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December 14, 2012

Felix Salmon’s Unpersuasive Argument to Hold HSBC and Its Executives Harmless

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It would be irresponsible for me to say that Felix Salmon probably cashed a nice check from the banking industry when he produced this defense of the US declining to prosecute HSBC for money laundering. I think a couple elements of his piece wind up being self-negating, so I don’t have to do much work. First, he describes the crimes almost entirely in the context of allowing the government of Iran to move around their finances, when the majority of HSBC’s transgressions concerned Mexican drug cartels, which used HSBC’s services consistently (so much so that they designed boxes that neatly fit the dimensions the teller windows at the bank’s Mexican branches). These drug cartels and gangs, which benefited from HSBC’s helpful acceptance of their cash and conversion of it from illegally gained funds to “legal” tender, then went out and murdered hundreds if not thousands of people.

You don’t have to be a big fan of the drug war to suggest that extending a helping hand to murderous gangs is probably not activity an allegedly reputable bank should be involved in. Furthermore, prosecuting anyone in possession of an ounce of marijuana or cocaine but letting the major companies that facilitate it go free turns the drug war completely on its head, and lets everyone know that it’s really about punishing an underclass. As Matt Taibbi notes, the normal drug arrest results in near-total asset forfeiture, while HSBC turned in five weeks of total income, with executives having only to part with part of their deferred compensation bonuses. But Salmon leaves all that out of his story.

He also does this amazing sleight-of-hand, where he decries the innocent bank tellers and mid-level bureaucrats who would lose their jobs if HSBC went under as a result of the prosecution, and then in a footnote appended later, adds:

Contra EJ Fagan, this is not an argument against prosecuting individuals at HSBC who broke the law.

Thanks for writing, then! Of course, the whole point is that senior executives who directed and allowed violations of current law should face criminal sanctions for it. The Salmon piece is a complete non sequitur.

There are certainly things governments can do when a bank experiences the kind of institutional failure we saw at HSBC. They can revoke the firm’s charter to do business in their country, or put other limits or sanctions on their business. Maybe this would “topple” the bank, or maybe it wouldn’t; there’s no reason to simply assert that criminal prosecutions automatically cause a bank to implode. Furthermore, we have this new resolution authority that everyone is going on about, as well as more than one bank in America; somehow I believe that, even in the event of an HSBC implosion, the financial system would manage. What we do know is that HSBC exists as a criminal enterprise, and will continue in that capacity for the near future.

And just to go back to Taibbi here:

There is no reason why the Justice Department couldn’t have snatched up everybody at HSBC involved with the trafficking, prosecuted them criminally, and worked with banking regulators to make sure that the bank survived the transition to new management. As it is, HSBC has had to replace virtually all of its senior management. The guilty parties were apparently not so important to the stability of the world economy that they all had to be left at their desks.

That’s what’s called a deterrent. It tells senior executives that they will face the music for crimes committed on their watch. It holds the best hope of actually ending the rampant criminality on Wall Street and their belief that they exist above the law. Anyone arguing against that has to explain why that two-tiered system of justice should stand.

Photo by Mark Hillary under Creative Commons license.

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