As US senators move towards confirming Loretta Lynch as the new attorney general, the big question is what she will do about HSBC, which is embroiled in a massive tax evasion scandal. The world’s second-largest bank allegedly enabled thousands of Americans and other nationals to escape taxes by concealing their assets in HSBC’s Swiss affiliate, a business HSBC acquired when it purchased the Republic National Bank of New York.

Lynch has investigated the bank in the past, but there are many questions about her record on taking Wall Street offenders to task. She became the chief attorney for an ongoing probe into HSBC’s money laundering crimes in 2010, during her assignment as the US attorney for the eastern district of New York. At roughly the same time, the US government received a damning trove of evidence from French officials against HSBC regarding tax evasion.



Yet it is not clear whether she investigated the tax fraud. The key questions senators must ask is: What did Lynch know about the tax fraud? If she wasn’t aware, why not?



Lynch’s investigation did result in a December 2012 deferred prosecution agreement, which is a half-measure in criminal cases, somewhere between a conviction and exoneration. In this agreement, HSBC admitted to massive money laundering violations for narco-traffickers, terrorists and tyrants. This involved more than $200tn in wire transfers. But Lynch did not bring criminal charges against HSBC or any HSBC executives for this admitted money laundering.

Instead, the deal required that the bank pay $1.9bn, about five weeks profit in fines – money that was effectively paid by shareholders. The settlement also required HSBC to appoint a compliance monitor and institute reforms to prevent future wrongdoing. Lynch did not explain how they came up with $1.9bn. Was this more than the bank profited from money laundering? Was there some formula?



The settlement itself, and various Obama officials who chanced to appear before congressional panels at unlucky times, drew fire from understandably infuriated lawmakers. For example, Sen Elizabeth Warren challenged federal regulators including David Cohen, the undersecretary for terrorism and financial intelligence at the Department of the Treasury, in a Senate hearing in March 2013 about the calculation. She demanded to know how much money a firm needed to launder for the government to shut it down. Cohen declined to respond to such “hypotheticals”.



On 6 March 2013, the outgoing Attorney General Eric Holder told the Senate Judiciary Committee that some firms are so large that a criminal case would lead to financial calamity.

I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if we do prosecute – if we do bring a criminal charge – it will have a negative impact on the national economy, perhaps even the world economy. I think that is a function of the fact that some of these institutions have become too large.

He has since walked these comments back.

His initial observation led Public Citizen and others to comment that these mega-banks are, in effect, immune from prosecution because of size – they are too big to jail.

The Department of Justice (DOJ) understands now that it is possible to win a criminal case against a major bank without causing global financial ruin. In 2014, it secured criminal guilty pleas from Credit Suisse for enabling tax evasion for thousands of American clients, and against BNP Paribas for handling billions of dollars of transactions for entities sanctioned by the US government. The DOJ did not detail the extent of the crimes nor explain how they decided on the monetary penalties; instead it admitted that it took pains to make sure that Credit Suisse’s business would continue.

As attorney general, Lynch will own all the cases from here on out. And she will be especially responsible for explaining what has happened with HSBC.

Monday, Lynch commented that the Department of Justice may return to HSBC’s tax evasion record. In response to questions from the Senate, she highlighted the fact that her settlement did not preclude prosecution for other violations.

Many, including my own organization, are calling on Lynch and others at the DOJ to support greater transparency. With such massive cases as HSBC, JP Morgan and other banks, the public deserves to know the answer to basic questions: how big the crime was, how much the the bank profited from the crime, how the penalty matches with the crime and who decides that there will be collateral repercussions from various penalties.

But Lynch must also consider the obvious answer – prosecuting individual bankers. Massive years-long tax evasion and money laundering doesn’t happen because of a computer glitch. Bankers were involved with those crimes. Until senior executives pay for their involvement with prison, Wall Street will only understand what was implicit in the settlement with HSBC: some banks seem to be too big to jail. The onus will be on Lynch to deliver justice for all. Anything less would be unacceptable.





