HSBC Settlement with Justice Department Wins Approval After 6 Months
By Douglas Gillison | July 2, 2013 1:00 pm

After more than six months of deliberation, a federal judge in Brooklyn on Monday granted final approval to December’s $1.92 billion settlement between the Justice Department and the British bank HSBC, which admitted to moving hundreds of millions for drug cartels and sanctions-banned countries.

However, in what may be an acknowledgement of the outrage aroused by the settlement of large white-collar criminal cases like HSBC’s, U.S. District Judge John Gleeson of the Eastern District of New York ordered both the bank and the Justice Department to file quarterly reports to the court on the progress of the five-year settlement — an unusually intrusive requirement in a proceeding that in many other cases has been granted immediate approval.

Gleeson nevertheless offered high praise for the Justice Department’s handling of the case, saying the settlement had accomplished much of what a criminal prosecution might have accomplished, “taking into account the fact that a company cannot be imprisoned.”

In addition to the payment of the fine, HSBC also underwent structural changes to enhance its compliance with the money laundering and sanctions laws and will be subject to a monitorship overseen by the former Manhattan prosecutor Michael Cherkasky. If HSBC complies with these terms, the charges will be dropped in five years.

Gleeson’s decision held out the possibility that it could inspire other judges to intervene similarly in the Justice Department’s use of deferred prosecution agreements and settlements, as others on the federal bench have shown signs of discontent with resolutions that can spare corporate defendants from any criminal sanction or in civil actions allow them to avoid admitting wrongdoing (which was not the case for HSBC).

Deferred prosecutions have in the past decade become a favored tool of white-collar criminal enforcement that is intended to allow for a high volume of enforcement results but have been widely criticized as failing to exact accountability. The Securities and Exchange Commission has likewise come under criticism for its “neither admit nor deny” language in many settlements, a policy that newly confirmed Chairman Mary Jo White has said will be scaled back.

The Justice Department has in recent months been at pains to justify the HSBC settlement and others, denying that concern for economic stability had softened their enforcement decisions.

Gleeson’s order bore resemblance to the decision in 2010 of U.S. District Judge Emmet G. Sullivan, who approved a $298 million settlement between the department and Barclays Bank plc in 48 hours but nevertheless required regular reporting to the court on the implementation of that settlement.

Monday’s HSBC order also amounted to a meditation on the role of the courts in overseeing settlements. The order also rejected arguments by both the Justice Department and HSBC that the judge’s role was limited merely to deciding whether to allow the case not to proceed to trial for the five-year duration of the settlement.

Under the Speedy Trial Act of 1974 (18 USC §§3161-3174), trial must begin within 70 days of the date on which prosecutors bring charges. Among some permissible exceptions, judges may exclude from this period the time during which prosecutors choose to defer prosecution.

Gleeson said both HSBC and the department were wrong to argue that the judge’s role was limited to deciding whether to exclude such time under the Speedy Trial Act, rather than deciding on the judicial merits of settlement itself.

He said he recognized that the exercise of such supervision was “novel” but said that mere presence of a case on a court’s docket affords the judge the power to oversee the proper administration of justice.

“[A] pending federal criminal case is not window dressing. Nor is the court, to borrow a famous phrase, a potted plant,” Gleeson wrote. “By placing a criminal matter on the docket of a federal court, the parties have subjected their DPA to the legitimate exercise of that court’s authority.”

While saying that case law was “barren” as to how judges should decide whether to grant approval to deferred prosecution agreements, Gleeson cited legislative history for the Speedy Trial Act which he said showed that Congress had intended for judges to retain an oversight role.

Gleeson cited a 1974 report of the Senate Judiciary Committee which explained that provisions allowing for deferred prosecution assured that “the court will be involved in the decision to divert” the defendant from prosecution and that “the procedure will not be used by prosecutors and defense counsel to avoid the speedy trial time limits.”

Gleeson acknowledged public anger over the settlement.

“These criticisms boil down to the argument that the government should seek to hold HSBC criminally liable, rather than to divert HSBC from the criminal process,” Gleeson said. “But even if I were to reject the DPA, I would have no power to compel the government to prosecute the pending charges against HSBC to adjudication.”

Correction: This article has been updated to reflect the correct HSBC settlement amount of $1.92 billion, not million.


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