HSBC Laundered $881 Million for Drug Cartels. The Justice Department Called It Too Big to Jail.

Cash couriers for Mexico's Sinaloa cartel found that HSBC's teller windows in Mexico were too narrow to feed loose banknotes through quickly, so they had boxes built to the exact dimensions of the windows, according to the U.S. Senate Permanent Subcommittee on Investigations. Between 2006 and 2010, at least $881 million in drug proceeds from the Sinaloa cartel and Colombia's Norte del Valle cartel moved through HSBC's U.S. accounts this way. In December 2012, HSBC admitted all of it in a signed statement of facts.

The bank paid $1.921 billion — at the time the largest penalty ever imposed on a financial institution — and signed a deferred prosecution agreement. Nobody at HSBC was charged with a crime. Nobody went to trial. Five years later, having met the agreement's terms, HSBC didn't go to trial then either: the Justice Department asked a judge to dismiss the charges outright.

A Year of Looking

The Senate Permanent Subcommittee on Investigations, chaired by Senator Carl Levin, spent roughly a year examining HSBC's compliance record before releasing a 339-page report on July 17, 2012, describing a bank culture the subcommittee called "pervasively polluted." The report found HSBC's U.S. affiliate had for years accepted bulk cash deposits and wire transfers from HSBC Mexico without adequate scrutiny, despite Mexico's HSBC affiliate being flagged internally as a high-risk operation for drug-money laundering.

The subcommittee found HSBC's own compliance staff in the U.S. had raised alarms about the Mexican affiliate's risk profile years before regulators or prosecutors got involved, and that HSBC Group's compliance leadership was aware of the problems without meaningful action following.

The $881 Million

• 2006–2010: HSBC Mexico moves at least $881 million in proceeds tied to the Sinaloa cartel and Norte del Valle cartel through HSBC's U.S. correspondent accounts, per the Senate subcommittee's findings and HSBC's own subsequent admissions.
• HSBC Mexico is cited by the subcommittee as having received large cash deposits, in some cases using boxes couriers had built to match the precise dimensions of teller windows, to move as much cash as possible per transaction.
• HSBC's compliance division rates Mexico as a "standard," not high, risk jurisdiction for years despite the volume of cash moving through it and Mexico's status as a major narcotics-trafficking corridor.
• Separately, the report finds HSBC's Middle East and North Africa affiliate cleared U.S. dollar transactions on behalf of banks tied to terrorist financing risk, including institutions later linked to Al Qaeda financing networks.

Stripping the Paperwork

The Senate report and the Justice Department's own findings separately detailed how HSBC Group affiliates in Europe and the Middle East processed U.S. dollar transactions on behalf of customers in Cuba, Iran, Libya, Sudan and Burma — countries subject to U.S. sanctions — by removing or altering information in wire transfer paperwork that would have identified the sanctioned parties to U.S. banks processing the dollar-clearing side of the transaction, a practice regulators call "stripping." The Justice Department's December 2012 statement of facts found this activity spanned multiple HSBC affiliates over a period of years.

HSBC formally admitted to violating the International Emergency Economic Powers Act and the Trading with the Enemy Act as part of the December 2012 agreement, alongside separate violations of the Bank Secrecy Act tied to the Mexico findings.

$1.921 Billion, No Trial

On December 11, 2012, HSBC Holdings and HSBC Bank USA entered a five-year deferred prosecution agreement with the Justice Department, agreeing to forfeit $1.256 billion and pay a further $665 million in civil penalties to bank regulators — $1.921 billion combined. HSBC also agreed to claw back bonuses from senior officers responsible for the compliance failures and to install an outside monitor, former New York State prosecutor Michael Cherkasky, to oversee its anti-money-laundering program.

Then-Assistant Attorney General Lanny Breuer announced the settlement, stating HSBC was "being held accountable for stunning failures of oversight." Breuer had separately told a New York City Bar Association audience earlier that year that weighing the economic effects of prosecuting a major bank — the jobs, the market disruption — was "a factor we need to know and understand" in charging decisions, and that the consideration "literally keeps me up at night." In a subsequent PBS Frontline interview, Breuer said of decisions like HSBC's: "Our goal here is not to bring HSBC down, it's not to cause a systemic effect on the economy."

"Too Big to Jail"

Senator Elizabeth Warren raised the settlement at a March 2013 Senate Banking Committee hearing, telling regulators from the Fed, OCC, and Treasury: "In December, HSBC admitted to laundering $881 million for Mexican and Colombian drug cartels, and also admitted to violating our sanctions against Iran, Libya, Cuba, Burma, and Sudan. ... HSBC paid a fine, but no individual went to trial, no individual was banned from banking, and there was no hearing to consider shutting down HSBC's activities here in the United States." Warren said the impression she'd gotten from regulators was that some institutions were not just "too big to fail" but "too big to jail."

Then-Attorney General Eric Holder gave Congress a similar account of the department's reasoning the following year, telling the Senate Judiciary Committee that the size of some financial institutions made it difficult to prosecute them, a remark he later said he'd stated imprecisely — but the department did not reopen the HSBC case.

The Agreement Expires

• December 11, 2012: HSBC signs its five-year deferred prosecution agreement with the DOJ, agreeing to a $1.921 billion penalty and an outside monitor.
• 2016: House Financial Services Committee lawmakers release a report alleging DOJ leadership overruled internal recommendations from its own prosecutors to indict HSBC, based on a two-year congressional investigation into the case.
• April 2016: Monitor Michael Cherkasky's confidential progress report finds HSBC still had not fully remediated its anti-money-laundering deficiencies, later summarized in court filings after a judge ordered portions made public.
• 2017: Media investigations, later folded into the 2020 FinCEN Files project by BuzzFeed News and the International Consortium of Investigative Journalists, report HSBC continued flagging and moving suspicious funds for years after 2012, including money tied to a Ponzi scheme, even while under the monitor's supervision.
• December 11, 2017: The Justice Department files a motion in the Eastern District of New York to dismiss the charges against HSBC, stating the bank had "lived up to all of its commitments" under the agreement. The five-year window closes with no trial ever held.

The Senate subcommittee that spent a year finding $881 million in drug money moving through HSBC's accounts released a 339-page report on it. The Justice Department's deferred prosecution agreement over that same money ran five years, cost HSBC a fine, and ended in December 2017 with a one-line motion to dismiss — filed by the same department that opened the case, closing it with no individual HSBC employee ever having stood trial for any of it.

Filed from public reporting:

• U.S. Senate Permanent Subcommittee on Investigations — U.S. Vulnerabilities to Money Laundering, Drugs, and Terrorist Financing: HSBC Case History
• U.S. Attorney's Office, Eastern District of New York — HSBC Holdings Plc. and HSBC Bank USA N.A. Admit to Anti-Money Laundering and Sanctions Violations
• U.S. Department of Justice — Documents and Resources from the December 11, 2012 HSBC Press Conference
• Bloomberg — HSBC Aided Money Laundering by Iran, Drug Cartels, Probe Shows
• Forbes — HSBC Helped Terrorists, Iran, Mexican Drug Cartels Launder Money, Senate Report Says
• CNN — HSBC: Too Big to Jail?
• Ian Fraser — HSBC's Drugs Money Laundering Settlement 'A Mockery of Justice,' Says Sen. Warren
• PBS Frontline — Eric Holder Backtracks Remarks on 'Too Big to Jail'
• CNBC — Top US Officials Rejected Push to Prosecute HSBC: Lawmakers' Report
• Bloomberg — HSBC's U.S. Deferred Prosecution Deal Ends After Five Years
• ICIJ — HSBC Moved Vast Sums of Dirty Money After Paying Record Laundering Fine
• UC Berkeley School of Law, The Network — Judge Orders HSBC to Make Money-Laundering Report Public