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Wed, Oct. 16

Column: Crime doesn't pay unless you're too big to fail

Our biggest banks regularly engage in massive organized crime, and our government won't prosecute them. These are crimes completely separate from the crash. Rather it's a general, ongoing, pervasive pattern.

The latest example is a bank the government acknowledges practiced years-long, large-scale money laundering for drug cartels and terrorists, yet they won't prosecute. They have massive amounts of evidence; they just won't use it. This is just one piece of an ongoing pattern for HSBC, a London-based bank with U.S. headquarters in Chicago. It's under investigation as part of the Libor-rate bid-rigging crime. It has already settled for mortgage foreclosure fraud. Not long before that it settled for helping wealthy clients commit tax evasion. That's just its recent history, just the big items, just this one bank. You can find similar stories for other major banks, including others involved in similar money laundering.

(A Senate report details money laundering by HSBC and others. The New York Times covered the tax evasion. US News & World Report covered the mortgage fraud settlement. International Business Times quotes the bank's CEO saying it "lost its way" regarding Libor. Complete references are with this column online.)

One of the differences between developing countries who make it and those who don't is the rule of law. In this arena we have laws, but they don't rule. What should we expect the consequences of this to be?

Regulators worked with HSBC for years to try to help them change their money-laundering ways, rather than immediately shutting down those operations as they would with a smaller outfit. According to the Senate report, hey had been laundering money for Mexican drug cartels, Saudi banks connected with terrorists, Iran, despite sanctions, and others. The Senate panel found that these were not mistakes. It involves billions of dollars. There are tens of thousands of transactions just involving Iran, and deliberate attempts to hide them by, for instance, removing the word "Iran" from the records. So did regulators have evidence? Oh yeah.

Under pressure from the Senate report and specifically senators Brown (D-OH) and Grassley (R-IA), regulators finally fined them and let them off with a "we're not admitting guilt" agreement. This is the constant pattern with large financial crimes. Are the fines enough? Consider that in this case the fine is equal to about two months' profit. If you were before a judge for helping terrorists do you think a couple of months of your take-home would make it square?

The Washington Post quotes a top Justice official saying, "If you prosecute one of the largest banks in the world... (customers) will leave the bank." Justice officials fretted it might shake the financial industry. After the Savings and Loan fraud and collapse in the '80s there were more than 1,000 actual convictions, of people not just companies, for felonies.

The economic system did not shudder in fear and collapse. It got stronger.

The New York Times says the concern at Justice was, "Such actions could cut off the bank from certain investors like pension funds." Well, yeah. Don't we want to protect our pensioners from having their funds in the hands of criminals and fraudulent businesses?

This is why the recent decision by the Justice Department to sue S&P, the investment rating firm, rather than just settling, stands out as so unusual, even though it's only a civil suit and may get settled for just a fine. Justice brought it because the SEC had been dragging its feet so long, but Justice has been just as bad at failing to prosecute. The SEC's failure is not surprising since it is so full of people from the industry that, with all the recusals, they can hardly get a quorum to vote to pursue anyone, as the Wall Street Journal has documented.

Even if the fines hurt the company, the executives who made these decisions still get enormous compensation. Many times they've already taken their golden parachute and moved on to the next position, or through the revolving door of government and finance. They took a chance on illegal behavior and it paid off. Why wouldn't they, and every executive who saw it work, do it again?

Prosecuting individuals would also do less harm to the banks themselves, the investors, and the financial system.

How many crimes does this one bank have to commit for it to sink in that it has been operated as a criminal enterprise? There may be a legitimate core, but it has relentlessly branched out into criminal activity any time it pays. Over and over.

Chicago recently passed tougher laws on businesses that short employee's pay. A convicted business can lose their license and no longer operate in the city. Why can't we do that with the HSBCs of the financial world?

If you want absolute immunity, create your own little kingdom in some corner of the U.S., get so big that if you were shut down it would hurt the financial system, and "ta-da", you're immune. If you're going into crime, incorporate first, and then steal really big. Call it a financial transaction, pay a fine, admit no crime, and enjoy your stolen wealth.

Yes, there would be a price for prosecuting an HSBC. However the price we all pay for not prosecuting it is many times greater. This is your government: Democrats, Republicans, elected officials and appointed regulators, all in willing collusion with organized-crime bankers, seeing to it that the people who commit really big crime never really pay.

Tom Cantlon is a longtime local resident, business owner and writer. Contact him at

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