John Cruz was not expecting to find a near-empty tool shed when he arrived at the address of a business that conducted millions of dollars worth of monthly transactions in 2008. Other visits took the HSBC client relationship manager to an empty parking lot and an abandoned house. When Cruz told senior management that he suspected he had found fictitious businesses with thousands of fraudulent accounts, he says he was ignored, laughed at, and ultimately terminated about two years later.
At the same time, the southern New York branch of HSBC, the one Cruz worked for, was being investigated by the Department of Justice for violating regulations against money laundering. And in December 2012, HSBC Bank USA, the American branch of the London-based multinational bank, agreed to a $1.9 billion penalty in exchange for deferred prosecution for failing to monitor over $200 trillion in questionable wire transfers between 2006 and 2009. The transfers included $881 million in drug proceeds from Colombia and Mexico laundered through the U.S. financial system. Now some lawmakers are outraged that individuals have not been held accountable for their financial crimes.
"Either we're serious about money laundering, and we're serious about [targeting] the support of terrorist organizations and drug cartels, or we're not. We have to be serious from top to bottom," says Rep. George Miller, a California Democrat, who along with 24 of his colleagues sent a letter to Attorney General Eric Holder about the HSBC case in January. "It's just unbelievable that the suggestion would be that somehow a financial fine that's clearly within their wherewithal … is a sufficient substitute for bringing people to justice."
Cruz says that when he told HSBC auditors that they could be fined and shut down for servicing fraudulent accounts, he was told that the bank had $2 billion set aside in the event that the bank was investigated and fined. "They're not going to shut us down. We're too big to be shut down," said the auditor, according to Cruz.
"The idea that some banks are 'too big to jail' is outrageous," says Sen. Jeff Merkley, an Oregon Democrat, who is pressing for prosecution. "In America, we live by the ideal that we are all equal under the law, and when ordinary Americans get caught in criminal wrongdoing, they must pay the price and accept their punishment," says Merkley, adding: "It is unacceptable that some would be exempted from the rule of law—in this case, for extremely serious crimes of money laundering for drug cartels and terrorists—because they are employed by a large bank."
Meanwhile, federal prosecutors called the HSBC agreement "historic." U.S. Attorney Loretta Lynch said the outcome "imposes the largest penalty in any [Bank Secrecy Act] prosecution to date" and "makes it clear that all corporate citizens, no matter how large, must be held accountable for their actions." And while the Justice Department confirms that there is nothing in the agreement that prevents them from prosecuting individuals, no bank employees have been charged with breaking the law.
The Bank Secrecy Act requires banks to institute anti-money-laundering programs and to submit currency transaction reports for cash transfers of more than $10,000 and suspicious activity reports to the Department of the Treasury's Financial Crimes Enforcement Network. The DOJ's investigation revealed that HSBC knowingly reduced their anti-money-laundering program budget in order to cut costs and increase profits. The bank also accepted transactions from countries sanctioned by the U.S. government, including Iran, Cuba, Sudan, Libya, and Burma.
Even though prosecutors call the agreement historic, lawmakers want to be sure that individuals are also held accountable. California Democratic Rep. Maxine Waters, ranking member of the House Financial Services Committee, sent a letter to the federal authorities in February, questioning the federal government's policies on prosecuting financial crimes. "As the Justice Department continues its ongoing efforts to investigate financial crimes in the United States, the Department should consider the scope of misconduct and identify individual actors, when appropriate, who can be criminally prosecuted and tried in a court of law," wrote Waters.