Senate Democrats Seek Answers From DOJ on Latest HSBC Agreement

(Bloomberg) -- Two leading Senate Democrats have asked Attorney General Jeff Sessions to explain why the Justice Department allowed a five-year, $1.9 billion deferred prosecution agreement with HSBC Holdings plc to expire last December while another deferred prosecution agreement was being put in place.

In a letter to Sessions last Friday, Senator Sherrod Brown of Ohio and Senator Dianne Feinstein of California said they were concerned that even after five years of Justice Department oversight, HSBC’s monitor had pointed out continued deficiencies in the bank’s financial crime compliance controls.

A month after the deferred prosecution agreement expired, HSBC entered into a more modest, $100 million arrangement with the Justice Department, this one drawn more narrowly around the issue of front-running clients on foreign exchange trades.

The senators said a top Justice Department official, M. Kendall Day, had testified before the Senate Banking Committee the day before the new deferred prosecution agreement was struck. In his testimony, Day didn’t elaborate on why the 2012 agreement had been terminated a few weeks earlier, or mention that HSBC was about to strike a new deal to avoid criminal prosecution.

As of September 2016, Justice Department officials were considering tearing up HSBC’s 2012 agreement on the grounds that the bank didn’t discipline the individual involved in the front-running scandal.

Tearing up the deal would have stung. In 2012, HSBC admitted to lax money laundering controls, which were exploited by the Sinaloa drug cartel and other criminal groups, and to violations of U.S. sanctions against Iran.

Despite continuing problems in compliance -- as noted by the bank in its most recent annual report -- prosecutors allowed the original agreement to end.

The June 29 letter asks Justice Department officials to provide the Senate Banking Committee and Judiciary Committee, in which senators Brown and Feinstein serve as the ranking minority members respectively, for an explanation as to whether HSBC completed the reforms it promised as part of the 2012 agreement. The senators also asked the agency to provide them with copies of the annual reports submitted to the Justice Department by the bank’s monitor but never made public.

In addition, Brown and Feinstein asked for in-person briefings from HSBC’s monitor and the Justice Department attorneys who investigated the bank.

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