Since 1997, the U.S. has maintained sanctions against Sudan, a state sponsor of terrorism. The United Nations has imposed an arms embargo on Sudan’s Darfur region since 2004 and asset freezes of some Sudanese officials since 2005. The U.S. Office of Foreign Assets Control (OFAC) has limited U.S. dollar transactions in Sudan since 2005.
But those sanctions have not prevented HSBC from periodically making improper transactions in U.S. dollars in Sudan from 2005 to 2008. The instances described do not sound like intentional efforts to undermine the international sanctions regime against Sudan, but the actions were nonetheless negligent. From the U.S. Senate’s report on HSBC earlier this summer (with internal citations omitted):
A second set of OFAC sensitive transactions involved Sudan, a country which is also subject to a comprehensive sanction program in the United States. Internal bank documents indicate that, from at least 2005 to 2008, HBUS processed a considerable volume of U.S. dollar transactions involving Sudan that, once the new GCL [group circular letter from HSBC’s Compliance Group] took effect, should have decreased. The reasons they continued include a wide range of factors, from inadequate bank staffing reviewing OFAC transactions, to deceptive wire transfer documentation, to ongoing actions by HSBC affiliates to send these potentially prohibited transactions through HBUS.
In August 2005, a month after HSBC Group issued the GCL policy barring HSBC affiliates from engaging in U.S. dollar transactions in violation of OFAC prohibitions, HSBC Group head of Global Institutional Banking, Mark Smith, circulated a managerial letter identifying correspondent relationships that would be affected. The letter stated: “An overriding observation is that the revised policy will most significantly impact the Cuban and Sudan correspondent bank relationships.” It also observed: “For Sudan and Cuba, most of our business is conducted in USD and the discussions already initiated with the affected banks will dictate the extent of our ongoing relationships.” In September 2005, a senior HBEU payments official Rod Moxley completed an analysis of U.K. transactions over a 10-day period that were stopped by the WOLF filter and noted “a considerable number of USD denominated transactions” for Sudan.
A year after the GCL took effect, however, one affiliate attempted to clear a Sudan-related transaction through HBUS in violation of company policy. On December 6, 2006, HBUS blocked a $2.5 million payment originating from an HSBC branch in Johannesburg, because the payment details referenced the “Sudanese Petroleum Corporation.” Although the payment had also been stopped by the WOLF filter in HSBC Johannesburg, an employee there had approved its release and sent the transaction through their correspondent account at HBUS. An internal email from HSBC Johannesburg explained that the release of the funds was:
a genuine error in an attempt to push the day[‘]s work through before the cut-off time. I believe the loss of three staff in the department leaving only two permanent staff remaining is causing the[m] to work towards clearing their queues rather than slow down to read the warnings such as these. … Having said that I also feel it is a matter of training where seeing the word ‘Sudan’ alone should have been warning enough.
The email also noted that the transaction had been sent by Commercial Bank of Ethiopia, which was “aware that this payment may not go through as they have attempted to make this payment via their other correspondent banks and failed.”
In July 2007, HBUS discovered that another client, Arab Investment Company, had been sending “multiple Sudan-related payments” through its U.S. dollar account at HBUS, that other banks later blocked for specifying a Sudanese originator or beneficiary, “suggesting that HBUS has been processing cover payments for this client.” An email identified seven wire transfers over a one-year period, collectively involving more than $1.1 million, in which the documentation provided to HBUS made no reference to Sudan, preventing the transfers from being stopped by HBUS’ OFAC filter. The email noted that two of the wire transfers later blocked by other banks had resulted in letters from OFAC seeking an explanation for HBUS’ allowing the transfers to take place, and suggested closing the client account to prevent more such incidents.
On another occasion, HBUS identified five wire transfer payments between January and November 2007, totaling more than $94,000, that turned out to be intended for a Sudanese company, but had been processed as straight through payments at HBUS, because “there was no beneficiary address and no mention of ‘Sudan’.”
In still other cases, wire transfers clearly referencing Sudan were stopped by HBUS’ OFAC filter for further review, but then allowed by HBUS staff to proceed. An HBUS internal report on OFAC compliance noted, for example, two blocked wire transfers involving Sudan, one for over $44,000 and the other for over $29,000, blocked on November 5 and December 7, 2007, respectively, by HBUS’ OFAC filter, but subsequently “released due to human error.”
In August 2008, HBUS noted that it was then holding over $3.2 million in Sudan-related payments sent to the bank from other HSBC affiliates.
The bulk of the funds came from blocking a $2.5 million payment from HSBC Johannesburg destined for the Sudanese Petroleum Corporation, but three other Sudan-related payments from HSBC affiliates were also identified, a $300,000 payment sent by HSBC Hong Kong; a payment for more than $367,000 payment from HSBC Dubai, and a payment for more than $58,000 from British Arab Commercial Bank Ltd.
The email listing these blocked funds noted that a court order was seeking transfer of the funds to a federal court in the United States in connection with a lawsuit seeking compensation for the families of 17 U.S. sailors killed in a 2000 terrorist attack on the USS Cole in Yemen.
In August 2010, in connection with an effort to exit correspondent relationships with 121 international banks that HBUS determined it could no longer support, HBUS CEO Irene Dorner sent an email noting references to 16 banks in Sudan. Ms. Dorner wrote: “In Phase 2 there will be Trade names the exit for which may be more complicated but to give you a flavor of the problem we seem to have 16 correspondent banks in Sudan which cannot be right.”