A conspiracy theorist might note that all the recent huge banking fines have been against non-US banks. Could it be that US prosecutors are much keener to investigate foreign banks and do not look as closely at banks back home? Or are the US banks miraculously less corrupt?
Interesting, but it does not settle the question as to whether the US justice system is inconsistent based on the nationality of the corporation. This list might carry some weight if it discussed the fact that some of these are settlements, and how did these compare to the size of the infraction.
Given that there is a serious and ongoing discussion about the lack of criminal proceedings, but that there are other kinds of very much lesser processes, it is legitimate to be concerned that financial institutions, and their employees and directors, are getting off too lightly. Then, in light of successful prosecutions against foreign corporations, the original question is legitimate.
Actually, the pattern of national bias is well established from well before the last great meltdown. And given that, these foreign prosecutions make one wonder why there have been so few against US banks.
Perhaps this is splitting hairs, but those charges are either the result of settlements from complaints brought by their customers, or are the fallout from the market crash and general marketwide mortgage mis-selling.
In other words, no-one needed to seek out hidden wrongdoing by these banks, their own customers were complaining about their behaviour, or there was conspicuous obvious malfeasance. (I'm not trying to downplay the banks' bad play and criminality in these events though). It would have been difficult not to act on these things (at least, I'd like to think so!)
The spate of huge fines against the non-US banks has been direct investigations that haven't been broadly obvious from the outside, i.e. someone had to go digging.
Just use the Prisoner Work-Experience model -- for every hour of work the company does pay them ¢19. So if they have 1000 employees, the company gets $19/h to split amongst itself. Its the same rate we would pay prisoners who are on work detail.
The U.S. has historically had more robust anti-corruption laws and has been more aggressive about extending them to conduct of U.S. businesses operating abroad. For example, it is illegal under U.S. law for U.S. companies to bribe foreign officials, while it is not necessarily illegal under European laws, or not as aggressively prosecuted. U.S. banks have more experience operating under this regime and are more familiar as to how to toe the line. European companies are more likely to trip up, either because they have less experience with compliance or because they think they are less likely to get caught.
It's sad because it's not that they don't look closely. They do, but they condone - publicly.
HSBC "spent years committing serious crimes, involving money laundering for terrorists", and there's been no penal prosecution, with the public (let me repeat: public) justification that prosecuting it penally would lead to a too big loss for the economy.
There has been some discussion previously. Links here:
US banks have been prosecuted for anti-money laundering failures too. For example, in 2010, Wachovia (now part of Wells Fargo) paid $160m to settle charges relating to anti-money laundering failures. http://online.wsj.com/news/articles/SB1000142405274870405900...
At the heart of the French government’s campaign is the
concern that American prosecutors have created a two-tiered
system of justice: one in which American and British banks
escape criminal charges and the other that forces BNP to
plead guilty to sanctions violations and pay a record fine.
It is hard to reconcile this with the fact the governement just rejected a settlement of $12B from Bank of America, and is seeking $17B. They just settled with JP for $13B.
European banks are getting fined for Illegal tax shelters and violating sanctions, and US banks are getting hammered on mortgage fraud.
From TFA: "It is a cautionary tale of how European banks, spotting a lucrative business opportunity that American rivals shunned, opened their doors to countries under sanctions and ultimately exposed their reputations to the stain of criminal cases."
How do we know that American banks shunned it? They too could have been disguising transactions and hiding illegality. It's not like US banks are known for avoiding 'lucrative business opportunities' that aren't entirely legal. Perhaps the whistleblowers required haven't come forward, or perhaps the investigators just haven't looked too hard...
Just off the top of my head... I think that foreign banks do not have local political weight to throw around because they do not give many political donations and are not part of the revolving door of political appointments from the banking industry to the various regulatory agencies.
Why is there so much more motivation on the part of authorities to go after this type of crime rather than those that caused the financial collapse of 2008/2009? The financial collapse affected a lot more people here in North America, but I guess the issue is that it was local banks, not foreign ones.
It does seem like authorities like to go after foreign banks for large fines rather than local ones.
It's much easier to prosecute money laundering than it is to prosecute stupidity. Some people did illegal stuff way back then and got totally destroyed (see what we did to the mortgage brokers). That didn't extend to the vast majority of people though because they were just stupid, not criminal.
Additionally, the government itself was a large player in pushing the mortgage crisis. From keeping interest rates low, to encouraging lenders to get loans for those who couldn't afford them, to the implied bailouts (which turned out to be true) that only encouraged reckless behavior. If they look too hard they'll have to look in the mirror and that will never happen.
Unfortunately much of the things which were happening leading up to 2008 were not illegal, which is why there haven't been many prosecutions. Doing shady things and passing the buck, moving risk to other parties? Yes, but unfortunately not against the law.
Indeed. If we criminalized being shady most business owners in the continental US would be behind bars. Selling overpriced phones? Apple. Selling overpriced junk food? McDonalds. Selling overpriced headphones? Beats. Selling overpriced housing loans? Banks. Selling overpriced jeans? Levis. Selling overpriced smelly water? Perfume companies. Selling overpriced hydrocarbons? Deodorant companies. Overpriced sugar water? Coca cola. The list goes on and on and on.
The system we live in is designed around rewarding people who can extract capital from others. That means everyone's fucking over everyone and only the most clearly fraudulent transactions are regulated away to minimize externalities.
Is it optimal? No. But that's the reality of the system we live in.
> Yet when he and his staff would meet with Breuer and other top DOJ officials, those officials would proudly tout the small mortgage brokers they were pursuing, in response to which Kaufman and his staff said: “No. Don’t show me small-time mortgage guys in California. This is totally about what went on in Wall Street … We are talking about investigating senior level Wall Street executives, even at the Board level.”
> “Mortgage fraud ruins lives, destroys families, and devastates whole communities,” Attorney General Eric Holder said this morning at a press conference to announce the results of “Operation Stolen Dreams.” Launched on March 1, 2010, the multi-agency initiative has led to a total of 485 arrests. More than 330 convictions have been obtained, and nearly $11 million has been recovered. Losses from a variety of fraud schemes are estimated to exceed $2 billion.
Those just seem to be for run of the mill fraud - nothing to do with mortgage brokers.
"In Miami yesterday, two people were arrested for targeting the Haitian-American community, claiming they would assist them with immigration and housing issues. Instead, they used victims’ personal information to produce false documents to obtain mortgage loans."
"In California, a prominent home builder used straw buyers to sell his houses at inflated prices. The scheme inflated prices on other homes in the area, creating artificially high comparable sales and affecting the overall new-home market."
"And in Detroit yesterday, FBI agents arrested several individuals in a $130 million scheme orchestrated by the local chapter of a motorcycle gang. The conspirators posed as mortgage brokers, appraisers, real estate agents, and title agents and used straw buyers to obtain around 500 mortgages on only 180 properties."
None of these people seem to be mortgage brokers, though some pretended to be.
What I take from this is that you pretty much can get away with anything (including terrorism) as long as you do it from within a corporation and have enough money to pay the USA government any fine it imposes.
> If it's a criminal case, you'd think they could subpoena the necessary records.
Yes, but they may not be able to meet the threshold of not having a criminal case against the bank, as such thrown out without evidence that the bank was obstructing the investigation into criminal behavior for which there was significant evidence occurred at the bank.
So there can certainly be some sense where obstruction by the bank provides additional reason to believe that what is going on is criminal action by the bank, rather than merely criminal action at the bank.
> It's not something to be making a plea bargain over.
When both civil and criminal charges by the government could potentially apply to the same conduct, limiting action to civil charges is a frequent negotiating tool in seeking a settlement that achieves the objectives of stopping the conduct, imposing a penalty for the conduct, and providing access to information necessary to assess the scope of the conduct and to assure that it is, in fact, stopped.
avoiding a criminal prosecution is a very big thing. Banks are typically much more eager to pay a massive civil fine rather than a much smaller criminal fine. Having any kind of conviction as a corporation disqualifies a corporation (particularly a bank) from all kinds of things that it's effectively a death sentence. A major example of this was Arthur Andersen -- the criminal conviction for aiding the Enron fraud was enough to kill the business entirely, even though the conviction was later overturned on appeal.
I think what evmar is saying is that the US District Attorney should not have given BNP the choice, but instead just filed the criminal case against them. They could have gotten the necessary documents through the subpoena, so the offer to comply and take the civil case is meaningless.
What I think a lot of people would want to see is someone going to jail for this, hence the criminal case.
In addition to what's said below, if the prosecutors are being driven by federal/national-level concerns, then the goal is probably less about punishing a bank's officers, and more about getting more information on hostile nation states, and possibly financially neutering them. That's powerful, and far further up the chain of national interests.
Apart from that, my sincere apologies for arguing even slightly against against jail time for the banksters.
We've already decided corporations can have political beliefs (Citizens United) and religious beliefs (Hobby Lobby); I say it's high time we also decide they can also be declared criminal, and be subject to more than just fines.
Corporations can have criminal convictions. It's just rarely invoked, because it's effectively a death sentence. The criminal conviction of Arthur Andersen (later overturned) destroyed a $10 billion/year accounting firm, the vast majority of which had absolutely nothing to do with the conduct that led to the conviction. http://en.wikipedia.org/wiki/Arthur_Andersen
Slightly off-topic but the SC did not rule on corporations being capable of religious exercise in Hobby Lobby, it just ruled on what the law says (RFRA talks about corporations being allowed to get religious exemptions). There is nothing unconstitutional about the law, but the "religious exercise" did not spawn from the constitution, and the repeal of the law would make those religious beliefs disappear
Because if zero tolerance policies taught us anything it's that across the board punishment, even for people who have little to no control over the action, is a great idea?
That's pretty much the status quo for employment. When Enron went under, we didn't say "Well, the janitors didn't have anything to do with it, so they keep getting paid." If you work for a company and some at the top does something stupid, you're going to get punished for it, ever though you had nothing to do with it.
Honestly, it almost forms a neat free market solution to corruption. A savy insurance firm should start offering Employer Corruption plans that would pay out if you lost your job due to a conviction of the company. Shadier firms would have higher insurance rates and thus would have a harder time finding employees.
If my house catches fire and I don't have insurance, I don't get a new house, even though if I didn't start the fire. If my company goes under and I don't have insurance, I don't get paid, even if I'm not the person who wrecked the company.
Ah, but that's dealing with individuals and not the corporation.
But I also don't understand the lack of criminal convictions. The article mentions damning internal documents that show individuals within the bank knowingly breaking the rules. Why aren't these people being charged? They shouldn't be protected simply because they were working for a large corporation.
Sure. But they knew exactly what they were doing. They took a risk in order to make a profit, and it looks like it's going to cost them a lot more than the money they made from it, which is, IMHO, how it should work most of the time (though I'd also like to see individual executives prosecuted).
As a French national, I have extremely little sympathy for them. Maybe they will think twice about breaking the rules next time.
The corporation is responsible for that fine, not the individuals responsible for running the corporation.
If you were a skilled member of the finance industry, do you think you'd have any trouble at all finding a job elsewhere if your current company suddenly fell on hard times? Would it even be necessary, given the type of "severance package" likely to be awarded?
> If you were a skilled member of the finance industry, do you think you'd have any trouble at all finding a job elsewhere if your current company suddenly fell on hard times? Would it even be necessary, given the type of "severance package" likely to be awarded?
Do you think the people dismissed at the direction of the criminal prosecutors as part of a prosecution that also caused their employer to receive a fine nearly equal to its annual pre-tax income got generous severance packages? And, beyond that, do you think that, that the reason they left their last job -- including the condition imposed on BNP Paribas not to rehire them again even indirectly -- has no impact on the employability elsewhere in the industry?
Not even the latter, as those corporations could simply declare bankruptcy and the individuals responsible could just walk away with no criminal record.
Frankly, I'd be happy if bitcoin facilitated these "criminal" transactions to a much greater degree. I'm absolutely no fan of Iran or Cuba or any of the other sanctioned countries, but I think the idea that economic sanctions do more harm than good.
If BTC (or some analogous currency) does become a standard value store on the international market, I'll be interested to see if governments continue pursuing the impossible goal of imposing economic sanctions like this or if they change tactics. My guess is they'll continue pursuing the impossible goal.
Are you saying that sovereign nations don't have the right to decide who they're willing to trade with? Because that's in essence what you're saying when you say economic sanctions should end.
They have that ability through the power vested in them by the citizens, to effectively project the force that the citizenry, as a whole, desires to project.
If the citizenry cared, they can do something about that. (They don't, for a lot of reasons. And they're wrong, but they don't.)
If the government acted for the citizenry as a whole, then they wouldn't have to ban these transactions. At best, the government imposes the majority view on the minority. I think that in general this is more dangerous than helpful. Imagine that the government, with full support of 80% of all US citizens, banned doing business with anyone of Iranian descent, not just living in Iran. That's not feasible in the current climate, but it's certainly possible. I think I'd prefer it if such laws were fundamentally unenforceable.
So if country A is at war with country B then the government of A shouldn't be allowed to prevent company C from selling items which materially benefit and provide aid and comfort to country B?
Finding out how many transactions are conducted, and their value would be easier, but it may be difficult to correlate this information with the people behind them.
Could someone explain to me (as a non-American non-financial type) the basis of US jurisdiction over banks not based in the US? Is it because they have a presence in the US, or some other reason?
Basically, the US government's approach is "If you want to clear US dollars, you must conform to our laws."
The following explanation will simplify things somewhat in the interest of brevity.
Basically, all dollars (the ones that aren't physical cash, anyway) are ultimately held in accounts at one of the Federal Reserve banks. Banks like Citi, Wells Fargo, JP Morgan and Bank of America have accounts at the Federal Reserve. When clients of those banks transfer US dollars to someone who's a client of another bank, the real transfer of dollars takes place between the banks' accounts at the Federal Reserve.
If your bank doesn't have an account at the Federal Reserve, then it needs to have an account with a bank that has an account at the Federal Reserve. (Or with a bank that has an account with a bank that has an account at the Federal Reserve, etc.)
To be a member of the Federal Reserve, you need to hold a banking license in the US, which means that you are subject to US laws (because, if you ignore them, the US authorities will take your banking license away). You'll also have an office there (probably in New York) but that's kind of incidental.
So, if you're a bank with a US banking license, and one of your clients annoys the US authorities, they can basically say "Stop doing business with that client." (or, in other words, impose sanctions). If you refuse to comply, they can take your licence away.
That's effectively what happened with BNP Paribas - they were clearing US dollar transactions for clients that were subject to US sanctions. So, BNP has been effectively grounded for a year. Instead of going direct to the Federal Reserve to transfer US dollars to other banks, it will need to become a client of another bank that's a member of the Fed.
It's embarassing, it'll cost them money (they'll have to pay the other bank) and they may well lose some business (from clients who want to deal with a top-tier US dollar clearing bank).
In theory, they could have just turned around and said "Screw you, we're not paying any fine!", in which case the US authorities would have withdrawn their US banking license, seized any assets they could get their hands on (e.g. the dollars they have in their account at the Federal Reserve) and blacklisted the company, so no other US bank would do business with them. That would effectively have prevented them from doing any business in US dollars.
To be a proper, credible international bank like BNP, you need to be able to handle US dollars. Hence, BNP is prepared to pay the fine. The alternative would be to effectively downsize massively.
It is not necessary to clear dollars through the US, they can be cleared through other financial centers, such as London or Frankfurt. If they had kept all their transactions outside of the US, they would not have been technically subject to US law.
However, they did use US clearing houses, so they're subject.
SWIFT is a messaging system. It is used to send messages and/or instructions between banks, and between client and their banks. The settlement still takes place between the banks.
Let's take a look at the Hong Kong link you provided.
The Hong Kong Monetary Authority ("HKMA") appointed the Hongkong and Shanghai Banking Corporation Limited as the Settlement Institution ("SI") for the USD clearing system in Hong Kong.
"The Hongkong and Shanghai Banking Corporation Limited" is HSBC.
The USD SI is a commercial bank. Each direct participant has to open and maintain a settlement account with the USD SI and USD transactions are settled across the books of the USD SI.
So, to use the USD clearing system in Hong Kong, you need to open an account with HSBC. They then allow you to settle USD transactions with other members of the HK USD clearing system - who also must have an account at HSBC.
All USD on-line transactions are settled real time on a gross basis and across the books of the USD SI.
So, all HSBC is doing is debiting one client's account and crediting the other client's account. Because it's all internal to HSBC, HSBC's USD balance at the Federal Reserve doesn't change. In other words, you can not use the USD clearing system in Hong Kong to settle USD with someone who doesn't have an account with HSBC.
And, if you'd been blacklisted or sanctioned by the US authorities, you wouldn't be allowed to open a USD account with HSBC.
I'm going to take a wild stab in the dark here: You don't have any experience working in financial markets, do you?
I realize that most US dollar transactions take place through the US, I have read that it is something like 95% of such transactions. My point was that it is not necessary for this to be the case, as in there is no law stating that it has to be done so.
Of course, attempting large oil transactions as in the BNP case, while avoiding using the US dollar and clearing houses would be difficult, to say the least.
And no, I am not a financier, but am aware of some basic principles of property ownership.
Since you appear to know about this topic, could you clarify is US dollar transactions settled through HSBC in HK are (in a legal sense) done in HK, or in the US?
Even though BNP is a foreign bank, it has to have a license to conduct banking in the United States. If they refuse to co-operate, the US will cancel that license. Given the amount of fine they are willing to pay, it is clear that the US business is important and profitable to them.
> Could someone explain to me (as a non-American non-financial type) the basis of US jurisdiction over banks not based in the US?
Entities physically present in, doing business in, and subject to licensing by the US and individual US states are subject to US law and the law of those states no matter where they are headquartered.
But an entity that is doing business in the US doesn't need to obey US law outside of the US. US-owned hotels in the UK are allowed to cut the tags off mattresses, even if their US branches are not.
> But an entity that is doing business in the US doesn't need to obey US law outside of the US.
That's not at all true. It doesn't have to obey US laws that only apply within the US outside of the US (but neither does anyone else.) But lots of US laws are not limited in territorial applicability to the US. In fact, there are US criminal laws that only apply outside of the US.
18 U.S. Code S 2423(c): Engaging in Illicit Sexual Conduct in Foreign Places.
Any United States citizen or alien admitted for permanent residence who travels in foreign commerce or resides, either temporarily or permanently, in a foreign country, and engages in any illicit sexual conduct with another person shall be fined under this title or imprisoned not more than 30 years, or both.
Torture under 18 USC Sec. 2340A: "(a) Whoever outside the United States commits or attempts to commit torture shall be fined under this title or imprisoned not more than 20 years, or both, and if death results to any person from conduct prohibited by this subsection, shall be punished by death or imprisoned for any term of years or for life."
Terrorism offenses involving homicide or attempted homicide under 18 USC Sec. 2332:
"(a) Homicide.--Whoever kills a national of the United States, while such national is outside the United States, shall [...]"
"(b)Attempt or Conspiracy With Respect to Homicide.--Whoever outside the United States attempts to kill, or engages in a conspiracy to kill, a national of the United States shall [...]"
"(c) Other Conduct.--Whoever outside the United States engages in physical violence (1) with intent to cause serious bodily injury to a national of the United States; or (2) with the result that serious bodily injury is caused to a national of the United States [...]"
From what I read about this case the US threatened to withdraw BNP's US banking license. So even though the US does not actually have jurisdiction, they can choose to prevent a bank from trading in their country if they don't like their actions.
I believe it has to do with the way US dollars are traded on the world market. In effect any bank holding US dollars has to hold them on US soil which, by default, brings US dollar transactions under US jurisdiction.
I did some more research. I think because BNP had offices in NY they came under US jurisdiction. I don't think I'm correct in saying that a bank that trades in US dollars comes under US jurisdiction. However if you do decide to set up offices in the US, expect your world banking practices to come under US scrutiny.
At the end of each period, for example a day, banks calculate how much money was paid from accounts at bank A to those at bank B, from bank C to bank A, etc This results in a net credit or debt between the banks.
Rather than send all the transactions back and forth, banks will "clear" this net amount between themselves. The "clearing house", which in the US is often either CHIPS [1] or Fedwire [2], handles this process, which handle most large interbank US dollar transactions globally. (Clearing also seems to mean currency exchange in the US, according to WSJ).
BNP used this service in the US, so it fell under US law.
They mentioned criminal penalties, but no mention of jail times. Tens of billions in transactions, 8.9 billion in fines. It was probably worth it even after getting caught.
They are likely to also be forbidden from dollar clearing for a time, possibly up to a year. This is an unheard of penalty and is actually very punitive. It's a new strategy by the US prosecutors and there was a good Planet Money podcast recently on what it means. Essentially, because we control the reserve currency of the world, we control the ability to transfer foreign currencies into dollars. This is a very powerful thing to control and being restricted from dollar clearing will likely be pretty painful.
> Tens of billions in transactions, 8.9 billion in fines. It was probably worth it even after getting caught.
For the bank? It would have to be retaining a ludicrously high share of the value of each transaction for that to be true -- the transactions were $30 billion, so BNP Paribas would have to have retained nearly a third of the values of the transactions it concealed to break even with a $9 billion fine.
I have lost my job for not being enough of a "team player." Banksters lose their jobs if they violate international law to fund terrorist murder. I hope the stinging from their slap on the wrists isn't too painful. You see, wealthy bank employees have much more sensitive skin than us average folk.
With the size of the fine, there is no chance that it was worth it (to the bank). This fine is over four times bigger than the previous record fine ($1.9 billion, HSBC, also for sanctions violations)
However, it could have been worth it to the individuals who arranged the transactions and (presumably) got large bonuses as a result.
> With the size of the fine, there is no chance that it was worth it (to the bank). This fine is over four times bigger than the previous record fine ($1.9 billion, HSBC, also for sanctions violations)
The previous record fine of a European bank by the US wasn't HSBC's $1.9 billion for sanctions violations, it was Credit Suisse's $2.6 billion for tax evasion.
