HSBC: Too Big To Prosecute?

Dec. 11, 2012 — -- Europe's largest bank will avoid a potentially crippling criminal prosecution for its role in moving cash for known terror groups, Mexican drug cartels, and rogue governments such as Iran, instead agreeing to pay a record $2 billion settlement, U.S. Justice Department officials announced at a press conference today.

Announcement of the immense fine was overshadowed Tuesday by efforts to explain why, in one of the clearest cases of criminal money laundering in recent memory, no one would be facing jail time. Criminal conviction on money laundering violations would have also forcibly prevented HSBC from doing business in the United States.

Lanny Breuer, Assistant Attorney General for the Criminal Division, disputed suggestions that the bank was "too big to be prosecuted," but did not dispute the idea that the Justice Department was looking for ways to penalize the bank without compromising the jobs and beneficial economic activity that the massive bank supports.

"Our goal here is not to bring HSBC down," said Breuer."I wouldn't say it's too big to prosecute. I'm not going to say that. ... I don't think the bank thinks it got off easy."

American officials said the $1.92 billion fine -- the largest ever in such a case -- would send a pointed message to financial institutions that have been lax in weeding out the banking activities of criminals and terrorists.

"The HSBC settlement sends a powerful wake-up call to multinational banks about the consequences of disregarding their anti-money laundering obligations," said Sen. Carl Levin (D-Mich.), whose investigative subcommittee first aired concerns about HSBC's actions in hearings earlier this year.

Critics of the settlement said Tuesday that the government had missed a rare chance to send an unmistakable signal about the threat posed by financial institutions willing to assist drug lords and terror groups in moving their money.

"How much more do you need to know?," said Jack Blum, an international banking expert in Washington, D.C. "These people managed to cross virtually every line that was crossed. It was an astonishing amount of criminal behavior."

"I'd say this is a signal to other banks that if you don this kind of stuff you'll get a parking ticket," said Blum. "You pay the fine, and you move on. And that's unacceptable."

Breuer said, "I don't think you can make a strong argument that we haven't addressed the underlying issue."

The fine, while large, represents only a fraction of the bank's business -- in 2011 HSBC had net income of $16.8 billion. Markets responded to the settlement by sending HSBC's stock up. HSBC Holdings PLC's share price in London was trading 0.5 percent higher. Analysts said the bank will be able to absorb the cost of the settlements.

According to Shore Capital analyst Gary Greenwood, the penalties are equivalent to around 9 percent of each company's 2012 pretax profits.

The U.S Attorney for the Eastern District of New York Loretta Lynch told reporters today that HSBC ignored "numerous red flags and warnings about the money laundering risks."

The bank "routinely did business with entities on the U.S. sanctions list," she said, "evading U.S. prohibitions on such transactions by disguising the source of the funds so the payments would go through."

Some of the most egregious activities involved efforts by the bank to assist Mexican drug lords in moving the massive amounts of cash they were receiving through their criminal activity, giving the bank the reputation as the bank of choice for drug gangs, Lynch said.

In a statement, HSBC Group Chief Executive Stuart Gulliver 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 organization from the one that made those mistakes."

"Over the last two years," said Gulliver, "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."

Click Here for the Blotter Homepage.