8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of report (date of earliest event reported): December 11, 2012

HSBC USA INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

Maryland	1-7436	13-2764867
(State or other jurisdiction of incorporation )	(Commission File Number)	(I.R.S. Employer Identification No.)

452 Fifth Avenue

New York, New York, 10018

(Address of Principal Executive Offices, Including Zip Code)

(212) 525-5000

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01 Entry into a Material Definitive Agreement

On December 11, 2012, HSBC Holdings plc (the indirect ultimate parent of HSBC USA Inc.) announced that HSBC USA Inc.’s wholly owned subsidiary, HSBC Bank USA, N.A., had entered into (i) a deferred prosecution agreement among HSBC Bank USA, HSBC Holdings plc, the United States Department of Justice, 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, (ii) an agreement and consent orders with the Office of the Comptroller of the Currency, and (iii) a consent order with the United States Department of the Treasury’s Financial Crimes Enforcement Network.

Reference is made to these agreements, which have been filed as Exhibits 10.1, 10.2, 10.3, 10.4 and 10.5 hereto and are incorporated herein by reference.

Item 8.01 Other Events.

On December 11, 2012, HSBC Holdings plc issued a press release announcing that it and certain of its subsidiaries had reached agreement with United States authorities in relation to investigations regarding inadequate compliance with anti-money laundering and sanctions laws. A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits.

Exhibit No.	Description
10.1	Deferred Prosecution Agreement dated December 11, 2012, between HSBC Holdings plc, HSBC Bank USA, N.A., HSBC North America Holdings, Inc., the United States Department of Justice, 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
10.2	Consent Order dated December 11, 2012, of the Comptroller of the Currency of the United States in the Matter of HSBC Bank USA, N.A.
10.3	Consent Order for the Assessment of a Civil Money Penalty dated December 11, 2012, of the Comptroller of the Currency of the United States in the Matter of HSBC Bank USA, N.A.
10.4	Agreement by and between HSBC Bank USA, N.A. McLean, Virginia and the Office of the Comptroller of the Currency dated December 11, 2012
10.5	Consent to the Assessment of a Civil Money Penalty dated December 11, 2012, of the United States Department of Treasury Financial Crimes Enforcement Network in the Matter of HSBC Bank USA, N.A.
99.1	Press Release, dated December 11, 2012, issued by HSBC Holdings plc

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized.

	HSBC USA Inc.
	By:	/s/ Mick Forde
	Name:	Mick Forde
	Title:	Senior Vice President, Deputy General Counsel – Corporate and Assistant Secretary
Date: December 12, 2012

Exhibit Index

Exhibit No.	Description
10.1	Deferred Prosecution Agreement dated December 11, 2012, between HSBC Holdings plc, HSBC Bank USA, N.A., HSBC North America Holdings, Inc., the United States Department of Justice, 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
10.2	Consent Order dated December 11, 2012, of the Comptroller of the Currency of the United States in the Matter of HSBC Bank USA, N.A.
10.3	Consent Order for the Assessment of a Civil Money Penalty dated December 11, 2012, of the Comptroller of the Currency of the United States in the Matter of HSBC Bank USA, N.A.
10.4	Agreement by and between HSBC Bank USA, N.A. McLean, Virginia and the Office of the Comptroller of the Currency dated December 11, 2012
10.5	Consent to the Assessment of a Civil Money Penalty dated December 11, 2012, of the United States Department of Treasury Financial Crimes Enforcement Network in the Matter of HSBC Bank USA, N.A.
99.1	Press Release, dated December 11, 2012, issued by HSBC Holdings plc

EX-10.1

Exhibit 10.1

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK
X
UNITED STATES OF AMERICA
-against-	Cr. No.     12-763
HSBC BANK USA, N.A. and HSBC HOLDINGS PLC,
Defendants.
X

DEFERRED PROSECUTION AGREEMENT

Defendant HSBC Bank USA, N.A., a federally chartered banking institution and subsidiary of HSBC North America Holdings, Inc., and defendant HSBC Holdings plc, a financial institution holding company organized under the laws of England and Wales (collectively, “the HSBC Parties”), by their undersigned representatives, pursuant to authority granted by the HSBC Parties’ Boards of Directors, and the United States Department of Justice, Criminal Division, Asset Forfeiture and Money Laundering Section, 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 (collectively, the “Department”), enter into this deferred prosecution agreement (the “Agreement”). The terms and conditions of this Agreement are as follows:

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Criminal Information and Acceptance of Responsibility

1.      The HSBC Parties acknowledge and agree that the Department will file the attached four-count criminal Information in the United States District Court for the Eastern District of New York (“the Court”) charging the HSBC Parties with (a) wilfully failing to maintain an effective anti-money laundering program, in violation of Title 31, United States Code, Section 5318(h) and regulations issued thereunder; (b) wilfully failing to conduct and maintain due diligence on correspondent bank accounts held on behalf of foreign persons, in violation of Title 31, United States Code, Section 5318(i) and regulations issued thereunder; (c) wilfully violating and attempting to violate the Trading with the Enemy Act, Title 50 United States Code Appendix Sections 3, 5, 16, and regulations issued thereunder; and (d) wilfully violating and attempting to violate the International Emergency Economic Powers Act, Title 50 United States Code Sections 1702 and 1705, and regulations issued thereunder. In so doing, the HSBC Parties: (a) knowingly waive their right to indictment on this charge, as well as all rights to a speedy trial pursuant to the Sixth Amendment to the United States Constitution, Title 18, United States Code, Section 3161, and Federal Rule of Criminal Procedure 48(b); and (b) knowingly waive for purposes of this Agreement any objection

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with respect to venue and consent to the filing of the Information, as provided under the terms of this Agreement.

2.      The HSBC Parties admit, accept and acknowledge that they are responsible for the acts of their officers, directors, employees, and agents as charged in the Information, and as set forth in the Statement of Facts attached hereto as Attachment A and incorporated by reference into this Agreement, and that the allegations described in the Information and the facts described in Attachment A are true and accurate. Should the Department pursue the prosecution that is deferred by this Agreement, the HSBC Parties agree that they will neither contest the admissibility of nor contradict the Statement of Facts in any such proceeding, including any guilty plea or sentencing proceeding. Neither this Agreement nor the criminal Information is a final adjudication of the matters addressed in such documents.

Term of the Agreement

3.      This Agreement is effective for a period beginning on the date on which the Information is filed and ending five (5) years from that date (the “Term”). However, the HSBC Parties agree that, in the event the Department determines, in its sole discretion, that the HSBC Parties have knowingly violated any provision of this Agreement, an extension or extensions of the Term of the Agreement may be imposed by the Department, in its sole discretion, for up

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to a total additional period of one year, without prejudice to the Department’s right to proceed as provided in Paragraphs 16 through 19 below. Any extension of the Agreement extends all terms of this Agreement for an equivalent period. Conversely, in the event the Department finds, in its sole discretion, that the provisions of this Agreement have been satisfied, the Term of the Agreement may be terminated early.

Relevant Considerations

4.      The Department enters into this Agreement based on the individual facts and circumstances presented by this case. Among the facts considered were the following: (a) the HSBC Parties’ willingness to acknowledge and accept responsibility for the actions of their officers, directors, employees, and agents as charged in the Information and as set forth in the Statement of Facts; (b) the HSBC Parties’ extensive remedial actions taken to date, which are described in the Statement of Facts and Paragraph 5 below; (c) the HSBC Parties’ agreement to continue to enhance their anti-money laundering programs; (d) the HSBC Parties’ agreement to continue to cooperate with the Department in any ongoing investigation of the conduct of the HSBC Parties and their current or former officers, directors, employees, agents and consultants, as provided in Paragraph 6 below; (e) the HSBC Parties’ willingness to settle any and all civil and criminal

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claims currently held by the Department for any act within the scope of the Statement of Facts; and (f) the HSBC Parties’ cooperation with the Department, including conducting multiple extensive internal investigations, voluntarily making U.S. and foreign employees available for interviews, and collecting, analyzing, and organizing voluminous evidence and information for the Department.

5.      The HSBC Parties have taken, will take, and/or shall continue to adhere to, the following remedial measures:

a. HSBC North America has a new leadership team, including a new Chief Executive Officer, General Counsel, Chief Compliance Officer, AML Director, Deputy Chief Compliance Officer and Deputy Director of its Global Sanctions program.

b. As a result of its AML violations and program deficiencies, HSBC North America and HSBC Bank USA “clawed back” deferred compensation (bonuses) for a number of their most senior AML and compliance officers, to include the Chief Compliance Officer, AML Director and Chief Executive Officer.

c. In 2011, HSBC Bank USA spent $244 million on AML, approximately nine times more than what it spent in 2009.

d. In particular, HSBC Bank USA has increased its AML staffing from 92 full time employees and 25 consultants as of January 2010 to approximately 880 full time employees and 267 consultants as of May 2012.

e. HSBC Bank USA has reorganized its AML department to strengthen its reporting lines and elevate its status

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within the institution as a whole by (i) separating the Legal and Compliance departments; (ii) requiring that the AML Director report directly to the Chief Compliance Officer; and (iii) providing that the AML Director regularly report directly to the Board and senior management about HSBC Bank USA’s Bank Secrecy Act (“BSA”) and anti-money laundering (“AML”) program.

f. HSBC Bank USA has revamped its KYC program and now treats HSBC Group Affiliates as third parties that are subject to the same due diligence as all other customers.

g. HSBC Bank USA has implemented a new customer risk-rating methodology based on a multifaceted approach that weighs the following factors: (1) the country where the customer is located, (2) the products and services utilized by the customer, (3) the customer’s legal entity structure, and (4) the customer and business type.

h. HSBC Bank USA has exited 109 correspondent relationships for risk reasons.

i. HSBC Bank USA has a new automated monitoring system. The new system monitors every wire transaction that moves through HSBC Bank USA. The system also tracks the originator, sender and beneficiary of a wire transfer, allowing HSBC Bank USA to look at its customer’s customer.

j. HSBC Bank USA has made significant progress in remediating all customer KYC files in order to ensure they adhere to the new AML policies discussed above and plans to have completed remediation of 155,554 customers by December 2012.

k. HSBC Bank USA has exited the Banknotes business.

l. HSBC Bank USA has spent over $290 million on remedial measures.

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m. HSBC Holdings also has a new leadership team, including a new CEO, Chairman, Chief Legal Officer and Head of Global Standards Assurance.

n. HSBC Group has simplified its control structure so that the entire organization is aligned around 4 global businesses, 5 regional geographies, and 10 global functions. This allows HSBC Group to better manage its business and communication, and better understand and address risks worldwide.

o. Since January 2011, HSBC Group has begun to apply a more consistent global risk appetite and as a result has sold 42 businesses and withdrawn from 9 countries.

p. HSBC Group has undertaken to implement single global standards shaped by the highest or most effective anti-money laundering standards available in any location where the HSBC Group operates. This new policy will require that all HSBC Group Affiliates will, at a minimum, adhere to U.S. anti-money laundering standards.

q. HSBC Group has elevated the Head of HSBC Group Compliance position to a Group General Manager, which is one of the 50 most senior employees at HSBC globally. HSBC Group has also replaced the individual serving as Head of HSBC Group Compliance.

r. The Head of HSBC Group Compliance has been given direct oversight over every compliance officer globally, so that both accountability and escalation now flow directly to and from HSBC Group Compliance.

s. Eighteen of the top twenty-one most senior officers at HSBC Group are new in post since the beginning of 2011.

t. Material or systemic AML control weaknesses at any affiliate that are reported by the Regional and Global Business Compliance heads are now shared with all other

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Regional and Global Business Compliance heads facilitating horizontal information sharing.

u. The senior leadership team that attends HSBC Group Management Board meetings is collectively and individually responsible for reviewing all of the information presented at the meeting, as well as all written documentation provided in advance of the meeting, and determining whether it affects their respective entity or region. In addition, if an executive believes that something occurring within his or her area of responsibility affects another business or affiliate within HSBC Group, it is that executive’s responsibility to seek out the executives from that business or affiliate and work to address the issue.

v. HSBC Group has restructured its senior executive bonus system so that the extent to which the senior executive meets compliance standards and values has a significant impact on the amount of the senior executive’s bonus, and failure to meet those compliance standards and values could result in the voiding of the senior executive’s entire year-end bonus.

w. HSBC Group has commenced a review of all customer KYC files across the entire Group. The first phase of this remediation will cost an estimated $700 million to complete over five years.

x. HSBC Group will defer a portion of the bonus compensation for its most senior officers, namely its Group General Managers and Group Managing Directors, during the pendency of the deferred prosecution agreement, subject to EU and UK legal and regulatory requirements.

y. HSBC Group has adopted a set of guidelines to be taken into account when considering whether HSBC Group should do business in countries posing a particularly high corruption/rule of law risk as well as limiting

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business in those countries that pose a high financial crime risk.

z. Under HSBC Group’s new global sanctions policy, HSBC Group will be utilizing key Office of Foreign Assets Control (“OFAC”) and other sanctions lists to conduct screening in all jurisdictions, in all currencies.

Upon the application of the HSBC Parties, the Corporate Compliance Monitor (discussed infra at paragraphs 9-13) may modify, adjust, or discontinue any remedial or compliance measure listed in this Agreement if the Monitor finds that continuation of the measure is impractical, inconsistent with any recommendation of the Monitor, or inadvisable for any other reason, subject to Department approval.

Cooperation

6.      The HSBC Parties shall continue to cooperate fully with the Department in any and all investigations, subject to applicable laws and regulations and the attorney-client and attorney work product privileges. At the request of the Department, the HSBC Parties shall also cooperate fully with other domestic or foreign law enforcement authorities and agencies in any investigation of the HSBC Parties or any of their present and former officers, directors, employees, agents and consultants, or any other party. The HSBC Parties also agree that they shall:

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a. Use their good faith efforts to make available, at their cost, the HSBC Parties’ current and former officers, directors, employees, agents and consultants, when requested by the Department, to provide additional information and materials concerning any and all investigation; to testify, including providing sworn testimony before a grand jury or in a judicial proceeding; and to be interviewed by law enforcement authorities. Cooperation under this Paragraph shall include identification of witnesses who, to the knowledge of the HSBC Parties, may have material information regarding these matters;

b. Provide any information, materials, documents, databases, or transaction data in the HSBC Parties’ possession, custody, or control, or in the possession custody or control of any affiliate, wherever located, requested by the Department in connection with the investigation or prosecution of any current or former officers, directors, employees, agents and consultants;

c. Continue to abide by the terms of the “Consent Cease and Desist Order” entered with the Board of Governors of the Federal Reserve System, dated October 4, 2010;

d. Continue to abide by the terms of the “Consent Cease and Desist Order” entered with the Office of the Comptroller of the Currency (“OCC”), dated October 6, 2010;

e. Abide by the terms of the “Consent Cease and Desist Order” entered with the Board of Governors of the Federal Reserve System, dated December 11, 2012;

f. Continue to apply the OFAC sanctions list to the same extent as any United Nations or European Union sanctions or freeze lists to United States Dollar (“USD”) transactions, the acceptance of customers, and all USD cross-border Society for Worldwide Interbank

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Financial Telecommunications (“SWIFT”) incoming and outgoing messages involving payment instructions or electronic transfer of funds;

g. Except as otherwise permitted by United States law, not knowingly undertake any USD cross-border electronic funds transfer or any other USD transaction for, on behalf of, or in relation to any person or entity resident or operating in, or the governments of, Iran, North Korea, Sudan (except for those regions and activities exempted from the United States embargo by Executive Order No. 13412), Syria or Cuba;

h. Implement compliance procedures and training designed to ensure that the HSBC Parties’ compliance officer in charge of sanctions is made aware in a timely manner of any known requests or attempts by any entity (including, but not limited to, the HSBC Parties’ customers, financial institutions, companies, organizations, groups, or persons) to withhold or alter its name or other identifying information where the request or attempt appears to be related to circumventing or evading U.S. sanctions laws. The HSBC Parties’ Head of Compliance, or his or her designee, shall report to the Department, in a timely manner, the name and contact information, if available to the HSBC Parties, of any entity that makes such a request;

i. Maintain the electronic database of SWIFT Message Transfer payment messages and all documents and materials produced by the HSBC Parties to the Department as part of this investigation relating to USD payments processed during the period from 2001 through 2007 in electronic format for a period of five years from the date of this Agreement;

j. Notify the Department of any criminal, civil, administrative or regulatory investigation or action of the Bank or its current directors, officers, employees, consultants, representatives, and agents

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related to the HSBC Parties’ compliance with U.S. sanctions laws, the HSBC Parties’ involvement in money laundering, or the HSBC Parties’ anti-money laundering program;

k. Provide information, materials, and testimony as necessary or requested to identify or to establish the original location, authenticity, or other basis for admission into evidence of documents or physical evidence in any criminal or judicial proceeding; and

l. Develop and implement policies and procedures for mergers and acquisitions requiring that the HSBC Parties conduct appropriate risk-based due diligence on potential new business entities, including appropriate BSA and anti-money laundering due diligence by legal, audit, and compliance personnel. If the HSBC Parties discover inadequate anti-money laundering controls as part of their due diligence of newly acquired entities or entities merged with the HSBC Parties, it shall report such conduct to the Department as required in Attachment B to this Agreement.

Forfeiture Amount

7.      As a result of the HSBC Parties’ conduct, including the conduct set forth in the Statement of Facts, the parties agree the Department could institute a civil and/or criminal forfeiture action against certain funds held by the HSBC Parties and that such funds would be forfeitable pursuant to Title 18, United States Code, Sections 981 and 982. The HSBC Parties hereby acknowledge that at least $881,000,000 was involved in transactions, in violation of Title 18, United States Code,

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Sections 1956 and 1957; and that at least $375,000,000 was involved in transactions in violation of Title 50, United States Code, Appendix, Sections 3, 5 and 16 and the regulations issued thereunder, or Title 50, United States Code, Section 1705 and the regulations issued thereunder. In lieu of a criminal prosecution and related forfeiture, the HSBC Parties hereby agree to pay to the United States the sum of $1,256,000,000 (the “Forfeiture Amount”). The HSBC Parties hereby agree the Forfeiture Amount shall be considered substitute res for the purpose of forfeiture to the United States pursuant to Title 18, United States Code, Sections 981 and 982, and the HSBC Parties release any and all claims they may have to such funds. The HSBC Parties shall pay the Forfeiture Amount plus any associated transfer fees within five (5) business days of the date on which this Agreement is signed, pursuant to payment instructions as directed by the Department in its sole discretion.

Conditional Release from Liability

8.      In return for the full and truthful cooperation of the HSBC Parties, and their compliance with the other terms and conditions of this Agreement, the Department agrees, subject to Paragraphs 16 through 19 below, not to use any information related to the conduct described in the attached Statement of Facts against the HSBC Parties or any of their corporate parents, subsidiaries,

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affiliates, predecessors, successors or assigns, in any criminal or civil case, except: (a) in a prosecution for perjury or obstruction of justice; or (b) in a prosecution for making a false statement. In addition, the Department agrees, except as provided herein, that it will not bring any criminal case against the HSBC Parties or any of their corporate parents, subsidiaries, affiliates, predecessors, successors or assigns, related to the conduct described in the attached Statement of Facts and the Information.

a. This Paragraph does not provide protection against prosecution for conduct not disclosed by the HSBC Parties to the Department prior to the date on which this Agreement was signed, nor does it provide protection against prosecution for any future involvement by the HSBC Parties in criminal activity, including any future involvement in money laundering or any future failure to maintain an effective anti-money laundering program.

b. In addition, this Paragraph does not provide any protection against prosecution of any present or former officers, directors, employees, agents and consultants of the HSBC Parties for any violations committed by them, including any conduct described in the Statement of Facts or any conduct disclosed to the Department by the HSBC Parties.

c. Finally, other than transactions during the period set forth in the Statement of Facts that have already been disclosed and documented to the United States, this Paragraph does not provide any protection against prosecution of the HSBC Parties, or any of their affiliates, successors, related companies, employees,

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officers or directors, who knowingly and wilfully transmitted or approved the transmission of funds that went to or came from persons or entities designated by OFAC at the time of the transaction as Specially Designated Terrorists, Specially Designated Global Terrorists, Foreign Terrorist Organizations, and proliferators of Weapons of Mass Destruction (the “Special SDN Transactions”), including transactions disclosed and documented to the United States that occurred after January 1, 2008. Any prosecution related to the Special SDN Transactions may be premised upon any information provided by or on behalf of the HSBC Parties to the Department or any investigative agencies, whether prior to or subsequent to this Agreement, or any leads derived from such information, including the attached Statement of Facts.

Corporate Compliance Monitor

9.      Within sixty (60) calendar days of the filing of the Agreement and the accompanying Information, or promptly after the Department’s selection pursuant to Paragraph 10 below, HSBC Holdings agrees to retain an independent compliance monitor (the “Monitor”). In particular, within thirty (30) calendar days after the execution of this Agreement, and after consultation with the Department, HSBC Holdings will propose to the Department a pool of three qualified candidates to serve as the Monitor. If the Department, in its sole discretion, is not satisfied with the candidates proposed, the Department reserves the right to seek additional nominations from HSBC Holdings. The Monitor candidates shall have, at a minimum, the following qualifications:

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a. demonstrated expertise with respect to the BSA and other applicable U.S. and U.K. anti-money laundering laws;

b. experience designing and/or reviewing corporate compliance policies, procedures and internal controls, including BSA and anti-money laundering policies, procedures and internal controls;

c. the ability to access and deploy resources as necessary to discharge the Monitor’s duties as described in the Agreement; and

d. sufficient independence from HSBC Holdings to ensure effective and impartial performance of the Monitor’s duties as described in the Agreement.

10.      The Department retains the right, in its sole discretion, to accept or reject any Monitor candidate proposed by HSBC Holdings, though HSBC Holdings may express their preference(s) among the candidates. In the event the Department rejects all proposed Monitors, HSBC Holdings shall propose another candidate within ten (10) calendar days after receiving notice of the rejection. This process shall continue until a Monitor acceptable to both parties is chosen. The Department may also propose the names of qualified Monitor candidates for consideration. The term of the monitorship, as set forth in Attachment B, shall commence upon the Department’s acceptance of a Monitor candidate proposed by HSBC Holdings. If the Monitor resigns or is otherwise unable to fulfill his or her obligations as set out herein and Attachment B, HSBC Holdings shall

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within sixty (60) calendar days recommend a pool of three qualified Monitor candidates from which the Department will choose a replacement.

11.      The Monitor will be retained by HSBC Holdings for a period of not less than sixty (60) months from the date the Monitor is selected. The term of the monitorship, including the circumstances that may support an extension of the term, as well as the Monitor’s powers, duties, and responsibilities, will be as set forth in Attachment B.

12.      HSBC Holdings agrees that it will not employ or be affiliated with the Monitor for a period of not less than one year from the date on which the Monitor’s term expires.

13.      The Monitor’s term shall be five (5) years from the date on which the Monitor is retained by HSBC Holdings, subject to extension or early termination as described in Paragraph 3.

Deferred Prosecution

14.      In consideration of: (a) the past and future cooperation of the HSBC Parties described in Paragraph 6 above; (b) the HSBC Parties’ forfeiture, totaling $1,256,000,000; and (c) the HSBC Parties’ implementation and maintenance of remedial measures described in the Statement of Facts and Paragraph 5 above, the Department agrees that any prosecution of the HSBC Parties for conduct set forth in the Information or the attached Statement of

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Facts, and for the conduct that the HSBC Parties disclosed to the Department prior to the signing of this Agreement, be and hereby is deferred for the Term of this Agreement.

15.      The Department further agrees that if the HSBC Parties fully comply with all of their obligations under this Agreement, the Department will not continue the criminal prosecution against the HSBC Parties described in Paragraph 1 and, at the conclusion of the Term, this Agreement shall expire. Within thirty (30) days of the Agreement’s expiration, the Department shall seek dismissal with prejudice of the criminal Information filed against the HSBC Parties described in Paragraph 1.

Breach of the Agreement

16.      If, during the Term of this Agreement, the Department determines, in its sole discretion, that the HSBC Parties have (a) committed any crime under U.S. federal law subsequent to the signing of this Agreement, (b) at any time provided in connection with this Agreement deliberately false, incomplete, or misleading information, or (c) otherwise breached the Agreement, the HSBC Parties shall thereafter be subject to prosecution for any federal criminal violation of which the Department has knowledge, including the charges in the Information described in Paragraph 1, which may be pursued by the Department in the United States District Court for the Eastern District of New York or any other appropriate venue.

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Any such prosecution may be premised on information provided by the HSBC Parties. Any such prosecution that is not time-barred by the applicable statute of limitations on the date of the signing of this Agreement may be commenced against the HSBC Parties notwithstanding the expiration of the statute of limitations between the signing of this Agreement and the expiration of the Term plus one year. Thus, by signing this Agreement, the HSBC Parties agree the statute of limitations with respect to any such prosecution that is not time-barred on the date of the signing of this Agreement shall be tolled for the Term plus one year.

17.      In the event the Department determines the HSBC Parties have breached this Agreement, the Department agrees to provide the HSBC Parties with written notice of such breach prior to instituting any prosecution resulting from such breach. The HSBC Parties shall, within thirty (30) days of receipt of such notice, have the opportunity to respond to the Department in writing to explain the nature and circumstances of such breach, as well as the actions the HSBC Parties have taken to address and remediate the situation, which explanation the Department shall consider in determining whether to institute a prosecution.

18.      In the event the Department determines the HSBC Parties have breached this Agreement: (a) all statements made by or on behalf of the HSBC Parties to the Department or to the Court,

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including the attached Statement of Facts, and any testimony given by the HSBC Parties before a grand jury, a court, or any tribunal, whether prior or subsequent to this Agreement, and any leads derived from such statements or testimony, shall be admissible in evidence in any and all criminal proceedings brought by the Department against the HSBC Parties; and (b) the HSBC Parties shall not assert any claim under the United States Constitution, Rule 11(f) of the Federal Rules of Criminal Procedure, Rule 410 of the Federal Rules of Evidence, or any other federal rule that statements made by or on behalf of the HSBC Parties prior or subsequent to this Agreement, or any leads derived therefrom, should be suppressed. The decision whether conduct or statements of any current director or employee, or any person acting on behalf of, or at the direction of, the HSBC Parties will be imputed to the HSBC Parties for the purpose of determining whether the HSBC Parties have violated any provision of this Agreement shall be in the sole discretion of the Department.

19.      The HSBC Parties acknowledge the Department has made no representations, assurances, or promises concerning what sentence may be imposed by the Court if the HSBC Parties breach this Agreement and this matter proceeds to judgment. The HSBC Parties further acknowledge that any such sentence is solely within the

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discretion of the Court and that nothing in this Agreement binds or restricts the Court in the exercise of such discretion.

Sale or Merger of HSBC Parties

20.      The HSBC Parties agree that in the event they sell, merge, or transfer all or substantially all of their business operations as they exist as of the date of this Agreement, whether such sale is structured as a sale, asset sale, merger, or transfer, it shall include in any contract for sale, merger, or transfer a provision binding the purchaser, or any successor in interest thereto, to the obligations described in this Agreement.

Public Statements by HSBC Parties

21.      The HSBC Parties expressly agree that they shall not, through present or future attorneys, officers, directors, employees, agents or any other person authorized to speak for the HSBC Parties make any public statement, in litigation or otherwise, contradicting the acceptance of responsibility by the HSBC Parties set forth above or the facts described in the attached Statement of Facts. Any such contradictory statement shall, subject to cure rights of the HSBC Parties described below, constitute a breach of this Agreement, and the HSBC Parties thereafter shall be subject to prosecution as set forth in Paragraphs 16-19 of this Agreement. The decision whether any public statement by any such person contradicting a fact contained in the Statement of Facts will be

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imputed to the HSBC Parties for the purpose of determining whether they have breached this Agreement shall be at the sole discretion of the Department. If the Department determines that a public statement by any such person contradicts in whole or in part a statement contained in the Statement of Facts, the Department shall so notify the HSBC Parties, and the HSBC Parties may avoid a breach of this Agreement by publicly repudiating such statement(s) within five (5) business days after notification. The HSBC Parties shall be permitted to raise defenses and to assert affirmative claims in other proceedings relating to the matters set forth in the Statement of Facts provided that such defenses and claims do not contradict, in whole or in part, a statement contained in the Statement of Facts. This Paragraph does not apply to any statement made by any present or former officer, director, employee, or agent of the HSBC Parties in the course of any criminal, regulatory, or civil case initiated against such individual, unless such individual is speaking on behalf of the HSBC Parties. Subject to this paragraph, the HSBC Parties retain the ability to provide information or take legal positions in litigation or other regulatory proceedings in which the Department or the New York County District Attorney’s Office is not a party.

22.      The HSBC Parties agree that if it or any of its direct or indirect subsidiaries or affiliates issues a press release or

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holds any press conference in connection with this Agreement, the HSBC Parties shall first consult the Department to determine (a) whether the text of the release or proposed statements at the press conference are true and accurate with respect to matters between the Department and the HSBC Parties; and (b) whether the Department has no objection to the release.

23.      The Department agrees, if requested to do so, to bring to the attention of governmental and other debarment authorities the facts and circumstances relating to the nature of the conduct underlying this Agreement, and the nature and quality of the HSBC Parties’ cooperation and remediation. By agreeing to provide this information to debarment authorities, the Department is not agreeing to advocate on behalf of the HSBC Parties, but rather is agreeing to provide facts to be evaluated independently by the debarment authorities.

Limitations on Binding Effect of Agreement

24.      This Agreement is binding on the HSBC Parties and the Department, but specifically does not bind any other federal agencies, or any state, local or foreign law enforcement or regulatory agencies, or any other authorities, although the Department will bring the cooperation of the HSBC Parties and their compliance with their other obligations under this Agreement to the attention of such agencies and authorities if requested to do so

23

by the HSBC Parties. Specifically, this Agreement does not bind the Tax Division or the Fraud Section of the Criminal Division of the United States Department of Justice. This Agreement does not bind any affiliates or subsidiaries of HSBC Holdings plc, other than those that are parties to this Agreement, but is binding on HSBC Holdings plc itself. To the extent HSBC Holdings plc’s compliance with this Agreement requires it, HSBC Holdings plc agrees to ensure that its wholly-owned subsidiaries, and any successors and assigns, comply with the requirements and obligations set forth in this Agreement, to the full extent permissible under locally applicable laws and regulations, and the instructions of local regulatory agencies.

Complete Agreement

25.      This Agreement sets forth all the terms of the agreement between the HSBC Parties and the Department. No amendments, modifications or additions to this Agreement shall be valid unless they are in writing and signed by the Department, the attorneys for the HSBC Parties and a duly authorized representative of the HSBC Parties.

24

FOR HSBC Bank USA, N.A. and HSBC Holdings plc:

Date: December 10, 2012	By:	/s/ Stuart A. Alderoty
		Stuart A. Alderoty
		Senior Executive Vice President
		and General Counsel
		HSBC Bank USA, N.A.
Date: December 10, 2012	By:	/s/ Marc Moses
		Marc Moses
		Group Chief Risk Officer
		HSBC Holdings plc
Date: December 10, 2012	By:	/s/ David N. Kelley
		David N. Kelley
		Anirudh Bansal
		Cahill Gordon & Reindel LLP
Date: December 10, 2012	By:	/s/ Samuel W. Seymour
		Samuel W. Seymour
		Alexander J. Willscher
		Sullivan & Cromwell LLP

25

FOR THE DEPARTMENT OF JUSTICE:

	LANNY BREUER
	ASSISTANT ATTORNEY GENERAL
	LORETTA E. LYNCH
	UNITED STATES ATTORNEY
	Eastern District of New York
Date: 12/11/2012	BY:	/s/ Alexander A. Solomon
		Alexander A. Solomon
		Daniel S. Silver
		Assistant United States Attorneys
	JAIKUMAR RAMASWAMY
	Chief, Asset Forfeiture and Money
		Laundering Section Criminal Division
	United States Department of Justice
Date: 12/11/2012	BY:	/s/ Joseph K. Markel
		Joseph K. Markel
		Craig M. Timm
		Trial Attorneys
		Asset Forfeiture and Money
		Laundering Section
	WILLIAM J. IHLENFELD II
	UNITED STATES ATTORNEY
	Northern District of West Virginia
Date: 12/11/2012	BY:	/s/ Michael Stein
		Michael Stein
		Assistant United States Attorney

26

BANK OFFICER’S CERTIFICATE

I have read this Agreement and carefully reviewed every part of it with outside counsel for HSBC Bank USA, N.A. (the “Bank”). I understand the terms of this Agreement and voluntarily agree, on behalf of the Bank, to each of its terms. Before signing this Agreement, I consulted outside counsel for the Bank. Counsel fully advised me of the rights of the Bank, of possible defenses, and of the consequences of entering into this Agreement.

I have carefully reviewed the terms of this Agreement with the Board of Directors of the Bank. I have advised and caused outside counsel for the Bank to advise the Board of Directors fully of the rights of the Bank, of possible defenses, and of the consequences of entering into the Agreement.

No promises or inducements have been made other than those contained in this Agreement. Furthermore, no one has threatened or forced me, or to my knowledge any person authorizing this Agreement on behalf of the Bank, in any way to enter into this Agreement.

I am also satisfied with outside counsel’s representation in this matter. I certify that I am the Senior Executive Vice President and General Counsel for the Bank and that I have been duly authorized by the Bank to execute this Agreement on behalf of the Bank.

27

Nothing in this Certificate is intended nor shall it be deemed as a waiver by the Bank of the attorney-client privilege or work product protection.

Date: December 10, 2012

	HSBC Bank USA, N.A.
By:	/s/ Stuart A. Alderoty
	Stuart A. Alderoty
	Senior Executive Vice President
	and General Counsel
	HSBC Bank USA, N.A.

28

COMPANY OFFICER’S CERTIFICATE

I have read this Agreement and carefully reviewed every part of it with outside counsel for HSBC Holdings plc (the “Company”). I understand the terms of this Agreement and voluntarily agree, on behalf of the Company, to each of its terms. Before signing this Agreement, I consulted outside counsel for the Company. Counsel fully advised me of the rights of the Company, of possible defenses, and of the consequences of entering into this Agreement.

I have carefully reviewed the terms of this Agreement with the Board of Directors of the Company. Internal and External counsel have advised the Board of Directors fully of the rights of the Company, of possible defenses, and of the consequences of entering into the Agreement.

No promises or inducements have been made other than those contained in this Agreement. Furthermore, no one has threatened or forced me, or to my knowledge any person authorizing this Agreement on behalf of the Company, in any way to enter into this Agreement.

I am also satisfied with outside counsel’s representation in this matter. I certify that I am the Group Chief Risk Officer for the Company and that I have been duly authorized by the Company to execute this Agreement on behalf of the Company.

29

Nothing in this Certificate is intended nor shall it be deemed as a waiver by the Company of the attorney-client privilege or work product protection.

Date: December 10, 2012

	HSBC Holdings plc
By:	/s/ Marc Moses
	Marc Moses
	Group Chief Risk Officer
	HSBC Holdings plc

30

CERTIFICATE OF COUNSEL

I am counsel for HSBC Bank USA, N.A. and HSBC Holdings plc (collectively, the “Bank”) in the matter covered by this Agreement. In connection with such representation, I have examined relevant Bank documents and have discussed the terms of this Agreement with the Bank’s Boards of Directors. Based on our review of the foregoing materials and discussions, I am of the opinion that the representatives of the Bank have been duly authorized to enter into this Agreement on behalf of the Bank and that this Agreement has been duly and validly authorized, executed, and delivered on behalf of the Bank and is a valid and binding obligation of the Bank. Further, I have carefully reviewed the terms of this Agreement with the Boards of Directors of the Bank and the Senior Executive Vice President and General Counsel for HSBC Bank USA, N.A., and the Group Chief Risk Officer for HSBC Holdings plc. I have fully advised them of the rights of the Bank, of possible defenses, and of the consequences of entering into this Agreement. To my knowledge, the decision of the Bank to enter into this Agreement, based on the authorization of the Boards of Directors, is an informed and voluntary one.

Nothing in this Certificate is intended nor shall it be deemed as a waiver by the Bank of the attorney-client privilege or work product protection.

31

Date: December 10, 2012

By:	/s/ David N. Kelley
	David N. Kelley
	Anirudh Bansal
	Cahill Gordon & Reindel LLP
	Counsel for HSBC Bank USA, N.A. and HSBC Holdings plc
By:	/s/ Samuel W. Seymour
	Samuel W. Seymour
	Alexander J. Willscher
	Sullivan & Cromwell LLP
	Counsel for HSBC Bank USA, N.A. and HSBC Holdings plc

32

EX-10.2

Exhibit 10.2

UNITED STATES OF AMERICA

DEPARTMENT OF THE TREASURY

COMPTROLLER OF THE CURRENCY

	)
In the Matter of:	)	AA-EC-2012-140
HSBC Bank USA, N.A.	)
McLean, Virginia	)
	)

CONSENT ORDER

The Comptroller of the Currency of the United States of America (“Comptroller”), through his national bank examiners has conducted an examination of HSBC Bank USA, N.A., McLean, Virginia (“Bank”). The Comptroller has identified certain unsafe or unsound practices related to enterprise-wide compliance. The Comptroller has informed the Bank of the findings resulting from the examination.

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 December 11, 2012 (“Stipulation and Consent”), that is accepted by the Comptroller through his duly authorized representative. By this Stipulation and Consent, which is incorporated by reference, the Bank has consented to the issuance of this Consent Order (“Order”) by the Comptroller.

ARTICLE I

COMPTROLLER’S FINDINGS

The Comptroller finds, and the Bank neither admits nor denies, the following:

1

(1) The Bank has a supervisory history of non-compliance with banking laws and regulations, as well as non-conformance with policies, procedures, and prescribed practices in the compliance area that have occurred over a multi-year period. During the past year, additional deficiencies have surfaced from internal and external reviews that evidence broad and serious weaknesses in the Bank’s compliance program. The robustness of the compliance program has not kept pace with the bank’s size, complexity, and risk profile.

(2) The Comptroller’s examination findings establish that the Bank has engaged in unsafe or unsound practices with respect to enterprise-wide compliance. Specifically, the Bank’s compliance program has historically shown deficiencies in adequate, proactive leadership, risk reporting, and policies and procedures.

Pursuant to the authority invested in him by the Federal Deposit Insurance Act, as amended, 12 U.S.C. § 1818(b), the Comptroller hereby ORDERS that:

ARTICLE II

COMPLIANCE COMMITTEE

(1) The Board shall maintain a Compliance Committee of at least three (3) directors, 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 Deputy Comptroller for Large Bank Supervision (“Deputy Comptroller”) and 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.

(2) The Compliance Committee shall meet at least monthly.

2

(3) 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:

(a) a description of the actions needed to achieve full compliance with each Article of this Order;

(b) actions taken to comply with each Article of this Order; and

(c) the results and status of those actions.

(4) The Board shall forward a copy of the Compliance Committee’s report, with any additional comments by the Board, to the Deputy Comptroller and Examiner-in-Charge within ten (10) days of receiving such report.

ARTICLE III

ENTERPRISE-WIDE COMPLIANCE PROGRAM

(1) Within ninety (90) days of the date of this Order, the Board, or a designated committee of the Board, shall adopt, implement, and thereafter ensure adherence to a written enterprise-wide compliance program designed to ensure that the Bank is operating in compliance with applicable laws, rules, regulations, regulatory guidance, and supervisory findings. This program shall include, but not be limited to:

(a) written description of the duties, responsibilities, and authority of the chief compliance officer and a requirement that this position be staffed by a qualified individual;

(b) written descriptions of the duties, responsibilities, and reporting lines of other compliance management officers and compliance

3

personnel, and requirements that these positions be staffed with qualified personnel;

(c) performance objectives and compensation plans that align with written descriptions of duties and responsibilities of compliance personnel;

(d) written compliance values statement, to be communicated across the Bank;

(e) annual written analysis of the products and services offered by the Bank that fully assesses risk presented by applicable laws, rules, regulations, regulatory guidance, and supervisory findings;

(f) the preparation of a policies and procedures manual covering applicable laws, rules, regulations, regulatory guidance, and supervisory findings for use by appropriate Bank personnel in the performance of their duties and responsibilities;

(g) at least semi-annual review of the written policies and procedures manual to update it, as appropriate, to ensure it remains current;

(h) a control environment maintained by business lines and risk functions (“second lines of defense”) that ensures compliance with applicable laws, rules, regulations, regulatory guidance, and supervisory findings;

(i) integration of compliance risk into the enterprise-wide risk management framework;

4

(j) an audit program that tests compliance with applicable laws, rules, regulations, regulatory guidance, and supervisory findings;

(k) at least semi-annual independent evaluation of the effectiveness of the enterprise-wide compliance program, including but not limited to management, management information systems, staffing, and training;

(l) at least semi-annual independent reporting of the results of the evaluation of the enterprise-wide compliance program to the Board or a committee thereof;

(m) procedures to ensure that exceptions noted in testing and validation reports are corrected and responded to by the appropriate Bank personnel in a timely manner; and

(n) the education and training of all appropriate Bank personnel to ensure their awareness of applicable laws, rules, regulations, regulatory guidance, and Bank policies and procedure.

(2) Upon completion of the program, the Board shall submit the program to the Deputy Comptroller and the Examiner-in-Charge for prior written determination of no supervisory objection. In the event the Deputy Comptroller recommends changes to the program, the Board shall incorporate those changes into the program. Upon receiving a written determination of no supervisory objection from the Deputy Comptroller, the Bank shall immediately implement and adhere to the program.

5

ARTICLE IV

ENTERPRISE-WIDE COMPLIANCE PROGRAM ACTION PLAN

(1) The Board shall direct management to undertake and complete all steps necessary to correct the circumstances and conditions, as noted in the Bank’s most recent Report of Examination, which prompted the need for the enterprise-wide compliance program required by this Order.

(2) Within ninety (90) days of this Order, the Board shall develop and adopt a written plan that:

(a) explains the specific actions that Bank management will take to achieve full implementation of the enterprise-wide compliance program, under Article III, including personnel resource requirements and the associated on boarding timeline;

(b) specifies how the Board will ensure Bank management’s implementation of the plan; and

(c) sets forth a timetable for the implementation of each action specified in the plan.

(3) Upon completion of the plan, the Board shall submit the plan to the Deputy Comptroller and Examiner-in-Charge for a prior written determination of no supervisory objection. Upon receiving a written determination of no supervisory objection from the Deputy Comptroller, the Bank shall immediately implement and adhere to the plan.

(4) The plan shall be implemented pursuant to the time frames set forth within the plan unless events dictate modifications to the plan. Where the Board considers

6

modifications appropriate, those modifications shall be submitted to the Deputy Comptroller and Examiner-in-Charge for prior written determination of no supervisory objection. Upon receiving a written determination of no supervisory objection from the Deputy Comptroller, the Bank shall implement and adhere to the revised plan.

ARTICLE V

OTHER PROVISIONS

(1) Although this Order requires the Bank to submit certain actions, plans, programs, policies, and procedures 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) In each instance in this Order in which the Board is required to ensure adherence to, and undertake to perform certain obligations of the Bank, it is intended to mean that the Board shall:

(a) authorize and adopt such actions on behalf of the Bank as may be necessary for the Bank to perform its obligations and undertakings under the terms of this Order;

(b) require the timely reporting by Bank management of such actions directed by the Board to be taken under the terms of this Order;

(c) follow-up on any material non-compliance with such actions in a timely and appropriate manner; and

(d) require corrective action be taken in a timely manner of any material non-compliance with such actions.

7

(3) 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.

(4) This Order constitutes a settlement of the cease and desist proceeding against the Bank contemplated by the Comptroller, based on the unsafe or unsound practices 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, assessment of civil money penalties, based on the findings set forth in this Order, or any other findings. Nothing herein shall limit or modify the releases provided by the Stipulation and Consent to the Issuance of a Consent Order for the Assessment of a Civil Money Penalty executed simultaneously with this Order.

(5) 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 provision of this Order shall be amended, suspended, waived, or terminated in writing by the Comptroller.

(6) 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.

(7) The terms and provisions of this Order apply to the Bank and its subsidiaries, even though those subsidiaries are not named as parties to this Order.

8

(8) 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. Nothing in this Order shall affect 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, to the extent permitted under applicable law.

(9) The terms of this 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.

(10) Nothing in the Stipulation and Consent or this Order, express or implied, shall give to any person or entity, other than the parties hereto, and their successors hereunder, any benefit or any legal or equitable right, remedy or claim under the Stipulation and Consent or this Order.

(11) The Bank consents to the issuance of this Order before the filing of any notices, or taking of any testimony or adjudication, and solely for the purpose of settling this matter without a formal proceeding being filed.

IT IS SO ORDERED, this 11^th day of December, 2012.

/s/ Sally G. Belshaw

Sally G. Belshaw

Deputy Comptroller

Large Bank Supervision

9

EX-10.3

Exhibit 10.3

UNITED STATES OF AMERICA

DEPARTMENT OF THE TREASURY

COMPTROLLER OF THE CURRENCY

	)
In the Matter of:	)
	)                             AA-EC-12-112
HSBC Bank USA, N.A.	)
McLean, Virginia	)
	)
	)

CONSENT ORDER FOR THE

ASSESSMENT OF A CIVIL MONEY PENALTY

The Comptroller of the Currency of the United States of America (“Comptroller”), through his national bank examiners and other staff of the Office of the Comptroller of the Currency (“OCC”), has conducted an examination and investigation of the Payments and Cash Management (“PCM”), Global Banknotes, and foreign correspondent operations of HSBC 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 Act/anti-money laundering (“BSA/AML”) compliance. These findings were the subject of a Consent Cease and Desist Order issued on October 6, 2010 (“Consent Order”). Upon issuance of the Consent Order, the OCC deferred a decision with regard to the assessment of a civil money penalty (“CMP”) against the Bank based on deficiencies addressed in the Consent Order, pending additional investigation.

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 for the Assessment of a Civil Money Penalty,” dated December 11, 2012 (“Stipulation”), that is accepted by the Comptroller. By this Stipulation, which is incorporated by reference, the Bank has consented to

the issuance of this Consent Order for the Assessment of a Civil Money Penalty (“CMP Order”) by the Comptroller.

On December 11, 2012, the Bank entered into a Deferred Prosecution Agreement (“DPA”) with the United States Department of Justice (“DOJ”). In the DPA, the Bank admitted it had violated 31 U.S.C. § 5318(h)(1), which makes it a crime to willfully fail to establish and maintain an effective AML program, and 31 U.S.C. § 5318(i)(1), which makes it a crime to willfully fail to establish due diligence for foreign correspondent accounts. The Bank further consented to DOJ’s findings in connection with these violations.

ARTICLE I

COMPTROLLER’S FINDINGS

The Comptroller finds the following:

The Comptroller incorporates the following findings in Article I of the Consent Order:

(1) The OCC’s examination findings identified deficiencies in the Bank’s BSA/AML compliance program. These deficiencies 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 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. § 1010.610 (Correspondent Banking) (formerly 31 C.F.R. § 103.176).

The Bank failed to adopt and implement a compliance program that adequately covers the required BSA/AML 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 were ineffective, and accompanied by

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aggravating factors, such as highly suspicious activity creating a significant potential for unreported money laundering or terrorist financing.

Some of the critical deficiencies in the elements of the Bank’s BSA/AML compliance program included the following:

(A) The Bank excluded from automated BSA/AML monitoring wire transfers initiated by customers domiciled in countries risk rated as “standard” or “medium,” representing two-thirds of total dollar volume for PCM. While the Bank employed other methods for monitoring wire transactions for customers located in countries risk rated standard or medium, these alternatives provided limited coverage, were not effective, and did not mitigate the BSA/AML risks posed;

(B) During mid-2006 through mid-2009, the Bank did not perform BSA/AML monitoring for banknote (or “bulk cash”) transactions with Group Entities (defined as the Bank’s foreign affiliates in which the Bank’s parent, HSBC Holdings plc, London, England (“HSBC Group”), holds a majority interest);

(C) The Bank did not collect or maintain customer due diligence (“CDD”) or enhanced due diligence (“EDD”) information for Group Entities. The Bank transacted extensive wire transfers and purchases of United States bulk cash with Group Entities. The lack of due diligence information inhibited the Bank's assessment of customer risk and the identification of suspicious activity in Group Entity accounts;

(D) The Bank failed 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 OCC cited the Bank for its backlog of unprocessed alerts. The

-3-

Bank’s subsequent review of the backlogged alerts led it to file a substantial number of late Suspicious Activity Reports (“SARs”) with law enforcement authorities; and

(E) The Bank did not appropriately designate customers as “high-risk” for purposes of BSA/AML monitoring, even where a customer’s association with politically-exposed persons (“PEPs”) could have harmed the Bank’s reputation.

(2) The above violations and failures were the result of a 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 of alerts 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 BSA/AML policies; (v) inadequate monitoring of funds 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 (ix) inadequate collection and analysis of CDD information, including inadequate monitoring of PEPs.

The Comptroller further finds, for purposes of this CMP Order:

(3) The Bank has not fully complied with Article IX (Wire Monitoring) of the Consent Order. In relevant part, the Consent Order required the Bank to fully install, test, and activate a new wire monitoring system within 180 days. The Bank installed and activated a new wire monitoring system for its PCM unit without adequately testing the system. The Consent Order further required the Bank to conduct validation (gap) testing of the new system after installation. The Bank did not complete this testing within a reasonable period after installing

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the new system at its PCM unit. These instances of noncompliance exposed the Bank to a material risk of failing to report suspicious activity, including suspicious international wire transfers, to law enforcement.

(4) Pursuant to Article XI (Account/Transaction Activity Review (“Look-Back”)) of the Consent Order, the Bank retained a consultant to conduct a look-back to review certain account and transaction activity specified by the OCC. The look-back, and the prior review during 2010 of the Bank’s backlog of unprocessed alerts, together resulted in the Bank’s late-filing 890 SARs addressing suspicious activity in the amount of $6.34 billion.

(5) The foregoing violations of law and noncompliance with the Consent Order meet the requirements for a “Tier II” civil money penalty, pursuant to 12 U.S.C. § 1818(i)(2)(B). The violations of law formed a pattern of misconduct. The BSA/AML compliance program violation began by January 1, 2007, and continued through 2010. The remaining violations of law lasted for three years or longer.

(6) During 2007-10, the Bank benefited from the foregoing violations of law by conserving funds that it should have expended in order to maintain a robust BSA/AML compliance program, as required by law. In this case, it is necessary to assess a civil money penalty in excess of the benefit amount to promote compliance with statutory and regulatory requirements and deter future misconduct.

Pursuant to the authority vested in him by the Federal Deposit Insurance Act, as amended, 12 U.S.C. § 1818, the Comptroller hereby ORDERS that:

-5-

ARTICLE II

ORDER FOR A CIVIL MONEY PENALTY

(1) The Bank shall pay a civil money penalty of five hundred million dollars ($500,000,000.00) to the United States Treasury upon execution of this CMP Order.

(a) The Bank shall pay the penalty by wire transfer to the United States Treasury, as instructed by the OCC.

(b) Upon payment of the penalty, the Bank shall send photocopies of the confirmation of the wire transfer by e-mail and overnight delivery to the Director of Enforcement and Compliance, Office of the Comptroller of the Currency, 400 Seventh Street SW, Washington, DC 20219.

(2) This CMP Order shall be enforceable to the same extent and in the same manner as an effective and outstanding order that has been issued and has become final pursuant to 12 U.S.C. § 1818(h), (i) (as amended).

ARTICLE III

CLOSING

(1) 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 CMP Order shall in any way inhibit, estop, bar, or otherwise prevent the Comptroller from so doing.

(2) This CMP Order is and shall become effective upon its execution by the Comptroller, through his authorized representative whose hand appears below. The CMP Order shall remain effective and enforceable against the Bank and its successors in interest, except to

-6-

the extent that, and until such time as, any provisions of this CMP Order shall have been amended, suspended, waived, or terminated in writing by the Comptroller.

(3) This CMP Order is intended to be, and shall be construed to be, a final order issued pursuant to 12 U.S.C. § 1818(i)(2), and expressly does not form, and may not be construed to form, a contract binding the Comptroller or the United States.

(4) The terms of this CMP 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 11^th day of December, 2012.

-7-

/s/ Sally G. Belshaw

Sally G. Belshaw

Deputy Comptroller for Large Bank Supervision Office of the Comptroller of the Currency

-8-

EX-10.4

Exhibit 10.4

AGREEMENT BY AND BETWEEN

HSBC BANK USA, N.A.

McLEAN, VIRGINIA

AND

THE OFFICE OF THE COMPTROLLER OF THE CURRENCY

HSBC Bank USA, N.A., McLean, Virginia (“Bank”) is a national bank subject to the limitations on controlling or holding an interest in financial subsidiaries set forth in 12 U.S.C. § 24a and 12 C.F.R. § 5.39.

The Comptroller of the Currency of the United States (“Comptroller”), through his National Bank Examiners, has examined the Bank and determined that the Bank is not in compliance with the requirements set forth in 12 U.S.C. § 24a(a)(2)(C) and 12 C.F.R. § 5.39(g)(1). Accordingly, the Bank is required to execute an agreement with the Comptroller.

In consideration of the above, it is agreed, between the Bank, by and through its duly elected and acting Board of Directors (“Board”), and the Comptroller, through his authorized representative, that the Bank shall operate at all times in compliance with the articles of this Agreement.

ARTICLE I

JURISDICTION

(1) This Agreement is entered into pursuant to 12 U.S.C. § 24a(e)(2) and (3) and 12 C.F.R. §§ 5.39(j)(1)(ii) and (iii).

(2) This Agreement shall not be deemed to be a “formal written agreement” for the purposes of 12 C.F.R. Part 5 and Part 24.

1

ARTICLE II

ACTION PLAN

(1) The Board shall direct management to undertake and complete all steps necessary to correct the circumstances and conditions, as noted in the Bank’s most recent Report of Examination, resulting in the Bank’s noncompliance with the conditions and requirements set forth in 12 U.S.C. § 24a and 12 C.F.R. § 5.39 for a national bank that maintains a financial subsidiary.

(2) Within ninety (90) days of the effective date of this Agreement, the Board shall develop and adopt a written plan that:

(a) explains the specific actions that Bank management will take to correct the circumstances and conditions, as noted in the Bank’s most recent examination, resulting in the Bank’s noncompliance with the conditions and requirements for a national bank that maintains a financial subsidiary;

(b) specifies how the Board will ensure Bank management’s implementation of the plan; and

(c) sets forth a timetable for the implementation of each action specified in the plan.

(3) Upon adoption of the plan, the Board shall submit the plan to the Deputy Comptroller and Examiner-in-Charge for a prior written determination of no supervisory objection. Upon receiving a written determination of no supervisory objection from the Deputy Comptroller, the Bank shall immediately implement and adhere to the plan.

(4) The plan shall be implemented pursuant to the time frames set forth within the plan unless events dictate modifications to the plan. Where the Board considers modifications

2

appropriate, those modifications shall be submitted to the Deputy Comptroller and Examiner-in-Charge for prior written determination of no supervisory objection. Upon receiving a written determination of no supervisory objection from the Deputy Comptroller, the Bank shall implement and adhere to the revised plan.

ARTICLE III

LIMITATIONS ON ADDITIONAL ACTIVITIES

INVOLVING FINANCIAL SUBSIDIARIES

(1) The Board shall ensure that the Bank complies with all the requirements and safeguards set forth in 12 U.S.C. § 24a and 12 C.F.R. § 5.39 for a national bank that has established or maintains a financial subsidiary.

(2) The Bank shall not, directly or indirectly, acquire control of, nor hold an interest in, any new financial subsidiary, nor commence a new activity in its existing financial subsidiary, unless:

(a) the Comptroller has made a written determination that the Bank has corrected the circumstances and conditions detailed in the Bank’s most recent Report of Examination that led to the Bank’s noncompliance with the conditions and requirements for a national bank to control, or hold an interest in, a financial subsidiary;

(b) the Deputy Comptroller has made a written determination of no supervisory objection to the proposed activity in the Bank’s existing financial subsidiary or acquisition of control of, or interest in, a new financial subsidiary; and

3

(c) the Bank has obtained the Comptroller’s written approval for the proposed activity or acquisition of control through the procedures set forth in 12 C.F.R. § 5.39(i).

ARTICLE IV

REQUIRED DIVESTITURE OF FINANCIAL SUBSIDIARY

(1) If, after one hundred eighty (180) days following the Bank’s receipt of the Comptroller’s notice following the Bank’s most recent examination, the Comptroller determines, in his sole discretion, that the circumstances and conditions, as detailed in the Bank’s most recent Report of Examination, that led to the Bank’s noncompliance with the conditions and requirements for a national bank to control, or hold an interest in, a financial subsidiary have not been corrected, and the Bank has not made significant progress towards the correction of those circumstances and conditions, the Bank agrees, if it is directed to do so by the Comptroller, to:

(a) divest control of its financial subsidiary pursuant to 12 U.S.C. § 24a(e)(4) and 12 C.F.R. § 5.39(j)(1)(iv); and

(b) comply with any additional limitations or conditions on the conduct of the Bank, its affiliates, and its financial subsidiary pursuant to 12 U.S.C. § 24a(e)(3) and 12 C.F.R. § 5.39(j)(1)(iii)

ARTICLE V

CONCLUDING PROVISIONS

(1) It is expressly and clearly understood that if, at any time, the Comptroller deems it appropriate in fulfilling the responsibilities placed upon him by the several laws of the United States of America to undertake any action affecting the Bank, nothing in this Agreement shall in any way inhibit, estop, bar, or otherwise prevent the Comptroller from so doing.

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(2) Any time limitations imposed by this Agreement shall begin to run from the effective date of this Agreement. Such time requirements may be extended in writing by the Comptroller or his duly authorized representative for good cause upon written application by the Board.

(3) The provisions of this Agreement shall continue in full force and effect unless or until such provisions are amended in writing by mutual consent of the parties to the Agreement or excepted, waived, or terminated in writing by the Comptroller.

(4) The phrase “effective date” shall mean the date that this Agreement is executed by the Comptroller or by his duly authorized representative.

(5) This Agreement does not form, and may not be construed to form, a contract binding on the Comptroller or the United States. 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 its supervisory powers, including 12 U.S.C. § 1818(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. The Bank also expressly acknowledges that no officer or employee of the Office of the Comptroller of the Currency has the statutory or other authority to bind the United States, the U.S. Treasury Department, 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. The terms of this Agreement, including this paragraph, are not subject to amendment or modification by any extraneous expression, prior agreements or arrangements, or negotiations between the parties, whether oral or written.

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IN TESTIMONY WHEREOF, the undersigned, authorized by the Comptroller, has hereunto set her hand on behalf of the Comptroller.

/s/ Sally G. Belshaw	12/11/12
Sally G. Belshaw	Date
Deputy Comptroller
Large Bank Supervision

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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.

/s/ Jeffrey A. Bader
Jeffrey A. Bader	Date
/s/ William R. P. Dalton
William R. P. Dalton	Date
/s/ Anthea Disney
Anthea Disney	Date
/s/ Irene M. Dorner
Irene M. Dorner	Date
/s/ Robert K. Herdman
Robert K. Herdman	Date
/s/ Louis Hernandez, Jr.
Louis Hernandez, Jr.	Date
/s/ Richard A. Jalkut	12/4/11
Richard A. Jalkut	Date
/s/ Nancy G. Mistretta
Nancy G. Mistretta	Date

EX-10.5

Exhibit 10.5

UNITED STATES OF AMERICA

DEPARTMENT OF THE TREASURY

FINANCIAL CRIMES ENFORCEMENT NETWORK

IN THE MATTER OF:	)
	)
	)
	)             Number 2012-02
HSBC Bank USA N.A.	)
McLean, Virginia	)

CONSENT TO THE ASSESSMENT OF CIVIL MONEY PENALTY

I. INTRODUCTION

Under the authority of the Bank Secrecy Act and regulations issued pursuant to that Act,¹ the Financial Crimes Enforcement Network has determined that grounds exist to assess a civil money penalty against HSBC Bank USA N.A. (“HBUS” or the “Bank”). HBUS consents to the assessment of a civil money penalty and enters this CONSENT TO THE ASSESSMENT OF CIVIL MONEY PENALTY (“CONSENT”) with the Financial Crimes Enforcement Network.

Pursuant to an investigation conducted by the Department of Justice (“DOJ”) concerning the transmission of funds to and from the United States through HBUS, HBUS has agreed to enter into a Deferred Prosecution Agreement (DPA) as a settlement agreement with the DOJ wherein HBUS admits that it violated 31 U.S.C. § 5318(h) and 31 C.F.R. § 1020.210, which makes it a crime to willfully fail to establish and maintain an effective anti-money laundering program, and 31 U.S.C. § 5318(i) and 31 C.F.R. § 1010.610, which makes it a crime to willfully

¹  The Bank Secrecy Act is codified at 12 U.S.C. §§ 1829b, 1951-1959 and 31 U.S.C. §§ 5311-5314, 5316-5332. Regulations implementing the Bank Secrecy Act appear at 31 C.F.R. Chapter X (formerly 31 C.F.R. Part 103). On March 1, 2011, a transfer and reorganization of BSA regulations from 31 C.F.R. Part 103 to 31 C.F.R. Chapter X became effective. Throughout this document, we refer to Chapter X citations. A cross-reference index of Chapter X and Part 103 is located at http://www.fincen.gov/statutes_regs/ChapterX/.

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fail to establish due diligence policies, procedures, and controls for foreign correspondent accounts. As a consequence of these violations, HBUS also violated 31 U.S.C. § 5318(g) and 31 C.F.R. § 1020.320, which requires a financial institution to report any suspicious transaction relevant to a possible violation of law or regulation.

II. JURISDICTION

HBUS’s main office is located in McLean, Virginia, and the Bank is the principal U.S. banking subsidiary of HSBC USA Inc. (“HSBC USA”). HSBC USA is an indirect, wholly-owned subsidiary of HSBC North America Holdings Inc. (“HNAH”), one of the largest bank holding companies in the United States, with assets totaling approximately $317 billion. HNAH is an indirect, wholly-owned subsidiary of HSBC Holdings plc (together with its affiliates, the “HSBC Group”). HSBC Group is one of the world’s largest banking and financial services organizations, with assets of approximately $2.7 trillion, 60 million customers worldwide, and affiliates located in Europe, North America, Latin America, Africa, the Asia-Pacific region, and the Middle East.

HBUS has approximately $194 billion in assets and 300 branches. HBUS provides a full range of consumer and commercial bank services to customers in the United States and abroad, including clients of HSBC Group affiliates outside the United States.

The Financial Crimes Enforcement Network has authority to investigate banks for compliance with and violation of the Bank Secrecy Act pursuant to 31 C.F.R. § 1010.810, which grants the Financial Crimes Enforcement Network “overall authority for enforcement and compliance, including coordination and direction of procedures and activities of all other agencies exercising delegated authority under this chapter.” At all relevant times, the Bank was

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a “financial institution” and a “bank” within the meaning of the Bank Secrecy Act and its implementing regulations.²

III. DETERMINATIONS

The Financial Crimes Enforcement Network has determined that HBUS willfully violated the Bank Secrecy Act since at least mid-2006 by: (1) lacking an effective anti-money laundering program reasonably designed to manage risks of money laundering and other illicit activity, in violation of Title 31, United States Code, Section 5318(h) and 31 C.F.R. § 1020.210; (2) failing to conduct due diligence on certain foreign correspondent accounts, in violation of Title 31, United States Code, Section 5318(i) and 31 C.F.R. § 1010.610; and (3) failing to detect and adequately report evidence of money laundering and other illicit activity, in violation of Title 31, United States Code, Section 5318(g) and 31 C.F.R. § 1020.320.

A. Violation of the Requirement to Implement an Adequate Anti-Money Laundering Program

Since April 24, 2002, the Bank Secrecy Act and its implementing regulations have required banks to establish and implement anti-money laundering programs.³ A bank regulated by a Federal functional regulator is deemed to have satisfied Bank Secrecy Act anti-money laundering program requirements if it implements and maintains an anti-money laundering program that complies with the regulations of its Federal functional regulator.⁴ The Office of the Comptroller of the Currency (“OCC”) is the Bank’s Federal functional regulator and examines HBUS for compliance with the Bank Secrecy Act and its implementing regulations and similar

²  31 U.S.C. § 5312(a)(2) and 31 C.F.R. § 1010.100.

³  31 U.S.C. § 5318(h).

⁴  31 C.F.R. §§ 1020.100(d)(1) and 1020.210.

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rules under Title 12 of the United States Code. The OCC requires each bank under its supervision to establish and maintain an anti-money laundering program that, at a minimum, (a) provides for a system of internal controls to ensure ongoing compliance; (b) provides for independent testing for compliance conducted by bank personnel or by an outside party; (c) designates an individual or individuals responsible for coordinating and monitoring day-to-day compliance; and (d) provides training for appropriate personnel.⁵

As discussed in detail below, HBUS violated the Bank Secrecy Act’s anti-money laundering program requirements by (i) conducting business without adequate internal controls, (ii) failing to conduct adequate independent testing for compliance, and (iii) failing to staff its Bank Secrecy Act compliance program with a reasonably sufficient number of qualified personnel.

i. HBUS failed to provide for an adequate system of internal controls to ensure ongoing compliance.

HBUS provided a full range of consumer and commercial products and services to individuals, corporations, financial institutions, non-profit organizations, and governments in the United States and abroad, including in jurisdictions with weak anti-money laundering and counter-terrorist financing (“AML/CFT”) controls. HBUS did not effectively conduct enterprise-wide, risk-based assessments of potential money laundering risks, given its products, clients, and geographic reach, and HBUS failed to adequately identify potential money laundering vulnerabilities. The Bank’s failure to adequately assess risk negatively impacted the

⁵  12 C.F.R. § 21.21. From 2005 to 2009, the OCC issued 83 anti-money laundering Matters Requiring Attention (“MRAs”) to the Bank’s Board of Directors. A Consent Cease and Desist Order by the OCC dated October 6, 2010 required HBUS to remediate and improve Bank Secrecy Act compliance. See United States Department of the Treasury Comptroller of the Currency Consent Order, In the Matter of HSBC Bank USA, N.A., McLean, Virginia (Oct. 6, 2010).

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effectiveness of its transaction monitoring, which already suffered from additional systemic weaknesses.

Product Risk. Some of the Bank’s products and services involved significant anti-money laundering risks, including but not limited to: correspondent accounts, embassy banking, wire transfers, automated clearinghouse (“ACH”) transfers, banknotes, lockboxes, clearing of bulk traveler’s checks, bearer share accounts, pre-paid cards, foreign exchange, cash letters, international pouch activity, and remote deposit capture. HBUS failed to take appropriate steps to adequately assess the AML/CFT risks posed with respect to many of its products and services.

For instance, the Bank failed to manage money laundering risks associated with its pouch services and did not provide for appropriate controls and monitoring to address the underlying risks posed by this transaction activity. In one example, until November 2008, the Bank cleared traveler’s checks received from a foreign respondent bank without monitoring systems in place that were reasonably designed to detect, investigate, and report evidence of money laundering. Several individuals purchased sequentially numbered traveler’s checks at a Russian bank in transactions totaling more than $290 million over several years. These traveler’s checks were signed in a uniform illegible scrawl and made payable to approximately 30 different customers of a Japanese bank. The Japanese bank was a HBUS correspondent customer and for several years regularly delivered multi-hundred-thousand-dollar batches of these sequentially numbered traveler’s checks to HBUS via pouch. During the relevant period of time, HBUS knew or should have known that uniformly signed, sequentially numbered traveler’s checks in such high volume are a money laundering “red flag.”

Customer Risk. The Bank’s written policies, procedures, and controls did not effectively risk rate customers. The Bank’s risk rating methodologies were not designed to

5

evaluate customers based on specific customer information and balanced consideration of all relevant factors, including country/jurisdictional risk, products and services provided, expected transaction volume, and nature of customer profiles. Failure to consistently gather reasonably accurate and complete customer documentation undermined the Bank’s ability to conduct customer risk assessments. These deficiencies prevented the Bank from performing adequate analysis of the risks associated with particular customers and from determining whether transactions lacked an apparent business or lawful purpose or fell within the particular customer’s normal and expected range of conduct.

For example, Group affiliate HSBC Mexico S.A. Banco (“HBMX”) was an HBUS respondent bank. The account that HBMX maintained with HBUS accepted bulk deposits of U.S. currency and processed wire transfers. HBMX operated in Mexico, a country that was the subject of publicly available cautionary information about drug trafficking and money laundering vulnerabilities.⁶ HBMX’s branch in the Cayman Islands operated under a Cayman Islands Monetary Authority license limiting authority to do business to non-residents of the Cayman Islands. Potentially high-risk Mexican casas de cambio and other money transmitter and dollar-exchange businesses were HBMX customers. Despite these risks, until 2009, HBUS treated HBMX as a “standard” money laundering risk and did not effectively detect and report suspicious activity.

Country Risk. The Bank lacked adequate country risk rating processes reasonably designed to capture readily available information about countries’ AML/CFT risks and failed to ensure uniform compliance with risk rating standards through complete internal reviews. The

⁶  Financial Crimes Enforcement Network Advisory FIN-2006-A003 (Aug. 28, 2006). See also United States Department of State International Narcotics Control Strategy Reports for 2002-2012.

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Bank lacked a precise structure to ensure systematic country risk assessments, including updates, as prudent and necessary, which resulted in HBUS making inappropriate country risk assessments in some instances. The Bank used four labels (“standard,” “medium,” “cautionary,” or “high” risk) to identify a country’s anti-money laundering risk. From 2002 until 2009, HBUS rated Mexico as having “standard” anti-money laundering risk, the lowest of the Bank’s four possible country risk ratings, despite publicly-available information to the contrary. In 2006, the Financial Crimes Enforcement Network issued an advisory, FIN-2006-A003, notifying financial institutions of the potential threat of narcotics-based money laundering between Mexico and the United States. In addition, the United States Department of State International Narcotics Control Strategy Reports dating back to 2002 have consistently rated Mexico as a country of primary concern for money laundering and financial crimes. The inappropriate country risk rating, together with other AML/CFT deficiencies, including the monitoring failures described below, resulted in HBUS failing to identify and thereby facilitating the flow of illicit proceeds between Mexico and the United States.

Transaction Monitoring. HBUS failed to implement and maintain an adequate transaction monitoring regime reasonably designed to detect and report money laundering and other illicit activity. The transaction monitoring procedures failed in a number of ways, including but not limited to:

(1) The Bank’s transaction monitoring procedures governing the review of foreign correspondent account wire transactions excluded from review transactions originating from countries that the Bank had risk rated less than “cautionary” or “high,” with limited exceptions. This policy excluded approximately $60 trillion per year from review. In addition, the Bank’s transaction monitoring procedures

7

governing the review of foreign correspondent account wire transactions were ineffective when HBUS, in 2008, summarily cleared more than 4,000 unaddressed alerts after changing a country’s risk rating from “cautionary” to “medium.” Subsequent delayed reviews of thousands of backlogged or cleared alerts resulted in HBUS filing hundreds of suspicious activity reports more than a year after the underlying transactions, which totaled in the billions of dollars.

(2) The Bank’s transaction monitoring procedures failed to provide for effective monitoring of bulk cash movements, which were reviewed manually. From mid- 2006 through mid-2009, the Bank did not perform automated and effective monitoring on banknote (bulk cash) transactions conducted with HSBC Group affiliates, including taking delivery of more than $15 billion in U.S. currency, relying on manual targeted and quarterly reviews. The absence of effective bulk cash monitoring placed HBUS at risk of receiving illicit proceeds. The Bank’s failure to collect or maintain customer due diligence information regarding any HSBC Group affiliates with correspondent accounts at the Bank, including types of customers in Mexico and other high-risk jurisdictions, also thwarted the Bank’s ability to effectively monitor affiliates’ transactions and to determine if actual activity was commensurate with expected activity and/or lacked an apparent business or legal purpose. HBUS exited the banknote (bulk cash) business in 2010.

(3) The Bank’s transaction monitoring procedures relied heavily on manual transaction reviews. Despite such reliance, the Bank’s department responsible for investigating suspicious activity alerts was severely under-staffed, resulting in thousands of

8

unprocessed (“backlogged”) alerts. Furthermore, staff often cleared alerts without adequate review.

(4) HBUS did not acquire an automated system equal to the needs of the Bank, i.e., a system with sufficient capacity to support the volume, scope, and nature of transactions conducted by and through HBUS, until April 2011. It took another year for HBUS to validate the system for effective detection of suspicious activity.

(5) HBUS did not adequately integrate subpoenas and Section 314(a) information sharing requests into automated transaction monitoring to identify and report potential suspicious activity associated with these inquiries, as appropriate and practical.

ii. HBUS failed to conduct adequate independent testing for compliance.

The Bank’s independent audit program repeatedly failed to effectively evaluate money laundering vulnerabilities and to detect Bank Secrecy Act compliance failures in a timely fashion. In particular, the scope of its independent audits was not sufficient to effectively assess the Bank’s exposure to risk of money laundering activities and its ability to comply with anti-money laundering program and suspicious activity reporting obligations. The ineffectiveness of independent testing at HBUS to identify and notify management of AML/CFT deficiencies contributed to the continuation of failures at the Bank, during the relevant period.

iii. HBUS failed to staff its Bank Secrecy Act compliance program with a reasonably sufficient number of qualified personnel.

HBUS failed to ensure adequate staffing for the proper monitoring of day-to-day compliance with the Bank Secrecy Act. The compliance operation lacked continuity and sufficient standing or authority within the Bank to effectively execute Bank Secrecy Act responsibilities, in light of the Bank’s AML/CFT risk profile. For a number of years, HBUS’s Bank Secrecy Act compliance function suffered from an insufficient number of appropriately

9

trained professionals responsible for coordinating and monitoring day-to-day compliance. HBUS did not have sufficient staff to review suspicious activity alerts resulting from the Bank’s monitoring processes. The Bank’s compliance staff was frequently unable to initiate and complete investigations and file complete and timely suspicious activity reports. In light of the global risk profile of HBUS, Bank management failed to establish and maintain adequate staffing and continuity in the anti-money laundering compliance operation. Moreover, a corporate culture persisted at the Bank in the past that effectively denied compliance officials with the requisite authority over the business and account relationship business lines to manage the Bank’s risk profile.

In sum, HBUS failed to dedicate sufficient human and technological resources to meet its AML/CFT obligations. Such failures were repeatedly evidenced by the Bank’s deficient responses to adverse supervisory findings and mandates requiring it to implement effective measures to ensure the filing of accurate, timely, and complete suspicious activity reports and compliance with other Bank Secrecy Act requirements.

B. Violation of the Requirement to Conduct Due Diligence on Foreign Correspondent Accounts

Foreign correspondent accounts are gateways to the U.S. financial system. As part of their anti-money laundering obligations, U.S. banks maintaining correspondent accounts in the United States for foreign financial institutions must subject the accounts and respondents to certain due diligence measures.⁷ Banks must implement and maintain risk-based policies, procedures, and controls reasonably designed to gather all relevant due diligence information concerning such foreign correspondent accounts, employ this due diligence information to

⁷  31 U.S.C. § 5318(i)(1).

10

determine whether an account is subject to enhanced due diligence, conduct assessments of money laundering risks for each account, and comply with suspicious activity reporting requirements.⁸ HBUS violated the Bank Secrecy Act customer due diligence requirements by failing to collect or maintain required due diligence information regarding accounts held by HSBC Group affiliates that were foreign financial institutions.

HBUS maintained correspondent accounts for HSBC Group affiliates around the world. HBUS formerly did not collect or maintain customer due diligence information regarding any HSBC Group affiliates with correspondent account relationships at the Bank. HBUS’s prior policy of exempting HSBC Group affiliates from customer due diligence processes inhibited the Bank’s ability to recognize potential money laundering vulnerabilities of correspondent banking throughout the HSBC Group affiliates network. HBUS did not incorporate information about affiliates’ business purposes, anticipated activity, anti-money laundering supervision, host country anti-money laundering vulnerabilities, and history of anti-money laundering compliance into the Bank’s monitoring of affiliate transactions. As a result, transactions flowed to and from the United States without appropriate monitoring and alerts to identify movements of funds. A significant number of non-U.S. financial institutions and other customers of HSBC Group affiliates effectively gained indirect access to the U.S. financial system without appropriate safeguards, including financial institution customers involved in the movement of illicit drug proceeds.

C. Violation of the Requirement to Report Suspicious Transactions

The Bank Secrecy Act and its implementing regulations impose an obligation on banks to report transactions that involve or aggregate to at least $5,000, are conducted by, at, or through

⁸  31 C.F.R. § 1010.610(a)(1), (2), and (3).

11

the bank, and that the bank “knows, suspects, or has reason to suspect” are suspicious.⁹ A transaction is “suspicious” if the transaction: (1) involves funds derived from illegal activities, or is conducted to disguise funds derived from illegal activities; (2) is designed to evade the reporting or recordkeeping requirements of the Bank Secrecy Act or regulations under the Bank Secrecy Act; or (3) has no business or apparent lawful purpose or is not the sort in which the customer would normally be expected to engage, and the bank knows of no reasonable explanation for the transaction after examining the available facts, including background and possible purpose of the transaction.¹⁰ HBUS violated Bank Secrecy Act suspicious activity reporting requirements by failing to detect and report suspicious activity and by filing both untimely and incomplete suspicious activity reports.

HBUS showed a prior longstanding pattern of late suspicious activity reports. In many cases, the reports were significantly late. Indeed, several thousand suspicious activity reports prepared by HBUS suffered from lengthy delays. In some instances, more than a year elapsed between the time of the underlying activity and the time when the Bank submitted the suspicious activity report. In addition to late filings, the Bank in the past filed incomplete suspicious activity reports that violated the instructions for suspicious activity reports. Reporting delays and incomplete information impaired the usefulness of the suspicious activity reports to law enforcement and regulators.

For instance, HBUS engaged extensively in the business of buying and selling large volumes of physical banknotes (cash) from and to financial institutions around the world, including HSBC Group affiliates. This banknotes line of business required the Bank to arrange

⁹  31 U.S.C. § 5318(g) and 31 C.F.R. § 1020.320.

¹⁰  31 C.F.R. § 1020.320(a)(2)(i)—(iii).

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for the regular delivery of large quantities of cash from financial institutions outside the United States to the Bank and ultimately to the Federal Reserve Bank. During 2006, the Financial Crimes Enforcement Network warned all U.S. financial institutions about money laundering risks associated with United States/Mexico cross-border cash.¹¹ In addition, law enforcement authorities in the United States and Mexico determined that billions of U.S. dollars derived from illegal drug trafficking flowed annually from criminals through Mexican financial institutions to U.S. financial institutions. For example, drug traffickers in the United States were smuggling cash into Mexico and placing it into Mexican financial institutions. The Mexican financial institutions would then ship bulk cash to banks in the United States. Thus, HSBC Group affiliate HBMX shipped billions of dollars in bulk cash to HBUS’s banknotes business unit against a backdrop of readily available information that large volumes of cash emanating from deposits into Mexican banks were fueled by customers depositing cash from illegal drug trafficking. Despite this information, HBUS did not collect the necessary due diligence information about HBMX and, with occasional exceptions, excluded HBMX banknote transactions from anti-money laundering monitoring processes, from mid-2006 to mid-2009. As a result, the Bank failed to file timely suspicious activity reports related to these transactions.

HBUS suffered similar failures in its wire transfer business. The Bank processed an average of approximately 25 million wire transfers annually, from 2005 to 2009, with total dollar volume amounting to an average of approximately $75 trillion. A substantial portion of the Bank’s funds transfer business was on behalf of foreign correspondent financial institutions and

¹¹  Financial Crimes Enforcement Network Advisory FIN-2006-A003 (2006). See also United States Department of the Treasury, Financial Crimes Enforcement Network, Assessment of Civil Money Penalty In the Matter of Union Bank of California, N.A., San Francisco, California (Sept. 17, 2007); and United States Department of State International Narcotics Control Strategy Reports from 2002-2012.

13

their clients. Yet, as described above, the Bank did not perform due diligence on foreign affiliates and improperly risk rated customers and countries, which resulted in ineffective monitoring, and, thus, a failure to file timely suspicious activity reports.

During 2010 and 2011, HBUS performed a historical review of transactions, known as a “lookback,” in connection with the 2010 Consent Cease and Desist Order by the OCC. As part of this lookback, HBUS sampled accounts, banknotes activity, wire transaction data, remote deposit capture, and pouch activity for suspicious activity. The Bank also re-reviewed thousands of transaction monitoring system alerts that were previously on backlog or which had previously been closed based on ineffective reviews. As a result, HBUS filed hundreds of delinquent suspicious activity reports on transactions totaling several billion dollars.

IV. CIVIL MONEY PENALTY

The Financial Crimes Enforcement Network has determined that a civil money penalty in the amount of $500 million is warranted for HBUS’s violations of the Bank Secrecy Act and its implementing regulations, as described in this CONSENT.¹²

A penalty in the amount (not to exceed $100,000) involved in the transaction (if any) or $25,000 may be imposed on a financial institution for each violation of the anti-money laundering program or suspicious transaction reporting requirements.¹³ A separate violation of the anti-money laundering program requirements occurs for each day the violation continues. A penalty equal to not less than two times the amount of the transaction, but not more than $1,000,000, may be imposed for violation of the requirement to establish due diligence policies,

¹²  31 U.S.C. § 5321 and 31 C.F.R. § 1010.820.

¹³  31 U.S.C. § 5321(a)(1) and 31 C.F.R. § 1010.820(f).

14

procedures, and controls that are reasonably designed to detect and report instances of money laundering through a correspondent bank account for a non-U.S. person.¹⁴

V. CONSENT TO ASSESSMENT

To resolve this matter, and only for that purpose, HBUS consents to the assessment of a civil money penalty in the sum of $500 million. The CONSENT shall be concurrent with the assessment of a civil money penalty, in the amount of $500 million, by the OCC, and shall be satisfied by one payment of $500 million to the Department of the Treasury.

HBUS agrees that it is entering into this CONSENT freely and voluntarily and that no offers, promises, or inducements of any nature whatsoever have been made by the Financial Crimes Enforcement Network or any employee, agent, or representative of the Financial Crimes Enforcement Network to induce HBUS to enter into this CONSENT, except those specified in this CONSENT.

HBUS agrees that this CONSENT embodies the entire agreement between HBUS and the Financial Crimes Enforcement Network relating to this enforcement matter only, as described in Section III above. HBUS further agrees that there are no express or implied promises, representations, or agreements between HBUS and the Financial Crimes Enforcement Network other than those expressly set forth in this document and that nothing in this document or in the ASSESSMENT OF CIVIL MONEY PENALTY (“ASSESSMENT”) is binding on any other agency of government, whether federal, state, or local.

VI. RELEASE

HBUS understands that execution of this CONSENT, and compliance with the terms of the ASSESSMENT and this CONSENT, constitute a complete settlement and release of civil

¹⁴  31 U.S.C. § 5321(a)(7).

15

liability for the violations of the Bank Secrecy Act and regulations issued pursuant to that Act as described in this CONSENT against the Bank.

VII. WAIVERS

Nothing in this CONSENT or the ASSESSMENT shall preclude any proceedings brought by the Financial Crimes Enforcement Network to enforce the terms of this CONSENT or the ASSESSMENT or constitute a waiver of any right, power, or authority of any other representatives of the United States or agencies thereof, including but not limited to the Department of Justice, to bring other actions deemed appropriate.

In executing this CONSENT, HBUS waives:

a. All defenses to this CONSENT and the ASSESSMENT that can be waived;

b. Any claim of Double Jeopardy based upon the execution of the CONSENT or the ASSESSMENT, or the payment of any civil money penalty required herein;

c. Any claim that this CONSENT, the ASSESSMENT, or the civil money penalty is unlawful or invalid, or violates the Constitution of the United States of America; and

//

//

//

//

//

//

//

16

d. All rights to seek in any way to contest the validity of this CONSENT, the ASSESSMENT, or payment of the civil money penalty, on any grounds.

HSBC Bank USA, National Association

McLean, Virginia

Name: Stuart A. Alderoty

Title:General Counsel

Accepted by:
FINANCIAL CRIMES ENFORCEMENT NETWORK
Jennifer Shasky Calvery	Date
Director

17

EX-99.1

Exhibit 99.1

	11 December 2012
	HSBC ANNOUNCES SETTLEMENTS WITH AUTHORITIES
	HSBC has reached agreement with United States authorities in relation to investigations regarding inadequate compliance with anti-money laundering and sanctions laws. This includes a Deferred Prosecution Agreement (DPA) with the US Department of Justice. HSBC has also reached agreement to achieve a global resolution with all other US government agencies that have investigated HSBC’s past conduct related to these issues1 and anticipates finalising an undertaking with the United Kingdom Financial Services Authority shortly.
	Under these agreements, HSBC will make payments totaling US$1.921bn, continue to cooperate fully with regulatory and law enforcement authorities, and take further action to strengthen its compliance policies and procedures.
	Stuart Gulliver, Group Chief Executive, said: “We accept responsibility for our past mistakes. We have said we are profoundly sorry for them, and we do so again. The HSBC of today is a fundamentally different organisation from the one that made those mistakes. Over the last two years, under new senior leadership, we have been taking concrete steps to put right what went wrong and to participate actively with government authorities in bringing to light and addressing these matters.
	“While we welcome the clarity that these agreements bring, ensuring the highest standards wherever we do business is an ongoing process. We are committed to protecting the integrity of the global financial system. To this end we will continue to work closely with governments and regulators around the world.”
	In the past several years, the Board of HSBC Holdings plc has taken decisive action to direct management to fix past shortcomings as they have come to light. Since 2011, with new senior leadership teams in place at both HSBC Group and HSBC North America, HSBC has taken extensive and concerted steps to put in place the highest standards for the future.
	The Department of Justice has recognised these efforts in the DPA: “Management has made significant strides in improving ‘tone from the top’ and ensuring that a culture of compliance permeates the institution. The efforts of management have dramatically improved HSBC Bank USA’s and HSBC Group’s Bank Secrecy Act / Anti-Money Laundering and Office of Foreign Assets Control compliance programs.”
	HIGHLY RESTRICTED	Registered Office and Group Head Office: 8 Canada Square, London E14 5HQ, United Kingdom Web: www.hsbc.com Incorporated in England with limited liability. Registered number 617987
This news release is issued by
HSBC Holdings plc

HSBC announces settlements with authorities/2

As noted in the DPA, HSBC Bank USA already has, over the past several years, undertaken the following voluntary remedial measures:

— increased its spending on anti-money laundering (AML) approximately nine-fold between 2009 and 2011;

— increased its AML staffing nearly ten-fold between 2010 and 2012;

— revamped its Know Your Customer programme, including treating non-US HSBC Group Affiliates as third parties subject to the same due diligence as all other customers;

— exited 109 correspondent relationships for risk reasons;

— clawed back bonuses for a number of senior officers, and

— spent over US$290m on remedial measures.

HSBC Group has also undertaken a comprehensive overhaul of its structure, controls, and procedures. A number of these improvements is included in the DPA. Among other measures, HSBC Group has:

— simplified its control structure, allowing the Group to manage risks worldwide more effectively;

— elevated the role of Group Compliance and given it direct oversight over every compliance officer globally, so that both accountability and escalation now flow directly to and from HSBC Group Compliance;

— created the new role of Head of Group Financial Crime Compliance and Group Money Laundering Reporting Officer, who will help to establish a Global Financial Intelligence Unit;

— made other new senior hires with extensive experience handling relevant international legal and regulatory issues, including a new Chief Legal Officer and a new Global General Counsel for Litigation and Regulatory Affairs;

— adopted a set of guidelines limiting business in those countries that pose a high financial crime risk;

— issued a new global sanctions policy using a more extensive and consistent set of lists to screen all cross-border payments;

— commenced a review of all Know Your Customer files across the entire Group – the first phase of this remediation will cost an estimated US$700m over five years, and

— undertaken to implement single global standards shaped by the highest or most effective anti-money laundering standards available in any location where the HSBC Group operates.

Over the five-year term of the agreement with the Department of Justice, an independent monitor will evaluate HSBC’s progress in fully implementing these and other measures it recommends, and will produce regular assessments of the effectiveness of HSBC’s compliance function.

The agreement notes that HSBC Bank USA and HSBC Group have “provided valuable assistance to law enforcement.” HSBC conducted multiple extensive internal investigations, voluntarily made employees available for interviews, and collected, analysed and organised voluminous evidence and information.

HSBC announces settlements with authorities/3

HSBC is firmly committed to putting in place robust standards that will help promote the integrity of the global financial system.

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Media enquiries to:
London
Patrick Humphris	+44 (0)20 7992 1631	patrick.humphris@hsbc.com
New York
Robert A Sherman	+1 212 525 6901	robert.a.sherman@us.hsbc.com
Hong Kong
Gareth Hewett	+852 2822 4929	garethhewett@hsbc.com.hk
Investor Relations enquiries to:
London
Guy Lewis	+44 (0)20 7992 1938	guylewis@hsbc.com
Robert Quinlan	+44 (0)20 7991 3643	robert.quinlan@hsbc.com
Hong Kong
Hugh Pye	+852 2822 4908	hugh.pye@hsbc.com

Footnote:

¹ These include: (i) a deferred prosecution agreement with the New York County District Attorney’s Office; (ii) consent orders with the Board of Governors of the U.S. Federal Reserve System; (iii) an agreement with the U.S. Department of the Treasury’s Office of Foreign Assets Control; (iv) agreements and consent orders with the Office of the Comptroller of the Currency (the “OCC”); and (v) a consent order with the Financial Crimes Enforcement Network (“FinCEN”) of the Treasury Department.

Notes to editors:

The websites of the agencies involved in these agreements are as follows:

— US Department of Justice: www.justice.gov/

— UK Financial Services Authority: www.fsa.gov.uk/

— The New York County District Attorney’s Office: www.manhattanda.org/

— The Board of Governors of the US Federal Reserve System: www.federalreserve.gov/

— US Department of the Treasury’s Office of Foreign Assets Control: www.treasury.gov/ofac

— Office of the Comptroller of the Currency: www.occ.gov/

— Financial Crimes Enforcement Network of the Treasury Department: www.fincen.gov/

The HSBC Group

HSBC Holdings plc, the parent company of the HSBC Group, is headquartered in London. The Group serves customers worldwide from around 6,900 offices in over 80 countries and territories in Europe, the Asia-Pacific region, North and Latin America, the Middle East and Africa. With assets of US$2,721bn at 30 September 2012, the HSBC Group is one of the world’s largest banking and financial services organisations.

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