Are banks “too big to prosecute?”

When the banking system was collapsing in 2008, the US rescued the industry from failure. The big banks received both direct cash injections as well as easy lending terms that gave them free money, with the cost being in the trillions. (The direct cash that everyone talks about was only part of the program.)

The reason for bailing out the banks was that the banks were “too big to fail.” If they were allowed to fail, the theory went, the entire banking system could go down.

Most sane people were supportive of saving the system, though all were less supportive of saving the lifestyle of those who greedily abused the system and brought it to its knees. That second point was always missed by the political class. Ignored, really.

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So now we’re looking at a new round of abuse by the same banking industry. It’s not so much new, as it is newly reported. Whether it’s the Libor ripoff, or now, the new round of massive money laundering cases, the banks are still receiving a gentle touch by authorities.

In the case of HSBC, they’re still waiting to hear if there will be any charges related to the Libor ripoff, but they have settled with US authorities over becoming the favorite bank of Mexican drug cartels for laundering money.

Though the laundering and illegal transactions with Cuba, Iran, Libya, and Sudan processed billions of dollars, none of this mattered when the previous CEO was hired by the Conservative government in the UK. Somehow helping banks with terrorist ties in Saudi Arabia didn’t cause any problems. Imagine that. The “revolving door” is not just an American problem. It certainly helps when senior executives are bouncing between government and industry.

NY Times:

HSBC’s actions stand out among the foreign banks caught up in the investigation, according to several law enforcement officials with knowledge of the inquiry. Unlike those of institutions that have previously settled, HSBC’s activities are said to have gone beyond claims that the bank flouted United States sanctions to transfer money on behalf of nations like Iran. Prosecutors also found that the bank had facilitated money laundering by Mexican drug cartels and had moved tainted money for Saudi banks tied to terrorist groups.

HSBC was thrust into the spotlight in July after a Congressional committee outlined how the bank, between 2001 and 2010, “exposed the U.S. financial system to money laundering and terrorist financing risks.” The Permanent Subcommittee on Investigations held a subsequent hearing at which the bank’s compliance chief resigned amid mounting concerns that senior bank officials were complicit in the illegal activity. For example, an HSBC executive at one point argued that the bank should continue working with the Saudi Al Rajhi bank, which has supported Al Qaeda, according to the Congressional report.

Despite repeated urgings from federal officials to strengthen protections in its vast Mexican business, HSBC instead viewed the country from 2000 to 2009 as low-risk for money laundering, the Senate report found. Even after HSBC’s Mexican operation transferred more than $7 billion to the United States — a volume that law enforcement officials said had to be “illegal drug proceeds” — lax controls remained.

HSBC has recently hired a former US Treasury Department official, which can’t hurt their efforts to keep the revolving door spinning. There have been plenty of complaints for years that government officials go easy on the banks to help pave the way for future jobs. That may not be the case here, but unfortunately there’s a lot of history that makes any hiring like this a concern. It’s sad that it’s come to this, but after years of ignoring such activity it’s hard to have any trust.

HSBC’s agreement to accept guilt in laundering money, and the $1.9 billion fine, is an improvement over previous settlements, where banks declined all guilt. US authorities debated whether or not to pursue a criminal indictment, though ultimately chose a lesser path.

The choice to not pursue the tougher indictment generated a record fine, and it also allowed HSBC to continue to be an investor choice for large buyers such as pension funds. The fine is expensive, but still a rounding error for the bank. Will the banking industry learn any lessons from this gentle treatment? It’s difficult to see how, until people start getting marched out of their offices and into jail. That would be in addition to fines, of course.

So for now, the banks are still receiving favorable treatment. British police have reportedly made initial arrests in the Libor scam, but it remains to be seen if anyone will actually go to prison. Rich white guys don’t often go to prison, and when they do, it’s usually the lower rung employees and not the decision makers.


An American in Paris, France. BA in History & Political Science from Ohio State. Provided consulting services to US software startups, launching new business overseas that have both IPO’d and sold to well-known global software companies. Currently launching a new cloud-based startup. Full bio here.

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