HSBC UPDATE: Too Big to Put Behind Bars
So HSBC has agreed to a record $1.9 billion settlement in its money laundering case, but will avoid criminal indictment. Why? Basically, because HSBC is too big to fail, and with Lehman Brothers’ disastrous collapse still in the rearview mirror, federal regulators essentially felt the disruption it would cause the economic system wouldn’t be worth it. From NYT’s Dealbook:
While the settlement with HSBC is a major victory for the government, the case raises questions about whether certain financial institutions, having grown so large and interconnected, are too big to indict. Four years after the failure of Lehman Brothers nearly toppled the financial system, regulators are still wary that a single institution could undermine the recovery of the industry and the economy.
But the threat of criminal prosecution acts as a powerful deterrent. If authorities signal such actions are remote for big banks, the threat could lose its sting.
Behind the scenes, authorities debated for months the advantages and perils of a criminal indictment against HSBC.
The other major banks caught up in money laundering scandals include Credi Suisse, Barclays, ING and Standard Chartered. But HSBC’s settlement was by far the largest. Remember, while some of these banks were laundering money through country’s like Cuba — whom the U.S. government simply doesn’t like and has sanctions against — HSBC was purported to have been laundering money for Mexican drug cartels and Saudi organizations linked to terrorism.
This Bloomberg story elucidates just how friendly HSBC had become viewed by Mexican drug traffickers.
“These traffickers didn’t have to try very hard,” said Lanny Breuer, assistant attorney general for the U.S. Justice Department’s criminal division. “They would sometimes deposit hundreds of thousands of dollars in cash in a single day into a single account using boxes designed to fit the precise dimension of the tellers’ windows in HSBC’s Mexico branches.”