http://www.zerohedge.com/news/2015-02-07/nyt-exposes-criminal-money-laundering-underworld-supporting-manhattans-luxury-housin The NYT Exposes The Criminal Money-Laundering Underworld Supporting Manhattan's Luxury Housing Bubble Submitted by Tyler Durden on 02/07/2015 15:02 -0500 Afghanistan China Corruption Equatorial Guinea Florida Housing Bubble Housing Market Iran Kazakhstan Mexico Michigan New Normal New York City New York Times Real estate recovery Swiss Banks Time Warner Transparency Treasury Department in Share 1 Almost three years ago, back in the summer of 2012, we explained " Why The NAR Will Never Be Prosecuted For Facilitating Money Laundering " and wrote the following: "A Florida home that originally listed for $60 million has sold for $47 million, a record for a single-family house in Miami-Dade County. The home, in Indian Creek Village, had been on the market since early 2011, when construction was still being completed. The asking price was reduced to $52 million this year." And the punchline: "The identity of the buyer, a foreigner who purchased the home in the name of a U.S.-based limited-liability company, couldn't be learned." In other words a foreigner who may or may not have engaged in massive criminal activity and/or dealt with Iran, Afghanistan, or any other bogeyman du jour at some point in their past, and is using US real estate merely as a money-laundering front perhaps? Sadly, we will never know. Why? As explained before, it is all thanks to the National Association of Realtors - those wonderful people who bring you the existing home sales update every month (with a documented upward bias every single time) - which just so happens is the only organization that actively lobbied for and received an exemption from AML regulation compliance. In other words, unlike HSBC, the NAR is untouchable, even if it were to sell a triplex to Ahmedinejad on West 57th street. As a reminder , here is where the NAR stands on the issue of its most generous clients possibly being some of the worst criminal known to man, courtesy of Elanus Capital: Many of you reading this will undoubtedly have spent time in an international bank and been forced to sit through countless hours of “know your client” and AML training. Fascinating to note that the National Association of Realtors lobbied for and received a waiver from such regulation. That’s right, realtors actually went to the U.S. government and said: we want to be able to help foreign business oligarchs and other nefarious business people launder money through the real estate markets of the United States – and prevailed. Here's their official position: "NAR supports continued efforts to combat money laundering and the financing of terrorism through the regulation of entities using a risk-based analysis. Any risk-based assessment would likely find very little risk of money laundering involving real estate agents or brokers. Regulations that would require real estate agents and brokers to adopt anti-money laundering programs may prove to be burdensome and unnecessary given the existing ML/TF regulations that already apply to United States financial institutions." Hat’s off to the NAR – that is some serious doublespeak. My translation: We’ll support you as long as we don’t have to support you. If after skimming the above, readers are still confused what the reason is for the luxury segment of the US housing market continuing to rise in price even as all other segments of the quadruplicate US housing market as explained here languish, we suggest rereading it as many times as necessary . " Since the summer of 2012, the US housing market's latest (fourth) artificial dead cat bounce has ended with year over year prices once again declining, however one segment has continued to prosper: the ultra-luxury, ultra-expensive top end of US real estate, located typically in San Francsico, Miami and, of course, New York. The reason as we first noted, and explained, is that laundering of money into US real estate with the blessings of the NAR, the local authorities, regulators and of course Congress, has been one of the most critical pillars of the US "housing recovery" (the other three being Wall Street's creeping takeover of US rental assets , foreclosure stuffing and, of course, the Fed's trillions in MBS and TSY purchases). As such, the US was willing to turn a blind eye to billions if not trillions in laundered, criminal, and in many cases "blood" dollars ending up on US shores, even if the source was the most loathsome of oligarchs or dictators, as long as it meant Obama could continue to take credit for the pretend housing "recovery." We kept repeating this over and over, and nobody really cared. After all exposing this little ploy would mean that there was no actual recovery, but merely the New Normal transformation of Swiss banking as the prefered venue where anonymous stolen, tax-evaded, oligarch money was parked, to duplex and triplex apartments on Park Avenue and Central Park West. Until now, when in a massive expose, the NYT has revealed - what all long-time Zero Hedge readers knew - namely that the " Stream of Foreign Wealth Flows to Elite New York Real Estate ", a long-overdue report on what really happens in the secret world of US ultra-luxury housing, and how the rush to bid up apartments in NYC to unprecedented levels, with some seeling for over $100 million, is not indicative of any recovery, but quite the opposite: the wealth transfer from the middle class to a select few oligarchs who do everything in their power to park and hide their money away from the public eye, and in many cases avoid taxation and explanation to their host nations just how they managed to procure such vast wealth without engaging in criminal activity. We will let readers go through the article on their own, but we will highlight something that we have been writing virtually every year since late 2011, and which, as usual, got us branded as conspiracy theorists if only in the beginning. Because, you see, once it hits the NYT it all magically becomes fact. * * * * Stream of Foreign Wealth Flows to Elite New York Real Estate Behind the dark glass towers of the Time Warner Center looming over Central Park, a majority of owners have taken steps to keep their identities hidden, registering condos in trusts, limited liability corporations or other entities that shield their names. By piercing the secrecy of more than 200 shell companies, The New York Times documented a decade of ownership in this iconic Manhattan way station for global money transforming the city’s real estate market . * * * The Times also found a growing proportion of wealthy foreigners, at least 16 of whom have been the subject of government inquiries around the world, either personally or as heads of companies. The cases range from housing and environmental violations to financial fraud. Four owners have been arrested, and another four have been the subject of fines or penalties for illegal activities. The foreign owners have included government officials and close associates of officials from Russia, Colombia, Malaysia, China, Kazakhstan and Mexico. They have been able to make these multimillion-dollar purchases with few questions asked because of United States laws that foster the movement of largely untraceable money through shell companies. Vast sums are flowing unchecked around the world as never before — whether motivated by corruption, tax avoidance or investment strategy, and enabled by an ever-more-borderless economy and a proliferation of ways to move and hide assets. * * * About $8 billion is spent each year for New York City residences that cost more than $5 million each , more than triple the amount of a decade ago, according to the website PropertyShark. Just over half of those sales last year were to shell companies. The Times examination reveals the workings of an opaque economy for this global wealth. Lacking incentive or legal obligation to identify the sources of money, an entire chain of people involved in high-end real estate sales — lawyers, accountants, title brokers, escrow agents, real estate agents, condo boards and building workers — often operate with blinders on. As Rudy Tauscher, a former manager of the condos at Time Warner, said: “ The building doesn’t know where the money is coming from. We’re not interested.” * * * In some ways, officials are clamoring for the foreign wealthy. In New York, tax breaks for condominium developments benefit owners looking for a second, or third, residence in one of Manhattan’s premier buildings. Mayor Michael R. Bloomberg said on his weekly radio program in 2013, shortly before leaving office: “If we could get every billionaire around the world to move here, it would be a godsend.” * * * “We like the money,” said Raymond Baker, the president of Global Financial Integrity, a Washington nonprofit that tracks the illicit flow of money. “It’s that simple. We like the money that comes into our accounts, and we are not nearly as judgmental about it as we should be.” * * * “It’s a really closely guarded secret who is in that building,” said Al D’Elia, an architect who has worked there. “It’s just the way they treat you, what you have to do to get in the building.” * * * Nothing in the genesis of limited liability corporations suggested they would be used to purchase personal real estate, said Susan Pace Hamill, a University of Alabama professor who worked on L.L.C. policy while at the Internal Revenue Service in the 1990s. However, L.L.C.s are now commonly used in real estate for privacy, wealth transfer or shared ownership. Why demand anonymity if you have nothing to hide, as the NSA defenders say: What becomes clear combing real estate records is that many Time Warner buyers have taken even greater steps, beyond using L.L.C.s, to keep their names out of sight. On many deeds, the line for the buyer’s signature is left blank, is illegible or is signed by a lawyer or other representative. Phone numbers are registered under lawyers’ names; the owner’s line on renovation permits is signed by Time Warner staff members; tax statements are addressed to the L.L.C.s. And because most of the sales are in cash, there are few mortgage statements, another public document that might identify an owner or trigger scrutiny. Nobody knows where the money comes from. Why? Because most of the time it has been obtained illegaly: A spokeswoman for the Related Companies, Joanna Rose, said the developer had followed all federal and local laws in its sales at the Time Warner Center, adding, “With all of our sales, we know the identity of the purchasers.” However, documents and interviews with a half-dozen people involved in the sales show that in many cases, the company did not know the actual source of the money behind the sales. David J. Wine, the former vice chairman of the Related Companies, spoke bluntly of the lack of concern with buyers’ identities. “ You pretty much go by financial capacity,” Mr. Wine said. “Can they afford it? They sign the contract, they put their money down with no contingency and they close. They have to show the money, and that is it. I don’t think you will find a single new developer where it’s different.” Real estate agents say commitment to anonymity is essential. “One thing of being a high-end broker is we have to protect the privacy of our clients,” said Hall F. Willkie, president of Brown Harris Stevens. “If we didn’t, we wouldn’t have them as clients. We’re very much like private bankers in that sense.” The shift to secrecy also reflects a fundamental change in the ownership structure of luxury real estate in New York. Many of Manhattan’s finest addresses were traditionally organized as co-ops in which residents were joint owners of the building. Co-op boards generally prefer full-time residents and often subject would-be buyers to excruciating scrutiny. “Those co-ops wouldn’t accept billionaires, especially foreigners,” said Raphael De Niro, a broker at Douglas Elliman. By contrast, Time Warner and most new luxury buildings are condos; residents own individual units and boards have less power to screen prospective buyers. In addition, at the Time Warner Center and many other buildings, if a condo board rejects a buyer, building rules say all the residents have to chip in to buy the unit, creating a disincentive for the board to be too picky. Just like Swiss banks, before Obama destroyed the concept of Swiss bank secrecy. How soon until he does it again to the "NIRP Normal" Swiss bank account: the Manhattan triplex? There is much, much more in the NYT article, most of it dealing with the revealed identities of the buyers, most of whom one can say with absolute certainty are either domestic or offshore tax-evaders, oligarchs or outright "organized" crime lords, or even worse, but here is the key section. A BLIND EYE Federal banking guidelines are clear: “Banks should take all reasonable steps to ensure that they do not knowingly or unwittingly assist in hiding or moving the proceeds of corruption.” This means screening customers to determine whether they are “politically exposed people” — foreign officials and their relatives and associates — and filing a “suspicious activity report” if the customers transfer unusually large amounts of money. But such checks are not required on money flowing into the country through shell companies to purchase high-end real estate. L.L.C.s and other corporate entities can be established in various states without revealing their true owners. Even when such companies move money through a bank account, banks are not required to know who is behind the transaction because of a loophole in the law. In many ways, the government has allowed the real estate industry to turn a blind eye to the source of money used to buy luxury properties. It might not have turned out this way. In the late 1990s, after congressional hearings highlighted corrupt foreign officials with money in the United States, the Justice Department sought to expand the list of industries required to screen the financial activities of politically exposed people. That included jewelry sales, hedge funds and real estate. The proposal gained momentum after Sept. 11, when the Justice Department pushed to make it part of the Patriot Act. The rules were included in the law and handed to the Treasury Department to put into effect. The real estate and legal professions sprang into action, arguing that background checks were impractical and would hurt the economy. “The money-laundering risks presented by real estate closings are relatively small, compared to other types of financial assets,” the American Land Title Association said in comments on the proposed rules. Businesses insisted that tainted money was not likely to flow into real estate. “Anonymity and liquidity, two characteristics important to money launderers, typically do not exist in real estate transactions,” the Dechert law firm wrote. The industry’s assertions ignored the increasing use of shell companies and how often wealthy foreigners sought out high-end real estate as a safe deposit box. But the Treasury Department never imposed the requirement on real estate or some other industries. Similarly, a proposal to extend the concept of the “know your customer” banking rule to the identities of people behind L.L.C.s and other shell companies that open bank accounts has been stalled for nearly three years in the Treasury Department. Banking associations say it would impose undue costs on them because there are no reliable federal or state databases with shell company owners. In fact, registering shell companies has become profitable for states like Delaware and Nevada, which also have lobbied against transparency. “I don’t see some kind of global effort to stop all this because the money’s too good,” said David M. Crane, a Syracuse University law professor who oversaw the United Nations’ effort to recover money from Charles Taylor, the former Liberian president who was convicted of war crimes and thought to have plundered his country. A number of states do not require people forming companies to reveal the names of the owners or show any identification. This opacity presents challenges for law enforcement officials, who say billions of dollars in suspicious money move through shell companies each year. “It can be very, very difficult to penetrate who is the beneficial owner of these shell companies,” said Leslie R. Caldwell, chief of the Justice Department’s criminal division. She said that the department’s Kleptocracy Initiative has found that foreign officials often use shell companies or immediate family members to move large amounts of money to United States real estate. In 2010, a Senate committee investigating corrupt money moving into the country drew attention to a shell company used by the sister of the president of Gabon to buy a $2 million residence in Manhattan, and to an L.L.C. used by the son of the president of Equatorial Guinea to purchase a $30 million home in Malibu, Calif. The proliferation of shell companies incorporated in the United States has hurt Washington’s attempt to get other countries to crack down on Americans who move money offshore to avoid taxes. “We are in a totally inconsistent position,” said Carl Levin, a Michigan Democrat who pushed for transparency in shell companies when he served in the Senate. “ We’re way behind in terms of keeping up with what the international standard is, and it weakens our argument when we go to try to crack down the use of these offshore tax havens.” About a year ago, after the Group of 8 industrialized nations issued goals requiring identification of shell company owners, a British representative met with Justice Department officials to complain about the United States’ failure to comply. According to two people at the meeting, the British representative, Dominic Martin, delivered a stern message: The lax American laws were being used by other countries as an excuse for inaction. Such a message resonates with Justice Department officials who have advocated tightening the rules. “For a long time we’ve taken the view that you have to focus on the people that manage the gateway to the financial system, and those guys are not only the banks,” said Stefan Cassella, a Justice Department lawyer. “Bad guys who are trying to invest money in the financial system — they use lawyers, they use accountants, they use real estate, they use jewelers and private jets.” Much more here . Average: 3.69231 Your rating:None Average:3.7 (13votes)
Mainstream Media Finally Awakens to the Fact that Big Banks Are Criminal Enterprises Submitted by George Washington on 12/16/2012 15:05 -0500 Alternative financial media have noted for years that: Fraud caused the Great Depression and the current financial crisis , and the economy will never recover until fraud is prosecuted Criminal fraud is the main business model adopted by the giant A id=_GPLITA_2 title="Click to Continue by Text-Enhance" href="http://www.washingtonsblog.com/2012/08/bankster-fraud-is-not-a-victimless-crime-it-has-driven-100-million-into-poverty-killing-millions.html#" banks . See this Largely because they are out-of-control criminal enterprises, economy cannot recover unless the big banks are broken up . The Obama administration has made it official policy not to prosecute fraud . Indeed, the “watchdogs” in D.C. are so corrupt that they are as easily bribed as a policeman in a third world banana republic. Instead of prosecuting, the government throws money at them As Nobel A style="TEXT-DECORATION: underline" id=_GPLITA_0 title="Click to Continue by Text-Enhance" href="http://www.washingtonsblog.com/#" prize winning economist Joseph Stiglitz noted years ago: “The system is set so that even if you’re caught, the penalty is just a small number relative to what you walk home with. The fine is just a cost of doing business. It’s like a parking fine. Sometimes you make a decision to park knowing that you might get a fine because going around the corner to the parking lot takes you too much time.” Now – with the slap on the wrist of giant HSBC for laundering huge sums of drug money (the Guardian points out that “the sum represents about four weeks’ earnings given the bank’s pre-tax profits of $21.9bn last year”) – even the mainstream press is starting to catch on. The New York Times notes : Congressional hearings exposed weaknesses at the Office of the Comptroller of the Currency, the A style="TEXT-DECORATION: underline" id=_GPLITA_3 title="Click to Continue by Text-Enhance" href="http://www.washingtonsblog.com/#" national bank regulator. In 2010 , the regulator found that HSBC had severe deficiencies in its anti-money laundering controls, including $60 trillion in transactions and 17,000 accounts flagged as potentially suspicious, activities that were not reviewed . Despite the findings, the regulator did not fine the bank. During the hearings this summer, lawmakers assailed the regulator. At one point, Senator Tom Coburn, Republican of Oklahoma, called the comptroller “a lap dog, not a watchdog.” A New York Times editorial argues : It is a dark day for the rule of law. Federal and state authorities have chosen not to indict HSBC, the London-based bank, on charges of vast and prolonged money laundering, for fear that criminal prosecution would topple the bank and, in the process, endanger the financial system. They also have not charged any top HSBC banker in the case , though it boggles the mind that a bank could launder money as HSBC did without anyone in a position of authority making culpable decisions. Clearly, the government has bought into the notion that too big to fail is too big to jail. When prosecutors choose not to prosecute to the full extent of the law in a case as egregious as this, the law itself is diminished. The deterrence that comes from the threat of criminal prosecution is weakened, if not lost . *** Even large financial A style="TEXT-DECORATION: underline" id=_GPLITA_1 title="Click to Continue by Text-Enhance" href="http://www.washingtonsblog.com/#" settlements are small compared with the size of international major banks. More important, once criminal sanctions are considered off limits, penalties and forfeitures become just another cost of doing business, a risk factor to consider on the road to profits . *** According to several law enforcement officials with knowledge of the inquiry, prosecutors found that, for years, HSBC had also moved tainted money from Mexican drug cartels and Saudi banks with ties to terrorist groups . Those findings echo those of a Congressional report, issued in July , which said that between 2001 and 2010, HSBC exposed the American “financial system to money laundering and terrorist financing risks.” As the New York Times correctly points out : If banks operating at the center of the global economy cannot be held fully accountable, the solution is to reduce their size by breaking them up and restricting their activities — not shield them and their leaders from prosecution for illegal activities. The Washington Post writes that its not just HSBC: A string of august names in global A style="TEXT-DECORATION: underline" id=_GPLITA_2 title="Click to Continue by Text-Enhance" href="http://www.washingtonsblog.com/#" banking — Credit Suisse, Lloyds Bank, ABN Amro, ING Bank and now HSBC — have reached settlements in the past couple of years with the U.S. government for billions of dollars in tainted transactions. These investigations have revealed that weaknesses in the financial system lay not with the so-called hawala brokers of Karachi, Pakistan, but the bespoke bankers of London, Amsterdam and Geneva, and their American affiliates. *** The settlement drew criticism that HSBC had escaped lightly, given the gravity and scale of the crimes. “ If these people aren’t prosecuted, who will be? ” asked Jack Blum, a Washington attorney and a former special counsel for the Senate Foreign Relations Committee who specializes in money laundering and financial crimes. “What do you have to do to be prosecuted? They have crossed every bright line in bank compliance. When is there an offense that’s bad enough for a big bank to be prosecuted?” The Guardian notes : “Steal a little,” wrote Bob Dylan, “they throw you in jail; steal a lot and they make you a king.” These days, he might recraft the line to read: deal a little dope, they throw you in jail; launder the narco billions, they’ll make you apologise …. *** The dealings had been flagged up to HSBC bosses by an anti-money laundering officer, but to no avail – the dirty business continued. *** no one from Wachovia went to jail – and, said Woods at the time of the settlement: “These are the proceeds of murder and misery in Mexico, and of drugs sold around the world. But no one goes to jail. What does the settlement do to fight the cartels? Nothing. It encourages the cartels and anyone who wants to make money by laundering their blood dollars.” *** Wachovia was not the first, neither will HSBC be the last. Six years ago, a subsidiary of Barclays – Barclays Private Bank – was exposed as having been used to launder drug money from Colombia through five accounts linked to the infamous Medellín cartel. *** And the issue is wider than drug-money. It is about where banks, law enforcement officers and the regulators – and politics and society generally – want to draw the line between the criminal and supposed “legal” economies, if there is one. *** No one was sanctioned under criminal law last month when the ING bank was fined $619m for illegally moving billions of dollars into the US banking system…. *** A foremost trainer of anti-money laundering officers in the US is Robert Mazur, who infiltrated the Medellín cartel during the prosecution and collapse of the BCCI bank in 1991, and who tells the Observer that “ the only thing that will make the banks properly vigilant to what is happening is when they hear the rattle of handcuffs in the boardroom “. *** “ People don’t like to ask how close the banker’s finger is to the trigger of the killer’s gun ,” says Woods. But in this newspaper – when we revealed the original “cease and desist” order against HSBC – the former head of the UN Office on Drugs and Crime, Antonio Maria Costa, posited that four pillars of the international banking system are: drug-money laundering, sanctions busting, tax evasion and arms trafficking . The response of politicians is to cower from any serious legal assault on this reality, for the simple reasons that the money is too big (plus consultancies to be had after leaving office). The British government recruits a former chairman of HSBC as trade secretary just as the drug-laundering scandal breaks. *** The notion of any dichotomy between the global criminal economy and the “legal” one is fantasy. Worse, it is a lie. They are seamless, mutually interdependent – one and the same. The Guardian reported last year: “Wachovia’s blatant disregard for our banking laws gave international cocaine cartels a virtual carte blanche to finance their operations,” said Jeffrey Sloman, the federal prosecutor. Yet the total fine was less than 2% of the bank’s $12.3bn profit for 2009. On 24March 2010, Wells Fargo stock traded at $30.86 – up 1% on the week of the court settlement. The conclusion to the case was only the tip of an iceberg, demonstrating the role of the “legal” banking sector in swilling hundreds of billions of dollars – the blood money from the murderous drug trade in Mexico and other places in the world – around their global operations, now bailed out by the taxpayer . Huffington Post writes : “ The message this is sending is if you want to engage in money laundering, make sure you’re doing it within the context of your employment at a bank ,” said in a phone interview. “ And don’t go small. Do it on a very large scale, and you won’t get prosecuted .” “ It’s essentially telling the executives in these institutions crime pays ,” Neil Barofsky, former Special Inspector General for the Troubled Asset Relief Program, the government’s bailout program, told CNN. “ Go ahead, do whatever you want to do, enjoy your profits, and the worst thing that happens, well, you have some fines that really make up a couple of weeks of profits that you lose .” Barofsky explains : DOJ’s actions with regards to HSBC are … downright terrifying for weakening the general deterrence for megabanks, both foreign and domestic, which could rationally interpret yesterday’s actions as a license to steal . *** Yesterday’s action now spikes the punch with a new toxin, confirmation that criminal penalties are off the table, leaving a worst-case scenario of a fine totaling far less than even a single quarter’s earnings. Given the potential profits of criminal behavior and the unlikelihood of personal consequences for the executives directing it, the message is clear: Crime pays . This will inevitably lead to more reckless risk-taking that will further undermine systemic stability and lead to an even greater financial meltdown down the road . Matt Taibbi notes : When you decide not to prosecute bankers for billion-dollar crimes connected to drug-dealing and terrorism (some of HSBC’s Saudi and Bangladeshi clients had terrorist ties , according to a Senate investigation), it doesn’t protect the banking system, it does exactly the opposite. It terrifies investors and depositors everywhere, leaving them with the clear impression that even the most “reputable” banks may in fact be captured institutions whose senior executives are in the employ of (this can’t be repeated often enough) murderers and terrorists . Even more shocking, the Justice Department’s response to learning about all of this was to do exactly the same thing that the HSBC executives did in the first place to get themselves in trouble – they took money to look the other way . (Taibbi also notes that the failure to prosecute HSBC shows that the war on drugs is a joke. He’s right ; and see this ). The top Wall Street fraud expert – William Black – confirms : Public reports of the results of the government investigations of HSBC describe a bank that has been a criminal enterprise for at least 15 years . The current settlement addresses only three of the many scandals HSBC has committed over that time period. HSBC is a recidivist of epic proportions, but the Obama and Cameron governments have failed to prosecute HSBC or any of its officers. When powerful corporations and their controlling officers grow wealthy through massive frauds and do so with impunity from criminal sanction integrity and justice are eaten away. Effective financial regulation, supervision, and prosecutions are essential to “free” financial markets . When cheaters prosper honest firms are driven from the markets, a point that the Nobel Laureate George Akerlof explained in his famous 1970 article on markets for “lemons.” He described a “Gresham’s” dynamic in which bad ethics drove good ethics from the marketplace. BBC points out that we will end up paying for the banks’ sins: The point, as the Governor of the Bank of England said recently, is that banks may not have adequate capital to absorb the full financial cost of all the punishment being meted out for banks’ past sins. And as you will be tired of hearing, capital is expensive. And when banks are obliged to raise more of it, the burden falls initially on investors and subsequently on customers – who are forced to pay more for banking services to reward the providers of the capital. Or to put it another way, we are all punished when banks are found guilty. Senators Slam Department of Justice Congress is almost entirely bought and paid for . But even so, Democratic Senator Merkley just wrote a letter slamming the Department of Justice: Assistant Attorney General Lanny Breuer highlighted just how brazen the violations were, with traffickers depositing “hundreds of thousands of dollars in cash, in a single day, into a single account, using boxes designed to fit the precise dimensions of the teller window.” Sanctions violations were equally deliberate, with the bank intentionally stripping information from transactions to avoid detection. Yet despite these clear and blatant violations, the Department of Justice refused to bring criminal charges against the bank, relevant employees, or senior management. Indeed, Mr. Breuer stated yesterday that in deciding not to prosecute, the Department considered the “collateral consequences” of its decision on the financial system. Mr. Breuer stated “If you prosecute one of the largest banks in the world, do you risk that people will lose jobs, other financial institutions and other parties will leave the bank, and there will be some kind of event in the world economy?” The HSBC decision comes on the back of deferred prosecution agreements with Standard Charter Bank and ING Group related to similar charges. *** I am deeply concerned that four years after the financial crisis, the Department 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 . This “too big to jail” approach to law enforcement, which deeply offends the public’s sense of justice, effectively vitiates the law as written by Congress. Had Congress wished to declare that violations of money laundering, terrorist financing, fraud, and a number of other illicit financial actions would only constitute civil violations, it could have done so. It did not. *** Drug cartels are also increasingly connected to terrorism. According to the Drug Enforcement Administration, 39 percent of State Department-designated foreign terrorist organizations (FTOs) have “confirmed links” to the drug trade, as of November 2011. The consequences to U.S. national security for violations involving terrorism financing … are obvious and severe. Congress deemed criminal law the appropriate tool for punishing and deterring actions that have such serious and damaging public consequences. *** According to the U.S. Sentencing Commission, jail time is served by over 96 percent of persons that plead or are found guilty of drug trafficking, 80 percent of those that plead or are found guilty of money laundering, and 63 percent of those caught in possession of drugs. As the deferred prosecution agreement appears now to be the corporate equivalent of acknowledging guilt, the best way for a guilty party to avoid jail time may be to ensure that the party is or is employed by a globally significant bank. The Department’s deferred prosecution agreements may offer something in the way of promises of future compliance, but they look sorely lacking in justice and accountability. Merkley also notes that failing to criminally prosecute bank crimes makes the “too big to fail” problem even worse: Refusing to prosecute on the grounds of financial stability is also troubling from the perspective of ending “too big to fail.” The Dodd-Frank Wall Street Reform and Consumer Protection Act, which declared some institutions to be systemically important financial institutions subject to tougher regulation, did not declare that those institutions would be exempt from criminal prosecution. Indeed, the Dodd-Frank Act explicitly created new authority to permit a failed institution to be wound down safely, without impacting financial stability. If a financial institution, because of its criminal actions, ultimately fails, that may indeed be precisely the consequence that justice and accountability demand, and which is so necessary to deterring future illegal behavior. I am deeply concerned that the Department’s continuing application of deferred prosecution agreements on the grounds of financial stability runs contrary to the intent of Congress and undermines the accountability to the rule of law that is so fundamental to a healthy, functioning free market economy. In a separate letter, Republican Senator Chuck Grassley also slammed the justice department: The Department has refused to prosecute any individual employees or the bank responsible for these crimes. This troubling lack of real enforcement will have consequences for the health of our economy and the safety and prosperity of the American people. *** Despite the fact that this is a “record” settlement, for a bank as gigantic as HSBC this is hardly even a slap on the wrist . It only amounts to between 9 and 11% of HBSC’s profits last year alone, and is a bare fraction of the sums left unmonitored . Additionally, the DPA states that “at least $881 million in drug proceeds” entered the U.S. financial system, but how much more remains undiscovered? Did HSBC profit from the DPA because it actually made more than $1.92 billion by providing services to drug kingpins and terrorists? The American people may never know, because you have declined to prosecute. Even more concerning is the fact that the individuals responsible for these failures are not being held accountable . The Department has not prosecuted a single employee of HSBC—no executives, no directors, no AML compliance staff members, no one. By allowing these individuals to walk away without any real punishment, the Department is declaring that crime actually does pay . Functionally, HSBC has quite literally purchased a get-out-of-jail-free card for its employees for the price of $1.92 billion dollars. There is no doubt that the Department has “missed a rare chance to send an unmistakable signal about the threat posed by financial institutions willing to assist drug lords and terror groups in moving their money.” One international banking expert went as far as to argue that, despite the “astonishing amount of criminal behavior” from HSBC employees, the DPA is no more than a “parking ticket.” A former banking regulator added that it is “mind-boggling” how the Department believes that “you can have a financial system and allow this kind of impunity.” Future bank employees with a choice between following the law or profiting from illegal activities will have been taught the lesson that they will never face prison time for their actions. Consequently, this DPA does little to discourage future lawbreakers, and leaves the U.S. financial system highly vulnerable to exploitation by drug cartels and terrorists. The Department’s inexcusable reluctance to prosecute is the continuation of a failed policy allowing lawbreakers to escape justice. In a letter to the Department on March 9, 2012, I noted that the Department had “brought no criminal cases against any of the major Wall Street banks or executives who are responsible for the financial crisis” …. As others have repeatedly warned, failing to prosecute individuals or banks when they have committed crimes will result in perverse incentives and ultimately undermine the integrity of the U.S. financial system and economy. The United States is already seeing the results of these failed policies. Past settlements with large banks prove that they do nothing to change what appears to be a culture of noncompliance for some businesses. In March 2010, the Department arranged a then-record $160 million deferred prosecution agreement with Wachovia based on its laundering of more than $110 million from Colombian and Mexican drug cartels. Officials at the time stated that “blatant disregard for our banking laws gave international cocaine cartels a virtual carte blanche to finance their operations.” In this case, a bank escaped with a record monetary settlement and a conspicuous absence of individuals behind bars. If the story sounds eerily similar, that’s because it is. It happened again with HSBC. Make no mistake, the Department’s refusal to prosecute individuals or the bank directly threatens the safety of Americans. After evidence revealed Wachovia’s involvement with money-laundering, one whistleblower stated, “ t’s simple: if you don’t see the correlation between the money laundering by banks and the 30,000 people killed in Mexico, you’re missing the point.” HSBC’s criminal actions have no doubt enabled similar violence in Mexico by supporting the very cartels now terrorizing Mexican civilians. This violence often spills over the border into American cities …. As the Ranking Member of the Senate Judiciary Committee, I have an obligation to ensure that the executive branch is fully, fairly, and effectively enforcing the law. But what I have seen from the Department is an inexplicable unwillingness to prosecute and convict those responsible for aiding and abetting drug lords and terrorists. I cannot help but agree with an editorial in the New York Times that “ the government has bought into the notion that too big to fail is too big to jail .” Average: 5 Your rating: None Average: 5 ( 27 votes) Tweet George Washington's blog Login or register to post comments 10258 reads Printer-friendly version Send to friend Similar Articles You Might Enjoy: Senate Throws The Book At HSBC Accusing It Of Massive "Money Laundering And Terrorist Financing", No Comment On NAR Money Laundering Yet Why Mega Banks Are The Modern Cocaine Cowboys Standard Chartered Gets HSBC'ed How to Launder Money - Swiss Style Why The US Is So Attractive To Money Laundering Banks
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