Bankers getting a legal high from the authorities’ unwillingness to prosecute

Opinion: It is highly implausible that branch managers were unaware that they were being used to launder drugs money

Thu, Jan 9, 2014, 12:01

The law against marijuana was lifted in Colorado on January 1st, bringing possession of a $10 bag of pot into the same category as laundering hundreds of millions for drugs lords. That is, no prosecutions.

The no-prosecution policy for banks facilitating the dealings of Mexican and Colombian drugs cartels applies in all US states. At Senate hearings last May, Elizabeth Warren (Democrat-Massachusetts) tried to coax answers to this conundrum from high-ranking financial regulators.

Referring to the role of the British-based HSBC in facilitating the drugs cartels by transferring huge sums from its Mexico branches to banking institutions elsewhere where its origins couldn’t or wouldn’t be traced, she asked treasury under-secretary David Cohen: “How many billions do you have to launder for drugs lords and how many economic sanctions do you have to violate before someone will consider shutting down a financial institution like this?”

(HSBC had also been zinging billions around the world on behalf of Iran, Cuba, Sudan, Libya and Burma in periods when any dealing with these countries was – ludicrously – forbidden under anti-terrorism measures.)

Pressed repeatedly, Cohen responded that the treasury thought it more appropriate to regulate than to prosecute – not that there had been much regulation – and, anyway, it didn’t have power to initiate court action. Cohen seemed to have difficulty understanding that this wasn’t an answer to the question she had asked.

Next up was Jerome H Powell for the Federal Reserve. The Fed could only shut down a bank if there had been a criminal conviction, he declared. But no criminal charges had been brought, said the senator. Quite so, agreed the spokesman for the guardian of the nation’s finances.

Did he have any advice for the department of justice as to whether HSBC ought to be prosecuted? He replied that it wasn’t the Fed’s role to advise on such matters, merely to answer any questions put to it, the implication being no such question had been raised.

“You know,” Ms Warren summarised, “if you are caught with an ounce of cocaine, the chances are good you are going to jail. If it happens repeatedly, you may go to jail for the rest of your life. But, evidently, if you launder nearly a billion dollars for drugs cartels and violate our international sanctions, your company pays a fine and you go home and sleep in your own bed at night, every single individual associated with this. I think that is fundamentally wrong.”

HSBC agreed to pay a penalty of £1.9 billion – five weeks’ profits – on the understanding that would be the end of the matter. It had had little choice but to admit wrongdoing. Signing off on the deal, Lanny Breuer, number two at the office of the attorney general, conceded representatives of cartels had regularly come to HSBC Mexican banks to “deposit hundreds of thousands of dollars in cash in a single day to a single account, using boxes designed to fit the precise dimensions of teller windows”.

It is implausible to a farcical degree to imagine that none of the managers of the branches or officials of the institutions to which the money was then transferred realised these huge regular cash deposits could only be the proceeds of crime.

A number of senior HSBC employees who knew or ought to have known of the arrangement have resigned, but none has suffered other penalties. This contrasts with the standard practice of confiscating any money found in the possession of anyone found in possession of illegal drugs. This applies even in states like New York, where it is policy not to prosecute for possession of marijuana for personal use.

In Indiana, Anthony Smelley had $17,000 confiscated after police searched his car and a drugs dog also sniff-searched the vehicle. No drugs were found, but police said they had reason to believe that Smelley was intending to buy drugs with the money – part of a £50,000 payment from an insurance claim. He had to go to court to get his money back.

Every last dollar
Matt Taibbi, in the current edition of Rolling Stone, asks how much money should be taken from the bankers in the HSBC scandal, and responds in restrained and reasonable style: “How about all of it? How about every last dollar the bank has made since it started its illegal activity?

“How about you dive into every bank account of every single executive involved and take every last bonus dollar they have ever earned? Then take their houses, their cars, the paintings they bought at Sotheby’s auctions, the clothes in their closets, the loose change in the jars on their kitchen counters, every last freaking thing? Take it all and don’t think twice. And then throw them in jail.”

It’s hard to see how any responsible citizen could disagree.

Jail the bankers. Free the weed.

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