I'm quoting from a statement of facts, so technically the USG isn't the only one saying this. See #2, "HSBC Bank USA and HSBC Holdings hereby agree and stipulate that the following information is true and accurate."
That is, that HSBC agrees that the information provided by the State Department, the April 2006 Financial Crimes Enforcement Network (“FinCEN”) Advisory, the money laundering lawsuits involving two of their customers, etc. from #18, and that this is "evidence of the serious money laundering risks associated with doing business in Mexico, in #19.
You cannot go from "well defined" to "entirely subjective". There are points in between, and to argue otherwise is bad style.
"this doesn't make much sense for a single company" - technically these are different companies, though some are wholly owned by others. That aside, some internal HSBC-to-HSBC transfers were illegal: "From at least 2000 through 2006, HSBC Group knowingly and willfully engaged in conduct and practices outside the United States that caused HSBC Bank USA and other financial institutions located in the United States to process payments in violation of U.S. sanctions."
Now, you're absolutely right that this is an "insane approach to sanctions." (We've switched from Mexico to the Middle East, btw, but that doesn't make a difference.) But you've just argued that communications with HSBC Mexico to HSBC Bank USA were a "single company", so it's a bit disingenuous to say that HSBC Europe is not part of the same company.
There's a nasty problem with jurisdiction, yes, but there are legal ways to resolve it. For one, stop doing business with US banks. But few want to do that, and the SWIFT network (and Snowden's disclosure of documents of how the US is systematically undermining the SWIFT-agreement) make it a gnarly process to completely disentangle from the US.
What you said is different. You wrote "EU banks routinely edited ("repaired") wire transfers to avoid hitting the Great Firewall of America, safe in the knowledge that they were not violating any sanctions laws where they lived." But point #67 says that "HSBC Group Affiliates intentionally hid the practice of amending payments involving Sanctioned Entities from HSBC Bank USA. As a result, during the relevant time period, HSBC Bank USA and other financial institutions in the United States processed hundreds of millions of dollars in transactions involving Sanctioned Entities in violation of U.S. sanctions."
You are right - they didn't break the law where they lived. But according to the statement of facts, you are also wrong - they sent transfers through the "Great Firewall of America", and caused HSBC Bank USA to break US law by not being able to provide the required compliance.
Regarding Standard Chartered, the London-based bank sent the funds through its New York unit, which is how both US and New York laws applied. It's not the case that the US was suing a foreign bank with no US ties.
"The US Government lies all the time. ... They routinely get innocent people to plead guilty without any kind of trial by threatening them with absurdly over-harsh penalties"
While the first is certainly true (see previous, with the US undermining the SWIFT agreement), that doesn't mean it's true all the time, or appropriate for this case. Again, technically this is a statement of facts agreed upon by both sides, and not one-sided accusations from the government.
Which leads to the second half of what I quoted from you. The US could be threatening to shut down HSBC Bank USA should they not comply, and this is the best HSBC could do under the circumstances. The reason I disagree with you here is that HSBC has plenty of legal, political, and economical resources to defend themselves against flagrantly false accusations.
Standard Chartered, for example, doesn't say that they were innocent. Their defense is that there were only $14 million which did not comply with the U-turn regulations. (This was an initial number. The final judgment after investigation was $133 million.). They paid a $674 million fine, which is about 5x of the $133 in prohibited transactions or 10x of the original $14m. BTW, the original USG claim was that "as much as $250 billion" was laundered.
In other words, no, this doesn't seem like a "classic example of this dynamic in action." The classic examples are for people with no resources, poor legal defense, and a judge that doesn't care. Not HSBC where a fine of $1.9 billion represents 5 weeks of profit.