HSBC laundering settlement
entry · 2012-12 · status: archived · "too systemic to indict"
summary
December 11, 2012. HSBC — Europe's largest bank by assets — paid $1.92 billion in fines to settle U.S. charges that it had laundered hundreds of millions of dollars for the Sinaloa drug cartel and the Norte del Valle cartel, and processed transactions on behalf of entities in Iran, Libya, Sudan, Burma, and Cuba in violation of U.S. sanctions. The DOJ explicitly chose not to indict the bank — a decision Assistant Attorney General Lanny Breuer publicly explained as motivated by concern over "collateral consequences" to the global financial system. The doctrine that emerged from this case — informally called "too systemic to indict" — has structured every subsequent major bank settlement.
the receipts
- Cartel laundering. HSBC's Mexico subsidiary, in 2007 and 2008 alone, transferred $7 billion in physical cash from its Mexican operations to its U.S. operations — more than any other Mexican bank by a factor of multiples. Internal HSBC compliance staff had flagged the bulk-cash movements; senior management had overridden the compliance objections.
- Sanctions evasion. Between 2001 and 2010, HSBC moved approximately $660 million through the U.S. financial system on behalf of customers in Iran, Libya, Sudan, Burma, and Cuba. The bank used a series of techniques to strip identifying information from wire-transfer messages so the transactions would not be flagged.
- The settlement. Total: $1.92 billion — at the time, the largest sanctions/AML penalty ever paid by a bank. The Senate report estimated the bank's annual profit at the time at ~$22 billion; the fine was less than five weeks of profit.
- The DPA. A five-year deferred prosecution agreement. HSBC retained a court-appointed independent compliance monitor and submitted to enhanced AML reporting. The DPA expired December 2017; charges were dismissed.
- The "too systemic to indict" admission. Assistant AG Breuer, in a press conference, acknowledged that DOJ had weighed the prospect of an indictment against the systemic consequences of one and chosen the settlement. No senior HSBC executive faced criminal charges. A handful of mid-level employees were dismissed.
- The 2014 reversal. AG Eric Holder later told Congress he regretted not pursuing more charges. Breuer left DOJ in 2013 and returned to law firm Covington & Burling, which represents major banks including HSBC.
why this matters to PRIOR
HSBC is the cleanest case study in the "too systemic to indict" doctrine that the 2008 financial crisis normalized. The Department of Justice publicly admitted that systemic-importance considerations had governed the decision not to charge a bank that had laundered for the Sinaloa cartel and helped Iran evade sanctions. The bank paid a fine that represented less than five weeks of its annual profit. The bank kept the franchise. The cartel kept the money. The depositors paid the fine. Every subsequent major-bank settlement has operated within this framework. HSBC is the case the framework was named for.
"the bank laundered for the cartel. the prosecutor said charging it would harm the economy. the cartel kept the money. the depositors paid the fine."