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December 11, 2012

US Regulators Secure Billions from Banks in Money Laundering Settlements

Posted in: Uncategorized

Promontory Financial

Treasury's weak deal with Standard Chartered Bank was based on the work of banking consultant Promontory Financial

Yesterday was “bust British banks for money laundering” day in America, if you didn’t know. (It’s on the calendar.) First, the Treasury Department and other federal regulators – the US Attorney’s Office for DC, two divisions of the main Justice Department and even “orders involving the Board of Governors with the cooperation of the UK’s Financial Services Authority” – settled with Standard Chartered Bank for $327 million over various money laundering of funds from Iran and other countries under US sanctions.

This is actually less than New York’s Department of Financial Services got out of Standard Chartered. How did a much smaller entity force a higher fine over the same violations of law? Well, as Marcy Wheeler explains, the DFS and Standard Chartered agreed that the case involved $250 billion in transactions, while Treasury and its colleagues pre-emptively let the bank off the hook for most of those transactions. This is from the press release:

While SCB’s omission of information affected approximately 60,000 transactions related to Iran totaling $250 billion, the vast majority of these transactions do not appear to have been violations of the Iranian Transaction Regulations, 31 C.F.R. Part 560 due to authorizations and exemptions which were in place at the time.

Basically, Treasury swallowed the work of a banking consultant whole, and charged Standard Chartered on those grounds.

You’ll be thrilled to know that Standard Chartered does not have to admit or deny wrongdoing in this settlement. The New York Department of Financial Services ALREADY made SCB admit wrongdoing in their case, so this is a complete non sequitur. It’s like the feds don’t have white-out necessary to change the language on their boilerplate settlement documents.

Meanwhile, a separate bank, HSBC, was levied a much higher fine than Standard Chartered for its money laundering activities. However, that came in lieu of prosecution.

State and federal authorities decided against indicting HSBC in a money-laundering case over concerns that criminal charges could jeopardize one of the world’s largest banks and ultimately destabilize the global financial system.

Instead, HSBC announced on Tuesday that it had agreed to a record $1.92 billion settlement with authorities. The bank, which is based in Britain, faces accusations that it transferred billions of dollars for nations like Iran and enabled Mexican drug cartels to move money illegally through its American subsidiaries.

While the settlement with HSBC is a major victory for the government, the case raises questions about whether certain financial institutions, having grown so large and interconnected, are too big to indict.

Much of this was based on a very rich probe by Carl Levin’s Permanent Subcommittee on Investigations, which contained copious amounts of evidence. Apparently a few prosecutors wanted HSBC to plead guilty to the Bank Secrecy Act for its money laundering of Iranian and Mexican drug cartel funds, which would have been a middle ground. Others wanted an indictment on clear money laundering charges. But Justice opted for the deterrent-free settlement, where HSBC could throw money – in this case a big chunk of money, but still money – at the problem. It’s actually a bit stronger than that, a deferred prosecution agreement, where HSBC must stay out of trouble for the next five years, or Justice can file its criminal indictment. The deal puts in place an independent auditor to gauge HSBC’s progress.

Dealbook, with its sympathies pretty clear on the side of the banks, points out that “A money-laundering indictment, or a guilty plea over such charges, would essentially be a death sentence for the bank” because investors would stop doing business with it and the bank could lose its charter. The proper remedy for that is for banks to NOT LAUNDER Mexican drug cartel money, not for law enforcement to pull their punches. But apparently Treasury intervened:

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.

It’s the same old story. Too big to fail.


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