Earlier this month Reuters issued a special report detailing confidential documents from investigations by two U.S. Attorney offices into violations by HSBC of the Bank Secrecy Act and other anti-money laundering laws.

In April 2003 the Federal Reserve Bank of New York and New York state bank regulators ordered HSBC to do a better job of monitoring suspicious activity by its clients and customers. As a result, the bank allegedly improved its internal monitoring capabilities and hired a federal prosecutor to over-see its anti-money laundering activities. The documents uncovered by Reuters, however, indicate that these actions were merely window-dressing. In the years after the 2003 settlement with regulators, HSBC continued to violate anti-money laws by failing to adequately review “hundreds of billions of dollars in transactions for any that might have links to drug trafficking, terrorist financing and other criminal activity.” Reuters also reports that in addition to investigations by the U.S. Justice Department, HSBC is currently facing scrutiny by the Federal Reserve, the Office of the Comptroller of the Currency, the Manhattan District Attorney, the Office of Foreign Assets Control and the Senate Permanent Subcommitee on Investigations for its lack of adequate oversight.

According to the reporters who reviewed the confidential documents, the Justice Department uncovered “anti-money laundering lapses of extraordinary breadth.” The reporters highlighted a number of specific shortcomings identified by the prosecutors, including:

• Understaffing its anti-money laundering compliance division, including staffing the division with incompetent personnel;
• Failing to review internal anti-money laundering alerts and failing to generate SARs on transactions that the bank’s internal monitoring systems picked up; and
• Management intentionally deciding to not review alerts of suspicious activity and altering risk ratings on clients to avoid the detection of suspect transactions by the firm’s internal monitoring systems.

The Reuter report highlights the need for adequate compliance policies in this highly regulated area. Perhaps more importantly, however, the investigations by regulators into HSBC’s conduct underscore the importance of implementing sufficient procedures and testing mechanisms to ensure anti-money laundering procedures are actually followed.

For additional information about anti-money laundering laws and regulation, or any other compliance concern please contact Sarah Weber at sarah.weber@jackolg.com or (619)298-2880.