Too big to fail? Too big to jail

Friday, 15 March 2013

Too big to fail? Too big to jail

In December 2012 the British bank HSBC was fined $1.9 billion by US regulators for laundering hundreds of $billions worth of drug money for Mexican cartels, deliberately bypassing US sanctions on countries like Libya, Iran, Sudan and Burma and conducting business with institutions with links to terrorism.

This fine came as part of a Deferred Prosecution Agreement, in which financial institutions and their employees are spared criminal prosecution in return for owning up to their criminality. In return they get a fine, which usually amounts to a tiny fraction of their ill gotten gains. Essentially, these fines for criminal behavior have become one of the costs of doing business.

In 2010, the Office of the Comptroller of the Currency (the US national bank regulator) found that HSBC had severe deficiencies in its anti-money laundering controls, including $60 trillion in transactions. To put this vast figure into perspective, the entire GDP of the World in 2010 was $63 trillion.

This is HSBC's official statement:

"We accept responsibility for our past mistakes. We have said we are profoundly sorry for them"

They describe massive scale criminal behavior (industrial scale laundering of drug money, busting international sanctions and trading with terrorists) as "mistakes" and seem to think that simply apologising is enough.

Imagine for a moment that an individual small accountancy firm had committed any of these acts. That they had laundered money for murderous Mexican drug cartels, deliberately undermined international sanctions or traded with terrorist linked organisations. Do you seriously think the US authorities would let them off with a fine that amounts to a fraction of their ill gotten gains?

The decision to simply let HSBC (and their criminal bankers that arranged all of these illegal trades) get away with it is an appalling demonstration of the dual justice system now in effect, where individuals and small companies "get nailed to the wall" if they get caught trading with terrorist linked organisations or laundering money for murderous drug cartels, yet major banks get away without criminal prosecution for committing such crimes on an unimaginably vast scale.

The stated reason for letting HSBC get away with these enormous crimes?

US and UK authorities decided against prosecuting HSBC in a money-laundering case over "concerns that criminal charges could jeopardize one of the world’s largest banks and ultimately destabilize the global financial system". According to the New York Times regulatory officials stated that "a money-laundering indictment, or a guilty plea over such charges, would essentially be a death sentence for the bank". This is because they would be cut off from major investors such as pension funds and they would lose their charter to operate in the United States.

The fact that they have escaped criminal charges because such charges would probably crash the bank and cause a systemic shock to global financial markets is an absolutely clear demonstration of the "too-big-to -fail" problem. If "too-big-to-fail" has become "too-big-to-jail", then HSBC and the other vast global financial organisations now have a de facto charter to engage in criminal activity, since the regulators have demonstrated that they are unwilling to prosecute them, even for heinous crimes like funding terrorist linked organisations and laundering $billions in drug money for murderous Mexican cartels.

This financial fraud charter from the regulators is a perfect demonstration that crime does pay. As long as the criminal organisation is so large that the lawmakers are afraid to punish them.

Real criminals don't rob banks, they run them.

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