A high-ranking Justice Department official on December 11 defended the government’s decision not to seek criminal charges against HSBC Holdings PLC for laundering money for drug traffickers and pariah states.
The government’s deferred prosecution agreement with the bank constitutes a “sword of Damocles right over HSBC,” assistant attorney general Lanny Breuer said during a news conference in Brooklyn, N.Y. “It’s a fiction to suggest this is not a robust result,” he continued, and a “disservice” to view the agreement as suggesting “anyone was getting a pass here.”
He said the Justice Department had to weigh HSBC’s cooperation in the probe, the conduct in question and “collateral consequences” of an indictment that might drive the bank out of business, at the cost of lost jobs and “systemic” harm to the economy.
“The goal is not to bring HSBC down,” Breuer said.
Asked whether the agreement foreclosed future criminal cases against individual bankers, Breuer said, “There may be, but there may not be.”
HSBC agreed to pay $1.9 billion in forfeitures and penalties for laundering $881 million for Mexican narcotics traffickers and for allowing prohibited transactions with Cuba, Iran, Myanmar and Sudan. Breuer said the bank was responsible “for a stunning failure of oversight and worse.”
In papers filed in Eastern District of New York, HSBC admitted it had violated the Bank Secrecy Act, International Emergency Economic Powers Act and the Trading with the Enemy Act.
The bank entered into a five-year deferred prosecution agreement with the Justice Department and a two-year agreement with the Manhattan District Attorney’s Office. The Justice Department and the Manhattan D.A.’s office will share $375 million from the settlement to penalize the bank for acts including removing information from transactions that would have disclosed the bank’s dealing with sanctioned foreign nations.
“The record of dysfunction that prevailed in HSBC was simply astonishing,” Breuer said, noting the $1.256 billion federal seizure represented “by far the largest forfeiture ever in a case involving a bank.”
HSBC will pay another $665 million in civil penalties and must implement safeguards against future problems. For example, the bank has already “clawed back” bonuses for executives whose job it was to head off money laundering and significantly increased its compliance staff.
Eastern District U.S. Attorney Loretta Lynch said that HSBC had “cooperated immediately and extensively” with the investigation and its cooperation and remediation efforts were a “significant factor” in deferring criminal prosecution of the bank or its officials.
“We accept responsibility for our past mistakes,” HSBC chief executive officer Stuart Gulliver said in formal statement. “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.” He noted that the bank has installed new senior leadership during the past two years.
Federal authorities said that at least $881 million in drug trafficking proceeds was laundered through HSBC Bank USA, violating the Bank Secrecy Act, U.S. authorities said.
The investigation grew out of a case in New York’s Eastern District, which spurred an investigation by the Department of Homeland Security’s El Dorado Task Force. The probe identified drug traffickers who deposit large sums of U.S. currency in HSBC Mexico accounts from drug sales in the United States.
On December 10, the state and federal prosecutors announced a deferred prosecution agreement with British bank Standard Chartered for its own practice of “stripping” information to disguise transactions from sanctioned countries or entities. That bank will pay $327 million in forfeiture and penalties, plus a $340 million civil penalty leveled in August by the New York State Department of Financial Services.
New York District Attorney Cyrus Vance Jr. said that the city “is a center of international finance, and those who use our banks as a vehicle for international crime will not be tolerated. My office has entered into Deferred Prosecution Agreements with two different banks in just the past two days, and with six banks over the past four years. Sanctions enforcement is of vital importance to our national security and the integrity of our financial system.”
Money laundering by banks has become a priority target for U.S. law enforcement. Since 2009, Credit Suisse, Barclays, Lloyds, and ING have all paid large settlements related to allegations that they moved money for people or companies that were on the U.S. sanctions list.
Andrew Kershner reports for NLJ affiliate New York Law Journal. He can be contacted at firstname.lastname@example.org.