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DOJ Overruled Recommendation to Indict Money-Laundering Bank Over Too-Big-to-Fail Worries

Wednesday, July 13, 2016 By Yves Smith, Naked Capitalism | Op-Ed
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The House of Representatives released a bombshell Tuesday out of its three-year investigation as to why the UK-based bank HSBC got off lightly for money laundering, both for with states subject to economic sanctions like Iran and Sudan, as well as narcotics traffickers. The report found that Attorney General Eric Holder "misled" Congress about the evidence against the bank, and that staff prosecutors had recommended indictment but were overruled by Holder. In addition UK regulators interfered in the case, and argued that criminal sanctions would lead to a financial nuclear winter. That was demonstrated to be false in 2014, when BNP Paribas, which apparently had fewer friends in court, pled guilty to criminal money laundering charges and paid $8.9 billion in fines

Or was it that the New York Department of Financial Services, which was then headed by Benjamin Lawsky, was going to embarrass the crowd in DC into doing more than it wanted to? Recall that Laswky had run rings around the Fed, Treasury, and UK financial services regulators over money laundering at another UK bank, Standard Chartered. This led to a firestorm of financial media outrage as Lawsky ordered Standard Chartered executives to appear and explain why he should not revoke their New York banking license. That would mean they could no longer clear dollar-based transactions, which would be extremely damaging to any international bank.

But even the debate over whether or not to charge a bank criminally again reveals how the regulators and prosecutors protect the looting professionals. Corporations do not commit crimes. Individuals employed by those firms commit crimes. In the case of HSBC, the misconduct was institutionalized. Multiple units of the bank were involved. Either top management was well aware of what was going on or there was a major breakdown in controls. The latter would be a criminal violation under Sarbanes Oxley, the law passed after the Enron bankruptcy and designed to end the "I'm the CEO and I know nothing" defense. 

And let us not kid ourselves as to how well orchestrated the HSBC money-laundernig machine was. As Matt Taibbi wrote:

["Longtime Bill Clinton pal Lanny"] Breuer this week signed off on a settlement deal with the British banking giant HSBC that is the ultimate insult to every ordinary person who's ever had his life altered by a narcotics charge. Despite the fact that HSBC admitted to laundering billions of dollars for Colombian and Mexican drug cartels (among others) and violating a host of important banking laws (from the Bank Secrecy Act to the Trading With the Enemy Act), Breuer and his Justice Department elected not to pursue criminal prosecutions of the bank, opting instead for a "record" financial settlement of $1.9 billion, which as one analyst noted is about five weeks of income for the bank.The banks' laundering transactions were so brazen that the NSA probably could have spotted them from space. Breuer admitted that drug dealers would sometimes come to HSBC's Mexican branches and "deposit hundreds of thousands of dollars in cash, in a single day, into a single account, using boxes designed to fit the precise dimensions of the teller windows."

If you remember the Frontline series on the crisis, it was Lanny Breuer who said he lay awake at night worrying if his actions might hurt banks. Oh, the horror! And at the time, the $1.9 billion was widely depicted as a slap on the wrist. 

Mind you, Bill Clinton also received a large speaking fee from HSBC while the bank was being investigated. From a 2015 Associated Press story:

State Department ethics officials also gave quick approval to Bill Clinton's $200,000 appearance in Florida for British-based HSBC in 2011 despite a 2012 money-laundering settlement with federal prosecutors.

Since the settlement was announced in December 2012, and the House investigation makes clear it was rushed so as to keep ahead of the intrepid Benjamin Lawsky, the fee was clearly paid well before anything had been concluded. 

And a query for well-connected British readers: AIG, by virtue of its very large network in Asia, is widely believed to have curried favor with the US government by providing cover for CIA agents. HSBC has a similarly extensive presence in that part of the world. Could HSBC have been playing a similar role for MI6? That would give it even deeper connections with the Government, making it easier to enlist official support.

The House Financial Services Committee provided a crisp, damning overview of its findings:

The House Financial Services Committee on Monday released a staff report of its investigation into the US Department of Justice's decision not to prosecute HSBC or any of its executives or employees for serious violations of US anti-money laundering laws and related offenses.The Committee initiated its investigation in March 2013.  The Department of Justice (DOJ) and the Department of the Treasury failed to comply with the Committee's requests to obtain relevant documents, necessitating the issuance of subpoenas to both agencies.Approximately three years after its initial inquiries, the Committee finally obtained copies of internal Treasury records showing that DOJ has not been forthright with Congress or the American people concerning its decision to decline to prosecute HSBC. These documents show that:
  • Senior DOJ leadership, including then-Attorney General Eric Holder, overruled an internal recommendation by DOJ's Asset Forfeiture and Money Laundering Section to prosecute HSBC because of DOJ leadership's concern that prosecuting the bank would have serious adverse consequences on the financial system.

  • Notwithstanding Attorney General Holder's personal demand that HSBC agree to DOJ's "take-it-or-leave-it" deferred prosecution agreement deal by November 14, 2012, HSBC appears to have successfully negotiated with DOJ for significant alterations to the deferred prosecution agreement's terms in the weeks following the Attorney General's deadline.

  • DOJ and federal financial regulators were rushing at what one Treasury official described as "alarming speed" to complete their investigations and enforcement actions involving HSBC in order to beat the New York Department of Financial Services.

  • In its haste to complete its enforcement action against HSBC, DOJ transmitted settlement numbers to HSBC before consulting with Treasury's Office of Foreign Asset Control to ensure that the settlement amount accurately reflected the full degree of HSBC's sanctions violations.

  • The involvement of the United Kingdom's Financial Services Authority in the US government's investigations and enforcement actions relating to HSBC, a British-domiciled institution, appears to have hampered the US government's investigations and influenced DOJ's decision not to prosecute HSBC.

  • Attorney General Holder misled Congress concerning DOJ's reasons for not bringing a criminal prosecution against HSBC.

  • DOJ to date has failed to produce any records pertaining to its prosecutorial decision making with respect to HSBC or any large financial institution, notwithstanding the Committee's multiple requests for this information and a congressional subpoena requiring Attorney General Lynch to timely produce these records to the Committee. 

  • Attorney General Lynch and Secretary Lew remain in default on their legal obligation to produce the subpoenaed records to the Committee.

  • DOJ's and Treasury's longstanding efforts to impede the Committee's investigation may constitute contempt and obstruction of Congress.

The Committee is releasing this report to shed light on whether DOJ is making prosecutorial decisions based on the size of financial institutions and DOJ's belief that such prosecutions could negatively impact the economy.

This investigation proves what critics have long argued, that Obama Administration has consistently give priority to protecting banks over meaningful enforcement. But until the perps pay a career price, this sort of corruption is guaranteed to continue.

This piece was reprinted by Truthout with permission or license. It may not be reproduced in any form without permission or license from the source.

Yves Smith

Yves Smith has been in and around finance for more than 30 years as an investment banker, management consultant to financial institutions across a large range of wholesale banking and trading markets businesses, and a corporate finance adviser. She has also written for The New York Times, Al Jazeera, the New Republic, Salon, the Conference Board Review, the Australian Financial Review and other financial publications. Her TV appearances include NBC News, CNBC, Fox Business, PBS, Bill Moyers, The Real News Network, Democracy Now!, Russia TV, ABC (Australia), Al Jazeera and BNN (Canada). Follow her on Twitter: @yvessmith.

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DOJ Overruled Recommendation to Indict Money-Laundering Bank Over Too-Big-to-Fail Worries

Wednesday, July 13, 2016 By Yves Smith, Naked Capitalism | Op-Ed
  • font size decrease font size decrease font size increase font size increase font size
  • Print

The House of Representatives released a bombshell Tuesday out of its three-year investigation as to why the UK-based bank HSBC got off lightly for money laundering, both for with states subject to economic sanctions like Iran and Sudan, as well as narcotics traffickers. The report found that Attorney General Eric Holder "misled" Congress about the evidence against the bank, and that staff prosecutors had recommended indictment but were overruled by Holder. In addition UK regulators interfered in the case, and argued that criminal sanctions would lead to a financial nuclear winter. That was demonstrated to be false in 2014, when BNP Paribas, which apparently had fewer friends in court, pled guilty to criminal money laundering charges and paid $8.9 billion in fines

Or was it that the New York Department of Financial Services, which was then headed by Benjamin Lawsky, was going to embarrass the crowd in DC into doing more than it wanted to? Recall that Laswky had run rings around the Fed, Treasury, and UK financial services regulators over money laundering at another UK bank, Standard Chartered. This led to a firestorm of financial media outrage as Lawsky ordered Standard Chartered executives to appear and explain why he should not revoke their New York banking license. That would mean they could no longer clear dollar-based transactions, which would be extremely damaging to any international bank.

But even the debate over whether or not to charge a bank criminally again reveals how the regulators and prosecutors protect the looting professionals. Corporations do not commit crimes. Individuals employed by those firms commit crimes. In the case of HSBC, the misconduct was institutionalized. Multiple units of the bank were involved. Either top management was well aware of what was going on or there was a major breakdown in controls. The latter would be a criminal violation under Sarbanes Oxley, the law passed after the Enron bankruptcy and designed to end the "I'm the CEO and I know nothing" defense. 

And let us not kid ourselves as to how well orchestrated the HSBC money-laundernig machine was. As Matt Taibbi wrote:

["Longtime Bill Clinton pal Lanny"] Breuer this week signed off on a settlement deal with the British banking giant HSBC that is the ultimate insult to every ordinary person who's ever had his life altered by a narcotics charge. Despite the fact that HSBC admitted to laundering billions of dollars for Colombian and Mexican drug cartels (among others) and violating a host of important banking laws (from the Bank Secrecy Act to the Trading With the Enemy Act), Breuer and his Justice Department elected not to pursue criminal prosecutions of the bank, opting instead for a "record" financial settlement of $1.9 billion, which as one analyst noted is about five weeks of income for the bank.The banks' laundering transactions were so brazen that the NSA probably could have spotted them from space. Breuer admitted that drug dealers would sometimes come to HSBC's Mexican branches and "deposit hundreds of thousands of dollars in cash, in a single day, into a single account, using boxes designed to fit the precise dimensions of the teller windows."

If you remember the Frontline series on the crisis, it was Lanny Breuer who said he lay awake at night worrying if his actions might hurt banks. Oh, the horror! And at the time, the $1.9 billion was widely depicted as a slap on the wrist. 

Mind you, Bill Clinton also received a large speaking fee from HSBC while the bank was being investigated. From a 2015 Associated Press story:

State Department ethics officials also gave quick approval to Bill Clinton's $200,000 appearance in Florida for British-based HSBC in 2011 despite a 2012 money-laundering settlement with federal prosecutors.

Since the settlement was announced in December 2012, and the House investigation makes clear it was rushed so as to keep ahead of the intrepid Benjamin Lawsky, the fee was clearly paid well before anything had been concluded. 

And a query for well-connected British readers: AIG, by virtue of its very large network in Asia, is widely believed to have curried favor with the US government by providing cover for CIA agents. HSBC has a similarly extensive presence in that part of the world. Could HSBC have been playing a similar role for MI6? That would give it even deeper connections with the Government, making it easier to enlist official support.

The House Financial Services Committee provided a crisp, damning overview of its findings:

The House Financial Services Committee on Monday released a staff report of its investigation into the US Department of Justice's decision not to prosecute HSBC or any of its executives or employees for serious violations of US anti-money laundering laws and related offenses.The Committee initiated its investigation in March 2013.  The Department of Justice (DOJ) and the Department of the Treasury failed to comply with the Committee's requests to obtain relevant documents, necessitating the issuance of subpoenas to both agencies.Approximately three years after its initial inquiries, the Committee finally obtained copies of internal Treasury records showing that DOJ has not been forthright with Congress or the American people concerning its decision to decline to prosecute HSBC. These documents show that:
  • Senior DOJ leadership, including then-Attorney General Eric Holder, overruled an internal recommendation by DOJ's Asset Forfeiture and Money Laundering Section to prosecute HSBC because of DOJ leadership's concern that prosecuting the bank would have serious adverse consequences on the financial system.

  • Notwithstanding Attorney General Holder's personal demand that HSBC agree to DOJ's "take-it-or-leave-it" deferred prosecution agreement deal by November 14, 2012, HSBC appears to have successfully negotiated with DOJ for significant alterations to the deferred prosecution agreement's terms in the weeks following the Attorney General's deadline.

  • DOJ and federal financial regulators were rushing at what one Treasury official described as "alarming speed" to complete their investigations and enforcement actions involving HSBC in order to beat the New York Department of Financial Services.

  • In its haste to complete its enforcement action against HSBC, DOJ transmitted settlement numbers to HSBC before consulting with Treasury's Office of Foreign Asset Control to ensure that the settlement amount accurately reflected the full degree of HSBC's sanctions violations.

  • The involvement of the United Kingdom's Financial Services Authority in the US government's investigations and enforcement actions relating to HSBC, a British-domiciled institution, appears to have hampered the US government's investigations and influenced DOJ's decision not to prosecute HSBC.

  • Attorney General Holder misled Congress concerning DOJ's reasons for not bringing a criminal prosecution against HSBC.

  • DOJ to date has failed to produce any records pertaining to its prosecutorial decision making with respect to HSBC or any large financial institution, notwithstanding the Committee's multiple requests for this information and a congressional subpoena requiring Attorney General Lynch to timely produce these records to the Committee. 

  • Attorney General Lynch and Secretary Lew remain in default on their legal obligation to produce the subpoenaed records to the Committee.

  • DOJ's and Treasury's longstanding efforts to impede the Committee's investigation may constitute contempt and obstruction of Congress.

The Committee is releasing this report to shed light on whether DOJ is making prosecutorial decisions based on the size of financial institutions and DOJ's belief that such prosecutions could negatively impact the economy.

This investigation proves what critics have long argued, that Obama Administration has consistently give priority to protecting banks over meaningful enforcement. But until the perps pay a career price, this sort of corruption is guaranteed to continue.

This piece was reprinted by Truthout with permission or license. It may not be reproduced in any form without permission or license from the source.

Yves Smith

Yves Smith has been in and around finance for more than 30 years as an investment banker, management consultant to financial institutions across a large range of wholesale banking and trading markets businesses, and a corporate finance adviser. She has also written for The New York Times, Al Jazeera, the New Republic, Salon, the Conference Board Review, the Australian Financial Review and other financial publications. Her TV appearances include NBC News, CNBC, Fox Business, PBS, Bill Moyers, The Real News Network, Democracy Now!, Russia TV, ABC (Australia), Al Jazeera and BNN (Canada). Follow her on Twitter: @yvessmith.