After a decade of investigations, US authorities last September decided to move "as quickly as possible" to fine HSBC on money laundering charges that the Treasury Department concluded were the most "egregious" it had ever seen, according to newly released documents.
A series of emails and letters released to Public Citizen, a Washington-based advocacy group, paint a partial picture of the Treasury Department trying to catch up after a hard-hitting Senate report had blasted the British bank and a New York regulator had threatened to revoke the license of another British institution, Standard Chartered.
Bart Naylor, a policy advocate at Public Citizen, said the documents posed questions about why the Treasury Department wanted a quick resolution to the HSBC scandal. "Why all of a sudden do they want a resolution after 10 years of investigation? Was Treasury pre-empting more vigorous action by the Justice Department? These are questions that need to be answered," he said.
The documents, which were first reported in the New York Times, are the first of a series that Public Citizen is hoping to obtain from the Treasury Department, Justice Department and others, under the Freedom of Information Act.
HSBC and Standard Chartered were fined last year over allegations they had acted as banker for rogue states, terrorists and drug lords, channeling billions of dollars through the US financial system. The fines, especially HSBC's record $1.9bn penalty, proved controversial with politicians and other critics, who demanded to know why the Justice Department had not pursued criminal actions against the banks and bankers and questioned whether some financial institutions had become too big to indict.
The newly released emails claim Treasury officials were caught unawares last August, by a New York prosecutor's threat to revoke Standard Chartered's banking license. The documents show that US officials were under pressure from their UK counterparts not to revoke Standard's license, a move that would have been a potentially fatal blow for the bank.
Last September, treasury secretary Tim Geithner received a briefing note from an unnamed Treasury official ahead of a meeting with George Osborne, Britain's chancellor of the exchequer. Osborne had written to the Federal Reserve chairman, Ben Bernanke, on 10 September, following the New York Department of Financial Services' (NYDFS) scathing attack on Standard Chartered. Benjamin Lawsky, superintendent of the NYSDFS, said Standard Chartered had processed $250bn (£160bn) in illegal transactions over nearly a decade of business with US-sanctioned countries including Libya, Burma and Sudan.
According to Lawsky's report, when warned by a US colleague about dealings with Iran, a Standard Chartered executive replied: "You f---ing Americans. Who are you to tell us, the rest of the world, that we're not going to deal with Iranians."
Geithner was informed that Osborne had expressed concern about Lawsky's threat to revoke Standard Chartered's state banking license. He raised "two primary concerns", both redacted in the released documents, and noted the close collaboration between UK and US authorities on financial issues.
The letter to Geithner notes that the US regulators and prosecutors are "drawing close to a resolution" on the Standard Chartered case and HSBC. In July, the Senate's permanent subcommittee of investigations had released a damning report detailing HSBC's banking services to drug cartels, terrorists and pariah states. HSBC, Geithner was informed, would "almost certainly face a record-breaking fine/forefeiture" due to its "egregious violations". The treasury secretary was told that US authorities believed HSBC's violations were "qualitatively worse than those of the largest offenders to date, and warrants a commensurate penalty".
The Treasury was coordinating its actions with the UK's Financial Services Authority on all cases involving British banks, the letter states. "Unfortunately," the letter claims, NYDFS informed the federal authorities "only hours before its public announcement" on Standard Chartered.
On 11 September, unnamed Treasury officials emailed Christopher Meade and Christian Weidman, Geithner's top lawyers, to inform them that the "US regulatory agencies" were "moving as quickly as possible to put together administrative penalty actions".
"There is no serious discussion of what it would mean to prosecute the bank here, what it means to be too big to indict, not even a hint," said Naylor. "What we see is the same sort of ad hoc, on the fly decision making we saw in the financial crisis."
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