After reading the Senate Permanent Investigations Subcommittee report, I am convinced that HSBC should be criminally prosecuted. So should its responsible officers and board members. The report and follow-up hearings have shown that the bank has knowingly violated many criminal laws. Individuals convicted of similar violations are now in jailwith sentences of up to 40 years. The only case that comes close to matching the range of crimes that HSBC committed is the Bank of Credit and Commerce International the bank of crooks and criminals, which I investigated back in the late 1980s. It was closed and its leadership was prosecuted. HSBC deserves the same treatment.
The Justice Department is now reportedly negotiating a deferred prosecution agreement with the bank. HSBC might have to pay a $1 billion fine, according to some news reports, and promise not to violate the law again.
For HSBC, given the size of its profits, the length of time over which it broke the law and the seriousness of the offenses, a billion-dollar settlement is like a parking ticket. One 20th of one year's profits as a fine for 10 years of flagrant criminal behavior makes no sense.
The bankers who went along with the crimes should also be charged. They were clear in their directions to underlingsget a 15 percent return on equity and disregard the law if you have to. They fired compliance officers who tried to do their job. They fired employees who raised questions and who complained about lack of resources.
The corporate leadership must be chargedif only to protect the integrity of the compliance function. If compliance officers can be fired with impunity for doing their jobs, why have them? Regulators and prosecutors have ignored the problem of mistreated compliance officers in past cases. Martin Woods, the Wachovia Bank compliance officer in London, was fired for bringing bulk money laundering for the Mexican cartels to management's attention. When they failed to listen, he spoke to regulators.
No one at Wachovia was even reprimanded for firing him. HSBC must have been encouraged by that Wachovia outcome....
Congress included a provision in the laws against money laundering that requires the government to revoke the banking license of firms that violate the law. Prosecutors have, in the past, danced away from prosecution because the Justice and Treasury departments have thought that law too draconian. Banks now expect that, no matter how bad their behavior, paying a fine and promising to be good will cover any misdeed.
We now have a long list of banks that have entered into deferred prosecution agreements. These clearly don't provide the necessary deterrence....
In addition, there is the outrageous issue of the Treasury revolving door. HSBC hired Stuart Levey as a group managing director and chief legal officer. He had been Treasury undersecretary for terrorism and financial intelligence. He was a senior official at the Justice Department just before this. Though there was a one-year gap between his leaving Treasury and his HSBC start date, the investigation was already under way when he was at Treasury. Levey should be barred from meeting with or discussing the case with anyone in the administration.
Americans have been asking why there have been virtually no prosecutions of banks or bankers in the wake of the financial crisis. We have all heard complaints about the difficulty of making the case and identifying responsible individuals. Here is a case that cries out for real prosecutorial action.