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Why the U.S. Absolutely Should Have Prosecuted [People at] HSBC

EJ Fagan

Reuters Financial Blogger Felix Salmon today defended the decision by the United States to not prosecute individuals at HSBC for money laundering violations. Salmon writes:

But here’s the thing: you can’t jail a bank, or any corporation; a criminal indictment of a corporation is a bit of a peculiar fish at the best of times. Even if the bank survived, which Gongloff thinks is possible but no one knows for sure, there would certainly be massive job losses — and we can be sure that somewhere between 99% and 100% of those job losses would fall on people who had absolutely nothing at all to do with the money laundering that HSBC was getting up to.

What’s more, it’s important to put HSBC’s crimes in context. The United States, in its role as global hegemon and guardian of the world’s only real reserve currency, has unapologetically taken the opportunity to use its economic power to push its geopolitical agenda. For instance, if you’re an Iranian business and you want to do business in dollars, the US is determined to make your life as difficult as possible. The US might have no jurisdiction over Iranian businesses, but it does have jurisdiction over nearly all the important banks in the world, since it’s impossible to be a global bank without having some kind of presence in the US. And — as Argentina is finding out right now in its court case against Elliott Associates — if you want to send dollars around the world, you basically have to send them through the USA.

To put it another way, the laws that HSBC broke were laws designed to bolster the international standing of the US relative to Iran and other countries: they were geopolitically motivated, and the intended target was not the international banking system, with which the State Department has no particular beef, but rather countries the State Department doesn’t like.

Right off the bat: Salmon is right that individuals commit crimes and can be put in jail, but not institutions or corporations. A criminal sanction of a bank would be something closer to removing its banking license (something that Ben Lawsky in New York threatened to do to Standard Chartered), which would itself function as a pretty big penalty for the bank.

But let’s remove that from the table for now. Individual people at HSBC committed crimes, admitted to committing those crimes, and can in theory be held responsible in a court for them. 

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The HSBC Deferred Prosecution Agreement: Just how much money are we really talking about?

Heather Lowe

flickr /  ell brownHSBC Bank USA N.A. and HSBC Bank Holdings plc, its parent company, agreed to forfeiture and penalties of a little more than $1.9 billion dollars for systemic and willful violations of U.S. anti-money laundering and foreign sanctions laws. $1.9 billion may sounds like a lot, but does the penalty fit the crime?

We are going to present you a series of excerpts from the Statement of Facts, which constitutes Attachment A to the Deferred Prosecution Agreement entered into between U.S. regulators and the HSBC banks, and let you decide for yourself. These are excerpts detailing events that HSBC explicitly has admitted to.

Excerpt 1: Just how much money are we really talking about?

The press has been reporting that HSBC USA allowed $670 billion in wire transfers from Mexico through the bank without legally required money laundering controls, $881 million of which has been directly linked to money laundered by Mexican and Columbian drug cartels.  These reports understate the problem by a few hundred trillion dollars:

Paragraph 10 of the Statement of Facts:

10. There were at least four significant failures in HSBC Bank USA’s AML program that allowed the laundering of drug trafficking proceeds through HSBC Bank USA:

  • a. Failure to obtain or maintain due diligence or KYC information on HSBC Group Affiliates, including HSBC Mexico;
  • b. Failure to adequately monitor over $200 trillion in wire transfers between 2006 and 2009 from customers located in countries that HSBC Bank USA classified as
  • “standard” or “medium” risk, including over $670 billion in wire transfers from HSBC Mexico;
  • c. Failure to adequately monitor billions of dollars in purchases of physical U.S. dollars (“banknotes”) between July 2006 and July 2009 from HSBC Group Affiliates, including over $9.4 billion from HSBC Mexico; and d. Failure to provide adequate staffing and other resources to maintain an effective AML program.

You can read the whole Statement of Facts here. We will be bringing you many more excerpts from it over the next few weeks.

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The Death of Maria

Ann Hollingshead

flickr / andysternberg

In late November of this year, authorities found the body of Maria, a woman in her early 20s, outside an armored van along a mountainous road in northwestern Mexico. In February, Maria Susana Flores Gámez won the 2012 Woman of Sinaloa beauty pageant. She also became involved with the Sinaloa drug Cartel. Maria died in a shootout between the gang and the police in those mountains with a gun in her hand. The gun couldn’t do much to protect her. She was found riddled with bullets because someone had used her body as a human shield.

Maria was the fourth known beauty queen to get involved with Mexican drug traffickers. Javier Valdez, author of Miss Narco, a book about drug cartels and beauty pageants, says that this “recurrent story” seldom ends well. In this world, the beauty queens are “disposable objects, the lowest link in the chain of criminal organizations, the young men recruited as gunmen and the pretty young women who are tossed away in two or three years, or are turned into police or killed.”

Further south, in Colombia, the Norte del Valle Cartel has spent nearly two decades battling DEA, FBI, and the Colombian government’s efforts to dismantle it. In just two of those years it claimed 1,000 lives. This cartel has exported millions of pounds of cocaine to the United States and with its profits has bought safety for its members. Safety doesn’t come cheap. The cartel reportedly gave monthly payments of $160,000 to Attorney General Luis Camilo Osorio; $2 million to a prominent congressman to avoid a criminal’s extradition to the United States; and dozens of other bribes ranging from $12,000 to a police officer to $350,000 to a woman for handling “businesses.”

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How Too-Big-To-Jail HSBC wriggled out of money laundering indictments

Nicholas Shaxson

Cross posted from the Treasure Islands blog:

flickr / Will Survive

This is shocking, if not surprising. From the New York Times (via Naked Capitalism):

“State and federal authorities decided against indicting 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.

Instead, HSBC announced on Tuesday that it had agreed to a record $1.92 billion settlement with authorities. The bank, which is based in Britain, faces accusations that it transferred billions of dollars for nations like Iran and enabled Mexican drug cartels to move money illegally through its American subsidiaries.”

The Times story spells it out:

“The case raises questions about whether certain financial institutions, having grown so large and interconnected, are too big to indict.”

Stop for a moment to ponder the implications of that. The criminalisation of finance, via too-big-to-fail. More from Global Witness:

Regulators should hold senior bankers legally responsible for their banks’ money laundering performance. . . . in the most serious cases, senior bankers should face jail.

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End of the line for multinational tax abuse?

Nick Mathiason

flickr / soumit

Is it inevitable that multinational companies pay pitifully small sums in tax relative to huge profits? Not necessarily because amid growing political and public outrage at how multinationals organise their tax affairs, a new report today suggests there could be an alternative.

Towards Unitary Taxation of Transnational Corporations by Sol Picciotto, emeritus professor at Lancaster University, presents a blueprint for a complete overhaul of international corporate tax rules.

Today multinationals are able to avoid tax because global protocols, known as the Arm’s Length Principle (ALP), treat their extensive networks of subsidiaries as separate businesses. Under ALP, businesses can structure their operations using low tax jurisdictions to help reduce their tax exposure.

It is why, ‘consumer-facing’ companies like Amazon, according to Picciotto, classes its UK consumer operation as a logistics centre fulfilling orders that is supplied by a related, but legally separate Luxembourg ‘sales’ company.

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Video: No Bribes Please! We’re British

EJ Fagan

This thought-provoking documentary from Exposure looks at the British Bribery Act and overseas bribery by British companies. In particular, it focuses on extractive industry companies in Nigeria. The documentary quotes Task Force member Global Witness’s Simon Taylor, and highlights the push for a Dodd-Frank 1504-style transparency law for European companies. The video below:

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Corruption Perceptions Index 2012 and the European Financial Crisis

Anne Koch

Cross posted from Transparency International’s Space for Transparency blog.

Europe’s rankings in the Corruption Perceptions Index 2012 are as diverse as the region itself.

Clearly the perceived level of corruption in Greece (94th, the lowest EU state) is entirely different from that of Denmark and Finland, tied with New Zealand in first place. However, the old adage that corruption only occurs in the countries of the South, rings rather hollow.

With a score of 36, Greece ranks 94, together with Colombia, Benin, Djibouti, India, Mongolia and Senegal.  Citizens of Italy (72nd), too, presumably will have pause for thought: sharing this rank with Bosnia and Herzegovina and Sao Tome and Principe, just before Bulgaria. In fact, Greece, Italy, Spain and Portugal, at the centre of the Euro crisis, were the four worst ranked countries in Western European countries in this year’s index.

The roots of crisis lie in varying factors from country to country, there is undeniably a link between corruption and the financial crisis, as the protestors on the streets of Athens, Rome, Lisbon and Madrid have been quick to point out.

Consider the recent story of the brave Greek journalist Kostas Vaxevanis arrested and tried for publishing a list of more than two thousand wealthy Greeks with Swiss bank accounts. The list had been lying unread on government desks for several years.

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My 2012 Financial Transparency Person Of The Year Picks, Part II

Ann Hollingshead

flickr / the7eye.org.il

Last week I wrote about a post, inspired by TIME Magazine’s Person of the Year, about who I would pick for a “Transparency Person of the Year.” Keeping with TIME’s definition, this would be someone who influenced the news, for better or worse, on issues related to financial transparency. I got so many great suggestions for additions to the list that I’m following up this week. Without further ado, here’s some (additional) picks:

SHELDON ADELSON The billionaire casino mogul has dominated headlines this year. He made TIME Magazine’s nominations for “what critics cast as trying to buy the election,” through liberal use of Super PACs. But I’d include him here for a different reason. An investigation this year revealed that Adelson (or at least his executives) may have violated the Foreign Corrupt Practices Act in their casino business in Macau. According to a former executive Adelson’s Las Vegas Sands casino may have had illegal dealings with a public official, as well as a tie to an organized crime figure. The whistleblowing—and the controversy—got the FCPA back into the spotlight at a watershed moment for the legislation. (H/T Clark Gascoigne and EJ Fagan, of Global Financial Integrity and the Task Force, respectively)

GARY GENSLER The Chairman of the Commodities Future Trading Commission has fought long and hard to bring transparency to the derivatives industry, a $650 trillion market made up of financial instruments whose misuse significantly contributed to the 2008 financial crisis. By the end of this year, in large part as a result of Gensler’s work, the industry will report transactions of these instruments in real-time and certain derivatives will report their transactions to Swap Data repositories. (H/T Cate Long, Riski.us)

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Corruption Perceptions Index 2012: What is public sector corruption?

Rosie Slater

Cross-posted from Transparency International’s Space for Transparency blog. This post is an updated version of a similar Transparency International blog post from one year ago.

The Corruption Perceptions Index  highlights corruption in the public sector. But what exactly does this mean?

Drawing on Transparency International’s Plain Language Guide, this post defines and de-mystifies some of the words and phrases most often associated with this kind of corruption. So if you’re confused by anything that you’ve seen on our website or in our faqs, read on.

First of all, let’s look at corruption itselfWe use this word all the time, but what do we actually mean by it? Transparency International defines corruption broadly as the abuse of entrusted power for private gain. This can happen anywhere, and can be classified as grand or petty, depending on the amounts of money lost and the sector where it occurs.

Grand corruption

Definition: acts committed at a high level of government that distort policies or the central functioning of the state, enabling leaders to benefit at the expense of the public good.

Example: In 1996, two former South Korean presidents, Roh Tae-woo and Chun Doo-hwan, were found guilty in a corruption case linking them to the chaebols (large family-owned businesses with strong political ties), which had paid off top political leaders in exchange for unfair business advantages.

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Transparency International Releases the 2012 Corruption Perceptions Index

EJ Fagan

Task Force member Transparency International today released the 2012 Corruption Perceptions Index. Their study found the least corrupt country to be Denmark, and the most corrupt to be Somalia. From their press release:

“BERLIN – A growing outcry over corrupt governments forced several leaders from office last year, but as the dust has cleared it has become apparent that the levels of bribery, abuse of power and secret dealings are still very high in many countries. Transparency International’s Corruption Perceptions Index 2012 shows corruption continues to ravage societies around the world.

Two thirds of the 176 countries ranked in the 2012 index score below 50, on a scale from 0 (perceived to be highly corrupt) to 100 (perceived to be very clean), showing that public institutions need to be more transparent, and powerful officials more accountable.”

There is loads and loads of great analysis to be had on the individual countries of the index, and you can be sure that we’ll have plenty of that here on the Task Force Blog, as well as Transparency International’s Space for Transparency blog. For now, here is a fantastic video introducing the Corruption Perceptions Index:

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New Study from ICAR on Customer Due Diligence

EJ Fagan

The International Corporate Accountability Roundtable (ICAR) has a new report out that looks at customer due diligence rules. Banks are currently required to perform certain kinds of customer due diligence to check for several different categories of things, including corruption risk. The report analyzes the status quo regarding customer due diligence rules, and begins to address whether or not a rules addressing similar processes for human rights concerns would be feasible.

You can view it below.

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Corruption Perceptions Index 2012 will demand a new tack in Afghanistan

Srirak Plipat

Cross-posted from Transparency International’s Space for Transparency blog.

The recent independent report on Kabul Bank scandal points out to the urgency to transform the country’s laws and institutions, from the financial sector to the justice system. The team that published the report are to be congratulated for shedding light on a “ponzi scheme” scandal that involves the theft of US$900 million.

It is also a timely reminder of the cost of corruption for countries at the bottom of Transparency International’s Corruption Perceptions Index, which will be published on Wednesday.

Last month, Transparency International’s chair Huguette Labelle reminded us that:

Countries at the bottom of our corruption indices remain largely failed states with repression of human rights, social chaos and continued poverty.”

Afghanistan is one such country. Sufficient evidence suggests that corruption in Afghanistan is getting rampant. According to President Karzai himself, the phenomenon is now at a level “never before seen”.

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