How Banks Helped Launder Money For Organized Crime And Got Away With It

This is the second article in the Breaking The Power Of The Banks series. For the first, Why Bankers Keep Getting Away With Fraud, click here.

A man walks past a logo of HSBC Holdings PLC at the bank’s headquarter in Hong Kong — March 2, 2009 (AP Photo/Vincent Yu)

A man walks past a logo of HSBC Holdings PLC at the bank’s headquarter in Hong Kong — March 2, 2009 (AP Photo/Vincent Yu)

In my first article, I discussed how bankers, through control of the right government departments, got to keep their obscene bonuses made from the financial crisis while millions lost their homes. And why fining banks is a penalty that does not punish. After the bailouts, banker criminal behavior continues unabated.

In the last couple of months, The New York Times broke a story that the Wells Fargo fake customer account scandal was vastly understated at the time — and raises suspicion it was done intentionally until the news cycle passed. At the same time, a new scandal surfaced involving Wells Fargo staff selling unnecessary car insurance to low-end borrowers resulting in the wrongful repossession of some 20,000 cars. In 2013, the LA Times had broken the story of the pressure by managers who trained lower-level employees to oversell customers for bank products they did not need and the CEO’s famous mantra “eight is great” meaning every employee should ensure that every customer had eight bank products.

The repercussions of Wells Fargo’s scandal were exactly what we’ve come to expect from the government’s lenient, lassez-faire attitude towards bank fraud. The government brought a class action on behalf of customers that was settled for a payment of $185 million by the bank. The CEO was replaced and given a retirement allowance of $133 million (what would you have gotten if you had screwed up and cost your company a multimillion-dollar loss?). None of the managers or executives who had decided on the policy or enforced it suffered the slightest harm. They kept all of their salary and commissions earned by the illegal practice. None saw the inside of a jail cell for even a day.

On hearing of the new allegations against Wells Fargo, Senator Elizabeth Warren (D-MA) grilled Fed chair, Janet Yellen. We’ll let you watch this magnificent takedown for yourself.

“And here is what worries me: Time after time, the banks cheat their customers and no actual human beings are being held accountable. Instead, there is a fine, which ultimately is paid by shareholders and not by executives and certainly not by directors. And nothing is going to change at banks if that doesn’t change.” Elizabeth Warren

When the Board of Directors of Wells Fargo were considering the $133 million retirement allowance for CEO John Stumpf, did it cross their minds that a $1 million stipend might be sufficient for a CEO who had screwed up so badly?

The better solution would have been to divide the remaining $132 million among their lowest paid employees. Whether that would mean a few thousand dollars or a few hundred dollars, any such amount would be a great relief to employees that lived on poverty line wages. Surely the directors had seen the newspaper reports that many tellers were driven to frequent food banks because of their low salaries. Of course this idea didn’t, and in fact, couldn’t enter their minds — which tells us all we need to know about today’s banker mentality.

How Do Bankers Avoid Personal Consequences From Criminal Behavior?

Bankers understand power.

We could fret on Twitter on how offensive it is that bankers got millions in bonuses from taxpayer bailout money while average people lost their home, but that would be as far as we could make our outrage heard because bankers have implemented a strategy that has seized hold of our democracy.

There were politicians who wanted to see bankers, whether they were criminal or merely foolish, take the hit for the 2008 crisis, but even those politicians were powerless against the banks. Much earlier, bankers had seen how to turn what should have been a protection against abuse of power into a way to rig the system in their favor.

We all learned in school that the Legislative, Executive, and Judicial branches of the United States government are kept distinct in order to prevent abuse of power. Accordingly, politicians cannot give orders to the AG’s office. It operates independently and can completely defeat what the politicians may want. Which is exactly what the AG’s office does to protect bankers and help them profit from fraud.

How did banks protect themselves from prosecution for fraud? Law firms that make multi-millions on banker retainer fees help the bankers get control of the AG’s office. And for the banks, this has been an amazingly successful strategy.

High End, Elite Financial Laundromats

In the days running up to 2008, while the banks were putting our economy at risk with their toxic CDOs in the housing market, some were also laundering money for Columbian and Mexican drug cartels. Cartels like El Chapo Guzman’s Sinaloa drug cartel ultimately helped businesses trade with enemies of the United States.

El Chapo: Inside the Hunt for Mexico's Most Notorious Kingpin

The US Drug Enforcement Agency exposed Wachovia, named after a German province, as Guzman’s preferred bank in 2008. As one example of the blatant evidence against Wachovia, one London UK branch staffer, Martin Woods, a former London Metropolitan Police officer, came across large quantities of travelers’ checks for significant amounts in round numbers with serial numbers following each other — all to one aircraft manufacturer. You don’t need high-level forensic accounting training to realize that travelers don’t buy airplanes when they’re vacationing.Woods raised the suspicious transactions with his boss and got fired.

By happy coincidence, he met some members of the US DEA, who were on a conference in England, at a London pub and conveyed the story. Wachovia was also deep into the toxic CDO business, but when the money-laundering charges were revealed, it could not be saved by a bailout and collapsed.

Lanny Brueur, head of the criminal division of the AG’s office, took charge of the Wachovia case. No criminal charges were laid. No one went to jail.

The drug lords, in need of a new bank, found one that could meet all their needs in HSBC — the Hongkong and Shanghai Banking Corporation, a British Corporation founded in Asia when those countries were British protectorates.

In 2011, when HSBC got caught transferring illegal cash from Mexico’s Sinaloa cartel and Colombia’s Norte del Valle cartel into the legal money stream, Senators vowed this time the bankers were not going to get away with a slap on the wrist.

They instituted their own investigation and assembled all the evidence. Their findings, released in June of 2012, devoted one section exclusively to HSBC. The Senate uncovered far more than just money laundering for organized crime.

“They [HSBC] violated every goddamn law in the book. They took every imaginable form of illegal and illicit business.” Jack Blum, a former Senate investigator.

As one example, the Senators found the same suspicious use of traveler’s checks again, with HSBC clearing over $290 million illegibly signed checks that were obtained in Russia and deposited into Japanese accounts for the sale of used cars.

Assisting Al Qaeda

The Senate report also found HSBC had cleared transactions for Al Rajhi Trading, evidence of terrorist funding. The four Al Rajhi Brothers had established Al Rajhi Bank and Al Rajhi Trading. In 2002, the CIA had discovered one of the brother’s name on a list of Al Qaeda’s ‘Golden Chain’ of financiers.

Back in 1983, one of the four brothers in the Rajhi bank had established the SAAR Foundation in Virginia. Those are his initials (Sulaiman Abdul Aziz Al Rajhi). It was given U.S. charitable status, which permitted it to give out receipts for tax deductions. In 2002, acting on the Golden Chain evidence, a combined U.S. law enforcement task force raided the SAAR offices.

The documents they found proved the links to al Qaeda. American taxpayers had indirectly and unknowingly supported the 9/11 attacks in 2001 with tax deductions.

After the 2002 incendiary revelations, the HSBC had, at first, issued a no dealing directive for both organizations, but gradually chipped away at that absolute prohibition to allow dealing with Al Rajhi Trading.

“Group has clarified the Al Ra[jh]i guidance issued last month. They have evaluated Al Ra[jh]i Banking and Al Ra[jh]i Trading and now believe that the two are separated enough that relationships may be maintained with the latter but not with the former. To be clear, recommendation is to sever with Banking only at this time.”

Translating the bankerspeak, that memo says that the head office has given the okay to do any transactions for Trading. We can pretend that we are really dumb and believe that the two companies are acting at arms length and that Trading would never, ever do money laundering for Banking.

The Report also detailed HSBC subsidiaries assisting customers to evade sanctions to countries like North Korea, Libya (under Gaddafi), Iran, Sudan, Burma and Cuba.

Too Big to Fail Doesn’t And Shouldn’t Apply To Individuals

Despite that HSBC sanitized billions of dollars for Colombian and Mexican drug cartels (among others), Al-Qaeda and had violated a host of important laws including the Trading with the Enemy Act; and the Senate evidence was clear, simple and well researched.

But there would be no criminal prosecutions for anyone at the bank.

Lanny Breuer, Assistant Attorney General, came to their rescue with a civil fine of $1.9 billion on the bank — which as one analyst noted is about five weeks of income for HSBC.

Breuer invoked “too big to fail” and repeated that, if he were to charge HSBC and it was convicted, the bank would lose its license. Such a large withdrawal of banking services would damage the U.S. economy.

Taibbi: Too Big to Jail

This I agree with. There is no need to charge a bank criminally. Taxpayers have already paid for this fraud. Why should they continue to pay with the loss of jobs and with the health of their economy.

Breuer also cited the “too big to fail” doctrine’s first corollary in defense of his sweetheart deal. It was a “compliance nightmare” for HSBC. It has so many branches and offices throughout the world, the senior management of the bank couldn’t be expected to know what was going on.

It is true that it would be highly unlikely to find an evidence chain up to the CEO. Even Al Capone was smart enough to make sure the FBI could not trace orders to wipe out victims up to him. Bank executives and CEOs ought to be able to match Capone’s cunning.

But someone knew. There could not have been so many illegal transactions in so many areas without the cooperation or willful blindness of many, many managers who were getting big commissions on the profits and whose job it was to supervise.

But if we apply Breuer’s logic to the mob, we’d have to accept that if we can’t prove the Godfather ordered the murders, we can’t charge the hit men.

If the department managers were fined to the extent or all their visible assets (we will never discover their offshore holdings) as they should be, there would be a lot fewer bankers assisting criminals with international financial transactions. Taking a greedy person’s entire net worth hurts them more than sending them to a taxpayer-funded club Fed prison for a few years.

A Clean Getaway

As an act of sincere contrition, HSBC replaced its CEO. The new CEO, Stuart Gulliver, humbly apologized and promised that the bank would not do it again. HSBC shares rose $0.06 after the announcement and Gulliver got a $3 million bonus at the end of his first year in charge.

The former CEO, the Reverend Stephen Green — yes, a banker in holy orders — was rewarded with a peerage. He is now Baron Green of Hurstpierpoint; and with a cabinet position as Minister of Trade.

As part of the sweetheart slap on the wrist deal, HSBC agreed to have a monitor oversee new management’s promises to be good boys and stop facilitating terrorist organizations. The monitor’s report was supposed to remain confidential, but in 2015, a lawyer for a class action group got it unsealed.

The monitor saw obstruction at every turn. Bloomberg News summarized it this way.

“Overall, his report says, managers from the unit battled auditors with what one compliance officer characterized as a four-part strategy — Discredit, Deny, Deflect and Delay.”

HSBC declined to comment on the monitor’s report, saying only that it was supposed to remain secret. What happened to all that evidence gathered by the Senate report? It gathers dust somewhere in a basement storage room.

The Breuer case is the perfect paradigm of the revolving door effect between Washington and Wall Street that gives bankers their immunity. He rose to stardom in the AG’s office, went to the white color defense firm of Covington and Burling and defended wealthy executives — and banks of course — against the AG’s office, then became the head of the criminal division of the AG’s office that is to prosecute these same persons, then returned to his partnership at Covington and Burling to once again represent the banks and executives to whom he had given such sweetheart deals.

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Corporate Bungling And Political Scandal Abound In Jesse Eisinger’s New Book, NPR” class=”aligncenter size-full” />Corporate Bungling And Political Scandal Abound In Jesse Eisinger’s New Book, NPR

In his recent book about the AG’s office, The Chickenshit Club, Pulitzer Prize winning journalist Jesse Eisenger dedicates a chapter to the Breuer tale. It tells in stark accuracy a side of the practice of law that lawyers generally only understand after a decade of experience. However, like so many books on the failure of our present government systems, it leaves the reader with the impression that it’s all so corrupt that nothing can be done.

Millions of voters became so disgusted with both of the political parties in the last election that they supported an outsider simply because he was not one of the established politicians. Despite his immature and embarrassing behavior, he can still do no wrong in their eyes because is not one of the despised establishment.

A primary cause of this loathing arose from the failure of government to prosecute banks and bankers, allowing them to continue to gorge on obscene profits while ordinary citizens lost their homes. While it’s true that once a president appoints someone to be the AG or the head of the AG criminal division, neither he nor Congress have much say in deciding whom to prosecute, voters don’t care about that distinction.

I’ve used Breuer as an example, but the fault is not his. The practice of shuffling from Wall Street to Washington to Wall Street has been so long standing that it has earned the term “revolving door.” Yet Congress has done nothing to stop it. No politician has made it part of their platform. It is in one of the categories that Ben Franklin identified: Everyone talks about it, but no one does anything about it.

Thus, it is imperative that the next president understand this cause of the alienation of voters and that there is a remedy. Our leader will need to appreciate how bankers get control of the AG’s office and put in place a policy to prevent that influence.

The solution is obvious. Never put a senior person in the AG’s office in the position of a conflict between the duty to their office and their bank account. How many of us would aggressively pursue bankers, if we knew that when we retired from the AG’s office, we would lose the opportunity of walking back into a law partnership with a million-dollar per year income?

To prevent further banker-friendly AGs, promotion should only be from within the AG or other government law departments. There are lots of very, very competent lawyers in these positions who are more loyal to their country than their pay check and would be a better fit and better qualified for these positions.

As a second safeguard, on appointment, we should require the senior members of the AG’s department to pledge that they will not take a job with a private law firm or as a lobbyist for five years after leaving the position. There are plenty of other jobs for them: teaching at a university, appointment as a judge, the diplomatic core, think tanks, and so on.

As a result of the treatment of banks like HSBC and Wachovia, the bankers got a couple of clear messages. If you’re not going to jail for washing the blood off drug money, you’re not going to jail period.

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