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

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.

According to a report prepared by the Manhattan Institute, a conservative think-tank based in New York, the Justice Department has entered into more than 200 deferred prosecution or non-prosecution agreements in the last decade. Since 2009, 18 of the total federal agreements have involved financial institutions.

Here are some of the major fines in the financial sector since 2009:

1. August and December 2012, Standard Chartered, $667 million. Charge: Violating US Sanctions on transactions with Iran, Burma, Libya and Sudan.

The New York Department of Financial Services (DFS) accused the British bank of scheming with the Iranian government over a decade to move billions of dollars through the U.S. financial system. In the nine-month investigation, the DFS found that the U.S. unit of the bank had hidden thousands of transactions with Iran worth $250 billion.


2. June 2012, ING Bank NV, $619 million. Charge: Covering up illegal transactions with Cuban and Iranian entities.

U.S. authorities said ING moved $1.6 billion illegally through banks in the United States from the early 1990s by eliminating payment information that would have revealed the involvement of sanctioned countries and entities. According to prosecutors, ING told clients from sanctioned countries how to evade computer filters designed to prevent them from gaining access to the U.S. financial system.

3. August 2010, Barclays, $298 million: Charge: Allowing client payments from Cuba and Sudan.

Authorities said that bank employees deleted and changed payment messages referencing banned countries, and routed some payments through an internal account to make them seem like they were coming from England.
The London-based bank admitted that between 1995 and 2006 it helped banks in Iran, Cuba and Libya, Myanmar and Sudan evade U.S. regulations banning payments into the U.S. from these countries.

4. March 2010, Wachovia Bank, $160 million. Charge: Lacking robust anti-money laundering measures, allowing Mexican cartels to launder millions of dollars worth of drug proceedings.

An investigation, which began after Mexican soldiers intercepted a plane carrying cocaine in 2005, ultimately uncovered at least $110 million in drug profits laundered from Mexico through Wachovia. Authorities made the discovery after following the paper trail behind the money used to purchase the plane carrying the drugs. Authorities uncovered billions of dollars in wire transfers and cash shipments through Mexican currency exchange houses into Wachovia accounts.


5. December 2009, Credit Suisse, $536 million. Charge: Allowing clients in Iran, Libya, Sudan, Myanmar, and Cuba to conduct financial transactions.

U.S. officials accused Credit Suisse of actively helping its clients avoid detection by U.S. authorities. The bank helped its Iranian clients avoid detection by telling them that bank staff would check each message individually to make sure their transactions remain undetected. “At one point, the company even developed a pamphlet for its Iranian clients, explaining how to fill out payment messages so as not to trigger U.S. filters,” said in a statement the U.S. Attorney General. “They created a ‘how-to’ book on committing a crime – and it worked well for years.”

All of these cases have the same conclusion: the financial entities avoided criminal charges by entering into a deferred prosecution with authorities, in spite of willfully violating U.S. laws.

The Justice Department made deferred prosecution an official alternative after changing its guidelines for federal prosecution of business organizations in 2008.

“Under appropriate circumstances, a deferred prosecution or non-prosecution agreement can help restore the integrity of a company’s operations and preserve the financial viability of a corporation that has engaged in criminal conduct,” said a 2008 U.S. Department of Justice memo.

In the HSBC case, apprehensions over the effects that criminal charges could have had on the financial system played an important role in the decision to pursue a deferred agreement. “State and federal authorities decided against indicting HSBC in a money-laundering case over concerns that criminal charges could jeopardize one of the world’s largest banks and ultimately destabilize the global financial system,” reported the New York Times.


The trend in these types of settlements suggests that they have become commonplace and raises serious questions about whether the government treats financial institutions as if they are “too big to jail” – even when they aid rogue regimes and cartels.

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