12/12/2012 archive

Justice For All

HSBC’s $1.9 Billion Settlement and the Men on the Hill

By Pam Martens, Wall Street On Parade

December 11, 2012

Today, the U.S. Department of Justice and multiple other U.S. regulators will tie all that up with a tidy red bow for a settlement of $1.921 billion; a small nick in HSBC’s profits of $22 billion last year. HSBC released a statement saying it was “profoundly sorry.”

During the July 17 Senate hearing on HSBC, Subcommittee Chairman, Carl Levin, questioned Chistopher Lok, the former head of global banknotes at HSBC Bank USA, about internal emails from HSBC that the Senate had in its possession.

In the first email, a subordinate tells Lok that a proposed bank customer has a “know your customer” profile that “documents various allegations of fraud, internal control weaknesses, and the FBI investigation into terrorist financing…” The colleague was inquiring if a special security status should be placed on this account.  Lok responds in an email: “…this is such a large bank hence malfeasance is expected” and recommends no special security status.

  • HSBC Bank USA, N.A., known as HBUS [pronounced H-Bus] functions as the U.S. nexus for HSBC’s worldwide network. HSBC has 7,200 offices in more than 80 countries and 2011 profits of $22 billion; HBUS has 470 branches across the United States with 4 million customers. HBUS provides accounts to 1,200 other banks including more than 80 HSBC affiliates.
  • In 2010, HSBC was cited by its federal regulator, the Office of the Comptroller of the Currency (OCC), for multiple severe anti-money laundering deficiencies, including a failure to monitor $60 trillion in wire transfer and account activity; a backlog of 17,000 unreviewed account alerts regarding potentially suspicious activity.
  • HBUS offered correspondent banking services to HSBC Bank Mexico, and treated it as a low risk client, despite its location in a country facing money laundering and drug trafficking challenges. The Mexican affiliate transported $7 billion in physical U.S. dollars to HBUS from 2007 to 2008, outstripping other Mexican banks, even one twice its size, raising red flags that the volume of dollars included proceeds from illegal drug sales in the United States.
  • Foreign HSBC banks actively circumvented U.S. safeguards at HUBS designed to block transactions involving terrorists, drug lords, and rogue regimes. In one case examined by the Subcommittee, two HSBC affiliates sent nearly 25,000 transactions involving $19.4 billion through their HBUS accounts over seven years without disclosing the transactions’ links to Iran.
  • HBUS provided U.S. dollars and banking services to some banks in Saudi Arabia and Bangladesh despite links to terrorist financing.

Justice Department outlines HSBC transactions with drug traffickers

By Peter Finn and Sari Horwitz, Washington Post

Published: December 11

“HSBC is being held accountable for stunning failures of oversight – and worse – that led the bank to permit narcotics traffickers and others to launder hundreds of millions of dollars through HSBC subsidiaries, and to facilitate hundreds of millions more in transactions with sanctioned countries,” Assistant Attorney General Lanny A. Breuer said at a news conference in New York on Tuesday.

One of the world’s largest banks, HSBC has its headquarters in London and $2.5 trillion in assets. It earned nearly $22 billion in profits in 2011.

Breuer said that between 2006 and 2010, the Sinaloa Cartel in Mexico, the Norte del Valle Cartel in Colombia and other drug traffickers laundered at least $881 million in illegal narcotics trafficking proceeds through HSBC.

“These traffickers didn’t have to try very hard,” Breuer said. “They would sometimes deposit hundreds of thousands of dollars in cash, in a single day, into a single account, using boxes designed to fit the precise dimensions of the teller windows.”

The illicit money was submerged in the billions of dollars of transfers that flowed between HSBC’s Mexican and American affiliates. In many cases, the illicit cash was generated by drug sales in American cities, smuggled to Mexico and deposited at HSBC there. Then it was wired back to an account at HSBC in the United States as clean money. In other cases, bulk cash was deposited and converted into local currency, a process called the Black Market Peso Exchange by investigators.

“If these people aren’t prosecuted, who will be?” asked Jack Blum, a Washington attorney and a former special counsel for the Senate Foreign Relations Committee who specializes in money laundering and financial crimes. “What do you have to do to be prosecuted? They have crossed every bright line in bank compliance. When is there an offense that’s bad enough for a big bank to be prosecuted?”

In deciding not to prosecute now, Breuer said the Justice Department considered “the collateral consequences,” including the possible effects on the worldwide financial system if HSBC’s ability to operate was ruined by criminal conviction.

“If you prosecute one of the largest banks in the world, do you risk that people will lose jobs, other financial institutions and other parties will leave the bank, and there will be some kind of event in the world economy?” Breuer said in an interview.

HSBC was also accused of allowing Iran, Sudan, Cuba and other countries subject to U.S. sanctions to move hundreds of millions of dollars through the U.S. financial system in violation of U.S. law.

“On at least one occasion, HSBC instructed a bank in Iran on how to format payment messages so that the transactions would not be blocked or rejected by the United States,” Breuer said. Payment instructions sometimes included a notation saying “do not mention Iran,” U.S. officials said.

HSBC affiliates in Europe and the Middle East also “systematically altered transaction information to strip out any reference to Iran and characterized the transfers as between banks in approved jurisdictions,” according to a July report by the Senate permanent subcommittee on investigations.

The subcommittee report said an outside auditor hired by HSBC’s U.S. affiliate found 25,000 undisclosed transactions involving Iran. And the report said that HSBC conducted business with Saudi and Bangladeshi banks suspected of having links to terrorism.

HSBC to Pay $1.92 Billion to Settle Charges of Money Laundering


December 10, 2012, 4:10 pm

Some prosecutors at the Justice Department’s criminal division and the Manhattan district attorney’s office wanted the bank to plead guilty to violations of the federal Bank Secrecy Act, according to the officials with direct knowledge of the matter, who spoke on the condition of anonymity. The law requires financial institutions to report any cash transaction of $10,000 or more and to bring any dubious activity to the attention of regulators.

Given the extent of the evidence against HSBC, some prosecutors saw the charge as a healthy compromise between a settlement and a harsher money-laundering indictment. While the charge would most likely tarnish the bank’s reputation, some officials argued that it would not set off a series of devastating consequences.

A money-laundering indictment, or a guilty plea over such charges, would essentially be a death sentence for the bank. Such actions could cut off the bank from certain investors like pension funds and ultimately cost it its charter to operate in the United States, officials said.

Despite the Justice Department’s proposed compromise, Treasury Department officials and bank regulators at the Federal Reserve and the Office of the Comptroller of the Currency pointed to potential issues with the aggressive stance, according to the officials briefed on the matter. When approached by the Justice Department for their thoughts, the regulators cautioned about the effect on the broader economy.

HSBC’s actions stand out among the foreign banks caught up in the investigation, according to several law enforcement officials with knowledge of the inquiry. Unlike those of institutions that have previously settled, HSBC’s activities are said to have gone beyond claims that the bank flouted United States sanctions to transfer money on behalf of nations like Iran. Prosecutors also found that the bank had facilitated money laundering by Mexican drug cartels and had moved tainted money for Saudi banks tied to terrorist groups.

HSBC was thrust into the spotlight in July after a Congressional committee outlined how the bank, between 2001 and 2010, “exposed the U.S. financial system to money laundering and terrorist financing risks.” The Permanent Subcommittee on Investigations held a subsequent hearing at which the bank’s compliance chief resigned amid mounting concerns that senior bank officials were complicit in the illegal activity. For example, an HSBC executive at one point argued that the bank should continue working with the Saudi Al Rajhi bank, which has supported Al Qaeda, according to the Congressional report.

Despite repeated urgings from federal officials to strengthen protections in its vast Mexican business, HSBC instead viewed the country from 2000 to 2009 as low-risk for money laundering, the Senate report found. Even after HSBC’s Mexican operation transferred more than $7 billion to the United States – a volume that law enforcement officials said had to be “illegal drug proceeds” – lax controls remained.

HSBC, too big to jail, is the new poster child for US two-tiered justice system

Glenn Greenwald, The Guardian

Wednesday 12 December 2012 05.14 EST

It all changes radically when the nation’s most powerful actors are caught breaking the law. With few exceptions, they are gifted not merely with leniency, but full-scale immunity from criminal punishment. Thus have the most egregious crimes of the last decade been fully shielded from prosecution when committed by those with the greatest political and economic power: the construction of a worldwide torture regime, spying on Americans’ communications without the warrants required by criminal law by government agencies and the telecom industry, an aggressive war launched on false pretenses, and massive, systemic financial fraud in the banking and credit industry that triggered the 2008 financial crisis.

It really is the case that this principle is now not only routinely violated, as was always true, but explicitly repudiated, right out in the open. It is commonplace to hear US elites unblinkingly insisting that those who become sufficiently important and influential are – and should be – immunized from the system of criminal punishment to which everyone else is subjected.

Worse, we are constantly told that immunizing those with the greatest power is not for their good, but for our good, for our collective good: because it’s better for all of us if society is free of the disruptions that come from trying to punish the most powerful, if we’re free of the deprivations that we would collectively experience if we lose their extraordinary value and contributions by prosecuting them.

The New York Times Editors this morning announced: “It is a dark day for the rule of law.” There is, said the NYT editors, “no doubt that the wrongdoing at HSBC was serious and pervasive.” But the bank is simply too big, too powerful, too important to prosecute.

That’s not merely a dark day for the rule of law. It’s a wholesale repudiation of it. The US government is expressly saying that banking giants reside outside of – above – the rule of law, that they will not be punished when they get caught red-handed committing criminal offenses for which ordinary people are imprisoned for decades. Aside from the grotesque injustice, the signal it sends is as clear as it is destructive: you are free to commit whatever crimes you want without fear of prosecution. And obviously, if the US government would not prosecute these banks on the ground that they’re too big and important, it would – yet again, or rather still – never let them fail.

But this case is the opposite of an anomaly. That the most powerful actors should be immunized from the rule of law – not merely treated better, but fully immunized – is a constant, widely affirmed precept in US justice. It’s applied to powerful political and private sector actors alike. Over the past four years, the CIA and NSA have received the same gift, as have top Executive Branch officials, as has the telecom industry, as has most of the banking industry.

Having different “justice systems” for citizens based on their status, wealth, power and prestige is exactly what the US founders argued most strenuously had to be avoided (even as they themselves maintained exactly such a system). But here we have in undeniable clarity not merely proof of exactly how this system functions, but also the rotted and fundamentally corrupt precept on which it’s based: that some actors are simply too important and too powerful to punish criminally. As the Nobel Prize-winning economist Joseph Stiglitz warned in 2010, exempting the largest banks from criminal prosecution has meant that lawlessness and “venality” is now “at a higher level” in the US even than that which prevailed in the pervasively corrupt and lawless privatizing era in Russia.

Having the US government act specially to protect the most powerful factions, particularly banks, was a major impetus that sent people into the streets protesting both as part of the early Tea Party movement as well as the Occupy movement. As well as it should: it is truly difficult to imagine corruption and lawlessness more extreme than having the government explicitly place the most powerful factions above the rule of law even as it continues to subject everyone else to disgracefully harsh “justice”.

Punting the Pundits

“Punting the Pundits” is an Open Thread. It is a selection of editorials and opinions from around the news medium and the internet blogs. The intent is to provide a forum for your reactions and opinions, not just to the opinions presented, but to what ever you find important.

Thanks to ek hornbeck, click on the link and you can access all the past “Punting the Pundits”.

Wednesday is Ladies’ Day

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Katrina vanden Huevel: What’s with the GOP’s absurd fear of all things U.N.?

At least they had the decency to wait 24 hours.

Last Tuesday, following the international day honoring the disabled, 38 Senate Republicans voted down the United Nations Convention on the Rights of Persons With Disabilities. With former Senate majority leader and disabled WWII veteran Bob Dole silently beseeching them from his wheelchair, Dole’s fellow Republicans railed against “cumbersome regulations” that could threaten American “sovereignty.” What is it about the United Nations that sends the GOP into such a tizzy? That diplomats are encouraged to speak French? The United Nation’s intentions are the best, yet Republicans always assume the worst. They weep for the improbable horrors that could be but shed very few tears for the hardships in the here and now, such those suffered by the 1 billion disabled people worldwide who struggle with patchwork laws and official neglect. As comedian Jon Stewart noted, “Republicans hate the United Nations more than they like helping people in wheelchairs.”

Bryce Covert: Progress for Women Continues Flatlining at the Top Ranks of the Private Sector

After the election, word was that we had just lived through another Year of the Woman. After all, a record twenty women will now be serving in the US Senate next term, representing a fifth of all seats. We had previously failed to breach the 18 percent mark in that legislative body.

But women’s progress has stalled out somewhere else: the top of the private sector. The research organization Catalyst released its 2012 Census today, which tracks the number of women in executive officer and board director positions. Women held just over 14 percent of executive officer positions at Fortune 500 companies this year and 16.6 percent of board seats at the same. Adding insult to injury, an even smaller percent of those female executive officers are counted among the highest earners-less than 8 percent of the top earner positions were held by women. Meanwhile, a full quarter of these companies simply had no women executive officers at all and one-tenth had no women directors on their boards.

Rahiel Tesfamariam: The Threat of Drones Ushering in ‘Invisible Wars’

Obama’s end to the war in Iraq and promises to withdraw all troops from Afghanistan have prevented him from seeming war-hungry. But the increased use of drone strikes during his presidency raises the question among critics that Obama has sidestepped congressional approval for declaration of war. [..]

The NY Times recently reported that over 300 drone strikes have taken place since he first took office, leading to 2,500 deaths, the creation of “kill lists” and mass displacement of civilians in targeted regions. But the administration is not backing off. Its goal is to “institutionalize” the drone program to ensure that there is protocol in place for future successors.

No American wants to return to the fear that Sept. 11th instilled in us all. But as we set rules that govern our use of drones, we must also consider other factors.

Sarah Jaffe: Occupy and the Police Needn’t be Enemies – as Sandy Showed

Many activists now appearing in court had organised relief during the storm. Hopefully NYPD officers will remember that

Ninety-nine people arrested during Occupy Wall Street’s 17 September anniversary actions had their court dates last week. They trooped into the courthouse accompanied by green-hatted legal observers and National Lawyers Guild representatives, and faced the judge. Their charges mostly boiled down to “being part of a public protest”. [..]

Many of those same people arrested for marches and direct actions on that day have also been involved in running Occupy’s Superstorm Sandy relief efforts – work that has earned them praise from mayoral hopeful and public advocate Bill DeBlasio, and even, grudgingly, billionaire mayor Mike Bloomberg. The NYPD has yet to come out and officially thank Occupy Sandy for saving lives after the storm. But the news this week, as Occupiers had their day in court, was that in Red Hook at least, the police appreciated the efforts of Occupy Sandy volunteers in helping keep the neighbourhood safe while the power was out.

Sarah van Gelder: Four Ways to Leap the “Fiscal Cliff” to a Better USA

Feeling panicked about the so-called “fiscal cliff?” Don’t be. At worst, if would be more of a “ramp” than a cliff, since effects would be spread out over time.

More importantly, the crisis atmosphere is a fabrication created by Congress. The cuts in spending and the end to tax breaks were intended to be so unacceptable that members of Congress would be forced to reach agreement to lower the deficit, which was considered, at least by some, to be at crisis levels.

Artificial or not, the outcome of this fiscal showdown could set policy for years to come. Times of crisis-even ones that are fabricated-open the door to changes that would be politically impossible in calmer settings, as author Naomi Klein has pointed out in her work on disaster capitalism.

Juliet Lapidos: Scalia’s Domino Theory

At Princeton on Monday a freshman asked Antonin Scalia to explain his legal writings comparing sodomy bans with laws against bestiality and murder. [..]

Despite Justice Scalia’s concern, laws against murder of course rely on more than just feeling; they rely on the basic principle that one person’s rights end where another’s begin. There are reasonable (if contentious) public safety arguments against prostitution and thorny consent issues surrounding bestiality, bigamy and incest.

Some of Justice Scalia’s domino-like laws are indeed the result of feelings, and nothing more. Like bans against masturbation. So far as I know, the last time a lawmaker introduced a masturbation ban it was to make a form of argument, called the ‘reduction to the absurd,’ against a personhood bill.

Reasons to Love Costco & Be Wary of Eating Out

Costco is the largest membership warehouse club chain in the United States and, unlike Walmart, has managed to give its employees a fair living wage and benefits. One other thing they do, they have a level of food safety that exceeds government standards:

Costco’s 250,000-square-foot beef plant in California’s fertile San Joaquin Valley is not your typical meat plant.

It’s relatively new and spotless. There are high-tech, hand-wash sanitation stations scattered throughout the plant connected to counters that allow plant officials to make sure each employee uses them at least four times daily.

It’s relatively new and spotless. There are high-tech, hand-wash sanitation stations scattered throughout the plant connected to counters that allow plant officials to make sure each employee uses them at least four times daily.

The massive meatball cook room is built entirely of stainless steel. Even the loading docks, where trucks deliver raw beef, is sanitized regularly to prevent contamination. [..]

The plant has a decided advantage over Big Beef’s slaughter plants because they don’t kill cattle here, so there are no manure-covered hides or intestines to contaminate raw beef products.

But just the same, Costco’s approach is different.

All meat arriving at the Tracy plant comes with a certificate from the supplier pledging that pre-shipment tests showed no E. coli contamination, something other companies are also doing now. But Costco tests it anyway, and if it tests positive, it’s shipped back to the supplier. Less than one percent is shipped back.

Then the finished products – hot dogs, hamburger patties, ground beef, Polish sausages and meatballs – are tested again before they leave the plant.

In fact, Costco officials boast that, until recently, they did more E. coli testing in the company’s lab than the USDA does nationwide at all other beef plants combined.

Despite all precautions, Costco did get caught up in a recent E. Coli contamination recall that was caused by the dangerous practice of mechanical meat tenderizing:

The process has been around for decades, but while exact figures are difficult to come by, USDA surveys show that more than 90 percent of beef producers are now using it.

Mechanically tenderized meat is increasingly found in grocery stores, and a vast amount is sold to family-style restaurants, hotels and group homes.

Although blading and injecting marinades into meat add value for the beef industry, that also can drive pathogens – including the E. coli O157:H7 that destroyed Lamkin’s colon – deeper into the meat.

If it isn’t cooked sufficiently, people can get sick. Or die.

There have been several USDA recalls of the product since at least 2000, and a Canadian recall in October included mechanically tenderized steaks imported into the United States, but it’s not clear how many people were sickened.

In a 2010 letter to the USDA, the American Meat Institute noted eight recalls between 2000 to 2009 that identified mechanically tenderized and marinaded steaks as the culprit. Those recalls sickened at least 100 people.

But food safety advocates suspect the incidence of illness is much higher.

An estimate by the Center for Science in the Public Interest, an advocacy group, suggests that mechanically tenderized beef could have been the source of as many as 100 outbreaks of E. coli and other illnesses in the United States in recent years. Those cases affected more than 3,100 people who ate contaminated meat at wedding receptions, churches, banquet facilities, restaurants and schools, the center said.

E. coli O157:H7 is a potentially deadly bacterium that can cause bloody diarrhea, dehydration and, in severe cases, kidney failure. The very young, seniors and people with weak immune systems are most at risk. It is impossible to eliminate it from beef cattle, even by using antibiotics, which nay contribute to antibiotic-resistant pathogens in humans, meaning illnesses once treated with a regimen of antibiotics are much harder to control. There are 73,480 reported illnesses linked to E. coli O157:H7 infections each year in the United States, leading to 2,168 hospitalizations and 61 deaths. There may be more.

Mechanically tenderizing beef drives the contamination deeper into the meat, so that even cooking it thoroughly makes it difficult to kill the bacteria. E. Coli can survive in cold spots even when the cut of meat appears to be fully cooked. The McClatchy News article points out a 2011 warning in Journal of Food Protection that “cooking highly contaminated bladed steaks on a gas grill – even at 160 degrees like hamburger – might not kill all E. coli bacteria.”

Tenderizing Meat Hazard

Click on image to enlarge

Costco labels all products that have been bladed and recommends that  “for your safety USDA recommends cooking to a minimum temperature of 160 degrees.” The USDA encourages labeling but does not require it. Perhaps it’s time to protect the consumer from “Big Beef.”

Obama and Boehner’s Grand Betrayal: Gullible Democrats Buy Into Good Cop, Bad Cop Theatre

Yes, we know what is driving the latest performance behind this fiscal sham.

It’s basically good cop, bad cop; or bad cop, worse cop theatre to get you to sign off on this grand betrayal as UKMC economist William K. Black aptly calls it.

On This Day In History November 12

This is your morning Open Thread. Pour your favorite beverage and review the past and comment on the future.

Find the past “On This Day in History” here.

December 12 is the 346th day of the year (347th in leap years) in the Gregorian calendar. There are 19 days remaining until the end of the year.

On this day in 1787, Pennsylvania becomes the second state to ratify the Constitution, by a vote of 46 to 23. Pennsylvania was the first large state to ratify, as well as the first state to endure a serious Anti-Federalist challenge to ratification.

Pennsylvania drafted the most radical of the state constitutions during the War for Independence. By excluding Quakers and all other pacifists unwilling to take oaths of allegiance to the Revolutionary cause, a fervently anti-British and anti-Indian Scots-Irish faction had seized power for the first time in the remarkably diverse state. Only when pacifists were again able to exercise the franchise in peacetime was it conceivable that the more conservative U.S. Constitution might pass in Pennsylvania. Large states had the most to lose by joining a strengthened union. James Wilson’s genius in describing the nature of layered sovereignty in a federal republic, using the solar system as an analogy, was invaluable in convincing Pennsylvanians to ratify. Anti-Federalists found themselves in the hypocritical position of criticizing the federal Constitution for failing to codify the freedom of religious practice they had actively denied their fellow citizens during the War for Independence.