Laundering $800 Mil in Drug $, How Did HSBC Execs Avoid Jail?

[Stavros]

I don't agree, prison is a knee-jerk reaction from people who don't think through the crime and its social context, which is why incarceration for people who are a danger to themselves and others is a reasonable sentence. Most people who are in gaol do not belong there, either because the crime was trivial and they -in the US in particular- have fallen foul of the Baseball Clause (Three strikes and you're out!); or because they were not involved in violent crime. The cost of keeping someone in prison for something like embezzlement can often exceed the money that was involved in the crime.

Surely the greatest punishment for bankers and brokers would be to seize their assets, which would also include funds in overseas banks; impose a travel ban; and impose the financial equivalent of a 'community service' order in which they must work for x number of years on a low to median salary while being obliged to spend half their weekend doing something useful for the community.

It might re-calibrate their sense of what things are worth and how wealth is created. They might even come up with a new idea to start a business creating jobs for people...but gaol? No.

[fivekatz]

The HSBC guys are just the latest in a long and utterly dishonourable list. Our prisons all over the planet should be full of these rapacious bastards, who have learned nothing from the chaos and pain they have created and continue to be rewarded for it with increasingly big bucks.

The present financial crisis is without doubt the occasion on which capitalism finally jumped the shark.

Rather than jail wouldn't it be cool if we could just take all their assets and give them minimum wage jobs, 1 room flats in worn neighborhoods and employers that do not provide health insurance?

[robertlouis]

I don't agree, prison is a knee-jerk reaction from people who don't think through the crime and its social context, which is why incarceration for people who are a danger to themselves and others is a reasonable sentence. Most people who are in gaol do not belong there, either because the crime was trivial and they -in the US in particular- have fallen foul of the Baseball Clause (Three strikes and you're out!); or because they were not involved in violent crime. The cost of keeping someone in prison for something like embezzlement can often exceed the money that was involved in the crime.

Surely the greatest punishment for bankers and brokers would be to seize their assets, which would also include funds in overseas banks; impose a travel ban; and impose the financial equivalent of a 'community service' order in which they must work for x number of years on a low to median salary while being obliged to spend half their weekend doing something useful for the community.

It might re-calibrate their sense of what things are worth and how wealth is created. They might even come up with a new idea to start a business creating jobs for people...but gaol? No.

No prison for bankers who have deliberately rigged interest rates and cost their customers millions, who have knowingly laundered billions of drug money and have broken the law of their own or several territories? Sorry, Stavros, there's an element of cold logic in what you say, but no justice.

Let's not forget that two years ago youngsters in the UK, however out of control, were being sent to jail for 18m or more for stealing bottles of water. There needs to be equity of treatment before the law, or the law loses its moral power and the state, ultimately, its right to govern. Just because the bankers haven't inflicted physical violence on their victims doesn't mean that the overall impact of their crimes is any less; we all know that the effect of their knowing and wilful negligence has cost the world billions in costs, jobs and ruined lives. White collar crime is never dealt with appropriately, blue collar crime is invariably dealt with harshly.

[Stavros]

Robert you are concerned to inflict punishment on people convicted of crimes, but you haven't given serious thought to what it should be, just the standard 'lock 'em up'. Prison for the most part doesn't work, and the reason why what you call 'blue collar crime' results in a custodial sentence is due to the violence it often inflicts on people and property.

The issue is not prison or not prison for people like Bernard Madoff who ruin people's lives, but what is the appropriate punishment for the crime? Madoff in the security of his gaol cell doesn't need to look any of his victims in the eye, every day, as he would if his punishment was to lose his liberty and be expected to clean their homes, mow their lawns and so on. If you decide that someone who breaks the law ought to lose their liberty, then if the crime did not suggest the person is a threat to others and himself/herself, why spend so much money keeping them in prison?

[an8150]

I haven't bothered, and don't have the time, to Google this, but am I not right in saying that HSBC was not shown to have laundered drugs money? Is it not in fact the case that HSBC was shaken down for failing to show that its systems were capable in theory of preventing use of the bank for laundering drugs money?

[fivekatz]

from a quick Google Search

Rolling Stone
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.

Read more: http://www.rollingstone.com/politics...#ixzz2KMJDYTWA
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NBC
A "pervasively polluted" culture at HSBC allowed the bank to act as financier to clients moving shadowy funds from the world's most dangerous and secretive corners, including Mexico, Iran, Saudi Arabia and Syria, according to a scathing U.S. Senate report issued on Monday.

The report [link to PDF here] which comes ahead of a Senate hearing on Tuesday, said large amounts of Mexican drug money likely passed through the bank.

HSBC's U.S. division provided money and banking services to some banks in Saudi Arabia and Bangladesh believed to have helped fund al-Qaida and other terrorist groups, according to an Al-Jazeera story on the report.

While the big British bank's problems have been known for nearly a decade, the Senate probe detailed just how sweeping the problems have been, both at the bank and at the Office of the Comptroller of the Currency, a top U.S. bank regulator which the report said failed to properly monitor HSBC.

"The culture at HSBC was pervasively polluted for a long time," said Senator Carl Levin, chairman of the U.S. Senate Permanent Subcommittee on Investigations, a Congressional watchdog panel.

The report comes at a troubling time for a banking industry reeling from a multi-country probe into the manipulation of global benchmark rates. Last month, rival British bank Barclays agreed to pay a $453 million fine to settle a U.S.-British probe into the rigging of the benchmark interest rate known as the London interbank offered rate, or Libor.

These people weren't shaken down, they were left to walk paying what in bankers dollars was a minor fine!

[an8150]

http://www.justice.gov/opa/pr/2012/D...-crm-1478.html

Hm. The link above, which appears to be the US DoJ's definitive statement on the subject, is evasive. It skips from an initial claim that the 'crime' was as I described to an elaborated claim that actual drug money-laundering prosecutions followed.

What seems to me to be lacking is what, in even the prosecutorially happy US, I imagine is the requisite evidence that HSBC staff were deliberately laundering the proceeds of crime.

Nice little business you've got there, shame if somefink nasty were to 'appen to it. How's about an arrangement. We'll make sure no 'arm comes your way, an' you see us right?

One other thought occurs: in the link above, some apparatchik or other is quoted as saying banks are the first line of defence against drugs/money-laundering.

Since when was nominally private business an arm of government policy?

[broncofan]

"Nice little business you've got there, shame if somefink nasty were to 'appen to it. How's about an arrangement. We'll make sure no 'arm comes your way, an' you see us right?"

Ha, I can't tell if this is the Geico Gecko or some shady character from a British gangster film speaking. Certainly no Oxford educated Brit would talk like that!

They didn't prosecute the bank criminally. We've talked about this on this forum and I haven't done the research myself but if anyone knows I'd be interested. What would the criminal penalties be for the enterprise? Larger fines, injunction, temporary shutdown?

Why didn't they prosecute the individuals who signed off on these dirty transactions? Couldn't prove intent? No jurisdiction to pursue the matters overseas? Worried it might have negative effects on credit markets?

Again, I'm not making excuses for them at all as I posit that last question because it would be such a deplorable excuse not to prosecute. On the other hand, why would the DOJ not want a high profile prosecution if winning it would be so easy? Fivekatz has given some reasons and they are compelling in the abstract, but that's what we have right now. Perhaps it is corporate power greasing the wheels of the justice system; on the other hand perhaps there are practical issues such as evidence problems and the DOJ made a deal as prosecutors often do when it's easier to get some version of what you want in advance than face protracted litigation.

There does need to be a better deterrent for corporate crime. Prosecutions are few and far between. Maybe a better way to deter bad behavior would be to give companies incentives to clean house. I don't know if such laws would violate due process (or already exist), but if corporations could lower their liability by cleaning house and firing their corrupt executives this might make said executives less likely to be dishonest. If they fear unemployment as much as prison, it would be an internal mechanism for preventing such corruption. For instance, when their compliance department comes across violations of their own policies if the bank would get virtual immunity for blowing the whistle or firing the individuals, this might be more effective institutionally than one prosecution at a time. It might lead to scapegoating as well, but just a thought.

[fivekatz]

http://www.justice.gov/opa/pr/2012/D...-crm-1478.html

Hm. The link above, which appears to be the US DoJ's definitive statement on the subject, is evasive. It skips from an initial claim that the 'crime' was as I described to an elaborated claim that actual drug money-laundering prosecutions followed.

What seems to me to be lacking is what, in even the prosecutorially happy US, I imagine is the requisite evidence that HSBC staff were deliberately laundering the proceeds of crime.

Nice little business you've got there, shame if somefink nasty were to 'appen to it. How's about an arrangement. We'll make sure no 'arm comes your way, an' you see us right?

One other thought occurs: in the link above, some apparatchik or other is quoted as saying banks are the first line of defence against drugs/money-laundering.

Since when was nominally private business an arm of government policy?

As to your first thought of the lack of reams of evidence, what essentially happened here is that HSBC basically plea bargained this case in part to avoid the full disclosure and in part because if the full judicial process did take place it would cost the bank far more.

Banks are not ordinary private businesses in the US and by charter are required to report all large and unusual transactions, much of which is residual of efforts to contain organized crime (mafia) versus organized crime by corporations.

If in fact the US government were prosecution happy the trail of damning evidence that Goldman-Sachs left behind as it advised clients to buy CDOs that it not only knew were to quote their own internal e-mails "shit" but also had the balls to by SCDOs betting on the failure of the products they were selling customers would have been enough to prosecute quite a few at GS.

So far the US DOJ has gone lightly on the financial institutions and the sad part is that risk of moral hazard could not be enforced because it would have literally taken down the world economy. Right or wrong the US administration has felt that if they hit the financial institutions to the letter of the law that it would create so much insecurity in the markets that consequences could be catastrophic if they did nail GS, Citi, BOA etc for the full range of their illegal activities.

So the whole principle of laissez faire capitalism hinges on moral hazard. But when banks become too big to fail, there can not be moral hazard. Perhaps no corporation demonstrates better than Goldman did that these folks know exactly what they are doing and know too well how the system works and that payoff even when caught is tremendous. Whether he was right or wrong Tim Geitner and the Obama Administration believed the system was to fragile to even enforce the existing laws, let alone passing meaningful financial reform.

Capitalism is a great system, it provides incentive and reward that brings out the best in people but unregulated it is a destructive system that brings out greed and the worst in people.

[an8150]

Fivekatz, HSBC was not unregulated. And it was not a laissez faire operation, as you seem to acknowledge in your remarks about too-big-to-fail banks (ie. they're too big to fail because they have state guarantees).

I suspect, although I do not know, that broncofan is right that the US DoJ had insufficient evidence for criminal prosecutions, or at least for prosecutions that would net serious convictions. And I'd add a suspicion of my own that the DoJ's cost-benefit analysis concluded that it would net more (ie cash) through a DPA than through costly trials of insignificant middle managers.

Anyway, the anti-drugs laws are both asinine and wicked, so I couldn't give a damn about their enforcement.