December 18, 2012

Too big to jail? Bank execs avoid laundering charges

The Associated Press

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In this Dec. 11, 2012, file photo, Lanny Breuer, center, Assistant Attorney General of the Justice Department's Criminal Division, addresses a news conference in New York's Brooklyn borough to announce British bank HSBC agreed to pay $1.9 billion to settle a New York based-probe in connection with the laundering of money from narcotics traffickers in Mexico. Among those joining Breuer is Treasury Under Secretary David Cohen, left. When the Justice Department announced its record $1.9 billion settlement against British bank HSBC last week, prosecutors called it a powerful blow to a dysfunctional institution accused of laundering money for Iran, Libya and Mexico's murderous drug cartels. But to some former federal prosecutors, it was only the latest case of the government stopping short of bringing criminal money laundering charges against a big bank or its executives. (AP Photo/Richard Drew, File)

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This May 11, 2012, file photo shows the corporate logo for HSBC hangs on a wall outside an office for the London-based multinational bank in New York. When the Justice Department announced its record $1.9 billion settlement against British bank HSBC last week, prosecutors called it a powerful blow to a dysfunctional institution accused of laundering money for Iran, Libya and Mexico's murderous drug cartels. But to some former federal prosecutors, it was only the latest case of the government stopping short of bringing criminal money laundering charges against a big bank or its executives. (AP Photo/Mark Lennihan, File)

Bill Black, a former financial regulator who was instrumental in uncloaking the savings-and-loan crisis in the 1980s, scoffed at such a notion. "Seriously, you want to keep felons in charge of a bank for bank stability?" he said.

To Black and other critics of the government's approach, the HSBC case is a replay of the years immediately after the 2008 financial crisis, when the people most responsible for it were never really punished. No high-profile bankers have gone to jail in the wake of the financial crisis, nor has there been any well-known, large-scale effort to recover the giant bonuses awarded to executives of failed or nearly failed banks.

In the HSBC case, the bank has rescinded deferred compensation bonuses given to its most senior executives and agreed to partially defer bonus compensation for its most senior executives during the next five years.

"The guy who filed a false tax return, he's probably doing five years in prison," said Notre Dame's Gurulé. "And these guys — transactions with Iran, threatening to jeopardize U.S. national security — they don't even get prosecuted. The fairness of that system is very suspect."

The government's charges against HSBC are grim. They sketch a picture of a bank that systemically and purposefully skirted the law.

HSBC willfully failed to keep proper anti-laundering programs in place and to conduct due diligence on its customers, the government says. 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. At the same time, the bank gave Mexico its lowest risk rating for money laundering.

The cartels are a deadly force, controlling large swaths of Mexico as virtual mafias. The government of former President Felipe Calderon started reporting drug-related killings when it took office in late 2006, but stopped more than a year ago when the toll reached 47,500. Many private groups now put the number close to 60,000.

In July, the Senate's Permanent Subcommittee on Investigations produced a damning 334-page report that told a similar story.

In one email cited in the Senate committee's report, an HSBC executive pushed to reopen a part of the bank's business that had been closed to a Saudi Arabian bank with possible links to the Sept. 11 attacks.

At a hearing with the committee in July, the bank's head of group compliance broke from his prepared testimony to resign.

Henry Pontell, a criminologist who teaches at the University of California-Irvine, was underwhelmed by the $1.9 billion in fines against HSBC, given its $17 billion in profits last year.

"The notion that 'Oh, they paid a big fine, that will scare everyone else,' is nonsense," Pontell said. "Those individuals that did this, they didn't pay the $1.9 billion. The company did. And that's supposed to be an effective deterrent? A white-collar criminal, the biggest thing they fear is being put into prison."

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