U.S. defends $1.9B penalty on HSBC

Posted: December 12, 2012

NEW YORK - American authorities on Tuesday cited "astonishing" dysfunction at the British bank HSBC and said it had helped Mexican drug traffickers, Iran, Libya, and others under U.S. suspicion or sanction to move money around the world.

HSBC agreed to pay $1.9 billion, the largest penalty ever imposed on a bank.

The United States stopped short of charging executives, citing the bank's immediate, full cooperation and the damage that an assault on the company might do to economies and people, including thousands who would lose jobs if the bank collapsed.

Outside experts said it was evidence that a doctrine of "too big to fail," or at least "too big to prosecute," was alive and well four years after the financial crisis.

The settlement avoided a legal battle that could have further savaged the bank's reputation and undermined confidence in the banking system. HSBC does business in almost 80 countries, so many that it calls itself "the world's local bank."

Lanny A. Breuer, assistant attorney general of the Justice Department's criminal division, cited a "stunning, stunning failure" by the bank to monitor itself. He said it enabled countries subject to U.S. sanction - Cuba, Iran, Libya, Myanmar, and Sudan - to move about $660 million in prohibited transactions through U.S. financial institutions, including HSBC, from the mid-1990s through September 2006.

Officials noted that HSBC officers in the United States had warned counterparts at the parent company that efforts to hide where financial transactions originated would expose the bank to sanctions, but the protests were ignored.

HSBC even instructed an Iranian bank in one instance how to format messages so its financial transactions would not be blocked, Breuer said at a news conference announcing the settlement.

"The record of dysfunction that prevailed at HSBC for many years is simply astonishing," Breuer said.

For the government not to go a step further and prosecute was "beyond obscene," said Bill Black, a former U.S. regulator for the Office of Thrift Supervision who teaches at the University of Missouri-Kansas City.

Breuer defended the government's agreement with HSBC. He said U.S. employees in particular seemed duped by criminal enterprises taking advantage of HSBC oversight policies that over decades became increasingly lax.

Court documents showed the bank let more than $200 trillion between 2006 and 2009 slip through relatively unmonitored, including more than $670 billion in wire transfers from HSBC Mexico, making it a favorite of drug cartels and money launderers. HSBC Bank USA at the time rated Mexico in its lowest risk category.

Officials noted that the deal for the first time resulted in U.S. court supervision of a foreign banking institution.

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