(NEW YORK) — There could be a hitch in the Justice Department’s controversial decision not to prosecute Europe’s largest bank over allegations it laundered money for Mexican drug gangs, rogue states and terrorist money men.
To the surprise of some experts, a federal judge has so far refused to sign off on an agreement reached three months ago between federal prosecutors and the Britain-based bank HSBC. Despite what prosecutors said was a mountain of evidence of illicit money transfers, the deal enabled HSBC to avoid a potentially crippling criminal prosecution. Instead, HSBC agreed to pay an unprecedented $1.92 billion in fines.
While the Justice Department brokered the deal, it can’t go through without the approval of U.S. District Court Judge John Gleeson.
“It does not seem likely that the judge would have taken this much time if he was not at least thinking hard about whether to accept the agreement,” said Duke University Law Prof. Sam Buell, a former federal prosecutor.
The Justice Department decision to allow the bank to avoid criminal sanctions has been pilloried by lawmakers. Sen. Jeff Merkley, an Oregon Democrat, accused the Justice Department of creating a “prosecution free zone” for big banks.
Lawmakers said they were particularly irritated by suggestions from Attorney General Eric Holder and other senior Justice officials that the government avoided prosecuting the bank because doing so had the potential to destabilize the economy. That assertion led lawmakers to question whether banks as large as HSBC are “too big to prosecute.”
“If you’re caught with an ounce of cocaine, the chances are good you’re going to jail,” said Sen. Elizabeth Warren (D-Mass.). “Evidently, if you launder nearly $1 billion for drug cartels and violate our international sanctions, your company pays a fine and you go home and sleep in your own bed at night.”
In a December court hearing in New York, Gleeson asked lawyers for the Justice Department and HSBC to provide him their arguments for him to approve the deal.
“My suggestion is you present to the court a document that demonstrates why I should accept the agreement,” Gleeson said, according to published reports. “There’s been some publicized criticism of this. I think you should feel free to address it.”
In January, each side presented the judge with written arguments defending the deal, known as a deferred prosecution agreement. In the government’s 20-page filing, federal prosecutors argued that the deal “was carefully tailored to punish the defendants and deter future misconduct of others.” It also repeated the assertion that a criminal prosecution could result in “collateral consequences, including … disproportionate harm to shareholders, pension holders, employees, and others not proven personally culpable.”
The bank, in turn, argued that a deal is a deal. HSBC lawyers wrote that the bank has already paid a steep price — publicly admitting to wrongdoing and suffering “unusual reputational harm” as a result.
“The government must be held to its obligations,” the filing says.
ABC News left messages for HSBC lawyers and the Justice Department seeking comment but did not receive a response.
Buell said both sides make legitimate points, and added that the Justice Department would be placed in a tough spot if the judge rejects the agreement. But because criminal charges are still pending against HSBC, Buell said, the judge still has the power to reject the deal and force the government to move ahead with a prosecution or propose a different deal.
Gleeson has not signaled which way he will rule. He issued an order in mid-February stating only that “the Court has not yet approved or disapproved the proposed agreement disposing of the case. The application for approval of that agreement has been taken under advisement.”
Copyright 2013 ABC News Radio
Jeff Peterson, Deseret News
Jethro Mullen Ivana Kottasova and Patrick Gillespie, CNN
Ahiza Garcia, CNN