Too big to jail? Execs avoid laundering charges

Updated 18 December 2012
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Too big to jail? Execs avoid laundering charges

NEW YORK: When the Justice Department announced its record $1.9 billion settlement against British bank HSBC last week, prosecutors called it a powerful blow to a dysfunctional institution accused of laundering money for Iran, Libya and Mexico’s murderous drug cartels.
But to some former federal prosecutors, it was only the latest case of the government stopping short of bringing criminal money laundering charges against a big bank or its executives, at least in part on the rationale that such prosecutions could be devastating enough to cause such banks to fail.
They say it sounds a lot like the “too big to fail” meme that kept big but sickly banks alive with the support of taxpayer-funded bailouts. In these cases, they call it, “Too big to jail.”
“Shame on the Department of Justice. Shame on them,” said Jimmy Gurulé, a former federal prosecutor who teaches law at the University of Notre Dame.
“These are actions that facilitated major international drug cartels to continue their operations,” he said. “Now, if that doesn’t justify criminal prosecution, I can’t imagine a case that would.”
Oregon Democratic Sen. Jeff Merkley shot off a letter to US Attorney Eric Holder after the HSBC settlement, saying the government “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.”
Neil Barofsky, the former inspector general of the government’s Troubled Asset Relief Program and a former federal prosecutor in New York, warned that big banks could interpret the Justice Department’s leniency as “a license to steal.”
Since 2009, several European banks have paid heavy settlements related to allegations they moved money for people or companies on the US sanctions list: Switzerland’s Credit Suisse, $536 million; British bank Barclays, $298 million; British bank Lloyds, $350 million; Dutch bank ING, $619 million; and the Royal Bank of Scotland, $500 million for alleged money laundering at Dutch bank ABN Amro.
While those cases involved deals with such countries as Iran, Libya, Cuba and Sudan, the HSBC case was notable for the government’s allegation that the bank also helped launder $881 million in drug-trafficking proceeds for Mexican drug cartels.
As bad as those allegations were, prosecutors say they could not prove HSBC executives conspired to aid drug organizations or rogue nations. Breakdowns in security controls within the company had occurred gradually, over decades, with a motive of increasing profits rather than committing crimes, prosecutors said.
Prosecutors also expressed fear of “collateral consequences” — that going further could have sunk a company that employs tens of thousands of people and is tied tightly to the economies of the roughly 80 countries where it does business.
Such a collapse has happened in white-collar prosecutions before, most notably in 2002 when the huge accounting firm Arthur Andersen was convicted for destroying Enron-related documents before the energy giant’s collapse. It was forced to surrender its accounting license and to stop conducting public audits. Only after 85,000 people worldwide lost their jobs did the court case ultimately play out, with the Supreme Court overturning the conviction too late to save the doomed Chicago-based business.
“From a policy standpoint, it’s a pretty compelling argument,” said Kevin O’Brien, a former federal prosecutor now in private practice. “Employees lose their jobs, towns where these businesses are located are negatively affected, stockholders which include a lot of moms and pops lose their savings and none of that is really fair. Even a large fine can sometimes have a negative effect on employees and shareholders.”
Bill Black, a former financial regulator who was instrumental in uncloaking the savings-and-loan crisis in the 1980s, scoffed at such a notion. “Seriously, you want to keep felons in charge of a bank for bank stability?” he said.
To Black and other critics of the government’s approach, the HSBC case is a replay of the years immediately after the 2008 financial crisis, when the people most responsible for it were never really punished. No high-profile bankers have gone to jail in the wake of the financial crisis, nor has there been any well-known, large-scale effort to recover the giant bonuses awarded to executives of failed or nearly failed banks.
In the HSBC case, the bank has rescinded deferred compensation bonuses given to its most senior executives and agreed to partially defer bonus compensation for its most senior executives during the next five years.
“The guy who filed a false tax return, he’s probably doing five years in prison,” said Notre Dame’s Gurulé. “And these guys — transactions with Iran, threatening to jeopardize US national security — they don’t even get prosecuted. The fairness of that system is very suspect.”
The government’s charges against HSBC are grim. They sketch a picture of a bank that systemically and purposefully skirted the law.
HSBC willfully failed to keep proper anti-laundering programs in place and to conduct due diligence on its customers, the government says. Court documents showed that the bank let over $200 trillion between 2006 and 2009 slip through relatively unmonitored, including more than $670 billion in wire transfers from HSBC Mexico, making it a favorite of drug cartels. At the same time, the bank gave Mexico its lowest risk rating for money laundering.
The cartels are a deadly force, controlling large swaths of Mexico as virtual mafias. The government of former President Felipe Calderon started reporting drug-related killings when it took office in late 2006, but stopped more than a year ago when the toll reached 47,500. Many private groups now put the number close to 60,000.
In July, the Senate’s Permanent Subcommittee on Investigations produced a damning 334-page report that told a similar story.
In one e-mail cited in the Senate committee’s report, an HSBC executive pushed to reopen a part of the bank’s business that had been closed to a Saudi Arabian bank with possible links to the Sept. 11, 2001, terrorist attacks.
At a hearing with the committee in July, the bank’s head of group compliance broke from his prepared testimony to resign.
Henry Pontell, a criminologist who teaches at the University of California-Irvine, was underwhelmed by the $1.9 billion in fines against HSBC, given its $17 billion in profits last year.
“The notion that ‘Oh, they paid a big fine, that will scare everyone else,’ is nonsense,” Pontell said. “Those individuals that did this, they didn’t pay the $1.9 billion. The company did. And that’s supposed to be an effective deterrent? A white-collar criminal, the biggest thing they fear is being put into prison.”
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Associated Press Michael Weissenstein contributed to this report.


Iran sanctions shadow falls on smaller German banks

Updated 27 May 2018
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Iran sanctions shadow falls on smaller German banks

  • Some German companies plan to press on with Iran dealings
  • German exports to Iran rose 15.5 percent last year

Germany’s biggest lenders have shied away from business with Iran after past penalties for breaching US sanctions, but smaller banks have leapt on opportunities afforded by the nuclear deal rejected by Donald Trump.

There are just months to go until a November deadline issued by Washington after the US president abandoned a hard-fought agreement that loosened business restrictions on the Islamic Republic in exchange for Tehran giving up its pursuit of nuclear weapons.

But some firms plan to press on in their dealings with Iran despite the looming threat of penalties.

“We will continue to serve our clients,” for now, said Patrizia Melfi, a director at the “international competence center” (KCI) founded by six cooperative savings banks in the small town of Tuttlingen in southwest Germany.

The center, which supports companies operating in sensitive markets like Iran or Sudan, has seen demand “rising sharply in the last few years, from firms listed on the Dax (Germany’s index of blue-chip firms), from all over Germany and from Switzerland,” she added.

German exports to Iran have grown since the nuclear deal was signed in 2015, adding 15.5 percent last year to reach almost €2.6 billion ($3.0 billion) after 22-percent growth in 2016.

Such figures remain vanishingly small compared with Germany’s €111.5 billion in exports to the US — its top customer.

Nevertheless, the KCI will “wait and see what the sanctions look like” before turning away from Iran, Melfi said.

Already, firms dealing with Tehran must take great care not to fall foul of US restrictions.

Transactions are carried out in euros, and the KCI does not deal with businesses that have American citizens or green card resident holders on their boards.

What’s more, products sold to Iran cannot contain more than 10 percent of parts manufactured in the US.

One of the most important inputs for the business is “courage among our managers” given the high risks involved, Melfi said.

Germany’s two biggest banks, Deutsche Bank and Commerzbank, avoid Iran completely after being slapped with harsh fines in 2015 over their dealings there, with Deutsche alone paying $258 million in penalties.

DZ Bank, which operates as a central bank for more than 1,000 local co-op lenders, is withdrawing completely from payment services there, a spokesman told AFP.
That left KCI to seek out the German branch of Iranian state-owned bank Melli in Hamburg.

Even that linkage could break if Iran’s biggest business bank appears on a US list of barred businesses as it has before.

Meanwhile, among Germany’s roughly 390 Sparkasse savings banks, business with the regime is mostly limited to producing documents linked to export contracts.
“We will be looking even more closely at those” in the future, a person familiar with the trade told AFP.

Elsewhere in the German economy, the European-Iranian Trade Bank (EIH) founded in 1971 is another conduit to Tehran.

Also based in Hamburg, it for now remains “fully available to you with our products and services,” the bank assures clients on its website, although “business policy decisions by European banks may result in short term or medium term restrictions on payments.”

Neither does the Bundesbank (German central bank) believe that much has so far changed for business with Iran.

“Only the European Union’s sanctions regime will be decisive,” if and when it is changed, the institution told AFP.

Any payment involving an Iranian party would have to be approved by the Bundesbank if things return to their pre-January 2016 state.

German banking lobby group Kreditwirtschaft has called on Berlin and other EU nations to clarify their stance — and to make sure banks and their clients are “effectively protected against possible American sanctions.”

KCI’s Melfi said time is running out for EU governments to act.

“Many firms just want to stop anything with Iran, since they can’t calculate the risk of staying,” she noted.

On Friday for the first time since the Iran nuclear deal came into force in 2015, China, Russia, France, Britain and Germany gathered in Vienna — at Iran’s request — without the US, to discuss how to save the agreement.

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