HSBC 2012 Annual Report Download - page 512

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
43 – Legal proceedings and regulatory matters
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claims. The District Court’s ruling will form the basis for rulings on the other matters, including the action filed
against HSBC Bank USA and HSBC Securities (USA) Inc. Subsequently, the defendant in the first-filed matter
sought leave to appeal to the US Court of Appeals for the Second Circuit on certain issues raised in the motion to
dismiss. The District Court and the Court of Appeals granted the request for leave to appeal, and this appeal is
pending before the Court of Appeals. In December 2012, the District Court directed the parties to schedule mediation
with the Magistrate Judge assigned to this action. However, mediation has not yet been scheduled.
In 2012, HSBC Finance received notice of several claims from claimants related to its activities as sponsor and the
activities of its subsidiaries as originators in connection with RMBSs purchased between 2005 and 2007. The claims
are currently being evaluated and discussions continue to be held with the claimants, but it has not been concluded
that these claims are procedurally or substantively valid. In December 2010 and February 2011, HSBC Bank USA
has received subpoenas from the SEC seeking production of documents and information relating to its involvement
and the involvement of its affiliates in specified private label RMBS transactions as an issuer, sponsor, underwriter,
depositor, trustee, custodian or servicer. HSBC Bank USA has also had preliminary contacts with other government
authorities exploring the role of trustees in private label RMBS transactions. In February 2011, HSBC Bank USA
also received a subpoena from the US Attorney’s Office, Southern District of New York seeking production of
documents and information relating to loss mitigation efforts with respect to residential mortgages in the State of
New York. In January 2012, HSBC Securities (USA) Inc. was served with a Civil Investigative Demand from the
Massachusetts State Attorney General seeking documents, information and testimony related to the sale of RMBS to
public and private customers in the State of Massachusetts from January 2005 to the present.
HSBC expects this level of focus will continue and, potentially, intensify, so long as the US real estate markets
continue to be distressed. As a result, HSBC Group companies may be subject to additional claims, litigation and
governmental and regulatory scrutiny related to its participation in the US mortgage securitisation market, either
individually or as a member of a group. HSBC is unable to estimate reliably the financial effect of any action or
litigation relating to these matters. As situations develop it is possible that any related claims could be significant.
Anti-money laundering and sanctions-related
In October 2010, HSBC Bank USA entered into a consent cease and desist order with the Office of the Comptroller
of the Currency and the indirect parent of that company, HNAH, entered into a consent cease and desist order with
the Federal Reserve Board (the ‘Orders’). These Orders required improvements to establish an effective compliance
risk management programme across the Group’s US businesses, including various issues relating to US Bank Secrecy
Act (‘BSA’) and anti-money laundering (‘AML’) compliance. Steps continue to be taken to address the requirements
of the Orders to ensure compliance, and that effective policies and procedures are maintained.
In addition, in December 2012, HSBC, HNAH and HSBC Bank USA entered into agreements to achieve a resolution
with US and UK government agencies that have investigated HSBC’s conduct related to inadequate compliance with
anti-money laundering, BSA and sanctions laws, including the previously reported investigations by the DoJ, the
Federal Reserve, the Office of the Comptroller of the Currency and the US Department of Treasury’s Financial
Crimes Enforcement Network (‘FinCEN’) in connection with AML/BSA compliance, including cross-border
transactions involving our cash handling business in Mexico and banknotes business in the US, and the DoJ, the New
York County District Attorney’s Office, the Office of Foreign Assets Control (‘OFAC’), the Federal Reserve and the
Office of the Comptroller of the Currency regarding historical transactions involving Iranian parties and other parties
subject to OFAC economic sanctions. As part of the resolution, HSBC entered into a deferred prosecution agreement
among HSBC, HSBC Bank USA, the DoJ, the United States Attorney’s Office for the Eastern District of New York,
and the United States Attorney’s Office for the Northern District of West Virginia (the ‘US DPA’), and a deferred
prosecution agreement with the New York County District Attorney, and consented to a cease and desist order and,
along with HNAH, consented to a monetary penalty order with the Federal Reserve. In addition, HSBC Bank USA
entered into the US DPA, an agreement and consent orders with the Office of the Comptroller of the Currency, and
a consent order with FinCEN. HSBC also entered into an undertaking with the UK Financial Services Authority
(‘FSA’) to comply with certain forward-looking obligations with respect to anti-money laundering and sanctions
requirements over a five-year term.
Under these agreements, HSBC and HSBC Bank USA made payments totalling US$1,921m to US authorities and
will continue to cooperate fully with US and UK regulatory and law enforcement authorities and take further action
to strengthen their compliance policies and procedures. Over the five-year term of the agreement with the DoJ and
FSA, an independent monitor (who will, for FSA purposes, be a ‘skilled person’ under Section 166 of the Financial
Services and Markets Act (‘FSMA’)) will evaluate HSBC’s progress in fully implementing these and other measures