Congress Exposes That DoJ Overruled Recommendation to Indict Money Launderer HSBC Over Too Big to Fail Worries

The House of Representatives released a bombshell today out of its three-year investigation as to why the UK-based bank HSBC got off lightly for money laundering, both for with states subject to economic sanctions like Iran and Sudan, as well as narcotics traffickers. The report found that Attorney General Eric Holder “misled” Congress about the evidence against the bank, and that staff prosecutors had recommended indictment but were overruled by Holder. In addition UK regulators interfered in the case, and argued that criminal sanctions would lead to a financial nuclear winter. That was demonstrated to be false in 2014, when BNP Paribas, which apparently had fewer friends in court, pled guilty to criminal money laundering charges and paid $8.9 billion in fines.

Or was it that the New York Department of Financial Services, which was then headed by Benjamin Lawsky, was going to embarrass the crowd in DC into doing more than it wanted to? Recall that Laswky had run rings around the Fed, Treasury, and UK financial services regulators over money laundering at another UK bank, Standard Chartered. This led to a firestorm of financial media outrage as Lawsky ordered Standard Chartered executives to appear and explain why he should not revoke their New York banking license. That would mean they could no longer clear dollar-based transactions, which would be extremely damaging to any international bank.

But even the debate over whether or not to charge a bank criminally again reveals how the regulators and prosecutors protect the looting professionals. Corporations do not commit crimes. Individuals employed by those firms commit crimes. In the case of HSBC, the misconduct was institutionalized. Multiple units of the bank were involved. Either top management was well aware of what was going on or there was a major breakdown in controls. The latter would be a criminal violation under Sarbanes Oxley, the law passed after the Enron bankruptcy and designed to end the “I’m the CEO and I know nothing” defense.

And let us not kid ourselves as to how well orchestrated the HSBC money-laundernig machine was. As Matt Taibbi wrote:

[“Longtime Bill Clinton pal Lanny”] Breuer this week signed off on a settlement deal with the British banking giant HSBC that is the ultimate insult to every ordinary person who’s ever had his life altered by a narcotics charge. Despite the fact that HSBC admitted to laundering billions of dollars for Colombian and Mexican drug cartels (among others) and violating a host of important banking laws (from the Bank Secrecy Act to the Trading With the Enemy Act), Breuer and his Justice Department elected not to pursue criminal prosecutions of the bank, opting instead for a “record” financial settlement of $1.9 billion, which as one analyst noted is about five weeks of income for the bank.

The banks’ laundering transactions were so brazen that the NSA probably could have spotted them from space. Breuer admitted that drug dealers would sometimes come to HSBC’s Mexican branches and “deposit hundreds of thousands of dollars in cash, in a single day, into a single account, using boxes designed to fit the precise dimensions of the teller windows.”

If you remember the Frontline series on the crisis, it was Lanny Breuer who said he lay awake at night worrying if his actions might hurt banks. Oh, the horror! And at the time, the $1.9 billion was widely depicted as a slap on the wrist.

Mind you, Bill Clinton also received a large speaking fee from HSBC while the bank was being investigated. From a 2015 Associated Press story:

State Department ethics officials also gave quick approval to Bill Clinton’s $200,000 appearance in Florida for British-based HSBC in 2011 despite a 2012 money-laundering settlement with federal prosecutors.

Since the settlement was announced in December 2012, and the House investigation makes clear it was rushed so as to keep ahead of the intrepid Benjamin Lawsky, the fee was clearly paid well before anything had been concluded.

And a query for well-connected British readers: AIG, by virtue of its very large network in Asia, is widely believed to have curried favor with the US government by providing cover for CIA agents. HSBC has a similarly extensive presence in that part of the world. Could HSBC have been playing a similar role for MI6? That would give it even deeper connections with the Government, making it easier to enlist official support.

The House Financial Services Committee provided a crisp, damning overview of its findings:

The House Financial Services Committee on Monday released a staff report of its investigation into the U.S. Department of Justice’s decision not to prosecute HSBC or any of its executives or employees for serious violations of U.S. anti-money laundering laws and related offenses.

The Committee initiated its investigation in March 2013.  The Department of Justice (DOJ) and the Department of the Treasury failed to comply with the Committee’s requests to obtain relevant documents, necessitating the issuance of subpoenas to both agencies.

Approximately three years after its initial inquiries, the Committee finally obtained copies of internal Treasury records showing that DOJ has not been forthright with Congress or the American people concerning its decision to decline to prosecute HSBC. 

These documents show that:

  • Senior DOJ leadership, including then-Attorney General Eric Holder, overruled an internal recommendation by DOJ’s Asset Forfeiture and Money Laundering Section to prosecute HSBC because of DOJ leadership’s concern that prosecuting the bank would have serious adverse consequences on the financial system.
  • Notwithstanding Attorney General Holder’s personal demand that HSBC agree to DOJ’s “take-it-or-leave-it” deferred prosecution agreement deal by November 14, 2012, HSBC appears to have successfully negotiated with DOJ for significant alterations to the deferred prosecution agreement’s terms in the weeks following the Attorney General’s deadline.
  • DOJ and federal financial regulators were rushing at what one Treasury official described as “alarming speed” to complete their investigations and enforcement actions involving HSBC in order to beat the New York Department of Financial Services.
  • In its haste to complete its enforcement action against HSBC, DOJ transmitted settlement numbers to HSBC before consulting with Treasury’s Office of Foreign Asset Control to ensure that the settlement amount accurately reflected the full degree of HSBC’s sanctions violations.
  • The involvement of the United Kingdom’s Financial Services Authority in the U.S. government’s investigations and enforcement actions relating to HSBC, a British-domiciled institution, appears to have hampered the U.S. government’s investigations and influenced DOJ’s decision not to prosecute HSBC.
  • Attorney General Holder misled Congress concerning DOJ’s reasons for not bringing a criminal prosecution against HSBC.
  • DOJ to date has failed to produce any records pertaining to its prosecutorial decision making with respect to HSBC or any large financial institution, notwithstanding the Committee’s multiple requests for this information and a congressional subpoena requiring Attorney General Lynch to timely produce these records to the Committee. 
  • Attorney General Lynch and Secretary Lew remain in default on their legal obligation to produce the subpoenaed records to the Committee.
  • DOJ’s and Treasury’s longstanding efforts to impede the Committee’s investigation may constitute contempt and obstruction of Congress.

The Committee is releasing this report to shed light on whether DOJ is making prosecutorial decisions based on the size of financial institutions and DOJ’s belief that such prosecutions could negatively impact the economy.

This investigation proves what critics have long argued, that Obama Administration has consistently give priority to protecting banks over meaningful enforcement. But until the perps pay a career price, this sort of corruption is guaranteed to continue.

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  1. Sally

    If you have 45 minutes to spare this a great video by John Titus explaining why The DOJ didn’t prosecute Goldman Sachs. When you see all the characters at Justice and their links to Goldman it is difficult not to conclude that we are living in a Bannana Republic.

    Nothing has changed, Bill Black is not wanted at the Obama DOJ

  2. QuarterBack

    Don’t forget that Comey was on the HSBC Holdings Board of Directors until he accepted appointment as FBI Director.

    1. pretzelattack

      i hadn’t known that. i’m surprised he gave so much ammunition to clinton’s critics, in the process of letting her skate.

      1. Elasmo Branch

        Limited hangout. Let the secrecy be the transgression rather than the actual secret. Then shall the pundit-ariat do a Talmudic parceling of where HRC kept her emails, and never speak of the shadow State-within-the-State Dept, the Foundation.

    2. Dark Matters

      Interestingly, he was hired in the aftermath of a money-laundering scandal:
      (one of many links under “Comey HSBC”)).

      Given his prior experience prosecuting financial crime, he was just the guy to know what had to be done to cover up, I mean correct, prior financial malfeasances.

      In light of his latest project, this earlier history has opened the possibility that he’s someone to be called in when there’s something to be sanitized. Dunno. His history as counsel at Lockheed seems a little unusual, but I’ve seen nothing suggestive there.

      Like others here, his heavy layout of evidence followed by an dissonant “no prosecution” recommendation has me thinking. Interesting character.

    3. medon

      Mr Ethical
      Ex HSBC director is now head of FBI. Ex MI5 head director of HSBC.

  3. Dirk77

    If there is anything I thank Obama for, it is letting HSBC and Hilary off their respective hooks. By doing the former, he showed that the War on Drugs and the War on Terrorism were farces. By doing the latter he showed that the same thing about the whole USA national security apparatus, military and intelligence. Mission Accomplished, Barack.

  4. Larry

    Imagine if Hillary was running against a credible opponent who could constantly bang on her relationship with Obama and the many, many conflicts of interest her stint as SoS raise while her husband is out grabbing speech money.

    It’s also good to have more public records indicating the lack of prosecution of what are high crimes. It is a stark reminder that class matters greatly in the eyes of the US Justice Department. It’s just too bad we’re very likely to have a continuation of the same DoJ policies under Hillary when the next great finanancial crime gets revealed or the next big crisis starts.

    1. diptherio

      I just got done re-reading a book by Thomas Repetto — American Mafia: A History of Its Rise to Power. At the end of the book he discusses how the Mafia went into a period of decline after they were forced to divest their Las Vegas holdings. Experts believed that the next move for the Mob was to get into the finance world, in a big way…so I think there’s a better than 50/50 chance that organized crime has literally taken over the major banks. Many of the scams that they’ve run, as well as the practice of buying off politicians, are straight out of the Mafia playbook. Guns and drugs? That’s the Mob’s bread and butter. Suborning corrupt officials, ditto. I’m beginning to get the distinct impression that the term “bankster” is not just a clever turn of phrase.

      1. Les Swift

        I see it more the other way around, namely that organized crime serves as the street arm of a larger criminal network which includes some of the biggest banks (e.g., HSBC). In Vegas, the mobsters were replaced with a corporate facade more suitable for expanding the gambling (now the more benign gaming) business, the money laundering, and such. The transformation from gangsters to corporations changed the public perception of the casinos, providing cover for the seamy underbelly.

      2. rich

        read How Sidney Korshak and His Criminal Associates Became America’s Hidden Power Brokers

        Author Gus Russo has done yeoman’s work in pulling the Outfit bosses from the shadows to show how their muscle and methods came to dominate organized crime. In his 2001 book, suitably titles “The Outfit,” he chronicles the Chicago mob’s rise to national power after Al Capone. Now, he weighs in with “Supermob.” If you know about the short shrift the Outfit has received in the popular imagination, you can almost forgive the breathless title, but Russo pointedly uses the term “Supermob” to describe a band of Jewish lawyers, politicians and businessmen who acted as cat’s-paws for some of the Outfit’s most ambitious scams. Although he credits a Senate investigator with first using the term “Supermob,” Russo takes it to a new level, suggesting a gang of white-collar kingpins as ruthless and tightly knit as a Mafia family. He is also serious about the “Super,” claiming that the members of his “Kosher Nostra” would ultimately profit more from their “amoral, and frequently criminal careers” than did their Outfit allies.

        As the schemes got more complicated, the mobsters needed the help of lawyers, politicians and frontmen with relatively clean criminal records. It was a Faustian bargain, but it helped launch some of the most prominent names in Chicago’s Jewish community. For example, according to Russo, Outfit funds and connections formed the foundation on which lawyer Abe Pritzker’s family built the Hyatt hotel chain.

        Forget ethnicity….it’s the lawyers that give organized crime power and secrecy.

        “Behind every great fortune there is a crime” — Honore de Balzac

    2. Fred

      Imagine if voters would vote on Hilary’s integrity rather than her political party affiliation or her sex.

  5. Tom Stone

    Remember the “Gunwalker” program where Holder and Lynch arranged the ale of an unknown ( For National Security reasons) number ( In the thousands) of guns to the cartels?
    If assault weapons had been banned at the time this would never have happened!

  6. Botttom Gun

    Every time I see that Lanny Breuer PBS clip, I am reminded of PFC Eddie Slovik, who was tried and shot by the United States Army for cowardice during the Battle of the Bulge. Apparently the United States government’s attitude toward cowardice has become a little more lenient since then. If Slovik had been born a few decades later, maybe he’d be a partner at Covington & Burling along with Eric Holder and Lanny Breuer! I’m sure they’d have saved a corner office for him.

      1. Teejay

        “For anybody who hasn’t seen this… ” and for those who have.
        Least we forget who Lanny is.

  7. jfleni

    This stinks like a burst sewer main, all the way from Constitution Avenue, to the remotest regions of the beltway! Way to go Barrack “Hope & Change”.

  8. NeqNeq

    State Department ethics officials also gave quick approval to Bill Clinton’s $200,000 appearance in Florida for British-based HSBC in 2011 despite a 2012 money-laundering settlement with federal prosecutors.

    Is there a misprint there? As in, did they transpose the years? Or is the committee complaining that SD ethics and compliance officers were not consulting the right crystal ball? Strange wording…or not given the authors.

    1. Anon

      The investigation took time (years). The 2011 Clinton appearance was likely a peremptory “palm-grease” to minimize the terms of the 2012 settlement.

      1. NeqNeq

        Unless the author thinks compliance officers are actually ‘in the know’ about what is going on in other agencies and that the investigation had concluded (they were just wrangling terms at speech time), it seems prudent to exercise caution. At a minimum you would want to see an argument for those assumptions; Hindsight Bias is a thing.

        On the flipside: If the author wanted to utilize common biases and heuristics to tie the Clintons to something people will have a negative reaction to, then Hindsight Bias is a great tactic.

    2. Oregoncharles

      No, it implies that the Clintons were taking a bribe at the very time the decision was being considered.

  9. OpenThePodBayDoorsHAL

    This is absolutely infuriating, my company is launching a financial service that comes under AML and the hoops we’re required to jump through are absolutely ludicrous. Anal exam for every grandma who wants to send $200 bucks to Junior, and very hard jail time for us if we fail to adequately probe her details and do all of the expensive ID checks. In all seriousness we’re told we need to reject any deposits of cash that “smell musty” and refuse business if the customer “acts nervous” (we’re trying to figure out how to know all that with a web app….).
    And with one cute letter the biggest AML offender on the globe that admitted to laundering hundreds of millions for the worst beheading drug cartels in the world skates free, champagne and bonuses all around.
    This “justice is for the little people” sh*t is gonna end very, very badly.

    1. dw

      this sounds like what all of the rest of us small people have to deal with, those with lots of money can do what they want almost.

    2. NeqNeq

      Some of the regs are pretty crazy.

      I’m curious: why are your lawyers expressing concern about cash deposits? A web app can merely transfer bits between existing accounts. So its the institution which turns cash into balances which holds the regulatory liability yeah?

      I ask because a family member is being recruited by a payments startup. And they are under the impression that most of the US regs don’t/won’t apply to them. Which is a red flag to my mind.

    3. Punxsutawney

      I just opened another checking account I had need of at a bank that I’ve been at for over 25 years and the questions were ridiculous. How much did I plan to deposit every month, would it be cash, Who would be depositing, how many checks did I expect to write and on and on.

  10. Clive

    Re: And a query for well-connected British readers: AIG, by virtue of its very large network in Asia, is widely believed to have curried favor with the US government by providing cover for CIA agents. HSBC has a similarly extensive presence in that part of the world. Could HSBC have been playing a similar role for MI6?

    HSBC runs one of the biggest (I think it is the biggest) Trust management businesses in the UK — and that makes it one of the biggest in the world

    Trusts are a potential hiding place for all manor of garbage barges in terms of sanctioned entities or individuals. HSBC’s Trust business has trusts set up decades ago — when there was little (i.e. pretty much zero) checking for sanctioned entitles or politically connected persons. I’m sure HSBC has tried to search on what trusts it is managing and pick out anything that it really should be rid of, but the documentation will be a) paper b) poorly indexed or even worse c) non-existent.

    I can’t stress how important trusts are for paying off people, hiding money, giving a veneer of respectability to sources of funds (UK domiciled trusts are, inexplicably, treated like some sort of holier-than-thou when the opposite should be true). Half of Central Park West (bit of an exaggeration) lives off money from UK trusts — and no-one really can say for sure where it came from originally and whether it should be classed as clean.

    Would stand to reason the security services would have similar needs and HSBC’s predecessor in the UK (“Midland Bank”) was the go-to place for international operations, back in the day. Here’s a bit of history.

    A long standing in international business for well connected UK establishment operators and obfuscating trust operations (Midland Bank’s was significant) makes a heady cocktail for the security services wanting to get its fingers into some pies without leaving an obvious paper trail.

  11. Robert NYC

    There is no news here, this is how the system operates. Lanny Breuer and Eric Holder are two Covington and Burling lawyers and card carrying members of the deep state. This is what they do, so why is there any surprise here? They didn’t get those jobs by merit or because they are public servants. They are there because the deep state wanted them there just like Mary Jo White at the SEC.

    The real question in all this is what goes through the minds of the little people in terms of the FBI agents and DOJ prosecutors, most of whom, are honest people who want to do the right thing. Does it ever dawn on them that they should be investigating their bosses? So now we know Eric Holder cut the deal for Marc Rich, David Patraeus and HSBC plus god knows who else. The guy isn’t even subtle. Seriously though, are we that naive? You take two corporate lawyers from one of the nation’s pre-eminent corporate law firms, put them at the DOJ and they continue to do the bidding of powerful interests. Of course they do!

    The American system is funny, the masses keep running around talking about democracy, freedom, voting, the founding fathers, etc instead of recognizing the system for what it is. And now they are getting ready to elect the deep state’s favorite candidate and back will come Holder and Breuer or their equivalents.

    Any country that is this stupid gets what it deserves.

    1. bdy

      Any country that is this stupid gets what it deserves

      Here in the desert southwest we’ve been pissing and s***ting our drinking water for generations.

  12. Dark Matters

    Comey’s appointment to HSBC mentioned by QuarterBack above was in the aftermath of a money-laundering scandal:

    With his background as a financial crime prosecutor in the US, he’d know exactly how to sanitize, I mean reform, the financial practices of such a large institution, perhaps as he did a few days ago for H.

    A few years earlier, there was some interest in connections between HSBC and the Clinton Foundation, which wouldn’t necessarily be noteworthy for such a major bank, except that transactions involved a variety of the usual Clintonesque suspects Mssrs. Giustra, Epstein and Rich:

    Comey’s appointment to HSBC also followed the LIBOR scandal, though the connection there is merely chronological as far as I can tell:

    There’s much more smoke than fire in these stories, but it’s not unreasonable to explore the hypothesis that he might be some sort of “cleaner”, polishing turds dropped by important clients. (OTH, there’s so much surrounding HSBC that one could probably make a case for the janitor being involved with passing counterfeit zlotis). But I’m motivated to do a little more digging in this sandbox to see just how many and which cats might have been using it.

    Comey’s performance in recommending no prosecution is thought provoking in its own right. It’s always possible for Obama to pardon H as late as next year, and I’m wondering how that possibility might enter into the oddities characterizing the present-day episode. As research papers often conclude, “Further study is required.”

  13. Ger

    To big to fail, too big to jail is about as accurate as any statement ever made. Get caught with a thousand dollars in your pocket and the cops keep it (forfeiture) under the claim you might buy dope with it. Get caught with a few billion in dope money and you can keep it !!

    1. Nelson Lowhim

      That old adage also comes to mind: “Small thieves are behind bars. The big thieves have the keys,” or something like that.

  14. Lune

    So, IOW, HSBC escaped serious prosecution because the Feds were worried about “causing another Lehman”? Sorry, couldn’t resist :-)

    You’re too kind in saying HSBC’s institutionalized corruption only goes so far as several business units and executive management. Ever wonder why a British bank would be called Hong-Kong Shanghai Banking Corporation? Because it was started to process the proceeds of British dope traders during the Opium Wars. Laundering narco money is not just a side business. It is the bank’s founding raison-d’etre.

  15. Sluggeaux

    Mittens Romney was correct: corporations are people. People commit crimes, not corporations. People should be sanctioned, not the corporations that they work for. If people in corporations know or should know that other people in their corporations are committing crimes, those individuals should be sanctioned as well if they look the other way. People are fungible and can be replaced within the corporation.

    It amazes me how Deep State shills like Holder and Breuer have so moved the discussion away from individual responsibility by individual actors. In this age of a blatantly laissez-faire atmosphere by the Deep State toward elite crime, it also amazes me that anyone still complies with the law at all.

  16. Timothy Manalili

    Two months later, however, Holder told another congressional hearing that “banks are not too big to jail.” Holder did not immediately respond to a request for comment Monday to Covington Burling, the law firm he rejoined as a partner last year after leaving the Department of Justice.

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