So Why Hasn’t HSBC Faced Criminal Charges?

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Money laundering

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Elizabeth Warren has lit a fire under many of her political and financial counterparts and one of the first controversies she hit them with was why HSBC leaders haven’t been held criminally accountable for their role in alleged money laundering and providing assistance to Mexican drug cartels who easily laundered their millions through the bank.

It’s been months since those officials bypassed criminal charges and now, both Warren and the Senate want answers.

A bit Senate Banking Committee meeting is slated for next week and word is, the Committee is prepared to grill everyone from banking regulators to treasury officials and even the Justice Department if they have their way. Why were there no criminal charges? Why has there been no logical explanation as to why the London based bank got off with nothing more than fines that hardly caused them to blink?

Collateral Circumstances

The explanation given this past December to not to prosecute HSBC came from Assistant Attorney General Lanny Breuer, who said there would be too many “collateral circumstances”. Even when the bank was warned to halt its activities, the bank disregarded those orders and continued its relationship with the drug cartels. Instead, a different solution was found and this is what has many upset. Instead of criminal charges, the bank (not the individuals) was ordered to pay close to $2 billion in fines. The bank also agreed to a transparent view of all of its banking records to American officials for monitoring.

Now, Warren has another question: are too big to fail banks really too big to prosecute. That answer came from Breuer, who said,

If you prosecute one of the largest banks in the world, do you risk that people will lose jobs, other financial institutions and other parties will leave the bank, and there will be some kind of event in the world economy?

Even comments along the lines that any other outcome would have annihilated the economy.

Sense of Justice

At least one elected official, Sen. Jeff Merkley, forwarded a letter to Attorney General Eric Holder to express his dismay at the decision, saying it “deeply offends the public’s sense of justice.” He didn’t stop there, though. His letter also included this statement:

I am deeply concerned that four years after the financial crisis, the department appears to have 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.

Now, it could be just a matter of time before all of those documents and contracts are released for public viewing. If Jack Blum, banking expert in Washington has his way, that’s exactly what will happen,

There is nothing to be gained by keeping it secret…the public has the right to know.

Both Warren and the Banking Committee’s goal for the upcoming hearing, according to many who’ve seen the agenda, is to begin to put together the timeline of how this scandal evolved and in doing so, perhaps uncovering any other ulterior motives behind the Justice Department’s decision to bypass criminal charges. Some have suggested the decision was less about what the Justice Department wanted, but more likely it was the Treasury Department. Spokespersons for the Treasury have all declined to comment except for the occasional assurance that there had been no “improper influence”. For its part, however, the Justice Department stands by its decisions and says HSBC didn’t get off unscathed.

Take the Banks to Trial

The Justice Department also says it takes its responsibilities seriously and that no bank – global or national – bypasses its own prosecutorial judgment when it’s warranted. This, of course, didn’t bode well with Warren last week when she fired back. Arriving in time to participate and insert her own questions, Warren marched into the hearing and wasted no time in letting everyone know she meant business.

If they can break the law and drag in billions in profits, and then turn around and settle…it’s also the case that every time there’s a settlement and not a trial, it means that we didn’t have testimony about what those financial institutions have been up to…Can you identify when you last took the Wall Street banks to trial?

The one who mustered up the courage to answer her question, Thomas J. Curry, the comptroller of the currency, admitted he couldn’t name an instance and then said,

We have not had to do it as a practical matter to achieve our supervisory goals,

he said. Warren didn’t let that go. She said she was well aware of the collective belief that lawsuits were unnecessary, but she wanted to know when a past bank was hauled into a courtroom to face a trial.

Read Between the Lines

Many are saying the answer provided far more insight than what was on the surface. Pundits have said in recent days that the nonplussed attitude means the government agencies are fine with whatever goes on provided the public doesn’t find out about it, “as long as they don’t pose safety and soundness risks, or violate laws too egregiously”. One analyst explained it by saying if a bank can “gouge customers” or if its actions don’t hit the six o’clock news, the banking regulators will likely overlook it. Maybe this is what has so many concerned about what Warren will ultimately do. Does she have what it takes to finally shine a light on these “too big to fail” banking entities? Maybe.

Stefanie Ostfeld, who is a Global Witness advisor, says the bankers’ behaviors won’t change until the punishments begin to fit their crimes. Until the banks are held accountable – truly accountable – they should proffer up senior bankers so that they can “face jail time”. HSBC should have been the first bank to see its senior management take a hard fall from their respective pedestals. That didn’t happen and it’s not likely to happen at this point either.

What do you think about HSBC and its slap on the wrist? Should officials have faced jail time and criminal proceedings for money laundering for Mexican cartels?

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About Author

David is a CPA and has spent the past decade as a financial adviser helping clients meet their fiscal objectives. With an appreciation for journalism, he has spent the past few years overseeing several financial columns as well as writing two previous finance blogs. He resides on the East Coast with his wife and two sons and has guided many through the recent recession while providing a no-nonsense approach to spending and saving.

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