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(Adds Britain's finance ministry declining to comment)
By Mica Rosenberg
NEW YORK, July 11 (Reuters) - Senior U.S. Department ofJustice officials overruled internal recommendations toprosecute global bank HSBC Holdings Plc formoney-laundering violations because of concerns about thestability of the financial system, according to a congressionalreport released on Monday.
In 2013, the Financial Services Committee of the U.S. Houseof Representatives, led by Jeb Hensarling, a Republican ofTexas, began investigating the Justice Department's November2012 decision to enter into a $1.92 billion settlement agreementwith HSBC.
The report, which relies on internal records from theDepartment of the Treasury, said the U.S. attorney general atthe time, Eric Holder, "misled" Congress about the JusticeDepartment's reasoning for declining to prosecute.
Holder and other top officials decided against criminalcharges for London-based HSBC over the recommendations ofprosecutors because they had concerns about financial stability,the report said.
Politicians and others have criticized the JusticeDepartment for not sufficiently cracking down on big banksfollowing the 2008 financial crisis. The report said it soughtto shed light on the department's decision-making and did notoutline specific recommendations.
The 2012 settlement detailed how Mexico's Sinaloa drugcartel and Colombia's Norte del Valle cartel laundered $881million through HSBC and a Mexican unit and how the bankviolated U.S. sanctions laws by doing business with customers inIran, Libya, Sudan, Burma and Cuba.
No HSBC executives or employees were prosecuted for theviolations, the report said.
HSBC declined to comment on the report. The TreasuryDepartment also declined to comment.
Justice Department spokesman Peter Carr said a series offactors are weighed when determining how to resolve a case,including "adverse consequences for innocent third parties, suchas employees, customers, investors, pension holders and thepublic." He said U.S. District Judge John Gleeson approved theagreement.
Internal emails cited in the report show the JusticeDepartment's Asset Forfeiture and Money Laundering Section,represented by then-chief Jennifer Shasky Calvery, was"considering seeking a guilty plea from HSBC" as early asSeptember 2012.
Shasky Calvery earlier this year joined HSBC in a seniorglobal financial crime-fighting role, a source familiar with herplans told Reuters in April.
Senior leadership at the Justice Department, includingHolder, ultimately overruled criminally charging the bank, eventhough Holder had testified in front of Congress that "banks arenot too big to jail," the report said. A spokesman for the lawfirm where Holder now works said he declined to comment.
The report also claims that the involvement of the UnitedKingdom's Financial Services Authority influenced the JusticeDepartment's decision to settle the case.
"George Osborne, Chancellor of the Exchequer, the UK's chieffinancial minister, intervened in the HSBC matter by sending aletter to Federal Reserve Chairman Ben Bernanke ... to expressthe UK's concerns regarding U.S. enforcement actions againstBritish banks," the report said.
Carr said the Justice Department routinely seeks input onthe impact of prosecutions from subject-matter experts, "such asdomestic and foreign regulators." He said final decisions arebased on the unique facts of each case.
Britain's finance ministry declined to comment.
The Congressional report said both the Justice Departmentand Treasury did not comply with the committee's request fordocuments, forcing them to issue subpoenas.
As part of HSBC's agreement with the U.S. government, thebank installed an outside monitor, former prosecutor MichaelCherkasky, to improve its anti-money laundering controls. Acourt heard in April that despite progress, HSBC was still notdoing enough to thwart money laundering. (Reporting by Mica Rosenberg; Editing by Noeleen Walder andLeslie Adler)
