When the Justice Department announced its record $1.9 billion settlement against British bank HSBC, prosecutors called it a powerful blow to a dysfunctional institution accused of laundering money for Iran, Libya and Mexico's murderous drug cartels.
But to some former federal prosecutors, it was only the latest case of the government stopping short of bringing criminal money laundering charges against a big bank or its executives, at least in part on the rationale that such prosecutions could be devastating enough to cause such banks to fail.
They say it sounds a lot like the "too big to fail" memo that kept big but sickly banks alive on the support of taxpayer-funded bailouts. In these cases, they call it, "Too big to jail."
"Shame on the Department of Justice. Shame on them," said Jimmy Gurulé, a former federal prosecutor who teaches law at the University of Notre Dame.
"These are actions that facilitated major international drug cartels to continue their operations," he said. "Now, if that doesn't justify criminal prosecution, I can't imagine a case that would."
Oregon Senator Jeff Merkley shot off a letter to U.S. Attorney Eric Holder after the HSBC settlement, saying the government "appears to have firmly set the precedent that no bank, bank employee or bank executive can be prosecuted even for serious criminal actions if that bank is a large, systemically important financial institution."
Neil Barofsky, the former inspector general of the government's Troubled Asset Relief Program and a former federal prosecutor in New York, warned that big banks could interpret the Justice Department's leniency as "a license to steal."
Since 2009, several European banks have paid heavy settlements on allegations they moved money for people or companies on the U.S. sanctions list: Switzerland's Credit Suisse, $536 million; Britain's Barclays, $298 million; Britain's Lloyds, $350 million; Dutch bank ING, $619 million; and the Royal Bank of Scotland, $500 million for alleged money laundering at Dutch bank ABN Amro.
Fear Of Consequences
While those cases involved deals with such countries as Iran, Libya, Cuba and Sudan, the HSBC case was notable for the government's allegation that it also helped launder $881 million in drug-trafficking proceeds for Mexican cartels.
As bad as those allegations were, prosecutors say they could not prove HSBC executives conspired to aid drug organizations or rogue nations. Breakdowns in security controls within the company had occurred gradually, over decades, with a motive of increasing profits rather than committing crimes, prosecutors said.
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