Thursday, April 17, 2014
FAIRFIELD-SUISUN, CALIFORNIA
99 CENTS

Too big to jail? Execs avoid laundering charges

NEW YORK — When the Justice Department announced its record $1.9 billion settlement against British bank HSBC last week, prosecutors called it a powerful blow to a dysfunctional institution accused of laundering money for Iran, Libya and Mexico’s murderous drug cartels.

But to some former federal prosecutors, it was only the latest case of the government stopping short of bringing criminal money laundering charges against a big bank or its executives, at least in part on the rationale that such prosecutions could be devastating enough to cause such banks to fail.

They say it sounds a lot like the “too big to fail” meme that kept big but sickly banks alive on the support of taxpayer-funded bailouts. In these cases, they call it, “Too big to jail.”

“Shame on the Department of Justice. Shame on them,” said Jimmy Gurulé, a former federal prosecutor who teaches law at the University of Notre Dame.

“These are actions that facilitated major international drug cartels to continue their operations,” he said. “Now, if that doesn’t justify criminal prosecution, I can’t imagine a case that would.”

Oregon Democratic Sen. Jeff Merkley shot off a letter to U.S. Attorney Eric Holder after the HSBC settlement, saying the government “appears to have firmly set the precedent that no bank, bank employee, or bank executive can be prosecuted even for serious criminal actions if that bank is a large, systemically important financial institution.”

Neil Barofsky, the former inspector general of the government’s Troubled Asset Relief Program and a former federal prosecutor in New York, warned that big banks could interpret the Justice Department’s leniency as “a license to steal.”

Since 2009, several European banks have paid heavy settlements related to allegations they moved money for people or companies on the U.S. sanctions list: Switzerland’s Credit Suisse, $536 million; British bank Barclays, $298 million; British bank Lloyds, $350 million; Dutch bank ING, $619 million; and the Royal Bank of Scotland, $500 million for alleged money laundering at Dutch bank ABN Amro.

While those cases involved deals with such countries as Iran, Libya, Cuba and Sudan, the HSBC case was notable for the government’s allegation that it also helped launder $881 million in drug-trafficking proceeds for Mexican drug cartels.

As bad as those allegations were, prosecutors say they could not prove HSBC executives conspired to aid drug organizations or rogue nations. Breakdowns in security controls within the company had occurred gradually, over decades, with a motive of increasing profits rather than committing crimes, prosecutors said.

Prosecutors also expressed fear of “collateral consequences” — that going further could have sunk a company that employs tens of thousands of people and is tied tightly to the economies of the roughly 80 countries where it does business.

Such a collapse has happened in white-collar prosecutions before, most notably in 2002 when the huge accounting firm Arthur Andersen was convicted for destroying Enron-related documents before the energy giant’s collapse. It was forced to surrender its accounting license and to stop conducting public audits. Only after 85,000 people worldwide lost their jobs did the court case ultimately play out, with the Supreme Court overturning the conviction too late to save the doomed Chicago-based business.

“From a policy standpoint, it’s a pretty compelling argument,” said Kevin O’Brien, a former federal prosecutor now in private practice. “Employees lose their jobs, towns where these businesses are located are negatively affected, stockholders which include a lot of moms and pops lose their savings and none of that is really fair. Even a large fine can sometimes have a negative effect on employees and shareholders.”

Bill Black, a former financial regulator who was instrumental in uncloaking the savings-and-loan crisis in the 1980s, scoffed at such a notion. “Seriously, you want to keep felons in charge of a bank for bank stability?” he said.

To Black and other critics of the government’s approach, the HSBC case is a replay of the years immediately after the 2008 financial crisis, when the people most responsible for it were never really punished. No high-profile bankers have gone to jail in the wake of the financial crisis, nor has there been any well-known, large-scale effort to recover the giant bonuses awarded to executives of failed or nearly failed banks.

In the HSBC case, the bank has rescinded deferred compensation bonuses given to its most senior executives and agreed to partially defer bonus compensation for its most senior executives during the next five years.

“The guy who filed a false tax return, he’s probably doing five years in prison,” said Notre Dame’s Gurulé. “And these guys — transactions with Iran, threatening to jeopardize U.S. national security — they don’t even get prosecuted. The fairness of that system is very suspect.”

The government’s charges against HSBC are grim. They sketch a picture of a bank that systemically and purposefully skirted the law.

HSBC willfully failed to keep proper anti-laundering programs in place and to conduct due diligence on its customers, the government says. Court documents showed that the bank let over $200 trillion between 2006 and 2009 slip through relatively unmonitored, including more than $670 billion in wire transfers from HSBC Mexico, making it a favorite of drug cartels. At the same time, the bank gave Mexico its lowest risk rating for money laundering.

The cartels are a deadly force, controlling large swaths of Mexico as virtual mafias. The government of former President Felipe Calderon started reporting drug-related killings when it took office in late 2006, but stopped more than a year ago when the toll reached 47,500. Many private groups now put the number close to 60,000.

In July, the Senate’s Permanent Subcommittee on Investigations produced a damning 334-page report that told a similar story.

In one email cited in the Senate committee’s report, an HSBC executive pushed to reopen a part of the bank’s business that had been closed to a Saudi Arabian bank with possible links to the Sept. 11 attacks.

At a hearing with the committee in July, the bank’s head of group compliance broke from his prepared testimony to resign.

Henry Pontell, a criminologist who teaches at the University of California-Irvine, was underwhelmed by the $1.9 billion in fines against HSBC, given its $17 billion in profits last year.

“The notion that ‘Oh, they paid a big fine, that will scare everyone else,’ is nonsense,” Pontell said. “Those individuals that did this, they didn’t pay the $1.9 billion. The company did. And that’s supposed to be an effective deterrent? A white-collar criminal, the biggest thing they fear is being put into prison.”

The Associated Press

The Associated Press

LEAVE A COMMENT

Discussion | No comments

The Daily Republic does not necessarily condone the comments here, nor does it review every post. Read our full policy

.

Solano News

Supervisor candidates square off at forum

By Barry Eberling | From Page: A1 | Gallery

 
Carli takes oath, now Vacaville’s 14th police chief

By Susan Winlow | From Page: A1 | Gallery

 
Huge jump in Solano median home price

By Brad Stanhope | From Page: A1 | Gallery

Solano DA hosts workshop to fight human trafficking

By Ian Thompson | From Page: A3 | Gallery

 
Suisun water rates won’t rise this year

By Ian Thompson | From Page: A3

Kaiser area head Villalobos to leave for SoCal

By Barry Eberling | From Page: A3

 
Donate a car, help build a house

By Amy Maginnis-Honey | From Page: A3

 
Fairfield town hall on crime delayed

By Ryan McCarthy | From Page: A4

Railway museum offers wine-tasting rides

By Adrienne Harris | From Page: A4

 
Travis trustee takes back blast at radio duo

By Ryan McCarthy | From Page: A4

 
Drugs topic of cardiac class

By Adrienne Harris | From Page: A4

Fairfield police log: April 15, 2014

By Susan Hiland | From Page: A12

 
Suisun City police log: April 15, 2014

By Susan Hiland | From Page: A12

Fairfield police log: April 14, 2014

By Susan Hiland | From Page: A12

 
Suisun Police log: April 14, 2014

By Susan Hiland | From Page: A12

Weather for April 17, 2014

By Daily Republic | From Page: B12

 
.

US / World

Armed robber was never told to report to prison

By The Associated Press | From Page: A1

 
Lost sea lion in California found mile from water

By The Associated Press | From Page: A4

Body of California man who jumped into river found

By The Associated Press | From Page: A4

 
Court rules for environmentalists in water fight

By The Associated Press | From Page: A5

Governor calls special session on rainy day fund

By The Associated Press | From Page: A5

 
Seabird from Atlantic spotted on Alcatraz

By The Associated Press | From Page: A5

Ex-Bell city leader gets 12 years in prison

By The Associated Press | From Page: A5

 
California delays decision on protecting gray wolf

By The Associated Press | From Page: A5

Geneva talks on Ukraine face steep hurdles

By The Associated Press | From Page: A10

 
Pro-Russian insurgents seize armored vehicles

By The Associated Press | From Page: A10

Ferry sinks off South Korea; 6 dead, 290 missing

By The Associated Press | From Page: A10

 
NATO ups military presence amid Russian threat

By The Associated Press | From Page: A10

Denver police eye 911 response time after killing

By The Associated Press | From Page: A10

 
Man charged with marathon hoax is held on bail

By The Associated Press | From Page: A10

.

Opinion

Obamacare news you probably missed

By Martin Schram | From Page: A11

 
In support of Pam Bertani

By Letter to the Editor | From Page: A11

 
.

Living

Community Calendar: April 17, 2014

By Susan Hiland | From Page: A2

 
A lesson in household budgeting

By Chris Erskine | From Page: A2

.

Entertainment

TVGrid

By Daily Republic Syndicated Content | From Page: B4

 
Disney Channel’s ‘Jessie’ breaks romantic ground

By The Associated Press | From Page: A7

Daniel Radcliffe on why New York audiences rock

By The Associated Press | From Page: A7

 
Alicia Silverstone out with book ‘Kind Mama’

By The Associated Press | From Page: A7

Jenny McCarthy announces engagement on ‘The View’

By The Associated Press | From Page: A7

 
Ailing Malcolm Young taking break from AC/DC

By The Associated Press | From Page: A7

.

Sports

Crawford’s 41 points leads Warriors over Nuggets

By The Associated Press | From Page: B1 | Gallery

 
Vacaville’s Peralta to wrestle at San Francisco State

By Daily Republic staff | From Page: B1

Angels beat A’s 5-4 on Iannetta’s HR in 12th

By The Associated Press | From Page: B1 | Gallery

 
MEL, SCAC tangle in hoops all-star games

By Paul Farmer | From Page: B1

Sharks take goalie questions into rematch vs Kings

By The Associated Press | From Page: B1

 
Bucks owner Herb Kohl reaches deal to sell team

By The Associated Press | From Page: B2

 
Sidney Rice agrees to terms with Seahawks

By The Associated Press | From Page: B2

Goodwin helps Suns to 104-99 win over Kings in finale

By The Associated Press | From Page: B2 | Gallery

 
IndyCar driver Saavedra fined $10K

By The Associated Press | From Page: B2

Sandoval’s single lifts Giants past Dodgers, 2-1

By The Associated Press | From Page: B2 | Gallery

 
Officer: Sharper’s DNA found on 1 Arizona victim

By The Associated Press | From Page: B2

Jets sign former Titans RB Chris Johnson

By The Associated Press | From Page: B2

 
Spieth ready for more after Masters success

By The Associated Press | From Page: B2

Backup QB Matt Flynn returns to Packers

By The Associated Press | From Page: B2

 
Atlanta lands MLS expansion team for 2017

By The Associated Press | From Page: B2

 
.

Business

Yellen: Fed stimulus still needed for job market

By The Associated Press | From Page: B4

 
Some exempted from minimum wage, increased or not

By The Associated Press | From Page: B4

Fed survey: Growth picks up across most of US

By The Associated Press | From Page: B5

 
Bank of America posts loss, hurt by legal charges

By The Associated Press | From Page: B5

IBM posts lower 1Q earnings amid hardware slump

By The Associated Press | From Page: B5

 
Google’s 1Q earnings disappoint as ad prices slip

By The Associated Press | From Page: B5

.

Obituaries

.

Comics