Why no low-level compliance prosecutions at HSBC?
Chris Hamblin, Clearview Publishing, Editor, London, 23 October 2014
Why have the middle managers, checkers and compliance grunts of HSBC avoided jail?
They were the people who built specially widened windows into the branch at HSBC's Mexican branch to receive boxes of drug money from the cartels. They were the people who stripped SWIFT messages from sanctioned entities in Iran at the behest of their bosses. Why have the middle managers, checkers and compliance grunts of HSBC avoided jail?
Disobeying court orders? No problemo
By the time HSBC was fined $1.9 billion by the Americans in December 2012, the bank had already received two cease-and-desist letters. In 2003, the Federal Reserve sent a cease-and-desist letter to HSBC demanding the bank take strict precaution not to do business with criminals and terrorists. The letter commanded the bank to cease criminal activity that the Feds had caught it perpetrating. This letter was public and therefore known to everybody in the compliance departments in New York, let alone in London, where David Bagley turned a Nelsonian blind eye to what was going on. He claimed ignorance when he went before the Senate Committee to resign his job, yet the lowly compliance people in New York could claim no such lack of knowledge.
The second cease-and-desist order came in 2010, after the OCC determined HSBC’s money-laundering controls to be weak. Instead of prosecuting bank staff after they had ignored countless warnings from the two OCC people 'embedded' there, the regulator gave HSBC a second chance. The fact that the OCC survived this scandal at all is testament to the virtual immortality of all federal schemes, good or bad.
With regard to Iranian message-stripping, staff at the bank received a memo saying: "It is anticipated that Iran will become a source of increasing income for the group going forward," the memo says, "and if we are to achieve this goal we must adopt a positive stance when encountering difficulties."
Every member of the compliance department knew what that memo meant. Every person who actually took part in the message-stripping knew what it meant or had received orders in even blunter terms. Yet they are all at liberty today.
Down Mexico Way
HSBC opened a branch in Mexico whose account-opening procedures were so lax and illegal and flagrant that everyone involved doubtlessly saw it with their own eyes. According to an audit of 2002, a staggering 41% of accounts lacked complete client information. Every compliance staff member who encountered such an account knew this, and it is hard to see how any of them did not. Even in 2012, according to the famous Senate hearings at which Bagley resigned, the bank still had 20,000 such accounts containing about $670 million.
Whistleblowing Central and its failure
The bank set up a centre in Delaware to investigate (i.e. clear) internal suspicious activity reports in response to the second cease-and-desist letter. Every compliance officer who had anything to do with it must have known that it was a joke. A whistle-blower called Everett Stern told the press: "Basically, if your company had a website, we waved you through." He encountered many suspicious transactions that he was hired to rub out, some of which had ties with Hezbollah, Iran and the Muslim Brotherhood. Unlike his colleagues and his bosses, who obviously knew as much as he did, he called the Federal Bureau of Investigation.
The moral of the tale
In this article we have looked at the multitude of relatively lowly people at HSBC who obviously knew that laws were being broken as they did their jobs. The hard fact of Anglo-Saxon law, however, is that ignorance of the law is no excuse. Even though it would be easy to prove that these people knew they were participaing in crimes, no prosecutor need even do that to succeed.
Why, then, are they still at liberty and, in most cases, earning impressive salaries in banking to this day? Because if they were ever to be prosecuted systematically there would be scores of successful prosecutions and the press would report them. People would then notice that the higher-up executives, who must have known so much more about their bank's lawbreaking even though they took the precaution of never admitting it in their emails, would face a gale of public opprobrium the like of which has never been visited on bank excecutives yet. This would lead to serious scrutiny of a kind not yet seen as the procession of US plea bargains moved inexorably up the chain of command towards the top.
Public opinion still counts for a great deal when it is roused by a scandal: upper managers will therefore use all their considerable political muscle to stop their middle managers from being prosecuted for as long as the US and UK retain a semblance of open democracy. This means that, in major multi-billion banking scandals at least, compliance officers could be safe from prosecution for perhaps another five years.
