The Justice Department's Breuer described how such agreements can help the government avoid some of the collateral damage associated with indicting a company, including harm to the larger economy.
"In my conference room, over the years, I have heard sober predictions that a company or bank might fail if we indict, that innocent employees could lose their jobs, that entire industries may be affected, and even that global markets will feel the effects. Sometimes — though, let me stress, not always — these presentations are compelling," Breuer said in the speech.
Similar warnings were made at a press conference announcing the HSBC agreement.
"If you think that by doing a certain thing you risk either a charter being revoked, you think that counterparties in a massive financial institution may go away, you think that there is a risk that many, many innocent people will be harmed from a resolution, and by another resolution you think you can mitigate the risk of innocent people suffering, the economy being affected, and you can home in on those and the institutions and address the issues underlying, to the Department of Justice, that's a very real factor, and so it is a fact that you consider. It's one factor," Breuer said.
Observers agree that minimizing damage is an important social goal, one that should be considered as prosecutors review the merits and challenges of a case.
"The reason we do it this way is corporations aren't people, and we don't want to impose the costs on society. There are other people not involved in the offense," said Samuel Buell, a professor at Duke University's law school and former federal prosecutor. "If we can get everything we can get in a criminal case anyway and all the criminal case does is create ripple effects that hit other people, then let's skip that part."
But such considerations appear not to apply in cases involving small, closely held firms, said Jennifer Arlen, a professor at New York University's law school.
"It's quite likely that when a closely held firm commits a crime, the owner of the firm either helped commit the crime or was complicit in it. In those cases, a conviction of the firm and corporate debarment may be the most effective way to punish the person," she said.
Others emphasized the goal of rehabilitation, arguing that Justice's settlements go a long way toward righting the wrongs within a company.
"I always felt that the enforcement goal is to remedy the long-term practices," said Richard Riese, a senior vice president handling compliance issues at the American Bankers Association.
In addition to its monetary fine, HSBC must overhaul its anti-money-laundering program, "claw back" deferred compensation bonuses given to some senior executives and compliance officers and retain an independent compliance monitor for five years. Its leaders say that process is already underway.
"The HSBC of today is a fundamentally different organization from the one that made those mistakes. Over the last two years, under new senior leadership, we have been taking concrete steps to put right what went wrong and to participate actively with government authorities in bringing to light and addressing these matters," Stuart Gulliver, group chief executive at HSBC, said in a Dec. 11 statement. An HSBC spokesman declined to comment beyond that release.
In addition to bringing in new senior leadership, including former top anti-laundering Treasury officials Stuart Levey and Robert Werner, and restructuring its compliance and AML programs, the bank has also said it has increased its anti-laundering spending ninefold from 2009 to 2011, and its relevant staff by tenfold from 2010 to 2012.
"How much do those improvements change if there's criminal prosecution? I'm not convinced they do," said John Byrne, executive vice president of the Association of Certified Anti-Money Laundering Specialists.
The DOJ added that it can still pursue the case if the bank fails to make agreed upon changes.
"Deferred Prosecution Agreements do not prevent prosecutions of culpable employees, and they do not let banks off the hook. Banks can still face charges if they do not make specific, fundamental changes to culture and practices as required by the agreements," said Rebekah Carmichael, a spokeswoman for the Justice Department.
'Ultimate Insult'
Still, many have responded to the settlement with disdain for the basic message they said it sent about parity under the law. For some, a basic and almost instinctive sense of unfairness trumps practical justifications about economic damage and even innocent employees and shareholders. To them, the deal just doesn't sit right given the scope and severity of HSBC's lapses.
