Do we know how much HSBC made from this practice? I'm guessing it's more than $2 billion? Because any business that sees a smaller fine than the profit it makes by violating the law is going to keep doing it. It would be really dumb not to.
That's unclear. This story gives you an idea of the numbers being transferred in laundering (ie the $7billion cash from Mexico, the $290m from Russian "used car salesmen", and the hilariously inexact "250k transactions" linked to Iran), but I think if you just look at this little nugget you have an idea of just how serious this serious penalty is. I think there are probably a lot of backroom deals in this package in order to ensure that HSBC is not operating in direct contravention to US policy (as opposed to ethics or laws for little people), and it's possible that the real trade-off is granting US regular access to information that beefs up its capacity for domestic and international surveillance (which would probably be part of the British settlement as well). But I really don't understand the case as one targeted around corruption and money laundering in a pure legal sense primarily, as it seems like there's a lot more going on given the threats that were leveled by the government and what actually came of them.
The whole idea of a country's prosecution service being able to "settle" for a cash payment what they believe to be legitimate breaches of the criminal law is sickening. If the prosecution believes someone is guilty of a crime and has enough evidence for a reasonable chance of conviction / success at trial - then prosecute and enforce the law! The bargaining happens when the accused pleads guilty and you talk about a reduced sentence.
Despite what Mr Romney might say, Corporations aren't people my friend. The executives in charge however are. If you can't pin a direct conviction on them, go for a "manslaughter" type charge and allege wilful negligence / reckless indifference to adhering to the relevant law re money laundering.
I'm not sure I understand that question being framed as absurd unless you think Talorc is anthropomorphizing HSBC. But yes, speaking for myself, I think people that orchestrated plainly criminal acts should go to jail rather than being allowed to trade money for it. I think it's especially shady that HSBC recently divested itself of a number of Latin America branches, previously all "high growth", which suggests a colossal and uniquely corporate ass-covering in the context of this case. Again, this all goes back to what I think is actually happening, which is HSBC striking the equivalent of a stool pigeon deal with the US government, which is the only way that the level of accommodation shown by the prosecution is at least rational. What Talorc is getting at is that is that this deal as stated to the public is a sucker's deal for the people, one that makes clear that corporate accountability is really a low stakes extortion racket run by the government. What I'm suggesting is different but not better, in that the government is trading for its interests against other strategic concerns (especially the understated Iranian angle) but in so doing is now creating the classic informant relationship that has bred so much outright corruption and national/international misconduct. Regardless of which you believe is more the case, the preoccupation of US regulators with addressing the mechanics of corruption and criminal activity without going after those that did it or re-setting the mentality that drives them is a losing proposition for the long term health of the American relationship with its finance and banking industries.
Like LK I'm not sure if you're serious, but the DoJ has a wide menu of options to choose from; anything from prosecuting individuals to suspending HSBC's license (which would mean they could not operate in the US).
What I'm trying to get is what end goal we're looking to accomplish that would be satisfactory. Are we seeking justice by directly rooting out and punishing the individuals who willfully violated the laws within HSBC? Do we want to strike a blow to the entity itself and revoke HSBC's ability to do business with the US altogether (and damn the collateral damage)? Some combination? I'm not saying doing any of those things would be wrongheaded or unwarranted, but I'm just curious what would appease his sense of justice. And it would seem he was intending that the executives be the ones to take the brunt of it as opposed to them just agreeing to have HSBC buy their way out. So yeah, I can't say I disagree with that at all.
What is the collateral damage of guaranteeing financial institutions that they will be bailed out if sufficient economic health is at stake in their fuckups as well as demonstrating that they can pay their way out of outright criminal conduct for a marginal cost? It's not about some need to appease a sense of justice* so much as applying the long term, structure-oriented thinking that led to (say) trust-busting despite its short-term risks rather than the accommodation of corruption and speculation of the 1890s and 1920s. In both Roosevelts and Taft you had overtly pro-business presidents who nevertheless are willing to administer harsh medicine at the strategic level; it's unclear whether Obama is comfortable with their approach or simply puts out fires as they come. But this is not a promising indicator. *Although I think it would be nice if in just one of these decisions the appearance of propriety was taken into account, because it's important in terms of how we view our institutions no matter how hard-headed and rational we try to be. In that sense, Roberts' nuanced Obamacare decision is probably one of the most important examples of prioritizing that, and it's really important in my view that more of those concessions be made.
Reldan Honestly I don't know; I'm not familiar enough with the case. I do think that generally our mechanisms for dealing with corporate wrongdoing are woefully inadequate; the most we see are some prosecutions of middle-management types (see: BP / Deepwater Horizon). At some point it needs to be recognized that corporate culture and all that crap matters and that the entity as a whole bears responsibility. This settlement is a tacit acknowledgement of that reality; but the size of the settlement (basically a blip on a quarterly earnings sheet) makes the entire concept farcical. Part of the purpose of a criminal justice system is deterrence. With individuals it's debatable as to whether or not deterrence is actually relevant (seeing as how most individuals are basically decent people who aren't inclined to hurt others). The collective structure of a corporation dilutes individual responsibility in such a way that all sorts of malfeasance that one individual would never commit ends up occurring. Apparently the size and systemic importance of HSBC precludes us from punishing them beyond a token fine. To which the natural question arises: why shouldn't HSBC relentlessly engage in profitable illegal activity? There is a cap on the level of damages they will incur for breaking the law; all they need to do is ensure that they make more money in the breaking and they're golden.
Restriction or loss of US banking licence. Perhaps remove the ability to do the profitable areas of FX, equities, bonds and derivatives. Transactional banking only (bank accounts, letters of credit, etc). Removal of licence as one of the Feds primary dealers, it might be possible to re-apply in x number of years. Restriction or loss of membership of NYSE, NASDAQ etc 25bn+ fine. 1.9bn is 11% of 2011 profits and is not a fine, it's an operating cost. Additional monitoring by regulators and external auditors (costs to be paid by HSBC) for x years. Criminal charges, imprisonment and/or fines of executives and senior management (up to to Board level) in front offices of divisions responsible for money laundering. (the guys that made big bonuses off drug dealer and Iranian business) Criminal charges, imprisonment and/or fines or executives and senior management in back office, compliance and anti-money laundering divisions responsible. (i.e the AML teams who signed off the drug dealer accounts, the managers that ignored laws on large cash deposits, the managers of the teams knowingly stripping Iran related headers from SWIFT messages) Removal of professional accreditation and memberships of professional bodies, removal of regulatory permissions and authorisations for life for all those sucessfully prosecuted. HSBC must sack and clawback bonuses of all individuals successfully prosecuted. Wall Street might take notice of that. Right now, the message from the US is money laundering is incredibly profitable, and you can do it if you pay a small fine. HSBC wouldn't disappear, the US is only a section of it's business. Edit: As an AML guy whose value has been reduced by this petty little fine, I'm livid. I'd also quit before signing off the type of clients HSBC did. I work somewhere where we block suspicious clients, revenues be damned.
I should really say "strive to block suspicious clients" It can be really difficult to spot genuine criminal activity (as opposed to corporate tax structuring). I know i could piss all over the AML procedures of all but the most paranoid of financial institutions if I wanted to, especially those who outsource account opening to an offshored document processing, box ticking sausage factory whose only role is to satisfy regulator checks (/looks hard at certain top 50 banks). There are plenty of money launderers way smarter than me thinking up ways to get money in and out of the system that I currently wouldn't imagine could be a risk.
If that's the case, it sounds like those companies all need to be hammered, hard, so that they do good-faith compliance instead of shirking-the-law compliance.
The US corporate culture I've come across has been always been about following the letter of the law, not the spirit. US entities/subsidiaries expend considerable resources on thinking up ways to do exactly what they want, as long as the can demonstrate they are still compliant. What's also amusing about the US authorities apparent horror at money laundering is that AML requirements in the US are usually far less strict than in Europe. I've rarely if ever had a file passed to me from the US that i could use to clear a client in the UK ( and I guess most of Europe). If the US was really serious it would ramp up AML requirements and insist on corporate transparency across various State registries. i.e Sort bloody Delaware out for starters.
Which would work well in concert with the trust busting and separation of concerns (i.e. investment banking) that already needs to be done to maintain financial stability and at least some semblance of fair play.
Another angle to this is the the lawyers, accountants, etc. for large corporations are much better paid than their government counterparts, which creates a sinister feedback loop. Competent new government employees already know they could get paid better in industry of course, but that's not necessarily enough to turn them off... That is until they find themselves in a bureau over staffed with largely incompetent people because all the talented and/or motivated ones left, and are forced to watch in slow powerless horror as the nominally regulated corporations work the system. Any forewarnings are quietly pushed aside because the established bureaucrats making decisions are terrible at negotiating, and can't quite grasp how they're being taken advantage of. So they push for change to no avail and become frustrated as the bureau doesn't even notice. Meanwhile, who does notice? The regulated coporations of course. Say, how would you like to work with comptent people who'll treat you with respect, oh and with a nice raise and actual career prospects? In the end a poorly paid government bureau (not to name any names here in Oregon!) ends up staffed by people who don't even know how to hire replacements for open positions. Frequently and literally hiring people who can't actually do the job.
Fuck it -- I mean the Oregon Public Utility Commission. Not the banking industry, but I'd bet it works much the same. It's so sad how the Republican starve the beast mantra winds up being a self fulfilling prophecy, with underfunding and ultimately mismanagement resulting in it being actually true that government agenices often suck. And then the staff bloats and the bureau isn't even cheap to run. The only way to fix it is through change from the top, but how likely is that barring some huge fiasco? Enron wasn't big enough. :-/
Perhaps the only way to fix it is actually from the bottom up. You start local, work for reform in your city, in your county, in your state. Push for mayors, city councilmen, county officials, governors, senators, house members who understand the importance of having a functioning and effective bureaucracy, and who will throw their weight behind reform and maintenance of the system. I don't think change from the top down has much chance of being effective, barring infeasibly crazy things like hiring complete political outsiders with an agenda of efficiency and efficacy to run the place and giving them carte blanche for a few years, and even then you need the right person, with enough weight behind them, and even still the next administration will start the degeneration all over again.
Well, I would count governors and seantors as "from the top down". ;-) Ultimately this particular bureacrazy is run by people appointed by the Governor; I don't think our recent governors are unsympathetic, they're just focused elsewhere and it's not their field. Maybe if the election for Mayor of Portland had turned out differently, but sadly it didn't.
I don't think you can get good traction on governors and senators until you've made progress on a lower level, though. Politicians need to fear you before they'll do what you want.
Can't speak for the accountants, but DOJ attorneys are about as good as they come. I assume they all go into private practice at some point, of course.
Damn straight! I think you give the DoJ too much credit personally, but it is an interesting idea that they somehow turned HSBC and they are now squealing everything they know. Even if they are squealing, surely anything they get out of them would have been obtainable by subpoena in the ordinary course of an investigation anyway. I don't know enough about how strong banking privacy laws are in the US, or how strong the requirement to report suspicious transactions is to see if the fact HSBC might be singing like a canary is a big deal or not. Mat Taibbi raised a very interesting new moral angle though - the government that slapped HSBC with a limp flaccid lettuce leaf of a financial settlement (or turned them snitch if you prefer) for greatly facilitating drug money laundering, is the same government that routinely (and gleefully) shakes down low level drug criminals for every single cent they have, and then some. Admittedly the states / local cops are the biggest user of asset forfeiture, but something is rotten when the local corner dealer gets wiped out for every cent they have and the top bag man gets off nearly scot free. http://www.rollingstone.com/politic...lement-proves-the-drug-war-is-a-joke-20121213 Read more: http://www.rollingstone.com/politics/blogs/taibblog/outrageous-hsbc-settlement-proves-the-drug-war-is-a-joke-20121213#ixzz2F7rcZxty
A former undercover money launderer suggests the government exhibit some strategic thinking and follow the money if it's serious about organized crime and terrorism. I would say this is known as "calling a bluff" when it comes to the fine art of perpetual war. I would amend that to "an appropriate and proportional penalty, hell any criminal penalty at this point would blow my mind". I don't think the tough on crime bullshit needs to get translated to a new context, but any real penalty at all would be nice.
I'm beginning to wonder whether there would another bank crash if they actually did manage to stop the laundering of these funds. And I said it before and I'll say it again, I don't know how Taibbi is still alive.
If it helps, in my industry (pharma), there are tools the government can use to actually impact how companies comply with the laws and regulations in the US. The settlements in pharma are things like the big fines (GSK recently paid a $3 billion fine), along with Corporate Integrity Agreements (require monitoring of a company's practice for usually 5 years by an outside agency), etc. However, as many of you have noted, even these multi-billion dollar fines are essentially seen as just another tax by most companies, and real change only comes when those individuals who hold responsibility are held accountable. We have something called the responsible corporate officer (RCO) doctrine, whereby the DOJ can impute criminal liability to executives based upon the actions of their underlings. It was created by some Supreme Court cases in the 30s and 40s, but really wasn't used by DOJ until recently when they realized that fines just weren't cutting it anymore. And now as part of the big money company settlements, they're also either giving execs massive personal fines (see Purdue Pharma, and the $35 million aggregate in personal fines the CEO, CSO, and GC had to pay), or if the behavior is bad enough, jail time (see Synthes, where several of the top execs plead guilty and actually got sentenced to 9 months or so in federal prison). Under the RCO, the government doesn't have to prove the execs knew about the bad behavior...they're just responsible for all behavior. But even better is if you plead guilty or are convinced of a health care related offense, the DOJ/CMS can debar you, meaning any company you work for cannot receive Medicare funding. Essentially making you unemployable in the industry for the term of the debarment (likely to hash out about a decade or so...recently an appellate court ruled the 20 year term DOJ originally stipulated was too long). It's a more recent development, but one that you actually see has some measurable change in how pharma companies are now acting. Unfortunately, companies are only slowly starting to realize this is a real threat...but when they get hit by those settlements, and the execs are subpoenaed and then the DOJ raises the specter of individual accountability...well, then you see real change. And the rate will accelerate as DOJ uses this more often. Although I believe the Supreme Court cases that created this doctrine allow it to be used in other industries, so far, it's only been used by DOJ in the drug and device world. I would LOVE to see something like this used in the financial industry as well as it also functions as a public trust.
The debar idea would work great in wall street too. Get implicated in these "settlements" and be unable to work with an SEC licences firm for 5 years...
This already exists in a basic form in certain types of FINRA licensing. There are a few (admittedly very few) agitators who lobby the SEC often to broaden the scope of licensing after criminal conviction. Applying the RCO to impute criminal liability to corporate officers might work hand-in-hand with existing financial industry regulations on this front. I'm saying this not to imply that it's all good, but to say that it is already close; if only a few more steps might be taken.
