U.S. Justice Department chooses former prosecutor to be HSBC compliance monitor

By Guest Contributor
June 6, 2013

By Brett Wolf, Compliance Complete

NEW YORK, June 6 (Thomson Reuters Accelus) - The U.S. Justice Department on Wednesday said it has chosen a former New York County prosecutor who is known for his innovative pursuit of criminals to police HSBC’s efforts to clean up its anti-money laundering program.

The Department’s decision to announce its choice at a time when a federal judge’s hesitation to sign-off on its settlement with HSBC has raised questions over the settlement’s prospects suggests the move is an attempt to win the judge’s approval, compliance experts said.

“It’s a smart move. Maybe it stirs a reluctant and reticent judge,” said a banking industry anti-money laundering compliance officer familiar with the Justice Department’s months-long search for a qualified monitor.

The man chosen for the five-year monitor post, which is expected to pay millions of dollars a year, is Michael Cherkasky, who was once Eliot Spitzer’s boss at the Manhattan district attorney’s office before Spitzer became New York attorney general then governor. Cherkasky has served as chief executive of several companies during the past decade.

Cherkasky is one of three candidates that HSBC nominated for the monitor job in January. He has held the reins at Kroll Inc, Marsh & McLennan Companies Inc, and most recently Altegrity, which among other things provides anti-money laundering solutions.

“Mr. Cherkasky has extensive experience in evaluating and improving the anti-money laundering programs of large financial institutions,” the Justice Department stated in a letter filed in federal court in Brooklyn on Wednesday that revealed Cherkasky as its choice for monitor.

Agreement hangs in balance

That letter was written to District Judge John Gleeson who is overseeing the Justice Department’s case against HSBC and has for months been considering whether to approve a so-called deferred prosecution agreement (DPA) that Justice and HSBC signed in December. The letter states that Cherkasky is expected to begin the monitor work after June 19.

The agreement awaiting approval aims to resolve Justice Department allegations that HSBC operated with egregious anti-laundering weaknesses that permitted drug cartels in Mexico and Colombia to funnel hundreds of millions of dollars through the U.S. financial system.

HSBC agreed to forfeit nearly $1.3 billion and take-on a so-called independent compliance monitor to oversee promised improvements to its anti-laundering controls.

The deal has drawn criticism from many, including some on Capitol Hill who believe HSBC or its employees responsible for the anti-laundering failures should have faced criminal charges.

“If you’re caught with an ounce of cocaine, the chances are good you’re going to jail. … But evidently, if you launder nearly a billion dollars for drug cartels and violate international sanctions, your company pays a fine and you go home and sleep in your own bed at night… I think that’s fundamentally wrong,” Elizabeth Warren, freshman Democratic senator from Massachusetts, said during a Senate Banking Committee hearing in March.

With Judge John Gleeson hesitating to sign-off on the DPA, media reports recently emerged suggesting a dispute had emerged between the judge and the Justice Department. Neither the Department nor Gleeson has publicly responded to these claims.

The monitor requirement is a key provision of the DPA because the chosen individual would serve as the eyes and ears of the Justice Department, allowing it to assess whether HSBC is living up to its commitments. A failure to do so could void the deal and potentially expose the bank to prosecution.

Such a role would not be a new one for Cherkasky. He previously served as the independent monitor for the Los Angeles Police Department and the chairman of the New York State Commission on Public Integrity and has been appointed by the federal courts to oversee compliance with several judgments, the Justice Department stated in its letter to Judge Gleeson.

Cherkasky “tough but fair” leader

Adam Kaufmann, who earlier this year left his post as chief of investigations at the Manhattan DA’s office and now is a partner at the New York office of Lewis Baach PLLC, said Cherkasky is known for getting the job done.

“He had a reputation as the kind of guy who would think up novel approaches for difficult investigations, especially in the areas of organized crime and corruption,” Kaufmann said. “He’ll be a tough but fair monitor who I think will work with the bank, but also will make sure that the bank complies with its obligations.”

A part of Cherkasky’s appeal may have been his lack of previous entanglements with HSBC – such as prior consulting deals or a role in law enforcement investigations targeting the bank – that Justice officials would have viewed as conflicts of interest, sources with firsthand knowledge of the Justice Department’s months-long effort to vet potential monitor candidates said.

Cherkasky’s experience as a prosecutor and his credentials as a leader make him a logical choice for the monitor job, said Dennis Lormel, who previously headed the Federal Bureau of Investigation’s Terrorist Financing Operations Section and now is a consultant.

Lormel added that Cherkasky’s success will depend in part on “the talent of the people who are brought in to do the hands-on work” of tracking HSBC’s day-to-day progress in bolstering its anti-laundering controls.

It appears that Cherkasky has already chosen his support staff. As part of the Justice Department’s vetting process all candidates were required to disclose who they would hire, sources said.

Cherkasky, a Justice Department spokesman, and an HSBC spokesman all declined to comment.
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Letter written to District Judge John Gleeson, please click here.

(This article was produced by the Compliance Complete service of Thomson Reuters Accelus. Compliance Complete provides a single source for regulatory news, analysis, rules and developments, with global coverage of more than 230 regulators and exchanges. Follow Accelus compliance news on Twitter: @GRC_Accelus)

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