NEW YORK — American authorities on Tuesday cited “astonishing” dysfunction at the British bank HSBC and said that 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 cooperation and the damage that an assault on the company might cause on economies and people, including thousands who would lose jobs.
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.
Breuer 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 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 that its financial transactions would not be blocked, Breuer said at a news conference announcing the settlement.
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.
“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.
Breuer defended the government's agreement with HSBC. He said U.S. employees in particular seemed duped.
Court documents showed that the bank let over $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. .
Besides forfeiting $1.25 billion in its deal with the government, HSBC also agreed to pay $665 million in civil penalties, including $500 million to the Office of the Comptroller of the Currency and $165 million to the Federal Reserve.
The U.S. said the United Kingdom's Financial Services Authority was pursuing a separate action.