Decision not to prosecute HSBC is assailed

$1.9b deal for laundering cash called inadequate

NEW YORK — When the Justice Department last week announced its record $1.9 billion settlement with the British bank HSBC, prosecutors called it a powerful blow to a dysfunctional institution accused of laundering money for Mexico’s murderous drug cartels, Libya, and Iran.

But to some former federal prosecutors, it was only the latest case of the government’s stopping short of bringing criminal money laundering charges against a big bank or its executives, at least in part on the rationale that could cause such banks to fail.

They say it sounds a lot like the ‘‘too big to fail’’ meme that kept big but sickly banks alive on the support of taxpayer-funded bailouts. In these cases, they call it ‘‘too big to jail.’’


‘‘Shame on the Department of Justice. Shame on them,’’ said Jimmy Gurulé, a former prosecutor who teaches law at the University of Notre Dame.

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‘‘These are actions that facilitated major international drug cartels to continue their operations,’’ he said. ‘‘Now, if that doesn’t justify criminal prosecution, I can’t imagine a case that would.’’

An Oregon Democrat, Senator Jeff Merkley, wrote to US Attorney General Eric Holder after the HSBC settlement, saying the government ‘‘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.’’

Neil Barofsky, former inspector general for the Troubled Asset Relief Program and a former federal prosecutor, warned big banks could interpret the Justice Department’s leniency as ‘‘a license to steal.’’

Since 2009, several European banks have paid heavy settlements related to allegations they moved money for people or companies on the US sanctions list: Credit Suisse, $536 million; Barclays, $298 million; Lloyds, $350 million; ING, $619 million; and Royal Bank of Scotland, $500 million.


While those cases involved deals with such countries as Iran, Libya, Cuba, and Sudan, the HSBC case was notable for the government’s allegation that it also helped launder $881 million in drug-trafficking proceeds for Mexican drug cartels.

Prosecutors say they could not prove HSBC executives conspired to aid drug organizations or rogue nations. Breakdowns in security controls at the company occurred gradually, over decades, with a motive of increasing profits rather than committing crimes, they said.

Prosecutors also expressed fear of ‘‘collateral consequences’’ — that going further could have sunk a company that employs tens of thousands of people and is tied to the economies of the roughly 80 countries where it does business.

In 2002, the huge accounting firm Arthur Andersen was convicted of destroying Enron-related documents before the energy giant’s collapse. It was forced to surrender its accounting license. Only after 85,000 people lost their jobs did the court case ultimately play out, with the Supreme Court overturning the conviction too late to save the business.

‘‘From a policy standpoint, it’s a pretty compelling argument,’’ said Kevin O’Brien, a former prosecutor. ‘‘Employees lose their jobs, towns where these businesses are located are negatively affected, stockholders which include a lot of moms and pops lose their savings.”


Bill Black, a former financial regulator, scoffed at such a notion. ‘‘Seriously, you want to keep felons in charge of a bank for bank stability?’’ he said.

To critics of the government’s approach, the HSBC case is a replay of the years immediately after the 2008 financial crisis, when people most responsible for it were not really punished. No high-profile bankers went to jail, nor has there been any large-scale effort to recover the giant bonuses awarded to executives of failed or nearly failed banks.

HSBC has rescinded deferred compensation bonuses and will partially defer bonus compensation for senior executives during the next five years.

‘‘The guy who filed a false tax return, he’s probably doing five years in prison,’’ Gurulé said. ‘‘And these guys — transactions with Iran, threatening to jeopardize US national security — they don’t even get prosecuted.”