Obama’s nominee for attorney general negotiated a deal with HSBC two years ago that saw it avoid criminal charges but Lynch says DoJ still has powers to act

Barack Obama’s nominee for attorney general, Loretta Lynch, has warned that HSBC could be prosecuted over tax evasion connected to its Swiss subsidiary, despite the controversial agreement she negotiated with the bank two years ago.

In her first remarks since the Guardian and other media obtained a huge cache of leaked data from HSBC Switzerland, Lynch said the Department of Justice would not be constrained from bringing tax evasion charges against the bank if there were sufficient evidence.

US prosecutors weigh criminal charges against HSBC as Elizabeth Warren turns up the heat Read more

The leaked files from HSBC’s Swiss subsidiary show how the bank colluded with some clients to conceal billions of assets from domestic tax authorities across the world. Lynch, who has yet to be confirmed by the Senate, is under pressure to explain what action the DoJ has taken since obtaining the data leak five years ago.

Lynch said in a letter to the Republican chairman of the Senate judiciary committee, Chuck Grassley, that the deal she reached with HSBC in 2012 “does not provide [the bank] any protection against prosecution for conduct” outside of the terms of that settlement, which was specifically about money-laundering and sanctions breaches.

The prospective attorney general said she was making the remarks “in the context of recent media reports regarding the release of HSBC files pertaining to its tax clients”. The HSBC Swiss data, leaked by an computer expert, was obtained by French authorities and shared with the DoJ in April 2010.

The disclosure escalated at tax division investigation that had already been opened into HSBC. US government officials told the Guardian on Tuesday that that investigation remains “very active”.

They stressed that prosecutors were not merely looking at HSBC’s US clients, and could also bring criminal indictments against the bank itself. “That has not been ruled out,” one official said, when asked if HSBC or its executives could be criminally indicted. “It is certainly something under consideration.”

Any criminal US prosecution against HSBC or its executives would be a massive blow for Europe’s biggest bank. HSBC was fined $1.9bn in 2012, over money-laundering with Mexican drug cartels and breaches of US sanctions.

Lynch negotiated the deal in her then role as US attorney for the eastern district of New York.

Her confirmation by the Senate had been considered all but guaranteed, but the renewed focus on the settlement she reached with HSBC two years ago has created an unexpected challenge. In 2012, lawmakers from both parties criticised the deal, under which HSBC controversially escaped criminal charges and kept the banking charter that allows it to operate in the US.

One of the most outspoken critics of the deal at the time, Democratic senator Elizabeth Warren, returned to the fray on Tuesday, saying prosecutors must “come down hard” on HSBC if the bank is found to have colluded with US tax dodgers.

“The government comes down hard on individuals who break the law time after time, and it should do the same for large financial institutions,” the Massachusetts senator said in a statement to the Guardian.

“The new allegations that HSBC colluded to help wealthy people and rich corporations hide money and avoid taxes are very serious, and, if true, the Department of Justice should reconsider the earlier deferred prosecution agreement it entered into with HSBC and prosecute the new violations to the full extent of the law.”

Stephanie Taylor, the co-founder of Progressive Change Campaign Committee, a national grassroots organisation and leading voice on Wall Street reform, said: “These revelations put Elizabeth Warren’s question about HSBC back on the table for Congress, regulators, and Loretta Lynch: what illegal activity does it take to shut a bank down? The public wants accountability for corporate crime.”

US government officials say that the DoJ’s tax evasion investigation is unlikely to lead to a review of the 2012 settlement, because it relates to activities pre-dating the deal’s signature. HSBC made this point in a statement to the Guardian. “The DPA is a signed agreement that can only be ‘scrapped’ if HSBC breached it,” HSBC said. “Conduct from 2005 to 2006, or indeed any conduct before December 2012, cannot be a breach of the DPA.”

However, the US government officials said another investigation, looking at whether HSBC and several other banks manipulated the foreign exchange rate, is more likely to have a bearing on determining whether the bank is complying with the deal.

Lynch’s letter to Grassley, sent on Monday, was a response to a list of questions emanating from her confirmation hearing last month, at which the HSBC deal was brought up.

Lynch stressed in the letter that the 2012 Deferred Prosecution Agreement (DPA) “addresses only the charges filed in the criminal information, which are limited to violations of the Bank Secrecy Act for failures to maintain an adequate anti money-laundering program and for sanctions violations”.

“The DPA explicitly does not provide any protection against prosecution for conduct beyond what was described in the Statement of Facts,” she added. “Furthermore, I should note the DPA explicitly mentions that the agreement does not bind the Department’s tax division, nor the fraud section of the criminal division.”

Also on Tuesday, a representative for the Federal Reserve provided its first response to the HSBC Swiss leak, saying the banking regulator believed the leak disclosure related to “very serious accusations”.

Maryann Hunter, a deputy director with responsibility for regulation of foreign banking organisations, declined to tell a Senate judiciary committee hearing if, or when, the Fed received the data leak. However her remarks suggested the Fed may also have been given the data in 2010.

Pressed by the Democrats’ ranking member of the committee, Ohio senator Sherrod Brown, on what action had been taken, Hunter indicated the Fed was taking the issue seriously.

“I will say that in any situation where there is an investigation, if we have been provided with evidence, that there has been a violation of law, or breach of safety and soundness based on activities - especially those that might involve tax evasion – we take that very seriously,” Hunter said.

“We would favour certainly moving forward, and are firmly committed, to taking any appropriate sanctions or penalties that would accrue from the outcome of that work.”

HSBC has admitted wrongdoing by its Geneva-based subsidiary, but insists it has taken significant steps in recent years to stamp out tax evasion and other bad practices by subsidiary banks. “We acknowledge, and are accountable, for past compliance and control failures,” the bank said in a statement.