<http://www.globalresearch.ca/fraud-money-laundering-and-narcotics-impunity-of-the-banking-giants-no-prosecution-of-hsbc/5317406>
Fraud, Money Laundering and Narcotics. Impunity of the Banking
Giants. No Prosecution of HSBC
By Tom Burghardt
Global Research, December 31, 2012
Antifascist Calling
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, Europe's 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 "captured" 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, here, here and here), when the
Senate Permanent Subcommittee on Investigations issued their mammoth
335-page report, "U.S. Vulnerabilities to Money Laundering, Drugs,
and Terrorist Financing: HSBC Case History," we learned that amongst
the "services" 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 HSBC's Canary Wharf masters conducted a highly
profitable business with the alleged financiers of the 9/11 attacks
who washed funds through Saudi Arabia's Al Rajhi Bank.
While the media breathlessly reported that the DPA will levy fines
totaling some $1.92 billion (£1.2bn) which includes $655 million
(£408m) in civil penalties, the largest penalty of its kind ever
levied against a bank, under terms of the agreement not a single
senior 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 (£13.6bn), Senate investigators found that HSBC's
web of 1,200 correspondent banks provided drug traffickers, other
organized crime groups and terrorists with "U.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."
They weren't and as a result the bank's 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 a Z Magazine piece which found that "99.9 percent of the
laundered criminal money that is presented for deposit in the United
States gets comfortably into secure accounts."
According to Bender: "The key institution in the enabling of money
laundering is the 'private bank,' 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."
Such "regulatory deference" in the era of "too big to fail" and its
corollary, "too big to prosecute," is a signal characteristic as
noted above, of state capture by criminal financial elites.
Indeed, HSBC's 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 (£217.68).
According to Senate investigators, HSBC Financial Services (Cayman)
was the principle conduit through which drug money laundered through
HSBC Mexico (HBMX) flowed. "This branch," Senate staff averred, "is 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."
"Total 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 'organized crime'."
In fact, the "normal" business model employed by HSBC and other
entities bailed out by Western governments fully conform to the
"control fraud" 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.
In The Best Way to Rob a Bank Is to Own One, Black informed us: "A
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."
"Control frauds," Black reported, "are 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."
Indeed, "control frauds" like HSBC "create a 'fraud friendly'
corporate culture by hiring yes-men. They combine excessive pay, ego
strokes (e.g., calling the employees 'geniuses') and terror to get
employees who will not cross the CEO." In such a "criminogenic"
environment, the CEO (paging Lord Green!) "optimizes the firm as a
fraud vehicle and can optimize the regulatory environment."
In their press release, the Department of Justice announced that HSBC
Group "have agreed to forfeit $1.256 billion and enter into a
deferred prosecution agreement with the Justice Department for HSBC's
violations of the Bank Secrecy Act (BSA), the International Emergency
Economic Powers Act (IEEPA) and the Trading with the Enemy Act
(TWEA)."
"According to court documents," the DOJ's Office of Public Affairs
informed us, "HSBC 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."
The DOJ goes on to state, "A 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."
However, "HSBC has waived federal indictment, agreed to the filing of
the information, and has accepted responsibility for its criminal
conduct and that of its employees."
In other words, because they accepted "responsibility" for acts that
would land the average citizen in the slammer for decades, those
guilty of "palling around with terrorists" or smoothing the way as
billionaire drug traffickers hid their loot in the so-called
"legitimate economy," got a free pass. In fact, under terms of the
agreement DOJ's "deferred prosecution" will be "deferred" alright,
like forever!
Why might that be the case?
The New York Times informed us that state and federal officials,
eager beavers when it comes to protecting the integrity of a system
lacking all integrity, "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."
Keep in mind this is a "system" which former United Nations Office of
Drugs and Crime director Antonio Maria Costa told The Observer
thrives on illicit money flows. In 2009, Costa told the London
broadsheet that "in many instances, the money from drugs was the only
liquid investment capital. In the second half of 2008, liquidity was
the banking system's main problem and hence liquid capital became an
important factor." Costa said that "a majority of the $352bn (£216bn)
of drugs profits was absorbed into the economic system as a result."
Glossing over these facts, Times' stenographers Ben Protess and
Jessica Silver-Greenberg, cautioned that "four years after the
failure of Lehman Brothers nearly toppled the financial system,"
federal regulators "are still wary that a single institution could
undermine the recovery of the industry and the economy."
"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."
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
Mexico's largest narcotics organization, the Sinaloa Cartel run by
fugitive billionaire drug lord Chapo Guzmán?
"A money-laundering indictment, or a guilty plea over such charges,"
the Times averred, "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."
Many of the same lame excuses for prosecutorial inaction were also
prominent features in the British press.
The Daily Telegraph reported that the "largest banks have become too
big to prosecute because of the impact criminal charges would have on
confidence in them, Britain's most senior bank regulator has
admitted."
"In a variant of the 'too big to fail' problem, Andrew Bailey, chief
executive designate of the Prudential Regulation Authority, said
bringing a legal action against a major financial institution raised
'very difficult questions'."
"'Because of the confidence issue with banks, a major criminal
indictment, which we haven't seen and I'm not saying we are going to
see this is not an ordinary criminal indictment'," Bailey told the
Telegraph.
Echoing Bailey, Assistant Attorney General Lanny Breuer said the
decision not to prosecute HSBC was made because "in this day and age
we have to evaluate that innocent people will face very big
consequences if you make a decision."
This from an administration that continues to prosecute-and
jail-low-level drug offenders at record rates!
"Breuer's argument is facially absurd," according to William K.
Black. In a piece published by New Economic Perspectives, Black
argues:
"Prosecuting HSBC's fraudulent controlling managers would not harm
anyone innocent other than their families-and virtually all
prosecutions hurt some family members. Breuer claims that virtually
all of HSBC's 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
'free' markets. They are also the greatest threat to democracy, for
they create crony capitalism. We are all innocent victims of these
control frauds-and 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 'too big
to prosecute' doctrine at a level that will not cause it any real
distress. Breuer's and Bailey's 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
London's Metropolitan Police observed on his web site, "When 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?"
"Oh, excuse me," Bosworth-Davies wrote, "it 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?"
"Confidence," the former Met detective averred, "what 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 oligarchs' tax evasion,
safeguards the deposit accounts of Third World dictators and their
families, then what is that confidence worth?"
Instead, as with the 2010 deal with Wachovia Bank, federal
prosecutors cobbled together a DPA that levied a "fine" of $160
million (£99.2m) on laundered drug profits that topped $378 billion
(£234.5bn).
Although top Justice Department officials charged that HSBC laundered
upwards of $881 million (£546.5m) on behalf of the Sinaloa and
Colombia's Norte del Valle drug cartels, federal prosecutors
investigating the bank told Reuters in September that this was merely
the "tip of the iceberg."
In fact, as Senate investigators discovered during their probe, the
bank failed to monitor more than $670 billion (£415.6bn) in wire
transfers from HSBC Mexico (HBMX) between 2006 and 2009, and failed
to adequately monitor over $9.4 billion (£5.83bn) in purchases of
physical U.S. dollars from HBMX during the same period.
Assistant Attorney General Lanny A. Breuer, said in prepared remarks
announcing the DPA that "traffickers didn't have to try very hard"
when it came to laundering drug cash. "They would sometimes deposit
hundreds of thousands of dollars in cash, in a single day, into a
single account," Breuer said, "using boxes designed to fit the
precise dimensions of the teller windows in HSBC Mexico's branches."
While Breuer's dramatic account of the money laundering process may
have offered a gullible financial press corps a breathless moment or
two, a closer look at Breuer's CV offer hints as to why 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 Moody's Investor Service in the wake of Enron's
ignominious collapse and Dick Cheney's old firm Halliburton/KBR
during Bush regime scandals. Talk about "safe hands"!
Appointed as the head of the Justice Department's 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
to The Baltimore Sun.
More recently, along with 14 other officials Breuer was recommended
for potential "disciplinary action" by the Justice Department's
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.
"A Justice official said Breuer has been 'admonished'" by U.S.
Attorney General Eric Holder, "but will not be disciplined," The
Washington Post reported.
Breuer had the temerity to claim that deferred prosecution agreements
"have the same punitive, deterrent, and rehabilitative effect as a
guilty plea."
"When a company enters into a deferred prosecution agreement with the
government, or an non prosecution agreement for that matter," Breuer
asserted, "it almost always must acknowledge wrongdoing, agree to
cooperate with the government's 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."
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
"committed" to undertake "enhanced 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."
"HSBC has replaced almost all of its senior management, 'clawed back'
deferred compensation bonuses given to its most senior AML and
compliance officers, and has agreed to partially defer bonus
compensation for its most senior executives-its group general
managers and group managing directors-during the period of the
five-year DPA."
Yes, you read that correctly. Despite charges that would land the
average citizen in a federal gulag for decades, senior managers have
"agreed" to "partially defer bonus compensation" for the length of
the DPA!
As Rolling Stone financial journalist Matt Taibbi commented:
"Wow. So the executives who spent a decade laundering billions of
dollars will have to partially defer their bonuses during the
five-year deferred prosecution agreement? Are you fucking kidding me?
That's the punishment? The government's negotiators couldn't hold
firm on forcing HSBC officials to completely wait to receive their
ill-gotten bonuses? They had to settle on making them 'partially'
wait? Every honest prosecutor in America has to be puking his guts
out at such bargaining tactics. What was the Justice Department's
opening offer-asking executives to restrict their Caribbean vacation
time to nine weeks a year?"
"So you might ask," Taibbi writes, "what's the appropriate penalty
for a bank in HSBC's 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, we're talking about a
company that has admitted to a smorgasbord of serious banking crimes.
If you're the prosecutor, you've got this bank by the balls. So how
much money should you take?"
"How about all 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 they've ever earned? Then take their houses,
their cars, the paintings they bought at Sotheby's auctions, the
clothes in their closets, the loose change in the jars on their
kitchen counters, every last freaking thing. Take it all and don't
think twice. And then throw them in jail."
But there's the rub and the proverbial fly in the ointment. The
government can't and won't 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 the World Socialist Web Site, Barry Grey observed: HSBC
"was allowed to pay a token fine-less than 10 percent of its profits
for 2011 and a fraction of the money it made laundering the drug
bosses' 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."
"The financial parasites who keep the global drug trade churning and
make the lion's share of money from the social devastation it wreaks
are above the law," Grey noted.
"Here, in a nutshell," Grey wrote, "is the modern-day aristocratic
principle that prevails behind the threadbare trappings of
'democracy.' 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
police-from the heights of power in Washington down to the local
police precinct-to make sure their wealth is protected and they
remain immune from criminal prosecution."
Regarding America's fraudulent "War on Drugs," researcher Oliver
Villar, who with Drew Cottle coauthored the essential book, Cocaine,
Death Squads, and the War on Terror: US Imperialism and Class
Struggle in Colombia, told Asia Times Online, it is a "war" that the
state and leading banks and financial institutions in the capitalist
West have no interest whatsoever in "winning."
When queried why he argued that the "war on drugs is no failure at
all, but a success," Villar noted: "I 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 Colombia-or in Afghanistan, where we can see
similar patterns emerging? No. Is it a success in maintaining that
political economy? Absolutely."
Equally important, what does the impunity shamelessly enjoyed by such
loathsome parasites say about 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 "advanced"
democracies into hated and loathed pariah states, who we really are?
As the late author J. G. Ballard pointed out in his masterful novel
Kingdom Come, "Consumer fascism provides its own ideology, no one
needs to sit down and dictate Mein Kampf. Evil and psychopathy have
been reconfigured into lifestyle statements."
Paranoid fantasy? Wake up and smell the corporatized police state.
Tom Burghardt is a researcher and activist based in the San Francisco
Bay Area. In addition to publishing in Covert Action Quarterly and
Global Research, he is a Contributing Editor with Cyrano's Journal
Today. His articles can be read on Dissident Voice, Pacific Free
Press, Uncommon Thought Journal, and the whistleblowing website
WikiLeaks. He is the editor of Police State America: U.S. Military
"Civil Disturbance" Planning, distributed by AK Press and has
contributed to the new book from Global Research, The Global Economic
Crisis: The Great Depression of the XXI Century.
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