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Worship of the Financial Sector Reaches New Heights

8:00 am in Banksters by masaccio

The Worship of the Bull God Apis, by a follower of Filippino Lippi, National Gallery of Art


The utterly incompetent prosecutors at the Department of Justice politely decline to indict HBSC or any of its present or former employees. Because, you know, things like this just happen and besides some of the responsible people don’t live here, and some of them got fired and others lost their bonuses, which is punishment enough. And anyway, we can’t indict unless we find evidence that someone specifically intended to aid money laundering. Or, as the simpering Lanny Breuer puts it:

“As bad as HSBC’s conduct was, this is not a case where the HSBC people intended — intended — to create money laundering,” he said. “They did not have the controls in place that they needed.”

One of the relevant statutes, 18 USC §1956, can be found here. In short, it’s a crime

“…knowing that the property involved in a financial transaction represents the proceeds of some form of unlawful activity, [to] conduct or attempt to conduct such a financial transaction which in fact involves the proceeds of specified unlawful activity [and]

(B) knowing that the transaction is designed in whole or in part—
(i) to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of specified unlawful activity; [grammatical changes to make readable.]

As used in this section—
(1) the term “knowing that the property involved in a financial transaction represents the proceeds of some form of unlawful activity” means that the person knew the property involved in the transaction represented proceeds from some form, though not necessarily which form, of activity that constitutes a felony under State, Federal, or foreign law, regardless of whether or not such activity is specified in paragraph (7);

(f) There is extraterritorial jurisdiction over the conduct prohibited by this section if—
(1) the conduct is by a United States citizen or, in the case of a non-United States citizen, the conduct occurs in part in the United States; and
(2) the transaction or series of related transactions involves funds or monetary instruments of a value exceeding $10,000.

Here’s an example of what HBSC and its employees did, taken from the Statement of Facts attached to the Deferred Prosecution Agreement (thanks, USA Today).

… [D]rug traffickers were depositing hundreds of thousands of dollars in bulk U.S. currency each day into HSBC Mexico accounts. In order to efficiently move this volume of cash through the teller windows at HSBC Mexico branches, drug traffickers designed specially shaped boxes that fit the precise dimensions of the teller windows. The drug traffickers would send numerous boxes filled with cash through the teller windows for deposit into HSBC Mexico accounts. After the cash was deposited in the accounts, peso brokers then wire transferred the U.S. dollars to various exporters located in New York City and other locations throughout the United States to purchase goods for Colombian businesses. The U.S. exporters then sent the goods directly to the businesses in Colombia.

HBSC admits that this is true in the Deferred Prosecution Agreement. Indicting the people who did this is apparently asking too much of these incompetent prosecutors. Here’s a clip of Lanny Breuer explaining (at about the 1:15 minute mark) that this agreement that no one is criminally liable is really a triumph of the prosecutorial art.

The reporters who go to press conferences like Breuer’s don’t know enough to ask Breuer and his crowd of incompetents which part of the statute they can’t prove. And why they can’t extradite and try anyone in any other country who was involved. The Statement of Facts is full of similar stories and identifies the kinds of people subject to indictment. And I bet the junior criminals would rat out their superiors in a heartbeat.

Breuer hides his bank love behind a statement of facts drafted to make it look like the only problems with this criminal money laundering business were mere negligent administrative screw-ups, and that’s nothing, now is it, Lanny? The clown prosecutors can’t imagine that a bunch of people thought they could make a huge pile of money laundering cash for drug cartels, terrorists and other scum of the earth. Now that they have slapped HSBC on the wrist, Lanny and his posse of lawyers who passed the bar on their third try can get back to work prosecuting pot smokers.

Knowing that his legal rationalizations are stupidly false, Breuer seeks the refuge of neoliberal apparatchiks: think of the jobs! Indicting this nest of rattlesnakes would lead to shutting down its US operations, costing jobs and disrupting the economy. That isn’t true either. Remember Riggs Bank? When it got caught doing a lot of the same stuff, it got clobbered, and shut down the criminal operation. The rest was absorbed into another bank. Why shouldn’t that happen to HSBC? Why shouldn’t we shut down their US operations?

The Obama administration regularly sacrifices the rule of law in adoration ceremonies to the Baals of the Financial Sector. The smoke rises to the heights proving their devotion, as the bag boys rush into the sacristy with some of that blessed money.

Studies Show CEOs Not Subject to Same Rule of Law as You

8:58 am in Failed government by masaccio

Now here's a serious crime. Photo by Boris SV via Flickr


Recent academic papers begin the formal work of proving that CEOs and giant corporations face a completely different legal system than the rest of us, one in which their vast resources are used to insure that they can safely ignore laws and rules applicable to small fry. One study looked at the influence of corporate lobbying on fraud detection. Corporate Lobbying And Fraud Detection, 46 Journal of Financial and Quantitative Analysis 1865 by Frank Yu of Barclays Global Investors and Xiaoyun Yu of Indiana University available here. From the abstract:

We find that firms’ lobbying activities make a significant difference in fraud detection: compared to non-lobbying firms, firms that lobby on average have a significantly lower hazard rate of being detected for fraud, evade fraud detection 117 days longer, and are 38% less likely to be detected by regulators. In addition, fraudulent firms on average spend 77% more on lobbying than non-fraudulent firms, and spend 29% more on lobbying during their fraudulent periods than during non-fraudulent periods. The delay in detection leads to a greater distortion in resource allocation during fraudulent periods. It also allows managers to sell more of their shares.

This quantifies earlier anecdotal data. For example, look at the collapse of Lincoln Savings and Loan. Five senators intervened to stop an investigation, and the business collapsed two years later at a cost of at least $3 billion. The delay sought by the Keating Five increased the losses, particularly to small savers who bought Lincoln Certificates of Deposit.

Yu and Yu show that this hideous perversion never stopped, and not only includes direct campaign contributions but also lobbying. They show that firms increase their lobbying expenses after they commit fraud. During the time they are committing fraud, executives of lobbying firms sell their stock about four times more than firms that aren’t lobbying.

Sarah Fulmer and April Knill of Florida State build on that study in their recent paper Political Contributions and the Severity of Government Enforcement, available here, with abstract. Fulmer and Knill examine data on PAC contributions by corporations and CEOs and SEC data on enforcement to show that

…accused executives whose firms have contributed to political campaigns via a PAC are banned as an officer for three fewer years, serve probation for five fewer years, prison for six fewer years and are 75% less likely to be given both prison time and an officer ban (the most severe form of criminal and civil penalties)…

Fulmer and Knill point to Judge Rakoff’s refusal to rubber-stamp the SEC settlement with Citigroup over cheating its investors in a late-stage RMBS deal. They also mention an earlier repulsive settlement between the SEC and Citigroup CFO Gary Crittenden.

On an analysts conference call, Crittenden said Citi had reduced its subprime exposure by 45% to $13 billion, not mentioning the other $40 billion in super-senior tranches. Crittenden settled for a meaningless $100K and there was no discussion of the fraud on investors.

The SEC Inspector General began an investigation to determine whether, as alleged by Senator Charles Grassley, Robert Khuzami, the SEC Chief of Enforcement, had a secret meeting with Crittenden’s lawyer and good friend of Khuzami, and subsequently told his staff to lighten up. The IG eventually cleared Khuzami. The reporter, Allison Frankel, said the IG report shows the cozy club approach to settlements at the SEC. Friends call friends, there are discussions about whether Crittenden would have to resign from his Church positions and the impact of a fraud settlement on Citi.

Marcy Wheeler sees that club in action again in the efforts to cover up the Standard Chartered fraud.

First, you hire Sullivan and Cromwell and act contrite. Then, you pay a consultant to conduct a review and claim the violations involved just $14 million in transactions as opposed to $250 billion shown in your bank records. … Then you bury all the embarrassing details showing willful flouting of the rules, so the proles don’t learn how craven banks really are.

Then there is the latest whitewash of Goldman Sachs. The Department of Justice won’t prosecute for the allegations made in the report of the Senate Permanent Subcommittee on Investigations, and the SEC won’t file charges over its subprime mortgage portfolio.

One channel for creating these relationships is the personal connections created as people rise through the ranks of government and move into white collar defense in the private sector. Political contributions and lobbying are another channel. Everyone knows that your rise to wealth is dependent on following the rules of connection, and eventually you get to the point where you can do the contributing and lobbying, and use those connections for your personal benefit and the benefit of your clients, which enables you to get even richer.

That has now culminated in the capture of the Department of Justice by financial interests. Attorney General Eric Holder is a rich guy from Covington and Burling. He bundled contributions for Obama and served as a co-chair of the campaign. Three other top Justice Department officials played major roles in fundraising and came from white-collar defense firms. It’s worth noting that the right wing is all over these connections. No links from me, but google “holder west perrelli mason” and see for yourself.

The prosecutors, the rich, the politicians: all buddies in the rarefied atmosphere of wealth and power. How could such great guys possibly be a lying cheat? And if there is a slip-up, they cover up.