Back in December of 2012, when it was proved in U.S. court that billions of dollars of drug money had been laundered through HSBC and yet somehow it was also found that HSBC was NOT guilty of laundering and neither was anyone in the bank, there was an outcry.
In America Massachusetts Senator Elizabeth Warren, when she was grilling federal bank regulators at a Senate Banking Committee hearing, said
“No one individual went to trial, no individual was banned from banking and there was no hearing to consider shutting down HSBC’s activities here in the United States.
Which did seem outrageous at the time given that, for example, according to Senate and Justice department reports, HSBC had,
…failed to monitor over $670 billion in wire transfers and over $9.4 billion in purchases of physical US dollars from HSBC Mexico from at least 2006 to 2009.
HSBC’s Mexico bank had a branch in the Cayman Islands that had no offices or staff, but held 50,000 client accounts and $2.1 billion in 2008.
Who in the bank knew about this? Evidence uncovered by investigations into HSBC’s activities revealed,
“senior bank officials were complicit in the illegal activity.”
No wonder then, that Senator Warren was driven to ask,
So … what does it take? How many billions of dollars do you have to launder for drug lords and how many economic sanctions do you have to violate before someone will consider shutting down a financial institution like this?”
In the UK it was noted that during the time the laundering was going on, the chief executive of HSBC in 2003 who then became its chairman in 2006, was Lord Green, who is now the UK trade minister. So obviously no great concern to get to any truth about HSBC, in the hierarchy of the UK establishment.
Warren’s question, ‘What does it take?’ was finally answered by U.S. Attorney General Eric Holder in March 2013, when he told the U.S. Judiciary Committee that the Justice department had decided not to pursue any criminal prosecution of HSBC because ,
“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,”
The U.S. Justice Department felt it could not criminally prosecute the bank because a criminal conviction would mean the bank would lose its license to bank in the US which would kill it and a whole range of other institutions, which the bank relies on to buy its debts and its investment products would be prohibited from doing so as soon as the bank was deemed to be criminal.
So the official answer to Senator Warren’s question, according to the mighty U.S. Justice Department, is that ,yes, HSBC had laundered, but it was simply too big to prosecute. The bank and its senior staff were and are untouchable. They could be fined but not criminally prosecuted. The real answer to Senator Warren’s question, “What does it take…?” is … that she asked the wrong question.
This isn’t about lack of proof or the complexities of financial crimes or showing who knew or proving actual intent. It is not about proof or criminality at all. It is about there being a new category of financial entity which our law makers and prosecutors have decided for us, is above the law. They are called G-SIFIs, Globally, Systemically Important Financial Institutions or G-SIBs, Globally Systemically Important Banks.
I think we have not yet thought through the immense consequences of the decision that has been made for us, that G-SIFIs are above the law. But I think we need to make a start.
We all know the HSBC isn’t the only bank too large to prosecute. There is in fact a list.
The FBS (Financial Stability Board) is a new international body. It is made of representatives from the central bank, financial regulator and Treasury from each of the 25 member nations plus representatives from:
The Bank for International Settlements (BIS), the ECB, the European Commission, the IMF, OECD and World Bank, plus representatives from the Basel Committee on Banking Supervision (part of the BIS), the Committee on the Global Financial System (another part of the BIS), the Committee on Payment and Settlement Systems (another part of the BIS), the International Association of Insurance Supervisors, the International Accounting Standards Board, and the International Organization of Securities Commissions.
Guess which institutions provide the membership for ALL of the above international bodies? Yes, you got it – the big banks. And how many Central banks can you think of that are staffed or even headed by people formerly from one of the Big Banks?
You tell me who is really staffs the FSB and whose world view and interests the FSB actually represents?
Then consider, they are the ones who decided who is above the law.
28 banks are officially above the law and WILL NOT be criminally prosecuted no matter what they do. Remember that’s not me saying this. It is the U.S. Department of Justice saying it.
Not only 28 banks but all their senior executives, chairman/woman and board members. It would be very difficult to find a senior person in a bank to be criminally guilty but yet not find the institution guilty. So we could compile a list of people who are now, at least as concerns any financial and professional actions, also above the law. They can do things you would go to goal for. How does that feel?
Oh, by the way, this year, in April, we will see the announcement of another list, this time of Globally Systemically Important Insurers (G-SIIs). They too will be above the Law.
Assets Above the Law
When we say a bank is above the law, not only should we remember that this means specific people are above the law (at least in how they make money) but we should also remember that this also means the assets in those banks are above the law. This means if a banks does things which are illegal but lucrative – such as laundering money in order to get the use of those laundered billions to then use them as, lets say, capital to underpin loans or for speculating, for example, and by doing those illegal things it makes out sized profits for its shareholders and staff, that money, those profits are also above the law.
Since the bank and its senior staff are above the law and breaking the law is profitable, a) no one has an interest to say no, b) shareholders and staff will directly benefit from breaking the law. They will make more money by participating in law breaking or by investing in a bank which is law breaking. They will, in fact have an interest making sure it continues.
Two questions. Whose wealth are we talking about and how much?
Second question first. Is this a big problem?
There are many ways of measuring how much wealth we are talking about as being above the law. Not all are publicly available and not all banks quote things in the same way. So by necessity the figures I have are not a perfect or even direct measure but they are a good indicator of the scale of the assets which are essentially above the law (they can be used for illegal purposes and the bank will not be punished nor the profits severely harmed even if the bank gets fined)
Here is the above list with the bank’s total assets. The figures are mostly from the Banker’s Almanac with a couple added from Wiki. This give a good idea of how much wealth is above the law by virtue of being in banks which are above the law.
Bank Total Assets
Citi $ 1.2 T
Deutsche $2.8 T
HSBC $1.2 T
JP Morgan Chase $1.8 T
Barclays $2.4 T
BNP Paribas $2.5 T
Bank of America $1.45 T
Bank of NY Mellon $1.4 T ( this is not Total Assets but Assets under management)
Credit Suisse $1.08 T
Goldman Sachs $0.92 T
Mitsubishi IFJ FG $1.9T
Morgan Stanley $0.74T
Bank of China $1.87T
Group BPCE $1.4T
Credit Agricole $2.23T
ING Bank $1.2T
Mizuho Bank $0.91T
Soc Gen. $1.53T
Standard Chartered $0.599T
State Street $2.01T ( Assets Under Management)
Sumitomo Mitsui $1.68T
Wells Fargo $1.16T
I know these figures are only an indicator but when you get to $42 T I think the indication is clear.
What you will notice is that there are quite a number of banks not on this G-SIFI list which are larger than some on it. What does this mean? Two things I think. First some banks are on not because they are the biggest but because they have vast assets under their management. Other are there, such as Goldman, because they are counter-party to vast swathes of other people’s derivatives. And some are not on because their country does not have the clout to have above a certain number of banks on the list.
What this last point tells us is that there are other banks that if it came to it would be treated as too big to fail/prosecute but are not on the list. A whole category of such banks are those which are not globally systemically important but which are vital to the country they are incorporated in or do business in. There are a number of banks in Europe, not on the G-SIFI list but which their national governments would never allow to go down or be criminally prosecuted. These banks to are therefore, also above the law even if they’re not on the list.
But for the moment lets just stick with our total of ‘$42 Trillion and change’ currently in banks which operate above the law (Yes I know they can be fined but the fines are a wrist slap compared to the money they make by breaking the law).
You might at this point object that these banks contain deposits from all sorts of people, many of them ordinary. True. but the bulk of that $42 trillion is not the savings of widows and orphans nor charities and churches. It is the money of the top 1% or 10%.
In the UK, for example, 40% of the wealth is held by the top 10%. While in the USA the top 10% hold between 81% and 94% of all the wealth. Which means the bulk of the money in those banks, available for use in illegal but lucrative schemes, belongs to the wealthiest 10%. And they also happen to be the people who run the banks, sit on the board of the FSB (there are no representatives from anti crime NGO’s for example and certainly no one representing the 3.5 billion people in the world who earn less than $2/day) and decide who and what is now above the law. So very neat and tidy.
No dissent allowed
The concept of the G-SIFI also does violence to international law and sovereignty. Lets imagine some small rogue country, one which still believes in equality before the law, gets a rush of blood to the Judiciary and they file criminal proceedings against a G-SIFI for crimes committed in their country. Let’s imagine the bank is HSBC. Now the U.S Justice Department has already declared this bank is too important to convict. Would the US stand by, would the UK stand by, and allow some tin-pot country run by foreigners to imperil what the US has already said MUST NOT be imperiled?
Would they allow it to happen? Or would they bring pressure to bear? Would they find a way to stop a prosecution they felt could imperil US interests and the stability of their economy? You decide what they would not be willing to do.
Let’s just say that somehow it happens anyway. We would then be in a situation where countries would have to start to pull apart the entire system of international entente. Fellow UN members would have to start saying other countrys’ legal decisions and courts were meaningless and would not be recognized. Imagine the fall out from that.
One country would prosecute and provide evidence of criminal conduct and the other countries would have to not only instruct their own Judiciary to ignore it, but would have to say to its citizens and its press you too must ignore what you might read or hear, even if you can see it is the truth. Even though the evidence might be crystal clear and indisputable, those hanging on to the G-SIFI list and concept would have to insist everyone ignore the evidence on pain of legal action for libel and defamation, and refuse to allow the ‘foreign evidence’ to be used as the basis of a court action. Can you imagine the chaos? So we can conclude that no country would be allowed to pursue a criminal case whose conclusions might create such a disastrous mess. What would be left of sovereignty?
It would be the reverse of what happens now. At the moment courts and national regulators are used to shut the door to prosecutions which might implicarte one of their banks, by either simply refusing to investigate or going ahead and ‘investigating’ and saying that their bank’s involvement was not a crime. Thus insulating their bank from any accusations in future. This has happened in three European countries in cases I have become aware of.
Sorry this has been such a long article. But the G-SIFI is here to stay and is already corrupting our judicial system. That corruption will only grow if we do not take notice of it now.