Holder’s DoJ Overruled Advice to Prosecute HSBC, Report Says

  • Republican lawmakers say Holder misled Congress in testimony
  • Deferred prosecution deal provoked ‘too big to jail’ criticism

Top Justice Department officials, including Attorney General Eric Holder, ignored advice from their prosecutors that HSBC Holdings Plc should be charged criminally in 2012 for violating anti-money laundering laws, according to a report compiled by Republican members of the House Committee on Financial Services.

Holder was concerned that a guilty plea for HSBC could put it out of business, the report says, setting off a crisis in the financial system, which was only then recovering from the failure of Lehman Brothers in 2008. So he decided to resolve the HSBC case by levying a fine but deferring prosecution, it says. The report’s findings were published earlier on Monday by The Wall Street Journal.

For a look at recent criticism of HSBC’s anti-money laundering controls by its court-appointed monitor, click here.

The decision to strike a deferred prosecution agreement with the bank was also influenced by heavy lobbying from U.K. regulators, who had complained that the U.S. was picking on British banks as part of a strategy to undercut London’s status as a global capital of banking, said the report, which was issued Monday by Representative Jeb Hensarling, Republican of Texas and the chairman of the financial services committee.

The report, which doesn’t reflect the views of the committee’s Democratic members, also accuses Holder of misleading Congress about the reasons for not bringing a criminal case against HSBC.

In 2013, Holder told a Senate committee that some banks were so large and interconnected in the global financial system that prosecuting them would have a negative impact on the U.S. economy and possibly the global economy. He subsequently told another congressional committee that those remarks -- which essentially designated some banks as too big to jail -- had been misconstrued.

Outside Monitor

In December 2012, the Justice Department, the Treasury Department and the Manhattan district attorney entered into a deferred prosecution deal with HSBC that required a payment of $1.9 billion and required the bank to hire an outside monitor for a period of five years. The bank admitted that it had violated U.S. sanctions laws against rogue regimes and that it hadn’t monitored billions of dollars in suspect transactions through its Mexico offices.

After fierce criticism of the settlement, the Justice Department began seeking guilty pleas from other banks in 2014, once safeguards had been put in place to make sure that the felony convictions wouldn’t put those institutions out of business.

Holder, who left the Justice Department last year before returning to Covington & Burling LLP as a partner, didn’t immediately respond to a phone message seeking comment.

Before it's here, it's on the Bloomberg Terminal.