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Are Banks that Violate Sanctions Getting Off with Slaps on the Wrist?

By the DoJ forging cash settlements instead of prosecuting, the government is still able to do business with the guilty firms.

by
Rodrigo Sermeño

Bio

December 19, 2012 - 12:49 pm
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Officials announced last week that HSBC has agreed to pay a $1.9 billion fine for breaching a series of U.S. laws targeting businesses interacting with rogue regimes and criminal elements – a historic fine following a series of similar settlements in recent years.

But the settlement, unlike what a prosecution would have done, also leaves room for the government to still do business with the guilty bank.

The Department of Justice said that due to HSBC’s anti-money laundering failures, Colombia’s Norte del Valle Cartel and Mexico’s Sinaloa Cartel laundered at least $881 million through the bank and its Mexican unit. The bank was also found guilty of processing $660 million for banks and other entities in sanctioned nations, including Burma, Cuba, Iran, Libya, and Sudan.

In July, a report released by the U.S. Senate’s Homeland Security and Government Affairs Permanent Subcommittee on Investigations accused the British bank of avoiding required procedures that would identify the legality of transactions connected with the world’s most dangerous countries. In a yearlong investigation, the committee found that HSBC actively violated several rules, exposing the U.S. financial system to abuse by “money launderers, drug kingpins, terrorists, and rogue nations.”

Under the agreement, HSBC will forfeit $1.26 billion to the Department of Justice, retain a compliance monitor, and take necessary steps to meet compliance obligations. The bank also agreed to pay $665 million in civil penalties to other U.S. agencies.

The bank acknowledged having poor anti-money-laundering controls and apologized to U.S. authorities.

“We accept responsibility for our past mistakes,” said HSBC Chief Executive Stuart Gulliver in a statement last week. “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.”

The U.S. and HSBC reached a deal to defer prosecution in exchange for a fine and the bank’s acknowledgement it failed to observe U.S. laws. The violated laws include the Trading with the Enemy Act (a federal law restricting trade with countries hostile to the United States) and the Bank Secrecy Act (a law requiring financial institutions in the U.S. to assist government agencies to detect and prevent money laundering).

The agreement’s announcement generated an outpouring of responses from elected officials.

“The HSBC settlement sends a powerful wake-up call to multinational banks about the consequences of disregarding their anti-money laundering obligations. It also shows the value of congressional oversight in exposing wrongdoing and the ongoing need to hold banks accountable,” said Sen. Carl Levin (D-Mich.), the subcommittee’s chairman.

House Foreign Affairs Committee Chairwoman Ileana Ros-Lehtinen (R-Fla.) also praised news of the settlement in a statement and commended the U.S. Department of Treasury for “its outstanding work in cracking down on these illicit criminal activities.”

But praise for the move was not unanimous. In a letter sent to Attorney General Eric Holder, Senator Jeff Merkley (D-Ore.) criticized the Department of Justice for its “too big to jail” policy. “I am deeply concerned that four years after the financial crisis, the Department appears to have firmly set the precedent that no bank, bank employee, or bank executive can be prosecuted even for serious criminal actions if that bank is a large, systemically important financial institution,” wrote Merkley.

If state and federal authorities had indicted HSBC for its offenses, the government and others could no longer have conducted business with it, as the charges would have ultimately cost the bank its charter to operate in the United States.

In recent years, similar investigations have also culminated in deferred prosecution agreements.

Last week, British bank Standard Chartered agreed to pay $327 million to settle claims by U.S. authorities that it had illegally funneled money for Iranian banks and corporations. Credit Suisse received a $536 million fine in 2009 for allowing clients in Iran, Libya, and Cuba to conduct financial transactions.

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