American authorities 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 U.S. stopped short of charging executives, citing the bank's immediate, full co-operation and the damage that an assault on the company might cause on economies and people, including thousands who would lose jobs if the bank collapsed.
Outside experts said it was evidence 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 that 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 HSBC officers in the U.S. had warned counterparts that at the parent company 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 that its financial transactions would not be blocked, Breuer said at a news conference.
"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 who now teaches at the University of Missouri-Kansas City. "Regulators are telling us, 'Yes, they're felons, they're massive felons, they did it for years, they lied to us, and they made a lot of money ... and they got caught red-handed and they're gonna walk."'
Black disputed the government's concern that indicting HSBC could take down the financial system.
"That's the logic that we get stability by leaving felons in charge of our largest banks," he said.
"This is insane."
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 that 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 favourite of drug cartels and money launderers.
HSBC Bank USA at the time rated Mexico in its lowest risk category.
Top executives who felt "the pressure of the bottom line" continually cut staff that might have discovered how criminal enterprises were taking advantage of the bank, Breuer said.
Officials noted that the deal for the first time resulted in U.S. court supervision of a foreign banking institution and lengthy monitoring of a radically changed bank that had changed all its top management.
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