Fraud, Money Laundering and Narcotics. Impunity of the Banking Giants. No Prosecution of HSBC
Fraud, Money Laundering and Narcotics. Impunity of the Banking Giants. No Prosecution of HSBC
In another shameful decision by the US Department of Justice,
earlier this month federal prosecutors reached a deferred prosecution
agreement (DPA) with UK banking giant HSBC, Europe’s largest bank.
Shameful perhaps, but entirely predictable. After all, in an era
characterized by economic collapse owing to gross criminality by leading
financial actors, policy decisions and the legal environment framing
those decisions have been shaped by oligarchs who quite literally have
“captured” the state.
Founded in 1865 by flush-with-cash opium merchants after the British
Crown seized Hong Kong from China in the aftermath of the First Opium
War, HSBC has been a permanent fixture on the radar of US law
enforcement and regulatory agencies for more than a decade.
Not that anything so trifling as terrorist financing or global narcotrafficking mattered much to the Obama administration.
As I previously reported, (
here,
here,
here and
here), when the Senate Permanent Subcommittee on Investigations issued their mammoth 335-page
report,
“U.S. Vulnerabilities to Money Laundering, Drugs, and Terrorist
Financing: HSBC Case History,” we learned that amongst the “services”
offered by HSBC subsidiaries and correspondent banks were sweet deals,
to the tune of hundreds of billions of dollars, with financial entities
with ties to international terrorism and the grisly drug trade.
Charged with multiple violations of the Bank Secrecy Act for their
role in laundering blood money for Mexican and Colombian drug cartels,
as a sideline HSBC’s Canary Wharf masters conducted a highly profitable
business with the alleged financiers of the 9/11 attacks who washed
funds through Saudi Arabia’s Al Rajhi Bank.
While the media breathlessly reported that the DPA will levy fines
totaling some $1.92 billion (£1.2bn) which includes $655 million (£408m)
in civil penalties, the largest penalty of its kind ever levied against
a bank, under terms of the agreement not a
single senior
officer will be criminally charged. In fact, those fines will be paid by
shareholders which include municipal investors, pension funds and the
public at large.
With some 7,200 offices in more than 80 countries and 2011 profits
topping $22 billion (£13.6bn), Senate investigators found that HSBC’s
web of 1,200 correspondent banks provided drug traffickers, other
organized crime groups and terrorists 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.” They weren’t and as a
result the bank’s balance sheets were inflated with illicit proceeds
from terrorists and drug gangsters.
Revelations of widespread institutional criminality are hardly a
recent phenomenon. More than a decade ago journalist Stephen Bender
published a
Z Magazine
piece which found that “99.9 percent of the laundered criminal money
that is presented for deposit in the United States gets comfortably into
secure accounts.”
According to Bender: “The key institution in the enabling of money
laundering is the ‘private bank,’ a subdivision of every major US
financial institution. Private banks exclusively seek out a wealthy
clientele, the threshold often being an annual income in excess of $1
million. With the prerogatives of wealth comes a certain regulatory
deference.”
Such “regulatory deference” in the era of “too big to fail” and its
corollary, “too big to prosecute,” is a signal characteristic as noted
above, of
state capture by criminal financial elites.
Indeed, HSBC’s private banking arm, HSBC Private Bank is the
principal private banking business of the HSBC Group. A holding company
wholly owned by HSBC Bank Plc, its subsidiaries include HSBC Private
Bank (Suisse) SA, HSBC Private Bank (UK) Limited, HSBC Private Bank (CI)
Limited, HSBC Private Bank (Luxembourg) SA, HSBC Private Bank (Monaco)
SA and HSBC Financial Services (Cayman) Limited. All of these entities
featured prominently in money laundering and tax evasion schemes
uncovered by the Senate Permanent Subcommittee in their report. Combined
client assets have been estimated by regulators to top $352 billion
(£217.68).
According to Senate investigators, HSBC Financial Services (Cayman)
was the principle conduit through which drug money laundered through
HSBC Mexico (HBMX) flowed. “This branch,” Senate staff averred, “is a
shell operation with no physical presence in the Caymans, and is managed
by HBMX personnel in Mexico City who allow Cayman accounts to be opened
by any HBMX branch across Mexico.”
“Total assets in the Cayman accounts
peaked at $2.1 billion in 2008. Internal documents show that the Cayman
accounts had operated for years with deficient AML [anti-money
laundering] and KYC [know your client] controls and information. An
estimated 15% of the accounts had no KYC information at all, which meant
that HBMX had no idea who was behind them, while other accounts were,
in the words of one HBMX compliance officer, misused by ‘organized
crime’.”
In fact, the “normal” business model employed by HSBC and other
entities bailed out by Western governments fully conform to the “control
fraud” model first described by financial crime expert William K.
Black.
According to Black, a control fraud occurs when a CEO and other
senior managers remove checks and balances that prevent criminal
behaviors, thus subverting regulatory requirements that prevent things
like money laundering, shortfalls due to bad investments or the sale of
toxic financial instruments.
In
The Best Way to Rob a Bank Is to Own One,
Black informed us: “A control fraud is a company run by a criminal who
uses it as a weapon and shield to defraud others and makes it difficult
to detect and punish the fraud.”
“Control frauds,” Black reported, “are
financial superpredators that cause vastly larger losses than
blue-collar thieves. They cause catastrophic business failures. Control
frauds can occur in waves that imperil the general economy. The savings
and loan (S&L) debacle was one such wave.”
Indeed, “control frauds” like HSBC “create a ‘fraud friendly’
corporate culture by hiring yes-men. They combine excessive pay, ego
strokes (e.g., calling the employees ‘geniuses’) and terror to get
employees who will not cross the CEO.” In such a “criminogenic”
environment, the CEO (paging Lord Green!) “optimizes the firm as a fraud
vehicle and can optimize the regulatory environment.”
In their
press release,
the Department of Justice announced that HSBC Group “have agreed to
forfeit $1.256 billion and enter into a deferred prosecution agreement
with the Justice Department for HSBC’s violations of the Bank Secrecy
Act (BSA), the International Emergency Economic Powers Act (IEEPA) and
the Trading with the Enemy Act (TWEA).”
“According to court documents,” the DOJ’s
Office of Public Affairs informed us, “HSBC Bank USA violated the BSA
by failing to maintain an effective anti-money laundering program and to
conduct appropriate due diligence on its foreign correspondent account
holders.”
The DOJ goes on to state, “A four-count felony criminal information
was filed today in federal court in the Eastern District of New York
charging HSBC with willfully failing to maintain an effective anti-money
laundering (AML) program, willfully failing to conduct due diligence on
its foreign correspondent affiliates, violating IEEPA and violating
TWEA.”
However, “HSBC has waived federal indictment, agreed to the filing of
the information, and has accepted responsibility for its criminal
conduct and that of its employees.”
In other words, because they accepted “responsibility” for acts that
would land the average citizen in the slammer for decades, those guilty
of “palling around with terrorists” or smoothing the way as billionaire
drug traffickers hid their loot in the so-called “legitimate economy,”
got a free pass. In fact, under terms of the agreement DOJ’s “deferred
prosecution” will be “deferred” alright, like
forever!
Why might that be the case?
The New York Times
informed us that state and federal officials, eager beavers when it
comes to protecting the integrity of a system lacking all integrity,
“decided against indicting HSBC in a money-laundering case over concerns
that criminal charges could jeopardize one of the world’s largest banks
and ultimately destabilize the global financial system.”
Keep in mind this is a “system” which former United Nations Office of Drugs and Crime director Antonio Maria Costa told
The Observer
thrives on illicit money flows. In 2009, Costa told the London
broadsheet that “in many instances, the money from drugs was the only
liquid investment capital. In the second half of 2008, liquidity was the
banking system’s main problem and hence liquid capital became an
important factor.” Costa said that “a majority of the $352bn (£216bn) of
drugs profits was absorbed into the economic system as a result.”
Glossing over these facts,
Times’ stenographers Ben Protess
and Jessica Silver-Greenberg, cautioned that “four years after the
failure of Lehman Brothers nearly toppled the financial system,” federal
regulators “are still wary that a single institution could undermine
the recovery of the industry and the economy.”
“Given the extent of the evidence against
HSBC, some prosecutors saw the charge as a healthy compromise between a
settlement and a harsher money-laundering indictment. While the charge
would most likely tarnish the bank’s reputation, some officials argued
that it would not set off a series of devastating consequences.”
Devastating to whom one might ask? The 100,000 Mexicans brutally
murdered by drug gangsters, corrupt police and Mexican Army soldiers
whose scorched-earth campaign kills off the competition on behalf of
Mexico’s largest narcotics organization, the Sinaloa Cartel run by
fugitive billionaire drug lord Chapo Guzmán?
“A money-laundering indictment, or a guilty plea over such charges,” the
Times
averred, “would essentially be a death sentence for the bank. Such
actions could cut off the bank from certain investors like pension funds
and ultimately cost it its charter to operate in the United States,
officials said.”
Many of the same lame excuses for prosecutorial inaction were also prominent features in the British press.
The Daily Telegraph
reported that the “largest banks have become too big to prosecute
because of the impact criminal charges would have on confidence in them,
Britain’s most senior bank regulator has admitted.”
“In a variant of the ‘too big to fail’ problem, Andrew Bailey, chief
executive designate of the Prudential Regulation Authority, said
bringing a legal action against a major financial institution raised
‘very difficult questions’.”
“‘Because of the confidence issue with banks, a major criminal
indictment, which we haven’t seen and I’m not saying we are going to
see… this is not an ordinary criminal indictment’,” Bailey told the
Telegraph.
Echoing Bailey, Assistant Attorney General Lanny Breuer said the
decision not to prosecute HSBC was made because “in this day and age we
have to evaluate that innocent people will face very big consequences if
you make a decision.”
This from an administration that continues to prosecute–and jail–low-level drug offenders at record rates!
“Breuer’s argument is facially absurd,” according to William K. Black. In a piece published by
New Economic Perspectives, Black argues:
Prosecuting HSBC’s fraudulent controlling managers would
not harm anyone innocent other than their families–and virtually all
prosecutions hurt some family members. Breuer claims that virtually all
of HSBC’s senior officers have been removed, so his argument is doubly
absurd. Mostly, however, Breuer ignores all of the innocents harmed by
the control frauds. SDIs [systemically dangerous institutions] that are
control frauds are weapons of mass economic destruction that drive
global crises and are the greatest enemy of ‘free’ markets. They are
also the greatest threat to democracy, for they create crony capitalism.
We are all innocent victims of these control frauds–and the Obama and
Cameron governments are allowing them to commit their frauds with
impunity from criminal prosecutions. The controlling officers get
wealthy without fear of prosecution. The SDIs controlled by fraudulent
officers have to purchase an indulgence, but the price of the indulgence
is capped by the ‘too big to prosecute’ doctrine at a level that will
not cause it any real distress. Breuer’s and Bailey’s embrace of too big
to prosecute should have led to their immediate dismissals. Obama and
Cameron should either fire them or announce that they stand with the
criminal enterprises and their fraudulent controlling officers against
their citizens.
As Rowan Bosworth-Davies, a former financial crimes specialist with London’s Metropolitan Police observed on his
web site,
“When you get a bank which admits, like HSBC has just done, that it is
nothing more than a low-life money launderer for Mexican drug kingpins,
and when it serves powerful vested interests to get round
internationally-ratified sanctions against rogue nations, what possible
benefit is achieved by trying to pretend that they cannot be prosecuted
and charged with criminal offences?”
“Oh, excuse me,” Bosworth-Davies wrote, “it might impact the
confidence they enjoy? Whose confidence, their Mexican drug traffickers,
their international sanctions breakers, their global tax evaders, or
the ordinary, law-abiding clients who are entitled to assume that their
bank will obey the laws imposed on them and will provide a safe place of
deposit?”
“Confidence,” the former Met detective averred, “what bloody
confidence can anyone have when they know their bank is an admitted
criminal? When their money is deposited with a bank that breaks the
criminal law at every possible opportunity, which cheats them at every
turn, sells them fraudulent products, launders drug money, evades
international sanctions, moves foreign oligarchs’ tax evasion,
safeguards the deposit accounts of Third World dictators and their
families, then what is that confidence worth?”
Instead, as with the 2010 deal with Wachovia Bank, federal prosecutors cobbled together a
DPA that levied a “fine” of $160 million (£99.2m) on laundered drug profits that topped $378 billion (£234.5bn).
Although top Justice Department officials charged that HSBC laundered
upwards of $881 million (£546.5m) on behalf of the Sinaloa and
Colombia’s Norte del Valle drug cartels, federal prosecutors
investigating the bank told
Reuters in September that this was merely the “tip of the iceberg.”
In fact, as Senate investigators discovered during their probe, the bank failed to monitor more than $670
billion
(£415.6bn) in wire transfers from HSBC Mexico (HBMX) between 2006 and
2009, and failed to adequately monitor over $9.4 billion (£5.83bn) in
purchases of physical U.S. dollars from HBMX during the same period.
Assistant Attorney General Lanny A. Breuer, said in
prepared remarks
announcing the DPA that “traffickers didn’t have to try very hard” when
it came to laundering drug cash. “They would sometimes deposit hundreds
of thousands of dollars in cash, in a single day, into a single
account,” Breuer said, “using boxes designed to fit the precise
dimensions of the teller windows in HSBC Mexico’s branches.”
While Breuer’s dramatic account of the money laundering process may
have offered a gullible financial press corps a breathless moment or
two, a closer look at Breuer’s CV offer hints as to
why he chose not to criminally charge the bank.
A corporatist insider, after representing President Bill Clinton
during ginned-up impeachment hearings, Breuer became a partner in the
white shoe Washington, DC law firm Covington & Burling. From his
perch, he represented Moody’s Investor Service in the wake of Enron’s
ignominious collapse and Dick Cheney’s old firm Halliburton/KBR during
Bush regime scandals. Talk about “safe hands”!
Appointed as the head of the Justice Department’s Criminal Division
by Obama in 2009, Breuer presided over the prosecution/persecution of
NSA whistleblower Thomas A. Drake on charges that he violated the
Espionage Act of 1917 for disclosing massive contractor fraud at NSA to
The Baltimore Sun.
More recently, along with 14 other officials Breuer was recommended
for potential “disciplinary action” by the Justice Department’s Office
of the Inspector General over the Fast and Furious gun-walking scandal
which put some 2,000 firearms into the hands of cartel killers in
Mexico.
“A Justice official said Breuer has been ‘admonished’” by U.S. Attorney General Eric Holder, “but will not be disciplined,”
The Washington Post reported.
Breuer had the temerity to claim that deferred prosecution agreements
“have the same punitive, deterrent, and rehabilitative effect as a
guilty plea.”
“When a company enters into a deferred prosecution agreement with the
government, or an non prosecution agreement for that matter,” Breuer
asserted, “it almost always must acknowledge wrongdoing, agree to
cooperate with the government’s investigation, pay a fine, agree to
improve its compliance program, and agree to face prosecution if it
fails to satisfy the terms of the agreement.”
As is evident from this brief synopsis, when it came to holding HSBC
to account, the fix was already in even before a single signature was
affixed to the DPA.
Without batting an eyelash, Breuer informed us that HSBC has
“committed” to undertake “enhanced AML and other compliance obligations
and structural changes within its entire global operations to prevent a
repeat of the conduct that led to this prosecution.”
“HSBC has replaced almost all of its
senior management, ‘clawed back’ deferred compensation bonuses given to
its most senior AML and compliance officers, and has agreed to partially
defer bonus compensation for its most senior executives–its group
general managers and group managing directors–during the period of the
five-year DPA.”
Yes, you read that correctly. Despite charges that would land the average citizen in a federal gulag for
decades, senior managers have “agreed” to “partially defer bonus compensation” for the length of the DPA!
As
Rolling Stone financial journalist Matt Taibbi commented:
“Wow. So the executives who spent a decade laundering billions of dollars will have to partially
defer their bonuses during the five-year deferred prosecution
agreement? Are you fucking kidding me? That’s the punishment? The
government’s negotiators couldn’t hold firm on forcing HSBC officials to
completely wait to receive their ill-gotten bonuses? They had
to settle on making them ‘partially’ wait? Every honest prosecutor in
America has to be puking his guts out at such bargaining tactics. What
was the Justice Department’s opening offer–asking executives to restrict
their Caribbean vacation time to nine weeks a year?”
“So you might ask,” Taibbi writes,
“what’s the appropriate penalty for a
bank in HSBC’s position? Exactly how much money should one extract from a
firm that has been shamelessly profiting from business with criminals
for years and years? Remember, we’re talking about a company that has
admitted to a smorgasbord of serious banking crimes. If you’re the
prosecutor, you’ve got this bank by the balls. So how much money should
you take?”
“How about all of it? How about
every last dollar the bank has made since it started its illegal
activity? How about you dive into every bank account of every single
executive involved in this mess and take every last bonus dollar they’ve
ever earned? Then take their houses, their cars, the paintings they
bought at Sotheby’s auctions, the clothes in their closets, the loose
change in the jars on their kitchen counters, every last freaking thing.
Take it all and don’t think twice. And then throw them in jail.”
But there’s the rub and the proverbial fly in the ointment. The government
can’t and
won’t
take such measures. Far from being impartial arbiters sworn to defend
us from financial predators, speculators, drug lords, terrorists,
warmongers and out-of-control corporate vultures hiding trillions of
taxable dollars offshore, officials of this criminalized state are hand
picked servants of a thoroughly debauched ruling class.
Writing for the
World Socialist Web Site,
Barry Grey observed: HSBC “was allowed to pay a token fine–less than 10
percent of its profits for 2011 and a fraction of the money it made
laundering the drug bosses’ blood money. Meanwhile, small-time drug
dealers and users, often among the most impoverished and oppressed
sections of the population, are routinely arrested and locked up for
years in the American prison gulag.”
“The financial parasites who keep the global drug trade churning and
make the lion’s share of money from the social devastation it wreaks are
above the law,” Grey noted.
“Here, in a nutshell,” Grey wrote, “is
the modern-day aristocratic principle that prevails behind the
threadbare trappings of ‘democracy.’ The financial robber barons of
today are a law unto themselves. They can steal, plunder, even murder at
will, without fear of being called to account. They devote a portion of
their fabulous wealth to bribing politicians, regulators, judges and
police–from the heights of power in Washington down to the local police
precinct–to make sure their wealth is protected and they remain immune
from criminal prosecution.”
Regarding America’s fraudulent “War on Drugs,” researcher Oliver Villar, who with Drew Cottle coauthored the essential book,
Cocaine, Death Squads, and the War on Terror: US Imperialism and Class Struggle in Colombia, told
Asia Times Online,
it is a “war” that the state and leading banks and financial
institutions in the capitalist West have no interest whatsoever in
“winning.”
When queried why he argued that the “war on drugs is no failure at
all, but a success,” Villar noted: “I come to that conclusion because
what do we know so far about the war on drugs? Well, the US has spent
about US$1 trillion throughout the globe. Can we simply say it has
failed? Has it failed the drug money-laundering banks? No. Has it failed
the key Western financial centers? No. Has it failed the
narco-bourgeoisie in Colombia–or in Afghanistan, where we can see
similar patterns emerging? No. Is it a success in maintaining that
political economy? Absolutely.”
Equally important, what does the impunity shamelessly enjoyed by such loathsome parasites say about
us?
Have we become so indifferent to officially sanctioned crime and
corruption, the myriad petty tyrannies and tyrants, from the boardroom
to the security checkpoint to the job, not to mention murderous state
policies that have transformed so-called “advanced” democracies into
hated and loathed pariah states, who we really
are?
As the late author J. G. Ballard pointed out in his masterful novel
Kingdom Come, “Consumer fascism provides its own ideology, no one needs to sit down and dictate
Mein Kampf. Evil and psychopathy have been reconfigured into lifestyle statements.”
Paranoid fantasy? Wake up and smell the corporatized police state.
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Actually this is easy isn’t it. The house of cards is made of jelly. Where was the 
