You Call This Justice? DOJ Criticized for Its Settlement with “Too Big to Jail” Bank HSBC

DeptofJusticeSubmitted by Elaine Magliaro, Guest Blogger

Federal officials appeared quite pleased with themselves earlier this week when they announced their $1.9 billion settlement with HSBC. HSBC, the world’s third largest bank, has been accused of laundering money for Colombian and Mexican drug cartels and clients with ties to terrorists.

Lanny Breuer
Lanny Breuer

In July, a Senate Permanent Subcommittee on Investigations released a report about its probe into HSBC and its shady financial dealings. The subcommittee found that HSBC and its affiliates in the United States “exposed the U.S. financial system to a wide array of money laundering, drug trafficking, and terrorist financing risks due to poor anti-money laundering (AML) controls.”

Democratic Senator Carl Levin of Michigan, chairman of the subcommittee, said:

“In an age of international terrorism, drug violence in our streets and on our borders, and organized crime, stopping illicit money flows that support those atrocities is a national security imperative. HSBC used its U.S. bank as a gateway into the U.S. financial system for some HSBC affiliates around the world to provide U.S. dollar services to clients while playing fast and loose with U.S. banking rules. Due to poor AML controls, HBUS exposed the United States to Mexican drug money, suspicious travelers cheques, bearer share corporations, and rogue jurisdictions. The bank’s federal bank regulator, the OCC, tolerated HSBC’s weak AML system for years. If an international bank won’t police its own affiliates to stop illicit money, the regulatory agencies should consider whether to revoke the charter of the U.S. bank being used to aid and abet that illicit money.”

Money Laundering For Drug Cartels: The Dirt Behind HSBC’s Record $2 Billion Settlement

Despite the findings of investigations into HSBC’s money laundering activities, federal and state authorities decided not to indict the London-based bank. The New York Times called it “a dark day for the rule of law.” The Times said that authorities also chose not to charge “any top HSBC banker in the case, though it boggles the mind that a bank could launder money as HSBC did without anyone in a position of authority making culpable decisions.”

From the New York Times Editorial on the HSBC settlement (December11, 2012):

Clearly, the government has bought into the notion that too big to fail is too big to jail. When prosecutors choose not to prosecute to the full extent of the law in a case as egregious as this, the law itself is diminished. The deterrence that comes from the threat of criminal prosecution is weakened, if not lost.

Jimmy Gurulé, a professor of law at Notre Dame and former assistant attorney general, said the deal “makes a mockery of the criminal justice system.”

Glenn Greenwald called HSBC “the new poster child for US two-tiered justice system.” To support his claim, Greenwald wrote the following in a Guardian article on Wednesday:

The US is the world’s largest prison state, imprisoning more of its citizens than any nation on earth, both in absolute numbers and proportionally. It imprisons people for longer periods of time, more mercilessly, and for more trivial transgressions than any nation in the west. This sprawling penal state has been constructed over decades, by both political parties, and it punishes the poor and racial minorities at overwhelmingly disproportionate rates.

But not everyone is subjected to that system of penal harshness. It all changes radically when the nation’s most powerful actors are caught breaking the law. With few exceptions, they are gifted not merely with leniency, but full-scale immunity from criminal punishment. Thus have the most egregious crimes of the last decade been fully shielded from prosecution when committed by those with the greatest political and economic power: the construction of a worldwide torture regime, spying on Americans’ communications without the warrants required by criminal law by government agencies and the telecom industry, an aggressive war launched on false pretenses, and massive, systemic financial fraud in the banking and credit industry that triggered the 2008 financial crisis.

Rolling Stone journalist Matt Taibbi weighed in on the subject of the HSBC settlement being an example of a two-tiered justice system too. He said the bank deal “proves that the drug war is a joke.”

Taibbi wrote:

If you’ve ever been arrested on a drug charge, if you’ve ever spent even a day in jail for having a stem of marijuana in your pocket or “drug paraphernalia” in your gym bag, Assistant Attorney General and longtime Bill Clinton pal Lanny Breuer has a message for you: Bite me.

Breuer this week signed off on a settlement deal with the British banking giant HSBC that is the ultimate insult to every ordinary person who’s ever had his life altered by a narcotics charge. Despite the fact that HSBC admitted to laundering billions of dollars for Colombian and Mexican drug cartels (among others) and violating a host of important banking laws (from the Bank Secrecy Act to the Trading With the Enemy Act), Breuer and his Justice Department elected not to pursue criminal prosecutions of the bank, opting instead for a “record” financial settlement of $1.9 billion, which as one analyst noted is about five weeks of income for the bank.

Taibbi said Breuer admitted there were times when drug dealers actually came to HSBC’s Mexican branches to deposit “hundreds of thousands of dollars in cash…using boxes designed to fit the precise dimensions of the teller windows.”

Evidently, the Justice Department rejected the idea of prosecuting HSBC because it might have “a damaging impact on the bank’s viability, and thus on jobs and the American economy.” The New York Times said that federal and state authorities feared that “criminal prosecution would topple the bank and, in the process, endanger the financial system.”

Taibbi says that kind of reasoning “is beyond flawed.” He continued:

When you decide not to prosecute bankers for billion-dollar crimes connected to drug-dealing and terrorism (some of HSBC’s Saudi and Bangladeshi clients had terrorist ties, according to a Senate investigation), it doesn’t protect the banking system, it does exactly the opposite. It terrifies investors and depositors everywhere, leaving them with the clear impression that even the most ‘reputable’ banks may in fact be captured institutions whose senior executives are in the employ of (this can’t be repeated often enough) murderers and terrorists. Even more shocking, the Justice Department’s response to learning about all of this was to do exactly the same thing that the HSBC executives did in the first place to get themselves in trouble – they took money to look the other way.”

British Bank HSBC Makes $2 Billion Settlement (PBS)

GOP Senator Charles Grassley of Iowa sent a letter to Attorney General Eric Holder on Thursday. In it, he said that it was “inexcusable” for the DOJ “not to prosecute criminal behavior by the British banking giant HSBC.” Grassley continued, “What I have seen from the department is an inexplicable unwillingness to prosecute and convict those responsible for aiding and abetting drug lords and terrorists.” He added, “By allowing these individuals to walk away without any real punishment, the department is declaring that crime actually does pay.”

Assistant Attorney General Lanny Breuer defended the settlement during a news conference in New York on Tuesday. Breuer said, “HSBC is being held accountable for stunning failures of oversight.”

Failures of oversight????? I’d say that’s an understatement! What do you think?

SOURCES

DOJ officials unblinkingly insist that the banking giant is too powerful and important to subject to the rule of law (Guardian)

Outrageous HSBC Settlement Proves the Drug War is a Joke (Rolling Stone)

Taibbi, Spitzer Fume Over HSBC Settlement (Rolling Stone)

HSBC to Pay Record Fine to Settle Money-Laundering Charges (New York Times)

Too Big to Indict (New York Times)

HSBC: Too big to jail? (CNN)

Final Thought On HSBC Settlement: How Much Bad Behavior Will We Tolerate? (Forbes)

Two big British banks reach controversial settlements (Economist)

Grassley blasts Holder for HSBC settlement (KETV)

HSBC Exposed U.S. Financial System to Money Laundering, Drug, Terrorist Financing Risks (Senate Subcommittee Report)

53 thoughts on “You Call This Justice? DOJ Criticized for Its Settlement with “Too Big to Jail” Bank HSBC

  1. Yeah, but see, when you do bidniss wit’ people whose bidniss models involve actually eliminating the competition, otherwise known as making their troubles “disappear” – ya don’t wanna be too “harsh,” ye seeitumsayin?

    Uncle Louie

  2. Ian Fraser: HSBC’s $1.9 Billion Settlement Sets (Another) Dangerous Precedent
    12/15/12
    http://www.nakedcapitalism.com/2012/12/ian-fraser-hsbcs-1-9-billion-settlement-sets-another-dangerous-precedent.html

    Excerpt:
    Yves here. One of the things that has too often gone missing in the many discussions of why massive scale money launderer HSBC was not prosecuted is the basis of the “doing that would be destabilizing” excuse. When a company is indicted (mind you, indicted, not convicted), pretty much all Federal and many (most?) state agencies are required to stop doing business with it, immediately. The effect of the loss of so much business, particularly for a large financial firm, is seen as a death knell.

    Of course, that’s the point. The threat of indictment of the company provides tremendous leverage to go after individuals. The Wall Street Journal’s editorial page went on a rampage against Eliot Spitzer when he used that cudgel to force the resignation of CEO Hank Greenberg. Now of course there is a different way to use this power. A prosecutor could just as well inform a board that it is ready to indict the company unless it secures the full cooperation of executives in order to secure prosecutions of all individuals involved in a meaningful fashion, top to bottom. That includes waving the company’s attorney-client privilege on this matter. Sending executives to prison has far more deterrent value that bringing a company down, since many will argue that employees who had nothing to do with the criminal activity would also be harmed.

  3. What makes anyone think they have stopped laundering money? Max Keiser claims that at one point during the economic collapse in 2008, drug money was the only monetary liquidity in the whole system.

    Wells Fargo was another bank caught laundering billions.

    This may still be the case. We do not know because ‘mark to market’ accounting has been turned into fraudulent accounting in the entire banking system….

  4. The top executives either knew or should have known what was going on and they should be going to prison. Interacting with and supporting terrorists is now a detain indefinitely without charges activity.

  5. Yea, bettykath, why no NDAA charges and supporting the enemy charges? Wikileaks has certainly never laundered drug money or money from terrorist organizations..
    Why no blockaid, no Congressmen calling for the executives at HSBC to be summarily shot?
    Why no Fox ‘News’ pundits calling for them to be “taken out” or “assassinated”?
    Isnt this the definition of ‘high tech terrorism’?

    Selective enforcement in all areas of the law.

    We are now a nation of men, not laws.

  6. When law becomes arbitrary, there is no law. “Dark day for the role of law” started in 2008. Eric Holder and President Obama should be tarred and featherd for this. And what about Don Siegelman? As a liberal, I am in mourning for my country.

  7. Senator Grassley is right! What the DOJ has done is inexcusable on so many levels. This is another example of the old joke: if you are going to steal steal big! Eric Holder is either scared to go up against the big boys or… I am sick and tire of the bankers of the world getting off Scott free. Put one or two them in jail and the culture would change real quick.

    We put people in jail for soooo much less but these guys get awards. We also have war criminals on federal pensions because Obama is too scared to prosecute and now he is proceeding to confirm their previous bad behavior. We are not the land of the free and the home of the brave we are the land of the weak and home of the fooled.

  8. Great job Elaine. You beat me to this one!
    If the DOJ was really worried about jobs and the economy, why didn’t they just waive any fines? I would have made it a 1.9 Trillion dollar fine and they could use that money to waive my mortgage with HSBC! I do believe that Mr. Breuer should be held accountable for dereliction of duty if he thinks pandering to terrorists is a mere oversight!

  9. It’s Animal Farm. In Animal Farm, all animals are equal. But some animals are more equal than others.

    A two-tiered system of law with one system for the elite and another for us mere proles is just a descent into the United States of Animal Farm.

    The small and the weak will be crushed. The elite will be coddled, or when absolutely necessary, subjected to sham punishment for the sake of appearances.

    If there is no equality under the law, there is no law but power.

  10. Outrageous HSBC Settlement Proves the Drug War is a Joke
    By Matt taibbi
    POSTED: December 13
    http://www.rollingstone.com/politics/blogs/taibblog/outrageous-hsbc-settlement-proves-the-drug-war-is-a-joke-20121213

    Excerpt:
    This bears repeating: in order to more efficiently move as much illegal money as possible into the “legitimate” banking institution HSBC, drug dealers specifically designed boxes to fit through the bank’s teller windows. Tony Montana’s henchmen marching dufflebags of cash into the fictional “American City Bank” in Miami was actually more subtle than what the cartels were doing when they washed their cash through one of Britain’s most storied financial institutions.

    Scarface Push it to the limit Scene HD

  11. Things like this, and the failure to prosecute anyone from the realPresident Cheney Administration for war crimes, is why a country-leaving liberal like me criticizes the Obama Admin. from the Left.

    There’s a countervailing view of the money-laundering for “terrorist regimes” such as Iran that was expressed by blogger Juan Cole at Informed Comment, though. His point is that the United States is seeking to throw its financial weight around by demanding that some governments be shunned by the world money-exchanging system. It brands them as rogues and says that any bank which accepts their money is a dirty launderer. That’s all that HSBC was guilty of in that regard, Cole opines — not excluding who the U.S. demanded.

  12. Too Big to Jail: Our Banking System’s Latest Disgrace
    Neil Barofsky
    December 12, 2012
    http://www.tnr.com/blog/plank/111041/too-big-jail-our-banking-systems-latest-disgrace#

    Excerpt:
    You can be forgiven if you watched the Department of Justice’s announcement yesterday of a $1.92 billion settlement with HSBC with a sense of disappointment–and déjà vu. The event checked all the boxes in a theatrical routine that has become all too familiar.

    Descriptions of breathtaking misconduct involving the facilitation of massive drug trafficking and transactions with rogue terror-sponsoring nations? Check.

    Broad boasts about the “historic” nature of the settlement that will certainly end the type of criminal misconduct alleged? Check.

    Mea culpas from the offending institution with promises that it has really learned its lesson this time and will never ever engage in dastardly conduct again? Yep, that too.

    Nothing, however, was quite as it appeared. Sure, HSBC paid a record fine, but there was something vitally important missing from yesterday’s press conference: actual criminal charges for obvious criminal conduct.

    Some perspective: HSBC sent more than $800 million in bulk cash from Mexico to the United States, a good chunk of which apparently represented proceeds from some of the most notorious Colombian drug cartels. As someone who tried the first narcotics money laundering case involving extradition from Colombia, let me assure you that this is a lot of money, the discovery of which usually generates vigorous prosecutions and lengthy prison sentences. And it wasn’t HSBC’s only dirty business: There were also hundreds of millions of more dollars of illegally disguised transactions with rogue nations such as Iran and Sudan.

    Why no criminal charges? Why instead only some remedial measures and a “historical” fine that can be measured in weeks — not years — of earnings? It certainly wasn’t for lack of evidence. No, instead the government determined that HSBC is not only too big to fail, but also too big to jail. As the New York Times first reported, even though there were strong voices within DOJ pushing for criminal charges, the big banks’ best friends within the government (the Treasury Department, of course, and other unnamed regulators) were too fearful that an indictment could destabilize the global financial system. Yes, it’s 2008 all over again. In the name of systemic stability, a megabank again escapes accountability for its actions, rescued by compliant officials.

    In some aspects, DOJ’s surrender is understandable. Notwithstanding regulatory reform efforts in the U.S. and the UK, the largest banks are in many ways even more systemically dangerous today than when we bailed them out in 2008. This indirect acknowledgment that we have failed to fix the too-big-to-fail problem has potentially dire consequences.

    One of the reasons why we have a criminal justice system, of course, is to deter criminal behavior. If you know that you will be punished for putting your hand in the cash register at your local supermarket (or illegally stripping out information from a monetary transaction that identifies the source nation as Iran), you are less likely to do so. But if the government offered a blanket waiver from criminal accountability for a certain group — let’s say all left-handed people over six feet tall or a handful of banks deemed so large and so significant that their indictment could destroy the global financial system — we would expect that those exempted would no longer be deterred from committing criminal acts. And although lefty giants may otherwise lack a predisposition for boosting cash, in recent years the largest banks have demonstrated an unbridled zeal for pushing the boundaries of the law as part of their relentless pursuit of profits. DOJ’s actions with regards to HSBC are beyond unfair: They are downright terrifying for weakening the general deterrence for megabanks, both foreign and domestic, which could rationally interpret yesterday’s actions as a license to steal.

  13. ‘…….destabilize the global financial system….’
    ——————
    well it looks pretty destabilized to me….
    it’s time to dump the monopoly money, there is no better time to build something new as when the old is so corrupt and broken that it no longer serves its purpose….

  14. Elaine,

    Excellent….. And if we had a president and a DOJ with cajones we might have a different result…. We certainly know Romney would not have any incentive to o the next right thing…..

  15. When I was a child, our back door neighbor whose daughter I was in love with was a VP of Society for Savings. He lent money for a commercial loan to our next door neighbors business. At the time that was very illegal for an S&L, but which later was legalized under Reagan. We all know how that one workied out, but in this case, the S&L did not lose any money. The loan was good, but the examiners found out about it. He was charged and convicted, and was sent to Federal prison for FIVE YEARS.

    To read that these crooks are running around free after having committed major crimes against us and millions of people around the world, is an OUTRAGE. It is time for Holder to GO!

  16. @Elaine M. ” There were also hundreds of millions of more dollars of illegally disguised transactions with rogue nations such as Iran and Sudan.”

    So this was not just a case of poor internal controls. It was not just a case of the bank casting a blind eye to questionable activity.

    This was a case of the banks active involvement in criminal activity to conceal origin of transactions to make it difficult of impossible to document money laundering.

    Even if you buy the economic argument to justify failure to prosecute the as an on going criminal enterprise, how can anyone justify failure to prosecute the managers responsible for the criminal acts.

    So, exactly, what could have motivated DOJ officials to give a walk to criminals who endanger the security of the US?

  17. You are quite right about Neil Bush who was a director of Silverado S&L The other directors got jail time for using the S&L as their own piggy bank in which they took out loans to themselves. Bush claimed that he did not know it was illegal for them to do that. Even I know it is illegal, yet Bush got a pass on that even though he had to not only know about the loans, but had to vote to approve them. Reagan was President at the time and Bush was VP. So yes, if you are politically connected and powerful, you get a pass on your crimes.

  18. Bk,

    At the expense of the American taxpayers…..

    Look up R Allen Stanford….. They accused him of a Ponzi scheme…. In reality…. He would not play ball with the US Feds and he was more Han likely laundrying money for the various cartels…..

  19. Tman: i hear you and agree wholeheartedly to a point. i’m not sure, but i have the feeling that the incoming president gets a little visit with the powers that be, or their representative (a nameless CIA or NSA person), shortly after taking office (and before they get any “big ideas”) and are reminded of JFKennedy (especially if they have kids); ya know, like the mob, “just to set things straight” (ie, who’s giving the orders).

    “Nice fembly ya got ye-self he’; be a shame if sumtin’ wuz ta happen to it . . .”

  20. UBS Libor Rigging May Cost Bank $1.63 Billion Fine
    Reuters | Posted: 12/15/2012
    http://www.huffingtonpost.com/2012/12/15/ubs-libor-rigging_n_2306432.html?utm_hp_ref=business

    Excerpt:

    * UBS already predicted Q4 loss over investment bank restructure

    * Chairman Axel Weber involved in trying to prevent conviction

    * Focus on role of former UBS Japan boss Branson, now at Finma

    ZURICH, Dec 14 (Reuters) – UBS faces a fine of 1.5 billion Swiss francs ($1.63 billion) to settle interest rate rigging charges, a Swiss newspaper reported on Saturday.

    Citing unnamed sources, Tages-Anzeiger daily said the bank would admit 36 traders around the globe manipulated yen Libor between 2005 and 2010. A UBS spokesman declined to comment.

    People familiar with the matter told Reuters on Friday UBS

    could reach a $1-billion-plus settlement and admit to criminal wrongdoing by its Japanese arm, where one of its traders manipulated yen Libor and euroyen contracts.

    Between 25 and 30 people have left UBS over the matter, the sources said. The Swiss bank had hoped for a softer touch from regulators by cooperating in industry-wide probes and was surprised by the size of the expected settlement, they added.

    A 1.5 billion franc settlement would be the biggest ever paid by the bank, recovering from a $2.3-billion trading fraud by London-based trader Kweku Adoboli for which it was fined 30 million pounds ($48.36 million) last month.

  21. Those guys and gals in DC who run our country are smoking cigarettes 24/7 spending their time making laws against folks smoking pot. They take money from lobbyists who take money from the drug cartels through the crooked banks. The crooked banks go free and are Scot Free to rule the world while JimBob goes to jail for a joint. Or goes to the joint for a joint. But you see the point. Point is, dont be a customer of this bank– to say the least.

  22. Tman/AY – Yes imagine the political climate where the Republicans control House & Senate (as it was in 2000); had a President Nader stand before it and ask for anything, anything at all the laughter would have been deafening. You think they are making a total cockup controlling just the House today? Well imagine them having the Senate also and some Dems aiding and abetting them.

    Assuming he would have appointed an actual reformer to any position (and that is not necessarily a reasonable assumption given Ralphs public behavior) they would have been eaten alive by the goopers while the Dems stood back and watched in amusement.

    Different it would be for sure, good? Not so much.

  23. HSBC Critic: Too Big To Indict May Mean Too Big To Exist
    by Ailsa Chang
    NPR
    December 13, 2012
    http://www.npr.org/2012/12/13/167174208/hsbc-critic-too-big-to-indict-may-mean-too-big-to-exist

    Federal and state authorities have received criticism after deciding not to indict HSBC on accusations that it laundered money for Mexican drug cartels and conducted prohibited transactions on behalf of countries like Iran and Sudan. Instead, they entered into a $1.9 billion settlement this week with the bank.

    There’s no question that HSBC is a massive, sprawling operation. It markets itself as the world’s local bank. But watchdogs of the banking industry say mere size should never insulate an organization from the law.

    “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,” says Robert Weissman, president of the consumer advocacy group Public Citizen.

    For law professors, 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 whether the economy would fail if HSBC collapsed — it’s a deeper question about the purpose of the criminal justice system.

    Planet Money

    Will A $1.9 Billion Settlement Change Banks’ Behavior?

    “What’s so wonderful about an indictment? The question is: What are we trying to achieve here?” says Hal Scott, director of the Program on International Financial Systems at Harvard Law School.

    He says to forget about indicting a bank: Banks don’t break the law, people do. And people aren’t too big to fail or too big to go to jail.

    Not a single individual at HSBC has been charged with the very conduct the bank admits happened, Scott says. And unfortunately, he adds, that’s probably because it’s just a lot easier to nail a bank. Charging people with crimes means more trials, which requires more money, time and evidence.

    “You can go into the bank and say, ‘Well, I think you did something wrong, and I’m thinking of indicting you, and you better pay a big fine,’ and, you know, they’ll agree to it,” says Scott. “It’s not their money.”

    And that, he notes, is the perverse thing about the HSBC settlement: That $2 billion is coming from shareholders, not from the people who broke the law.

    But the settlement averted an indictment, and authorities thought that was the best outcome for the economy. Some legal experts, like Duke Law professor James Cox, agree. He says it would have been a disaster if HSBC was charged with crimes.

    “Indicting a large bank like HSBC would create a huge regulatory ripple — if not an embolism — around the world,” Cox says.

    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, he adds. That could have hemorrhaged HSBC enough to make it shut down.

    And because banks are constantly borrowing and lending money to each other, all of those transactions would have to be unwound quickly. Cash would need to appear immediately — cash that may not be there. Businesses might freeze activity.

    John Coffee, a professor at Columbia Law School, scoffs at that doomsday scenario.

    “I don’t think anyone can confidently say what the economic impact on HSBC would be,” Coffee says. “I doubt that it would have failed.”

    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. The regulators just got skittish, he says, and did the safe thing: They took a big fat fine and called it a day.

  24. Feds outline HSBC ties to laundering, drug money
    December 11, 2012
    http://www.cbsnews.com/8301-34227_162-57558519/feds-outline-hsbc-ties-to-laundering-drug-money/

    Excerpt:
    Officials noted that HSBC officers in the United States had warned counterparts at the parent company that efforts to hide where financial transactions originated would expose the bank to sanctions, but the protests were ignored.

    HSBC even instructed an Iranian bank in one instance how to format messages so that its financial transactions would not be blocked, Breuer said at a news conference announcing the settlement.

    “The record of dysfunction that prevailed at HSBC for many years is simply astonishing,” Breuer said.

    For the government not to go a step further and prosecute was “beyond obscene,” said Bill Black, a former U.S. regulator for the Office of Thrift Supervision who now teaches at the University of Missouri-Kansas City.

    “Regulators are telling us, `Yes, they’re felons, they’re massive felons, they did it for years, they lied to us, and they made a lot of money … and they got caught red-handed and they’re gonna walk.'”

    Black disputed the government’s concern that indicting HSBC could take down the financial system.

    “That’s the logic that we get stability by leaving felons in charge of our largest banks,” he said. “This is insane.”

    Breuer defended the government’s agreement with HSBC. He said that U.S. employees in particular seemed duped by criminal enterprises taking advantage of HSBC oversight policies that over decades became increasingly lax.

    Court documents showed that the bank let over $200 trillion between 2006 and 2009 slip through relatively unmonitored, including more than $670 billion in wire transfers from HSBC Mexico, making it a favorite of drug cartels and money launderers. HSBC Bank USA at the time rated Mexico in its lowest risk category.

    Top executives who felt “the pressure of the bottom line” continually cut staff that might have discovered how criminal enterprises were taking advantage of the bank, Breuer said.

  25. Why Did Obama and Cameron Save a Criminal Enterprise Like HSBC?
    William K. Black.
    Assoc. Professor, Univ. of Missouri, Kansas City; Sr. regulator during S&L debacle
    Posted: 12/13/2012
    http://www.huffingtonpost.com/william-k-black/hsbc-settlement_b_2291859.html

    Excerpt:
    Why is HSBC still in operation? On the same day (December 10, 2012) that the Barack Obama administration leaked the story of the HSBC settlement, a story ran in the New York Times that was full of self-praise by the Obama and David Cameron (U.K.) governments for their “cooperative approach” to cracking down on systemically dangerous institutions (SDIs). SDIs are treated as “too big to fail” because they pose a global systemic risk when they fail. The HSBC settlement puts the lie to the Obama/Cameron crack-down on the SDIs for it revealed a disgrace — Obama and Cameron treat the SDIs as too big to prosecute. Indeed, HSBC demonstrates that the SDIs’ senior officers are treated by Obama and Cameron as too elite to prosecute. The propaganda meme of the NYT story — that the SDIs would never again be given special favors due to reforms being adopted by Obama and Cameron — lasted four hours before it was destroyed by the disgraceful reality of the Obama and Cameron governments’ refusal to prosecute HSBC and its officers for their tens of thousands of felonies.

    The NYT article begins by accepting the Obama/Cameron framing of the SDI issue, without any critical analysis. “It is one of the thorniest problems hanging over the financial system: how should authorities deal with the collapse of a sprawling global bank to protect the financial system at large?” The reporter’s implicit assumption is that we must have banks that are systemically dangerous when they fail.

    This example exemplifies why implicit assumptions are so dangerous. They exclude far better alternatives or terrible risks from even being considered — and they do so unknowingly. If the reporter had made the assumption explicitly he would have been forced to defend it with analytics. The article acknowledges that SDIs drove the financial crisis that caused the Great Recession. In the U.S. alone this caused over a $15 trillion loss in wealth and led to the loss, or prevented the creation, of over 10 million jobs. According to the Bush and Obama administrations we were lucky in preventing the crisis from growing vastly larger. SDIs are economic weapons of mass destruction — but they cause their primary destruction inside the nation in which they reside.

  26. “And because banks are constantly borrowing and lending money to each other, all of those transactions would have to be unwound quickly. Cash would need to appear immediately — cash that may not be there. ”

    Oh, because they had to stop laundering drug money and shady transactions from terrorist nations why is there no money?

    You know where all the money is? It is in the shadow banking system, the unregulated derivatives market where people are simply gambling on outcomes of ‘bets’. They bet on commodities, raising the price of basic goods like oil and corn for all the rest of us.

    They make massive shorts in the precious metals market that they manipulate to have a sure return.

    All these bets in the derivatives market have been estimated to total over 60 TRILLION dollars. Gamblers, fraudsters and thieves are in charge of the financial system.
    Obama is saying nothing can be done? And he wonders why this so called recovery is sluggish. They are just going to continue to blow bubbles in all sectors, take their sure profits, and continue to harm all the rest of us in order to collect their massive bonuses.

  27. There seem to be at least three issues that have not been discussed or explained in any meaningful way:

    1. prosecution of individual managers: if there really is concern that there would be too many cases (really???) why not prosecute say 10 of the highest and most responsible managers? Wouldn’t that send a clear message that no individual is above the law.

    2. National security: Some have remarked on the clients of money laundering services. Don’t these clients raise questions regarding national security, and the possibility of material aid to terrorist? Yet there seems to be no official interest in these possibilities. Yet it would seem that concerns regarding national security and support for international criminal organizations ought to have the highest priority.

    3. The supposed large fine: It seems to me that the reasonableness of the fine can only be considered in relation to profits and cost of the activity.

    With 200 trillion in illegal transactions it is not clear that 1.9 billion in fines even recovers the profit from the illegal transactions.

    Does anyone know the service charge by banks for transferring funds of this magnitude?

    It is only by considering the profits earned by criminal activity that we can evaluate the reasonableness of the fine and it potential to inhibit future criminal activity.

    There are some real problems here.

    This is one case where I think a bi partisan congressional investigation might be welcome.

  28. bigfatmike,

    Here’s the report on HSBC from the Senate’s Permanent Subcommittee on Investigations that I provided a link to above:

    http://www.hsgac.senate.gov/subcommittees/investigations/media/hsbc-exposed-us-finacial-system-to-money-laundering-drug-terrorist-financing-risks

    HSBC Exposed U.S. Financial System to Money Laundering, Drug, Terrorist Financing Risks
    Senate Subcommittee Holds Hearing and Releases Report
    Monday, July 16, 2012

    WASHINGTON – Global banking giant HSBC and its U.S. affiliate exposed the U.S. financial system to a wide array of money laundering, drug trafficking, and terrorist financing risks due to poor anti-money laundering (AML) controls, a Senate Permanent Subcommittee on Investigations probe has found.

    “In an age of international terrorism, drug violence in our streets and on our borders, and organized crime, stopping illicit money flows that support those atrocities is a national security imperative,” said Sen. Carl Levin, D-Mich., subcommittee Chairman. “HSBC used its U.S. bank as a gateway into the U.S. financial system for some HSBC affiliates around the world to provide U.S. dollar services to clients while playing fast and loose with U.S. banking rules. Due to poor AML controls, HBUS exposed the United States to Mexican drug money, suspicious travelers cheques, bearer share corporations, and rogue jurisdictions. The bank’s federal bank regulator, the OCC, tolerated HSBC’s weak AML system for years. If an international bank won’t police its own affiliates to stop illicit money, the regulatory agencies should consider whether to revoke the charter of the U.S. bank being used to aid and abet that illicit money.”

    The Subcommittee conducted a year-long investigation into HSBC and has detailed its findings in a 330-page report to be released at the hearing Tuesday, along with more than 100 documents, including bank records and internal emails. The hearing, which begins at 9:30 a.m., will include testimony from HSBC officials and federal regulators.

    The Subcommittee investigation focused on HSBC’s key U.S. affiliate, HSBC Bank USA, N.A., known as HBUS, which functions as the U.S. nexus for HSBC’s worldwide network. HSBC has 7,200 offices in more than 80 countries and 2011 profits of $22 billion; HBUS has 470 branches across the United States with 4 million customers. HBUS provides accounts to 1,200 other banks including more than 80 HSBC affiliates. Called correspondent banking, HBUS provides these banks with U.S. dollar services, including services to move funds, exchange currencies, cash monetary instruments, and carry out other financial transactions. Correspondent banking can become a major conduit for illicit money flows unless U.S. laws to prevent money laundering are followed.

    In 2010, HSBC was cited by its federal regulator, the Office of the Comptroller of the Currency (OCC), for multiple severe AML deficiencies, including a failure to monitor $60 trillion in wire transfer and account activity; a backlog of 17,000 unreviewed account alerts regarding potentially suspicious activity; and a failure to conduct AML due diligence before opening accounts for HSBC affiliates. Subcommittee investigators found that the OCC had failed to take a single enforcement action against the bank, formal or informal, over the previous six years, despite ample evidence of AML problems.

    The Subcommittee investigation focused on five areas of abuse:

    –Servicing High Risk Affiliates. HSBC’s U.S. bank, HBUS, offered correspondent banking services to HSBC Bank Mexico, and treated it as a low risk client, despite its location in a country facing money laundering and drug trafficking challenges, high risk clients like casas de cambio, high risk products like U.S. dollar accounts in the Cayman Islands, a secrecy jurisdiction, and weak AML controls. The Mexican affiliate transported $7 billion in physical U.S. dollars to HBUS from 2007 to 2008, outstripping other Mexican banks, even one twice its size, raising red flags that the volume of dollars included proceeds from illegal drug sales in the United States.

    –Circumventing OFAC Safeguards. Foreign HSBC banks actively circumvented U.S. safeguards at HUBS designed to block transactions involving terrorists, drug lords, and rogue regimes. In one case examined by the Subcommittee, two HSBC affiliates sent nearly 25,000 transactions involving $19.4 billion through their HBUS accounts over seven years without disclosing the transactions’ links to Iran.

    –Disregarding Terrorist Financing Links. HBUS provided U.S. dollars and banking services to some banks in Saudi Arabia and Bangladesh despite links to terrorist financing.

    –Clearing Suspicious Bulk Travelers Checks. In less than four years, HSBC cleared $290 million in obviously suspicious U.S. travelers cheques for a Japanese bank, benefiting Russians who claimed to be in the used car business.

    –Offering Bearer Share Accounts. HSBC offered more than 2,000 accounts to bearer share corporations, despite the high risk of money laundering and illicit conduct that results since their ownership can be readily transferred without a trail.

    The report recommends a number of changes at HSBC’s U.S. bank, including higher scrutiny of HSBC affiliates for money-laundering risk, closing accounts of banks linked to terror financing, and steps to ensure the bank does not process transactions with prohibited entities such as terrorists, drug lords, and rogue regimes. It also recommends overhauling the AML controls on travelers cheques and eliminating bearer share accounts.

    The report also offers several criticisms of the OCC’s AML oversight. It recommends that the agency follow the lead of regulators at other banks and treat money laundering as a threat to a bank’s safety and soundness, rather than as a consumer compliance concern. It also recommends the OCC change its practice of foregoing statutory violations when a bank’s AML program does not meet one or more of four minimum statutory requirements. In addition, it recommends that the OCC take stronger action when a bank hits a threshold number of AML statutory violations or Matters Requiring Attention from bank management.

    “HSBC’s compliance culture has been pervasively polluted for a long time,” Levin said. “Its recent change in leadership says it’s committed to cleaning house. That commitment is welcome surely, but it will take more than words for the bank to change course. Just as certain is the need for tough regulation by the OCC.”

  29. “Charging people with crimes means more trials, which requires more money, time and evidence.”

    If you really believe that charging individuals requires too much in money and time, then doesn’t that seem to demand that the most powerful and influential perpetrators be charged to make clear that no one is above the law.

    If you do not charge the worst and most powerful then don’t you assure that individuals will assume they can commit similar crimes with impunity?

    Can you imagine a prosecutor announcing “We have had so many robberies of convenience stores that we have decided not to prosecute them because it would take too much time and money”?

    I think as a community we really need to get into exactly what process and reasoning was used to decide to prosecute no one – not a one.

  30. Woosty — my wife and I started taking steps to move out of the U.S. after Bush and realPresident Cheney got re-selected in 2004. Which wasn’t easy, because we’re both middle-aged, and there was a year’s worth of red immigration tape. But we figured that one go-round of Bush could be chalked up as a mistake, but if enough Americans voted for him a second time to make it plausible to cheat his way back in again (see Ohio voting irregularities) it was a sign the nation was doomed. We also figured we ought to beat the rush, before those fences went up! Luckily, I’m a hospital nurse, which is why I could be a LEGAL immigrant to Australia for four years and the past three in Canada. When you have a licence to wipe peoples’ bums and poke them with syringes, you can live pretty much anywhere you want to in the English-speaking world.

  31. @Elaine M.

    Thanks for the referenced. Looks like you have managed to budget my spare reading time for the indefinite future.

    But at this point I would really like to see a similar study of the DOJ process that lead to the decision not to prosecute any individuals, and the basis for the calculation of the fine.

    Some of you, more generous the I am, might claim that DOJ made exactly the right decisions. But lets put it out for examination and see if the decisions by DOJ really bear scrutiny

    One final point. Much has been made of the economic consequences following from prosecution of the bank. But once we realize the possibility of negative consequence, doesn’t it seem that coordinated action by DOJ, Treasury and other agencies could mitigate many of those consequences?

    Aren’t large banking organizations supposed to have contingency plans to assure an orderly shut down in case of an economic emergency?

    I realize there would be serious consequences to prosecution of HSBC. But there also seem to be very serious consequences to not prosecuting them. And by now we know how to deal with the issue of failure of large financial institutions.

    So what exactly is the problem? What exactly is the hold up?

  32. Stunning Crimes of the Big Banks: Worse than Your Wildest Imagination
    Posted on August 1, 2012 by WashingtonsBlog
    http://www.washingtonsblog.com/2012/08/big-banks-worse-than-you-think.html

    Excerpt:
    Preface: Not all banks are criminal enterprises. The wrongdoing of a particular bank cannot be attributed to other banks without proof. But – as documented below – many of the biggest banks have engaged in unimaginably bad behavior.

    You Won’t Believe What They’ve Done …

    Here are just some of the improprieties by big banks:

    – Funding the Nazis

    – Laundering money for terrorists

    – Financing illegal arms deals, and funding the manufacture of cluster bombs (and see this and this) and other arms which are banned in most of the world

    – Launching a coup against the President of the United States

    – Handling money for rogue military operations

    – Laundering money for drug cartels. See this, this, this and this (indeed, drug dealers kept the banking system afloat during the depths of the 2008 financial crisis)

    – Engaging in mafia-style big-rigging fraud against local governments. See this, this and this

    – Shaving money off of virtually every pension transaction they handled over the course of decades, stealing collectively billions of dollars from pensions worldwide. Details here, here, here, here, here, here, here, here, here, here, here and here

    – Artificially suppressing gold prices

    – Charging “storage fees” to store gold bullion … without even buying or storing any gold . And raiding allocated gold accounts

    – Committing massive and pervasive fraud both when they initiated mortgage loans and when they foreclosed on them (and see this)

  33. Another Nobel Economist Says We Have to Prosecute Fraud Or Else the Economy Won’t Recover
    Posted on November 4, 2010 by WashingtonsBlog
    http://www.washingtonsblog.com/2010/11/another-nobel-economist-says-we-have-to-prosecute-fraud-or-else-the-economy-wont-recover.html

    Excerpt:
    As economists such as William Black and James Galbraith have repeatedly said, we cannot solve the economic crisis unless we throw the criminals who committed fraud in jail.

    And Nobel prize winning economist George Akerlof has demonstrated that failure to punish white collar criminals – and instead bailing them out- creates incentives for more economic crimes and further destruction of the economy in the future. See this, this and this.

    Nobel prize winning economist Joseph Stiglitz just agreed. As Stiglitz told Yahoo’s Daily Finance on October 20th:

    “This is a really important point to understand from the point of view of our society. The legal system is supposed to be the codification of our norms and beliefs, things that we need to make our system work. If the legal system is seen as exploitative, then confidence in our whole system starts eroding. And that’s really the problem that’s going on.”

  34. Just one more bit of evidence, as if we needed it, that they guy who promised us “hope and change” gave us neither.

    In my view, this is our current situation: 1) Both parties are whore’s paid by the same folks with little real difference between them; 2) recognizing that their interests are essentially the same and, that their only real enemy is “we the people” , both parties have gerrymandered districts and state primary systems to ensure i) that they each have their safe states and ii) that no third party is viable; and 3) the media, in a twisted incestuous/co-dependent relationship with these folks from both sides ensure that no alternate views are given a serious chance — they agree to debate rules that ensure no real debate occurs, they keep third parties out of the debates and coverage in general.

    We really have no choice other than two, incredibly corrupt bad ones.

    The next time one of these dirtbags, no matter how fresh he/she looks, promises “hope and change” — just remember, its all bullshit. He/she just wants to screw you and get power. You have no hope, no hope at all, for any change.

  35. Bin Laden film leak was referred to Justice; leaker top Obama official

    Source: McClatchy Newspapers

    Pentagon investigators concluded that a senior defense official mentioned as a possible candidate to be the next CIA director leaked restricted information to the makers of the acclaimed film on the hunt for Osama bin Laden, and referred the case to the Justice Department, according to knowledgeable U.S. officials.

    The Justice Department was sent the case involving Under-Secretary of Defense for Intelligence Michael Vickers in September, but it so far has declined to launch a criminal prosecution, said two senior U.S. officials who requested anonymity because of the sensitivity of the matter.

    The case involved a determination by investigators of the Pentagon’s inspector general’s office that Vickers provided to the makers of the film, Zero Dark Thirty, the restricted name of a U.S. Special Operations Command officer who helped plan the May 2, 2011, raid on bin Laden’s hideout in Pakistan, one official said. The identities of special forces personnel can be classified in certain circumstances and making them public is against the law, according to experts.

    Vickers, a former Army special forces operator and one-time CIA paramilitary officer, is the top intelligence adviser to Defense Secretary Leon Panetta and oversees the Pentagon’s vast intelligence operations. He has been frequently mentioned as a candidate to replace retired Army Gen. David Petraeus as CIA director.

    Read more: http://www.mcclatchydc.com/2012/12/17/177676/bin-laden-leak-is-referred-to.html

    So, the whole prosecution of Bradley Manning and Wikileaks is based on leaking classified info. Yet here we are, another example of being a nation of men, not law.
    Why isn’t ol’ handsome Joe calling Vickers a “high tech terrorist”?

  36. “Why isn’t ol’ handsome Joe calling Vickers a “high tech terrorist”?”

    Hmmmm….ummmm… because Vickers spilled the secretes the old fashioned way over dinner in a club somewhere between K Street and foggy bottom?

  37. OH MY GOD BEARER BONDS AND TRAVELER’S CHECKS! ARMAGEDDON IS NIGH!!! The fact the US government proclaims certain countries “rogue jurisdictions” and continues to prosecute a war on drugs that fosters Mexican cartels shows how absurd things really are. Two billion dollars is enough of a shakedown for such activity. If we are going to prosecute business folks for non-compliance with such subjective laws, when will we start prosecuting government officials for violating the Constitution.

  38. “OH MY GOD BEARER BONDS AND TRAVELER’S CHECKS”

    When you lead with traveler’s check and bearer bonds you make it seem pretty trivial.

    But the traveler’s check, bearer bonds and other financial instruments totaled 200 trillion dollars – that’s no mistake, that’s trillions with a T.

    If you think the money laundering rules should be changed then you should make that argument.

    But in my opinion, this case is the wrong case.

    You did not seem particularly concerned when any average Joe was flagged for putting down $10,000 for a new car.

    I really don’t see much subjective about a bank initiated program to alter documents to conceal point of origin to make the transactions difficult or impossible to trace. That seems pretty objective to me – and by the way – criminal.

    But I do have a modest proposal: why not dispense with the fine altogether and go for the prosecution by itself. I think that makes a lot more sense.

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