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As U.S. federal prosecutors prepare to announce a settlement with HSBC (NYSE:HBC) over money-laundering charges, critics have begun to question whether a deferred prosecution agreement, which is the most likely outcome of the Justice Department’s probe, is the appropriate response.
The London-based bank was accused of allowing clients to shift potentially illicit funds from countries like Mexico, Iran, the Cayman Islands, Saudi Arabia, and Syria after the U.S. Senate Permanent Subcommittee on Investigations released a report in July indicating that HSBC had made several money-laundering lapses.
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Now, a potential settlement is close to completion, and the deal is “emerging as a test case for just how big a signal U.S. prosecutors want to send to try to halt illicit flows of money moving through U.S. banks,” according to Reuters. As sources told the publication, an agreement could be announced as soon as next week and cost the bank as much as $1.8 billion.
While HSBC said that it could face criminal charges in recent regulatory filings, most comparable U.S. investigations have resulted in deferred prosecution agreements. According to the Manhattan Institute for Policy Research, there have been 207 deferred or non-prosecution agreements recorded since 2004. In these types of deals, federal agencies will delay or forgo prosecution if a company pleads guilty.
Yet critics with intimate knowledge of the United States judicial system have argued that deferred prosecution agreements are worthless. Former U.S. Treasury enforcement official and current University of Notre Dame law-school professor Jimmy Gurule told Reuters that the deal would make a “mockery of the criminal justice system.” He believes that the only way to handle the case is to indict individuals directly. “That would send a shockwave through the international finance services community,” he said. “It would put the fear of God in bank officials that knowingly disregard the law.”
Wells Fargo’s (NYSE:WFC) Wachovia division was handed similar allegations in March 2010, which were resolved with a $160 million deferred prosecution agreement. In this case, the bank was accused of violating the Bank Secrecy Act, but many critics thought the bank should have been charged with money laundering and individual bankers prosecuted. Money laundering is a much more serious accusation, but U.S. prosecutors could hand HSBC either one of those charges.
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