By Burç Köstem
On July 17th 2012 HSBC was charged with money laundering, failing to monitor transactions amounting to $60 trillion and 17,000 account alerts. A United States Senate report alleged that these transactions include money from Mexican drug lords, Iran, North Korea and Hamas. The Department of Justice of the United States immediately examined the case and after months of investigation decided to agree to a penalty of $1.2 billion, the largest such penalty imposed yet. However HSBC was only too happy to settle the case as the Department of Justice itself admitted in a statement that: “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.” Tough anti-money laundering measures enforced in legislation such as the PATRIOT Act would certainly have posed a vital threat to the bank and to its operations within the USA had the bank faced a criminal jury, particularly given the negative sentiment across the American public regarding big banks.
There are many arguments from business circles applauding the decision and they are all in part true. For example some analysts have pointed to the fact that the sum of money being imposed, although small compared to the bank’s $46 billion in profits this year, is still a record penalty. Furthermore it is argued that an over complicated banking system creates and promotes a culture of abuse where executive managers can be rewarded for making such transactions. While $60 trillion is perhaps too big a number to ignore a culture of abuse prevailing throughout the banking industry is apparent from reports of other banks carrying out similar money laundering transactions. In fact the report treats the HSBC as a case study, implying that there might well be other cases. What makes HSBC more culpable perhaps is that the executive management had knowledge and in some level acquiesce that such crimes might have been taking place and were only too happy not to investigate.
Despite these incidents generally speaking US banks, including the HSBC is only too happy to look into dubious transactions. Take the case of New York governor Elliot Spitzer who had to resign when it emerged that he made transactions amounting to $10,000 to a prostitution ring. While his culpability is not an issue, what is remarkable is that it was North Fork Bank and HSBC who had uncovered Spitzer’s transactions, through their anti-money laundering technology. Spitzer, a well-known advocate for banking regulations had to immediately resign.
However it is also true that imposing a criminal penalty on the HSBC, closing down its offices or charging its executives may well, in the short term, have serious implications economically. Yet consider what would happen if similar accusations emerged about an American citizen. Consider what would happen if an American citizen had negligently failed to report terrorist meeting organized in the backroom of a restaurant he managed? Or take the more concrete case of Stephanie George. Stephanie George is a single mother from the USA who holds a previous conviction of drug offences amounting to no more than $80, for which she was sentenced to do undertake a work-release program. Four years after her conviction police discovered a box of crack hidden in her house by her ex-boyfriend. During her trial the judge commented that George’s “role has basically been as a girlfriend and bag holder and money holder but not actively involved in the drug dealing”. However mandatory sentencing legislation committed Stephanie to a mandatory life sentence without parole.
The analogy between the two cases is almost remarkable. Stephanie is facing significantly similar charges as the HSBC, negligently failing to report an illegal transaction, taking place under their auspices. What is worse, is that the facts of the case imply that Ms George has not profited due to her lack of action while HSBC has reportedly made a considerable amount of profits during its transactions with Mexican drug lords. Therefore not punishing the HSBC in the same way seems most unusual and against one of the most basic principles of any justice system: the rule of law.
Closing down HSBC would plainly have hurt the American economy in the short run and this is evident. However what are alarming are the implications. Firstly in real terms bankers are still being rewarded for their abuse. The $1.2 billion is nowhere near the profits HSBC and its executives have made from these transactions. This is simply unacceptable as system of incentives. Secondly and even more alarming is the extent to which the international economy is still predicated upon the financial system. The economic model this implies is that all other priorities such as other economic needs, justice, equality is decided by and large through the well being of the financial system. While the economic implications belong perhaps to another article, as far as a justice system goes, this seems like a terrible way to deal with things.