HSBC's record penalty over laundering
It is thought US authorities decided against indicting HSBC over concerns that criminal charges could jeopardise one of the world's largest banks and destabilise the global financial system.
HSBC faces accusations that it transferred billions of dollars for nations including Iran and enabled Mexican drug cartels to move money illegally through its US subsidiaries.
While the settlement is a victory for the US government, the case also raises questions about whether certain financial institutions, having grown so large and interconnected, are too big to indict.
Behind the scenes, authorities debated for months the merits of a criminal indictment against HSBC.
Some prosecutors at the US Justice Department's criminal division and the Manhattan district attorney's office wanted the bank to plead guilty to violations of the federal Bank Secrecy Act, which requires financial institutions to report cash transaction of $US10,000 or more and to bring dubious activity to the attention of regulators.
Treasury officials and regulators at the Federal Reserve and the Office of the Comptroller of the Currency warned against an aggressive stance, according to the officials briefed on the matter.
When approached by the Justice Department for their thoughts, the regulators cautioned about the impact of indictments on the broader economy.
After months of discussions, prosecutors decided against a criminal indictment, but only after securing record penalties and wide-ranging sanctions.
The HSBC deal, which was due to be filed in the Eastern District of New York on Tuesday, includes a deferred prosecution agreement with the Manhattan attorney's office and the Justice Department. The deferred prosecution agreement, a notch below a criminal indictment, requires the bank to forfeit more than $US1.2 billion and pay about $US650 million in fines.
Frequently Asked Questions about this Article…
HSBC was expected to pay a record US$1.9 billion to US authorities to settle money laundering allegations. The deal includes a deferred prosecution agreement that requires the bank to forfeit more than US$1.2 billion and pay about US$650 million in fines.
US authorities accused HSBC of failing to enforce anti‑money‑laundering rules, including transferring billions of dollars for nations such as Iran and enabling Mexican drug cartels to move money illegally through its US subsidiaries, leaving the US financial system exposed.
Prosecutors debated the matter for months but ultimately decided against a criminal indictment amid concerns that charging one of the world's largest and most interconnected banks could jeopardize the bank and destabilize the global financial system. Instead they secured record penalties and wide‑ranging sanctions.
A deferred prosecution agreement (DPA) is a deal that falls short of a criminal indictment. In HSBC's case the DPA, reached with the Manhattan attorney's office and the US Department of Justice, requires forfeiture of more than US$1.2 billion and payment of about US$650 million in fines as part of the settlement.
The settlement process involved the US Department of Justice, the Manhattan attorney's office (Manhattan district attorney), and input from regulators and Treasury officials including the Federal Reserve and the Office of the Comptroller of the Currency. The filing was due to be made in the Eastern District of New York.
Prosecutors sought a guilty plea related to violations of the federal Bank Secrecy Act, which requires financial institutions to report cash transactions of US$10,000 or more and to flag suspicious activity to regulators.
Some prosecutors in the Justice Department's criminal division and the Manhattan district attorney wanted HSBC to plead guilty to Bank Secrecy Act violations. By contrast, Treasury officials and regulators at the Federal Reserve and the Office of the Comptroller of the Currency warned against an aggressive criminal stance because of potential effects on the broader economy.
The case raises questions about accountability for very large, interconnected financial institutions and whether such banks can be criminally indicted without wider economic consequences. Everyday investors may want to follow regulatory enforcement outcomes and any additional sanctions or compliance changes that could affect banks' operations and reputations.
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