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HSBC even advised an Iranian bank how to format its messages so financial transactions would not be blocked. One critic of the deal said not prosecuting HSBC executives was “beyond obscene.”

Kirsty Wigglesworth, Associated Press

HSBC laundry bill: $1.9B

  • Article by: Los Angeles Times
  • Associated Press
  • December 11, 2012 - 9:55 PM

NEW YORK - The drug cartels' boxes of cash fit precisely into tellers' windows at their bank in Mexico.

When Iran needed to transfer $55 million in gold bullion, the country, like others on the United States' rogues list, found the same bank willing to assist: HSBC, the British financial giant.

Although the U.S. Justice Department portrayed HSBC as an effective accomplice to violent drug lords and hostile regimes, authorities chose not to prosecute the bank. HSBC instead will pay $1.9 billion, a financial penalty worth about 11 percent of the bank's profit last year.

The massive penalty still was not enough to appease some critics. No bank executives were charged as part of the investigation, leading some analysts to question the government's willingness to hold powerful Wall Street firms accountable.

"It's mind-boggling how they think you can have a financial system and allow this kind of impunity," said William Black, a former banking regulator who aided federal prosecutors during the savings and loan crisis of the 1980s and 1990s. HSBC "put the world at enormous risk."

The federal government's settlement with HSBC, announced Tuesday, allows the bank to avoid criminal penalties in what's known as a deferred prosecution agreement. The bank will be required to get five years of independent monitoring of new controls put in place to prevent illicit money transfers.

The HSBC settlement comes on the heels of a case brought against another British bank, Standard Chartered, which agreed to pay a total of about $670 million to state and federal authorities for similar banking violations involving concealed transactions with Iran.

U.S. laws tightly restrict transfers with countries under sanctions, such as Iran and Sudan. Banking regulations, tightened after the Sept. 11, 2001, terrorist attacks, also require strict safeguards to keep dirty money out of the U.S. financial system -- and potentially out of terrorists' hands.

Four other banks have reached similar agreements with the Justice Department in the last four years.

Lanny Breuer, an assistant attorney general who oversees the Justice Department's criminal division, called the settlement historic and criticized the bank's "stunning failures of oversight."

"The record of dysfunction that prevailed at HSBC for many years was simply astonishing," he said. He defended the settlement, saying HSBC did not get a pass and will pay a heavy price.

The deferred prosecution agreement could allow the Justice Department to charge HSBC should the bank fail to abide by the government's demands.

"Our goal is not to bring HSBC down," Breuer said. "It's not to cause a systemic effect on the economy."

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