ABOVE THE LAW: Fraud, Money Laundering and Drug Trafficing – No Prosecution For Banking Giants
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, Europeâs 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 âcapturedâ 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,Â here,Â hereÂ andÂ here), when the Senate Permanent Subcommittee on Investigations issued their mammoth 335-pageÂ report, âU.S. Vulnerabilities to Money Laundering, Drugs, and Terrorist Financing: HSBC Case History,â we learned that amongst the âservicesâ 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 HSBCâs Canary Wharf masters conducted a highly profitable business with the alleged financiers of the 9/11 attacks who washed funds through Saudi Arabiaâs Al Rajhi Bank.
While the media breathlessly reported that the DPA will levy fines totaling some $1.92 billion (ÂŁ1.2bn) which includes $655 million (ÂŁ408m) in civil penalties, the largest penalty of its kind ever levied against a bank, under terms of the agreement not aÂ singlesenior 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 (ÂŁ13.6bn), Senate investigators found that HSBCâs web of 1,200 correspondent banks provided drug traffickers, other organized crime groups and terrorists with âU.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.â They werenât and as a result the bankâs 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 aÂ Z MagazineÂ piece which found that â99.9 percent of the laundered criminal money that is presented for deposit in the United States gets comfortably into secure accounts.â
According to Bender: âThe key institution in the enabling of money laundering is the âprivate bank,â 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.â
Such âregulatory deferenceâ in the era of âtoo big to failâ and its corollary, âtoo big to prosecute,â is a signal characteristic as noted above, ofÂ state captureÂ by criminal financial elites.
Indeed, HSBCâs 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 (ÂŁ217.68).
According to Senate investigators, HSBC Financial Services (Cayman) was the principle conduit through which drug money laundered through HSBC Mexico (HBMX) flowed. âThis branch,â Senate staff averred, âis 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.â
âTotal 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 âorganized crimeâ.â
In fact, the ânormalâ business model employed by HSBC and other entities bailed out by Western governments fully conform to the âcontrol fraudâ 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.
InÂ The Best Way to Rob a Bank Is to Own One, Black informed us: âA 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.â
âControl frauds,â Black reported, âare 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.â
Indeed, âcontrol fraudsâ like HSBC âcreate a âfraud friendlyâ corporate culture by hiring yes-men. They combine excessive pay, ego strokes (e.g., calling the employees âgeniusesâ) and terror to get employees who will not cross the CEO.â In such a âcriminogenicâ environment, the CEO (paging Lord Green!) âoptimizes the firm as a fraud vehicle and can optimize the regulatory environment.â
In theirÂ press release, the Department of Justice announced that HSBC Group âhave agreed to forfeit $1.256 billion and enter into a deferred prosecution agreement with the Justice Department for HSBCâs violations of the Bank Secrecy Act (BSA), the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA).â
âAccording to court documents,â the DOJâs Office of Public Affairs informed us, âHSBC 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.â
The DOJ goes on to state, âA 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.â
However, âHSBC has waived federal indictment, agreed to the filing of the information, and has accepted responsibility for its criminal conduct and that of its employees.â
In other words, because they accepted âresponsibilityâ for acts that would land the average citizen in the slammer for decades, those guilty of âpalling around with terroristsâ or smoothing the way as billionaire drug traffickers hid their loot in the so-called âlegitimate economy,â got a free pass. In fact, under terms of the agreement DOJâs âdeferred prosecutionâ will be âdeferredâ alright, likeÂ forever!
Why might that be the case?
The New York TimesÂ informed us that state and federal officials, eager beavers when it comes to protecting the integrity of a system lacking all integrity, âdecided against indicting HSBC in a money-laundering case over concerns that criminal charges could jeopardize one of the worldâs largest banks and ultimately destabilize the global financial system.â
Keep in mind this is a âsystemâ which former United Nations Office of Drugs and Crime director Antonio Maria Costa toldÂ The ObserverÂ thrives on illicit money flows. In 2009, Costa told the London broadsheet that âin many instances, the money from drugs was the only liquid investment capital. In the second half of 2008, liquidity was the banking systemâs main problem and hence liquid capital became an important factor.â Costa said that âa majority of the $352bn (ÂŁ216bn) of drugs profits was absorbed into the economic system as a result.â
Glossing over these facts,Â TimesâÂ stenographers Ben Protess and Jessica Silver-Greenberg, cautioned that âfour years after the failure of Lehman Brothers nearly toppled the financial system,â federal regulators âare still wary that a single institution could undermine the recovery of the industry and the economy.â
âGiven 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 bankâs reputation, some officials argued that it would not set off a series of devastating consequences.â
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 Mexicoâs largest narcotics organization, the Sinaloa Cartel run by fugitive billionaire drug lord Chapo GuzmĂĄn?
âA money-laundering indictment, or a guilty plea over such charges,â theÂ TimesÂ averred, âwould 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.â
Many of the same lame excuses for prosecutorial inaction were also prominent features in the British press.
The Daily TelegraphÂ reported that the âlargest banks have become too big to prosecute because of the impact criminal charges would have on confidence in them, Britainâs most senior bank regulator has admitted.â
âIn a variant of the âtoo big to failâ problem, Andrew Bailey, chief executive designate of the Prudential Regulation Authority, said bringing a legal action against a major financial institution raised âvery difficult questionsâ.â
ââBecause of the confidence issue with banks, a major criminal indictment, which we havenât seen and Iâm not saying we are going to seeâŠ this is not an ordinary criminal indictmentâ,â Bailey told theÂ Telegraph.
Echoing Bailey, Assistant Attorney General Lanny Breuer said the decision not to prosecute HSBC was made because âin this day and age we have to evaluate that innocent people will face very big consequences if you make a decision.â
This from an administration that continues to prosecuteâand jailâlow-level drug offenders at record rates!
âBreuerâs argument is facially absurd,â according to William K. Black. In a piece published byÂ New Economic Perspectives, Black argues:
Prosecuting HSBCâs fraudulent controlling managers would not harm anyone innocent other than their familiesâand virtually all prosecutions hurt some family members. Breuer claims that virtually all of HSBCâs 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 âfreeâ markets. They are also the greatest threat to democracy, for they create crony capitalism. We are all innocent victims of these control fraudsâand 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 âtoo big to prosecuteâ doctrine at a level that will not cause it any real distress. Breuerâs and Baileyâs 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 Londonâs Metropolitan Police observed on hisÂ web site, âWhen 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?â
âOh, excuse me,â Bosworth-Davies wrote, âit 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?â
âConfidence,â the former Met detective averred, âwhat 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 oligarchsâ tax evasion, safeguards the deposit accounts of Third World dictators and their families, then what is that confidence worth?â
Instead, as with the 2010 deal with Wachovia Bank, federal prosecutors cobbled together aÂ DPAÂ that levied a âfineâ of $160 million (ÂŁ99.2m) on laundered drug profits that topped $378 billion (ÂŁ234.5bn).
Although top Justice Department officials charged that HSBC laundered upwards of $881 million (ÂŁ546.5m) on behalf of the Sinaloa and Colombiaâs Norte del Valle drug cartels, federal prosecutors investigating the bank toldÂ ReutersÂ in September that this was merely the âtip of the iceberg.â
In fact, as Senate investigators discovered during their probe, the bank failed to monitor more than $670Â billionÂ (ÂŁ415.6bn) in wire transfers from HSBC Mexico (HBMX) between 2006 and 2009, and failed to adequately monitor over $9.4 billion (ÂŁ5.83bn) in purchases of physical U.S. dollars from HBMX during the same period.
Assistant Attorney General Lanny A. Breuer, said inÂ prepared remarksÂ announcing the DPA that âtraffickers didnât have to try very hardâ when it came to laundering drug cash. âThey would sometimes deposit hundreds of thousands of dollars in cash, in a single day, into a single account,â Breuer said, âusing boxes designed to fit the precise dimensions of the teller windows in HSBC Mexicoâs branches.â
While Breuerâs dramatic account of the money laundering process may have offered a gullible financial press corps a breathless moment or two, a closer look at Breuerâs CV offer hints as toÂ whyÂ 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 Moodyâs Investor Service in the wake of Enronâs ignominious collapse and Dick Cheneyâs old firm Halliburton/KBR during Bush regime scandals. Talk about âsafe handsâ!
Appointed as the head of the Justice Departmentâs 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 toÂ The Baltimore Sun.
More recently, along with 14 other officials Breuer was recommended for potential âdisciplinary actionâ by the Justice Departmentâs 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.
âA Justice official said Breuer has been âadmonishedââ by U.S. Attorney General Eric Holder, âbut will not be disciplined,âÂ The Washington PostÂ reported.
Breuer had the temerity to claim that deferred prosecution agreements âhave the same punitive, deterrent, and rehabilitative effect as a guilty plea.â
âWhen a company enters into a deferred prosecution agreement with the government, or an non prosecution agreement for that matter,â Breuer asserted, âit almost always must acknowledge wrongdoing, agree to cooperate with the governmentâs 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.â
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 âcommittedâ to undertake âenhanced 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.â
âHSBC has replaced almost all of its senior management, âclawed backâ deferred compensation bonuses given to its most senior AML and compliance officers, and has agreed to partially defer bonus compensation for its most senior executivesâits group general managers and group managing directorsâduring the period of the five-year DPA.â
Yes, you read that correctly. Despite charges that would land the average citizen in a federal gulag forÂ decades, senior managers have âagreedâ to âpartially defer bonus compensationâ for the length of the DPA!
AsÂ Rolling StoneÂ financial journalist Matt Taibbi commented:
âWow. So the executives who spent a decade laundering billions of dollars will have topartiallyÂ defer their bonuses during the five-year deferred prosecution agreement? Are you fucking kidding me? Thatâs the punishment? The governmentâs negotiators couldnât hold firm on forcing HSBC officials toÂ completelyÂ wait to receive their ill-gotten bonuses? They had to settle on making them âpartiallyâ wait? Every honest prosecutor in America has to be puking his guts out at such bargaining tactics. What was the Justice Departmentâs opening offerâasking executives to restrict their Caribbean vacation time to nine weeks a year?â
âSo you might ask,â Taibbi writes,
âwhatâs the appropriate penalty for a bank in HSBCâs 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, weâre talking about a company that has admitted to a smorgasbord of serious banking crimes. If youâre the prosecutor, youâve got this bank by the balls. So how much money should you take?â
âHow aboutÂ allÂ 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 theyâve ever earned? Then take their houses, their cars, the paintings they bought at Sothebyâs auctions, the clothes in their closets, the loose change in the jars on their kitchen counters, every last freaking thing. Take it all and donât think twice. AndÂ thenÂ throw them in jail.â
But thereâs the rub and the proverbial fly in the ointment. The governmentÂ canâtÂ andwonâtÂ 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 theÂ World Socialist Web Site, Barry Grey observed: HSBC âwas allowed to pay a token fineâless than 10 percent of its profits for 2011 and a fraction of the money it made laundering the drug bossesâ 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.â
âThe financial parasites who keep the global drug trade churning and make the lionâs share of money from the social devastation it wreaks are above the law,â Grey noted.
âHere, in a nutshell,â Grey wrote, âis the modern-day aristocratic principle that prevails behind the threadbare trappings of âdemocracy.â 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 policeâfrom the heights of power in Washington down to the local police precinctâto make sure their wealth is protected and they remain immune from criminal prosecution.â
Regarding Americaâs fraudulent âWar on Drugs,â researcher Oliver Villar, who with Drew Cottle coauthored the essential book,Â Cocaine, Death Squads, and the War on Terror: US Imperialism and Class Struggle in Colombia, toldÂ Asia Times Online, it is a âwarâ that the state and leading banks and financial institutions in the capitalist West have no interest whatsoever in âwinning.â
When queried why he argued that the âwar on drugs is no failure at all, but a success,â Villar noted: âI 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 Colombiaâor in Afghanistan, where we can see similar patterns emerging? No. Is it a success in maintaining that political economy? Absolutely.â
Equally important, what does the impunity shamelessly enjoyed by such loathsome parasites say aboutÂ 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 âadvancedâ democracies into hated and loathed pariah states, who we reallyÂ are?
As the late author J. G. Ballard pointed out in his masterful novelÂ Kingdom Come, âConsumer fascism provides its own ideology, no one needs to sit down and dictateÂ Mein Kampf. Evil and psychopathy have been reconfigured into lifestyle statements.â
Paranoid fantasy? Wake up and smell the corporatized police state.
Tom BurghardtÂ is a researcher and activist based in the San Francisco Bay Area. In addition to publishing in Covert Action Quarterly andÂ Global Research, he is a Contributing Editor withÂ Cyranoâs Journal Today. His articles can be read onDissident Voice,Â Pacific Free Press,Â Uncommon Thought Journal, and the whistleblowing websiteÂ WikiLeaks. He is the editor of Police State America: U.S. Military âCivil Disturbanceâ Planning, distributed byÂ AK PressÂ and has contributed to the new book fromÂ Global Research, The Global Economic Crisis: The Great Depression of the XXI Century.
ByÂ Tom Burghardt
January 2, 2013