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Federal and state authorities have been taking criticism after deciding not to indict HSBC for money laundering. Instead, they entered into a $2 billion settlement with the bank. The thinking was an indictment might set off turmoil in the financial system. In other words, the London-based bank was considered too big, too global to let fail. Critics say that means big banks can flout the law.

But as NPR's Ailsa Chang reports, legal experts say there are plenty of good reasons not to indict a bank.

AILSA CHANG, BYLINE: There's no question HSBC is a massive, sprawling operation. It markets itself as the world's local bank.

(SOUNDBITE OF AD)

UNIDENTIFIED MAN: At HSBC, we never underestimate the importance of local knowledge, which is why we have local banks staffed by local people in over 80 countries across the globe.

CHANG: But watchdogs of the banking industry say mere size should never insulate you from the law. And when HSBC entered a $2 billion settlement this week under accusations it accepted money from Mexican drug cartels, there was an immediate outcry from some people, like Robert Weissman of Public Citizen, a consumer advocacy group.

ROBERT WEISSMAN: Well, if the company is too big to jail, too big to prosecute, too big to indict, then it's just simply too big to exist.

CHANG: Okay. But talk to a bunch of law professors and the question of who should get indicted, even if they do break the law, isn't an easy one. It's not just an issue of would the economy fail if HSBC collapsed, it's a deeper question about what is the purpose of the criminal justice system in the first place.

HAL SCOTT: What's so wonderful about an indictment? The question is, what are we trying to achieve here?

CHANG: Hal Scott of Harvard Law School says forget indicting a bank. Banks don't break the law, people do. And people aren't too big to fail or too big to jail. Scott points out not a single individual at HSBC has been charged with the very conduct the bank admits happened. And unfortunately, he says, that's probably because it's just a lot easier to nail a bank. Charging people with crimes means more trials, and you need more money, more time and more evidence for that.

SCOTT: You can go into the bank and say, well, I think you did something wrong, and, you know, I'm thinking of indicting you, and you better pay a big fine, and, you know, they'll agree to it. It's not their money.

CHANG: And Scott says that's the perverse thing with this HSBC settlement. Those $2 billion are coming from shareholders, not from the people who broke the law. But the settlement averted an indictment, and authorities thought that was the best thing for the economy. Some legal experts, like James Cox at Duke Law School, agree. He says it would have been a disaster if HSBC was charged with crimes.

JAMES COX: Indicting a large bank like HSBC would create a huge regulatory ripple, if not an embolism, around the world.

CHANG: He says, here's the deal. When a bank is convicted of a crime, it could lose its banking license, and certain pension plans may be required to pull out their funds. That could have hemorrhaged HSBC enough to make it shut down. And because banks are so interconnected, because they're constantly borrowing and lending money to each other, all those transactions would have to be unwound quickly.

Which means a lot of cash would need to appear immediately, cash that might not be there. Businesses might freeze activity. But John Coffee at Columbia Law School scoffs at that doomsday scenario.

JOHN COFFEE: I don't think anyone can confidently say what the economic impact on HSBC would be. I doubt that it would have failed.

CHANG: And even if by some chance it did fail, he says HSBC isn't as important to the global economy as JPMorgan or Bank of America. Coffee says the regulators just got skittish and did the safe thing. They took a big fat fine and called it a day. Ailsa Chang, NPR News, New York.

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