HSBC 2013 Annual Report Download - page 115

113
29 Contingent liabilities, contractual commitments and guarantees
2013
$m
2012
$m
Guarantees and other contingent liabilities
Guarantees and irrevocable letters of credit pledged as collateral security ............. 3,940 3,083
Commitments
Undrawn formal standby facilities, credit lines and other commitments to lend1 ... 34,588 36,291
Documentary credits and short-term trade-related transactions .............................. 540 627
35,128 36,918
1 Based on original contractual maturity.
The table above discloses the nominal principal amounts of commitments, guarantees and other contingent liabilities.
They are mainly credit-related instruments which include both financial and non-financial guarantees and commitments
to extend credit. Nominal principal amounts represent the amounts at risk should contracts be fully drawn upon and
clients default. As a significant portion of guarantees and commitments is expected to expire without being drawn upon,
the total of these nominal principal amounts is not representative of future liquidity requirements.
Litigation
We are subject to a number of legal proceedings arising in the normal course of our business. We do not expect the
outcome of any of these proceedings, in aggregate, to have a material effect on our consolidated financial position or
our result of operations.
US regulatory and law enforcement investigations
In December 2012, HSBC Holdings plc (‘HSBC Holdings’), the bank’s ultimate parent company, HSBC Bank USA,
N.A. (‘HBUS’), and HSBC North America Holdings (‘HNAH’) entered into agreements to achieve a resolution with
US and UK government agencies regarding past inadequate compliance with anti-money laundering (‘AML’), Bank
Secrecy Act (BSA) and sanctions laws. Among other agreements, HSBC Holdings and HBUS entered into a five-year
Deferred Prosecution Agreement (the ‘US DPA’) with the US Department of Justice (‘DOJ’), HSBC Holdings entered
into a two-year Deferred Prosecution Agreement with the New York County District Attorney (‘DANY’), and HSBC
Holdings consented to a cease and desist order with the Federal Reserve Board (‘FRB’). HSBC Holdings also entered
into an Undertaking with the UK Financial Services Authority (now a Financial Conduct Authority (‘FCA’) Direction)
to comply with certain forward-looking obligations with respect to anti-money laundering and sanctions requirements
over a five-year term.
In addition, HBUS entered into a monetary penalty consent order with the US Department of the Treasury’s Financial
Crimes Enforcement Network (‘FinCEN’) and a separate monetary penalty order with the Office of the Comptroller
of the Currency (‘OCC’). HBUS also entered into a separate consent order with the OCC requiring it to correct
the circumstances and conditions as noted in the OCC’s then most recent report of examination, imposing certain
restrictions on HBUS directly or indirectly acquiring control of, or holding an interest in, any new financial subsidiary,
or commencing a new activity in its existing financial subsidiary, unless it receives prior approval from the OCC. HBUS
entered into a separate consent order with the OCC requiring it to adopt an enterprise wide compliance program.
Under these agreements, HSBC Holdings and HBUS will continue to cooperate fully with US and UK regulatory and
law enforcement authorities and take further action to strengthen its compliance policies and procedures. Under its
agreements with DOJ, the FCA, and the FRB, an independent corporate compliance monitor will evaluate the HSBC
Group’s progress in implementing its obligations under the relevant agreements. Michael Cherkasky has been selected
as the independent monitor, and, on 1 July, 2013, the United States District Court for the Eastern District of New York
approved the US DPA and retained authority to oversee implementation of the same.