Gangster Bankers: Too Big to Jail
The deal was announced quietly, just before the holidays, almost like the government was hoping people were too busy hanging stockings by the fireplace to notice. Flooring politicians, lawyers and investigators all over the world, the U.S. Justice Department granted a total walk to executives of the British-based bank HSBC for the largest drug-and-terrorism money-laundering case ever. Yes, they issued a fine – $1.9 billion, or about five weeks' profit – but they didn't extract so much as one dollar or one day in jail from any individual, despite a decade of stupefying abuses.
People may have outrage fatigue about Wall Street, and more stories about billionaire greedheads getting away with more stealing often cease to amaze. But the HSBC case went miles beyond the usual paper-pushing, keypad-punching sort-of crime, committed by geeks in ties, normally associated with Wall Street. In this case, the bank literally got away with murder – well, aiding and abetting it, anyway.
For at least half a decade, the storied British colonial banking power helped to wash hundreds of millions of dollars for drug mobs, including Mexico's Sinaloa drug cartel, suspected in tens of thousands of murders just in the past 10 years – people so totally evil, jokes former New York Attorney General Eliot Spitzer, that "they make the guys on Wall Street look good." The bank also moved money for organizations linked to Al Qaeda and Hezbollah, and for Russian gangsters; helped countries like Iran, the Sudan and North Korea evade sanctions; and, in between helping murderers and terrorists and rogue states, aided countless common tax cheats in hiding their cash.
"They violated every goddamn law in the book," says Jack Blum, an attorney and former Senate investigator who headed a major bribery investigation against Lockheed in the 1970s that led to the passage of the Foreign Corrupt Practices Act. "They took every imaginable form of illegal and illicit business."
That nobody from the bank went to jail or paid a dollar in individual fines is nothing new in this era of financial crisis. What is different about this settlement is that the Justice Department, for the first time, admitted why it decided to go soft on this particular kind of criminal. It was worried that anything more than a wrist slap for HSBC might undermine the world economy. "Had the U.S. authorities decided to press criminal charges," said Assistant Attorney General Lanny Breuer at a press conference to announce the settlement, "HSBC would almost certainly have lost its banking license in the U.S., the future of the institution would have been under threat and the entire banking system would have been destabilized."HT: The Big Picture
It was the dawn of a new era. In the years just after 9/11, even being breathed on by a suspected terrorist could land you in extralegal detention for the rest of your life. But now, when you're Too Big to Jail, you can cop to laundering terrorist cash and violating the Trading With the Enemy Act, and not only will you not be prosecuted for it, but the government will go out of its way to make sure you won't lose your license. Some on the Hill put it to me this way: OK, fine, no jail time, but they can't even pull their charter? Are you kidding?...MUCH MORE
I'm in favor of getting rid of the corporate veil of yanking charters for just about any infraction. From our Feb. 5 post "Bankers Arguments on Capital Are Flawed: It's All About the Bonuses":
I know it and you know it. We've got an agency problem here- management's objectives are not aligned with the owners-and for that there's a really easy solution:And not being a veil-lifter-or-yanker-come-lately, from 2009:
Cancel all charters for banks that don't agree to become a partnership or an unlimited-liability-company....
David Viniar, CFO of Goldman Sachs Blows Smoke at Journalists on AIG
My question is, "If Goldman Sachs were still a partnership, would they have entered into these transactions in the same size?"
The answer, of course, is no.
If partners equity were at risk, there is no way that they would have depended on ratings agencies to ascertain the strength of their counterparty.
Junior partners would be expected to run honey traps on AIG employees.
Lower level employees would hone their dumpster-diving skills.
Whatever it takes to gain competitive intelligence and safeguard the partnership's capital.
See also: "The optimal design of Ponzi schemes in finite economies"...