NEW YORK — American authorities Tuesday cited “astonishing” dysfunction at the British bank HSBC and said it 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 cooperation 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 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 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 said 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 once instructed an Iranian bank how to format messages so that its financial transactions would not be blocked, Breuer said at the 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 now teaches at the University of Missouri-Kansas City.
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 that U.S. employees in particular seemed duped by criminal enterprises taking advantage of HSBC oversight policies that over decades became increasingly lax.
In March 2008, when 13,000 to 15,000 suspicious wire alerts were generated per month by such transactions, only four employees were around to review them, according to court papers. HSBC Bank USA now has 430 employees reviewing suspicious wire alerts.
Asked repeatedly why no bank executives were being prosecuted, Breuer said, “I’m not here to defend HSBC.” Yet, he added: “Our goal is not to bring HSBC down.”
He said to do so would affect the economy and cost thousands of people their jobs. He said no criminal charges would be brought unless it could be proved that executives purposely let criminal organizations launder money.