Congressional Committee: Holder ‘Misled Congress’ on ‘Too Big to Jail’ Wall St. Bank

Barbara Hollingsworth | July 19, 2016 | 3:51pm EDT
Font Size
HSBC headquarters in London. (AP photo)

(  --  Former Attorney General Eric Holder “overruled internal recommendations” and “misled Congress” when the Department of Justice (DOJ) declined to prosecute HSBC Bank USA and its UK-based holding company for “serious violations of U.S. anti-money laundering and sanctions laws” involving drug cartels and foreign terrorist groups, according to a new congressional report.

The report, released last week by the House Financial Services Committee, is entitled Too Big To Jail: Inside the Obama Justice Department’s Decision Not to Hold Wall Street Accountable.

The final DPA [deferred prosecution agreement] between DOJ and HSBC in 2012 contained “language that appears to insulate HSBC and its employees, officers, and directors from prosecution for illegally processing certain transactions with persons or entities designated by [the Treasury Department’s] OFAC [Office of Foreign Assets Control] at the time of the transaction as Specially Designated Terrorists, Specially Designated Global Terrorists, Foreign Terrorist Organizations, and proliferators of Weapons of Mass Destruction,” the report stated.

The five-year DPA required HSBC to pay a total of $1.92 billion in penalties for laundering $881 million for international drug cartels through the U.S. financial system, “including proceeds of drug trafficking by the Sinaloa Cartel in Mexico and the Norte del Valle Cartel in Colombia,” according to the report.

Under the USA Patriot Act, financial institutions are required to verify the identity of their customers, set up anti-money laundering (AML) programs and controls, and report any suspicious transactions to law enforcement.

As part of the DPA, HSBC also admitted it violated the Bank Secrecy Act, the International Emergency Economic Powers Act, and the Trading with the Enemy Act by “illegally conducting transactions on behalf of customers in Cuba, Iran, Libya, Sudan and Burma—all countries that were subject to sanctions” enforced by OFAC.

As a result, the bank became “the preferred financial institution for drug cartels and money launderers,” the report noted. Yet none of the bank’s directors, officers or employees were ever prosecuted for criminal violations of federal law.

“Notably, despite having to pay a record U.S. penalty in connection with the DPA, neither HSBC nor any of its executives or employees were ever prosecuted, let alone convicted for any of the serious violations,” the report points out.

On March 15, 2013 Holder testified before the House Judiciary Committee that while “it was difficult at times to bring cases against large financial institutions because of the potential consequences… let me be very, very, very clear. Banks are not too big to jail. If we find a bank or a financial institution that has done something wrong, if we can prove it beyond a reasonable doubt, those cases will be brought.”

However, internal Treasury documents obtained by the committee “reveal a very different story,” the report stated. “It is clear from internal Treasury records that DOJ’s decision to decline to prosecute HSBC was not due to a lack of evidence of HSBC’s wrongdoing.”

The documents “raise very serious concerns about DOJ’s DPA deal with HSBC in late 2012—not the least of which is that DOJ declined to prosecute anyone involved in a massive breach of U.S. anti-money laundering and sanctions laws due to HSBC’s large size and ‘systemic importance’,” the report stated.

A Sept. 10, 2012 letter sent to then-Federal Reserve Board Chairman Ben Bernanke and then-Treasury SecretaryTimothy Geithner by the UK’s chief financial minister warned that prosecuting HSBC “could lead to [financial] contagion.”

Holder “overruled internal recommendations by DOJ’s Asset Forfeiture and Money Laundering Section to prosecute HSBC because of DOJ’s leadership’s concern that prosecuting the bank would have serious adverse consequences on the financial system,” the report noted.

The Financial Services Committee also accused Holder of prematurely agreeing to the DPA before knowing the full extent of HSBC’s violations.

On Nov. 5, 2012 Holder “offered HSBC a ‘take-it-or-leave-it’ DPA offer, with the ‘catch’ being that he wanted the settlement to be finalized and ready to ‘go public’ by no later than Wednesday, November 14, 2012.”

“In its haste to complete its enforcement action against HSBC, DOJ transmitted settlement numbers to HSBC before consulting with OFAC to ensure that the settlement amount accurately reflected the full degree of HSBC’s sanctions violations,” the report pointed out.

The committee complained that it was repeatedly stonewalled in its attempts to obtain information on the DPA from both DOJ and the Treasury Dept.

“Three years after its initial inquiries, the Committee finally obtained copies of internal Treasury records showing that DOJ has not been forthright with Congress or the American people concerning its decision to decline to prosecute HSBC."

“DOJ to date has failed to produce any records pertaining to its prosecutorial decision making with respect to HSBC or any large financial institution, notwithstanding the Committee’s multiple requests for this information and a congressional subpoena requiring Attorney General [Loretta] Lynch to timely produce these records to the Committee,” the report charged.

“Attorney General Lynch and [Treasury] Secretary [Jack] Lew remain in default on their legal obligation to produce the subpoenaed records to the Committee.”

In response to the money laundering scandal, HSBC Holdings appointed former deputy attorney general James Comey to its Financial System Vulnerabilities Committee six weeks after the DPA was signed. 

Comey resigned from the HSBC board in July 2013 after he was nominated to be director of the FBI by President Obama.

“A nation governed by the rule of law cannot have a two-tiered system of justice—one for the largest banks, and another for everyone else,” the Financial Services Committee report concluded.

“Accordingly, inasmuch as DOJ continues to believe that certain financial institutions are too large to effectively prosecute, it is imperative that DOJ promptly inform the Congress of this fact, so that Congress can seek to address the problem of ‘too big to jail’ through its legislative function.”

Related: Terrorism Expert: ‘Radicalized Criminals’ Pose New Terror Threat to Europe, US

mrc merch