Too big to jail? Execs avoid laundering charges

Published on NewsOK Modified: December 18, 2012 at 2:55 pm •  Published: December 18, 2012
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NEW YORK (AP) — When the Justice Department announced its record $1.9 billion settlement against British bank HSBC last week, prosecutors called it a powerful blow to a dysfunctional institution accused of laundering money for Iran, Libya and Mexico's murderous drug cartels.

But to some former federal prosecutors, it was only the latest case of the government stopping short of bringing criminal money laundering charges against a big bank or its executives, at least in part on the rationale that such prosecutions could be devastating enough to cause such banks to fail.

They say it sounds a lot like the "too big to fail" meme that kept big but sickly banks alive on the support of taxpayer-funded bailouts. In these cases, they call it, "Too big to jail."

"Shame on the Department of Justice. Shame on them," said Jimmy Gurulé, a former federal prosecutor who teaches law at the University of Notre Dame.

"These are actions that facilitated major international drug cartels to continue their operations," he said. "Now, if that doesn't justify criminal prosecution, I can't imagine a case that would."

Oregon Democratic Sen. Jeff Merkley shot off a letter to U.S. Attorney Eric Holder after the HSBC settlement, saying the government "appears to have firmly set the precedent that no bank, bank employee, or bank executive can be prosecuted even for serious criminal actions if that bank is a large, systemically important financial institution."

Neil Barofsky, the former inspector general of the government's Troubled Asset Relief Program and a former federal prosecutor in New York, warned that big banks could interpret the Justice Department's leniency as "a license to steal."

Since 2009, several European banks have paid heavy settlements related to allegations they moved money for people or companies on the U.S. sanctions list: Switzerland's Credit Suisse, $536 million; British bank Barclays, $298 million; British bank Lloyds, $350 million; Dutch bank ING, $619 million; and the Royal Bank of Scotland, $500 million for alleged money laundering at Dutch bank ABN Amro.

While those cases involved deals with such countries as Iran, Libya, Cuba and Sudan, the HSBC case was notable for the government's allegation that it also helped launder $881 million in drug-trafficking proceeds for Mexican drug cartels.

As bad as those allegations were, prosecutors say they could not prove HSBC executives conspired to aid drug organizations or rogue nations. Breakdowns in security controls within the company had occurred gradually, over decades, with a motive of increasing profits rather than committing crimes, prosecutors said.

Prosecutors also expressed fear of "collateral consequences" — that going further could have sunk a company that employs tens of thousands of people and is tied tightly to the economies of the roughly 80 countries where it does business.

Such a collapse has happened in white-collar prosecutions before, most notably in 2002 when the huge accounting firm Arthur Andersen was convicted for destroying Enron-related documents before the energy giant's collapse. It was forced to surrender its accounting license and to stop conducting public audits. Only after 85,000 people worldwide lost their jobs did the court case ultimately play out, with the Supreme Court overturning the conviction too late to save the doomed Chicago-based business.

"From a policy standpoint, it's a pretty compelling argument," said Kevin O'Brien, a former federal prosecutor now in private practice. "Employees lose their jobs, towns where these businesses are located are negatively affected, stockholders which include a lot of moms and pops lose their savings and none of that is really fair. Even a large fine can sometimes have a negative effect on employees and shareholders."

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