NEW YORK (AP) — 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 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 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.
"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.
"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 that 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 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. 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.
Before the government stepped in, HSBC used only one or two compliance officers to monitor its banknotes business — the wholesale buying and selling of bulk cash around the world — even though the business is highly vulnerable to money launderers.
Despite the high risk, discrepancies and suspicious activity in banknotes transactions were not reported from July 2006 to July 2009, when the banks' compliance staffing was at its worst.
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.