Money laundering and terrorist funding

HSBC Bank USA: Efforts in the Prevention of Money Laundering and Terrorist Funding

Mission and Value Statement

The Risk of Money Laundering and Terrorist Funding in the Banking Industry

Legal Requirements and HSBC Compliance

Technology Issues

HSBC Operations and Internal Management

Impending Developments and Future Challenges

The threat of terrorism and international crime is more than present in today's world. Terrorist and criminal threats appear to have proliferated in recent years, making an understanding of their sources of funding crucial to attempts to control this threat to order and stability. In inside an effort to combat this risk, the federal government of the United States has charged banking institutions with protecting, monitoring, and reporting on financial activity that may aid terrorists and criminals. HSBC Bank USA takes this charge very seriously due to its own risk and a sense of social responsibility.

HSBC Bank USA, like other American banks, is subject to reputational, operational, and legal risks due to the threat of terrorist and criminal activity. To mitigate these risks, they strive for compliance within the legal framework set forth by the United States Patriot Act and Bank Security Act. Compliance requires them to create a written Anti-Money Laundering (AML) program, which includes the designation of a compliance officer, ongoing employee training, designation of controls (including due diligence terms), and an internal audit function. Compliance, however, forms only the most limited aspects of HSBC's efforts as the institution actively works beyond the base requirements set by national and international law.

HSBC Bank USA makes additional strides improve upon compliance requirements. To do this, HSBC focuses on technology issue, including a focus on new challenges and advances and data quality / filtering issues. Maintaining a secure, affordable, and dependable technology system is also crucial. HSBC must also grapple with internal operations changes due to the new regulations. Matters of cost, business management, and personnel management are a concern. By staying abreast of new issues and developments and communicating with other financial institutions, HSBC Bank USA intends to define itself as a leader within the industry. Within the context of this leadership role, HSBC hopes to define financial security in the 21st century.

Mission and Value Statement

HSBC Bank USA is clear in its responsibilities as a financial institution. HSBC must meet the expectations of its customers, shareholders, and colleagues without neglecting the greater social responsibility inherent in the area of banking. In other words, HSBC must be a successful business while also protecting itself and others against the criminal element.

This is no easy task, because it requires HSBC to both defend its own institutions against financial attack, while simultaneously waging an offensive against criminal and terrorist threats to limit their financial integrity.

HSBC Bank USA, as part of HSBC International and The Wolfsberg Group, commits itself to the assistance of governments in fighting terrorism and money laundering.

Cooperation in matters of prevention, detection, and information sharing is key. By working together with financial institutions, HSBC Bank USA will forge new relationships that strengthen business opportunities. At the same time, these relationships will protect communities and other stakeholders by monitoring finances that could be used for illicit aims.

HSBC's goals are supported by strong company values. HSBC strives to: develop lasting ethical relationships with clients; provide customer service that surpasses expectations; maintain the highest standards possible in areas of integrity; promote quality and competence in dealings; pursue distinction and efficiency through communication and teamwork; and meet the challenges of terrorism, technology, and social responsibility head-on.

Problem Statement

As a regulated financial institution, HSBC Bank USA has an important role to play in furthering both domestic and international efforts against money laundering and terrorist funding. Transactions involving money laundering or terrorist financing expose a financial institution to significant reputational, operational, and legal risk. Such risk threatens the functions of business and a bank's ability to serve its customers.

Compliance with federal standards requires many new functions within American banks, and HSBC Bank USA is no different. The training of new personnel to be part of the security structure adds to the already complicated corporate structure of HSBC. Additional funding, technology, and risk assessment is also necessary and difficult to maintain.

HSBC Bank USA and other financial organizations have the additional responsibility of protecting the public and their customers. Through governmental cooperation and compliance to federal standards, banks can contribute to the safety of the global community and, ideally, prevent terrorism and criminal activity. At the same time, banks must be diligent to protect information and their clients. Issues concerning the rights of the individual (the customer) and the protection of their financial and personal information are crucially important in an era where identity theft is an additional concern.

Chapter 1. The Risk of Money Laundering and Terrorist Funding in the Banking Industry

The Banking Industry plays an intricate role in the prevention and handling of money laundering and terrorist funding. As such, every bank must take stock of the risks associated with these critical areas of social, political, and financial importance. Additionally, every bank must make strides to understand the intricacies of money laundering and terrorist financing and must work with others in the industry to protect themselves and their customers.

HSBC USA recognizes the operational, legal, and "reputational" risks of working in the banking industry. Operational risks including inadequate AML programs and regulatory problems relating to such programs can hamper a bank's ability to do business. The related legal risks of failing to meet federal standards are also of major concern to the Senior Management staff at HSBC USA. Despite these considerable concerns, it is "reputational" risk that poses the greatest threat to bankers. Losing public trust through association with illicit financial dealings poses the greatest threat, as a bank's trustworthy reputation is closely associated with its success. Through all of these threats, HSBC further considers its social responsibility to both its clients and the greater public in matters of money laundering and terrorist funding.

The nature of money laundering and terrorist funding in banking

Operational risk

Legal risks associated with money laundering and terrorist funding

Reputation and risk

Since the events of September 11, 2001, the United States government has taken all aspects of terrorist financing and money laundering very seriously.

Terrorist organizations attempting to funnel resources to a common source will invariably attempt to use some form of financial institution. If allowed to prosper, money laundering to terrorists "could lead to a shift of economic power to organized crime, which could erode our political and social systems."

The banking industry in particular is in a critical position to both identify and intercept funds intended for illegal or illicit use, both within the United States and at the global level. Banks are also at the forefront in recognizing and reporting suspicious and unusual client activity.

Seeing this link, many governments, including the United States government, have seen fit to place requirements on financial institutions to protect the greater good.

Banks are responsible for keeping lists of questionable recipients, monitoring transactions, and filtering immense amounts of data to identify potential risks. Under new regulations, which will be discussed further in Chapter 2 and 3, banks must continue to meet AML program requirements and improve upon their methods to combat new methods of criminal ingenuity. At the same time, banks must consider the privacy and rights of clients. These actions necessitate an organization-wide effort and compromise other functions of business.

Financial institutions glean little reward for implementing effective prevention methods -- at least not directly in the business or financial sense.

However, HSBC Bank USA and other iHowevndividual banking institutions are at risk from their associated responsibilities and can lessen that risk through risk management and successful AML programming. Among the risks that HSBC USA and other financial organizations must grapple with are operational, legal, and reputaional risks.

Operational risk is a factor, especially where a financial institution has not committed the time and money necessary for proper controls.

Under the new laws, financial institutions with insufficient AML programs are likely to experience regulatory fines. Business disruption is a second reason why a HSBC Bank USA cannot afford to be without an adequate or more than adequate AML program in place; business disruption due to an investigation can be costly to a bank in both time and money.

As such, HSBC Bank USA must continue to devote enough money and time to the identification and measurement of operational risk.

Legal risks also pose a threat to a banking organization. Legal risks can be closely associated with operational risks, though often require more financial backing to restore order within an organization. Legal risks might take the form of lawful action against senior management for their lack of due diligence or controls, or other misconduct. The largest legal risk to HSBC Bank USA is the risk of non-compliance under federal regulation. Legal costs to defend the organization or individuals associated with the organization can be sizable.

Those in positions of leadership at HSBC Bank USA, including senior management and the board of directors, are both trusted and respected members of the organization and the industry. It is highly unlikely that they would become involved with illegal activities knowingly. However, the complicated nature of compliance risk and the high expectations within the banking industry make it possible that some legal manner might be overlooked.

Chief Compliance Officers are at particular risk due to the nature of their position and should be increasingly diligent to maintain a proper understanding of the expectations of compliance. Additionally, Chief Compliance Officers and the operations department should be aware of the current weaknesses within their own AML programs.

In an effort to minimize these risks, HSBC Bank USA has recognized the need for more purposeful measurement and management of compliance risk.

Legal and operational risk can quickly and efficiently hamper the activities of any bank. However, it is reputational risk that poses the greatest risk to HSBC Bank USA. Banks that are associated with money laundering, terrorism, and criminal activity in the media experience severely negative responses associated with their brand.

Since trust is one of the most valued concepts in the banking industry, the public opinion that a bank is lax on matters of terrorism and crime can essentially crush a bank's ability to conduct business.

Creating an efficient AML program is the best way for HSBC Bank USA to address these internal pressures and risks. Further, HSBC recognizes that it plays an important role to play in the fight against terrorism.

By addressing these risks and managing a functioning, well-run organization, HSBC protects both itself and the community from risk.

Chapter 2: AML Requirements and HSBC Compliance

Under the United States Patriot Act and Bank Security Act, American banking institutions are held to specific rules concerning monitoring and preventing money laundering and terrorist funding. Further, they are both encouraged and expected to play a major role in prevention by conforming to and improving upon these regulations. HSBC Bank USA, as part of HSBC International and The Wolfsburg Group, supports these measures, while also aiming to protect the rights of its clients.

Anti-money laundering (AML) programs are the greatest feature by which banks manage data to prevent illicit use of funds. AML programs are required under current federal banking law. The key features of a banking AML program include: committing the program to writing; developing internal policies, controls, and procedures; designating a compliance officer; implementing ongoing employee training; and instituting an independent audit function for testing the program itself. Controls concerning due diligence are also required. The methodology of these programs leads to the submission of Suspicious Activity Reporting, perhaps the greatest tool in identifying and preventing illegal financial activity.

The Bank Secrecy Act

The Patriot Act

Bank Compliance and AML Program Expectations

Due diligence

Suspicious Activity Reporting

HSBC and the Rights of the Individual

The Bank Secrecy Act (BSA) was initiated by Congress in order to prevent financial services (like those offered by banks) from being used as intermediaries in the efforts to hide or move money intended for illegal or criminal activities.

The BSA placed controls and monitoring expectations on banks. Banks were given the responsibility of identifying when their customers' accounts were being used in a manner that suggested suspicious activity.

In the October following the terrorist attacks of September 11, 2001, The Patriot Act amended the BSA in order to strengthen the actions and reporting or banks.

The Patriot Act required banks to conduct increased due diligence.

Extreme pressure, both socially and legally, was put on banks to increase their monitoring and identification processes. Additionally, security was increased to regulate interaction with foreign entities and to control account opening in the United States. In essence, banks were drafted into the service of the American government in a manner not unknown to European and Asian countries.

HSBC has since made a contract with the Federal Reserve to establish its intent to meet the compliance standards and requirements.

The main area of bank compliance under the United States Patriot Act is in the adoption and management of an Anti-Money Laundering (AML) program. The designation of a compliance officer, ongoing employee training, and an independent audit function are the main tenets of an AML Program. AML programs must additionally be developed in writing, outlining internal policies, procedures and controls.

Corporate-level policies and procedure guidelines should address: clearly defined explanations of terrorist financing, money laundering and identification; the roles and responsibilities of staff and management; the AML training program; the upkeep of and current listings of watched or restricted individuals; AML risk assessment methods; controls on account opening procedures; controls on monitoring and reporting suspicious activities; information-sharing concerns; and compliance with the Office of Foreign Assets Control (OFAC).

Matters of due diligence are among the top priorities of HSBC Bank USA and other American financial institutions. In accordance with The Wolfsberg Group, HSBC (International) and its subsidiaries except that clients and customers who pose a greater risk will be subject to greater due diligence.

This risk-based approach allows HSBC Bank USA to meet high risk banking activities, including electronic banking, wire transfers, and correspondent banking, with a greater level of due diligence in order to mitigate risk. Additionally, all banking matters will be subject to the identity and verification due diligence standards required by the United States Patriot Act.

If enhanced due diligence is warranted, HSBC Bank USA has established principles for dealing with clients in a straightforward, fair, and secure manner. When considering the initiation of a banking relationship, HSBC will consider a client's location, nature of business, customer base, and background. A business' products and services, history, and anti-money laundering controls (if necessary) will additionally be considered. The industry-promoted idea of "Knowing Your Customer" (KYC) allows banks like HSBC to make sure that due diligence is undertaken with a clear idea of how much risk is involved with the client.

If a high level of due diligence is recognized, banks are likely to address individuals of groups that are suspect in criminal activities. Suspicious Activity Reports (SAR) are the major tool by which banks contribute identify these individuals to the federal government. Monitoring, as will be discussed further in Chapter 3, allows HSBC to identify changes in activity, high levels of questionable activity, or activity that is not linked with certainty to a legal income source.

Cash transactions over $10,000 are subject to reporting, as are frequent wire transfers. Banks must also monitor and report on monetary instrument records and velocity of funds reports.

Monitoring takes a great amount of personnel and organizational support, as banks are given the responsibility of identifying which cases get reported by an SAR in most cases. Each individual bank must delineate controls and procedures for which potentially unusual or suspicious transactions warrant more investigation. This is essential, as the number of questionable transactions is sizable, yet few are actually criminal.

This task is assisted by banks' due diligence procedures, since knowing the business and customer will allow banks to understand the financial transactions associated with the business or customer.

HSBC Bank USA and its affiliates aim to continue their activities with the government and international community to fight terrorism and crime without sacrificing the rights of the individual. Supporting the identification of criminal transactions should not hinder legal businesses, yet it sometimes does. Through technology, communication, and cooperation with customers, HSBC intends to protect customers' identities and personal information through clear internal guidelines and controls on information sharing.

Chapter 3: Technology Issues

HSBC USA is aware that technology is one of the greatest issues involved in money laundering and terrorist funding. Technology offers many new opportunities for terrorists and illegal operators. This poses new issues in the protection of funds and also of client privacy and security. Yet, it also offers opportunities to those within the banking industry as filtering options and monitoring techniques improve means of detecting illegal activity.

HSBC handles numerous technological issues in its efforts to prevent money laundering and terrorist funding. Maintaining a high level of data quality and instituting effective data filtering are of the greatest concern to HSBC in their efforts to avoid false positives. Significant attention is also given to the maintenance of a technology system that is secure, dependable, and affordable, so that HSBC clients can be confident in how their accounts and information are managed.

Technology-related challenges

Technological advances aiding in prevention

Data quality and data filtering issues

Maintaining an affordable, secure, and dependable technology system

Technology-related challenges

Technology is at the forefront of any well-managed banking AML program. There are many challenges in creating and maintaining a technology system for monitoring and filtering data in the banking industry. Because all areas of risk (operational, legal, and reputational) depend on the success and quality of data quality, filtering, and monitoring, every bank must devote adequate resources to technology in order to protect itself from the consequences of non-compliance and terrorist association.

The sheer number of transactions that must be monitored by financial institutions makes it prohibitively expensive and impractical to review transactions manually.

That means that transaction monitoring is primarily a technological concerned. Criminals and money launderers are aware of the technology available, and will continually search for ways to continue their transactions in a way that does not flag them as questionable or suspect.

Money laundering and terrorist funding call for different approaches. Money laundering often incorporates the placement of criminally obtained monies into accounts, where it can be transferred to appear as legally obtained funds. Due diligence practices should identify money laundering risks in the process of pinpointing a business' expected "normal" behaviors.

Additionally, monitoring for frequent transfers, or sudden increases in activity, can signal money-laundering activities.

Terrorist funding is in some ways more difficult to identify than money laundering, as terrorist financing may come from completely legal sources.

Identifying terrorist funding depends greatly on communication with governments and other financial institutions. Institutions must maintain a well-ordered list of blocked recipients. If due diligence and effective AML program procedures are followed, then money cannot be transferred to individuals on the watch-list who have ties to terrorists or terrorist organizations.

Where this presents a challenge is in areas of transaction blocking due to customers who have a name close to those on the watch list; customers with similar names are likely to have transactions to them blocked though they pose no threat. While such transactions can be recognized and reversed / allowed, the initial blocking of funds can cause inconvenience for the customer while also requiring additional personnel to be available to manually investigate and reverse the block.

Technological advances continue to offer new methods of preventing and identifying terrorist or criminal activity. HSBC Groups businesses are held to strict standards of monitoring, customer identification, and reporting through the incorporation of technological tools.

Three kinds of software system are currently used by HSBC Bank USA to assist in this manner: enhanced customer identification software; payment filtering and blocking software; and detection and investigation software.

Payment filtering is a proactive activity that can prevent money laundering and funding to terrorists by filtering payment requests and transfers through current watch lists and customer data. If transactions do not match expectations of a customer's business and activities based on known data, further investigation may be warranted. If payment requests are made to those on a watch list, those payments can be blocked to prevent funds from reaching known criminal organizations and their contacts.

Though such matters do not always run as smoothly as that, HSBC Bank USA and other banks aim to streamline procedures as much as possible to both prevent the funding of criminal activity and to protect innocent customer. To streamline technology procedures, banks depend on high-quality data and complex software programs that can recognize normal behavior based on that data.

HSBC Bank USA and its international affiliates are concerned with data quality and data filtering issues, as they are crucial in compliance and risk mitigation. By centralizing and consolidating core payment processes, HSBC (International) has prevented risk and ensured that filtering happens early in the transfer process.

Centralizing these processes and detecting problems early allows HSBC Bank USA to avoid excessive false positives and payment reversals.

Avoiding false positives saves time, money, and needs for additional personnel. Centralizing also allows HSBC to facilitate records access in a timely manner, whether it is in answer to the federal government or for their own review to assess risk.

Data quality is maintained through due diligence methods at account / business relationship inception and during information review. Due diligence controls allow banks to recognize suspicious accounts and individuals ever where they do not see the customer in person. Since so many new banking services are offered through the Internet and other technology, due diligence processes assist banks in preventing accounts that will later cause issues with KYC and false positives.

Review of accounts and customers is an ongoing process for many banks, including HSBC.

Federal requirements require due diligence to a certain level. Yet, banks must protect themselves by increasing due diligence standards within their own framework. Verification of customers' identification should not stop when an account is opened. An ongoing review of a customer's account use and normal behavior should be assessed continually. Checking prior banking references and working with other banks to consider the sources of funds can help in ruling out transactions as suspicious or meriting more investigation.

Maintaining an affordable, secure, and dependable technology system is also critical, as an efficient technology system keeps costs down and affects profit and cost of services. Streamlined IT processes that eliminate duplication of procedures and centralization have proven effective in reducing the costs of compliance technology at HSBC. HSBC is also concerned with the development of new technology for data-mining and monitoring.

By investing in technology and choosing only the most trusted software and IT providers, a technology system can reduce risk of non-compliance and improve prevention methods within the bank.

Chapter 4: HSBC Operations and Internal Management

HSBC USA goes beyond the basic compliance regulations described in Chapter 2. Instead of focusing on compliance alone, HSBC aims to exceed expectations by improving internal management and staying abreast of developments and technology. Significant changes have taken place within HSBC as an organization as the result of new requirements. Changes are also the result of the company's efforts to create a better organization that can serve its clients continual needs. Since reputational risk is significant to the long-term success of HSBC, committing to AML and prevention of terrorist funding clearly shows the company's intent.

Social responsibility and responsibility to its customers relate closely to HSBC's other goal -- that of a continuing as a successful business.

To that end, it is necessary for HSBC to take stock of the additional personnel and organizational needs brought on by AML requirements and the changing role of banking. Managing costs in necessary to the business of banking. Training and managing new positions and staffing issues also present problems that are relatively new since the inception of the Patriot Act. Finally, coping with false positives is perhaps one of the greatest issues of concern both from an operational and social perspective.

The need for more than the minimum requirements

Changes within HSBC USA

Business aspects of banking under the new requirements

Personnel and organizational issues

Coping with false positives

Pressure on banks to maintain the highest possible level of security in matters of due diligence and AML program controls implies a greater need from the industry and the government alike.

The United States government and other governments around the world expect banks to play a critical role in prevention and protection. Federal requirements require cooperation but more effort is needed for a bank to protect itself and reach a higher level of laundering prevention and awareness. Setting high standards within HSBC as an organization not only provides this protection and awareness but applies pressure on other financial institutions to follow suit. This creates a global culture and community of awareness.

To reach global and community awareness within the banking industry, HSBC must first establish itself as having a consistent organizational awareness related to money laundering and terrorist funding. AML programs must become the head of a committed bank's focus.

An organization-wide focus involving the board of directors, senior management, AML compliance officer, business line management, and those responsible for internal auditing and operations keeps issues of security, due diligence, and responsibility at the forefront of a bank's processes.

Because an AML program is required, banks should take full use of its existence. Risk assessment is one of the largest areas of concern within banking. AML programs naturally possess risk assessment through their requirement of an internal audit function.

A bank that truly desires to mitigate risks will see AML program audits as a benefit rather than an unavoidable cost. An effective AML will identify areas that need improvement, reducing transaction, compliance and reputational risk.

HSBC Bank USA recognizes that risk mitigation and the funding and support of an AML program go hand in hand.

HSBC further recognizes the costs of running an effective program and is committed to following through to protect itself, its associates, and its customers.

However, this commitment does not come easily. As the United States Patriot Act took effect, banks opposed the heightened security and new requirements. Opposition was in part due to concern about the privacy and protection of customers. However, primary resistance of banks to comply was due to the significant increase in costs expected of them in implementing new rules and changing their organizations to comply.

HSBC, like other financial institutions, has had to assess the costs of an AML program as it does any other cost within its business; its corporate social responsibility, therefore, is contrasted with its desire to serve its customers by continuing to be a successful financial business.

In business, HSBC and other banks have responded to many organizational challenges in the regulation of their activities by the federal government. Personnel and new organizational needs are two of the most common changes taking place in the banking industry.

Personnel issues since the enactment of the United States Patriot Act concern security, training, and the hiring / necessity of additional employees. The necessity of a compliance officer is clearly outlined by federal requirements and is often the first change in personnel identified within an organization. The compliance officer must be aware of the many intricacies of compliance and regulation, and must be intimately aware of the internal functions of the organization.

Because the position requires extensive knowledge and training, the position of the compliance officer is difficult to fill, as there are few qualified candidates. The position is also subject to many areas of security risk, making it a position that cannot be assigned to just any individual, especially in an area as delicate as banking and risk assessment.

The compliance officer is just one of many positions created by new regulations. An internal auditing staff is necessary under the new laws. Additional personnel are also required to fill the need of manually following up on transactions or customers that presented problems. As frustrating as this may be, HSBC Bank USA and other banks must create these positions to adjust false positives, meet compliance on due diligence, and to maintain the technological and organizational framework of monitoring transactions.

Additionally, HSBC recognized that the funding of AML programs contributes to the proper training of these new employees so that they are more efficient in the workplace.

HSBC International assists in the functioning of HSBC Bank USA by centralizing the data-intensive jobs, including AML monitoring.

This practice also assists in recognizing false positives in a timely and efficient manner.

With payment filtering in place, false positives are an unfortunate inevitability. Coping with false positives -- the blocking of transactions that are in fact legal customer activity -- is a frustrating corporate matter for banks. Despite every care to prevent inconvenience to banking patrons, HSBC payment filters are likely to block payments where beneficiary names are similar to those on watch lists.

This creates issues for management within HSBC, as additional personnel must be available to identify false positives and, where necessary, manually reverse payment rejections. Allocating addition funding for support staff and technology advances can aid in reducing false positives. Seeking out the best technology available and supporting industry-wide pushes for more research may also contribute to better advances and progress.

Chapter 5: Impending Developments and Future Challenges

The political and social climate of the world's banking industry will continue to change and evolve, leaving individual banks with the ongoing task of improving prevention methods. Communication within the industry will allow banks including HSBC USA to assess new risks and methods. Technological and procedural changes will continue to change and improve to address these additional risks.

The anticipation of new methods of criminal financing will allow HSBC USA and others to prevent risk within their organizations, to their customers, and to their community, global or otherwise. While the efforts of criminals cannot always be anticipated, working with government organizations and other financial institutions allows the individual bank to meet compliance rules and reduce risk so that they can concentrate on their business instead of risk assessment. Through their efforts to maintain the highest quality of service and protection, HSBC USA intends to become a leader in the prevention of money laundering and terrorist financing.

The adoption of new technology and procedure

Anticipating new methods of abuse hypothesis

Continued risk and risk assessment

HSBC on the pulse of the banking industry

HSBC as a leader in preventing money laundering and terrorist funding

A simple plan for preventing terrorist funding and money laundering is unlikely to appear any time soon. Considering the future of an organization like HSBC Bank USA therefore must include allowances for the many challenges and advances that will no doubt present themselves in the future.

It is unwise of any financial institution to consider the answers to preventing terrorist funding and money laundering to be found in the current AML programs and compliance requirements. As a changing industry in a changing world, banking must adapt to the technological advances available. This is true as a preventative method but also as a reactionary method, as new safeguards must be developed as money launderers and terrorists find new ways of using technology to their advantage.

Information sharing and communication within the banking industry is the best way for HSBC Bank USA and other American financial institutions to stay informed and glean an efficient AML program and risk assessment methodology.

Since technology and advances change frequently, only frequent communication can assist banks in assessing where they stand at the industry level.

Communication is also important in HSBC's efforts to keep an updated list of risky individuals, organizations, shell banks, and questionable funding sources.

Without crucial information concerning these risks, banks are more likely to have dealings with risky individuals, putting themselves at risk. Communication also allows banks to witness other management styles and AML program integration first hand. Since corporate style varies greatly from organization to organization, HSBC Bank USA is in the position to observe alternative operating techniques from its colleagues in the industry.

Assessing new risks is also an area of future concern. It is unlikely that terrorist organizations and criminal elements will come to an end as the result of new legislation and heightened security. As such, HSBC Bank USA is in the process of creating new methods of assessing and managing risk assessment.

Compliance risk at HSBC is assessed under s new system that allows management to appraise and assign intervention only where it is necessary based on the impact probability of lapses on each of the federally required rules, regulations, and practices.

By giving each item a "net risk score," HSBC management can assign an action plan or can institute additional monitoring to aid in preventing compliance risk.

Such risk assessment programs give HSBC Bank USA and edge in risk assessment because it allows for a clear process to follow for employees. Building controls into new services and products also allows HSBC Bank USA to bring compliance to the forefront of all areas of banking.

Ingenuity must also be adopted in methods of KYC, where banks have only just begun to identify the best methods of verifying identity. With identity theft becoming more common, banks may need to adjust due diligence methodology to also focus on smaller violations. Additional violations may make it more difficult to identify what funds are the result of money laundering and terrorist funding vs. those that are the result of smaller, independent criminals. By remaining flexible and prudent, HSBC intends to continue to pursue a banking structure based on excellence and productivity.

Forward thinking and innovation are important to the success of HSBC Bank USA in the coming years. Continuing to foster a culture of compliance will allow for changes to mirror the expectations of the government as well as those of the industry.

The Chief Executive Officer (CEO) and the Board of Directors of HSBC Bank USA must set the example for the organization by contributing adequate funding and support to the areas that need it.

New relationships should be forged so that HSBC Bank USA continues to meet its objectives as a financial institution with strong values and a high level of trust. The need for enhanced global cooperation cannot be underestimated, as criminal activity will always find a place where it can take root. Keeping communication open with governmental agencies around the world makes it more possible for financial institutions to contribute to prevention and protect communities.