Recent news involving a massive fine leveled against HSBC might, at first glance, appear to be a good thing. After all, $1.9 billion in penalties against a major international financial conglomerate over an international money laundering scandal might seem like a good step at holding the company accountable for its actions. However, a closer look reveals some problems with the settlement.
HSBC agreed to pay such a hefty fine after there were reports that the company spent years laundering money for Mexican drug cartels, Iran and other unsavory organizations, which are supposed to be blacklisted by international financial institutions. Specifically, HSBC is said to have violated the Bank Secrecy Act that requires all financial institutions to report any cash transaction of $10,000 or more and bring any suspicious activity to the attention of bank regulators.
The $1.9 billion penalty to settle the case is the largest amount ever paid by a bank. Moreover, on the surface at least, the terms of the settlement appear fairly stringent, given that the government can reopen a criminal case against the company at any time over the next five years if it appears that the company has failed to strengthen it's internal oversight procedures. This is a fairly rare clause in such settlements as most stipulate that the government must give up any potential future criminal case.
As tough as all this may seem, the fact is the government went easy on HSBC, given the severity of what the bank is accused of doing. Not one person from the bank is headed to prison for laundering money for drug cartels, something that has landed many smaller fish in the financial sea behind bars. According to the New York Times, the giant bank may simply be "too big to indict."
The Times wrote that federal and state authorities declined to push for indictment of HSBC officials for fear that such criminal charges could destabilize one of the world's largest banks and thus the financial system as a whole. Evidently, a compromise guilty plea was considered, but ultimately scuttled by the Treasury Department, which worried about the effects of such a plea on the larger economy. By pleading guilty to violations of the Bank Secrecy Act, many regulators were afraid the company would be cut off from important sources of money, including many pension funds, and would eventually lose its charter to operate in the U.S.
Though criminal indictments are relatively rare for big financial players, the threat of real jail time is a powerful deterrent for those considering cutting corners. The Washington Post points out that if prosecutors make it clear to those in the big banks that criminal charges are unlikely, regulators could become all bark and no bite in the minds of many on Wall Street. The notion that such large banks are "too big to fail" has already led to reckless behavior by some. Should the banks come to believe that they are truly "too big to indict," God only knows what kind of behavior might emerge.
Sources:
'Too Big to Fail' becomes 'Too Big to Indict' by James Downie, published at WashingtonPost.com on December 11, 2012.
Too Big to Indict published at NYTimes.com.
Too Big To Indict, HSBC, Barclays and UBS Set Ugly Precedent by Haydn Shaughnessy, published at Forbes.com on December 11, 2012.
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