Are Banks that Violate Sanctions Getting Off with Slaps on the Wrist?
Officials announced last week that HSBC has agreed to pay a $1.9 billion fine for breaching a series of U.S. laws targeting businesses interacting with rogue regimes and criminal elements – a historic fine following a series of similar settlements in recent years.
But the settlement, unlike what a prosecution would have done, also leaves room for the government to still do business with the guilty bank.
The Department of Justice said that due to HSBC’s anti-money laundering failures, Colombia’s Norte del Valle Cartel and Mexico’s Sinaloa Cartel laundered at least $881 million through the bank and its Mexican unit. The bank was also found guilty of processing $660 million for banks and other entities in sanctioned nations, including Burma, Cuba, Iran, Libya, and Sudan.
In July, a report released by the U.S. Senate’s Homeland Security and Government Affairs Permanent Subcommittee on Investigations accused the British bank of avoiding required procedures that would identify the legality of transactions connected with the world’s most dangerous countries. In a yearlong investigation, the committee found that HSBC actively violated several rules, exposing the U.S. financial system to abuse by “money launderers, drug kingpins, terrorists, and rogue nations.”
Under the agreement, HSBC will forfeit $1.26 billion to the Department of Justice, retain a compliance monitor, and take necessary steps to meet compliance obligations. The bank also agreed to pay $665 million in civil penalties to other U.S. agencies.
The bank acknowledged having poor anti-money-laundering controls and apologized to U.S. authorities.
“We accept responsibility for our past mistakes,” said HSBC Chief Executive Stuart Gulliver in a statement last week. “We have said we are profoundly sorry for them, and we do so again. The HSBC of today is a fundamentally different organization from the one that made those mistakes.”
The U.S. and HSBC reached a deal to defer prosecution in exchange for a fine and the bank’s acknowledgement it failed to observe U.S. laws. The violated laws include the Trading with the Enemy Act (a federal law restricting trade with countries hostile to the United States) and the Bank Secrecy Act (a law requiring financial institutions in the U.S. to assist government agencies to detect and prevent money laundering).
The agreement’s announcement generated an outpouring of responses from elected officials.
“The HSBC settlement sends a powerful wake-up call to multinational banks about the consequences of disregarding their anti-money laundering obligations. It also shows the value of congressional oversight in exposing wrongdoing and the ongoing need to hold banks accountable,” said Sen. Carl Levin (D-Mich.), the subcommittee’s chairman.
House Foreign Affairs Committee Chairwoman Ileana Ros-Lehtinen (R-Fla.) also praised news of the settlement in a statement and commended the U.S. Department of Treasury for “its outstanding work in cracking down on these illicit criminal activities.”
But praise for the move was not unanimous. In a letter sent to Attorney General Eric Holder, Senator Jeff Merkley (D-Ore.) criticized the Department of Justice for its “too big to jail” policy. “I am deeply concerned that four years after the financial crisis, the Department 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,” wrote Merkley.
If state and federal authorities had indicted HSBC for its offenses, the government and others could no longer have conducted business with it, as the charges would have ultimately cost the bank its charter to operate in the United States.
In recent years, similar investigations have also culminated in deferred prosecution agreements.
Last week, British bank Standard Chartered agreed to pay $327 million to settle claims by U.S. authorities that it had illegally funneled money for Iranian banks and corporations. Credit Suisse received a $536 million fine in 2009 for allowing clients in Iran, Libya, and Cuba to conduct financial transactions.
Excellent post. Under President Reagan,over 1000 S&L criminals went to jail. Under Obama: 0. These crooks are aiding and abetting terrorists, and someone needs to go to jail, preferably Guantanamo. Thank you AG Holder.
The irony here is that, under pres. Reagan, the S&L managers were merely playing by the relatively new rules set during the Carter admin, which rewarded managers whose risky investments paid off, and dumped losses off onto tax-victims in a “heads, I win; tails, you lose” environment. The S&L failures ramped up in the late 1970s until it affected so many people, and involved enough prominent political personages the media could get their claws into, it could no longer be shoved under the rug. The vast majority of the managers at the failed S&Ls were not behaving criminally.
My real gripe against the Reagan admin in that regard is how they pressured healthy financial firms to take over and pay off the debts of the failed ones, thus dragging down everyone (including conglomerates like Control Data Corp., whose core business was super-computers and software, but also ran electronic ticket systems, radio ratings, car rental, heavy mining equipment leasing, banks, and savings & loans; it forced them to allow the spin-out of Commercial Credit, which helped build CitiGroup into a mega-monster… and impaired operations and created burdens which dragged down and tore apart the rest of CDC over the following 15 years)…
There are some real foreshadowings of one of pres. Obummer’s evil modus operandi in that sequence.
Yes, the fines are just the cost of doing that type of business. The fact that they stripped out the identifiers makes the case for malice aforethought. If it was being done by you or me we’d be doing the perp walk.
Sanctions are a joke, a bad one; told by the “righteous” to allow them to feel like they’ve “done something” about a problem.
Good post.
It’s a simple shakedown, that’s all.
Why wouldn’t they? Are they not large Democrat party donors and as such TBTF. Remember laws only apply to the “small people”. Ask John (MFGlobal) Corzine how that’s working out for him.
The bailouts WILL continue until they CANNOT. Change your getting…
We don’t need no stinkin’ sanctions, homes!
What part of ‘communism’ don’t you understand, you bourgeois fools [oxymoron, I know]?
Get thee behind me. I cannot stand the smell of you in my
grand and glorious presence! Scram, I say! Double scram eveeeen!
P.S. You still will pay me your debts with interest, foolios!
Does a bear sh it in the woods?
The do not need to punish the banks. The Feds need to punish the guys who work for the banks that do this stuff.
I have always marveled at the sight of a CEO illegally looting the company using financial fraud to do so and then the feds fine the company. First the CEO robs the stockholders then the feds hit what’s left of the company (read the stockholders).