Soft US treatment of UK’s HSBC differs sharply from indictment of 3 big Mexican banks

In era of terrorist funding worries, US gave HSBC, which had strong Iran ties, a ‘too big to jail’ card, but pushed Mexican banks to guilty plea


The US government’s lenient treatment of HSBC for its 10-year crime binge involving thousands of prohibited transactions with Iranian institutions and murderous Mexican drug cartels has caused an outcry in many quarters, including entities that usually disagree vigorously, like the New York Times and Fox News.

What may add fuel to the fire is to recall how the lenient United States global settlement with the huge UK-based institution differs so dramatically from the hammering the same US agencies, including the Department of Justice, inflicted on three Mexican banks in 1998.
In June that year, a case called “Operation Casablanca” erupted into public view after a 30-month US Customs Service undercover operation in Los Angeles. The undertaking targeted Mexican banks and bankers. It used only disguised government money and no real criminal proceeds in the undercover transactions. The total “laundered” reached a low eight-figure sum.

Mexican banks indicted for laundering, but no top execs involved 

When the undercover work ended in Operation Casablanca, the US Justice Department charged Mexico’s second largest bank, Bancomer, and two other large Mexican banks, Banca Serfin and Banco Confia, with criminal money laundering. The indictments accused them of violating the main US money laundering law, which carries a maximum 20-year prison term. (Title 18, USC Section 1956).

The criminal charges caused an uproar in Mexico. The Mexican government protested and pointed out to the US Justice Department and State Department that no top-level bank officials were involved in the alleged wrongdoing or mentioned in the indictments.

The Justice Department also sued Bancomer for $21.5 million under the little-used civil provision of the money laundering law (Section 1956(b)). That amount represented the total the Customs agents said they laundered at the bank with undercover government funds.

The Customs Service, now part of the Homeland Security Immigration and Customs Enforcement (ICE), also lured 12 low-level Mexican bankers to Las Vegas with promises of wine, women and song in order to arrest them for money laundering. Sixteen other bankers were among 130 persons indicted in the far-flung operation.

HSBC admits its criminal activity in court

Faced with the prospect of being prohibited from doing business in the United States, two of the banks, Bancomer and Banca Serfin, pleaded guilty to criminal money laundering charges and agreed to pay $14.6 million in fines and forfeitures. They each served three years of probation. Confia agreed to a civil settlement and forfeited $12.2 million and achieved dismissal of the criminal charges.

Alongside the extensive criminal activity that HSBC admitted to the US Senate Subcommittee last June and in open court in the Eastern District of New York this week, the conduct of the Mexican banks was minor and the sums relatively insignificant. HSBC has admitted to laundering $1.2 billion for its Iranian and Mexican customers.

HSBC was a model of criminal activity diversity. Through its Mexican facility, it became the bank of choice for Mexican drug cartels, which are said to have killed thousands of persons during the time HSBC did business with them.

HSBC’s crimes included violation of grave US national security laws

The Justice Department’s criminal information filed in federal court in Brooklyn as part of a Deferred Prosecution Agreement also accused HSBC of repeated violations of the International Emergency Economic Powers Act and the Trading With the Enemy Act. They are among the most serious charges that can be leveled against an institution. These laws, which carry severe prison terms, are the bulwark of the nation’s defenses against foreign enemies. The regulations under these laws are enforced by the Treasury Department’s Office of Foreign Assets Control. In addition to Iran, HSBC also did business with Libya, Cuba, Sudan and Burma, which are also sanctioned countries.

During its long commercial relationship with Mexican drug cartels, HSBC is accused of moving $7 billion in drug cash to the US in 2007 and 2008, or roughly $9.7 million per day.

HSBC’s criminal activity was not a case of a couple of rogue employees. Dozens and maybe hundreds of employees, supervised and led by HSBC executives, carried out the illegal activity and cover-up for 10 years.

Breuer: No HSBC execs charged because they don’t work there now

The Justice Department brought no criminal charges against any person at HSBC. In an interview on Bloomberg TV, Assistant Attorney General, Lanny Breuer, said no individuals at HSBC were indicted because the “executives who were involved are no longer with HSBC.”

There is no known law, regulation or Justice Department rule that absolves a person of criminal liability under such circumstances.

Under its settlement with US agencies, HSBC will pay $1.9 billion in forfeitures and regulatory penalties. That equals 5% of its two-year profits of $16.8 billion in 2011 and $19 billion in 2010.

DPAs the new big bank ‘Get Out of Jail’ card
Under the Deferred Prosecution Agreement with the Justice Department, HSBC promises to obey the law for five years and upgrade its compliance operation, which Breuer said was virtually nonexistent previously. DPAs have become the “Get Out of Jail” card for large financial institutions caught committing crimes in recent years. In addition to HSBC, the Department of Justice has signed DPAs with UBS, Barclays, Standard Chartered and ING this year.

HSBC made similar written promises with US regulators in recent years. Last June, the Levin subcommittee criticized HSBC for breaking these promises.

HSBC last week announced with fanfare that it has hired yet another former top Treasury Department official. Robert Werner will lead an improved money laundering and sanctions compliance effort. Early last year, HSBC hired former Treasury Department anti-terrorism official, Stewart Levey.

US agencies spent tens of millions of dollars investigating HSBC

HSBC operates in the United States under a charter from the Federal Reserve, which shares regulatory supervision with the Office of the Comptroller of the Currency. HSBC also has licenses to operate in various states of the US, including New York where it is supervised by the state’s Department of Financial Services.

US agencies, including the FBI, DEA, IRS Criminal Investigation and ICE, have spent substantial resources investigating HSBC’s crimes in the past few years. There are reports that representatives of some of these agencies, in addition to some federal prosecutors, opposed a

Deferred Prosecution Agreement with HSBC. Treasury Department, Federal Reserve and OCC regulators are said to have warned of a harmful impact on the nation’s economy if a tough stance was taken.

Big banks are told ‘You’ll go to jail if you do it again,’ says Global Witness

Rosie Sharpe, an official at Global Witness, which monitors government and financial institution activities, including corruption, said,  “Fines alone are not going to change banks’ behavior: the chances of being caught are relatively small and the potential profits from accepting dodgy clients are too big. Fines are seen as a cost of doing business.”

“If you get caught with your hand in the till you go to jail, but if you’re a big bank and you’re caught breaking the law, it seems that all that happens is you’re fined and told you’ll go to jail if you do it again. Regulators should hold senior bankers legally responsible for their banks’ money laundering performance…. In the most serious cases, senior bankers should face jail,” she added.

“The US Department of Justice has entered into a ‘deferred prosecution agreement’ …, in which the bank is essentially granted immunity from prosecution in exchange for doing what they should have been doing all along,” she concluded.

Last June, the US Senate Permanent Subcommittee on Investigations held a hearing and issued a report on HSBC’s criminality. Subcommittee chair Senator Carl Levin, D-Michigan, called HSBC’s culture ‘pervasively polluted.’ This week, he was uncharacteristically soft on the government’s settlement, saying, “The HSBC settlement sends a powerful wakeup call to multinational banks about the consequences of disregarding their anti-money laundering obligations.”

US Sen. Grassley says HSBC deal ‘hardly even a slap on the wrist’

Sen. Charles E. Grassley, of Iowa, the ranking Republican on the Senate Judiciary Committee, was not so sanguine. He wrote to Attorney General Eric Holder criticizing the Justice Department for an “inexplicable unwillingness to prosecute and convict those responsible for aiding and abetting drug lords and terrorists” and calling the HSBC settlement “hardly even a slap on the wrist.”

HSBC had no statement on the settlement but said through spokesman Rob Sherman, “We are cooperating with authorities in ongoing investigations.”

This week, Lanny Breuer, Justice Department Assistant Attorney General, said, “HSBC is being held accountable for stunning failures of oversight – and worse – that led the bank to permit narcotics traffickers… to launder hundreds of millions of dollars through HSBC…, and to facilitate hundreds of millions more in transactions with sanctioned countries.”

“HSBC is paying a heavy price for its conduct, and, under the terms of today’s agreement, if the bank fails to comply with the agreement in any way, we reserve the right to fully prosecute it,” he added.

Pending questions to Justice Department

The US Department of Justice was asked by to respond to these questions:

  • Why wasn’t HSBC treated the same way as the three Mexican banks, Bancomer, Banco Serfin and Banca Confia, were treated by the Justice Department in Operation Casablanca?
  • Assistant Attorney General for the Criminal Division Lanny Breuer said on Bloomberg TV that HSBC was not indicted because the Justice Department wanted to avoid “horrible, collateral consequences.” Was that considered in the Casablanca cases in terms of the impact it could cause in Mexico and on innocent people?

At press time, the department’s answers had not been received, but will be posted as an addition to this article when they are in hand.