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Have Banks Become Criminal Enterprises?

Posted by Larry Doyle on July 22, 2012 6:41 AM |

I continue to maintain that the overwhelming percentage of people working on Wall Street are good and decent people trying to make an honest living in what has become an increasingly challenged industry.

I also maintain, and always will, that the spirit of capitalism that drives Wall Street is a necessary and vital engine if our economy and country are to recover.

I rail so hard on the failures and captures within our financial system for the very simple reason that I believe a healthy country needs healthy markets. Neither our country nor our markets are anywhere close to being healthy right now. In fact, with the news surrounding the Libor scandal taken in conjunction with word of massive money laundering within HSBC, the question begs, “Have banks become criminal enterprises?”

Let’s put the industry on the stand and pose that question and subsequent questions in a very serious manner against the backdrop of both 9/11 and September 2008.

Did our global economy take such a massive hit post 9/11 that lax regulators became totally ineffectual?

Has the financial system overall been infiltrated by international drug cartels?

Did the banking regulators look the other way with the rigging of Libor in the early to middle part of the last decade merely as an extension of other manipulative schemes ongoing within their operations?

Post September 2008, were regulators so focused on saving the system that the positive streams of revenue connected to criminal activity found a safer haven and perpetuated?

Why such hard hitting questions? To wit, I submit the following:

In the rinse and spin of money cleaning, HSBC was simply one washing machine among many. As Antonio Maria Costa, the former head of the UN Office of Drugs and Crime (UNODC), says: “Today I cannot think of one bank in the world that has not been penetrated by mafia money.”

The global trade in illicit drugs is huge. The UNODC estimates it is worth $380bn in 2008 dollars, about 10 times the annual sales of online retailer Amazon. Indeed, it was because of international drug trafficking that money laundering first vaulted on to the agenda of international crime fighters.

Read the entire story of Money Laundering: Taken to the Cleaners

While regulators here in the U.S may have breathed a sigh of relief that HSBC was implicated in this money laundering activity, which bank seems to have been the central ‘laundromat’? Wachovia.

Federal prosecutor, Jeffrey Sloan told The Guardian: “Wachovia’s blatant disregard for our banking laws gave international cocaine cartels a virtual carte blanche to finance their operations.”

Was Wachovia so financially strapped and facing such massive losses within its mortgage operations that the allure of revenues from the drug trade became too captivating? Great question.

Read the entire story of Laundering Cartel Money Is Nothing New for Banking Industry.

What other banking enterprises deserve further cross-examination? Let’s put UBS and JP Morgan on the stand.

. . .  in many ways, UBS is in a league of its own given its track record for scandals. Should UBS be implicated in the Libor rate-fixing conspiracy, it’s hard to imagine a better corporate candidate for a criminal indictment . . .

Tax-evasion, bid-rigging, insider trading within the auction rate securities market, Libor. UBS seems to have touched all the bases.

Read the entire story of For UBS, A Record of Averting Prosecution.

Not to leave out the bank with the fortress balance sheet, but what about JPM?

. . . according to published reports, JPMorgan is also being investigated for alleged improprieties in the municipal securities market, the electric power market and in setting Libor, the basic index for corporate and consumer financial instruments worth hundreds of trillions of dollars.

Read the entire story at American Banker of Too Big to Behave, Not Too Big to be Punished.

I am not making this stuff up.

While I am not here to promote the candidacy of Elizabeth Warren, I am here to promote truth and transparency. Warren is spot on in her recent commentary in the Washington Post:

 . . . the only question remaining is whether Wall Street has so many friends in Washington that meaningful reform is impossible.

Real accountability would mean prosecuting the traders and bank officials who violated federal laws and prosecuting the executives who knew what they were up to. It would mean forcing executives to pay back any inflated compensation that was based on padded profits.

. . . the heart of accountability lies deeper. It rests on acknowledging that we cannot trust Wall Street to regulate itself — not in New York, London or anywhere else.

The club is corrupt.

Your witness.

Who will clean up this mess? America needs real leaders and real leadership now more than ever.

Larry Doyle 

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I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

 

  • coe

    Some of these stories about “criminality” date back several more years…there was a huge story that seemed to be swept under the rug regarding Wachovia and its laundering of tons of drug money …Wachovia paid a fine/Wells was not really involved…the story touched on the Mexican banking system, thousands of murders a month in Mexico, and some pretty unseemly characters…

    I don’t think I can name ten senior people in the industry that know the details, nor any mainstream industry or media report on this case…with apologies for the length, try this article published in the blog “naked capitalism” last April for a pretty damning read..

    Wachovia Paid Trivial Fine for Nearly $400 Billion of Drug Related Money Laundering
    If this news story does not prove that banks are effectively above the law, I don’t know what does. The Guardian, in an account yet to be picked up anywhere in the US media (per Google News as of this posting, hat tip readers May S and Swedish Lex) reports that Wachovia was at the heart of one of the world’s biggest money laundering operations, moving $378.4 billion into dollar-based accounts from Mexican casas de cambio, which are currency exchange firms. While these transfers took place over a period of years, the article notes that it equals 1/3 of Mexican GDP. And the resolution?

    Criminal proceedings were brought against Wachovia, though not against any individual, but the case never came to court. In March 2010, Wachovia settled the biggest action brought under the US bank secrecy act, through the US district court in Miami. Now that the year’s “deferred prosecution” has expired, the bank is in effect in the clear. It paid federal authorities $110m in forfeiture, for allowing transactions later proved to be connected to drug smuggling, and incurred a $50m fine for failing to monitor cash used to ship 22 tons of cocaine.

    The operation may have started sooner, but the Wachovia admitted in the settlement that as of 2004 it had reason to address the procedures used for these transfers and chose not to. Martin Woods, a London-based employee and former member of the Metropolitan drug squad, had been hired as a senior anti-money laundering officer and started tightening up the activities within his reach. In 2006, he identified a number of obviously problematic transactions coming out of the casas:

    Woods discussed the matter with Wachovia’s global head of anti-money laundering for correspondent banking….He then undertook what banks call a “look back” at previous transactions and saw fit to submit a series of SARs, or suspicious activity reports, to the authorities in the UK and his superiors in Charlotte, urging the blocking of named parties and large series of sequentially numbered traveller’s cheques from Mexico. He issued a number of SARs in 2006, of which 50 related to the casas de cambio in Mexico. To his amazement, the response from Wachovia’s Miami office, the centre for Latin American business, was anything but supportive – he felt it was quite the reverse.

    As it turned out, however, Woods was on the right track. Wachovia’s business in Mexico was coming under closer and closer scrutiny by US federal law enforcement. Wachovia was issued with a number of subpoenas for information on its Mexican operation. Woods has subsequently been informed that Wachovia had six or seven thousand subpoenas. He says this was “An absurd number. So at what point does someone at the highest level not get the feeling that something is very, very wrong?”

    In April and May 2007, Wachovia – as a result of increasing interest and pressure from the US attorney’s office – began to close its relationship with some of the casas de cambio. But rather than launch an internal investigation into Woods’s alerts over Mexico, Woods claims Wachovia hung its own money-laundering expert out to dry….

    Later in 2007, after the investigation of Wachovia was reported in the US financial media, the bank decided to end its remaining relationships with the Mexican casas de cambio globally. By this time, Woods says, he found his personal situation within the bank untenable…

    On 16 June Woods was told by Wachovia’s head of compliance that his latest SAR need not have been filed, that he had no legal requirement to investigate an overseas case and no right of access to documents held overseas from Britain, even if they were held by Wachovia…

    Late in 2007, Woods attended a function at Scotland Yard where colleagues from the US were being entertained. There, he sought out a representative of the Drug Enforcement Administration and told him about the casas de cambio, the SARs and his employer’s reaction. The Federal Reserve and officials of the office of comptroller of currency in Washington DC then “spent a lot of time examining the SARs” that had been sent by Woods to Charlotte from London.

    The article recounts how the DEA, the criminal division of the Internal Revenue Service and the US attorney’s office in southern Florida were taking a hard look at wire transfers out of Mexico and found that they wound up at the correspondent bank account of the casas at Wachovia were supervised by its Miami branch. From the Guardian:

    “On numerous occasions,” say the court papers, “monies were deposited into a CDC by a drug-trafficking organisation. Using false identities, the CDC then wired that money through its Wachovia correspondent bank accounts for the purchase of airplanes for drug-trafficking organisations.” The court settlement of 2010 would detail that “nearly $13m went through correspondent bank accounts at Wachovia for the purchase of aircraft to be used in the illegal narcotics trade. From these aircraft, more than 20,000kg of cocaine were seized.”

    The story provides a great deal more detail about the money laundering operations and the investigation. It is an excellent job of reporting and I urge you to read it in full. It is very clear the US put a lot of resources into the investigation. So why did Wachovia get off so easy?

    At the height of the 2008 banking crisis, Antonio Maria Costa, then head of the United Nations office on drugs and crime, said he had evidence to suggest the proceeds from drugs and crime were “the only liquid investment capital” available to banks on the brink of collapse. “Inter-bank loans were funded by money that originated from the drugs trade,” he said. “There were signs that some banks were rescued that way.”…

    [Paul] Mazur [lead infiltrator of the Medellin drug operation] said that “a lot of the law enforcement people were disappointed to see a settlement” between the administration and Wachovia. “But I know there were external circumstances that worked to Wachovia’s benefit, not least that the US banking system was on the edge of collapse.”

    I suspect you never imagined “too big to fail” and “too big to jail” were this intimately connected.

    • LD

      In regard to my last question,

      Post September 2008, were regulators so focused on saving the system that the positive streams of revenue connected to criminal activity found a safer haven and perpetuated?

      This passage,

      So why did Wachovia get off so easy?

      At the height of the 2008 banking crisis, Antonio Maria Costa, then head of the United Nations office on drugs and crime, said he had evidence to suggest the proceeds from drugs and crime were “the only liquid investment capital” available to banks on the brink of collapse. “Inter-bank loans were funded by money that originated from the drugs trade,” he said. “There were signs that some banks were rescued that way.”…

      [Paul] Mazur [lead infiltrator of the Medellin drug operation] said that “a lot of the law enforcement people were disappointed to see a settlement” between the administration and Wachovia. “But I know there were external circumstances that worked to Wachovia’s benefit, not least that the US banking system was on the edge of collapse.”

      . . . would seem to indicate that a large part of the answer would be . . . YES.

      • coe

        Of course the answer is YES…when one pauses to consider the high murder rate in Mexico connected to the drug trade, and these very dollars washing through the select US branches of then Wachovia, it’s unconscionable to think about money laundering as a “victimless” white collar crime..

        your point, LD, is worthy of further discussion, but isn’t the real question why are there virtually no indictments and charges and convictions for these crimes?

        trust me, if you or I broke into our neighbor’s house and stole money, we would be arrested so fast and incarcerated our heads would spin…isn’t this essentially what the bad banks and those guilty on Wall St are essentially doing?

        what am I missing?

  • Russ

    Forget “Have Banks Become Criminal Enterprises”

    WALL STREET has become a criminal enterprise.

  • JR

    Perhaps the combination of size, technology and globalization have made it too difficult for even the good guys on Wall Street to realistically, truly follow the Know Your Customer rule.
    Not an excuse, but an observation.

    • LD

      JR,

      Somebody involved in detecting money laundering activities and protecting institutions from just such activities once told me, “All I need is one piece of information, and the file becomes an open book.”

      The implementation of the Patriot Act in 2001 was expressly undertaken to address money laundering activity that supported drug trade and ultimately terrorist activity that had infiltrated our financial system .

      The major banks were/are all well aware of whom they are doing business . . . if they want to be. I am assuming the margins on doing biz with people looking to launder money are pretty good.

      • Peter S.

        The Patriot Act kept tabs on patriots too.

  • Bob B.

    It has become all to apperent that in the last few weeks so much corruption was unveiled. The pillars of society are trembling cause nobody is there to hold them up. In history there has been a lot of blood spilled for the right to live a decent life with equality. It is time now for those that have lead us down this path to leave. I have faith that there are others that can fill the positions of power who will not abuse power but will use it for the good of the people.

    • coe

      well said, Bob B…I agree there are many high quality people who could and would step up if either offered the opportunity, or if compelled to pursue what is right and just

  • JR

    LD ..If there is a US regulatory investigation of HSBC’s money laundering activity, how much of the regulator’s investigation will eventually become available through Freedom of Information Act requests? I presume regulators will review HSBC audit committee work with outside auditors to test Patriot Act compliance. Broad-based money laundering requires a more or less complete breakdown of compliance procedures. The notion that such a breakdown would occur without the awareness of the audit committee and outside auditors is somewhere between incompetence and conspiracy. I suspect neither, but rather a system that includes exploitable weaknesses.
    I would truly like to see what the regulators are seeing.

  • Peter S.

    NO TO SROs!!!!!!!!!

  • Gary

    Low interest rates are killing savers, governments on the wrong side of interest rate swaps, and ultimately could blow another housing bubble. Hot money prospers in low interest rate environments.

    It is a serious problem with Bernanke being the dictator in all this.






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