In December, 2012, federal prosecutors failed to bring true justice to HSBC for massive, criminal money laundering because the giant UK bank was too big. An indictment, they thought, would ravage the financial sector.
In January, 2013, with a full month to reflect about the non-prosecution of HSBC, Attorney General Eric Holder acknowledged the policy: “I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy. And I think that is a function of the fact that some of these institutions have become too large.”
Since then, numerous bank regulators and Obama administration officials have attempted to refute their role in or even the accuracy of Holder’s assertion. In testimony and speeches, officials from the Federal Reserve, FDIC, Comptroller of the Currency, and Treasury contradicted Holder’s claim that government deemed some banks were just too big to jail. Those denials may be explored when Justice Department official James M. Cole testifies before a House financial services subcommittee May 22.
On May 15, Attorney General Holder himself seemed bent on correcting the record as to whether some banks are too big to jail. “Let me make something real clear right away. I made a statement I guess in a Senate hearing that I think has been misconstrued. I said it was difficult at times to bring cases against large financial institutions because [of] the potential consequences that they would have on the financial system. But let me make it very clear that there is no bank, there’s no institution, there’s no individual who cannot be investigated and prosecuted by the United States Department of Justice.”
Notice that Holder did not disavow his earlier statement that it was difficult. He simply asserted that the department’s policy is to pursue warranted cases.
“Let me be very, very, very clear,” Holder continued. “Banks are not too big to jail. If we find a bank or a financial institution that has done something wrong, if we can prove it beyond a reasonable doubt, those cases will be brought.”
(“Very, very, very” clear?)
But, the fact is, the Department of Justice did find such a bank. It was HSBC.
In December, Holder’s own DoJ released a 30-page document in which it declared that HSBC violated anti-money laundering laws. In fact, the DoJ found at HSBC a “failure to adequately monitor over $200 trillion (yes, with a T) in wire transfers between 2006 and 2009 . . . including over $670 billion in wire transfers from HSBC Mexico.”
Did the DoJ’s lawyers think they could prove this? Well, yes. “If this matter were to proceed to trial, the Department would prove beyond a reasonable doubt, by admissible evidence, the facts alleged below and set forth in the criminal Information attached to this Agreement,” the DoJ’s document said. http://www.justice.gov/opa/documents/hsbc/dpa-attachment-a.pdfevidence, the facts.”
The government found not only that HSBC had done “something” wrong, to borrow Holder’s configuration, it found 200 trillion dollar’s worth of wrong. But HSBC ended up paying a fine equal to a just month’s profit for numerous infractions. Meantime, in January, the DoJ caught a check-cashing manager of a small Los Angeles storefront failing to fill out the proper forms for $8 million in transactions. Her penalty? Five years in prison.
Violating money laundering laws can’t be dismissed as a clerical oversight. Unaccountable mega-bank money launderers enable drug trafficking and associated gun violence. They facilitate terrorism. They abet tyrants. It isn’t a small infraction, and the punishment should fit the crime.
Our insight into crucial decisions involving justice should not depend on a chance moment of candor by an attorney general. Any decision to pull a punch at HSBC based on the firm’s size should have been informed with rigor and care. Recent documents Public Citizen received from a FOIA request don’t evince such care. The DoJ apparently did not even consult with bank experts about the central question—is HSBC too big to jail? –according to available evidence.
As MIT Professor Simon Johnson has asked: “Who exactly at the Department of Justice decides that a bank is too big to prosecute – and on what basis? Is there a rule book or a list of criteria? Or, more likely, is this something totally made up on the spur of the moment and on an ad hoc basis?”
The House oversight subcommittee hearing on May 22 will ideally explore why critical decisions about prosecuting large banks take place in the dark.
We’ve been here before. In 2008 during the financial crisis when too-big-to-fail banks derailed the world economy, ad hoc decisions by senior officials made the problem worse. Uninformed by public input, they brokered back-room transactions in which JP Morgan obtained Bear Stearns and Washington Mutual, and thereby went from huge to huger. They handed Wachovia to Wells Fargo.
Preventing large banks from holding America hostage—to bailouts, to drug dealers and terrorists — will require ambitious reform. The Brown-Vitter proposal to require substantially greater equity capital for the largest banks constitutes a necessary and most welcome reform. Shareholders, who legally control companies, should hold a bigger stake in a bank’s source of funding than the current 4 percent. That bill will require serious political efforts.
But at the very least, Congress should support transparency on what the Department of Justice does when it decides some banks are too “difficult,” or “too large” to prosecute. The American public deserves that such policies be very, very, very, very clear.