HSBC’s drugs money laundering settlement a mockery of justice, says Warren

In Blog by Ian Fraser15 Comments

March 7th, 2013

Senator Elizabeth Warren (Democrat-Massachusetts), has once again revealed the dangerous double standards at the heart of the US justice system.

Appearing at the Senate Banking Committee, the former Harvard law professor questioned officials from the U.S. Treasury Department and the U.S. Federal Reserve over why criminal charges were not pressed on HSBC or any HSBC official who helped to launder hundreds of millions of dollars for Mexican drug cartels.

But, just like the last time, Warren was met with wholly inadequate responses. The impression one got from the Treasury and Fed officials was that some banks are not just ‘too big to fail’, they are also ‘too big to prosecute’, and ‘too big to jail’.

The HSBC scandal prompted the United States Treasury and Justice departments to fine HSBC a record $1.92 billion after finding that the London-headquartered bank, the world’s second largest, repeatedly helped the world’s most violent drug gangs to launder at least $881 million in ill-gotten gains and to channel money from numerous countries against which the the U.S. has economic sanctions. Warren said:-

“HSBC paid a fine, but no one individual went to trial, no individual was banned from banking, and there was no hearing to consider shutting down HSBC’s activities here in the United States. So, what I’d like is, you’re the experts on money laundering. I’d like an opinion: What does it take — how many billions do you have to launder for drug lords and how many economic sanctions do you have to violate — before someone will consider shutting down a financial institution like this?”

Treasury Under Secretary for Terrorism and Financial Intelligence David S. Cohen admitted that  HSBC’s actions were “egregious” but failed to answer Warren’s question.

“For our part, we imposed on HSBC the largest penalties that we’ve ever imposed on any financial institution ever. We looked at the facts and determined that the most appropriate response there was a very, very significant penalty against the institution.”

When Warren repeatedly asked whether regulators could identify a line beyond which a bank should face losing its licence, Cohen struggled to respond before saying: “The actions that we took in the HSBC case we thought were appropriate in that instance”  and “We at the Treasury Department… don’t have the authority to shut down a financial institution.”

“I understand that,” said Warren, visibly annoyed. “I’m asking, in your opinion — you’re the ones who are supposed to be the experts on money laundering, you work with everyone else including the Department of Justice — in your opinion, how many billions of dollars do you have to launder for drug lords before somebody says, ‘We’re shutting you down’?”

Cohen continued to stonewall, merely saying that the Treasury vigorously prosecutes and fines offending banks while insisting: “I’m not going to get into some hypothetical line-drawing exercise.”

Frustrated, Warren turned to Federal Reserve board member Jerome H. Powell, who told her that the U.S. authorities, including the Fed, could only shut down a bank following a criminal conviction. Powell said:-

“That’s not something — we don’t do criminal investigation. We don’t do trials or anything like that. We do civil enforcement, and in the case of HSBC we gave essentially the statutory maximum.”

Warren seemed genuinely stunned, saying: “You have no advice to the Justice Department on whether or not this was an appropriate case for a criminal action?” But Powell deflected, saying that’s the Department of Justice’s domain and that the Fed will “collaborate with them” mainly by answering questions, not by recommending prosecutions. Warren ended the session by saying:-

“You know, if you’re caught with an ounce of cocaine, the chances are good you’re going to go to jail. If it happens repeatedly, you may go to jail for the rest of your life. But evidently, if you launder nearly a billion dollars for drug cartels and violate our international sanctions, your company pays a fine and you go home and sleep in your own bed at night, every single individual associated with this. I think that’s fundamentally wrong.”

It seems that, in Washington D.C. at least, the mood is turning against the notion that banks and bankers who commit crimes should be immune from prosecution. New rules are being weighed up that will hold individuals specifically liable, and older rules — rarely used to take action against executives — will also be explored, officials from the Office of the Comptroller of Currency and the Treasury Department’s illicit finance unit told lawmakers on Thursday. See Reuters – ‘Regulators look to punish bankers for money laundering

Elizabeth Warren and other quotes via Raw Story.

And here are Warren’s earlier questions to U.S. regulators, from February 14th, 2013. During that hearing she asked them when was the last time they took the biggest financial institutions on Wall Street all the way to a trial. This sets the context for the above.

Here is the transcript of the February 14th, 2013 session via Switch Your Bank

Elizabeth Warren: I want to ask a question about supervising big banks when they break the law, including the mortgage foreclosures, but others as well. You know, we all understand why settlements are important, that trials are expensive and we can’t dedicate huge resources to them. But we also understand that if a party is unwilling to go to trial, either because they’re too timid, or because they lack resources, that the consequence is they have a lot less leverage in all of the settlements that occur.

Now, I know there have been some landmark settlements, but we face some very special issues with big financial institutions. If they can break the law and drag in billions in profits, and then turn around and settle, paying out of those profits, they don’t have much incentive to follow the law.

It’s also the case that every time there is a settlement and not a trial, it means that we didn’t have those days and days and days of testimony about what those financial institutions had been up to.

So the question I really want to ask is about how tough you are about how much leverage you really have in these settlements? And what I’d like to know is, tell me a little bit about the last few times you’ve taken the biggest financial institutions on Wall Street all the way to a trial?



Chairman Curry?

Thomas Curry, US Comptroller of Currency: To offer my perspective…

Warren: Sure.

Curry: … of a bank supervisor? We primarily view the tools that we have as mechanisms for correcting deficiencies. So the primary motive for our enforcement actions is really to identify the problem, and then demand a solution to it on an ongoing basis.

Warren: That’s right. And then you set a price for that. I’m sorry to interrupt, but I just want to move this along. It’s effectively a settlement. And what I’m asking is, when did you last take — and I know you haven’t been there forever, so I’m really asking about the OCC — a large financial institution, a Wall Street bank, to trial?

Curry: Well, the institutions I supervise, national banks and federal thrifts, we’ve actually had a fairly fair number of consent orders. We do not have to bring people to trial or …

Warren: Well, I appreciate that you say you don’t have to bring them to trial. My question is, when did you bring them to trial?

Curry: We have not had to do it as a practical matter to achieve our supervisory goals.

Warren: Ms. Walter?

Elisse Walter, chairman of the SEC: Thank you, Senator. As you know, among our remedies are penalties, but the penalties we can get are limited. And we actually have asked for additional authority — my predecessor did — to raise penalties. But when we look at these issues — and we truly believe that we have a very vigorous enforcement program — we look at the distinction between what we could get if we go to trial, and what we could get if we don’t.

Warren: I appreciate that. That’s what everybody does. And so, the really asking is, can you identify when you last took the Wall Street banks to trial?

Walter: I will have to get back to you with the specific information, but we do litigate and we do have settlements that are either rejected by the commission, or not put forward for approval.

Warren: Okay. We’ve got multiple people here. Anyone else want to tell me about the last time you took a Wall Street bank to trial? You know, I just want to note on this, there are district attorneys and U.S. attorneys who are out there every day squeezing ordinary citizens on sometimes very thin grounds, and taking them to trial in order to make an example, as they put it. I’m really concerned that Too Big Too Fail has become Too Big For Trial. That just seems wrong to me.


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  6. “Through tattered clothes great vices do appear;
    Robes and furred gowns hide all. Plate sin with gold,
    And the strong lance of justice hurtless breaks.
    Arm it in rags, a pigmy’s straw does pierce it. “

    William Shakespeare, in King Lear

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