Months after Europe's largest bank dodged a potentially crippling criminal prosecution for alleged money laundering, members of the U.S. Senate will have a chance to ask banking regulators whether some financial institutions really are too big to jail.
Congressional sources told ABC News they expect treasury and banking regulators will be among those called to testify before the Senate Banking Committee next week for a hearing that could get at questions that have been swirling since December, when the Justice Department announced it would not prosecute London-based HSBC for allegedly helping Mexican drug gangs launder money.
The decision not to prosecute HSBC came despite what attorneys there said was compelling evidence that the bank for years helped Mexican drug cartels move cash, concealed transactions involving rogue states such as Iran, and catered to clients alleged to have been involved in financing terrorist operations even after they had been warned to stop.
Justice Departed officials reached a record $1.92 billion settlement with the bank, but said it was not prosecuting in part because of what the nation's top criminal prosecutor, Assistant Attorney General Lanny Breuer, called "collateral consequences."
In announcing the settlement, which also forced HSBC to open up its banks to government monitoring, Breuer asked the question rhetorically: "If you prosecute one of the largest banks in the world, do you risk that people will lose jobs, other financial institutions and other parties will leave the bank, and there will be some kind of event in the world economy?"
Sen. Jeff Merkley, an Oregon Democrat, wrote to Attorney General Eric Holder to express his dismay at the decision, saying it "deeply offends the public's sense of justice."
"I am deeply concerned that four years after the financial crisis, the department appears to have 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," Merkley wrote in the pointed, three-page letter.
While the Banking Committee's agenda for the hearing has not been released, advocates for banking reform said they are hoping the senators can begin to piece together how the Department of Justice reached the conclusion that the consequences of prosecuting the bank would damage the economy. One key question, they said, was whether officials from the Treasury Department put pressure on the Justice Department to settle the HSBC case.
"I hope they demand all the memos, all the meeting minutes, open up the process," said Jack Blum, a Washington banking expert. "The case is over now. There is nothing to be gained by keeping it secret. Let's see what happened. The public has the right to now."
Senior officials from both the Treasury and Justice departments agreed to be interviewed by ABC News to address this question in recent weeks, but not to be identified by name. In both cases the officials were adamant that Treasury officials in no way attempted to influence the decision on how to resolve the HSBC case.
Asked how Justice officials reached the conclusion that a prosecution of HSBC would unsettle the global economy, a senior Justice official told ABC News, "We do our own independent analysis."
"We educate ourselves on the size of the company involved, on the business environment in which they operated, and we consult with many people," the official said. "Do we let [Treasury officials] influence our prosecutorial judgment? That's a definite no. There is no improper influence. There is a process of being educated, but absolutely no undue influence."
A senior Treasury official concurred, saying he could recall no meeting in which member of his agency attempted to persuade the Justice Department to settle the case.
Justice officials added that, while they stopped short of a criminal prosecution, they do not believe HSBC got off easy. They were forced to pay a record fine, agree to government monitoring, agree to continue to cooperate with investigators, and to become "the gold standard" in complying with U.S. money laundering laws.
But advocates who want to see greater efforts to stop banks from moving money for those suspected of criminal activity said they have not been impressed. "This thing stinks to high heaven," Blum said.
Stefanie Ostfeld, a policy advisor with Global Witness, an international advocacy organization that works to root out financial crimes and corruption, told ABC News, "If we want to change the behavior of bankers, the punishment needs to fit the crime."
"Senior bankers must be held legally responsible," Ostfeld said. "At the very least, they should be prevented from working in the industry and their bonuses should be clawed back. In the most serious cases, like HSBC, senior bankers should face jail time."
In what may have been a preface of what is to come, Sen. Elizabeth Warren (D-Mass.) took her first crack at the subject during her first Banking Committee hearing earlier this month, when she grilled regulators.
"If they can break the law and drag in billions in profits, and then turn around and settle, paying out of those profits — they don't have much incentive to follow the law," she said. "It's also the case that every time there's a settlement and not a trial, it means that we didn't have those days and days and days of testimony about what those financial institutions have been up to … Can you identify when you last took [one of] the Wall Street banks to trial?"
Thomas J. Curry, the comptroller of the currency, was among those being questioned. He could not name an instance. "We have not had to do it as a practical matter to achieve our supervisory goals," he said.Also Read