How are we supposed react to stories like this one? (NYT Dealbook, December 10, 2012)
State and federal authorities 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.
Instead, HSBC announced on Tuesday that it had agreed to a record $1.92 billion settlement with authorities. The bank, which is based in Britain, faces accusations that it transferred billions of dollars for nations like Iran and enabled Mexican drug cartels to move money illegally through its American subsidiaries.
1.92 billion dollars is chump change to a bank as big as HSBC.
While the settlement with HSBC is a major victory for the government, the case raises questions about whether certain financial institutions, having grown so large and interconnected, are too big to indict. Four years after the failure of Lehman Brothers nearly toppled the financial system, regulators are still wary that a single institution could undermine the recovery of the industry and the economy.
That's too big to jail to the rest of us.
But the threat of criminal prosecution acts as a powerful deterrent. If authorities signal such actions are remote for big banks, the threat could lose its sting.
Behind the scenes, authorities debated for months the advantages and perils of a criminal indictment against HSBC.
Some prosecutors at the Justice Department’s criminal division and the Manhattan district attorney’s office wanted the bank to plead guilty to violations of the federal Bank Secrecy Act, according to the officials with direct knowledge of the matter, who spoke on the condition of anonymity. The law requires financial institutions to report any cash transaction of $10,000 or more and to bring any dubious activity to the attention of regulators.
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.
A money-laundering indictment, or a guilty plea over such charges, 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.
What did HSBC have to say?
On Tuesday, HSBC said it had “reached agreement with United States authorities in relation to investigations regarding inadequate compliance with anti-money laundering and sanctions laws.” The bank is also expected to reach a settlement over the matter with Britain’s Financial Services Authority, according to a person with direct knowledge of the matter.
“We accept responsibility for our past mistakes,’’ HSBC’s chief executive, Stuart T. Gulliver, said in the statement. “We are committed to protecting the integrity of the global financial system. To this end, we will continue to work closely with governments and regulators around the world.”
Past mistakes? Did Stuart T. Gulliver just refer to these money laundering activities as mistakes? Stuart says he is committed to protecting the integrity of the global financial system. Are you indeed, Stuart?
It would seem that everybody involved, from Stuart Gulliver to anonymous officials at the Justice Department, are committed to protecting the integrity of the global financial system, unless protecting that integrity should run afoul of the substantial interests of those who have destroyed it. In that case, we must worry about roiling the financial system and bringing down "the economy"—whatever that it is. I guess "the economy" is whatever the Big Money Boys say it is.
How was HSBC thrust into the spotlight?
HSBC was thrust into the spotlight in July after a Congressional committee outlined how the bank, between 2001 and 2010, “exposed the U.S. financial system to money laundering and terrorist financing risks.” The Permanent Subcommittee on Investigations held a subsequent hearing at which the bank’s compliance chief resigned amid mounting concerns that senior bank officials were complicit in the illegal activity.
Despite repeated urgings from federal officials to strengthen protections in its vast Mexican business, HSBC instead viewed the country from 2000 to 2009 as low-risk for money laundering, the Senate report found. Even after HSBC’s Mexican operation transferred more than $7 billion to the United States — a volume that law enforcement officials said had to be “illegal drug proceeds” — lax controls remained.
HSBC has since moved to bolster its safeguards. The bank doubled its spending on compliance functions and revamped its oversight, according to a spokesman.
In January, HSBC hired Stuart A. Levey as chief legal officer to come up with stricter internal standards to thwart the illegal flow of cash. Mr. Levey was formerly an under secretary at the Treasury Department who focused on terrorism and financial intelligence [image above].
Please feel free to draw your own conclusions about HSBC hiring former undersecretary of the Treasury for terrorism and financial intelligence Stuart A. Levey to be their chief legal officer after laundering $60 trillion from 2001 to 2010 to support Mexican drug lords, Al-Qaeda terrorists and God Only Knows who else, and then getting what amounts to a slap on the wrist for doing so.
Ordinarily, I would caution you about reading too much into such a set of circumstances, but let us throw out (at least for today) any nuanced interpretation of typical human motivation and behavior. Please draw any conclusion you like after reading this story. Whatever conclusion you come to will surely have some merit. Let you imagination run wild!
And now, back to my original question—what are we supposed to think about this story?
Regulators have also vowed to improve. The Congressional hearings exposed weaknesses at the Office of the Comptroller of the Currency, the national bank regulator. In 2010, the regulator found that HSBC had severe deficiencies in its anti-money laundering controls, including $60 trillion in transactions and 17,000 accounts flagged as potentially suspicious, activities that were not reviewed.
Despite the findings, the regulator did not fine the bank.
I don't know about you, but in a world of criminal financial institutions and entangled, corrupt governments as crooked as this one, I would say all bets are off. Where there is such a configuration of Money & Power, only Evil can result. And as I once said, in my post What Does A Failed Society Look Like?—
In a failed society, the Evil which lives within flawed humanity has become free to do what it will. Here it takes the form of predatory lending to naive young people. Once Pandora's Box is open, there is no putting the Evil back in the box.
Therefore, a failed society talks endlessly about its problems without ever doing anything about them. You see lots of reports. You see lots of warnings, a lot of recommendations for policy changes. You get lots of false hope, but nothing substantive ever happens. You get lots of lip-service, which is bullshit by definition. There are many complex variations on this bullshit, but the bottom line never changes. The bottom line is No Meaningful Change. Such change is no longer possible.
And that's all there is to it. And they say this species has a future! Hah!