Why the US didn’t prosecute HSBC

By Felix Salmon
December 13, 2012

Mark Gongloff is not a fan of the idea that corporations are people. Except, that is, when the corporation in question is HSBC: he’s extremely angry at the fact that the UK bank won’t face criminal prosecution as a result of its money-laundering shenanigans.

Gongloff’s take is pretty mainstream: the NYT editorial page said that the decision is “a dark day for the rule of law”, adding that “clearly, the government has bought into the notion that too big to fail is too big to jail”.

But here’s the thing: you can’t jail a bank, or any corporation; a criminal indictment of a corporation is a bit of a peculiar fish at the best of times. Even if the bank survived, which Gongloff thinks is possible but no one knows for sure, there would certainly be massive job losses — and we can be sure that somewhere between 99% and 100% of those job losses would fall on people who had absolutely nothing at all to do with the money laundering that HSBC was getting up to.

What’s more, it’s important to put HSBC’s crimes in context. The United States, in its role as global hegemon and guardian of the world’s only real reserve currency, has unapologetically taken the opportunity to use its economic power to push its geopolitical agenda. For instance, if you’re an Iranian business and you want to do business in dollars, the US is determined to make your life as difficult as possible. The US might have no jurisdiction over Iranian businesses, but it does have jurisdiction over nearly all the important banks in the world, since it’s impossible to be a global bank without having some kind of presence in the US. And — as Argentina is finding out right now in its court case against Elliott Associates — if you want to send dollars around the world, you basically have to send them through the USA.

To put it another way, the laws that HSBC broke were laws designed to bolster the international standing of the US relative to Iran and other countries: they were geopolitically motivated, and the intended target was not the international banking system, with which the State Department has no particular beef, but rather countries the State Department doesn’t like.

In general, the laws have had their intended effect: they have depressed commerce in the relevant countries. But after HSBC has been caught breaking the laws, is there really any point in then pursuing a scorched-earth criminal prosecution against the bank? Remember, the bank was not the real target of the laws in the first place — and what HSBC did was perfectly legal in, say, the UK.

The US certainly has the ability to criminally prosecute HSBC. But doing so would not particularly hurt Iran or any of America’s other state enemies. And the laws which HSBC broke were not laws against bad banking, they were laws against bad states.

Or, to put it another way: the US is the most powerful sovereign nation on the planet. With a flick of its Justice Department finger, it could wipe a globe-spanning bank off the face of the financial system. It has truly awesome power. And every single bank in America is well aware of just how much power the US has in this regard. The question isn’t whether to use that power, it’s why. To do so would be bullying, and capricious, and would punish thousands of innocent individuals, and would destroy hundreds of billions of dollars of value, all for the purpose of nothing much in particular. Just because the US can prosecute HSBC doesn’t mean that it should prosecute HSBC. And sometimes, forbearance isn’t a sign of weakness, it’s a sign of maturity.

Update: Contra EJ Fagan, this is not an argument against prosecuting individuals at HSBC who broke the law. And in the comments, a lot of people are making the point that HSBC’s crimes centered not on Iran but rather on Mexican drug cartels; again, the laws broken are all part of the US war on drugs. The question here is: do you destroy a bank as collateral damage in that war?

39 comments so far

This is the worst piece of yours that I’ve ever had the good fortune to read, FS. Yes, we are all fortunate to be able to enjoy all that you produce for us – the very good and very not as good.

Sometimes you’re off the mark on some things, and there’s always room for differing opinions on matters of opinion. There’s no proper space at all for the state of mind and rhetorical devices on display in this OP.

You set a new low today, IMO.

Posted by MrRFox | Report as abusive

Yeah, that’s really bad. HSBC broke the law, but the motivation behind the laws was bad, so HSBC shouldn’t have to follow them?

Posted by Doubleday | Report as abusive

You seem to think that the only options the US government has are to more or less ignore HSBC’s alleged crimes or to totally destroy the bank. There is a third option – to prosecute the bank managers and officers responsible. Let those responsible for the bank’s crimes go to jail. Their punishment will discourage similar behavior by other bank managers in a way that fines will not. HSBC can then continue to operate under new management.

Posted by Stuhlmann | Report as abusive

What a piece of krap.

The Government could have prosecuted individuals without destroying HSBC as an Institution.

When you launder money for terrorists and murderers and drug cartels, you should be out of business. Your executives should be prosecuted.

Were you paid by HSBC to write this article?

Posted by strangecareer | Report as abusive

You’re confusing it with Standard Chartered. The majority of the HSBC charges relate to laundering in the Mexican operations and would definitely have been a crime everywhere in the world, including Mexico.

Posted by dsquared | Report as abusive

“But after HSBC has been caught breaking the laws, is there really any point in then pursuing a scorched-earth criminal prosecution against the bank?”

Excuse me? Did you even read the original filings? It was abundantly clear to the management that what they were doing was/is illegal, they simply did not care. In that vein, ‘sue the bank’ is a red herring; you sue management.
Thirdly, the reason they don’t sue banks is not because they “don’t want to seem capricious”, but because neoliberals don’t believe large corporations may be judged by governments. As such, your assumptions about the US government deciding not to prosecute in the case of HSBC, but not caring one whit about the lives of “thousands of innocent individuals, and hundreds of billions of dollars of value” when those lives and dollars are located in, say, gaza, or iran for that matter.
This piece indeed is a horrible piece of “journalism”.

Posted by Foppe | Report as abusive

(As for the implicit point that criminals are punished enough if they are “recognized” as such by institutional actors: don’t make me laugh/cry. That presupposes that institutions know shame, which is a form of anthropomorphizing which is entirely inappropriate. We all know that information does not propagate immediately or effectively, so that a reputation will generally not be damaged at all by such revelations. As such, they need not care.)

Posted by Foppe | Report as abusive

This is just another way of saying “if you are important, you don’t need to follow the law”

People who aren’t criminal suffer every time we punish criminal entities. Did you think the children of drug dealers don’t suffer when their parents get put in jail? That’s never been an argument for anyone to escape punishment except for rich people accused of financial crimes.

You can argue all you want that this doesn’t represent a two-tiered justice system, but you’d be dead wrong.

Posted by TravisOrmsby | Report as abusive

I think it’s kind of hard to prosecute individuals for crimes their employer may have committed, so instead of making it a crime punishable by a prison sentence that would be hard to deploy, there should be fines, maybe 10 to 20 times the amount of profit earned by the offender. That kind of downside would deter most banks from taking the risks.

And MrFox, if you’re going to be critical, you really have to say why the piece was bad. Otherwise, us unenlightened folks won’t know what Felix has done wrong.

Posted by KenG_CA | Report as abusive

I started typing an argument, but just stopped because if this is how you truly feel, there’s no point. This is the most pathetic, pandering piece I’ve read in a long time. You should be ashamed. These people (I say people because it’s not some nebulous corporation, but actual people who made these decisions) knowingly laundered money for drug cartels and you see no reason for criminal prosecutions?

I just lost a huge amount of respect for your opinion.

Posted by kst | Report as abusive

Shorter Felix: “I agree with Gongloff – that too big to fail is indeed too big to jail – and I don’t have a problem with that.”

Prosecution “all for the purpose of nothing much in particular.”

Other than preventing money-laundering by drug syndicates and terrorist groups. Wow – truly nothing there, right Felix?

FS: “But after HSBC has been caught breaking the laws, is there really any point in then pursuing a scorched-earth criminal prosecution against the bank?”

No, but how about criminal prosecution of the people who made those criminal decisions? Or simply a criminal prosecution of the entity for knowingly violating criminal laws, a lot of which has had nothing to do with Iran? Why the pejorative use of “scorched-earth” when you have no idea what the charges or prosecution would be?

In addition, this was not all about Iran, so Felix’s larger point is not entirely relevant. “The bank, between 2001 and 2010, “exposed the U.S. financial system to money laundering and terrorist financing risks.”…”HSBC’s activities are said to have gone beyond claims that the bank flouted United States sanctions to transfer money on behalf of nations like Iran. Prosecutors also found that the bank had facilitated money laundering by Mexican drug cartels and had moved tainted money for Saudi banks tied to terrorist groups.” (NYTime articles linked)

Felix truly has a weak argument.

Posted by SteveHamlin | Report as abusive

Just to pile on, since this is truly a ridiculous piece of commentary:

“And the laws which HSBC broke were not laws against bad banking, they were laws against bad states.”

Of course they were laws about bad banking. They’re laws about banks doing bad things. Like laundering money for terrorists and Mexican drug cartels, neither of whom are states.

It’s odd that when the US decides to do something to stop that activity you describe it as hegemonic, but when multinational corporations decide to enable it (and profit from it) you don’t consider it a big deal at all.

Posted by absinthe | Report as abusive

Felix, let me make three specific points:

First, HSBC has been accused of, and admitted undertaking, certain conduct, but it was not convicted of anything.

The second is that once a firm is indicted (not convicted) it faces severe consequences, such as an inability to conduct certain fiduciary businesses. This in effect means it is impossible for a firm to have a fair day in court as the damage is done before the verdict, and the firm has strong incentives to plead to lesser charges rather than contest charges officially.

Third, and I think this is part of the problem, is that firms only tend to face monetary penalties, which is substantially different from an individual in similar circumstances (imagine an individual accused of money laundering for drug cartels and aiding terrorist organizations).

Certainly, if the Federal Reserve and the OCC were convinced of the evidence presented, they could take actions to prevent the firm from conducting certain businesses. I have tended to notice that no firm is ever required to “cease” any activity in a Cease & Desist Order.

For example, if the regulators believed that HSBC’s correspondent banking business was abetting money laudering, they could prohibit engagement in that business. If they felt that Embassy accounts abetted terrorist organizations, they could demand divestiture or closure of that business. While these blows would be severe, they are short of the “death blow” of a conviction.

Posted by Carter2 | Report as abusive

Well said KenG. Just slap them with a fine grossly in excess of the rewards they reaped, publicize it to discourage others, and get on with your day.

Corporations are in the business of making money, so that is where you hit them. If senior management was involved you might also want to confiscate their compensation from the offending years, and if they are criminally liable then try them as such.

Posted by QCIC | Report as abusive

Thanks for the quick update, Felix. I think what we all need to be on the look out for is how the deferred prosecution agreement treats individuals at HSBC. I’ve only been able to read the Statement of Facts, but if the DPA is similar to the Standard Chartered one announced on the same day, it effectively protects anyone at the bank from being prosecuted for the crimes admitted to.

You can prosecute those individuals without destroying the institution. But we’ve also dismantled and sold off institutions in the past. See Riggs Bank. It should be an option, along with holding individual people accountable.

Posted by EJF | Report as abusive

We pass laws to promote policy: in this case, Felix is right, it is to promote a geopolitical agenda.

We enforce laws to show that we are serious about the promoted policy. Believe me: if HSBC were to be prosecuted, the leakage to Iranian banks would go down to the tiniest trickle.

I can’t say that I’m in favor of the policy itself, but if you want a policy to work, it has to be enforced.

Posted by loopguy | Report as abusive

You go – kinda – halfway with the argument, but don’t actually get to the destination. Let me do it for you
a) You can’t jail a corporation
b) Indicting them would hurt innocent people
c) This corporation is basically doing international banking (God’s work?)
d) These (only? some? all?) US laws are “political” and not “market regulatory”
e) The only laws that banks need to follow are the “regulatory” ones (and not these “Political” ones.
f) Felix gets to decide which laws are “political” and which are “regulatory”

Ok, (f) was snide. But then, *who* gets to decide? If its the bank the decision will be self-serving. Equally so if it is the lawmaker.

In our system, (e) is not valid. You follow the laws. Period. Granted, there is regulatory capture where you don’t necessarily get prosecuted, as in this case, but thats not the point, is it?

Posted by dieswaytoofast | Report as abusive

I see the US Imperialists are out in force today.

Posted by BarryKelly | Report as abusive

I’m disappointed with you, Felix. As absinthe says, you don’t seem to consider it a big deal at all when a corporation profits from activities enabling organizations like Mexican drug cartels to terrorize and kill people.

When people gifted with education and opportunity break laws to profit from mayhem, the punishment should be severe. I don’t understand how your moral compass works at all.

Posted by GregS_CA | Report as abusive

Yes, you do destroy a bank to further the war on drugs (which I oppose), because the action taken completely removes meaningful deterrence from toolbox of regulators.

Posted by Matthew_Saroff | Report as abusive

To clarify, I mean that the DoJ cave removes deterrence from the toolbox.

Posted by Matthew_Saroff | Report as abusive


What if the regulators in multiple countries found that the seventh largest bank on Earth was engaging in money laundering, gun running and fraud. We’re talking about an ‘institution’ that was the private bank for identities such as Saddam Hussein, Noriega, Abu Nidal and the Medellin Cartel. Would you regard prosecuting it, and, indeed shutting it down as ‘capricious’?

You may have been in short pants in Glasgow at the time, but the above actually happened.

In the UK, they shut the bank* in question after the Bank of England’s Sandstorm Report was tabled by a Price Waterhouse.

Your argument here is specious and pathetic. Are you really intent on becoming the Andrew Ross Sorkin of Reuters? Or do you just want to appear on ‘Squawk Box’ with Becky Quick?

Posted by crocodilechuck | Report as abusive

* Bank of Credit and Commerce International (BCCI)

Posted by crocodilechuck | Report as abusive

really? I’ve read your blog religiously, and love your stuff, but really? you seriously missed the mark here, sir.

“The US certainly has the ability to criminally prosecute HSBC. But doing so would not particularly hurt Iran or any of America’s other state enemies. And the laws which HSBC broke were not laws against bad banking, they were laws against bad states.”

So wait, we only prosecute laws when it suits our purposes not because it is on the books? So if a murder occurs but the offended family wishes to drop all charges, the people rest their case and the defendant walks?
A rogue bank brazenly engaged in money laundering and INSTEAD OF PROSECUTING THEM UNDER THE LAW, they were allowed to BUY THEIR OWN FREEDOM?

Really Felix? really.

This article is so far from the mark that I do begin to wonder whether the goal was page views, to drive lurkers like me to register and lose my mind in the comments section, or something equally devious, because you sir, have really, really damaged your credibility in this reader’s (devotees?) eyes.

Posted by skaftafell | Report as abusive

again, the laws broken are all part of the US war on drugs

oh mate, no, this is much too glib. The Mexican cartels aren’t “Mr Nice” types stuffing a tonne of dope into the speakers of a rock band. They’re some of the worst people on earth. The laws broken are part of the Mexican government’s attempts to protect themselves against a criminal movement that leaves piles of dead bodies in town squares.

Posted by dsquared | Report as abusive

Attorneys for all the persons presently in cells for drug-trafficking and its associated offenses (including homicide) should cite this HSBC-example in support of (now fully plausible) applications for pardon and release. So should those representing the guys arrested for insider-trading and Libor-fixing.

Tell us something, FS – in your opinion, are being a socialite and being a serious analyst/observer mutually incompatible undertakings? Whether they are or not – which one is your personal favorite métier?

Posted by MrRFox | Report as abusive

And why didn’t it prosecute BoA, AIG, Citibank, CountryWide, ad infinitum???
Three reasons:
1. corruption
2. corruption
3 corruption

Posted by fresnodan | Report as abusive

I’m pretty sure FS kind of sort of misunderstood the situation.

If he knew this particular case was mostly about the drug money, the tone would’ve been a little different. Many of the core issues in the Standard Chartered case and this one are different, even though some do overlap.

So, yeah, he messed this one up. That happens, I guess.

Posted by alexisdelarge | Report as abusive

Please, FresnoDan; try to be a little more ‘inclusive’ – we don’t want DSK and Corzine to feel ‘left out’, do we?

Posted by MrRFox | Report as abusive

Boooo Felix ! What a load of cobblers. Does anyone care about the car thief’s family when he loses his job and goes to jail ? No. If people lose their jobs because they work for a corrupt bank, too bad. Those employees work for a criminal organization like the mob. Destroying it, and the shareholders value is necessary to preserve the rule of law. The problem today is the people in charge all think like you. The corruption will continue until the banksters are prosecuted.
Have you no shame sir ?

Posted by iamamartin | Report as abusive

“The question here is: do you destroy a bank as collateral damage in that war?”

Wow, I really just hope you’re wording things poorly or something here. I can’t imagine this actually being any kind of a dilemma. I’m sick of the notion that banks are these sacred and hallowed organizations that need to be saved at all costs. But to put them above prosecution of the war on the Mexican cartels is downright idiotic. Felix, I’m literally done with you and your blog. This statement is just too stupid to take seriously.

Posted by spectre855 | Report as abusive

Ouch. A truly painful posting. It raises the question: is there any conduct that would justify criminal prosecution of a bank? HSBC committed a clear violation of well-understood banking laws; all large banks are well aware of US money-laundering restrictions and are required to show extensive efforts to comply with those restrictions. These are not obscure regulations; they are important rules with an obvious moral purpose.

So if this isn’t prosecuted, what on earth would be? Why should bank directors and officers take other laws seriously, if violation this flagrant barely touches them personally? Isn’t this just an argument for letting any bank do pretty much whatever it wants?

(Also, it is by no means clear that criminal prosecution has to mean destruction of the bank, Arthur Anderson style. That has very rarely been the effect. And the gov could easily calibrate its prosecution: either pick only a few individuals, or hit the bank as a whole, but with lesser charges. So the outcome of “innocent bank teller loses job” is not required in any case.)

Posted by Dilettante | Report as abusive

A ridiculous article, unexpected from Mr. Salmon.

We definitely need someone like Eliot Spitzer or Neil Barofsky to actually prosecute & not just seek petty fines.

The US financial system has no public trust now.

The fact that DC & the Hill & White House haven’t figured that out is one of their current problems.

Posted by nyerreu11 | Report as abusive

@Dilettante – about HSBC surviving a prosecution –

In theory – sure. But no financial institution has ever lived long enough after indictment to actually make it through a jury trial. The indictment itself means certain death. Even an indictment isn’t necessary – just being ‘black-balled’ ala Banco Delta Asia (NKorea’s pal from Macao, remember?) means a quick death.

IMO there is an argument (unconvincing to me, but reasonable none-the-less) for letting the bank survive. There is no argument IMO that plausibly justifies not prosecuting the individuals who ordered the crimes.

OBTW: The top guy at the bank – the CEO – when all the bad deeds went down – he’s still there. He hasn’t lost his job or even been fined or demoted – nothing, except fat bonuses year-after-year. Bob Diamond’s gotta be wondering if he wouldn’t have been smarter to let his traders run coke instead of a Libor fix – he’d maybe still be running Barclays’ if he had. (That guy at HSBC – he’s just gotta ‘have something’ on some very big people to have pulled this off. Anyone who knows that much seems like he knows too much to still be walkin’ around alive. Just sayin’ ….)

Posted by MrRFox | Report as abusive

Felix, you are one of my favorite bloggers, but I think you’ve missed the plot.

Whilst, as sayeth Mr Bumble, the law may be an arse, the law is the law. And, for HSBC, the solution is simple: Don’t set up a bank in the United States where said law exists. HSBC had no problems buying vulture-lender Household International and provided 25% loan-share credit cards to US consumers. And those are legal! But they can’t have it both ways.

Posted by scotta | Report as abusive

Mr. Salmon, this happens to be one of the most awe inspiring examples of idiocy ever presented to justify any crime, of any size!
It’s attitudes such as this that allowed the banks to run amok and cause the world economic downturn.
What is it that liberals have been saying since events unfolded in 2008? It’s the banksters! They must be made to pay! Slimy capitalists all! They are raping the 99%!!
Well, until liberals get elected anyway. Then they realize walking the walk will hurt their campaign donations. Actually, they knew it all along. They just lie to make us think they are on our side. Until they get elected. And I accuse Repubs of doing the same thing. They just don’t rub our noses in it like Dims do. To Dims it’s an art form!
What, did Jon Corzine join the board of HSBC or something?
And yes, these events are all related. Banks behaving badly and getting away with it because they are just too big to go after. What was it that our illustrious AG said about cowards?
Steal a million with a gun to threaten one person and you go to jail.
Steal a billion with a pen, threatening thousands, and you get a raise. Great stuff to teach our children.
Climate skeptics are accused of being paid off by Big Oil. Who pays you off, Mr. Salmon?

Posted by NickShaw | Report as abusive

“I think it’s kind of hard to prosecute individuals for crimes their employer may have committed”


first of all, no, it isn’t. second of all, human beings at the bank decided to break the laws and launder drug cartel money. those human beings should be prosecuted.

further: if your goal is to reduce bad behavior at banks, it stands to reason that this goal will be better achieved by instilling the fear of life-sentences for bank executives rather than the threat of fines against the bank itself—even if those fines included going after the personal holdings of the executives.

if i was a drug cartel, i would tell the executives look, we’ll put millions into a secret account for you so, worst case scenario and the govt seizes all your money, you just move to a non-extradition country and drink mai-tais on the beach for the rest of your life. when deciding whether to commit a crime, if the punishment for getting caught is a tropical vacation, then heck—why NOT do it?

fines, however heavy, are an absurd punishment for people who help enormously wealthy criminal syndicates. the criminals will just build in safety-net bonuses to those people. if fines are an acceptable punishment here, then why not for murder? if the DOJ actually got the head of a drug cartel in custody, and had reams of air-tight evidence that they ordered a bunch of murders, would it be acceptable to limit his punishment to a fine? $100M? $1B? is there any amount of money that we should accept from a murderer as his punishment? i don’t know anyone who would say yes. except, apparently, the US Department of Jusdis™ (short for “just dis once”).

but if the punishment for crooked banking execs is life in a federal prison, then that’s a strong deterrent. that’s what this entire conversation should be about. seeking “justice” against a non-human entity is merely an abstraction, and in this entire discussion, a big DIStraction.

Posted by ohiohiohio | Report as abusive

So how much did HSBC pay you to shill for them, Felix?

Posted by RedXIV | Report as abusive

At Felix the author. Just how STUPID do you think people really are?

This news article is PURE PROPAGANDA assisting in covering up and shilling for CRIMINALS.

Prosecute the BANKERS within the corporation committing felonies AND THE JOURNALISTS assisting in covering up and shilling for their crimes.

You prosecute and jail the PEOPLE in the industry responsible.

There will come a day when HONEST people retake the government and make no mistake. There WILL be a reckoning. People responsible for their crimes WILL be prosecuted.

I think we THE PEOPLE should go so far as to, if it can be proven, that if JOURNALISTS such as this you are being PAID by the banks to shill and cover for their crimes, then even JOURNALISTS such as you need to be prosecuted for being ACCESSORIES AFTER THE FACT!

It is time to jail the bankers committing felonies.

It is also time to jail the JOURNALISTS covering up their crimes.

Posted by Diogenes9966 | Report as abusive
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