The Senate Banking Committee may hold a hearing next week to examine the Justice Department’s controversial decision not to prosecute London-based HSBC on money laundering charges, congressional sources tell ABC News’s Matthew Mosk.
It isn’t known what the committee’s agenda will be, and no hearing has been announced. But there is persistent speculation in Washington that the Treasury Department, then led by Tim Geithner, intervened with the Justice Department to persuade it that an indictment could cause the bank to collapse, harming the global economy. A former senior Treasury official, Stuart Levey, has served as HSBC’s top legal officer since January 2012.
Officials from both departments who spoke under condition their names not be used were “adamant” that Treasury had not influenced the decision, ABC News reported.
“We do our own independent analysis,” a senior Justice official told ABC. “We educate ourselves on the size of the company involved, on the business environment in which they operated, and we consult with many people. Do we let [Treasury officials] influence our prosecutorial judgment? That’s a definite no. There is no improper influence. There is a process of being educated, but absolutely no undue influence.”
The bank in December agreed to pay $1.92 billion to settle allegations it had profited by enabling all kinds of criminal activity, from helping Mexican drug cartels launder money in the United States to working with a Saudi Arabian bank implicated as one of the original funders of Al-Qaeda.
A 334-report released by the Senate Permanent Subcommittee on Investigations in July detailed those and other violations, including transferring money for sanctioned countries including Iran, North Korea and Cuba. During the panel’s hearing on HSBC last July, the bank’s chief compliance officer, David Bagley, made the dramatic announcement that he was resigning. Five other HSBC executives appeared at the hearing. None were indicted for criminal conduct.
Ultimately, HSBC Holdings plc and its U.S. subsidiary reached a deferred prosecution agreement announced on Dec. 11. The bank, which had been warned repeatedly by regulators in past years about its behavior, was accused of violating the Bank Secrecy Act, the International Emergency Economic Powers Act and the Trading with the Enemy Act. It was not alleged to have broken money laundering laws, a more serious charge that, if pursued, could have caused the bank to lose its charter to operate in the U.S.
Spokespeople for the Senate Banking Committee’s majority Democrats and minority Republicans did not return calls from Main Justice seeking comment.
There has been bipartisan outrage on Capitol Hill over the decision not to criminally charge the bank or its executives. Banking Committee member Sen. Jeff Merkley, Democrat of Oregon, wrote a blunt letter to Attorney General Eric Holder in December asking whether HSBC was considered “too big to jail.”
Merkley repeated his criticism on Tuesday in a hearing with Federal Reserve Chairman Ben Bernanke.
“The ‘too big to jail’ echoes the fact that we still have banks that are so large that we are concerned about creating any ripples,” he said. “Doesn’t this kind of undermine, in a way, our international regulatory structure for financial institutions?”
Bernanke replied: “I believe that no individual and no institution should be exempt from paying for crimes that they commit. On [the HSBC] case, we worked very closely with Department of Justice. We cooperated in every possible way to give them information. In the end the company paid a $2 billion fine. If it relates to the bigger issue you’re thinking of of ‘too big to fail,’ we also agree that that’s something that really needs to be addressed. Many of the parts of Dodd-Frank are intended to address that and we’re pushing those as hard as we can.”
The deferred prosecution agreement that HSBC entered means the bank won’t be charged if it completes a strict round of compliance changes and reviews. HSBC also will have to submit to the review of an independent compliance monitor, whose fees it will pay.
Outgoing Justice Department Criminal Division chief Lanny Breuer has defended the use of DPAs, arguing in a speech in September that they force companies to change their way of doing business while punishing them with big fines. Lacking more surgical tools, prosecutors in the past either had to “use a sledgehammer to crack a nut” or more often they “just walked away,” he said. (See Main Justice’s previous coverage here.)
Breuer’s remarks about Justice Department policy requiring prosecutors to consider the collateral consequences of an indictment on a business and its employees drew particular attention. The policy was put in place after accounting firm Arthur Andersen collapsed following its 2002 indictment for obstructing justice in Enron probe.
“We are frequently on the receiving end of presentations from defense counsel, CEOs, and economists who argue that the collateral consequences of an indictment would be devastating for their client. In my conference room, over the years, I have heard sober predictions that a company or bank might fail if we indict, that innocent employees could lose their jobs, that entire industries may be affected, and even that global markets will feel the effects. Sometimes – though, let me stress, not always – these presentations are compelling,” Breuer said in September.
Jack Blum, a former Senate investigator and Washington lawyer specializing in financial crime, said he hoped members of Congress would push for transparency about the HSBC decision.
“Every piece of paper and every meeting they had should be a matter of public record,” Blum told Main Justice. “Why not? The case is settled. Why shouldn’t we see who came to plead for them?”
Douglas Gillison contributed to this report.