HSBC Pays $1.92 Billion to Avoid Money Laundering Indictment

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Dec 12, 2012

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The UK-based bank HSBC will pay a $1.9 billion payment to the United States in an agreement that has authorities deferring prosecution in a multinational money laundering investigation.  The investigation, carried out by federal prosecutors, seems to confirm the findings outlined in a July 2012 report by a Congressional committee that indicate HSBC facilitated illegal money laundering for Mexican drug cartels and Saudi banks tied to terrorist organizations. 

While $1.9 billion is certainly not an amount to sneeze at, HSBC has dodged a significant bullet by avoiding a money laundering indictment.  As one of the world’s leading financial institutions, HSBC relies on investors, and important sources of investment, such as pension funds, would likely dry up if the bank was indicted for money laundering.  Facing the potential collapse of another major financial institution in an already shaky economic climate, U.S. authorities elected instead to accept a buyout, and force HSCB to heighten internal compliance procedures and avoid trouble for the next five years.

Is HSBC Too Big to Indict?

HSBC is charged with serious crimes, and any individual or criminal operation facing similar charges is looking at a lifetime in jail, hefty fines, and a complete government takeover of assets.  HSBC, however, is a globally influential financial institution and, it seems, the U.S. government is afraid of the dominos that will come crashing down should it be indicted.  Some prosecutors had proposed a compromise where HSBC pleaded to a lesser charge, however, ultimately a decision was made to avoid an aggressive approach because of the size and importance of the bank.

If the bank were to lose its charter to operate in the U.S., and be cut off from critical investors, it would likely fail, taking billions of dollars in investments with it.  With the devastating Lehman Brothers crash of 2008 still stinging 4 years later, an indictment that leads to the collapse of HSBC could derail the economic recovery efforts.  The decision did not come easily, with insiders indicating prosecutors debated for months before settling on the deferred indictment buyout, but the course of action sets an unsettling precedent nonetheless:  HSBC, and similarly critical financial institutions, are too big to indict regardless of the charges.

Indictment Buyout a Bad Precedent?

Although the bank refused to confirm any of the allegations, the evidence that it knowingly facilitated illegal money transfers for Mexican drug cartels and foreign banks that support terrorist activity is strong.   The decision not to indict could take significant punch of federal authority to regulate bank activities, and allow banks to defy U.S. sanctions by transacting business with cartels or countries such as Iran.

The buyout is accompanied by significant talk of increased regulation and compliance auditing, but it is hard to say what will happen if HSBC, or another large institution, forces the government’s hand again. Regardless of all the tough talk and posturing about increased regulation, the rod has been spared.  Should the government be tested going forward it is easy to wonder how it could possibly change course given the reason behind the decision to accept a buyout.

Ultimately, however, the precedent that is set by this decision may be of secondary concern.  Given the fragile state of the global economy, it seems the world can ill afford the collapse of one of its most important financial institutions. Investors now, more than ever, may need HSBC, putting federal prosecutors between the proverbial rock and hard place.  In the immediate future, public pressure and shifting of executives will likely put a stop to HSBC’s alleged illegal activities, but is that sufficient?  The answer, unfortunately, is that we don’t have the luxury of demanding HSBC be sufficiently investigated and, if guilty, punished.  As the economy struggles to recover, it seems that a staggering fine and a stern warning are the best we can hope for when the defendant is a bank that is too big to fail.

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