific 

financial institutions in urugu.la.y., .. p.a.r.a.g.u.a.y., .. E.c.u.a.d.o.r., .. E.1IlSalvador (including HSBC affiliates as well as the _ 

Throughout this process, the OCC declined to identify what their objectives or underlying concerns were, indicating a number of times that they were not 

authorized to do so. These comments led us to conclude that the OCC was conducting this expanded examination at the request of some enforcement 

agencp' we were also aware that at least one other financial institution 

and probably others, were being subjected to a similarly rigorous reVlew in the same areas as ours. 

on 7JANIO, the examiners finally provided us with some general comments/concerns, but no specifics. These issues were: --adequacy of SAR process --policy/procedures for foreign correspondent business 

--weakness in due diligence and monitoring in banknotes program --backlogs in PCM monitoring and enhanced due diligence, and resources Page 1 

_ - Redacted by the Permanent 

Subcommittee on In"estigations 
2378 


760612.211

acc-psi-00787479 

We have a 2 hour meeting scheduled with the acc on IlJAN at which time they have indicated that they will provide more specifics around their concerns. 

Janet 

page 2 
2379 


760612.212

From: HERSEL MEHANI/HBUS/HSBC 

Sent: 11/14/2008 10:21:55 AM 

occ-psi-00808829 

TO: DENIS E O'BRIEN/HBUS/HSBC@HSBC02 

CC: 

Subject: Fw: social Investment Bank IIRO 

Denis 

I have a lot of other email from Dhaka and all related to this case I am sure some of the info event not in English will be a good document to keep in the 

files 

Hersel Mehani 

Senior vice president Global Payments and cash Management 1212 525 6239 office 

1212 961 6614 cell phone Forwarded by Hersel Mehani/HBus/HSBC on 14/11/2008 10:16 AM -----

Muhammad SHOHIDUZZAMAN/IB DAK/HBAP/HSBC@HSBC 

29/01/2007 05:38 AM 

TO 

Hersel Mehani/HBuS/HSBC@HSBC cc 

Alan T Ketley/HBUS/HSBC@HSBC, Gillian E Bachstein/HBUS/HSBC@HSBC, Sharyn Malone/HBUS/HSBC@HSBC, Steve BANNER/CEO DAK/HBAP/HSBC@HSBC, Mahbub ur RAHMAN/CMB DAK/HBAP/HSBC@HSBC 

subject 

Re: social Investment Bank - IIRO 

Hersel 

Thanks for your attached note. We have paid a V1Slt to social Investment Bank 

(SIBL) this morning and had a long dlscussion with Mr. Shamsuddoha, Head of 

International Division. The following were revealed during the discussion. 

In its AGM of 06NOV06, SIBL passed the following resolution re IIRO issue: 

Quote 

Resolved that the shareholders present in the meeting approved the proposal to 

dispose of (by way of sale/transfer) the whole shares held by International 

Islamic relief organization (IIRO) to protect the interest of the bank after 

observing all regulatory formalities with securities and Exchange Commission 

(SEC), Bangladesh Bank and in line with the law of the land as recommended by 

the Board. 

unquote 

In response to SIBL's letter asking for guidance the Central Bank issued a letter to SIBL directing it to suspend trading/transfer of all bonus/right shares and payment of all cash dividends to IIRO against their holding of 

50,885 number of shares with immediate effect unless otherwise instructed. A 

copy of the Central Bank letter (in Bengali) is attached. 

In line with the resolution and Central Bank's directive SIBL asked for 

guidance (letter dated 07DEC06 in Bengali, attached) from SEC expressing their 

Page 1 
2380 


760612.213

Occ-psi-00808829 intention to dispose off (sell/transfer) the shares held by IIRO. In its 

response SEC advised SIBL to follow the instructions provided by the Central 

Bank (SEC'S letter dated 14DEC06 attached). 

You would see SEC did not give any additional directive/~uidance on this. So 

the reported disagreement by SEC to oust IIRO from SIBL 1S not fully correct. 

Mr. shamsuddoha advised us that as there was no scope of disposing off the 

shares of an existing shareholder(s) in the related laws of the land and in the 

absence of clear guidelines from the regulators they might not be able to 

dispose off the shares in near future. But they will continue to keep IIRO 

aside from the management and day to day affairs of the bank. 

In addition to the above, I would like to share a recent newspaper report (pls see below) with you. 

We will keep close contact with SIBL and advise you of the developments. 

Regards 

shohid 

Hersel Mehani/HBUS/HSBC 

HBUS 

01/26/2007 02:59 AM 

Mail Size: 28303 

TO 

Muhammad SHOHIDUZZAMAN/IB DAK/HBAP/HSBC@HSBC cc 

Steve BANNER/CEO DAK/HBAP/HSBC@HSBC, Alan T Ketley/HBUS/HSBC@HSBC, sharyn Malone/HBUS/HSBC@HSBC, Gillian E Bachstein/HBUS/HSBC@HSBC 

Subject 

Re: Social Investment Bank IIRO 

Our Ref 

Your Ref 

Dear shohid 

I need an update from your end as it seems that quite recently the security exchange in Dhaka has not agreed to outset the subject shareholder as requested by the Sr. Mgts of social Investment Bank. If this is true I have to 

notify our compliance dept and ask them to guide us accordingly. 

page 2 
2381 


760612.214

Occ-Psi-00808829 

Regards 

Herse 1 Mehani 

senior Vice President 

Global Payments and cash Management 

Alan T Ketley/HBUS/HSBC 29/09/06 03:49 PM 

TO 

Hersel Mehani/HBUS/HSBC@HSBC, sharyn Malone/HBUS/HSBC@HSBC, Gillian E 

Bachstein/HBUS/HSBC cc 

"Andrew Rizkalla" <andrew.rizkalla@us.hsbc.com>, "George Tsugranes" <george.tsu~ranes@us.hsbc.com>, princely P Muro/HBus/HSBC@HSBC sub~ect 

Soclal Investment Bank - IIRO 

Hersel, sharyn, Gillian 

I'm satisfied with the answers provided by social Investment Bank to the 

questions posed by Hersel on his recent visit. The fact that IIRO has no involvement in the running of the bank, is not a client of the bank and will 

likely be outsed as a shareholder give considerable grounds for comfort. 

please monitor the ownership of this bank closely - all things being equal, once IIRO ceases to be a shareholder we should be able to drop the SCC status. 

Alan T. Ketley Senior Vice president, Anti Money Laundering Tel: 212 525 6147 / Fax: 212 382 7580 ----- Forwarded by Alan T Ketley/HBUS/HSBC on 09/29/2006 03:44 PM -----

Hersel Mehani/HBUS/HSBC 

09/27/2006 04:22 PM 

TO 

Alan T Ketley/HBUS/HSBC@HSBC cc 

"Andrew Rizkalla" <andrew.rizkalla@us.hsbc.com>, Angela cassell-Bush/HBUS/HSBC@HSBC, Gillian E Bachstein/HBus/HSBC@HSBC, stephanie L 

Napier/HBus/HSBC@HSBC subject 

Re: compliance issues from Trip Dhaka 

Alan 

Note related to KYC 

Page 3 
2382 


760612.215

Occ-psi-00808829 we asked all the question listed in your email 

social Investment Bank - International Islamic Relief Organization which is on the OFAC list owns 8%. They are not on the board, do not receive dividends, do 

not have voting rights and do not exert any control. IIRO never responded to 

their request to provide a full address rather than a PO box and they will use this to oust them by November which is allowed according to their Articles of 

Association which I have a copy given by them to me. ( will send it to 

stephanie for her files) 

1) please describe what actions bank has taken with respect of the us Dept of 

Treasury's announcement about IIRO on August 3, 2006? 

I was informed that the bank does not have any contact with the IIRO only a PO 

Box and therefore referred this matter to their security exchange Agency indicating that they wish to remove them as a shareholder. 

2) How does the us Dept of Treasury announcement about IIRO affect the way social Investment views this entity? They do not like having an association with a shareholder which is listed by OFAC and do not wish to be associated with the IIRO in any way 

3) IS the bank aware of any Nominee shareholder relationship or other ownership 

structure which would entitle IIRO to hold more than 8% of social Investment 

Bank? 

No they are not 

4. IS the bank aware of any actions taken by IIRO in response to the us Department of Treasury announcement? 

No they are not as mentioned they do not have any contact with IIRO 

5. Is IIRO a customer of the bank and does the bank conduct any cross border 

transactions for IIRO? 

IIRO has no relationship with the subject bank and do not maintain or operate 

any account with the bank 

6. Given that IIRO is the bank's largest shareholder, please reconfirm that 

IIRO is not involved in the management of the bank or represented on your Board 

of Directors. 

NO representation of any sort 

7. when was the last time IIRO received a dividend in respect of its ownership in the bank? 

presently they do not pay them any dividend 

8. Prior to the us department of Treasury's announcement, IIRO's name had been 

linked in the media to terrorist financing issues - how did social Investment 

react to those news stories and what actions were taken? 

They ask for guidance for the security exchange Agency in Bangladesh and they have the power to oust them in the next board of director meeting. 

Hersel Mehani 

senior Vice President 

Global Payments and cash Management 

Alan T Ketley/HBUS/HSBC Tel: 212-525-6147 

09/26/2006 01:52 PM 

Page 4 
2383 


760612.216

occ-Psi-00808829 

TO 

Hersel Mehani/HBUS/HSBC@HSBC cc 

Angela Cassell-Bush/HBUS/HSBC@HSBC, Gillian E Bachstein/HBUS/HSBC@HSBC, 

stephani e L Napi er /HBUS/HSBC@HSBC, "Andrew Ri zka 11 a" 

<andrew.rizkalla@us.hsbc.com> 

subject 

Re: compliance issues from Trip Dhaka 

Hersel 

I'd like to see answers to each of the individual questions please. 

Thanks 

Alan T. Ketley senior vice president, Anti Money Laundering Tel: 212 525 6147 / Fax: 212 382 7580 

Hersel Mehani/HBUS/HSBC 

09/26/2006 08:47 AM 

To 

stephanie L Napier/HBuS/HSBC@HSBC cc 

Angela cassell-Bush/HBUS/HSBC@HSBC, Alan T Ketley/HBUS/HSBC@HSBC, Gillian E 

Bachstein/HBUS/HSBC@HSBC 

subj ect compliance issues from Trip Dhaka 

I have a few documents with me on social Invest Bank which I will 1 send as well 

Hersel Mehani 

senior vice president Global payments and cash Management ----- Forwarded by Hersel Mehani/HBUS/HSBC on 09/26/2006 08:40 AM -----

ialam@hsbc.com.bd 

Tel: 

09/26/2006 03:19 AM 

TO 

hersel.mehani@us.hsbc.com, richard.c.boyle@us.hsbc.com, mshohiduzzaman@hsbc.com.bd cc 

sUbject 

>Call Report: Social Investment Bank - KYC 

page 5 
2384 


760612.217

Occ-psi-00808829 

Client: social Investment Bank 

HSBC attendees: MEHANI, Hersel; ALAM, Iftekhar; BOYLE, Richard c; 

SHOHIDUZZAMAN, Muhammad 

client attendees: ISLAM, Md.; SOHEL, Abu sadek; ASADUZZAMAN, K; SHAMSUDDOHA, A 

Attendees from other clients: 

Detailed description: Hersel discussed few issues related to IIRO, who is one of their sponsor shareholders. HBUS raised some concern in the past & also in recent past. It's 

worth mentioning here that, on July 2006 US Treasury put IIRO in OFAC sanction 

list. The meeting was initiated to have the opinion of SIBL'S management in 

this regard. The management informed us that, IIRO doesn't have any representation in thelr board (not even in the past) and neither they are involved in their management. Management is also with the opinion that, if 

required, they will arrange to forfeit IIRO'S share through AGM/EGM. Their 

memorandum of articles (copy provided to Hersel) also supports such action. 

click on this link to see this item in ClientVision: 

http://clientvision.systems.uk.hsbc/rs/autoLogin.do?objectId=%7BACE6056B-AC19-49 

44-9780-2122A78606F9%7D 

fattachment "callReport.pdf" deleted by Hersel Mehani/HBUS/HSBC] 

Redacted by the 

Permanent Subcommittee on Investigations 

Page 6 
2385 


760612.218

occ-psi-00808896 

TO 

Albert Halley/HBUS/HSBC@HSBC02 cc 

Emilio Ruiz/HBUS/HSBC@HSBC02, Judy P stoldt/HBUS/HSBC@HSBC02 

sUbject 

Fw: Hokuri ku Bank 

A 1 bert 

please confirm that instructions are now clear, and ops can comply with 

requirements. 

Thanks and best regards 

Anthony Julian 

First vice President 

HSBC Bank USA, N.A. 

Global Transaction Banking Office: (302) 327-2665 

Mobile (BB): 

- = Redacted by the Permanent 

Subcommittee on Investigations 

----- Forwarded by Anthony Julian/HBUS/HSBC on 10/31/2008 01:28 PM -----

Jonathan Dean/HBus/HSBC 

10/20/2008 03:46 PM 

TO 

Albert Halley/HBUS/HSBC@HSBC02 cc 

Emilio Ruiz/HBUS/HSBC@HSBC02, Judy P Stoldt/HBUS/HSBC@HSBC02, Anthony Julian/HBUS/HSBC@HSBC02 

subject 

Fw: Hokuri ku Bank 

Albert, 

Thanks for forwarding me this note, please see attached from Mary Ann. We 

will not be accepting T/C'S from Hokuriku Bank after October 31st.. If you could please refer the types of checks we are seeing after this date to me as I am fairly certain the volume is extremely low. I will notify collections to do 

the same. Many Thanks, 

Jonathan Dean 

AVP - AML compliance Officer I HSBC Bank USA 

90 christiana Road New castle, Delaware 19720 

phone. 

Fax. 

Email. 

302-327-2055 

212-382-5573 

jonathan.dean@us.hsbc.com 

page 2 
2386 


760612.219

Occ-psi-00808896 

----- Forwarded by Jonathan Dean/HBus/HSBC on 10/20/2008 12:26 PM -----

Mary A caskin/HBUS/HSBC 

10/20/2008 10:58 AM 

TO 

Jonathan Dean/HBus/HSBC@HSBC02 cc 

Judy P Stoldt/HBUS/HSBC@HSBC02, Anne Liddy/HBUS/HSBC@HSBC02 subj ect 

Re: Fw: Hokuriku Bank 

I just checked with Anne Liddy. We will not be accepting T/CS. Other items can be accepted, but they must be commercial, not personal. 

Mary Ann Caski n VP compliance 

HSBC Bank USA NA 

452 Fifth Ave Floor 7 

NY, NY 10018 

212-525-5530 

Jonathan Dean/HBuS/HSBC 

10/20/2008 10:02 AM 

TO 

Mary A caskin/HBUS/HSBC@HSBC02 cc 

Judy P stoldt/HBUS/HSBC@HSBC02 

subj ect 

Fw: Hokuriku Bank 

Mary Ann, 

Sorry, I didn't clarify, we are not accepting T/C'S ? 

Thanks. 

Jonathan Dean 

AVP - AML compliance officer I HSBC Bank USA 

90 christiana Road New Castle, Delaware 19720 

phone. 

Fax. 

Email . 

302-327-2055 

212-382-5573 

jonathan.dean@us.hsbc.com 

----- Forwarded by Jonathan Dean/HBUS/HSBC on 10/20/2008 09:53 AM ----- page 3 
2387 


760612.220

occ-psi-00808896 

Albert Halley/HBuS/HsBC 10/20/2008 09:53 AM 

To 

Anthony ~ulian/HBus/HsBC@HsBC02 

cc 

Emilio Ruiz/HBUs/HsBC@HsBC02, Jonathan Dean/HBus/HsBC@HsBC02 

sUbject 

Re: Hokuriku Bank 

Anthony, 

Nice hearing from you ... it's been awhile. Hope all is well. 

About Hokuriku Bank. On October 9th. we were notified by Jonathan Dean that 

after October 31st. we will no longer be receiving work from Hokuriku bank and are to return any deposits received after that date. So, my question is, is 

compliance (Jonathan Dean) aware of this new scenario. I would very much like 

for him to confirm/clarify this new request. 

Thanks .. 

Regards, 

Albert Halley HsBC Bank USA, N.A. 

DsIP -cash Letter Dept. 2 Hanson plc Brooklyn, NY 11217 

ofc: (718)-488-4701 

Fax: (718)-488-4717 e-mail: albert.halley.@us.hsbc.com 

Anthony Julian/HBuS/HsBC 

10/17/2008 08:23 AM 

Albert 

To 

Albert Halley/HBUS/HsBC@HsBC02 cc 

Emilio Ruiz/HBUs/HsBC@HsBC02 

subject 

Hokuriku Bank 

AS requested by compliance, we have advised Hokuriku Bank, Japan that we will no longer accept bulk deposits of T/C's (sequentially numbered, or Page 4 
2388 


760612.221

occ-psi-00808896 non-sequentially numbered items payable to the same beneficiary) in excess of 

$5,000.00 with effect from october 31, 2008. The RM in Tokyo has had verbal 

discussion regarding this matter with Hokuriku, and we sent the attached letter 

to formalize our decision. 

Although we expect Hokuriku to comply with our request to stop sending these 

items to HBUS via cash Letter, we also request that you reject any bulk TC 

deposits you may receive from Hokuriku after october 31, 2008. other items in 

the cash Letter (commercial checks and retail TCS) may be processed as "business as usual", but any bulk TCs should be returned to Hokuriku via DHL 

courier without entry. 

please advise me if you have any questions or issues in complying with this 

request. 

Thanks and best regards 

[attachment "Hokuriku Bank CL 092908.doc.zip" deleted by Albert 

Halley/HBUS/HSBC] 

Anthony Julian 

First vice President 

HSBC Bank USA, N.A. 

Global Transaction Banking Office: (302) 327-2665 

Mobile (BB): (610) 570-1357 

----- Forwarded by Anthony Julian/HBUS/HSBC on 10/17/2008 08:15 AM -----

Alan P williamson/HBUS/HSBC 

09/04/2008 11:05 AM 

To 

Anthony Julian/HBUS/HSBC@HSBC02, Fred SHYUR/PCM ASP/HBAP/HSBC@HSBC cc 

Thomas W Halpin/HBus/HSBC@HSBC02, Michael B Gallagher/HBUS/HSBC@HSBC02 subject 

Hokuri ku Bank 

Anthony, Fred 

AS you may know, compliance meets monthly with senior management in the 

payments and cash Management AML Management Review committee. Recently we discussed the fact that Hokuriku has been sending a large number of sequential traveller's checks from a number of similar businesses through cash letter here 

in the US. 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. Hokuriku should therefore cease the activity and make 

alternative arrangements, such as to make the deposits by wire, by September 30. Can I ask you to contact the appropriate RM's to convey this message to 

Hokuriku and confirm back that they have done so? 

Thanks for your help. please let me know if you have any questions. 

Alan williamson 

PCM compl i ance 212 525 8043 

page 5 
2389 


760612.222

From: DANIEL JACK/HBUS/HSBC 

Sent: 5/12/2009 3:52:39 PM 

occ-psi-00823520 

TO: DENIS E O'BRIEN/HBUS/HSBC@HSBC02 

CC: DENISE A REILLY/HBUS/HSBC@HSBC02;RICHARD ANNICHARICO/HBUS/HSBC@HSBC02 

subject: BN with Al Rajhi Banking & Investment corp in Saudi Arabia 

Denis, 

AS requested, I have reviewed actlvlty with this Banknote client, particularly over the past 12 months. Following is a summary of all trades with this HBUS 

London client over the past year. In Jan-09 they became a BN client of Hong 

Kong also. 

Attached are the details of all transactions (4 noted above) over the past 

year, along with the tables above & below. 

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~This bank (an SCc) a a ong-stan lng relationship (25+ years) wlth Ban notes-London until we closed the account in Feb-OS due to TF & reputational risk. With approval from 

AML (A.Ketley), London re-opened the BN account in Dec-06 with SCC 

classification due to PEP. This client still has relationships with HSBC in the 

UK, UAE, France, Hong Kong and Italy. Refer to KYC profile ---> 

Following is a listing of all traders' explanations provided for alerts over the past 7+ years. 

Thanks and regards, 

Daniel Jack 

vice president - compliance officer, GTB 

HSBC Bank USA, NA 

452 Fifth Avenue, 7th floor, New York, NY 10018 

phone. 

Email . 212-525-8686 

daniel.jack@us.hsbc.com 

Denis E O'brien/HBUS/HSBC 

05/12/2009 02:37 PM 

TO 

Daniel Jack/HBUS/HSBC@HSBC02 cc 

- - Redacted by the Permaneflt 

Subcommittee on Investigations 

Denise A Reilly/HBUS/HSBC@HSBC02, Richard Annicharico/HBUS/HSBC@HSBC02 

sUbject 

Al-Rajhi Banking And Investment corporation, saudi Arabia 

Dan, 

Kindly review the Banknotes actlvlty for the last 12 months for Al-Rajhi Banking And Investment Corporation, saudi Arabia and let me know if there are page 1 
2390 


760612.223

any vari ances. 

Thanks and regards, 

Denis E O'Brien 

Occ-Psi-00823520 

Director, Head of Global Transaction Banking Compliance, I HSBC Bank USA, 

National Association 

452 Fifth Avenue, New York, NY 10018 

phone. 

Fax. 

Mobile. 

Email . 

212 525 1147 

917-229-5257 

646-250-2425 

denis.e.o'brien@us.hsbc.com 

Forwarded by Denis E o'brien/HBUS/HSBC on 05/12/2009 02:33 PM -----

Andrei X Novikov/HBUS/HSBC 

05/12/2009 11:14 AM 

To 

Denis E o'brien/HBUS/HSBC@HSBC02, Nerissa P Hall/HBUS/HSBC@HSBC02 cc 

Anastasiya shron/HBUS/HSBC@HSBC02 

Subject 

Al-Rajhi Banking And Investment corporation, saudi Arabia 

FYI 

We have only banknotes account. 

Best Regards, Andrei Novikov 

COBAM - KYC 

HSBC Securities (USA) Inc. 

Tel (212) 525-8379 Fax (212) 525-6856 

_.. Redacted by the Permanent 

Subrommittee on Jnl'estillitiont 

Attachment: Al Rajhi Bank in SA (May-08 to Apr-09).xls.zip 

page 2 
2391 


760612.224

Occ-Psi-00823818 

CONFl()ENTIAL 

*** FOR INFORMA TlONAL PVRPOSES ONLY I FOR INTERNAL USE ONLY**' 

INVESTIGATIVE CONTROL & REPORTING OFFICE (ICRO) 

FINANCIAL INTELLIGENCE UNIT 

REPORT OF FINDINGS 

RESEARCH AS OF: May 5, 2009 

INVESTIGATOR: Brian Miloscia 

SUB.lECT: Social Investment Bank Limited 

IrnTITIES: Social Investment Bank Limited; International Islamic Relief 

Organization (IIRO) 

REQUESTOR: Daniel.lack 

DEPARTMENT: AML Compliance 

An Update to a previous report of findings in support of enhanced due diligence was 

conducted for the following entities: 

• Social Investment Bank Limited 

• International Islamic Relief Organization (URO) 

According to the EDD request, Social Investment Bank is an existing PCM client based 

in Bangladesh, an HSBC-designated High Risk country. The bank is classified as an 

SCC due to the fact that its largest shareholder is the International Islamic Relief 

Organization (!IRO), an OFAC sanctioned entity which is allegedly connected to Al 

Qaeda and the financing or terrorism. Previously, it was determined that the 

International Islamic Relief Organization (!IRO) is a minority shareholder (8.62%) and 

E. Protomastro cleared ownership with OFAC for a second time in June 2007. This 

report is part of a regular review process. 

Please note that previous reports for Social Investment Bank Ltd were completed in 

November 2003, March 2005 and August 2006. These reports have been attached below 

for your convenience. This report wi/! only include items impacting adversely on money 

laundering, terrorist .financing or other substantive criminal activity concerns made 

available to our sources subsequent to the previous reports. 

Please note that there is limited information available in our resources on entities and 

individuals based outside of the United States. The injiJrmation which we could find and 

confirm as involving your customer has been included in this report. However, we 

cannot confirm that all legal filings, etc. that involve your customer have been uncovered 

and reported in this ROF 
2392 


760612.225

Occ-Psi-00823818 

As is shown below, our sources such as Banker's Almanac, the International Islamic 

Relief Organization (IIRO) is still listed as an 8.623% owner of Social Investment 

Bank Ltd. Our sources indicate that the IIRO maintains branches that are 

classified as "Specially Designated Global Terrorist Organizations" by OFAC and 

in May 2008, the IIRO was designated by the Israeli government as an illegal 

organization for the second time. 

In addition, a search of World Check for the names of shareholders, senior 

executives and board members "Islamic Charitable Society," "Kamal Uddin 

Ahmed," "Shah Alam," "Mohammad Azam," "Sayedur Rahman" and 

"Mohammad Shamsuzzamanan" returned profiles for individuals with Bangladesh 

address affiliations that were reportedly involved in crimes ranging from terrorism, 

money laundering and securities violations. 

Searches of World Check for board members "Ahmed Akbar Sobhan" and "Sadat 

Soban" rcturned profiles for a father and son from Bangladcsh who were reportedly 

chargcd, arrestcd, fined over US $1.2 million and sentenced to prison for crimes 

including: tax evasion, amassing US $14.5 million worth of illegal wealth, 

corruption, participation in a graft scheme worth US $18.5 million and a US $3 

million bribery case in connection to obstruction of a murder investigation by 

Bangladesh authorities. 

Due to the lack of identifying information available for the individuals in question, 

we could not conclusively confirm or rule out whether the profiles listed on World 

Check pertain to the individuals identified by our sources as shareholders, senior 

executives and/or board members of Social Investment Bank Ltd. 

In addition to the abovc red flags uncovered by our sources, there is a large volume 

of publicly available press coverage published subsequent to the previous Reports of 

Findings for Social Investment Bank Ltd that contain allegations of connections 

between the IIRO to terrorism, terror financing, money laundering and other 

criminal activities. 

We recommend that any existing relationships with Social Investment Bank Ltd, as 

well as any entity which is directly affiliated with or where any of the above-named 

individuals acts as an officer be maintained only upon reconciliation of these issues 

with the customer. If the information provided by the customer is insufficient to 

reconcile these issues, these accounts should be closed. We also recommend that you 

have Social Investment Bank checked by HSBC OFAC Compliance through 

Elizabeth Protomastro. We further recommend that due to the reputational risks 

posed if this account relationship is maintained, that monitoring is increased for all 

affiliated entities and individuals. 

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1) Social Investment Bank Limited 

Banker's Almanac 

The head office of Social Investment Bank Ltd was established in November 1995 and 

is located at 15 Dilkusha Commercial Area, Dhaka 1000, Bangladesh. It is listed as a 

Private Bank with a World Ranking of 2591 and a national ranking of 28. The bank has 

nine domestic branches in Bangladesh including its headquarters in Dhaka. As of 

December 31, 2008, the bank has net profits of approximately US $2.9 million. 

Social Investment Bank Ltd is regulated by the Bangladesh Bank. They are audited by 

Kazi Zahir Khan & Co (Banker '0' Almanac, date accessed: 5/5/2009). 

Ownership Breakdown: 

International Islamic Relief Organization IIRO, .Teddah, 8.6231 % 

Islamic Solidarity Fund and its Waqf orc, Jeddah, 3.8415% 

H.E Ahmed M. Salah Jamjoom, 2.92% 

Islamic Charitable Society Lajnat A-Birr AI Islam, .Teddah, 1.5364%, 

The following individuals were listed as having less than 1% ownership of the bank: 

H.E Dr. Hamid Al-Galib, 0.7680%; H.E Dr. Abdullah Omar Nasseef, 0.2303%; Dr.Bedri 

Cemel Rodopul, 0.0019%; Adbel Fattah M.Farah, 0.0003%; Dr. Adalet Djabiev, 

0.0961%; Dr. Youssef Shaheed Youseef, 0.0010%; Shahir A.R. Batterjee, 0.4607% 

(Banker's Almanac, date accessed: 5/5/2009). 

We note that the ownership interest of the IIRO does not appear to have changed since 

the previous report oj findings completed in August 2006. 

We also note that our sources were unable to determine the beneficial ownership oj over 

75% oJthe bank's shares. Based upon the Jact that the entity in question is based in a 

high risk nation, and that the IIRO is widely reported to be affiliated with Al Qaeda and 

terrorist financing, you may wish to obtain information and documentation to 

ascertain the identities of the remaining shareholders of Social Investment Bank 

Ltd. In the absence of such information, you may wish to consider the increased risk 

involved in maintaining this relationship. 

Top Senior Executives: 

• Abdul A wal Patwary, Chairman 

• Md Sayedur Rahman, Vice Chairman 

• K M Ashaduzzaman, Managing Director 

• Abu Sadek Md Sohel, Deputy Managing Director 

• Walid Mahmud Sobhani, CFO 

• Md Akhtar Hussain, Compliance and Control 

(Banker's Almanac, date accessed: 5/5/2009) 

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Data Monitor Report 

Data Monitor has a listing for Social Investment Bank Ltd that was last updated in 

August 2008. 

Top Senior Executives: 

M Rezaul Haqu, Chairman 

Alhaj M Alzal Hossain, Vice Chairman 

• Humayun Kabir Khan, Vice Chairman 

• Alhaj Nasiruddin, Vice Chairman 

• K. M. Ashaduzzaman, Managing Director 

• Abu Sadek Sohel, Deputy Managing Director 

Board Members: 

• M. Rezaul Haque 

Kamal Uddin Ahmed 

Taslima Akhtar 

Munshi Akhtaruzzaman 

M. Shah Alam 

ZohraAlam 

Alhaj Ali 

Mohammad Azam 

Fatema Begum 

Mahmood Chowdhury 

Noor A-Alam Chowdhury 

Anisul Haque 

Alhaj M. Alzal Hossain 

Social Investment Bank Website 

A.K.M. Imran Khan 

Humayun Kabir Khan 

UmmeKulsum 

Nargis Mannan 

Alhaj Nasiruddin 

Abdul A wal Patwary 

Sayedur Rahman 

A. R. Rashidi 

Mohammed Shamsuzzaman 

Ahmed Akbar Sobhan 

Sadat Sobhan 

Abu Sadek Sohel 

According to the Social Investment Bank website, www.siblbd.com. the following 

additional parties are listed as Top Executives and/or Board Members: 

• Mr. A Jabbar Mollah, Director & Board Member 

• Hamdard Laboritories, Director (represented by Anisul Hoque) 

(www.siblbdcom, date accessed: 5/5/2009) 

Legal 

A search of our sources returned no evidence of civil, criminal, judgment, lien, 

bankruptcy filings, government sanctions or regulatory aetions for Social Investment 

Bank Ltd subsequent to the previous report of findings. Please note that our sources do 

not include access to lawsuits and other public records filed in Bangladesh. 

Notable Information Regarding the Financial Institution, its Ownership or its Top 

Executives: 

World Check 

We nole that due to name commonality and the limited identifYing information available, 

our searches were limited to include only those individuals who were as board members 4 
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and top senior management. You may however, wish to obtain information and 

documentation from your customer to ascertain the levels of control over bank 

operations held by positions other than board members and managing directors. 

A World Check search returned no results for Social Investment Bank 

World Check maintains a profile for an "Islamic Charitable Society Al Bireh" based in 

the West Bank region of Palestine. The entity is classified as a terrorist organization 

with reported tied to Hamas. In September 2008, the Israeli government reportedly 

declared it an illegal entity. 

World Check maintains mUltiple profiles for the name string "Kamal Uddin Ahmen": 

A "Kamal Uddin Ahmed" of Bangladesh is listed as an officer for the Officer 

with the National Credit and Commerce Bank Limited as of July 2004. In 

February 2003, a cased was filed for alleged illegal banking transactions and in 

July 2004, formal charges were submitted, and he was released on bail. He 

reportedly sanctioned loans illegally to individuals involved in money 

laundering. 

• A "Md Kamal Uddin Ahmed" of Bangladesh is classified as a PEP. He is listed 

as the Executive Chairman of the Board of Investment (Nov 2007 - ) and 

Secretary ofthe Bangladesh Civil Service Administration Association and Deputy 

Commissioner of Dhaka as of October 2007. 

World Check maintains multiple profiles for the name string "M Shah Alam": 

A "Mohammad Shah Alam," of Bangladesh is classified as a PEP. He is listed as 

a member of the Awami League Socialist party and a member of Parliament for 

the District of Pirojpur. 

• A "Shah Alam" of Dhaka, Bangladesh is classified as a suspected terrorist who 

allegedly in the Awami League Rally attacks in August 2004. He was rcportedly 

detained by authorities in November 2005. 

• A "Shah Alam," 40 years old as of 4116/2007 of Dhaka, Bangladesh is classified 

as a terrorist member of Alleged Jammat-ul Mujahideen Bangladesh. He was 

reportedly detained by authorities in April 2007. 

• A "Shah Alam" of Rajshai, Bangladesh is classified as a terrorist. He was 

reportedly detained and subsequently released in May 2007. 

World Check maintains multiple profiles for the name string "Mohammad Azam": 

A "Mohammad Azam" of India is classified as a terrorist and member of the 

Students Islamic Movement ofIndia. 

• A "Mohammad Shafiqul Azam" of Dhaka, Bangladesh is classified as a PEP. He 

is listed as Managing Director of Sadharan Bima Corporation, Member of the 

Dhaka Electricity Supply Authority and Former Member of the Bangladesh 

Power Development Board (PDB). 

World Check maintains a profile for a "Fatema Begum" of Dhaka, Bangladesh, who is 

classified as a PEP. This individual is listed as tlle Deputy Inspector General of Special 5 
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Branch, Dhaka as of December 2007 and is listed as the Former Deputy Inspector 

General ofthe police headquarters in Dhaka. 

World Check maintains multiple profiles for the name string "Sayedur Rahman": 

• A "Sayedur Rahman" of Dinjapur, Bangladesh arrested and sent to jail for alleged 

involvement in a money laundering scheme along with individuals Malek 

Ansari and Abdul Kalem Azad of Bangladesh. At the time of arrest cash worth 

US $65,000 was seized from the individuals. 

• A "Saidur Rahman", also known as "Sayedur Rahman," 24, of Bangladesh, is 

classified as a terrorist and an alleged member Jammat-ul Mujahideen 

Bangladesh He was reportedly detained in October 2007. 

World Check maintains a profile for a "Mohammed Shamsuzzaman" of Dhaka, 

Bangladesh. He is listed as the Director of Sajib Knitwear and Garments Limited as of 

January 2009. In June 2008 he was reportedly issued a "show cause notice" by Securities 

and Exchange Commission (SEC) in Bangladesh for violation of securities regulations. 

In January 2009, he was reportedly fined by the SEC Tk 100,000 (approximately US 

$1,500). 

World Check maintains profiles for an "Ahmed Akbar Sobhan", and "Sadat Sobhan", 

who arc listed as father and son. Ahmed Akbar Sobhan of Bangladesh is classified as a 

PEP. He is listed as the Chairman of Chairman of Bashundhara Group as of 2007 and the 

Honorary Counsel of Ukraine to Bangladesh. 

• In January 2007, they pair was investigated for reportedly committing bribery. 

• In February 2007, Ahmed Akbar Sohan was reportedly listed as a corruption 

suspect and ordered to submit a wealth statement to the federal authorities, which 

he failed to submit. 

• In April 2007, the pair reportedly fled to the United Kingdom as fugitives 

from justice, when their premises were raided by the authorities. 

• In July 2007, an arrest warrant issued and in August 2007 they were ordered 

to surrender within 3 days for tax evasion. 

• In September 2007, they were charged along with others by Anti-Corruption 

Commission (ACC) in a graft case worth Tk 1.27 billion (approximately 

$18.5 million). They were sentenced to 8 years imprisonment and fined Tk 83 

million (approximately US 51.2 million) for tax evasion. 

In October of 2007, they were accused in a case filed by ACC for paying Tk 

210m (approximately US $3 million) bribe to Lutfozzaman Babar to cover up 

a murder investigation. 

• In February 2008, Ahmed Akbar Sobhan was formally charged for causing a 

substantial loss to the national exchequer (treasury) by seizing 80 acres of public 

property. 

• In May 2008, he was formally charged for the bribery case detailed above and 

was sued by the Criminal Investigation Department for bribery. 

• In July 2008, the pair was sentenced to 2 years rigorous imprisonment for 

illegal possession of foreign currency worth Tk 2.3 million (approximately 

US $33,000). In August 2008, they were formally charged for accumulation of 6 
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Tk 1 billion in illegal wealth (and aiding and abetting the accumulation of 

illegal wealth) and concealing information of wealth in the amount of Tk 140 

million, (approximately US $14.5 million and $2million, respectively). 

Do to name commonality and the lack of identifying information available for the 

board members and top senior executives of Social Investment Bank Ltd, you may 

wish to obtain information and documentation from your customer to determine 

whether the individuals listed in World Check are the same as the individuals 

identified as board members and top senior executives of Social Investment Bank 

Ltd. You may accordingly wish to consider the increased level of risks including 

reputational risks in maintaining this account relationship and may consider 

recommending Social Investment Bank Ltd for SCC status. 

Press 

A search of press archives for Social Investment Bank and the term "AI Qaeda" returned 

an October 10, 2008 news article from www.Bangladeshnews.com.bd reporting: 

"Bangladesh Bank (BB) has sought directions from the foreign ministry in regard to the 

suspended bank accounts of the International Islamic Relief Organization (IIRO), which 

has an alleged link with the al-Qaeda." 

The article states that the "BB apprised the foreign ministry last month of the requests 

made by two private commercial banks to resume the bank accounts of IIRO." 

The article further states that, "US Embassy in 2006 requested Bangladesh to provide 

information about some alleged terrorist organizations and the lIRO. Following the 

allegation of the IIRO's link with the al-Qaeda, the Bangladesh Bank suspended its bank 

accounts in Bangladesh." 

Earlier, Bangladesh Bank following the reports of alleged link of the IIRO with the alQaeda halted two bank accounts ofthe IlRO at Islami Bank and Social Investment Bank 

Ltd (SIBL) with whom URO had 50,445 shares worth Tk 1,000 each," 

approximately US $733,000. 

According to the article, "The BB suspended distribution of dividend against the 

shares of the URO with the SIBL while the Islami Bank voluntarily froze bank 

accounts of IIRO. A high official of the Bangladesh Bank said the US Embassy had 

sought account information of IIRO under an UN resolution. But as the government 

currently is undertaking a project funded by the lIRO, the BB is seeking information 

from the foreign ministry regarding the status ofthe IlRO bank accounts." 

Based upon the above news article, it appears that the URO has a large amount of 

money invested in accounts with Social Investment Bank. You may therefore wish 

to obtain information from your customer to ascertain the status of the accounts 

held by the IIRO in the Social Investment Bank Ltd. You may also wish to consider 

the risks, including reputational risk involved in maintaining this account 

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relationship. In addition, you may wish to review this relationship with OF AC 

Compliance to determine what, if any, additional steps need to be taken. 

A search of press archives uncovered a news brief from a BBC News Monitor Report of 

Southeast Asian News dated February 4, 2007 which stated "Information has been 

received about the private Social Investment Bank taking investments from an AIQa'idah organization (BEC Monitoring of South East Asia Report, date 21412007). No 

further information was listed, nor was the original source of the information provided. 

A search of press archives and other third party sources were unable to obtain more 

information concerning the above report. However, you may wish to obtain 

information from your customer concerning anyon-going investigations or 

litigation involving potential ties to terrorist financing and/or AI Qaeda. 

We note that although there does not appear to be a high volume of adverse press 

pertaining to Social Investment Bank, Lid subsequent 10 the previous reports, there is 

some press coverage pertaining to Social Investment Bank's ties to the IIRO, and a 

possible connection to AI-Qaeda. Therefore you may wish to consider the risks, 

in eluding reputational risks involved in maintaining this account relationship. 

2) International Islamic Relief Organization 

Word Check 

The International Islamic Relief Organization (IIRO) appears to be a non-profit 

humanitarian relief organization based in Jeddah, Saudi Arabia. It is listed as a member 

of the World Muslim League. 

World Check reports that the lIRO has purported links to "Osama bin Laden, al-Qaeda, 

Hamas and the Palestine Islamic Jihad". 

The organization was "connected to plots to assassinate Bill Clinton, the Pope and 

attacks on the Lincoln Tunnel and the Brooklyn Bridge." 

World Check states that the organization is considered a major sponsor of Afghan 

terrorist training camps." The organization is "reportedly involved in providing 

financial support to al-Qaeda, Hamas, PI.T and Islamie fundamentalist groups in 

Mindanao, Philippines." 

World Check states that the organization is purportedly involved in money laundering 

activities for al-Qaeda and other terrorist organizations and in December 2002, it was 

one of ten non-governmental organization indicted in a class action civil lawsuit filed by 

the families of the 9/11 World Trade Center terrorist attacks. 

In May 2008, the IIRO was deelared to be an illegal organization by the government 

ofIsrael for second time (World Check, date accessed: 51512009). 

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Banker's Almanac 

The International Islamic Relief Organization, with an address of PO Box 33567, Jeddah 

21458, Saudi Arabia is listed as 8.6231 % Owner of Social Investment Bank Ltd. No 

further information pertaining to the lIRO, such as management or ownership 

information was provided (Banker's Almanac, date accessed: 5/5/2009). 

us Office of Foreign Assets Control (OFACI 

The Philippines branches of the lnternational Islamic Relief Organization located in 

Zamboanga City, Tawi Tawi, Marawi City, Basilan, Cotabato City and Manila are 

classified by OFAC as a "Specially Designated Global Terrorist Organization". 

The Indonesian branches of the International Islamic Relief Organization located in 

Jakarta and East Jakarta are classified by OFAC as a "Specially Designated Global 

Terrorist Organization" (Lexis-Nexis OFAC database search, accessed: 5/5/2009). 

Press 

We note that searches oj press archives and other third party sources were limited to 

include only those items made available through our sources subsequent to the previous 

reports. 

There is a large volume of press coverage pertaining to the International Islamic Relief 

Organization. 

Searches of press archives and other third party sources for International Islamic Relief 

Organization along with adverse terms pertaining to terrorism, terror financing and other 

criminal activities returned more than 100 news articles and web listings published 

subsequent to the previous reports. 

An Associated Press article dated December 22, 2007 reports that "defendants in lawsuits 

resulting from the Sept. 11 terrorist attacks must turn over materials from as far back as 

1992, when it appears that Osama bin Laden called for a holy war against the United 

States" 

The article reports that the ruling by U.S. District Judge George B. Daniels affects 

defendants in lawsuits "seeking billions of dollars in damages from numerous banks, 

charities and individuals worldwide who are alleged to have supported al-Qaida 

before the 2001 terrorist attacks." 

The article states that Judge Daniels said it was "reasonable to require organizations 

such as the Muslim World League, the International Islamic Relief Organization 

and Wa'el Jelaidan to turn over evidence necessary to decide the merits of lawsuits 

brought by representatives, survivors and insurance carriers of the victims of the 2001 

attacks in New York, Washington and Pennsylvania. 

The article states that "lawyers for defendants in the lawsuits have said it was unfair to 

require them to tum over the earlier documents because the defendants were not 

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adequately put on notice about al-Qaida's terrorist activities toward the United States 

until the 1996, and that the materials were overly burdensome and outweighed any 

potential value to plaintiffs." 

TIle article states that in the judge's ruling, "Daniels noted that 1992 was the year when 

bin Laden is alleged to have joined other senior al-Qaida leaders to issue a formal fatwah 

calling for violence against the United States and other Western allies." The article states 

that "a message left with a lawyer for defendants was not immediately returned" 

(Associated Press, load date: December 22, 2007). 

Due to the large volume of publicly available press coverage published subsequent 

to the previous reports containing allegations of possible links between the 

International Islamic Relief Organization and terrorism, AI-Qaeda, terror 

financing, money laundering and other criminal activities, you may wish to consider 

the increased risk, including reputational risks involved in maintaining this account 

relationship. 

Should you have further questions regarding this report, please contact me. 

Brian Miloscia 

Financial Investigator (Financial Intelligence Unit) 

452 Fifth Avenue, Tower 7 

New York, NY 10018 

TcI: (212) 525-4214 

This report is confidential and is intended solely for the use of the HSBC business to 

which it is addressed and those who need to know the information pursuant to that 

business' internal procedures. This report is not to be disseminated to any other person 

or entity. Our investigative findings are, in part, based upon information available to us 

through a variety of third-party providers at the time our search is performed. While 

every attempt is made to find all substantive information, we make no representation that 

the information provided to, or gathered by, us is complete. This is not a credit or lien 

report and should not be used as such. The information contained herein is intended as a 

supplement to the Know Your Customer information gathered by the HSBC business unit 

and may not be considered when determining the creditworthiness of a customer (see 

Regulation B, 12 CFR 202.7) or to determine the lien status of property. 

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This Space Reservedfor Compliance Officer and/or Business Unit: 

Comments of the Compliance Officer and/or Business Unit Approver: l 

Comments are required if the Report of Findings contains information to suggest that any subject 

may be a PEP or other type of SCC, or may present reputationai risk to HSBC. Comments must 

detail whether or not the CO or business-level approver is comfortable with the relationship, as well I as the reasons supporting that determination. If comments are entered below, return a copy to 

ICRO (via email to "FIG HBUS") for its records. I 

I have reviewed this Report of Findings and none of the information in the Report requires 

comment. Signed on --cc-------. 

o I have reviewed this Report of Findings and comments were required and have been 

summarized above. Signed on ____ -:----:-__ 

(date) 

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PREVIOUS REPORT OF FINDINGS: AUGUST 2006 

CONFIDENTIAL 

"*FOR INFORMATIONAL PURPOSES ONLY I FOR INTERNAL USE ONL y*** 

Please find below an updated Report of Findings for Social Investment Bank Limited of 

Bangladesh, prepared by one of our FIG Investigators, Kathleen Dischner. As you will 

read in this updated Report of Findings and the two prior ones attached below, there are 

several concerns pertaining to terrorist financing in regards to Social Investment Bank 

Limited's largest single shareholder, the International Islamic Relief Organization (IIRO). 

We especially recommend that you consider the following information in evaluating the 

reputational risk posed by a continued account relationship with Social Investment Bank 

Limited: 

On August 3, 2006, the U.S. Treasury Department designated the Philippine and 

Indonesian branch offices of the Saudi-based IIRO as Specially Designated Global 

Terrorists (SDGT). The Treasury Department also designated Abd Al Hamid Sulaiman 

AI-Mujil, the Executive Director ofIIRO's Eastern Province Branch in Saudi Arabia, as a 

SDGT. 

According to Bankers' Almanac and Social Investment Bank's KYC profile, the Saudibased IIRO owns an 8.62% stake in the bank, and is its largest single shareholder. 

As documented in the Reports of Findings below, prior to the SDGT designation of 

IIRO's Philippine and Indonesian branches, there have been numerous allegations of the 

organization's involvement in terrorist financing over the years. In fact, it appears that 

the lIRO is rarely mentioned in the press without it also being alleged that the group is a 

source of terrorist financing. 

INVESTIGATIVE CONTROL AND REPORTING OFFICE (ICRO) 

FINANCIAL INTELLIGENCE UNIT 

REPORT OF FINDINGS (UPDATE) 

(Research as of 08/04/06) 

INVESTIGATOR: Kathleen Dischner 

FINANCIAL INTELLIGENCE GROUP (FIG) 

REPORT OF FINDINGS 

SUBJECT: Social Investment Bank Limited 

ENTITIES: Social Investment Bank Limited 

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REQUESTOR: Rhonda Lee, Nanayo Ryan, George Tsugranes, Alan Ketley, Daniel Jack 

DEPARTMENT: PCMlBanknotes 

A Report of Findings in support of Enhanced Due Diligence was conducted for the Social 

Investment Bank Limited located in the HSBC-designated high-risk country of 

Bangladesh. This is an update to a previous report prepared for this bank on 312005, 

which is provided below for your reference. Only items impacting adversely on money 

laundering, terrorist financing or other substantive criminal activity concerns will be 

detailed in this updated report. 

UPDATE: 

Social Investment Bank Limited 

Most Current Ownership Breakdown Found (5% or higher): 

Banker's Almanac indicates that thc International Islamic Relief Organization owns 

8.62% of the Social Investment Bank Limited. 

Most Current List of Top Executives Found: 

Dr Md Afzal Haque, Chairman 

Alhaj Mohd Afzal Hossain, Vice-Chairman 

K M Ashaduzzaman, Managing Director 

Abu Shadek Sohel, Deputy Managing Director 

Shafiqul Islam, Senior Vice-President 

Notable Information Regarding the Financial Institution, its Ownership or its Top 

Executives: 

An article in "The Los Angeles Times" on January 15,2006 reports that US officials have 

cited such organizations as the International Islamic Relief Organization, the majority 

shareholder of the Social Investment Bank, as "engaging in highly suspect activities 

overseas." A - National Review~ article from December 14, 2005 reports that the 

Egyptian magazine - Rose al-Y oussef,- describes the IIRO as - firmly entrenched with 

Osama bin Laden- s AI-Qaeda organization. 4 

World-Check identifies the International Islamic Relief Organization (Indonesia) under 

Category 2: Terrorism. It is listed on the USA OFAC list - SDGT (Specially Designated 

Global Terrorist). It was identified as providing assistance to Jemaa Islamiyah in terms 

of recruitment, transportation, logistics, and safe-havens. (Jemaah Islamiyah is a militant 

Islamic terrorist organization dedicated to the establishment of a fundamentalist Islamic 

theocracy in Southeast Asia. Financial links between Jemaah Islamiyah and other terrorist 

groups, such as Abu Sayyaf and al-Qaeda, have reportedly been found to exist. 

http://en.wikipedia.org). The IIRO also allegedly financed training facilities for AI-Qaida 

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associates. (World-Check entry dated 8/3/06, citing u.s. Treasury Department press 

release at http://wv;w.treas.gov/press/releases/hp45.htm). 

World-Check identifies the International Islamic Relief Organization (Philippines) under 

Category 2: Terrorism. It is listed on USA OFAC under SDGT (Specially Designated 

Global Terrorist). It was reportedly founded in the late 1980's or early 1990's, by a senior 

AI-Qaida member and brother in law of Osama Bin Laden. The Director, Abd al-Hadi 

Daguit, is allegedly a close associate of the founder. (World-Check entry dated 8/3/06). 

The organization is allegedly used as a source of funding for Abu Sayyaf Group. (The 

ASG is reportedly primarily a small, violent Muslim terrorist group operating in the 

southern Philippines. Some ASG leaders allegedly fought in Afghanistan during the 

Soviet war and are students and proponents ofradical Islamic teachings. Terrorist Group 

Profiles - http://library.nps.navy.millhome/tgp/asc.htm). 

A separate World-Check entry also identifies the International Islamic Relief 

Organization, with locations listed as Virginia, Saudi Arabia, and the Philippines, under 

Category 2: Terrorism. The description indicates the following: 

~ Headed by Mohammed Khalifa, Osama bin Laden's brother-in-law. Member of the 

Board and the Executive Committee - Sheikh Hani Alunad Zaki Yamani. Suspected of 

giving financial support to Islamic fundamentalist groups in Mindanao, Philippines (on 

behalf of) and could be linked to Osama bin Laden. Reportedly funded organizations that 

aid and abet terrorism including AI-Qaida, Hamas and Islamic Jihad. Allegedly linked to 

the 1993 World Trade Centre Bombings, involved in plots to assassinate Bill Clinton and 

the Pope and the planned destruction of the Lincoln Tunnel and Brooklyn Bridge. Sister 

organization Sana-Bell, Inc allegedly gives financial support to Islamic groups -

suspected of laundering money for AI-Qaida and other terrorist organizations - linked to 

SAAR Network, The Golden Chain, the Saudi evangelical charity the Muslim World 

League - offices world-wide. Dec 2002 - reported to be I of 10 charities being sued by 

the families of the II Sep 2001 World Trade Centre vlctlms. Allegedly active in 

Afghanistan during the Taliban regime and considered a major sponsor of terrorist 

training camps there.~ 

World-Check identifies a Shafiqul Islam under the Category 2 of Terrorism. He is 

reportedly a suspected Jama~ atul Mujahidden Bangladesh (JMB) suicide squad mcmber. 

However, we could not confirm that he is the same individual who is also a Senior VicePresident at the Social Investment Bank Limited. It appears that he may not be the 

individual listed on World-Check, as he was reportedly arrested in February 2006. 

(World-Check entry dated: 2/13/06, citing "The Independent" of Bangladesh). 

Information Found Regarding this Financial Institution, its Ownership or its Top 

Executives that Warrants sec Consideration: 

The International Islamic Relief Organization is the majority shareholder of the Social 

Investment Bank Limited. The IIRO allegedly has connections to terrorist organizations 

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such as Al Qaeda, and its Indonesian and Philippine branches have been designated by 

OFAC as SDGTs. 

*** Should you find any discrepancies between the ownership and/or executives named 

in this report and those named in your current, up-to-date KYC information, please let us 

know so that we may check any differing names for items impacting adversely on money 

laundering, terrorist financing or other substantive criminal activity concerns. 

This report is confidential and is intended solely for the use of the HSBC business to 

which it is addressed and those who need to know the information pursuant to that 

business' internal procedures. This report is not to be disseminated to any other person or 

entity. Our investigative findings are, in part, based upon information available to us 

through a variety of third-party providers at the time our search is performed. While 

every attempt is made to find all substantive information, we make no representation that 

the infonnation provided to, or gathered by, us is complete. This is not a credit report 

and should not be used as a credit report. The information contained herein is intended as 

a supplement to the Know Your Customer information gathered by the HSBC business 

unit and may not be considered when determining the creditworthiness of the customer 

(see Regulation B, 12 CFR 202.7). 

PREVIOUS REPORT OF FINDINGS: MARCH 2005 

CONFIDENTIAL 

*** FOR INFORMATIONAL PURPOSES ONLY *** 

FINANCIAL INTELLIGENCE GROUP (FIG) 

REPORT OF FINDINGS (UPDATE) 

SUBJECT: Social Investment Bank Ltd 

ENTITIES: Social Investment Bank Ltd 

REQUESTOR: Rhonda Lee-Thomas, Nanayo Ryan 

DEPARTMENT: Banknotes 

ACCOUNTS: Social Investment Bank Ltd Acct# ••••• 

A report of findings in support of enhanced due diligence for Social Investment Bank Ltd 

was conducted in November of 2003. The text of that report has been pasted below. As 

of today, Mareh 10,2005, we have conducted an update review for this bank to determine 

if there have been any reports of criminal activity surrounding this corporation, or any 

notable news or changes, since November of2003. Our findings are as follows: 

Recommendation 

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In consideration of the below-mentioned allegations of terrorist financing against Social 

Investment Bank's largest shareholder, the International Islamic Relief Organization, we 

strongly recommend that a relationship with Social Investment Bank not be approved 

until the matter is discussed with Senior Compliance Management. 

International Islamic Relief Organization (IIRO) 

Of primary concern in the November, 2003 report was the issue of Social Investment 

Bank's majority shareholder, the International Islamic Relief Organization (IIRO), and 

the IIRO's alleged connections to terrorist organizations such as Al Qaeda. 

According to the Bankers Almanac profile published on Lexis-Nexis on February 14, 

2005, the IIRO remains the largest shareholder of the Social Investment Bank, with an 

8.62% stake in the bank. The Bankers Almanac profile provides a very specific 

breakdown of the shareholders, naming dozens of individual shareholders who hold a 

smaller than 1 % stake in the bank. Of all the shareholders named, the IIRO is the only 

shareholder that claims a 5%-or-larger stake in Social Investment Bank Ltd. 

As the November, 2003 report made clear, the International Islamic Relief Organization 

is alleged to have provided funding to terrorist groups such as AI Qaeda in the past. The 

group endorses Wahhabism, a strict interpretation of Sunni Islam that values martyrdom. 

Wahhabism is the school of Islam that Osama Bin Laden is reported to have practiced. 

While the group has avoided any official sanctions from a governing body, they are still 

widely reported as being suspected of terrorist financing. Based on the frequency with 

which the group is cOlIDected to terrorist financing in the press, it is likely that their 

activities will always be under scrutiny, and future government sanctions against the 

group are highly probable. 

As recently as February, 2005, thc Associated Press reported that the US expressed 

concern when the IIRO took part in Tsunami relief efforts in Indonesia. The assistant 

secretary for terrorist financing at the US Treasury Department was quoted in the article 

as saying that the IIRO's presence could lead to extremist ideologies gaining a foothold in 

the region and establishing a foundation [or tcrrorist activity. 

Reporting on the IIRO's Tsunami relief efforts on February 25, 2005, the "Associated 

Press" stated that the IIRO is alleged to have acted as a cover for AI-Qaeda operations in 

the Philippines. "The Manila Standard" reported on January 22, 2005 that Filipino law 

enforcement has adopted measures to cut off funding to an alleged new Islamic 

fundamentalist group that trains its members in terrorism and has already plotted a 

bombing in Manila, which was foiled by police. Filipino officials believe funding for the 

group, and other fundamentalist groups in the region, comes from AI-Qaeda linked 

organizations. The only such organization named specifically in the article was the 

International Islamic Relief Organization, which is alleged to provide funding for Islamic 

Fundamentalist groups in the Philippines by channeling the funds to local Islamic nongovernmental organizations. 

16 
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The World-Check profile on the IIRO classifies the group as a terrorist entity, based on 

reports that the lIRO has funded groups that are acknowledged by the federal goverrunent 

and the United Nations as having aided and abetted terrorism. 

On January 10,2005, it was reported that the IIRO had merged with the Muslim World 

League. World-Cheek's profile on the Muslim World League classifies the group as a 

terrorist entity. World-Check claims that the group was initially funded by Osama Bin 

Laden and, like the IIRO, is alleged to have funded groups that aid and abet terrorism. 

Additionally, partial funding to the groups responsible for the 1993 World Trade Center 

bombing has reportedly been traced back to both the IIRO and the Muslim World 

League. 

In conclusion, the IIRO is rarely mentioned in the press without it also being alleged that 

the group is a source of terrorist financing. Even the frequent reports on the group's 

charity activities and relief efforts make mention of the group's link to terrorism. These 

allegations have yet to lead to goverrunent sanctions against the group, and none of the 

reports found have made mention of Social Investment Bank Ltd in any manner. 

Social Investment Bank Ltd 

Social Investment Bank Ltd maintains headquarters at IS Dilkusha Commercial Area, 

Dhaka 1000, Bangladesh. According to the Bankers Almanac profile published on 

February 14, 2005, the bank is ranked 12th in its country and 2,257 in the world. In 

2003, the bank reported $359.9 million in total assets. 

Kamaluddin Ahmed is the current Chairman of the bank, with Kazi Anwarul Mahbub 

listed as the bank's Managing Director. The bank's correspondent banking relationships 

do not extend far beyond its relationships with the global branches of Standard Chartered 

Bank and American Express Bank Ltd. Its relationships with these two corporations does 

extend the bank's presence into most of the global banking regions, but it should be noted 

that Social Investment Bank Ltd docs not appear to have correspondent relationships with 

many of the other major global banking corporations. 

Our review found no evidence of criminal activity directly related to Social Investment 

Bank Ltd or its management. Social Investment Bank Ltd does not appear on WorldCheck. 

The Bankers Almanac profile of Social Investment Bank Ltd published on February 14, 

2005 on Lexis-Nexis reports that the International Islamic Relief Organization (IIRO) is 

the bank's largest shareholder with an 8.62% stake in the bank. As detailed above, the 

IIRO is alleged to have provided funding for numerous terrorist organizations, including 

Al Qaeda. 

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Prior Report of Findings: November 2003: 

FINANCIAL INTELLIGENCE GROUP (FIG) 

REPORT OF FINDINGS 

SUBJECT: Social Investment Bank Ltd. 

REMARKS I RECOMMENDATIONS 

Although the allegations presented in this report, primarily against the International 

Islamic Relief Organization (IIRO) and the Lajnat aI-Birr AI Islamiah, are highly adverse, 

no U.S. or foreign government law enforcement or regulatory body has stated, 

unconditionally, that these organization are under sanction. The reputational risk is 

significant, however, and the possibility that further investigations by U.S. authorities 

may ultimately uncover substantiating proof of a connection to terrorism. The risk of 

future sanctions and the reputational risk based on the allegations noted in this report 

should be measured against the current risks involved in our relationship when ultimately 

deciding a course of action. 

SUMMARY OF FINDINGS 

INVESTIGATOR: Laura Spadanuta 

ENTITIES: International Islamic Relief Organization, Islamic Charitable Society Lajnat 

aI-Birr AI Islam, Dr. M.A. Mannan, Mohammad Azam, Late Abdul Majid, Abdul Matin 

Khan, Rukhsana Habibullah, Late Munshi Fazlur Rahman, Mohammad Ismail 

REQUESTOR: Rhonda Lee-Thomas 

An ALE search was requested for the shareholders of Social Investment Bank Ltd. 

Enhanced due diligence was performed on the shareholders whose names appeared on the 

FIG databases and on the World-Check database. 

International Islamic Relief Organization (IIRO) 

IIRO is a Saudi-Arabian charity. The Muslim World League, which is an organization 

dedicated to spreading Wahhabism that is funded by the Saudi government, is the parent 

organization of the IIRO. It has been reported that the IIRO claims on its website to have 

a relationship with the United Nations High Commissioner for Refugees. 

The IIRO was named in the 2002 lawsuit brought forward on behalf of family members 

of victims of the September II, 200 I terrorist attacks. The IIRO was accused of having 

~ played kcy roles in laundering of funds to terrorist for the 1998 African embassy 

bombings~ and having been involved in the ~ financing and aiding and abetting of 

terrorists in the 1993 World Trade Center bombing.~ The IIRO has also reportedly 

funded al-Qaeda directly, as well as several of its satellite groups. Osama bin Laden~ s 18 
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brother-in-law, Mohammed Jamal Khalifa, headed the Philippine branch of the IIRO in 

the 1990~ s. The Philippine government has charged that the group contributed to 

terrorist causes there. IIRO opened its U.S. branch (under the name International Relief 

Organization) in 1991 at the 555 Grove St. complex in Herndon, Virginia that was raided 

in March 2002 by the F.B.I. in a counter-terrorism investigation. Several other Islamic 

charities were also raided in the same complex. Money received by the International 

Relief Organization by the Saudi government was used to set up Sana Bell Inc., which 

was responsible for investing the money. Sana Bell Inc. was accused of giving $3.7 

million to BMI Inc. from 1992-1998. BMI Inc. was a New Jersey investment company 

that adhered to Islamic principles. One of BMI~ s chief investors, Yasin Qadi, was 

designated by the U.S. and the U.N. as a ~ specially designated terrorist~ for his support 

of al-Qaeda and Hamas. Another of BMI~ s major investors was Hamas leader Mousa 

Abu Marzook. BMI~ s founder, Soliman S. Biheiri, was indicted in 2003 by the U.S. 

government for immigration violations. 

Furthermore, Israeli forces reportedly found a large colleetion of documents in the West 

Bank with the IIRO logo and a list of aid recipients including the highlighted names of 

families of suicide bombers. Additionally, it has been reported that the lIRO has sent at 

least $280,000 to the Tulkarm Zakat Committee, a Hamas-affiliated organization in the 

West Bank. IIRO has also been linked to several other organizations that have been 

accused of terrorist financing, including AI-Shamal Islamic Bank (which was supported 

by Osama bin Laden), and the SAAR Foundation, which is related to the al-Rajhi family 

(who have also been named in the September 11 families lawsuit). 

It has been further reported that the Success Foundation is the successor to the U.S. office 

of the lIRO. The Success Foundation was directed by Abdur Rahman Alamoudi, a 

Muslim-American activist who was indicted on October 23, 2003 on money laundering, 

tax, immigration and customs-fraud charges. Mr. Alamoudi is also being investigated for 

his connections to the bin Mahfouz family and Yaqub Mirza, which have been accused of 

supporting terrorists. 

Islamic Charitable Society Lajnat A-Birr Al Islam 

Lajnat ai-Birr Al Islamiah was established in 1987. It has been stated that Lajnat al-Birr 

Al Islamiah was the original name of the Benevolence International foundation, and that 

it originally had offices in Saudi Arabia and Pakistan. According the U.S. government, 

among the purposes of Lajnat was to ~ raise funds in Saudi Arabia to provide support to 

the Mujahadeen then fighting in Afghanistan,~ as well as to provide ~ cover for fighters 

to travel in and out of Pakistan and obtain immigration status.~ Benevolence 

International has been tied to terrorism and its director, Enaam Amaout, was indicted in 

2002 with conspiring to defraud his group~ s donors by secretly providing financial and 

logistical help to al-Qaeda for a decade. The indictment alleged that the group was 

originally Lajnat ai-Birr Al Islam, although the defense lawyers claimed that the groups 

are separate. Additionally it has been alleged that Lajnat ai-Birr took over a ~ health 

project~ for Makhtab al-Khidemat, the precursor to al-Qaeda, which was active in thc 

1980~ s. 

19 
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MiS Rabbani Trading Co. 

Rabbani Trading Co. appears to be a trading company headquartered in Dubai, UAE. No 

adverse information was found regarding the company. There is a Mohammad Rabbani 

of Afghanistan who has been designated as a terrorist by the U.N. and the U.K., but there 

is no evidence that he is linked to the eompany. 

Dr. MA Mannan, Ph. D. 

Dr. M.A. Mannan was the chairman and founder of Social Investment Bank Ltd. He was 

fired in 2000 after fault was found with his banking procedure. It was alleged that he 

created an obstaele to the team of Bangladesh Bank during their visit to Social 

Investment Bank Ltd. Additionally, he was accused of interfering with bank 

administrative work and with harassing a bank employee. Additionally, an individual 

named M.A. Mannan was also the Bangladeshi minister of Labor and Employment. He 

was charged in a 2002 government white paper with illegal spending of government 

money. Because M.A. Mannan appears to be a common name in Bangladesh, it is 

unclear whether the two individuals are one and the same. The Social Investment Bank 

Ltd. has not been mentioned in any articles about the Mannan who was Labor Minister, 

which might imply that they are separate individuals. 

Mohammad Azam 

There is a Mohammad Azam of Kashmir who is reportedly a leader of the terrorist 

organization Lashkar-e-Toiba. It is important to note that Mohammad Azam is a fairly 

common name and there is no evidence linking the terrorist to Social Investment Bank 

Ltd. 

Late Abdul Majid 

There has been an Abdul Majid from Singapore that is reported to have been arrested by 

the Singapore government for terrorism-related activities. No adverse information was 

found regarding a ~ Late Abdul Majid.~ 

Rukhsana Habibullah 

Nothing adverse was found regarding any individual named Rukhsana Habibullah. An 

individual by the name ~ Habibullah~ from Singapore is believed to have been arrested 

by the Singapore government on terrorism-related charges. There is no evidence that this 

individual is related to Rukhsana Habibullah. 

Late Munshi Fazlur Rahman 

20 
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An individual named Fazlur Rahman from Pakistan was reportedly a pro-Taliban cleric. 

He was placed under house arrest from 2001 through 2002. There is no evidence that his 

name was actually ~ Late Munshi Fazlur Rahrnan.~ 

Mohammed Ismail 

A Mohammed Ismail of Connecticut was indicted by the U.S. Attomey~ s Office for 

dealing in firearms. This individual does not appear connected to the Social Investment 

Bank Ltd. 

In conclusion, it is of significant concern that the leading shareholder of Social 

Investment Bank Ltd. (at 8.62%), International Islamic Relief Organization, has been 

accused in both the Philippines and in America of funding terrorist groups. The group is 

currently under investigation by the F.B.I. Another of the bank~ s shareholders, Lajnat 

ai-Birr AI Islanl (at 1.54%) has also been connected to terrorist groups. Additionally, the 

bank~ s founder and chairman was let go on allegations of interference and harassment. 

Other adverse connections to individuals with the names of the bank shareholders could 

not be confirmed and were quite possibly merely cases of two individuals having the 

same name. Finally, it is important to note that Social Investment Bank Ltd. is located in 

Bangladesh, which was ranked as the world~ s most corrupt nation by Transparency 

International. 

21 
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OCC-PSI-00835851 

HBUS London Banknotes 

MINUTES OF KYC REVIEW MEETING 

26 JANUARY 2006 

(Covering 4TH Quarter 2005) 

Attendees: 

Stephen J Allen 

Gordon Brown* 

Lynda Cassell 

Kevin Dicken 

David lliing 

Dan Jack * (via phone link) 

Chris Jenkins* 

Jonathan MacMull* 

Chris Mosley 

Ciara O'Connell 

Andrew Rizkalla 

Susan Salas 

Ronald Schmick (via phone link) 

Tina Tipping 

* copy of minutes 

Issues Covered: 

1. Compliance 

2. KYC 

3. High Risk Country Reviews 

4. SSCs 

5. Shipping Issues 

6. Other Business 

1. Compliance 

Head of Banknotes, London (Chair) 

Banknotes KYC Manager London (GB) 

Director - General compliance 

Senior Banknotes Trader (KD) 

Manager Banknotes Trading (DI) 

Compliance Officer New York (DJ) 

Compliance Manager 

Compliance Manager HBEU (JM) 

Shipping Manager London (CM) 

PA to Stephen Allen 

AML Risk Analyst for BN & PCM 

PA to Stephen Allen 

Compliance Officer New York (RS) 

Compliance Manager 

OJ briefiy discussed the recent enforcement action against ABN AMRO Bank, requiring them 

to pay an $80 million civil penalty for AML violations. 

OJ advised the recent internal audit was very detailed, there were a few main issues with the 

approval of profiles and re-approvals, for example when a country became high risk, the 

identification of a PEP and SCC status. OJ requested for the LCO to send outcome of 

reviews, consequently CJ advised she completed her reviews and would send her outcome in 

the near future. 

There will be a quick summary of the internal audit findings which will help prepare for the 

OCC. Steve Gruskin will report on his global reviews, Dan will send a questionnaire to try to 

clarify and document with HK and London to ensure compliance with the ECI Agreement and 

specifically the manual procedures related to OFAC. SA advised we did an attestation with 

KPMG already. 

LC advised waivers need to be documented, when LC sends a email granting a waiver the 

email should be in the file. Furthermore US-Compliance advised attention to Banknotes 

Profiles review dates should be noted, although revision history shows files are being 

maintained, traders must also change the date of the most recent review. US-Compliance 

requested Banknotes-London checks volume estimates for sales and purchases per 

currency, the OCC might be looking at that information in terms of our monitoring our work, 
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OCC-PSI-00835851 

volumes estimates must be accurate. 01 advised there was a similar exercise about March 

2005 (before the last audit), and he was fairly confident all figures were up to date, but he will 

carry another check and will go through each customer individually to make sure review dates 

and volume figures are up to date. Lastly 01 advised last year there was a problem changing 

the banknotes page because the master document had not been approved. 

LC advised the KYC profile might have changes soon due to regulatory new requirements 

(back in 2002), specially the Patriot Act section 3.12 which deals with client correspondent 

banks and the impact on client correspondent banks will most definite be impacted. Extra 

information such as who is your customer base will most probably be needed to obtain from 

the customer. LC will update us on this issue in due course. 

The OFAC compliance Officers - Elizabeth and Grace plan to make a visit to London in 

March 2006, to do some training. US-Compliance advised Elizabeth in particular could help 

with the requirement for the ECI agreement, perhaps she could contact the appropriate 

people OVer here, this could help audit. 

AML Training - CJ to inform to OJ outcome of Banknotes-London AML training. 

Patriot Certification Process - process still not clear, Banknotes-London still holding position 

of patriots until there is a formal handover date. OJ will speak to OSU (Matt) regarding 

confirmation of process and will advise Banknotes- London in due course. SA advised he 

was happy to handover to OSU and wanted confirmation that they would be doing it all. LCagreed with SA for the OSU to take over the patriots process but she wanted to make sure 

before this transition happens the patriots process must work efficiently, specially in 

preparation for the OCC. 

US-Compliance advised there would be an announcement in the near future to add some 

countries such as to the High Risk category. Equally 

some countries such as would be taken off the high risk category now, but 

should still be noted as "cautionary". 

Vendor list: US-Compliance advised Hong Kong will now be in charge of maintaining the 

global vendor list for all banknotes offices, so future lists should be sent to Oan and Hong 

Kong, Hong Kong will do OFAC checks. 

JM: introduced Tina Tipping who will be assisting JM, he advised we could now contact her 

too for assistance. JM also mentioned HBUS compliance introduced a monthly certificate over 

the last few months, we in London have to complete this document and return via contact 

Steve Smith, CJ and JM to contribute towards this task. 

CJ advised for our information only, at the end of January 2006 in the UK we are having 

reissued our Joint Money Laundering Steering Group Guidance Notes, these cover all the 

financial sector which sets full details on AML. Furthermore there will be a risk assessment 

project in due course, the risk assessment will be very broadly and down to firms to 

implement their policies. 

_ = Redacted by the Permanent 

Subcommittee on Investigations 

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OCC-PSI-00835851 

GB advised following the audit back in August 2005, there were various findings which we 

responded accordingly, one of their main findings were client visitations, where there was no 

evidence for visits to Kazakhstan and Kyrgyzstan in 2004/2005, however we did find that 

someone other than banknotes did actually visit Kazakhstan and evidential documentation is 

now in the file, for Kyrgyzstan we did not make a visit since 2003, but schedule 2 visits in 

2005, however we were told yet again that it was not advisable to visit, another visit has been 

scheduled for 2006, LC advised for situation like this we should document telephone 

conversations, and email communications with the client at least every 6 months and put 

these in the KYC file. GB advised that in the KYC profile "general comments" that type of 

information is now noted. Another finding from the auditors were the EIOOs, these were 

being overwritten according to them, but we pOinted out that in the "purpose section" a full 

history of EIOOs are noted. 

Some profiles which were approved with conditions: WlI!II __ II!IIIIIII._Russia: we were asked to verify the ownership and attach this to the 

Patriot, this has now been done, 

Profiles CO 'denied: denied due to visitation issue - this 

is a prospect client, Banknotes-London plans to visit in the spring of 2006 . 

•••• ~~Cairo Branch - we chased the compliance officer in Cairo for confirmation of 

management/ownership, currently waiting for them to come back to us, LC advised we 

should obtain confirmation from client in situations where we find confiicting information, the 

information must be documented and kept in file accordingly, 

KYCs in process: we worked on 16 customers in the last quarter, Reviews: 22 in total. 

A more descriptive list will be provided by GB and will be distributed with this Minutes. 

Patriot Certificates - we write to the clients for certifications and re-certifications that are due, 

and we copy the OSU in this process, 

GB mentioned we had Banknotes due diligence facility and this was very helpful almost 60% 

of the Patriots were found in there, The service costs £500 per licence (which lasts a year), 

Lastly CJ advised HSBC was also putting their due diligence in the Bankers Almanac. 

OJ mentioned if they could assist with any other further reports which could be helpful for 

KYC-London, GB mentioned a report for waivers could be helpful. LC might be able to assist 

with this. 

Banknotes-London would like to resume business with AI Rajhi, although we have ceased 

trading (due to rumours in terrorist financing, the US Government has now dropped those 

charges",) the rest of the HSBC group still deal with them. LC advised a conference call with 

Terry is needed but before this takes place LC would like to see a memo from SA about the 

history of this matter, subsequently Lynda will take this memo to Terry to arrange the 

conference call. 

3. High Risk Country Reviews 

Bahrain: iiiiii.ii •• ~Long relationship with HSBC, fourth quarterly figures compared to 2004 

slightly down 4% we loss some business on the selling side to them, one of the our 

competitors have been selling them USO direct from New York which we have not been able 

to compete on the price, We have a credit line now, 

- = Red_tted by the Permanent 

Subcommittee on Investigations 

3 
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OCC-PSI-00835851 

Channel 

they have small offices all over the Island, figures down as they are 

recycling more currencies themselves within the Island. 

Ivory Coast: 

wiiie.Piiic.ke.d.uiPisiioiimiie.ne.w.biiuiis.in.ess, we have two main customers there .... !!II ••••• •• started dealing with us during the second half of the year that 

is the reason we have seen an increase in business in comparison to last year. There has 

been some recent unrest in the country due to some elections, and due to this we have seen 

a deman d for cash. 

Egypt: ili.iii •••• volume figures are down year on year 2004 fourth quarter we did 382 

million and just 140 million this quarter this year. Having said that was an increase on the first 

quarter which was only 60 million. The reason we ame.n.d.ed.oiiuir IiiPilriCiliilng because we felt the 

profit was not substantial enough so we lost business to. 

India: liliiil ••• There is an increase year on year, the tourism season is very strong in the 

fourth quarter in India so we see more business. Although they tent to share the business 

between ourselves and now see __ as a competitor in the 

Indian market, and we have been picking more business as a result of that. 

Jordan: 

Year on Year figures are down drastically from the fourth quarter of last year that's mainly due 

to we exiting the relationship with _2005, one of our biggest customers. Our 

only customer there is __ our volumes figures with them were slightly down 

towards the end of the year, because they started sending shipments direct to Dubai to_ 

•••• our fellow counterparty. 

Kenya: 

We picked up a new customer in September last year, AW went to see •••••••• 

_and managed to persuade them to trade again, in the fourth quarter of last year we did 

19 million USD with them. Furthermore we gained one other new customer ••• 1 iii ••• All these really accounts for the major increase in the volume figures towards the 

end of the year. 

Kuwait: iiiiiiiiij_"The volume figures for the fourth quarter are negligible, we only did one trade 

with them 352, 000 USD with them. They are not a big player in the Banknote market. The 

relative stability there is less demand for USD. ••• is our biggest 

customer, main source of importing USD on behalf of the Government. 

Uzbekistan: 

_ do~ and is down. More competitive pressure from 

__ we probably share 50% of their business with ••• IIi •• 

Georgia: 

iiliii.liiiill~lIIhas been with us 3/4 years, pretty level business, although we are getting 

some competition from the Viennese. is our new client. We have had to improve our 

prices to maintain our business in Georgia. The advantages we have in our favour our nights 

we offer via Moscow go every day, where as from Vienna once or twice a week. We have to 

pay up front, when is over a million USD and we have the funds they speak to me. 

Latvia: 

We get most of the market in the Baltics, all these banks have quite large branch networks 

which are active in banknotes due to tourism. The top four banks all seem to have the main 

core of the bank note business in Latvia, this is a relatively small country and the number of 

banks has decreased considerably since the split from the Soviet Union. KD is due to visit 

next week. 4 

Redacted by the FerHlllllfh 

Subcommittee on Investigations 
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760612.249

OCC-PSI-0083585J 

..... _111111 we have seen no particular movement but overall we have seen a slight 

increase in business. 

_ We shipped some Euros to them although they do not want to trade anymore. KD 

is due to visit this client next week to try to get business back, although he does not feel too 

positive about the success of this visit aim. 

_Lost competition to RBS and _they have increased their market share by about 

20%, again KD will visit this client next week in order to get business back. 

Azerbaijan: 

We have gained a customer back, we lost them last year but managed to get their business 

back this year. , responsible for most of the commercial 

business in Azerbaijan foreign banks have correspondent bank accounts. There were 

government election in September this year, this created cash demand. The local currency 

was replaced from the1st of January this created demand for hard cash. 

Kazakhstan: 

Big increases this quarter compared to last quarter, banks tent to treat cash as a commodity, 

often cash is used for salary payments. The infrastructure is still quite primitive making cash 

more attractive. Although the country is becoming wealthier due to the oil production, RB 

noted some figures which he obtained from the speech of the Ministry of Foreign Affairs back 

in August "the economy has expanded 50% in the last 5 years" and is due to double by 2008 

and triple in size by 2015". RB advised he expected to have at least 2 more customers this 

year, we should certainly be able to see an increase of turnover as a reflection of the 

economy in Kazakhstan. 

Kyrgyzstan: 

The volume has not increased much, although the increase looks good in the report. We 

have dealt with subsidiary, we started working with them in the 

fourth quarter of 2004. 2005 is a full year's figures there, as supposed to the small amount in 

2004. Also 2004 figures seem to be incorrect. 

Lebanon: iiiiiii ••••• an increase of 31%, RB visited Lebanon last February 2005, gained a 

couple of customers. 

Libya: i1111111 •• is our only customer there, we achieve one trade with them in the fourth quarter 

in November. We have increasing pressure from in terms of pricing, although 

we initially took the business from them about 18 months ago. When the client wants to trade 

they call us, nd at the same time and who ever quotes the 

lowest price gets the trade, we quoted for 415 trades but only got one. 

Nigeria: 

We have not traded with them in the last quarter. We have a problem getting money into the 

country as we need an imports license, to sort this problem we are trying to work with a 

security company. However since we lost our presence in the country .it is increasingly 

difficult to .dilo.b.u.sllin.e.sllls.t.h.ellre •.• w.e.hliave a customer already approved and ready to start 

business: 

Russia: 

Slight increase of 8% on the volume figures, the difference this year there was an increase of 

sales against the purchase we did last year. The weakness of the Rubble towards the end of 

the year caused a bigger demand for USD. We always see an incriie.ajseilllin_th~e.folu~rt,hlqiu~ailrt,elri of the year there is always a demand for cash. We have 3 SCCs: ,III I!III ..... ~ •••• I!I!III .... , neither have done particular large transaction in the 

last quarter. We saw a slight increase with_due to us getting a credit line. 

Redacted b, to., 

Subcommittee on 1",'eslig,ifl~lliS 

5 
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OCC-PSI-0083585J 

Saudi Arabia: 

.... " •••••••••• the other client we deal with ••••••••• 

Volume figures are down year on year, because we lost AI Rajhi, as a consequence we 

concentrated our efforts with., we offered them a better price to still maintain our share in 

the country. We only lost 4% so we are quite pleased we maintain a large market share in 

the country. 

Tanzania: 

No trades in the last quarter. 

UAE: 1II ••••••• ~IA very well established money service in country for over 25 years, 

slight increase in the fourth quarter of 200412005 up 7%. 

Uganda: 

Another country AW visited in September 2005, we picked up some business with the help of 

this visit Although there was a problem recently with some money missing (£80,000) from 

one of our shipments in London, the money was actually taken from one of the employees of 

the Security company. 

Ukraine: 

In 2004 business was mainly attributed to~ ••••• lbbuying large amounts of USD. 

We also picked up some business from _Bank. DI advised there is a plan visit to the 

country. 

Major wholesale competitor of ours, volume figures are not that large, they are self sufficient. 

Total figures were down 46%. 

branch gets accounted individually, we have implants in all HSBC 

branches, however we have seen a decrease in business due to some of the HSBC branches 

were being closed down, and some others were making less visible within the 

branch. Unfortunately HSBC Pic is in charge of this change and we cannot do much about 

this. 

15% increase year on year. We picked up a bit of business USD .•••• our competitor 

so we do not see much business from them. 

customer in terms of volume, previously they dealt with .. ~ ..... _ii1 •• IIN~ meet regularly 415 times a year to discuss business strategy together, we have 

e to organise deliveries to their branches at _and_on a daily basis, 

which their competitors are not doing. 

-

Figures almost exactly the same, steady business, they buy 1 million USD a month from us. 

Redacted by the Permanent 

Subcommittee on Investigations 6 
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OCC-PSI-00835851 

5. Shipping Issues 

Money missing in Uganda - we managed to get a refund from Security company. 

6. Other Business 

GBS: live date now 12 March 2006. 

Visits to clients: Last quarter we visited Azerbaijan, Germany and Poland. This quarter we 

have the following proposed visits: Lithuania, Latvia, Estonia, Nigeria, India, Turkey, The 

Netherlands and the Middle East. 

JM and GB to arranged to send letters to the listed clients. 

Although we have a backlog of call reports, approximately 16, which will be added to CV in 

due course, we have these call reports noted in the KYC profiles also we have kept these in 

the KYC files accordingly. The overall process of the call reports is as follows: all call reports 

are noted in the KYC profiles, CV, and filed in the KYC files and traders files, lastly copies of 

call reports are sent to various individuals such as Chris Lok, Mark Heaton, David llling, Chris. 

Mosley the relevant GRM, and sometimes a copy is sent to PCM. 

_ = Redacted by the Permanent 

Subcommittee on Investigations 

7 
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Attendees: 

Stephen J Allen 

Richard Burdett 

Kevin Dicken 

Lee Foster 

David IIling 

Dan Jack * 

Christine Jenkins 

OCC-PSI-00835857 

HBUS London Banknotes 

MINUTES OF KYC REVIEW MEETING 

12JULY2005 

(Covering 2ND Quarter 2005) 

Head of Banknotes, London (Chair) 

Senior Banknotes Trader (RB) 

Senior Banknotes Trader (KD) 

Vault Manager 

Ronald Schmick (via phone link) 

Sally Lomas' 

Manager Banknotes Trading (01) 

Compliance Officer New York (OJ) 

Compliance Officer HBEU (CJ) 

Compliance Officer New York (RS) 

Banknotes KYC Manager London (SL) 

Compliance Manager HBEU (JM) 

Shipping Manager London (CM) 

Senior Banknotes Trader (DP) 

Compliance Manager HBEU (DR) 

Jonathan MacMull* 

Chris Mosley 

David Perkins 

Dave Robinson 

Susan Salas PA to Stephen Allen 

Andrew Winterbum Senior Banknotes trader (AW) 

* copy of minutes 

Issues Covered: 

1. Compliancel KYC 

2. High Risk Country Reviews 

3. Shipping Issues 

4. Other Business Issues 

1. Compliance I KYC 

SL: To prepare letters to be sent to clients for Client Vision HSBC Group share of information. 

JM: European Directives, outcome will be in 2 months but unlikely to affect banknotes. 

CJ: The KYC Guidance Notes, which will set the KYC standards for the UK will not affect 

Banknotes that much but there might be some minimal changes. The consultation to revise 

them was due at the end of June. CJ to advise in due course. 

OJ: We gave the OCC 108 client files. The primary focus of their finding boiled down to 18 

files concentrating on the money service business and high risk clients. We obtained a 

satisfactory rating from the OCC although their examiners identified 5 issues considered 

"Matters Requiring Attention" with urgency. These included supervision of the KYC and EDD 

process, complete KYC profile information, customer file analysis, monitoring of accounts with 

conditional approval, and identification and handling of customers with politically exposed 

persons (PEPs) with ownership interests or management roles. Compliance will do 

everything they can to ensure that KYC process is followed, we are monitOring the activity 

appropriately. David Bagley added an important statement: to restate ultimately that the 

business is responsible for managing their customers and they are not Compliance' 

customers. Teresa Pesce worked with David to draft a response letter. 

DJ: Advised Christine and Sally of some of the findings from the OCC on our clients. One 

issue was the periodic review and update of KYC and EDD information to ensure the 

accuracy and completeness of customer profiles, including changes in ownership and/or 
2420 


760612.253

OCC-PSI-008358S7 

management. Going forward, the CO approver (in AML Compliance NY) must be provided 

with and review the complete customer file for all Money Service Businesses (who are also 

classified as SCCs) prior to KYC approval for new MSBs or re-approval of existing MSBs.". 

Another issue was the identification of PEPs, people are potentially political exposed because 

of their position and government level jobs. There needs a test of reasonableness, DJ 

advised an individual should be in his role within the last 2 years to qualify him as a possible 

PEP. 

DJ and Alan did a search exercise in the KYC database for words such as Minister, Ministry, 

President, King, Prince, Ambassador to identify PEPs. As a result there has been some 

clients changed to SCC status. Very few Central BankS make any sense to be SCCs, many 

of these are PCM and we depend on Delaware to make thorough due diligence to closely 

review and evaluate the finding from EDD reports. 

Also we need to look at the 30 days approval with conditions and follow this up accordingly, 

we told the acc we do this already, but they will probably want some proof. DJ is working on 

some reports to provide to the acc. We need to set up procedures to ensure very timely 

follow up and any comments approval or denial should be dealt within the 30 days period. 

The aCe want to make sure that we are effectively assessing the risk, that we are assessing 

proper documentation and following this up on the approval or denial comments. SL advised 

we should aim to solve all problems before it is placed in the approval process. 

Another problem mentioned by the acc was the systems of collaboration between PCM and 

banknotes. We need an individual who can help from here, a risk analyst to work alongside 

Dan, Banknotes and George Tsugranes, the AML LCa for PCM. But overall the findings 

were on minor issues, and we followed up every Single issue. 

DJ: Advised overall banknotes clients generally did a better job than PCM, although there 

were many exceptions on the PCM side, many of their clients had to be reclassified. 

DJ: New jOiner Andrew Rizkalla comes from the acc where he has been involved in some 

recent interesting cases such as he has good experience. Andrew will be working 

closely with Dan and George where he will be in charge of looking at KYC profiles and 

supporting documents such as making sure we have copies the clients AML policies. He will 

be reviewing the documents before the profile goes on for approval to Lynda or Terry, for high 

risk clients only. 

The acc is not going to consider lifting our written agreement with the Fed until they do the 

Correspondent Banking exam in Delaware. 

CJ - to review files on a monthly basis. Will review low risk files which do not get the same 

level of sign off. 

UK Compliance advised the UK Regulators for CIB KYC are different to the acc. They rely 

on the Compliance Departments. Compliance must advise them of their reviews, fines still 

apply. 

DJ: advised the acc requires us to have our local compliance officer involved with our KYC 

review processes. 

DJ: has been training Richard Schriber for the more general compliance issues and he will 

take these over (he will not be too involved in the AML issues). He plans to attend the 

quarterly BN risk management meetings in NY." 

KYC 

This quarter we signed off 5 new clients including •••••••••• 

- = Redacted by the Permanent 

Subcommittee on Investigations 

2 
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OCC-PSI-008358S7 

Two prospects: 

,." •••••••••••• , Ron to ask Lynda for her level of comfort with this 

customer . 

........ profiles are CO pending because we cannot visit for awhile as the bank does 

not permit visits to this country. SL has requested waiver. 

and ______ 

(still tryingTciCOrriplete),_ 

CO Approval ••••••• 1- Lynda to come back to us on the status. 

Deactivated 3 clients: 

we don't deal with them in London. 

Lynda said we could not trade with them 

We no longer deal with them. 

other KYC issues: 

Write the letters for CV 

Patriots certs to go to a Central Library 

Banknotes should duplicate a file for PCM clients. CJ advised under the general group 

requirement PCM files should be copied. SL - suggested scanning documentation is a good 

answer to this file duplication and makes things easier for the long term. In the meantime UKCompliance agreed to replicate only the High Risk files. 

2. 'SCCs 

Georgia: 

Second quarter 47% increase on the previous year. In the last quarter we have a new 

customer there who started trading with us, We picked up further business with 

the During the 2"" part of last year they didn't buy anything from us because 

we had a problem with some documentation "Certificate of origin'" We have solved this 

problem now. We have another customer potentially: rCM name), currently 

CO denied. Call report should be in CV. 

Azerbaijan: 

Seasonal - Nothing on the purchase side for either bank - flat figure, On the sales side for 

this year we have done reasonably well - demand has gone up slightly because they've 

allowed the local currency to fioat. 

Kazakhstan: 

Weak Euro in the last few months leading to demand for harder currencies which explains the 

rise in sales, flat in terms of volume. There are two banks where the volume figures stick out 

one is Ion the sales side for 2005 quite considerable rise from 17 to $26m, The 

other one would be I They both have had these changes for different reasons: iiiililli.has gained corporate customers, and_ retained business for supplying 

corporates with dollar cash at low margin_also works with the smaller banks, they are 

picking up a lot of business, Throughout the quarter we've been monitoring the purchase side 

for-,in one transaction sold 16milliom Euro, 

Kyrgystan: 

New customer - Volumes are modest. 

Lebanon: 

_ = Redacted by the Permanent 

Sub~ommiltee on Investigations 

3 
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OCC-PSI-00835857 

For the quarter comparison, the 2 quarters are quite separate because of the assassination of 

a political figure. That's why there was a big drop of 10 million. On the sales side a drop in 

the second quarter because of summer tourism from the Middle East, often they _ their 

currency with them and there is a currency surplus. Substantial competition from. and the 

local market. There is a large well known exchange house that controls 70 % of the cash 

market whilst we only have 10% service on the local level. Difficult to compete for example we 

cannot deliver on the same day or collect small amounts from banks on a door to door basis 

is not cost-effective for us. 

Turkmenistan: 

We stopped trading pending a visit. RB was due to go but COUldn't get a visa . 

•• ill •••••• I: There has been an increase in both purchase and sales figures 

good relationship and best prices. 

Latvia: 

Increase in business in this quarter of 57% which is an improvement on the first quarter where 

we actually saw a drop in volumes. We made a visit, because we realised that we were 

losing to an' Bank. But we've managed to pick up some business in 

particular the sale side there is a big increase. Majority is Euro sale as 

Latvia has Union and will be adopting the Euro. Their currency is fixed 

against the Euro so no foreign exchange risk. 

Libya: 

The quarterly trade is the same as the previous quarter at 200million. When we quote for this 

business we usually quote with two other banks so it is hit and miss as to whether we get the 

business - although we have got 50% of the trades this year. The margins are coming down 

because the other banks are keen to attract other business so therefore the next time they 

quote they lower their rates, but so far we've managed to hold on to the business. The only 

bank allowed to trade internationally. There is no history of credit cards and Libya is purely a 

cash society. 

Russia: 

Our biggest market in terms of volume 05104 comparison for the quarter. Small change - 6% 

decrease. Purchase up 90% sales were down 23%, reflected in early part of this quarter the 

fact that Russians were more attracted to the Rouble than the USD because of the exchange 

rate. They were actually selling USD. That situation started to change in June when the 

sales figures went up to 687million from 396million in the previous month and this has actually 

continued in July as well. 

Saudi: 

We lost AI Rajhi this year - we discussed this in various compliance meeting already. SA - a 

resumption decision was put off because of the OCC audit. CL to speak to SA after the OCC. 

SA to speak to Terry before his holidays. AI Rajhi threatened to pull any new business with 

HSBC, unless we give them a satisfactory reason why we won't trade banknotes with them. 

Tunisia: 

One customer: the is a similar situation to Libya. does all of 

the banknote transactions on b_f of all the commercial banks, all commercial banks are 

obliged to buy or sell from the hey call 2 or 3 counterparts and whoever gets 

the best prices gets the business. e a quote against USD for all of the currencies. It 

often depends on who is willing to take a gamble on the foreign exchange rates at the 

particular time they are quoting. Volume figures are fairly modest we just did 17million worth 

of trades in a quarter with nothing in June, which probably means we missed a couple of 

deals there. Always purchases although we did a couple of deals this time last year towards 

the end of November and December, we sold them Saudi Banknotes but other than that we 

just buy surplus banknotes. 

Serbia & Montenegro: 

- = Redacted by the Permanent 

Subcommittee on Investigations 

4 
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OCC-PSJ-00835857 

This is a combination of deals from the •••• 11 ••• ~ •••• 111 •• 111 _!!I!! ••• soth ·operate in a similar basis to Tunisia and Libya in that they 

call 2 or 3 counterparts at the same time to do their business. I we traded 

in the last quarter 109million USD worth of business. We didn't do anything in comparative 

quarter last year. This customer is extremely price sensitive and we are distancing ourselves 

because the prices they want us to pay we don't consider to be pro'iifiltaiblleii,.slio_wileiiiteiin .. d.t~0!llet probably 8 out of 10 deals go by, they often get better quotes from. 

iilill.!.III11J"'~ we have a very good relationship with them we supply them with Euro 

in small denomination and we buy Euro back from them. In Montenegro the national currency 

is the Euro and they have a lot of demand for small denom banknotes and equally they sell 

.this back.- We also buyJseil coins with. them. 

Belarus: 

Increase due to the fact we got back from .which has been the biggest gain for 

us, also we have improved our pricing and understanding there with a couple of visits over the 

past year. We've managed to get business back from_for I and .,I."._ •• as well. DP was there in March and we can see the benefit of that visit 

for the first quarter figures compared to the second quarter where we actually saw a drop in 

the first quarter and now we've seen a 60% increase in the second quarter. _is the 

most important client at the moment and the most active one and we deal on a regular basis. 

Ukraine: 

Generally there has been a small increase in this market. is a new client who 

we've been dealing with for almost a year now, so we can get some comparison. We've 

visited on a regular basis and a good gain in business. Some 

of the other banks such seeing a bigger share of their 

business. The one we still selling USD to the local 

banks. One of the reasons the sales I were there were a lot of 

European holidays in May. "traditionally deals every day with the Austrian and German 

Banks and on the days that those countries were closed, particularly in May, we tended to 

pick up extra business from them. Due to the security in Vienna we are unable to use the 

Viennese flights and we prefer not overnight in Vienna. 

scc-••••• 

Not much change in terms of volumes compared to the previous year, just 15% increase. 

We've seen less demand on the sales side this year· down 23% in the 

region particularly in Kuwait. .as its own subsidiary in . they 

ship USD into Kuwait on their behalf and we've seen a low in 

the purchase side purely because our relationship has waved, as the relationship with our 

main competitor. has decreased (they fell out with over a payment being stopped). 

There is a large amount of USD due to surplus amounts over the last year. 

Egypt: 

Seasonal- comparing January to June is always going to throw out different figures. For 

example tourist don't tend to go there on holiday as much as they would in January to March. 

We have not done any business with for over 2 months now purely as a 

result of us rates we give to them, they're seen to have disappeared from the 

market and is picking everything up. 

India: 

Seasonal- because of flows of currencies in the first 3 months as opposed to the second 3 

months. There are not so many people travelling out of India as there are in January 10 

March. Difference from last because of the Boxing Day tragic event. •••••• 

has been taken over by 8 offices there, so there is a fair 

amount of competition. been offering to pay silly prices 10 everybody even down to 

the little exchange houses. 

Jordan: 

.... "'~'was dropped for kyc reasons - a client known to us for many years. SA 

discussed this issue with Alan Kerr the GRM, and he advised that perhaps Compliance were 5 

- = Redacted by the Permanent 

Subcommittee on Investigations 
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OCC-PSI-00835857 

• 

relying on very old information and there was no direct link. Besides, we worked hard to build 

this relationship. We got a lot of other information through about the market. 

__ 

Allan Kerr has other products to offer to this client, but the Bank won't trust us again. The 

has cash demand for USD, they recently wanted Sterling rather than 

~--:-_ is steady as long as we keep the prices steady, they also deal with 

., a matter of keeping everyone happy - approximately one deal a week. 

Kenya: 

.1II.~~lttook.over-lhe •• !II •• ~branch in Kenya. stil!el<ists in 

parts of Africa under the name. Very small - purely for UN funds and account held by the UN 

at this no more than $3 - 400k at a time. _-we don't deal 

ally one way business we tend to sell USD rather than buy, 

coming out where they can't use the notes - usually a million 

charity sources. Business coming out is used notes that 

enough volume they give 

I volumes have gone up 

had USD volume and now 

limits from Y, USD to 3 USD. 

They've been more active i of 56% in the second quarter compared to the 

first. Again they sell as and wRen they have surplus currencies. is now 

approved. I I I shows a drop because they "hopped all the small 

moneychangers that operate in Nairobi.. III las taken a view that they don't 

want that reputation risk. Again our sales are mainly for the UN/ charity base as and when 

they require it. 

Uganda: 

Seasonal business based on the coffee crop. As and when the coffee price is high all the 

coffee growers rush into the market to sell the goods and rush into the banks to bank their 

takings. The money surpluses coming out of Uganda tend to be infrequent because it 

depends on the coffee price. If the coffee price goes up you know you are going to get a deal 

from one of the Uganda's banks in the next few weeks. We deal with _at the moment 

and they tend to clear from the local indigenous banks. Any small surplus less than a million 

USD is not worth sending internationally for insurance purposes so they clear up locally and 

then stock pile it into one shipment and send it out to us. Example we have 

not done anything because their volumes tend to be 200 thousand a month and that's not 

worth sending internationally so_clear it out locally and send it back to us as and 

when is big enough. _does exactly the same - if it gets a million USD from these 

coffee growers it will ship out if not it will sell it locally. That's why we got a deal last month - in 

April to June there was a huge increase of 83% whereas in the first 3 months we did nothing. 

sees-~~~~~~~~ Good customer, volumes not too big, $2.5 million business in the last quarter. They have a 

network of post offices in the Island. They are looking to develop their business a lot more 

this year and we are their favourite provider. There is a slightly decrease in the business 

down to low tourist volumes in the early parts of the year. 

see.~~~~~~~ Not a huge deal of change in the volumes, 4% down comparative period for last year, purely 

because they tell us there is less people trading currency around at the moment, and the 

have gone into the market, they are buying foreign exchange houses 

and are quoting favourable rates, this is affecting companies like lI.ililililll.lll 

sec ...... 

Large exchange operation in the UK, small increase in business on the quarter (13%). They 

opened 6 or 7 branches at I Airport last year and we are supplying them directly 

there as well as ~irport where they have 7 or 8 operations down there as well. Well 

known to HSBC ~ lot of foreign exchange business they banked with HBEU for over 

25 years which was the reason we are able to take them on as an SCC in the first place. We 6 

- = Redacted by the Permanent 

Subcommittee on Investigations 
2425 


760612.258

OCC-PSI-00835857 

meet with them 2 and 3 times a year we visit each other, they are looking to expand business, 

looking to open up further operations at more airports over the coming years. They also offer 

foreign exchange services for foreign property purchases e.g. in Florida, Spain. This client is 

getting more well known. 

SCC-"IIIIII"II~, Their business is mainly operating huge cargo planes. They use our services as and when 

they need us, mainly cash for fuel. SL and CM made a recent visit. 

3. Shipping Issues 

CM - we are looking at the possibility to work with Volga as a charter agent as the KYC has 

been done. They can act as an agent for using the smaller aircraft which could potentially 

save us money rather than going through Brinks. We can work on a contract together, they 

might get us reasonable prices. 

CM - We did a shipment to Nigeria using Securicor on the door to door basis, our own 

insurance was too expensive so was cheaper to use Securicor and we have done that. 

CM - Insurance: we took our underwriter to Heathrow and showed him how we monitor 

aircraft movement and that went well, he was impressed with our security arrangements. 

CM - The "known consignor declaration" that has to be sent to the Department for Trade is 

currently being done by Brinks but, very soon we will have DFT approval and we will be able 

to send our own. 

4. Other Business Issues 

Lee - New counting machine now arrived. Faster than old machine. Training and 

maintenance required. 

SA - they have asked us to give them some quotes on their 

chartered costs that we would have charged them historically, to become their transportation 

agent for the distribution of Euro. 

- = Redacted by the Permanent 

Subcommittee on Investigations 

7 
2426 


760612.259

AML Oversight Com mittee Meeting 

Minutes from May 6, 2010 

Committee: Wyn Clark (Chair) 

Anne Liddy 

Deb Bonosconi 

Jim Holderman 

John Hong 

Paul O'Sullivan 

Cam Hughes (Regrets) 

Valerie Pease (Secretary) 

Invited Guests: Gregory Regan/Fraud Management 

New and Existing Initiatives 

Gregory Regan'" Introduction 

_ .. Redaded by tbe PermaneDt 

SubcommittH on Investiptioas 

Wyn introduced Greg Regan to everyone, Greg stated that he came over to HSBC about 10 weeks ago 

to "head up Fraud for North America", Prior to HSBC he spent a short time at a small consulting finn. 

Greg worked for GE Money for seven years as Ule Global Head of Fraud. He has worked 25 years in 

federal law enforcement. For the last couple of years, Greg has been in charge of financial crimes in thc 

Secret Service, Deb Bonosconi and Greg worked together at GE Moncy. 

Greg said that the Fraud Dept. files about _ SAR's per year. He further stated that he 

believes that a large part of the AivfL SAR's are related to fraud within the businesses. Greg noted that 

they are going live with Scion version 6 ill North America. TItey'wili soon be starting to file the fraud 

SAR's electronically and live to FINCEN. Scion is thc group case management system for both Fraud and 

Compliance. The acronym stands for Security Compliance Investigations on Network TIley have decided 

to go with both Norkom and Scion Version 6 which is the most updated version. 

Greg noted that they use EWS (Early Warning System) on a couple OftJ1C portfolios for application 

fraud reviews. They have developed a consortium data sharing on bad accounts to help idcntify credit line 

bust outs and first party fraud. TIle fraud numbers are right on targct which is the way they should be but 

unfortunately the first party fraud appears to be on the risco 

New and Emerging Risks 

• Backlogs 

Wyn noted that the backlog numbers are very elusive, It is very difficult to come up \vith numbers 

because you ean do several inquiries on Ihe system as to when an alert is decisioncd and when the SAR 

gets filed. It is a little difficult to put some definitive reporting and parameters to come up with some 

meaningful tllunbers. We arc stmgg!ing l'I-1th mctrics. Anne noted that Ray and Maria are working 80% on 

metricsireporting. Wyn noted that the backlog issue is being monitored by consultants, prqiect managers 

and centrol services. The backlog issue has gone to the highesllevels in the organi7..ation and has 

everyone's attention. 

Regional and Business Updates 

• Pn'vatc Banking 

Paul O'Sullivan ruh.iscd that the Private Banking business was providing information on closed 

bearer share accmmts as a result of an information request received as part of the investigation of ex~client 

Mauricio Cohen. The nwnber of bearer share accounts closed in the past year WdS higher than a nonnal 

year as the British Virgin Islands jurisdiction no longer permitted bearer share companies on its register ex 

12/31109.1\1,'0 SARS havc becn filed to date as a result of the bearer share closure process. 

Confidential & Non-public acc Information aCC-PSI-OOB60B59 
2427 


760612.260

• Canada 

John Hong advised that they have been trying to exit a correspondent banking relationship tb.1'! 

involves an Angola institution. John mentioned that they are getting overloaded with backlogs but have 

close to 900 outstanding second tier CAMP aletts. There is a backlog of over 200 active ongoing 

investigations. The backlog should be cleared up ",ithin the next 5 months. This is something we are 

trying to actively reduce for the 3

m quarter. 

John noted that the there was an internal audit on the A.ML team. The audit was deemed satisfactory . 

• GBM 

Jim noted that there was regulatory guidance that came out in March regarding beneficial ownership. 

TIlere is some belief that thls comes as a result of a variety of different factors including information that 

was-ga~ffiere-d!iomtbe'broker dealer community. 'l11e'broker dealer community has been activity 

discussing the guidance and raising concerns with the rcgulato()' bodies. The regulatory of bodies were 

surprised by this level of reaction. But did state they encouraged and expect feedback. 

Jim also noted that Senator Levin \"as trying to insert some language that would impact the beneficial 

ownership issues in the fmandal services reform bill 11mt is in front of the Senate. 

Confidential & Non-public acc Information aCC-PSI-00860860 
2428 


760612.261

From: Boss, Joseph 

To: De La Garza, Elsa; 

Subject: RE: SK Trading Co update 

Date: Wednesday, September 03,20081:22:28 PM 

Just for your information, it is MaryAnn Caskin. 

From: De La Garza, Elsa 

Sent: Tuesday, September 02,20082:47 PM 

To: Boss, Joseph 

Subject: SK Trading Co update 

Tony-

-_ ... RedKte. by the Permanent 

Sabeommhtee on InwstilllioDl 

Joe and I met with Anne Uddy and Mary Ann Caskill regarding SK Trading this 

afternoon. Below is a recap of what was discussed: 

1. They went back and looked at all transaction over the past 2 months 

and identified a total of 20 entities (including SK Trading) which were using Cash 

Letter services to clear Travelers Cheques. All 20 entities are used car 

dealerships. 

2. Four additional companies with significant dollar amounts have been 

identified. (Maric Trading - $3.5 Million; Jamsou Traders - $1 Million; I K Auto -

$929 Thousand and Dean Corp - $587 Thousand - totals for two months) 

3. The Business Unit has gone back to the Relationship Manager and 

Hokuriku Bank to obtain additional information on Maric Trading and Jamsou 

Traders. They will also be inquiring on the other companies identified. 

4. The bank will be ex~ing the Hokuriku relationship w~hin the nex1 30 

days. 

5. We will be looking at images when we go down to Delaware to 

determine if the same individuals involved in SK Trading are involved in the other 

accounts. 

6. They have done a 314B inquiry of ••••••• with no response 

to-date. 

Confidential & Non-public OCC Information OCC-PSI-00885817 
2429 


760612.262

tha 'IJ. ck fa qa,vza, ea..MS 

Large Bank East - HSBC 

New York, NY 

Tel: 212-525-7512 

Fax: 301-433-9321 

This message is intemfed for designated recipients only.·· If you haveTeceived 

this message in error, please delete the original and all copies and notify the 

sender immediately. Federal law prohibits the disclosure or other use of this 

information 

Confidential & Non-public OCC Information OCC·PSI·00885818 
2430 


760612.263

Attorney Client Privilege Work Product 

From: 

Sent: 

To; 

Cc: 

Subject: 

Boss, Joseph 

Monday, May 10, 2010 7:27 PM 

Straus, Lee; Vivenzio, James; Freas, Monica; Belshaw, Sally 

Tabor, Teresa; Boss, Joseph; Pruszkowski, Raymond; Watts, Rita; Hebb, Kimberly 

Bearer Share Accounts 

In the bank's response letter for BAI and 8NA it is noted that the bank had some bearer share accounts. Teresa looked 

into the data base that holds the details to the bank's response letter. The data base shows that there are 79 bearer 

share-accoiiilTS iin ffie bOokS' orttie-banIC· TffeYTiicrooe aCCQl.JliTSnerd in FEliiffr'na~-Uruguay,- Baffam.fs~C~man:-S~lize, 

and Nether1ands Antilles. Fifty-six are in Panama and 12 are in Uruguay. wfth the rest disbursed in the other countries, A 

lot of these accounts date back to as early as 1984. This is contrary to what I was told when Teresa Pesce was BSAlAML 

officer. At the time that the bearer share issue came up, Ms. Pesce had infonned me that all but one bearer share 

account at HSBC had been closed. 

Joe 

Confidential & Non-public OCC Information OCC-PSI-00886601 
2431 


760612.264

From: 

Sent: 

To: 

Cc: 

Subject: 

SallyBoss, Joseph 

Friday, September 03,20102:29 PM 

Belshaw, Sally 

Morse, Kerry; Tabor, Teresa; Boss, Joseph 

RE: RDC Conclusions 

Sorry, I may have used the wrong terminology when I said close out meeting. During the course of our review in Buffalo, 

we continually kept Denis and RDC operations apprised of the matters that we had issues/concerns with. Literally, a half 

hour before we were leaving Buffalo, Denis requested jfwe could meet (Denis and two low level operations managers of 

ROC) real quick so that he (Denis) could reiterate what we had told him during the course of the review was potential 

issues/concerns. Denis ran down the issues and we just confirmed that they were the matters we had concerns for. We 

had told people in the meeting that they were our initial observations and that we had to still review infonnation to confinn. 

However, I checked my written notes and the items we had concerns with during the review period and had discussed 

briefly with them during the review were; 

1. Lack of adequate polices and procedures for both the Buffalo and india RDC operations. 

2. The lack of information relative to a customer's reasonable and expected activity for services RDC was providing, on 

behalf of customers from other business units within the Bank. 

3. Lack of dOCUmentation to show/support what constituted a QC review. QC review documentation appeared to be 

nothing more than an operational "checklist." 

4. Lack of any analysis as to why a customer was on the ROC exempt list. 

S. Concerns related to the monitoring process as it relates to resources. Process is manual and time consuming. We 

informed them that we were obtaining additional information to put this concern into better context. 

6. Concern related to pouch activity being,.clliojjnd.u.ctllellid.b.YIliHIISjjB.c.follirIliH.olliku.riku. 7. Concern related to the RDC activities for. 

Thanks for the information on who might attend. 

Hope this helps. 

Joe 

From: 

Sent: 

To: 

C<, 

Subject; 

Belshaw, Sally 

Friday, September 03, 2010 8:55 AM 

Boss, Joseph 

Morse, Kerry; Tabor, Teresa; Belshaw, Sally 

RE: ROC Conclusions 

_ "" Redacted by the Permanent 

Subcommittee on Itn'atigatiom 

Do you have a summary of what you shared with Denis in Buffalo? That would be helpful to know. 

Not sure who all will be attending from the bank, but it will include Gary Peterson, the acting BSAlAML officer. Might 

also expect David Bagley and Curt Cunningham ... " Teresa, you are also welcome to attend the meeting on the 13th. 

Thanks. Sally 

From: 

Sent: 

TQ: 

C<, 

Subjed: 

Boss, Joseph 

Friday, SeptEmber 03, 2010 8:32 AM 

Belshaw, Sally 

Morse, Kerry; Boss, Joseph; Tabor, Teresa RE: ROC Conclusions 

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Hi SallyThe 13th is fine, I'll come by your office around 11 :30 if that is okay with you and then we can go to the update meeting. 

Who would be attending the update meeting from the Bank side? I can have a document to you next week, perhaps as 

early as Wednesday or Thursday. Please keep in mind that it will be a draft and might need some additional fill in, but will 

most likely have the majority of the information. Just 50 you know, when we were in Buffalo, we did have a verbal close 

out with Denis O'Brien and some of the senior operational staff of ROC in which some of the issues, we were sure of at 

that time, were discussed. However, again, that was with lower level management. 

See you on the 13th. 

Joe 

From: 

Sent: 

To: 

Cc: 

SUbject: 

Belshaw, Sally 

Fliday, September 03, 2010 8:00 AM 

Boss, Joseph 

Belshaw, Saltyj Morse, Kerry 

ROC Cctldusions 

Joe: In light of the desire to include ROC in the C&D, would you please provide a conclUsion memo (even if there are a 

few loose ends to tie up) by next Friday, September 10th, We should also try to set discussions with management for 

the following week since it is my hope to provide the C&D to Irene Domer and this will be something they've not heard 

from us on up to this point We have an AML update with the bank at 12pm on Monday (9/13); perhaps we can go over 

the ROC exam conclusions (preliminary) with them also at that time, Can you be available? 

Thanks, Sally 

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\ttomey Client Privilege Work Product 

From: 

Sent: 

To: 

Cc: 

Subject: 

Vivenzio, James 

Wednesday, September 08, 2010 8:25 PM 

Tabor, Teresa 

Boss, Joseph 

RE: Bearer Share Accounts 

Thanks. I recall that Joe was told that there were no bearer share accounts. IJimV. 

From: 

Sent: 

To: 

Cc: 

Subject: 

Tabor, Teresa 

Wednesday, September 08, 2010 9:10 AM 

Vivenzio, James 

80ss, Joseph 

Bearer Share Accounts 

During a previous discussion, you and Joe discussed whether or not the bank has any bearer share aCGOunts. ! was 

reviewing a copy of the TRAG report, dated May 17, 2010, for IPB New York and it states on page 4 (6.8): 

Bearer Share Account!! ~ There are 21 cases. from a total of61O be.:'lTcr share accounts, where the beneficial ownership declarations 

are overdue by more than one year. There arc 31 overdue in all as at September 2008. Funher, we note that no beneficial ownership 

declamtions have been obtained from clients with bearer share companies based in the BVI and the location of these bearer shares is 

not knmm in all instances, We understand that under BVI regulations all shares will be registered during 2009. 

Status: Closed 7/15/09 ~ 111ere is a total of 14 outstanding BOL's. All BOL's arc outstanding less than 6 months. 

This does not include LAIC which is IPS Miami. We wi!! be looking at IPB Miami in Nov/Dec and we will let you know what 

we find out. 

Teresa 

« File: TRAC Final Report ~ IPB Ny'doc» 

Teresa Tabor, CReAl, CAMS, A.MLP 

Bank Examiner 

Large Bank Supervision 

10 East 40th St, 14Ul Floor 

New York, NY 10016 

(212) 525-7512 (Djrect) 

(301) 433~8794 (Direct Fax) 

This message is intended for designated recipients only. If you have received this message in error, please delete the original and aU 

copies and notify tile sender inunediately. Federal law prohibits the disclosure or other use of tbis information, The content of this 

message is mine personally and does not reflect tlle position of the Office of the Comptroller of the Currency, the Department of 

TreaSllI)', or the U.S. Goverrunent. 

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From: 

Sent: 

To: 

Cc: 

Subject: 

Vivenzio, James 

Wednesday, October 06,20102:57 PM 

Straus, Lee; Roeder, Doug; Dailey, Grace; Belshaw, Sally; Morse, Kerry; Mukri, Kevin 

Stipano, Dan; Steams, Richard; Freas, Monica; Onsager, Erica; Wagner, John; Jaedicke, 

Ann 

HSBC FAQs 

Attached are the FAQs pertaining to the HSBC Order. Regards/JimV. 

HSBC FAQs 

FINALdoc 

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FAOs - HSBC Money Laundering Enforcement Action 

I. Enforcement Action: 

What were the problems that were identified at HSBC? 

A nurober9fis_sQ.~.':! wer_ejd~ntified. ol1tJhc Vlo.stsjgnifiQant issu~s.tha~I~_s~Ue~.in t~~ 

failure to file SARs and violations ofthe Bank Secrecy Act were the following: 

o The Bank has been unable to disposition its suspicious activity alerts 

appropriately or to comply fully with its obligation to report suspicious activity 

in a timely manner; 

o During mid-2006 through mid-2009, the Bank did not perfonn BSN At\IL 

monitoring for bulk cash transactions with its Group Entities (foreign affiliates); 

o The Bank excluded from its automated monitoring processes wire transfers 

initiated by customers domiciled in countries rated as «standard" or "medium" 

risk, representing two-thirds of total dollar volume for its Payments and Cash 

Management Division; 

o The Bank has not collected or maintained customer due diligence (know your 

customer) information for Group entities and has transacted extensive wire 

transfers and purchases of U.S. bulk cash with Group Entities (foreign 

affiliates); 

o The Bank has not appropriately designated customers as "high risk" for 

purposes ofBSA! AML monitoring, even where a customer's association with 

politically-exposed persons could harm the Bank's reputation. 

What are the requirements of the OCC Consent Order? 

The Consent Order requires the Bank to submit a comprehensive BSA! ArvIL action plan 

to achieve full compliance and ensure that the Bank has sufficient processes,.personnel 

and control systems to implement and adhere to the Order. It requires the Bank to hire a 

qualifted permanent Regional Compliance Officer and a qualified, permanent BSA 

Officer. It requires the Bank to improve its BSA!AML monitoring systems, including its 

funds transfer monitoring, and to develop and maintain an MIS program that compiles 

CDD and EDD (know your customer) information. The Order also contains restrictions 

on growth, new products and high-risk lines of business and it requires OCC approval to 

reenter the bulk cash repatriation business. 

Why did the OCC not impose a penalty against the Bank? 

The Cease and Desist Order is a remedial document that is designed to obtain correction 

of violations oflaw and unsafe or unsound practices at the Bank. The issuance of the 

Order does not preclude the acc from assessing a civil money penalty at a later time. 

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How does the DCC Order differ from the Federal Reserve Order? 

The OCC Order applies to the Bank. The Federal Reserve Order applies to the holding 

company, HSBC North America Holdings, Inc., New York, N.¥ (HNAH). HNAH owns 

and controls the following institutions: (1) the Bank, (2) HSBC Trust Company, N.A., 

Wilmington, DE, (3) HSBC Bank Nevada, N.A., Las Vegas, NY, (4) HSBC Private Bank 

International, Miami, FL (an Edge Act corporation). HNAH is required to adopt a 

firrnwide compliance risk-management-pmgram -designed-to"identify and manage 

compliance risks across the consolidated organization, including HNAH and all its 

subsidiaries, related to compliance with all applicable laws, rules and regulation. The 

acc and the Federal Reserve coordinated closely in drafting the respective orders. 

A February 2010 report by the Permanent Subcommittee on Investigations (PSI) 

concerning foreign corruption identified problems with HSBC in this area, how 

does the OCC's action relate to the PSI Report? 

The OCC has worked cooperatively with PSI staff and the Order addresses issues and 

concerns that were raised by the Subcommittee. 

Recent press reports suggest that this is like the Wachovia case and HSDC's 

violations involve correspondent relationships in Mexico and other high-risk 

countries. Did the OCC identify money laundering or terrorist financing during its 

examination? 

The OCC's role is to assess the adequacy of the bank's BSA compliance program, as 

opposed to identifying instances of money laundering or terrorist financing, which is the 

rote oflaw enforcement. However, the Mexican banrnote or bulk cash repatriation 

business has been identified by the U.S. government as having an increased risk of 

money laundering. 

II. aee Supervisiou: 

The Bank was previously under a written agreement to address BSA/AML 

weaknesses with the Federal Reserve Bank of New York (FRBNY) and the New 

York State Banking Department (NYSBD) that was terminated by the OCC in 2006. 

Did the acc make a mistake in terminating the written agreement in 2006? 

On April 30, 2003, the then HSBC Bank USA entered into a written agreement with the 

FRBNY and NYSBD to enhance its compliance with AML requirements. HSBC Bank 

USA implemented certain improvements to its compliance, reporting, and review systems 

and procedures to comply with this agreement. When HSBC Bank USA merged with 

HSBC Bank & Trust (Delaware) NA on July 1,2004, the OCC made the merger 

conditional on HSBC Bank USA's continuing compliance with the requirements of the 

written agreement. On June 6, 2006, the OCC determined that HSBC Bank USA had 

satisfied the requirements of the written agreement and it terminated the agreement. 

Since that time the Bank has had problems with staffing and BSA officer turnover that 

2 

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contributed significantly to the deterioration of its BSA compliance program and to the 

actions now being taken by the ace 

Why didn't the acc detect the BSA violations.t HSBC sooner? Wasn't HSBC 

examined by the OCC multiple times during this time period? 

While we cannot comment on the supervisory history ofHSBC in the BSN AML area, 

we note that the.OCC imposed a_DllIDbeLofrequirernents for .. the.BankJQ.1ake cOIT.e.c.tive. 

action in the BSAlAML area, which it did. The current enforcement action is a result of 

OCC findings from the 2009-2010 examination of the Bank's foreign correspondent area 

that revealed a number of significant deficiencies serious enough to warrant a cease and 

desist order. The Bank's prior supervisory history in the BSN AML area was a factor, 

among many, in making the determination to take formal enforcement action against the 

Bank 

Why did it take so long ror the acc to take any action against HSBC when the 

problems identified have been going on for years? 

The OCC takes both public enforcement actions and non-public supervisory/enforcement 

actions, and we cannot comment on whether or not any non-public actions might have 

preceded this public enforcement action. 

The problems identified in the orders were significant and took place over a number 

of years. Was this a failure in bank supervision similar to what happened at Riggs 

Bank in 2004? 

Unlike Riggs, this is not a situation where significant BSA deficiencies were repeatedly 

cited but the agency failed to act, or a situation where problems identified by the OCC 

were not corrected in a timely manner. Here, when problems were identified by the 

acc, the problems were promptly corrected by the Baok. 

Over the years there have been significant BSA/AML problems with Union Bank, 

Wachovia and now HSBC - three Large Banks. What gives? 

The OCC has significantly improVed its supervision in the BSN M1L area, there is still 

progress to be made and new challenges that must be addressed. Some ofthe key 

changes in our BSNAML supervision include the development and implementation of 

enhanced risk identification and analysis tools, such as the BSN AML Risk Assessment 

information collection, to identify potentially high-risk banks and activities that warrant 

increased scrutiny; with the other FFIEC agencies and FinCEN, the development and 

issuance of a BSN AML Examination Manual that establishes comprehensive and 

uniform examination procedures for BSAIAML; with the other Federal banking agencies, 

the development and issuance of a uniform policy on citing BSA compliance program 

violations and taking enforcement actions; and the creation and filling of a new Director 

for BSA and AML Compliance, along with an augmented staff reporting to the Director. 

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The banking industry as a whole has also significantly upgraded its BSA compJiance 

programs in order to keep up with the new technologies and the rapid development of 

new payment systems (i.e. remote deposit capture, prepaid cards, ACH, etc.). Many 

banks that we supervise have programs that are considered state-of-the-art Without 

question, both the agency and the industry are in a much better place with respect to BSA 

compliance than they were before, 

NotwilhStandingthis, it kalwayS"jJlJssible"formOlleylaunrleringtouccur and'new-moneylaundering techniques and technologies pose new challenges that require constant 

vigilance and updating of agency policies and procedures. Because of the sophistication 

of money launderers and the diffuse responsibilties for money laundering enforcement 

within the U. S. Government, it takes the combined effort of law enforcement and 

regulators to detect and prevent money laundering from occurring. While we believe that 

our overall supervisory approach to BSAI A1vfL compliance has been rigorous and is 

working well, we are committed to ongoing evaluation of our approach to BSAlAML 

compliance and to appropriate revisions to our approach in light of technological 

developments and the increasing sophistication of money launderers and terrorist 

financers. 

What process does the OCC use to examine a large bank like nSBC for BSA 

compliance? 

The oce monitors compliance with the BSA and money laundering laws through the 

procedures set forth in FFIEC Interagency BSNAML Examination Manual. These 

interagency procedures were developed by the oee, in conjunction with the other 

Federal banking agencies, based on our extensive experience in supervising and 

examining national banks in the area ofBSNAML compliance. The procedures are riskbased, focusing our examination resources on high-risk banks and high-risk areas within 

banks. During an examination, examiners use the procedures to review the bank's 

policies, systems, and controls. Examiners test the bank's systems and compliance by 

revieWirig certain individiiaf transactions ahd conducting transaction testing. 

Was this case related to the Wachovia Bank and Union Bank enforcement action 

and did the casa de cambio activity at Wachovia Bank and Union Bank migrate to 

HSBC? 

The oee cannot comment on specific accounts or customers, 

Were the findings of the Permanent Subcommittee on Investigations Report relating 

to HSBC and Angola used during the examination? 

The OCC carefully reviewed the March 31 ~ Report of the PSI, has worked cooperatively 

with PSI staff. The Order addresses concerns that were raised by the PSI staff. 

4 

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How does the OCC's and the Federal Resenre's roles relate in practice? 

The acc's mission is to charter, regulate and supervise all national banks. To 

accomplish our supervisory responsibilities, the acc conducts regular examinations to 

ensure that institutions under our supervision operate safely and soundly and in 

compliance with laws and regulations, including the BSA 

TheEe<\eraJReserv.e hassuperYisoJ~.xespilllsihilitY~QyeLatalll=cbartorettlIL"mbl:Lba!lks 

and holding companies. In its supervisory capacity. the Federal Reserve is responsible 

for ensuring the safety and soundness of the firms it regulates, as well as compliance with 

law and regulations, including the BSA. For commercial banks, the Federal Reserve is 

the supervisor oftheir holding company. As a result, the Federal Reserve shares 

supervisory and regulatory responsibilities with the acc and with state banking 

supervisors. Because the largest commercial banks owned by bank holding companies 

are national banks, the Federal Reserve and the acc must work closely together to 

supervise these organizations. 

The DCC, the Federal Reserve and the other Federal banking agencies, have issued a 

regulation designed to ensure compliance with the BSA (e.g.,. 12 C.F.R. 21.21). This 

regulation requires every depository institution to have a written BSA compliance 

program that is reasonably designed to assure and monitor compliance with the BSA 

The Federal banking agencies administer this regulation and monitors compliance 

through the examination process. 

Here, the acc and the Federal Reserve worked closely and cooperatively due to the 

overlap and reliance that exists with the holding company's and the Bank's BSA 

compliance programs. 

How do the OCC's and FinCEN's roles relate in practice? 

The DCC's mission is to charter, regulate and supervise all national banks~. Teaccomplish our supervisory responsibilities, the DCC conducts regular exan1inations to 

ensure that institutions under our supervision operate safely and soundly and in 

compliance with laws and regulations, including the BSA. The DCC, along with the 

other Federal banking agencies, has issued a regulation designed to ensure compliance 

with the BSA (12 C.F.R 21.21). This regulation requires every national bank to have a 

written BSA compliance program that is reasonably designed to assure and monitor 

compliance with the BSA The acc administers this regulation and monitors 

compliance through our examination process. 

FinCEN' 5 role is to serve as the administrator of the BSA. Our agencies work closely on 

legal and policy issues affecting national banks, as well as on civil money penalty actions 

based on BSA violations. In addition, the Memorandum of Understanding signed by the 

Federal banking agencies and FinCEN in 2004 has strengthened BSA compliance and 

enhanced information sharing between the agencies. 

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Do you expect to see an increase in BSA~related enforcement actions? 

It is impossible to predict whether BSA-related enforcement actions will increase as it 

depends on the results of examinations. However, due to the economic conditions we 

have been seeing some banks cutting back on their BSA compliance programs resulting 

in an increase in the number of matters requiring attention concerning BSA issues. 

Banks need to ensure that their systems are updated, maintained and vigilant especially 

withregllJ{hoiliglnisk~areaS1lnd~newproducts-an&payment systems, 

What assurance can the oee give the public that there are no similar issues in 

other large banks? 

It would be incorrect to infer from the Wachovia and HSBC situations that BSA 

problems are widespread in the banking industry, However, the OCC will continue to 

examine for such problems and to the extent that the same or similar problems exist in 

other national banks, the OCC will take appropriate action. Overall, banks have an 

outstanding record of compliance, have made tremendous strides in upgrading their 

programs in recent years, and are clearly the leaders in this area within the financial 

services industry. Many of the requirements that the USA PATRIOT Act imposed on 

nonbanking institutions, e.g., the compliance program and SAR requirements, are 

requirements that banks have been under for years. Banks are also among the most 

heavily regulated of all financial institutions. 

Money laundering, like fraud and many other crimes, will continue to occur and the OCC 

will continue to examine, to educate the industry and the public about this type of crime, 

and ensure the banks that we supervise have systems that are commensurate with the 

risks being undertaken. 

Will the oee be taking action against individuals at the Bank? 

The -OCC cannot comment on any additional actions we might take. 

Why shouldn't the responsibility ror BSA compliance be shifted to another agency, 

e.g. OFAC or FinCEN? 

The OCC has a longstanding commitment to combating money laundering. We strongly 

believe that the current system ofBSAI AML oversight for banks not only works well, but 

is the best in the financial services industry. The current system of regulatory oversight 

would not be improved by shifting responsibility to another agency. 

The OCC has approximately 1700 highly trained examiners to assess compliance in 

national banks. Neither OF AC nor FinCEN have the resources or expertise to take this 

on. 

Banks are heavily regulated. Adding yet another regulator will increase their burden, 

without any demonstrable improvement in compliance. 

6 

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III. Industry-wide BSA Issues: 

Many of the recent cases being taken by the oce involve problems in the area of 

international correspondent banking and for failing to effectively monitor foreign 

correspondent customen. By taking this action, was there an intent to enunciate a 

new standard for banks in this area? 

No, the -enf'GfCement action taken against HSBC does not signal a change in our policy or 

the BSN MiL requirements placed upon national banks. In taking this enforcement 

action, the DCC detennined that the Bank failed to implement an adequate moneylaundering program as required by the BSA and AML regulations. Under applicable law 

all institutions must have a BSA compliance program that sufficiently addresses the risk 

within their institution associated with their products, services, customers and geographic 

locations. Institutions that offer higher risk products or services, or are involved in higher 

risk areas are expected to have controls commensurate with the nature of their higher risk 

activities. Here, HSBC was providing high risk services to high risk foreign 

correspondent customers, and failed to have commensurate controls in place or adequate 

systems to provide meaningful review or monitoring for many of its high risk foreign 

correspondent transactions as required by the BSA and DCC regulations. 

Does this case and the accompanying orders represent a raising of the bar in terms 

of BSAI AML compliance expectations? 

No. This is not a raising of the bar, it is simply ensuring that new products, services and 

payment systems are planned and integrated into the bank's existing BSAlAML program 

and risk assessment; and, that high risk areas have BSN A.ML controls and, if necessary, 

automated systems, commensurate with the volumes generated and the risk presented. 

DCC orders are bank specific to address concerns that were identified at the institution in 

order to bring about corrective actions. The orders should not be interpreted beyond the 

institution being addressed by the order and are not intended to be used as a means for 

developing BSNAML policy. 

The problems involving HSBC in the areas of bulk cash and remote deposit capture 

eRDC) should have been identified in the bank's risk assessment and should have been 

adequately covered by the bank's program. They were not 

In addition, RDC is a relatively recent product development and banks need to ensure 

that new products and some of the rapid technological developments in payment systems 

are being identified and monitored by the Bank's program. 

What guidance is being provided to banks concerning some of the problems 

identified at BSBC. Has this guidance been sufficient? 

The Federal Banking Agencies and FinCEN have responded to the industry's request for 

clear and consistent messages and expectations. The DCC is sensitive to the issues of 

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regulatory burden,' but is also strongly committed to ensuring effective BSN AML 

supervision. 

On June 21, 2010, FinCEN issued guidance on the newly released Mexican regulations 

imposing restrictions on Mexican banks for transactions in U.S. currency. 

On February 18,2010 FinCEN issued guidance on trade based money laundering that 

includes a discussion of bulk cash repatriation (FIN~20](r-A001). 

The April 2010 revision to the FFIEC BSNAML Examination Manual contains a new 

section on bulk cash repatriation that provides additional guidance and examination 

procedures relating to this high risk product. The OCC took the lead in drafting this 

section of the Manual and the examination procedures. The section of the Manual 

covering remote deposit capture was also revised and updated. 

In January 2009, The FFIEC issued Interagency Guidance on remote deposit capture that 

covers BSAI AML risks and issues (OCC 2009-4). 

In 2006, FinCEN issued guidance that describes the currency smuggling relating to bulk 

cash repatriation that also references the problems identified with negotiating sequentially 

numbered travelers checks (F1N-2006-A003). 

Are banks too big to regulate in BSA/AML area? 

The size of the bank has little to do with BSA compliance. Any size bank can have its 

compliance program compromised and be victimized by sophisticated money laundering 

rings. However, larger banks tend to process more international transactions and larger 

volumes making it even more critical for them to maintain effective processes and be 

vigilant in this area. 

The OCC'consiste'ntly'takes steps tb'enslireoTWBSNAML sup-ervision is consistent. 

timely and thorough. The OCC continues to examine all of the banks that we supervise 

for BSA compliance and the acc, along with the other Federal banking agencies and 

FinCEN continue to provide guidance to the industry in this complex and challenging 

area. We believe that in the vast majority of cases, the oee quickly and appropriately 

responds to BSA deficiencies identified in national banks. 

To help ensure fonow-up of deficiencies bet\veen examinations, OCC examiners perform 

periodic monitoring in aU national banks, with some activity ongoing every quarter. 

Also, examiners monitor, until resolution, corrective action taken by bank management to 

address significant issues identified during the examination. 

According to the interagency BSAfAML enforcement policy, if bank management has 

failed to address previously identified weaknesses, the agency win issue a cease and 

desist order against the bank. 

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What is being done to ens'ure that banks have adequate due process when 

enforcement actions are taken or contemplated? 

Under existing processes, banks have various opportunities to present their views, and no 

BSA compliance program violation can be cited or enforcement actions taken without 

review at the highest levels of Bank Supervision at the agency. In addition, the acc improved its process for taking BSA enforcement actions in 2005 through the issuance of 

• form.l process document (OCC-2005-45) which provides ample opportunities for the 

bank to respond to BSNAML criticisms. In 2007, the OCC and the other Federal 

banking agencies issued an interagency DSA enforcement policy that provides greater 

transparency and sets forth the agencies' policy on the circumstances in which an agency 

will issue a C&D to address noncompliance with the BSA compliance program rule. 

How do you coordinate with other agencies with regard to nSA and SAR related 

issues? 

• We coordinate with the other banking agencies, law enforcement and FinCEN on 

a regular basis through our monthly Bank Fraud Working Group and FFIEC 

BSNAML Working Group meetings. 

• We also participate on a semi~annual basis with these agencies and 

. representatives from the industry in meetings of the BSA Advisory Group and on 

an ongoing basis through its many subgroups. 

• We issue periodic guidance through seminars and on-going guidance as to 

interpretations ofBSA rules and regulations. 

• We provide input into FinCEN's semi-annual SAR Activity Reviews which 

provide the industry with information on current and emerging money laundering 

schemes. 

• As reflected by the recent action against Wachovia, we also closely coordinate 

administrative actions that are appropriate to take in the area ofBSA 

• We provide law enforcement agencies with requested information and assistance 

in this and many other areas. 

A recent press report indicated that this case was like the Wachovia matter and 

involved correspondent relationships in Mexico and other high-risk countries in 

Latin America. Does this case involve Mexican casa de cam bios and, if so, will this 

case involving foreign MSBs exacerbate domestic MSB discontinuance by banks 

and what is the acc doing about this problem? 

The acc's cannot comment on specific accounts or customers. 

The acc remains concerned about the difficulties MSDs are having obtaining bank 

accounts. MSBs provide valuable fmancial services to segments of our society that, for 

various reasons, choose not to do business with banks, and the MSBs' loss of banking 

services can cause significant hann to those individuals and to the MSDs themselves. 

That said, it should be pointed out that there still are significant numbers of banks that 

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provide accounts to MSBs. In fact, oW' records indicate that roughly half of the banks we 

supervise currently are providing banking services to MSBs. 

The OCC views the threat of money laundering or terrorist financing through the national 

banking system as a serious matter. Consequently, our examiners conduct rigorous 

examinations in this area, and we expect banks to assess their risks and have systems and 

controls in place that are commensurate with those risks. However, the OCC has not 

targeted MSBs as a focus of our BSAI AML examinations and, in fact, relatively few of 

our supervisory and enforcement actions over the past few years have been based on 

problems banks are having managing their MSB accounts. 

MSB discontinuance is a complex problem and there are no easy solutions. We believe 

that a lasting solution must be premised on 1) reducing the reputation and other fonus of 

risk that banks currently associate with MSBs; and 2) finding economic incentives to 

providing banking services to MSBs. One key to reducing the risk associated with 

MSBs, whether perceived or actual, is to ensure that they are effectively regulated, and 

the BSAlAML Examination Manual for MSBs that was issued in December 2008 is an 

important tool that provjdes consistency and progress towards this goal. Banks must then 

price their services in accordance with the actual risks presented and the due diligence 

needed to manage those risks, The OCC stands ready to work with Congress, FinCEN 

and the other financial institutions regulatory agencies, and the banking industry to help 

achieve a solution to this difficult problem. 

V. Correspondent Banking Issues: 

This is the third enforcement action brought by the oee against a Large Bank for 

correspondent banking deficiencies. Do you anticipate that this action will result in 

discontinuance of foreign correspondent activities by U.s. banks? 

The OCC is very concerned about tbe difficu1ties any type of customers may experience In ohialnTiig·ba·nk·accouriis~· there 'are a-numoer'oflaigeirid' riiia::'~sized natioiiiil b-anKS 

that provide foreign correspondent accounts and services. 

The OCC views the threat of money laundering or terrorist financing through the national 

banking system as a serious matter. Consequently. our examiners conduct rigorous 

examinations in this area. For any high risk customer, including certain foreign 

correspondent relationships, we expect Banks to assess the risk posed by each customer 

relationship and to put in place controls commensurate with such risks. We expect that 

each of our Banks will make a careful assessment as to whether its current policies, 

procedures, systems, and controls are robust enough to manage the risks identified among 

its foreign correspondent relationships. This is consistent with the statutory requirements 

under the Bank Secrecy Act, 31 U.S.C. 5311 et. seq., as amended by Section 312 of the 

USA PATRIOT Act. 

10 

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Should my bank continue to provide banknote or bulk cash senrices to foreign 

correspondent customers? 

The OCC does not direct banks or encourage banks to open or close accounts for specific 

types of customers or lines of business. Instead, the OCC, the other Federal banking 

agencies, and FinCEN issue guidance to banks to help them recognize the varying degree 

of risks in certain customers and product lines and design BSA compliance programs that 

will effectively manage that risk. 

Banking organizations that provide bulk cash services to foreign correspondent customers 

should apply the risk-focused requirements of the Bank Secrecy Act, as they do for all 

customers. This activity is a foreign correspondent service that is subject to the 

requirements ofthe Bank Secrecy Act as amended by section 312 ofthe USA PATRIOT 

Act. Banks should take into account all the individual circumstances, including the type 

of customer, additional products and services being provided and the geographic 

locations involved. 

The decision to continue to offer a particular product is ultimately the decision of bank 

management and the board of directors and should be based on the institution's 

assessment of the risks associated with the particular service, the particular account 

customer and the bank's ability to control the risks. 

What are the expectations concerning the BSAJAML responsibilities concerning 

foreign correspondent relationships? 

The Bank Secrecy Act, as amended by Section 312 of the USA PATRIOT Act, requires 

that Banks conduct due diligence and enhanced due diligence on all foreign 

correspondent relationships. The USA PATRIOT Act also requires banks to maintain 

records identifying the owners of foreign bank customers whose shares are not publicly 

traded and take steps to ensure that an foreign correspondent bank customers are not 

providing banking services to -foreign shell banks. 

As discussed in detail in the FFIEC BSA/ AML Examination Manual, to effectively 

control the money laundering risks associated with foreign correspondent banking 

relationships, banks should have policies, procedures and processes to manage 

BSAI AML risks inherent with these relationships and closely monitor transactions related 

to these accounts to detect and report suspicious activities. The bank must take 

reasonable steps to ensure that the account is not being used to indirectly provide banking 

services to foreign shell banks and the bank: must identify the owners of foreign banks 

whose shares are not publicly traded. The bank should understand the intended use of the 

accounts, expected account activity. and the foreign correspondent's financial 

institutions' other correspondent relationships. Also, each relationship that a U.S. bank 

has with a foreign correspondent fmancial institution should be governed by an 

agreement or a contract describing each party's responsibilities and other relationship 

details and should consider the foreign correspondent's AML responsibilities. 

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In addition, U.S. banks that establish accounts with foreign MSBs should establish a riskbased customer identification program and customer due diligence policies, procedures, 

and controls, reasonably designed to detect and report money laundering through these 

accounts for these entities. The FFIEC BSAI AML Examination Manual provides 

guidance on CIP, BSA recordkeeping and due diligence and enhanced due diligence 

requirements of these foreign financial institutions based on the level of risk posed by 

these accounts. 

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#2010-199 

In the Matter of: 

HSBC Bank USA, N.A. 

McLean, Virginia 

UNITED STATES OF AMERICA 

DEPARTMENT OF THE TREASURY 

COMPTROLLER OF THE CURRENCY 

AA-EC-IO-98 

CONSENT ORDER 

The Comptroller of the Currency of the United States of America ("Comptroller"), 

through his national bank examiners and other staff ofthe Office ofthe Comptroller ofthe 

Currency eOCCH), has conducted an examination and investigation of the Payments and Cash 

Management ("PCM"), Global Banknotes, and foreign correspondent operations ofHSBC Bank 

USA, N.A., McLean, Virginia ("Bank"). The OCC has identified deficiencies in the Bank's 

internal controls for these areas as well as in its overall program for Bank Secrecy Actlantimoney laundering (t!BSNAMLt!) compliance and has informed the Bank of the findings 

The Bank, by and through its duly elected and acting Board of Directors ("Board"), has 

executed a "Stipulation and Consent to the Issuance of a Consent Order," dated October §, 

2010, that is accepted by the Comptroller. By this Stipulation and Consent, which is 

incorporated by reference, the Bank has consented to the issuance of this Consent Cease and 

Desist Order ("Order") by the Comptroller. The Bank has committed to taking all necessary and 

appropriate steps to remedy the deficiencies identified by the OCC, and to enhance the Bank's 

BSAJAML compliance program. 

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ARTICLE! 

COMPTROLLER'S FINDINGS 

The Comptroller finds, and the Bank neither admits nor denies, the following: 

(I) The OCC's examination findings establish that the Bank has deficiencies in its 

BSAlAML compliance program. These deficiencies have resulted in a BSA/AML compliance 

program violation under 12 U.S.C. § 1818(s) and its implementing regulation, 12 C.F.R. § 21.21 

(BSA Compliance Program). In addition, the Bank has violated 12 C.F.R. § 21.11 (Suspicious 

Activity Report Filings); and 31 U.S.C. § 5318(i) and its implementing regulation, 31 C.F.R. 

§ 103.176 (Correspondent Banking). 

The Bank has failed to adopt and implement a compliance program that adequately 

covers the required BSAlAML program elements, including, in particular, internal controls for 

customer due diligence, procedures for monitoring suspicious activity, and independent testing. 

The Bank's compliance program and its implementation are ineffective, and accompanied by 

aggravating factors, such as highly suspicious activity creating a significant potential for 

"unreported money-laundering-or terrorist finandng; 

Some of the critical deficiencies in the elements of the Bank's BSAJAML compliance 

program include the following: 

(A) The Bank has excluded from automated BSNAML monitoring wire 

transfers initiated by customers domiciled in countries risk rated as "standard U or 

umedium,u representing two-thirds of total donar volume for PCM. While the Bank 

has employed other methods for monitoring wire transactions for customers located 

in countries risk rated standard or medium, these alternatives have provided limited 

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coverage, have not been effective, and have not mitigated the BSAJ AML risks 

posed; 

(B) During mid-2006 through mid-2009, the Bank did not perform BSA/AML 

monitoring for banknote (or "bulk cash H ) transactions with Group Entities (defined 

as the Bank's foreign affiliates in which the Bank's parent, HSBC Holdings pic, 

London, England ("HSBC Group"), holds a majority interest); 

(C) The Bank has not collected or maintained customer due diligence C'CDD!!) 

or enhanced due diligence (IlEDD") infonnation for Group Entities. The Bank has 

transacted extensive wire transfers and purchases of United States bulk cash with 

Group Entities. The lack of due diligence information has inhibited the Bank's 

assessment of customer risk and the identification of suspicious activity in Group 

Entity accounts; 

(D) The Bank has been unable to disposition its alerts appropriately or to 

comply fully with its obligation to report suspicious activity on time. As part of the 

2009-10 examination, the acc cited the Bank for its backlog of unprocessed alerts. 

The Bank's. subsequent review. of the backlogged alerts led it to file a substantial 

number of late Suspicious Activity Reports CUSARsH

) with law enforcement 

authorities; and 

(E) The Bank has not appropriately designated customers as Ilhigh-risk" for 

purposes of BSAlAML monitoring, even where a customer's association with 

politically-exposed persons CUPEPst!) could harm the Bank's reputation. 

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(2) The above violations and failures were the result ofa number of factors, 

including, among others, (i) inadequate staffing and procedures in the alert investigations unit 

that resulted in a significant backlog of alerts; (ii) the closure ofalefts based on ineffective 

review~ (iii) inadequate monitoring of Group Entities' correspondent accounts for purpose and 

anticipated activity. anti-money laundering record, or consistency between actual and anticipated. 

account activity; (iv) unwarranted reliance on Group Entities' following HSBC Group 

BSAfAML policies~ (v) inadequate monitoring offunds transfers; (vi) inadequate procedures to 

ensure the timely reporting of suspicious activity; (vii) failure to adequately monitor Group 

Entities' banknote activity, (viii) inadequate monitoring of correspondent funds transfer activity; 

and Ox) inadequate collection and analysis of CDD information, including inadequate 

monitoring of PEPs. 

Pursuant to the authority vested in him by the Federal Deposit Insurance Act, as 

amended, 12 US.C. § 1818(b), the Comptroller hereby ORDERS that: 

ARTICLE II 

COMPLIANCE COMMITTEE 

(1) '[he Board shall maintain a Compliance Committee·ofat leasHhree(3) dkectors; 

of which at least two (2) may not be employees or officers of the Bank or any of its subsidiaries 

or affiliates. In the event of a change of the membership, the name of any new member shall be 

submitted in writing to the Examiner-in-Charge of Large Bank Supervision at the Bank 

("Examiner-in-Charge"). The Compliance Committee shall be responsible for monitoring and 

coordinating the Bank's adherence to the provisions of this Order. The Compliance Committee 

shall meet at least monthly and maintain minutes of its meetings. 

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(2) Within ninety (90) days of this Order, and quarterly thereafter, the Compliance 

Committee shall submit a written progress report to the Board setting forth in detail the actions 

taken to comply with each Article of this Order, and the results and status of those actions. 

(3) The Board shall forward a copy of the Compliance Committee's report, with any 

additional comments by the Board, to the Deputy Comptroller for Large Bank Supervision 

("Deputy Comptroller") and the Examiner-in-Charge within ten (10) days of receiving such 

report 

ARTICLEllI 

COMPREHENSNE BSAlAML ACTION PLAN 

(1) Within sixty (60) days ofthi, Order, the Bank shall submit to the Deputy 

Comptroller and the Examiner-in-Charge a plan contruning a complete description of the actions 

that are necessary and appropriate to achieve full compliance with Articles IV through XV of 

this Order (,'Action Plan"), The Bank shall implement the Action Plan upon the Deputy 

Comptroller's issuance ofa written determination of no supervisory objection. In the event the 

Deputy Comptroller asks the Bank to revise the plan, the Bank shall immediately make the 

re-qoe-stedTevisions and resubmit the plan to the~ Deputy ComptTOller-and Examiner-in"-Charge:-

Following implementation, the Bank shall not take any action that will cause a significant 

deviation from, or material change to the Action Plan unless and until the Bank has received a 

prior written determination of no supervisory objection from the Deputy Comptroller, 

(2) The Board shall ensure that the Bank achieves and thereafter maintains 

compliance with this Order, including, without limitation, successful implementation ofthe 

Action Plan. The Board shall further ensure that, upon implementation of the Action Plan, the 

Bank achieves and maintains an effective BSA/A1v1L compliance program, in accordance with 

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the BSA and its implementing regulations. In order to comply with these requirements, the 

Board shall: 

CAl require the timely reporting by Bank management of such actions directed by the 

Board to be taken under this Order~ 

(B) follow-up on any non-compliance with such actions in a timely and appropriate 

manner; and 

(e) require corrective action be taken in a timely manner for any non-compliance with 

such actions. 

(3) The Action Plan must specifY timelines for completion of each of the 

requirements of Articles IV through XV ofthis Order. The timelines in the Action Plan shall be 

consistent with any deadlines set forth in Articles IV through XV, 

(4) Upon request by the Deputy Comptroller, the Bank shall modify the Action Plan 

to comply with any Matters Requiring Attention concerning BSNAML matters, Of citations of 

violations oflaw concerning these matters, which the ace may issue to the Bank following the 

effective date of this Order. 

(5) The Ban~sha11~ensufe·that it·has-sufficient·processes,~personnel,--and control 

systems to implement and adhere to this Order, The Action Plan must specify in detail budget 

outlays and staffing, including staff compensation, that are necessary to achieve and maintain 

full compliance with Articles IV through XV of this Order. 

(6) Any independent consultant or auditor engaged by the Bank or the Board to assist 

in the assessment of the Action Plan or other compliance with this Order must have 

demonstrated and specialized experience with the BSAJ AML matters that are the subject ofthe 

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engagement, and must not be subject to any conflict of interest affecting the consultant's or 

auditor's independence. 

(7) Within ten (10) days of this Order, the Bank shall designate an officer to be 

responsible for coordinating and submitting to the OCC the written plans, reports, and other 

documents required to be submitted under the terms and conditions of this Ordec 

ARTICLE IV 

MANAGEMEJ'..'T 

(I) Within fifteen (15) days of this Order, the Board shall submit to the Deputy 

Comptroller and the Examiner~in~Charge a plan to recruit, hire, appoint, and retain a qualified, 

permanent Regional Compliance Officer ("RCa") and a qualified, permanent BSA Officer. The plan 

shall include job descriptions, proposed salary ranges, and the qua1ifications sought by the Board. 

(2) Prior to the appointment of any individual as the RCa and the BSA Officer, the 

Board shall submit the name and qualifications of the candidate, to the Deputy Comptroller and 

Examiner-in-Charge. 

(3) The Deputy Comptroller shall have the power to disapprove the appointment of 

the proposed RCa-candidate and the proposed BSA Officefcandidateo- However,-thelack-ofdisapproval of any such candidate shall not constitute an approval or endorsement of the 

proposed officer. 

(4) The requirementto submit information and the prior disapproval provisions of 

this Article are based on the authority of 12 US.c. § 1818(b) and do not require the Comptroller 

or the Deputy Comptroller to complete his or her review and act on any such information or 

authority within ninety (90) days. 

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ARTICLE V 

REVIEW OF BSA COMPLIANCE PROGRAM 

(1) Within ten (10) days of this Order, the Bank shall retain an independent 

consultant, Of continue an existing or newly revised relationship with an existing independent 

consultant, to conduct an independent review of the Bank's BSAfAlvlL compliance program (the 

HBSN AML Review") and prepare a written report of findings and recommendations (the 

"BSNAML Report") within forty-five (45) days of this Order. The purpose of the BSNAML 

Review sha11 be to conduct a comprehensive review of the following (including, as appropriate, 

systems and controls to ensure the effectiveness of policies and procedures): 

(A) the BSA Officer's level of authority and independence; 

CD) the numbers and the qualifications of sta!fthat support the BSA Officer in 

performing his or her assigned responsibilities in maintaining effective compliance with 

the BSA and its implementing regulations; 

(C) the adequacy of the budget for maintaining effective compliance with the BSA and 

its implementing regulations; 

CD) the· governance-structunrofthe-BSkprogram; 

(E) channels for informing the Board, or a committee thereof, and senior management, 

of compliance initiatives, identified compliance deficiencies, and corrective action taken; 

(F) succession plans. for ensuring the program1s continuity despite changes in 

management, staffing, or structure; 

(G) policies and procedures in all lines of business for identifying individuals who are 

PEPs and for monitoring the accounts associated with these individuals (As used in this 

Order, the tenn PEP shall include current or fonner senior foreign political figures, their 

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families, and their close associates, consistent with regulatory guidance including the 

Interagency Guidance issued in January 2001. The tenn PEP is not limited to the 

population of PEPs referenced in 31 CFR § 103.175(r)); 

(H) policies and procedures in all lines of business for identifying customers who are 

high risk and for monitoring the accounts associated with these customers~ 

(I) policies and procedures for gathering CDD and EDD infonnation when opening new 

accounts or when renewing or modifying existing accounts; 

(1) policies and procedures for investigating and dispositioning transactions that are 

identified as unusual or suspicious; 

(K) policies and procedures for completing and filing SARs on a timely basis; and 

(L) the level of knowledge of the Bank's operational and supervisory personnel of the 

Bank's policies and procedures for identifying transactions that pose greater than nonnal 

risk for compliance with the BSA in order to determine the types of additional or 

enhanced training that should be conducted. 

(2) The Bank shall submit to the Deputy Comptroller and Examiner-in-Charge a copy 

Of tIle'elig'agefiletitletlerdf a:greenrellteSlablishing th~ terms 'of tile engagement fortlle 

independent consultant If the Deputy Comptroller recommends changes to the engagement 

letter or agreement, the Bank shall modify the engagement letter or agreement to incorporate 

those changes, or suggest alternative changes that are acceptable to the Deputy Comptroller. 

(3) The supporting materials associated with the BSNAML Review shall be made 

available to the OCC upon request 

(4) The Board shall address the findings from the BSNAML Review in the Action 

Plan described in Article III ofthis Order, 

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ARTICLEVl 

BSACOMPUANCEPRQGRAM 

(1) Within ninety (90) days of this Order, the Board and executive management shall 

ensure that a BSAJAML program is in place which meets the following criteria: 

(A) has a BSA Officer with sufficient funding, authority, independence, and supporting 

staff to perform his or her assigned responsibilities and maintain effective compliance 

with the BSA and its implementing regulations; 

(B) has an effective governance structure to allow the BSA Officer to administer the 

program, with clear lines of responsibility beginning with senior management and including 

each line of business ("LOBt!) that is required to comply with the BSA; 

(C) has clear1y defined channels for informing the Board, or a committee thereof, and 

senior management, of compliance initiatives, identified compliance deficiencies, and 

corrective action taken; 

(D) has well-defined succession plans for ensuring the program's continuity despite 

changes in management, staffing, or structure; and 

(E)~identifies higher-risk banking operations (products,.services,.customer5,-entities,JUJd 

geographic locations) and provides for periodic updates to the Bank's risk profile. 

ARTICLE VII 

MANAGEMENT INFORMATION 

(1) Within ninety (90) days of this Order, the Board shall ensure that Bank 

management conducts a management information system C'MISlI) assessment, and develops a 

pJan that will enable management to more effectively identify, monitor, and manage the Bank's 

BSA risks on a timely basis. This plan should address any system limitations, provide for 

appropriate reporting, and consider the following: 

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(A) any trends in unusual or suspicious activity that have been identified and reported by 

the Bank, as well as the product lines, departments and branches in which suspicious 

activity has occurred~ 

(B) high risk accounts by line of business and type ofbusiness, countries of origin, 

location of the customers' businesses and residences, average dollar, and transaction 

volume of activity; 

(C) infonnation regarding any type of subpoena received by the Bank, any other law 

enforcement inquiry directed to the Bank, and any action taken by the Bank on the 

affected account; 

(D) information regarding PEPs and foreign correspondent accounts; 

(E) information regarding compliance with this Order; and 

(F) any additional information deemed necessary Of appropriate by the BSA Officer or 

the Bank 

(2) Upon completion, a copy of the MIS plan shall be submitted to the Deputy 

Comptroller and Examiner-in-Charge. If the Deputy Comptroller recommends changes to the 

plan;tno"!3oardshall in~orporale thos~chlmgelrintollre plan "or suggestallemative"crrangesthat 

are acceptable to the Deputy Comptroller. 

(3) Within one hundred twenty (120) days of this Order, the Board shall ensure that 

Bank management implements the MIS plan. 

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ARTICLE VIII 

CDD AND EDD INFORMATION 

(1) The Bank shall develop and implement appropriate policies and procedures for 

gathering customer due diligence ("CDDI!) and enhanced due diligence (HEDD") information 

when opening new accounts or when renewing or modifying existing accounts for customers, 

regardless of whether they are affiliates of the Bank. At a minimum, these policies and 

procedures must include: 

(A) a methodology for assigning risk levels to the Bank's customer base that assesses 

appropriate factors such as type of customer, type of product or service, and geographic 

location, and specification of the CDD and EDD infonnation the Bank must obtain, 

commensurate with these risk levels; 

(B) identification of lloffshore!1 correspondent accounts, as defined in 31 V.S.c, § 5318 

and its implementing regulations, and appropriate EDD for these accounts; 

(C) identification o[PEPs, and appropriate EDD for PEPs; and 

(D) periodic assessments by the BSA Officer or his/her designee of the effectiveness of 

~the~BaIlk's~GDD, ~EDD,aruJ-monitoring activities,~~ timelycorrective",ctiorcof_ 

weaknesses identified in the assessments. These assessments and corrective actions shall, 

as appropriate, be incorporated into the Bank!s BSAJAML risk assessment. 

(2) The BSA Officer or hislher designee(s) shall periodically review account 

documentation for high-risk customers and their related accounts to determine whether the 

account activity is consistent with the customer's business and the stated purpose of the account. 

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(3) The Bank shall develop and maintain an MIS program that compiles CDD and 

EDD infonnation. The program shall be commensurate with the Bank's BSNAML risk, and 

shall provide appropriate business, compliance, and investigations staff throughout the Bank 

with automated ready access to CDD and EDD information. 

(4) The Bank shall develop a risk-based plan to apply the requirements in its CDD 

and EDD policies and procedures to its existing customers, including Group Entities. 

ARTICLE IX 

MONITORING 

(1) The Bank shall not limit suspicious activity alerts for wire transfers or other 

transactions based on lack of staff capacity or funding. 

(2) The parameters implemented in the Bankls wire monitoring systems shall be 

determined by the BSA Officer or his or her designee. The parameters shall be based upon the 

risks presented by the originators, beneficiaries, and any cQunterparties to the transactions, rather 

than being limited to just the originators or just certain geographies. The Bank shall conduct and 

document validation (gap) testing to verify that the parameters it establishes for its wire 

momtoniI;g"systeriiifare"effective;ccftnprenen-s-x-v-e,-arrd--conYmens:ul'atewtttnhe'"Bank's"BSAtA::ML 

risk 

(3) Within sixty (60) days of this Order, the Bank shall submit revised policies and 

procedures for wire monitoring using its current wire monitoring system to the Deputy 

Comptroller and the Examiner~in~Charge. The policies and procedures shall include, without 

limitation, validation testing of parameters for automated wire monitoring. If the Deputy 

Comptrol1er recommends changes to the policies and procedures, the Bank shall incorporate 

those changes or suggest alternatives that are acceptable to the Deputy Comptroller. 

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(4) Within one hundred eighty (180) days of this Order, the Bank shall fully install, 

test, and activate a new wire transaction monitoring system. In implementing the new system, the 

Bank shall use a satisfactory approach to validating that the system is commensurate with the Bank's 

BSAlAML risk No fewer than fourteen (14) days priOTto the implementation of the new wire 

monitoring system, the Bank shall submit revised policies and procedures for wire monitoring 

using the new system to the Deputy Comptroller and the Examiner.in~Charge> The policies and 

procedures shall include, without limitation, validation testing of parameters for wire monitoring 

using the new system. If the Deputy Comptroller recommends changes to the policies and 

procedures, the Bank shall incorporate those changes or suggest alternatives that are acceptable 

to the Deputy Comptroller. 

(5) For funds transfer systems other than wire transfers, the Bank shaH ensure that 

these transfer systems are appropriately monitored and subject to AML controls commensurate 

with the Bank's BSAJ AML risk. These funds transfers systems include, without limitation, 

ACH, international ACH, proprietary systems including transfers between the Bank and its 

affiiiates;-card--systems; and, mobile' telephone applications:" 

ARTICLE X 

SUSPICIOUS ACTIVITY REPORTING 

(l) The Bank shall develop and maintain a written program of policies and 

procedures to ensure, pursuant to 12 C.F.R § 21.11, the timely and appropriate review and 

dispositioning of suspicious activity alerts, and the timely filing of SARs. 

(2) In reviewing alerts for purposes of determining whether to file a SAR, the Bank 

shall: 

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(A) assess and document relevant CDD and EDD information; 

(B) not close an alert based on "positive internet infonnationH unless this information 

establishes a bona fide business reason for the transaction(s) subject to the alert, and the 

Bank documents this information~ 

(C) assess and document that the Bank considered related transactions by the customer 

who is subject to the alert (including both related accounts and related products and 

services); and 

(0) assess and document whether the Bank has previously filed or considered filing a 

SAR for the customer who is subject to the alert. 

(3) The Bank shaH complete its final disposition of each alert within a reasonable 

period after the generation of the alert. For each final disposition not completed within ninety 

(90) days after the generation of an alert, the Bank shall document its reason(s) for not 

completing the final disposition within this period and shall have a policy of increasing 

escalation and reporting of these aged alerts to ensure that they are being reviewed and 

dispositioned on a timely basis based upon the facts associated with the alert; 

{4} TheB~anK'sniil1refiiinanliidepeifderit auditor to" repon-on The "BiffilC'scornp1itWice 

with this Article, including, without limitation, the timely and appropriate review and 

dispositioning of suspicious activity alerts, and the timely filing of SARs. Within ninety (90) 

days of this Order, and quarterly thereafter, the Bank shall submit to the Compliance Committee 

a written progress report from the independent auditor, and forward copies to the Deputy 

Comptroller and to the Examiner-in-Charge, The progress report shall set forth in detail the 

extent of the Bank's compliance with this Article. 

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ARTICLE Xl 

ACCOUNTfTRANSACTlON ACTIVITY REVIEW ("LOOK-BACK") 

(1) The Bank shall retain one or more independent consultants to conduct an 

independent review of account and transaction activity (Hlook-backll

) covering areas to be 

specified in writing by the Examiner-in-Charge. 

(2) The purpose of the look-backs is to determine whether suspicious activity was 

timely identified by the Bank, and, if appropriate to do so, was then timely reported by the Bank 

in accordance with 12 C.F.R. § 21.11. 

(3) The look-backs must be conducted by independent consultant(s) with expertise in 

the review of foreign correspondent account activity. The look-backs shall be risk-based, 

including the risks identified in the Bankts current risk assessment, and shall identity the 

sampling, software screening or analytical techniques the consultant(s) will use to identify 

transactions that are subject to review for suspicious activity. 

(4) Upon completion of the look-back, the written findings shall be reported to the 

Board, with a copy to the Examiner-in-Charge. The Bank shall file SARs, in accordance with 12 

G:F.R. r2rl1,~for~affy previously unreported suspicious activily identified during this review. 

(5) Based upon the results of the look-back, the DeC, at its sole discretion, may 

expand the scope of the independent review or require a longer look-back period. If an 

additional look-back is deemed appropriate by the acc, the Bank shall complete the look-back 

in accordance with this Article. 

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ARTICLE XII 

RESTRICTIONS ON GROWTH NEW PRODUCTS 

AND HIGH-RISK LINES OF BUSINESS 

(I) The Bank has represented to the OCC that it is exiting the Global Banknotes line 

of business for non-domestic customers C'intemational bulk cash!!). If, in the future, the Bank 

intends to fe-enter the international bulk cash line of business, the Bank shall notify the 

Examiner-in-Charge of its plan in vniting and obtain written supervisory non-objection prior to 

commencing fe-entry. 

(2) The written notification required pursuant to paragraph (1) of this Article must 

include the Bank's plan to ensure ongoing compliance v.ith the BSA for the international bulk 

cash line of business, and the controls to be implemented for monitoring activity, which shall 

include: 

(A) policies and procedures for identifying, investigating, and resolving transactions that 

are identified as unusual; 

(B) policies and procedures for reporting suspicious activity; 

(Crperiocl~valuatitJH!H}Htne-ofbtlSiness-aft(komplhmccpersonnel knowledge of and 

adherence to Bank policies and procedures for identifying transactions that pose greater 

than normal risk for compliance with the BSA in order to detennine whether additional or 

enhanced training should be conducted; 

(D) periodic evaluations of the sufficiency of staffing resources that support the line of 

business for the purpose of identifying and investigating unusual and/or suspicious 

activity; 

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(E) consideration and application of any regulatory guidance on bulk cash remediation, 

including any guidance provided in the current FFIEC Bank Secrecy Act/Anti-Money 

Laundering Examination Marmal; and 

(F) monitoring of bulk cash transactions with Group Entities to the extent the Bank 

monitors these transactions with customers who are not Group Entities. 

(3) The Bank shall develop and maintain a procedure for introducing new products 

and services that ensures that these new activities are consistent with the Bank's BSAJAML 

compliance program, This procedure shall include an assessment of the BSA/AML risk posed 

by the new activities, and whether the compliance program has sufficient staffing and funding to 

effectively monitor the new activities. 

ARTICLE XIII 

REMOTE DEPOSIT CAPTURE 

(1) The Bank shall establish controls, commensurate with its BSAlAML risk, over 

the usage ofRDC by foreign correspondent customers, and the Bank's monitoring ofRDC 

transactions. These controls shall include: 

'fA} POliCleSana -prCiceauYeS" c·6rislstent WlUflh-eJaliiJary ~~·20091nfelageficy Vulda'nc-e1in 

uRisk Management of Remote Deposit Capture!! published by the FFIEC (OCC 2009-4); 

(B) policies and procedures for identifying, investigating, and resolving transactions that 

are identified as unusual; 

(C) policies and procedures for reporting suspicious activity; 

(D) periodic evaluations ofline of business and compliance personnel knowledge of and 

adherence to Bank policies and procedures for identifying transactions that pose greater 

-18-

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760612.298

than nennal risk for compliance with the BSA and its implementing regulations, in order 

to determine whether additional or enhanced training should be conducted; and 

(E) periodic evaluations of the sufficiency of staffing resources that support the line of 

business for the purpose of identifying and investigating unusual and/or suspicious 

activities. 

(2) The Bank shall conduct automated monitoring ofRDC transactions for suspicious 

activity, to the extent practicable. 

(3) The Bank shall submit its policies and procedures for management of the 

BSAlAML risk ofRDC to the Deputy Comptroller and Examiner.in.Charge. If the Deputy 

Comptrol1er recommends changes to the policies or procedures, the Bank shall incorporate those 

changes or suggest alternatives that are acceptable to the Deputy Comptroller, 

ARTICLE XIV 

BSA TRAINING 

(I) Within ninety (90) days of this Order, the Bank shall develop, implement, and 

thereafter adhere to a comprehensive training program for all appropriate operational and 

supeiVisorypersanfie1To ensure .. tneif aWafefless"ofthein"esponsibltitS'fo'[""t:ompliarrcewitlrt1ie" 

requirements of the Office of Foreign Assets Control ("OFAC") and the BSt\., including the 

reporting requirements associated \'lith SARs, pursuant to 12 C.F.R. Part 21, subpart 8, 

regardless of the size of the relationship or type of customer involved. 

(2) This comprehensive training program should include strategies for mandatory 

attendance, the frequency of training, procedures and timing for updating training programs and 

materials, and the method for delivering training. 

(3) The Bank shall submit the training program to the Deputy Comptroller and 

Examiner-in-Charge. [f the Deputy Comptroller recommends changes to the training program, 

·19· 

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the Bank shall incorporate those changes or suggest alternatives that are acceptable to the Deputy 

Comptroller. 

ARTICLE XV 

BSA INDEPENDENT TESTING AND AUDIT 

(1) The Bank shall develop and maintain an effective program to audit the Bank's 

BSAlAML compliance program ("Audit Program"). The Audit Program shall include, at a 

minimum: 

(A) a formal process to track and report upon Bank management's remediation efforts to 

strengthen the Bank's BSAJ AML compliance program; 

(B) testing of the adequacy of internal controls designed to ensure compliance with the 

BSA and its implementing regulations; 

(C) a risk-based approach that focuses transactional testing on higher-risk accounts or 

geographic areas of concern; and 

(D) a requirement for prompt management response and follow-up to audit exceptions or 

other recommendations of the Bank's auditor. 

(2) tne llanKsnalr.'uomit ilie AudifProgramro tfie DeputfLompfro1fer~aifd 

Examiner-in-Charge. If the Deputy Comptroller recommends changes to the Audit Program, the 

Bank shall incorporate those changes or suggest alternatives that are acceptable to the Deputy 

Comptroller. 

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ARTICLE XVI 

CLOSING 

(1) Although this Order requires the Bank to submit certain proposed actions and 

programs for the review or prior written determination of no supervisory objection by the Deputy 

Comptroller or the Examiner-in-Charge, the Board has the ultimate responsibility for proper and 

sound management of the Bank. 

(2) If, at any time, the Comptroller deems it appropriate in fulfilling the 

responsibilities placed upon him by the several laws of the United States to undertake any action 

affecting the Bank, nothing in this Order shall in any way inhibit~ estop, bar or otherwise prevent 

the Comptroller from so doing. 

(3) This Order constitutes a settlement of the cease and desist proceeding against the 

Bank contemplated by the Comptroller, based on the violations described in the Comptroller!s 

Findings set forth in Article I of this Order. Provided, however, that nothing in this Order shall 

prevent the Comptroller from instituting other enforcement actions against the Bank or any of its 

institution-affiliated parties, including, without limitation, assessments of civil money penalties, 

b.sed-on~theiindings-set furth in {hi. Order,~0r anyetheriindiilgs·, 

(4) This Order is and shall become effective upon its execution by the Comptroller, 

through his authorized representative whose hand appears below. The Order shall remain 

effective and enforceable, except to the extent that, and until such time as, any provisions of this 

Order shall have been amended. suspended, waived, or tenninated in writing by the Comptroller. 

(5) Any time limitations imposed by this Order shall begin to run from the effective 

date of this Order, as shown below, unless the Order specifies otherwise. The time limitations 

may be extended in writing by the Deputy Comptroller for good cause upon written application 

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760612.301

by the Board. Any request to extend any time limitation shall include a statement setting forth in 

detail the special circumstances that prevent the Bank from complying with the time limitation, 

and shall be accompanied by relevant supporting documentation. The Deputy Comptroller's 

decision regarding the request is final and not subject to further review. 

(6) This Order is intended to be, and shall be construed to be, a final order issued 

pursuant to 12 U.S.C. § 1818(b), and expressly does not form, and may not be construed to form, 

a contract binding the Comptroller or the United States. Without limiting the foregoing, nothing 

in this Order shall prevent any action against the Bank or its institution-affiliated parties by a 

bank regulatory agency, the United States Department of Justice, or any other law enforcement 

agency. 

(7) The terms ofthis Order, including this paragraph, are not subject to amendment or 

modification by any extraneous expression, prior agreements, or prior arrangements between the 

parties, whether oral or written. 

IT IS SO ORDERED, this 6th day of October, 2010. 

Grace E. Dailey 

Deputy Comptroller for Large Bank Supervision 

Office of the Comptroller of the Currency 

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760612.302

UNITED STATES OF AMERICA 

DEPARTMENT OF THE TREASURY 

COMPTROLLER OF THE CURRENCY 

In the Matter of: 

HSBC Bank USA, N. A. 

McLean, Virginia 

AA-EC-l0-98 

STIPULATION AND CONSENT TO THE ISSUANCE 

OF A CONSENT ORDER 

The Comptroller of the Currency of the United States of America ("Comptroller") intends 

to impose a cease and desist order on HSBC Bank USA, NA, McLean, Virginia ("Bank") 

pursuant to 12 U.S.C § 1818(b), for violations ofl2 US.C § 1818(s); the Bank Secrecy Act, 31 

U.S.C §§ 5311 e/ seq., including 31 U.S.C § 5318(i); and Bank Secrecy Act regulations 12 

CF.R. §§ 21.11 and 21.21, and 31 CFR § 103.176. 

The Bank, in the interest of compliance and cooperation, enters into this Stipulation and 

Consent to the Issuance of a Consent Order ("Stipulation") and consents to the issuance of a 

"--~-.~- -~ Consent Order, dated October.§, 2010 ("Cons;;nt-Order");-.... --·-.. --------· .... ---·------.-. 

In consideration of the above premises, the Comptroller, through his authorized 

representative, and the Bank, through its duly elected and acting Board of Directors, stipulate 

and agree to the following: 

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ARTICLE! 

JURISDICTION 

(1) The Bank is a national banking association chartered and examined by the 

Comptroller pursuant to the National Bank Act of 1864, as amended, 12 U.S.C. § 1 et seq. 

(2) The Comptroller is "the appropriate Federal banking agency" regarding the Bank 

pursuant to 12 U.S.c. §§ 1813(q) and 1818(b). 

(3) The Bank is an "insured depository institution" within the meaning of 12 U.S.C. 

§ 1818(b)(1). 

(4) As a result of this Consent Order: 

(a) the Bank is an "eligible bank" pursuant to 12 C.F.R. § 5.3(gX4) for 

the purposes of 12 CF.R Part 5 regarding rules, policies and procedures 

for corporate activities, unless otherwise infonned in writing by the OCe. 

(b) the Bank is not subjectto the limitation of 12 C.F.R. 

§ 5.5I(c)(6)(ii) for the purposes of 12 C.F.R. § 5.51 requiring OCC 

approval of a change in directors and senior executive officers, unless 

(c) the Bank is not subject to the limitation on golden parachute and 

indemnification payments provided by 12 C.F.R. § 359. 1 (f)(I)(ii)(C) and 

12 C.F.R § 5.51(c)(6)(ii), unless otherwise informed in writing by the 

OCC. 

(d) the Bank's status.s an "eligible bank" remains unchanged 

pursuant to 12 C.F.R. § 24.2(eX4) for the purposes of 12 C.P.R. Part 24 

-2-

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760612.304

regarding community and economic development, unless otherwise 

informed in writing by the OCC 

(5) The Consent Order shall not be construed to be a "written agreement, order, or 

capital directive" within the meaning of 12 C.F.R. § 6.4, unless the OCC informs the Bank 

otherwise in writing. 

ARTICLE I! 

AGREEMENT 

(1) The Bank, without admitting or denying any wrongdoing, consents and agrees to 

issuance of the Consent Order by the Comptroller. 

(2l The Bank consents and agrees that the Consent Order shall (al be deemed an 

"order issued with the consent of the depository institution" pursuant to 12 V.S.C § 1818(hX2), 

(b) become effective upon its execution by the Comptroller through his authorized 

representative, and (c) be fully enforceable by the Comptroller pursuant to 12 VS.C § 1818(i). 

(3) Notwithstanding the absence of mutuality of obligation, or of consideration, or of 

a contract,. the Comptroller may enforce any of the commitments or obligations herein 

undertaken by-the-Bank under hi"upervisory-pcwers;-ineluding-12 u-s. C-ct-l& 18(i),and not as 

a matter of contract law. The Bank expressly acknowledges that neither the Bank nor the 

Comptroller has any intention to enter into a contract. 

(4) The Bank declares that no separate promise or inducement of any kind has been 

made by the Comptroller, or by his agents or employees, to cause or induce the Bank to consent 

to the issuance of the Consent Order and/or execute the Consent Order. 

(5) The Bank expressly acknowledges that no officer or employee of the Comptroller 

has statutory or other authority to bind the United States, the United States Treasury Department, 

-3-

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760612.305

the Comptroller, or any other federal bank regulatory agency or entity, or any officer or 

employee of any of those entities to a contract affecting the Comptroller's exercise of his 

supervisory responsibilities. 

(6) The OCC releases and discharges the Bank from all potential liability for a cease 

and desist order that has been or might have been asserted by the OCC based on the violations 

described in the Comptroller's Findings set forth in Article 1 of the Consent Order, to the extent 

known to the OCC as of the effective date of the Consent Order. However, the violations alleged 

in Article I of the Consent Order may be utilized by the OCC in other future enforcement actions 

against the Bank or its institution-affiliated parties, including, without limitation, to assess civil 

money penalties or establish a pattern or practice of violations or the continuation of a pattern or 

practice of violations. This release shall not preclude or affect any right of the OCC to determine 

and ensure compliance with the terms and provisions of this Stipulation or the Consent Ordec 

(7) The tenTIS and provisions of the StipUlation and the Consent Order shall be 

binding upon, and inure to the benefit of, the parties hereto and their successors in interest. 

Nothing in this Stipulation or the Consent Order, express or implied, shall give to any person or 

---'~"----enmy~ dther·tnaifttHftHiitte~fheret5, ·artalllelrSlicce~'-S(}t"s·h·erelrnUet~-a-ny-benefit·or-a:ny1e-gat-or 

equitable right, remedy or claim under this Stipulation or the Consent Order. 

ARTlCLElII 

~ 

(1) The Bank, by consenting to this StipUlation, waives: 

<a) the issuance of a Notice of Charges pursuant to 12 U.S.c. 

§ 1818(b); 

-4-

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760612.306

(b) any and all procedural rights available in connection with the 

issuance of the Consent Order; 

(c) all rights to a hearing and a final agency decision pursuant to 12 

U.S.C. §§ 1818(b) and (h), 12 C.F.R. Part 19; 

(d) all rights to seek any type of administrative or judicial review of 

the Consent Order; 

(e) any and all claims for fees, costs or expenses against the 

Comptroller, or any of his agents or employees, related in any way to this 

enforcement matter or this Consent Order, whether arising under common 

law or under the terms of any statute, including, but not limited to, the 

Equal Access to Justice Act, 5 U.S.C. § 504 and 28 U.S.C. § 2412; and 

(1) any and all rights to challenge or contest the validity of the 

Consent Order. 

ARTICLE IV 

CLOSING 

prevent the ComptrolJer from taking any other action affecting the Bank if, at any time, it deems 

it appropriate to do so to fulfill the responsibilities placed upon it by the several laws of the 

United States of America. 

(2) Nothing in this Stipulation shall preclude any proceedings brought by the 

Comptroller to enforce theterrns of this Consent Order, and nothing in this Stipulation 

constitutes, nor shall the Bank contend that it constitutes, a waiver of any right, power, or 

-5-

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760612.307

authority of any other representative of the United States or an agency thereof, including, without 

limitation, the United States Department of Justice, to bring other actions deemed appropriate. 

(3) The tenus of the Stipulation and the Consent Order are not subject to amendment 

or modification by any extraneous expression, prior agreements or prior arrangements between 

the parties, whether oral or written. 

IN TESTIMONY WHEREOF, the undersigned, authorized by the Comptroller as his 

representative, has hereunto sd her hand on behalf of the Comptroller. 

Is! 

Grace E. Dailey 

Deputy Comptroller for Large Bank Supervision 

Office of the Comptroller of the Currency 

-6-

Confidential & Non-public OCC Infonmation 

Date 

October 6, 2010 

OCC·PSI·00904725 
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760612.308

IN TESTIMONY WHEREOF, the undersigned, as the duly elected and acting Board of 

Directors of the Bank, have hereunto set their hands on behalf of the Bank. 

lsi 

Irene M. Dorner 

lsi 

Robert K. Herdman 

"'~-rsr----' 

Louis Hernandez, Jr 

lsi 

Richard A. Jalkut 

Confidential & Non-public OCC Information 

-7-

9124110 

Date 

9124110 

Date 

9124/10 

Date 

9124110 

Date 

9124/10 

Date 

OCC·PSI-00904726 
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UNITCDSTATESOf~CA 

BEfORE TIlE 

BOARD Of GOVERNORS Of TIlE FEDERAl RESERVE SY5TEM 

WASHINGTON, DoC 

Written Agreement by and among 

HSEC BANK. USA 

Buffalo, New ¥ ork 

FEDERAL RESERVE BA.'{K Of NEW YORK. 

NewYorl<, New York 

and 

NEW YORK 9TATEBANKlNODEPI\RThlENT : 

New¥orl<, New ¥ork 

Dock<lNo.03-012-WNRB-SM 

WHEREAS, HSBC Bonk USA, Buffalo, New York (lbe "Bank"),' State chanetd bank 

thatB a membeI oftht Federal Reserve Systern~ is taking Steps to enhance irs compliance v.rith 

all applicable federal and state' laws, rules, and re~ulatiollS rtUiring to anti·money laWldering 

policies and procedures, including (1) the Currency and Foreigo TransiJcOons Reporting Acr. 31 

U.S.C. 5311 ~~. (lbe Bank Secrecy Act (!he "BSA')) an4 the rules and regul.tions issued 

thereunder by the U.S. Depamneo! of !he Treas'IIY (31 C.F.R Pan J 03); (2) lbe suspicious 

of!he Fedaal Re<erv, Sy,,= (the "Boaro of Governors") (12 C.F.R. 208.6211Jld 2Q8.63); and 

(3) Pan 300 of the Official Compilation ofCooes, Rules and Regulations of the 51at, of New 

York,3 N'y'C.R.R. Pan 300; 

WHEREAS, il is the common goal of!he Bank. the Federa! Reserve Bank of New York 

(me "Reserve Bank'). and we New York State Banking: D~pUtmem (the ,oDeparonenl") to 

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760612.310

ensure mat L~e Bank fully addresses a.ll deficiencies in the Bank's anti~money launderingpoJjeies 

and procedlll"eS. customer d~ diligence prattices, and intemal control envirolll11.cnt:. and 

\VHEREAS, on April 24, 2003, the board of directors of the Bank. at a duly constituted 

meeting, Bdopt¢d a resolution aulhorizing and direc:ting; YoussefNasr, Presidenr and Chief 

Execulhe Officer, to enter into thi.s Written Agreement (the "Agreement") on behalf of the B:mk 

SDd consenting to compliance by the Bank and irs instiwrion .. a.ffi1iated parties, as defiD~d in 

section 3(u) oflhi:' Federal Deposit Insurance Act, as ~ded, (12 U.S.C.1813(u)) witheacb 

ana every provision of this Writti:"D Agreement. 

NOW. 1REREfORE, me Dank, the Reserve Bank. and the Department hereby agree as 

follows: 

Anti-Money Launderiog Compliance 

I. Within 60 days ofIllls Agreement, the Bank shall submit to the Reserve Bank and 

the Department an acceptable written program designed to upgrade and impro\le me Bank's 

sysrem of bu.emal contrOls to eMure: complilUlce with aU applicable provisions of the BSA and 

the rules 3Ild regulations issucd thereunder. as: required by l':cction 208.63 ofR.egulation H oflhe 

Board of Govemo" (12 C.F,R 208.63) and 3 N, i',C,RR, Part 300, The program shall incl"ck 

and the rules and regulations thereunder. 

(a) Thrprogram shall. at a minimum, qpgrade and improve The Bank's system 

of internal controls to ensure compliance with the BSA and the rules and regulatioDs thereunder. 

including bur not limited to: 

Confidential & Non·public acc Information 

--------i 

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(1) effective monitoring of incoming and olltgoing funds uamfers by 

both account holders and .non~account holders for suspicious or 

unusual activities; 

(ii) effective monitoring of purchases of monetary instruments by both 

account bolders and non-account holders fDr suspicious or LUlusual 

activities; 

(iii) an effective system that is designed to ensure compliance with me 

Kcordkeeping and reporting requirements for curre.o.cy tranSactions 

over $10,0(J() (31 C.F.R. 103.22) and that is capable of aggregating 

multiple cash transactions for anyone business day. or oth~ 

appropriat.e business period. from all branches by account number, 

by name(s) of the ""COUllt holdet(s), and by traIlSactar(s), and 

identifying any cash tranSactions that may have been structUred to 

'avoid clllTency uaruacrion [~poning requirements; and 

(ivl identification and verification of identi[j' of account holders and 

transactors as requited for rttordkeeping and reporting of cllITency 

transactions over S10,000 (31 C.F.R. 103.28). 

(b) The program shall provide for an independent review of compliance with 

the BSA and the rules and regulations thereunder, the anti-money laundering provisions of 

kgularion. H of1he Board ofOovemors. and 3 N.Y.C.R.R. Pan 300. 1be re'Yie:w of compliance 

shal.I cO"er all substantive requirements and compliance processes, including. but not lUnited to, 

.reporting lines for following up on compliance findings and proc¢dw-es to ensure that 

compliance issues are addressed. 

:onfidential & Non-public ace Information acc-p!':l-nmll\7Rn~ 
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760612.312

SuspiciolU Activiry ReportiDg IQId ClL!tomer Due DiJi:ence 

2. Within 60 da}"3 of this Agreetllenr. the: Bank shall submi[to the Reserve Bank and 

the Department an acceptable wrinen customer due diligence program designed to reasonably 

~nsure the identification and timely, accurate, and complete reporting of all known or suspected 

violations of low agab:tst or involving the Bank to law enforcement and superviS!lry authOrities as 

required by the suspicious activity reportiag provisions of Regulation }I of the Board of 

Governors (12 C.F.R. 208.62) and > N.Y.C.R.R. Pan 300. AI a minUnum, me program shall 

include: 

(n) AIl effective system to ensure thar all known or suspecred violaIiollS of 

law are properly identified and reported; 

(b) 8 risk forused assessment of the Bank~s customer base to: 

(i) identify the categories of cUSlomeIS whose rransactions and 

banking activities are routint: and urual; and 

(ii) 'determine the approprime level of enhanced due diligence 

J1eCe'isar)' for those categories o( WStOIDerS iliat the Bank has reason to believe pose /l heightened 

risk of illicit activities ar or througb the Bank; and 

.-.. ----.--- ~ .. _'--- "-(cr - ~- forthose Clb'"tOltlW whose mutsaetions require enhanced-due- diligence, 

sddirionaJptocedu:res to: 

(1) detennine the appropriate documentation necessary to confitm the 

identity and bminess. activities of the CUStomer; 

(ii) understand the: nonnal and exptcted transac:tions oft:he customer; 

and 

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760612.313

(iii) report suspicious activities in .compliance ""ith the reponing 

requirements sot forth in Regulation H of the Board of Governors (12 c.F.R. 208.62) and 

J NYC.R.F.. Pm 300. 

1 The program !'e>luired by paragrapb 2 hereofshalJ be subject to comprehensive 

independent testing (a) three months after the approval of the program and its adoption by !he 

Bani: pursuant to the pro,,;,ions of this Agreement (Ibe "Initial Testing'?; and (b) IS months 

after the Initial Testing. Prior to me implementmion of the mdcpt:ndent testing, the Bank shall 

submit to the Reserve Bank and me Department its audit scope and meIhodology for review and 

approval. The Bank shall make all work papen. work produ.cr. drafts and -interim reporu 

a.vailable. as requested by the Reserve Bank.and the Department. 

Tranu,ctiop. RJ:"inf 

4. The Bank: shall conduct a multi~stage review (the «Review") of c:ash transac:tions,. 

sales oimonewy instrume.o.ts, aod funds transfer activity in the retail operations of mt' Bank.. 

The Review shall be designed to detenn.ine whether suspicious activity involving acCOlUltS or 

transactions en,. by. orthrougb the Bank was propel'ly identified and rep¢rted by au: B3Ilk in 

accordance with applicable suspicious activity reponing regulations. and (0 evaluate compliance 

__ wiIh. tbb curren,}, :transaction reporting n:q\dremelJt3 ofrbe BSA arJd the rules and ~.KU4tio~.~ 

therennder. 

(a) Within 10 days of this Agreemen~ the Bank shal! submit to the ReseTVe 

Bank and lhe Department an ac~pcable written plan for the first sUige of rhe Review, whkh shall 

c:over all tranSactions during the period.May 1,2002 through the dare ofiliis Agreement. The 

plan shaH set foIIh the propOsed methodology for the first stage of the Review; the types of 

ace-OWl!S, transactions, and bBDldng activities to 'be r~iewed; the proposed resources to be 

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760612.314

dedicated to the firsI ~rage: oflhe Review; the scope of Eh~ wrinen report covering me fusr stage 

of th~ Review, snd tilt expected dare of completion of me first stage of lh.e Review, not (0 

exceed 120 days from the date oflhis Agreement. 

(b) Wirhin 30 days after completion of Cltch srage of the Review. the Bank 

shaH submit to the Reserve Bank and the Department: 

(0 a written repOrt !letting forth the findings, conclusions.) and 

recommrndarions of that nage of the RevieW; 

(ii) an acceptable written plan setting forth the actions (he Baril:: will 

take: to respond to the findings. c::ondusions~ and TecOIIUllCndationsi and 

(iii) an acceptable written plan for the neXt stage of the Review. serring 

forth the time period to be covered (to include time periods since May 2000)~ the meIbcxiology 

and tbt typ~s of acCOUIll:'l. ttatl$actioItl, and banking at:tivitic:s to be reviewed; the proposed 

-resources to be dedicated;·the scope of me written report; IDld the expec~d date of eompletion. 

(c) Upon cOUlp1e'(ion of each stage of Ihe: Review, the Bank shall ensure that 

all transactions previously required 10 be reported have been reported in accordance wiili 

applicable regulations and guick:linc:s.. 

(d) --Tho Bonk sllalllllake all work P"P<r<, work product,-drafls and inrerim- ------____ _ 

reportS relating to the Review available to the Reserve Bank and me D~s.nrnent upon request. 

Approval and Progreu lhpQns 

5. The programs, plans. and audit stope and methodology rc:quJred by paragtaphs 1, 

2, 3, and 4 of this Agreeme:ot shall be submirred to the Reserve Bank and me Department for 

revit'w and approval. Accepmhle progrM\S, pla.o.s. and an .acceptabl~ audit scope and 

methodology shall be submitted to me Reserve Bank and the Depamtlr:nl within the time periods 

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760612.315

set forth in this Agreement The Bank shaU adopt the approved prograIIl3. plans, and audit scope 

and methodology within 10 days of approval by the Reserve Bank and the Depanmenr and then 

,ball fully C<lmply with them. During the term of this Agreement, the approved programs. plans, 

.!Pld audit scope andmerhodology shall noT be amended or rescinded wi!hoUI the prior written 

approval of the Reserve Bank and the Department. 

6. Witbin 10 days aller the <Ild of each month following the date of this Agreement, 

the Bank shall SUbroil to tbe Re5erve Bank and the Department wrinen ptogress reporu detailing 

the form and manner of alJ mons taken to secure compliance with the provisions of this 

Agreement, and the resuiu thereof. h1anagement's responses to the audit repons on BSA 

prepared by intc:mal and external auditors shall be included with the progress report. The 

Reserve Bank: and the DepijIfInent may. in writing. discontinue the rcquirc:mem for progress 

reporu or modify the reponing sctledule. 

NDti.ctl 

7. All communications regarding this Agreement shall be sent to: 

(a) Ms. S!IlBb Dahlgren 

Senior Vice President 

Federal Reserve Bank of New York 

.. _. __ ~_.nI.ibeny Street 

(b) 

(e) 

New York, NY IlHl45 

Mr. P. Vincent Conlon 

Deputy Superintendent of Banks 

New York State Banking Depamnatt 

One State Street 

New York, NY 10004 

1'>1<. Philip S. Toohey 

Senior Executive Vice President and General COW1.Sel 

HSBC Bank USA 

One HSBC Center 

21~ Floor 

Buffalo, NY 14203 

Confidential & Non·public DCC Information 

I 

1 

DCC·PSI·009Q7809 
2483 


760612.316

MisctUaueow 

8. The provisions of this Agreement shall be binding on the: Bank, and each of iiS: 

instiwtion-affiliatt'd parties in their capacities as such, and their Sllccessors and assigns. 

9. Each provision ofrhis Agreement shall renurin. eff.::ctivc and enforceable antil 

stayed, modified, ""mmated or suspended in writing by the Reserve Bank and the Deparunent, 

1 D. Notwi:rllSt311ding any provision of this Agreement,. the Reserve Bank and the 

Departmenr may, in thdr sole discretion, gnmr wrinen e:aensions of tima to the Bank to comply 

with any provi~don of this Agree~m. 

11. The provisions of lbis Agreement shall not bar. estop or otherwise prevent the 

Board of Governors, the Reserve Bank, the Depamn<:nt or any federnl or stale agency from 

taking any furTher or other action affecting the Bank. Dr any of its current or former institutionaffiliated parties or their succeSSOrs or assigns. 

::onfidential & Non-public OCC Information OCC-PSI-00967810 
2484 


760612.317

12. This Agreement is a "'wrinen agreementn fot [be purposes of. and is enforceable 

by the Board of Governors as order issued under, section 8 of the Federal Deposit Ins'urallce Act 

andpunuanlIO S.ction 39 of the New York Stale Banking Law. 

IN WITNESS WHEREOF, the parties hereto have caused rbi. Agreement to be 

executed as of rbi. Maay of April, 2003. 

HSBC BANK USA FEDERAL RESERVE BANK OF NEW YORK 

By; Yo ~'l. ,.. 

Presjdent & Chief Executive Officer 

NEW YORK STATE BANKING DEPARTMENT 

Confidential & Non-public acc Infonnation 

I 

I 

aCC-PSI-00907811 
2485 


760612.318

From: 

Sent: 

To: 

Cc: 

Boss, Joseph 

Wednesday, October 27,20107:00 PM 

Freas, Monica 

Straus, Lee; Boss, Joseph 

Here is an E-mail I found that seems to be from a relationship manager (RM) requesting an opinion of Ali 

Kazmy(HBUS Polioy-Group) about-the ranking ofanexitingclienL As you-can sec, the_RM advisedAldhat a. 

Chairman is supposedly a wealthy investor who supports Osama bin Laden and that supposedly the client Islami 

Bank Bangladesh, Ltd., has been fined three times for covering up militant transactions. Also, as you can see, 

Ali stated that this client merits an SCC designation. I have reviewed other E-mails, both later and earlier, to 

see if there was any indication that the account be reviewed due to the extreme circumstances pointed out by the 

RM and have found no other E-mails to show that anything other than designating the client an SCC was done. 

I know that the parameters for a look back have already been decided, but thought you might want to consider 

adding in this client. This E-mail is under Cam Hughes E-mails and is document number 

Joe 

__ = Redacted by the Permanent 

Subcommittee on 1nvestigations 

From: ALI S KAZMYIHBUSIHSBC Sent: 213/2010 6:3 1:04 PM To: JON K JONESilIDUSIHSBC@HSBC02 

CC: PSRR@HSBC02;CAMILLUS P HUGHES/HBUSIHSBC@HSBC02;JlJDYP 

STOLDTIHBUSIHSBC@HSBC02 Subject: Re: Islami Bank Bangladesh Ltd - Poss SCC The information 

appearing below does merit SCC classification. Regards, Ali S Kazmy Vice President/Senior Manager - AntiMoney Laundering Policy I HSBC BANK USA, National Association 452 Fifth Avenue, 7th Floor, New York, 

NYI0018~~~~~~~~~~~~bikll"""II~~~~;;~~J;,~~~~-- Phone. 212 525-5560 Fax. 212-525-6994 Mobile. Email. ali.s.kazmy@us.hsbc.com 

From: 

Jon K JoneslHBUSIHSBC To: Ali S KazmyIHDUSfHSBC@HSBC02 Cc: PSRR@HSBC02Date: 02/03/2010 

__ ._ 04:33I'Mj)tIbj~)slami !lank Bangladesh Ltd - Pass SCC Ali, In my review and research ofthe above client, 

rd like to point out the below itemsancfask for y'ouroplnlon on SCCSfatusWith-regafcnOlneabc;vectlern:--·~-­

Vice Chairman and 10% owner is Yousif Abdullah al-Rajhi, General Manager of AI-Rajhi Company for 

Industry & Trade. K.S.A Earlier, he performed duties of Branch Manager and Project Finance Manager of AlRajhi Banking and Investment Corporation from 1987 to 1995. At least three Owners (ownership confirmation 

currently underway) for approx. 300fD are connected to the ai-Raj hi family I businesses. Other Owners (listed as 

of now): Islamic Development Bank The Public Institution for Social Security - Owned by Government of 

Kuwait Kuwait Finance House - 49% owned by Kuwait - listed as a PEP AI-Rajhi Banking and Investment 

Corp., a client ofCm and Banknotes is SCC. Al-Rajhi Bank got it's start as a money chaining network and 

(Chairman, Suleiman al-Rajhi appeared on the "Golden Chain" of wealthy investors who supported Osama bin 

Laden.) Negative press: Per prior EDD ROF - "a notice of cause was issued by the Bank of Bangladesh to the 

CEO of Islamic Bank in March 2006 to explain accounts owned by suspected Islamic Militants. Client was 

subsequently fined by Bangladesh Bank and take measures against 20 officers for their involvement. Sources 

suggest this was the third time Islami Bank Bangladesh Ltd was fined for covering up militants transactions. I! 

Current internet searches found no additional items. Please review and advise, Jon K Jones Senior Analyst! 

HSBC Bank USA 90 Christiana Road, New Castle, DE 19720 Phone 302-327-2017 

~onfidential & Non-public DCC Infonnation DCC-PSI-00919631 
2486 


760612.319

From: 

Sent: 

To: 

Subject: 

Tabor, Teresa 

Wednesday, September 08, 2010 3:42 PM 

Boss, Joseph 

RE: IPS Miami (Edge) 

! will forward the report to him. 

From: 

Sent: 

To: "", 

Subject: 

Bass, Joseph 

Wednesday, September 08,2010 11:41 AM 

Tabor, Teresa 

Boss, Joseph 

R.E: IPB Miami (Edge) 

! guess you will let him know. Right? 

From: 

Sent: 

TO': 

Subject: 

Ouh .. 

It wouldn't hurt. 

From: 

Sent: 

To: 

Cc: 

Subject: 

Mike Jarrell, 

From: 

Sent: 

To: __ ~~....s.u.bje<:t:. .. _ 

Who? 

From; 

Sent: 

To: 

Cc: 

Subject: 

Tabor,Teresa 

Wednesday, September 08, 2010 11:40 AM 

BOSS,Joseph 

RE: IPB Miami (Edge) 

Boss, Joseph 

Wednesday, September DB, 2010 11:40 AM 

Tabor, Teresa 

Bass, Joseph 

RE: IPS Miami (Edge) 

Tabor, Teresa 

Wednesday, September 08, 2010 11:38 AM 

Boss,Joseph 

RE~Ip.B.Mrami.{.EJ1geJ-._~ ___ . __ "_ 

Bass, Joseph 

Wednesday, September 08,201011:37 AM 

Tabor, Teresa 

Boss,Joseph 

RE: IPS Miami (Edge) 

I agree. Do we have to notify MJ? 

From: 

Sent: 

Ttl: 

Subject: 

Tabor, Teresa 

Wednesday, September 08, 2010 11:36 AM 

Bass, Joseph 

R.E: IPS Miami (Edge) 

That's what I would say. I do not think they would combine the two. 

From: Bass,Joseph 

Sent: Wednesday, September 08,2010 11:36 AM 

To: Tabor, Teresa 

Confidential & Non-public acc Information aCC-PSI-00921759 
2487 


760612.320

CI;: BOS$,Joseph 

Subjel;t: FIE: IPB Miami (Edge) 

Since it is the Edge, I would assume that these are in addltion to the 610 mentioned in the NY IPS report. Do you believe 

so as well? 

Me 

! have attached an audit of IPS Miami (edge). Referto page 25 where it talks about 925 bearer share accounts. 

« FHe: 10307 AUFM IPB Miami Final Report.doc» 

Teresa Tabor, CRO,f, (,AMS, AML? 

Bank Examiner 

Large Bank Supervision 

10 East 40th St, 14th Floor 

New York.}.ry 10016 

(212) 525-7512 (DI,ecl) 

(301) 433-8794 (Direct Fax) 

This message is intended for designated recipients only. Tfyon have received this meSS1\gc in error, please delete the original and all 

copies and notify the seMer immediately. Fcderallaw prohibits the disclosure or otller usc of this information. The content of this 

message is mine personally and does Ilot reflect the position of the Office of the Comptroller ofthc Currency, the Department of 

Treasury, or the U.S. Government. 

Confidential & Non·public acc Information aCC·PSI·00921760 
2488 


760612.321

From: 

Sent: 

To: 

Cc: 

Subject: 

Boss, Joseph 

Tuesday, June 15, 2010 3:01 PM 

De La Garza, Elsa 

Boss, Joseph 

FW: 

Here is the Bearer Share information. 

Me 

Ail_Bearer_Shares_ 

Accounts_ln_, .. 

15,201010:49 AM 

Teresa Tabor, eRG'll!, C4A1S, AMLP 

Bank Examiner 

Large Bank Supervision 

10 East 40th St, 14th Floor 

New York, NY 100l6 

(212) 525-7512 (Direct) 

(301) 4:n-8794 (Direct Fax) 

This message is-illl~;lded for desitnated recipients only, lfyou have Tet'Civcd this message in error, please delete the original and all 

copies. and notify the sender immediately. Federal law prohibits the disclosure or other use of this information. The content ofthi$ 

message is mine personally and does not reflect the position of the Office ofthe Comptroller oftlle Currency, the Department of 

Treasury, or the U.S. Government. 

Confidential & Non-public DCC Information DCC-PSI-00929779 
2489 


760612.322

Confidential & Non-public OCC Information OCC-PSI-0092978C 
2490 


760612.323

812911006 Panama 

r--t-----

9!1811997 Panama 

t-------+~:;:: --- Ut~gu"y 

Confidential & Non-public acc Information aCC-PSI-00929781 
2491 


760612.324

I Account No I Short Name Customer 

Onen Date 

912012002 

91812005 

611712005 

1212211999 

91811999 

21711997 

512911998 

1212711999 

Country of Residence Desc 

British Virgin Islands 

British Virgin Islands 

British Virgin Islands 

British Virgin Isla-nds 

British Virgin Islands 

British Virgin Islands 

British Virgin Islands 

British Virgin Islands 

British Virgin Islands 

11/23/2005 British Virgin Islands 

10118/2003 British Virgin Islands 

10/16/2003 British Virgin Islands 

9/29/2005 British Virgin islands 

312712003 British Virgin Islands 

711111988 British Virgin Islands 

---t9~1~29~11~9=9=2===tB=ri;tiS=h=V=i~==in=I=SI=an=d=S======= ... =-=" ..::j-~ .. 

21611998 British Virgin Islands 

611111999 British Virgin Islands 

21112000 British Virgin Islands 

411412000 British Virgin Islands 

713012007 British Virgin Islands 

41711994 British Virgin Islands 

1111912001 British Virgin Islands 

Confidential & Non-pUblic acc Information aCC-PSI-00929782 
2492 


760612.325

12118/1998 British Virgin Islands 

10/20/2000 British Virgin Islands 

215/2003 British Virgin Islands 

21512003 British Virgin Islands 

911512008 British Virgin Islands 

312212007 British Virgin Islands 

312212007 British Virgin Islands 

212811991 British Virgin Islands 

911711990 British Virgin Islands 

71111991 British Virgin Islands 

112211992 British Virgin Islands 

711511991 British Virgin Islands 

71111996 British Virgin Islands 

111611996 British Virgin Islands 

412211998 British Virgin Islands 

111711997 British Virgin islands 

Total count;:: 39 

Confidential & Non-public OCC Information OCC-PSI-00929783 
2493 


760612.326

i 

HSBcm 

Thresa A. PescE! 

Executive Vice President 

Anti~Money Laundering DirC!Ctor 

Mr. Anthony J. DiLorenzo 

Examiner in Charge 

Large Bank Supervision 

Comptroller of the Currency 

10 East 40th Street - 14th Floor 

New York, NY 10016 

Subject: International Private Banking BSAfAML Examination 

Dear Mr. DiLorenzo: 

HSBC Bank USA, N.A. ("HBUS") respectfully submits this response to your letter dated 

January 31, 2006 summarizing the findings of the International Private Banking BSAlAML 

examination conducted by the Office of the Comptroller of the Currency ("OCC"). In addition 

to our responses to the specific "Matters Requiring Attention" set forth below~ we wish to 

reaffum HEUS' commitment to ensuring the maintenance and enforcement of robust AMLiBSA 

controls within this business area. 

MA TIERS REQUIRING ATTENTION: 

Required Action - Management should evaluate the risks associated with bearer share accounts. 

BSAJAML policy and procedures need to be revised to ensure that either the bank or an 

acceptable third party controls the bearer shares. The bank must monitor legal requirements in 

countries that allow for the organization of Intemational BU'lmess Companies (IBCs) and Private 

Investment Companies (PIC). Policies and procedures need to define "acceptable third parties" 

and any applicable due diligence, and specify documentation required by the bank to ensure that 

the shares have been properly received by the third party custodian. 

Management Commitment - Management agreed to implement revised policies and 

procedures for bearer shares in accordance with our recommendation by March 31, 2006. In 

addition, management stated it would provide the bank's plan for taking control of bearer shares 

associated with existing accounts. 

I HSBC North America Holdings Inc. 

452 Fifth Avenue, New York, NY 10018 

. Tel: (212) 525~6099 Fax: (212) 525-5769 I E-Mail: teresa.pesce@us..bsbc.com 

Cbnfidential & Non-public acc Information OCC-PSI-01358804 
2494 


760612.327

Response 

Compliance management is working with the business to revise the policies and procedures 

for Bearer Share corporations. We are taking. a riskwbased approach. The bank will 

require share certificates for Bearer Share corporations classified as high risk to be held in 

_____ ~stody(eltlt~'"_"'_~hHSBC or an approved third party). For all other Bearer Share 

corporations, the BeneficialOWnership -letter be- completid--anlJrenewed-everylwo years--

(instead of the current three years). Factors that will be considered to determine highMrisk 

classification include: 

• Risk classification of ultimate beneficial owner 

• Involvement ofHSBC in the creation of the Bearer Share corporation (if HSBC 

created the corporation, we have significant knowledge of the client) 

• Number of accounts the Bearer Share cllen t maintains (if the only account with 

HSBC is the PIC (Bearer Share corporation), then the client would probably be 

considered high risk) 

• Length of time Bearer Share corporation has been a client 

• Level and nature of a"ctivity in the Bearer Share corporate account(s) 

The bank's plan for implementing the policy will be developed by March 31, 2006. 

Redacted 

by 

Permanent Subcommittee 

on Investigations 

Ld'"tlal & Non·p"bllo OCC I"oonatlon ' OCC-PSI-01358805 
2495 


760612.328

Redaeted-------- ---------

by 

Permanent Subcommittee 

on Investigations 

OCC-PSI-01358806 

OCC-PSI-01358807 
2496 


760612.329

i 

i 

I 

\ 

Redacted 

by 

Permanent Subcommittee 

on Investb!ations 

Please feel free to contact me if you have any questions about the responses provided above. 

Teresa A. P see 

Executive ice President I 

Anti- orrey Laundering Director 

l""""'Ia' & NO"-... II, OCC '"'onnallo" ' OCC-PSI-01358808 
2497 


760612.330

I 

I 

cc: M. Glynn 

G. Aquilina 

D. Bagley 

J. Boss 

J. Burak 

D ~l5e--;;;--­

J. Kauffman 

A. Liddy 

P. Musacchio 

D.Reilly 

l. Stern 

C. Wind 

C~{I.fiq~ntial & Non-public acc Information aCC-PSI-01358809 
2498 


760612.331

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OCC-l'SI-01768523 

760612.343

Bulk Shipments of Cash, Pouch, Wire fTransfer

I I 

1. Smuggling: U.S. cash 

is smuggled into 

Mexico. 

7. Mpre Layering: Wires from 

casa correspondent account 

may be forwarded to laundeter 

accounts in Europe or Asia 

1it..---. 

Bank-Europe/Asia 

2. Cash placed in various casa I 

de camplos in return for USD cash letter 

orwire!transfers and cash accumulates/ _ I 

warehquses at the casas. .. i 

-. 

Mexican \nk 

! 

6. Layering: Wires from I • 

casa 

account 

correspondent 

may be ' 

lit 

forwarded to launderer 

accounts at other banks 

for settlement ...--

• U.S. Correspondent Bank 

I 

i 

4. Repatriation: 

Mexican Bank(s) 

facilitate cash 

move me nt from 

the casas into U.S

atthe wholesale 

level 

5. Shipment: Cash shipped by arnnored car/airplane 

to Federal Reserve for wholesale to the U.S. 

Bank that processed the cash instrument or 

paid out on the wire. 

---------------'--

760612.344

How the Fraud Works 

1. Ma!ware coder writes malicIous 

software to exploit a computer. 

vulnerability and installs a trojan Jrr I . 

Malware coder 

• 

Hacker ,. , __ " ----l> 

3. BaAking 

sipholned 

2. Victim infected 

with credentialstealing malware 

Compromised 

5. Remote proxy 

tit 

Targeted 

victim 

Victims are both 

finaflcial 

institutions and 

owners of infected 

machines. 

! 

Compromised 

collection senrer 

Hacker to comprpmised 

comp4ter 

6. Hacker logs into victim's online bank account 

7: Money , . " .. '. 8. Money +'. . transferred from 

to tUle t t mule to organizers Fraudulent 

r Money mules 

• u •• __ , __ •• • 

-------

.. 

Money mules i Criminals come in 

traflsfer stolen t ' many forms: 

money for criminals, ./0-_._-.1 Mal-ware CO.der 

shaving a small . ... ""I Malware exploiters 

percentage for :?1!f;i1 ." Mule organization 

themselves. f§ . :? .... 

760612.345

I i 

Latge Bank EIC MeetiI'g 

I BSAI AML Panel ' 

of the Currency I 

of National Banks I 

I 

John !Wagner, Director, ComQliance 1 i 

I . 

I i 

Jim Vivenzio, Senior Chief 

; : 

Counsel's Office (202-874-5200) I I 

I 

760612.346

I. I 

Latge Bank EIC 

! BSAI AML Panel I of the Currency : . I 

of National Banks i I 

• Wachovia Lessons Learned 

- Ovetview of Money Laundering i Scheme 

- Background CDD System & Lo*don 

Exam 

Cultrre Problems 

- NeW Technologies and Volume i 

- Issues - Alert Capping I 

- ocd Supervisory History I 

I I - Federal Agency 

i ! 2 

760612.347

-----" -------------

i I 

, I 

! I LaJtge BankEIC Meeting 

IheCurrency i BSA/AML Panel I 

of National Banks I 

• Large Bank Review Team Obserrations 

! , 

- isory Letters tied to Conclusion Memos 

- Tone and Message conveyed in SuperVisory Ltr 

C·· 'MRA i - Itmg s - l 

, I 

- MAAs and Systemic View I , 

, , 

- Autorated Systems for Large Banks i - Keeping Up with New Technologies and Growth I I 

Department Staffing i 

- Reviews or Roll-ups I 

I 

3 

- ----------,------------------------

760612.348

I 

Large Bank EIC Meeting 

of the Currency i BSAI AML Panel 

of National Banks I '. 

• Bank Analytics 

I 

- Quqlity of Risk Management I I 

- Higp. Risk Areas I 

i 

-MRlAs 

i 

-

i 

I 

4 

760612.349

'i 

Interagency Coordinatiof 

-

i How to Proceed ! 

of the Currency I ! 

of National.Banks I 

I 

I I 

· oee Process and Enfor4ement 

Process l 

! 

I 

DO] Il[lvestigation 

I 

I 

FinCBN Enforcement Process 

I 

5 

760612.350

i I 

Ie BSA/OFAC Penalty Cases ! 

I 

2010 

2010 2009 

2009 $350,000,000 I 

i $15,000,000 I 

2008 

2007 r $21,600,000 

2007 ' $65,000,000 

2005 i $80,000,000 

2004 ; $25,000,000 

6 

760612.351

I 

La*ge Bank EIC Meeting 

I 

. BSAI AML Panel 

I 

i 

John Wagner, Director, Compliance 

Policr (202-874-6073) 

I i 

Jim Senior Counsel, Chief 

I . I 

Couusel's Office (202-874-5200) 

i 

I 

___ J __ _ 

7 
2519 

Æ 


760612.352

BSAlAMLMRA 

Large Banks 

OCC-PSI-01768523 

Full Information System Extract (LBIS) 

HSBC 85 Jan-05 Mar-10 

Aug-05 Feb-10 

II Apr-04 Apr-10 

~ Mar-04 Mar-10 

:. May-05 Jan-10 

'i 

.. ..... " Sep-05 Jul-09 ... .. _ c 

Feb-05 Jun-09 Ei l-s Feb-06 Mar-10 

~ &i Jan:05 Nov-09 

~j Mar-05 Feb-10 

~ 12/06,8/07,2/08 

i 

" 8/07,7109,7109 

• ! Aug-07 .. 

D. Jan-10 

• MRA at 9105 Exam)