There doesn't appear to be much doubt on this front: HSBC Holdings PLC and its employees committed crimes under U.S. law.
The bank admitted Tuesday to what U.S. authorities called "stunning failures" to police its worldwide business, violating laws aimed at preventing money laundering and identifying suspicious financial transactions.
For years, HSBC bankers helped launder proceeds for Mexican drug cartels and assisted clients in Iran, Cuba, Libya and Burma in evading U.S. sanctions.
To settle the probe by prosecutors, HSBC agreed to pay a record amount to the U.S. government: $1.9-billion (U.S.) in total.
It will not, however, face criminal indictment. Instead, the fines are part of a deferred prosecution agreement, whereby authorities declined to mount a criminal prosecution on the condition the bank clean up its act (if it doesn't, they can resuscitate the relevant charges).
HSBC's behaviour represented a dilemma for U.S. authorities. The evidence justified a criminal prosecution, but the risk is that such charges could deliver a mortal blow to a bank well before a trial: depositors and shareholders would flee, while regulators might constrain the bank's ability to operate in the U.S. And the prospect of a major bank going under at a time when the global financial system remains fragile is enough to unnerve even the toughest prosecutors.
"As an investigator, I would have been livid that they didn't prosecute," said Dennis Lormel, the CEO of DML Associates and the former head of the financial crimes unit at the Federal Bureau of Investigation. But from "a practical perspective, you understand the necessity of the deferred prosecution."
This conundrum is what some wags have dubbed "too big to jail" (or alternately, the "Arthur Andersen effect," named for the accounting firm that collapsed in the wake of an indictment for obstruction of justice).
In a press conference on Tuesday, U.S. authorities took pains to emphasize the "severity and duration" of HSBC's violations of the law, as well as the historic size of the penalty the bank was paying.
HSBC, for its part, claims to be a different institution: it has replaced senior executives, clawed back compensation, restructured its global operations, and exponentially expanded its anti-money laundering efforts. In 2010, HSBC's U.S. arm had just 92 full-time employees devoted to that effort, according to a court document. Today it has about 880.
Still, the question remains whether deferred prosecution agreements like the one with HSBC will prove an effective deterrent to future wrongdoing by other banks.
Some critics say no. They contend that the fear of companies suffering an Arthur Andersen-like fate is overblown and note that a number of publicly traded firms have weathered criminal convictions in recent years (though, to be sure, banks aren't among them).
If prosecutors decline to pursue companies to the full extent of the law, then "engaging in criminal activity becomes just another dollars-and-cents decision," wrote Randall Eliason, a former federal prosecutor and law professor, in 2008.
"The moral condemnation aspect of a criminal conviction is lost – and with it the unique deterrent value of criminal law."