Bill Black: How Dare DOJ Insult HSBC’s Crooks as Less “Professional” than Liberty Reserve’s Crooks?

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By Bill Black, the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City

Standard Chartered and HSBC’s leaders must be doubly humiliated by the description by Mythili Raman, the acting head of the U.S. Department of Justice’s (DOJ) Criminal Division, of Liberty Reserve’s money laundering operation. UK laws are, of course, very congenial to those suing for libel and I am sure that these banking titans are meeting with their solicitors to demand a retraction and apology from Raman.

In the very first clause of her May 28, 2013 statement to the media on the actions against Liberty Reserve’s controlling officers, Raman emphasized how “professional” they were as money launderers: “Today, we strike a severe blow against a professional money laundering enterprise charged with laundering over $6 billion in criminal proceeds.” In four paragraphs, she used the word “professional” three times and “sophisticated” once to describe Liberty Reserve’s money laundering.

In her second sentence she continued her emphasis on how large Liberty Reserve’s money laundering operations were. Raman claimed that DOJ’s action against Liberty Reserve was “the largest international money laundering prosecution in the history of the Department.” She described the scale of Liberty Reserve’s operations as “enormous” and a “massive criminal enterprise.” Paragraph 10 of the indictment labels the scope of operations as “staggering.”

The indignant response of Standard Chartered and HSBC’s leaders to Raman has to be: “and what are we, chopped liver?” The government charged Standard Chartered was a massive money launderer that Iran used to escape sanctions designed to keep them from developing nuclear weapons,

[T]he New York State Department of Financial Services [NYDFS] accused Standard Chartered of laundering $250 billion for the state of Iran and other Iran-based clients over a 10-year period which, the regulator said, “left the US financial system vulnerable to terrorists, weapons dealers, drugs kingpins and corrupt regimes, and deprived law enforcement investigators of crucial information used to track all manner of criminal activity”.

NYDFS found that Standard Chartered laundered funds for Iran for a decade and made elaborate efforts to prevent regulators from learning of their frauds. Like fish, Standard Chartered rotted from the head. When an American officer objected to the bank’s frauds, the response was heated.

Richard Meddings, Standard Chartered’s executive director, was quoted using expletives to disparage America’s insistence on an economic blockade of Iran. He told an official in the bank’s New York branch: “You fucking Americans. Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians?”

I described in a prior article how HSBC hit the money launderer’s trifecta.

1. Laundered billions of dollars for some of the most murderous drug gangs in the world. These gangs have murdered many thousands of Mexicans and devastated much of the nation.

2. Aided Iranian entities to evade U.S. financial sanctions on Iran. If Iran is actually developing a nuclear weapon and if it uses such a weapon to attack it could kill tens of thousands of people and HSBC and Standard Chartered will likely have proven useful to Iran in developing the weapon.

3. Aided Hamas, Hezbollah, and al Qaeda to evade U.S. financial sanctions. The U.S. considers them terrorist organizations.

“In total, the bank’s U.S. and Mexican units failed to monitor more than $670 billion in wire transfers and more than $9.4 billion in purchases of U.S. dollars from HSBC Mexico (BIBC), Breuer said.”

To sum it up, just one facet of Standard Chartered’s money laundering and one facet of HSBC’s money laundering operation were, respectively, over 40 and 100 times larger than Liberty Reserve’s “staggering” total money laundering for all purposes. The frauds came from the top and in the case of Standard Chartered the sincerity of the remorse at the top was promptly and publicly demonstrated [Yves: Black is being ironic].

Peace, who told reporters at a March 5 press conference that the firm had no “willful” intention to dodge U.S. rules, said in a statement today that earlier claim was “wrong.”

Standard Chartered Plc Chairman John Peace said his original comment “directly contradicts Standard Chartered’s acceptance of responsibility in the deferred prosecution agreement.”

Under the settlement it reached with U.S. regulators last year, the bank entered into a deferred prosecution agreement with the Department of Justice. As part of that deal, the U.S. charged the bank with conspiring to violate the International Emergency Economic Powers Act, a charge that will be dismissed after two years as long as the bank abides by the agreement.

“As part of these agreements, we rigorously monitor the banks for continued compliance, and subsequently addressed this violation by Standard Chartered for not accepting responsibility for its misconduct,” Joan Vollero, a spokeswoman for the Manhattan District Attorney, said by e-mail. “We demanded a public repudiation and they complied.”

Peace, 64, said his original comment “directly contradicts Standard Chartered’s acceptance of responsibility in the deferred prosecution agreement.” The firm “unequivocally acknowledges and accepts responsibility, on behalf of the bank and its employees, for past knowing and willful criminal conduct in violating U.S. economic sanctions.”

What this all means is that two of the largest banks in the world, which reap massive explicit and implicit subsidies from the government, were criminal enterprises for at least a decade. Each engaged in violations that were vastly larger than Liberty Reserve. Liberty Reserve’s violations were huge, severe, and warranted the toughest possible prosecution – complete with freezing and forfeiting all of its accounts. The violations of the banks, by contrast, were massively larger, occurred over a longer period, led to vastly greater profits for the banks and the officers, and did vastly greater harm to the world including the loss of life and the potential mass loss of life in the future. DOJ refused to prosecute any of the officers for “knowing and willful criminal conduct.” Incredibly, it insisted on only a two-year period of DOJ leverage over Standard Chartered’s operations to ensure (short-term) compliance with the law. Standard Chartered promptly violated the agreement – and DOJ insisted they apologize.
The DOJ’s claim that Liberty Reserve’s leadership was “professional” and “sophisticated” is farcical. They were clowns. Their web site is illiterate (once one gets past the initial screen). Their invitations to join the many Ponzi schemes they pushed on their web pages are so unprofessional (though littered with the word “professional”) and unsophisticated that one cannot have any sympathy for anyone victimized by the Ponzis. Here’s an example of one of the pitches that is more literate in English (but financially illiterate):

By far our most popular investment pays investors a daily return of 900% daily [sic] for a period of 4 days for a total return of 3600% with a minimum investment of only $50,000 USD!

The word DOJ should have ascribed to the leaders of the Liberty Reserve control fraud was “audacity” – not any variant of “professional” or “sophisticated.” Audacity is the characteristic that separates the most dangerous frauds from their peers.

For their massive and highly profitable crimes, DOJ took no action against any officer of Standard Chartered or HSBC. It announced, instead, the shameful “too big to prosecute” doctrine that announced DOJ’s surrender to crony capitalism. Now, DOJ wishes to tout Liberty Reserve as the great triumph that proves that money laundering will never succeed. But Liberty Reserve’s criminal customers overwhelmingly succeeded. First, they succeeded because the initial sentence of five years imprisonment for the leaders of what would become Liberty Reserve for their crimes at their prior firm that specialized in money laundering was reduced to probation. The leaders immediately began their new fraudulent scheme. Criminal justice penalties for white-collar frauds are often absurdly low. Second, DOJ failed to act for years even though Raman emphasized that the co-founder of the Liberty Reserve control fraud noted that DOJ knew it was a control fraud.

His co-founder doubled down on that sentiment in an online chat captured by law enforcement, noting that “everyone“ in the United States, such as “DOJ,“ knows that Liberty Reserve is a “money laundering operation that hackers use.”

The obvious question for reporters to ask is when DOJ first knew that Liberty Reserve was a money laundering operation. Given the criminal records of its controlling officers, the public manner in which Liberty Reserve operated, its structuring of every aspect of the firm’s operations to assist money laundering, and the fact that the DOJ states that the users of Liberty Reserve’s services were “virtually all” criminals (including 200,000 in the U.S.) DOJ should have had ample intelligence on Liberty Reserve’s criminal nature within weeks of when it began operation in 2006. (See Indictment, paragraph 10.) The government eventually had an investigator open Liberty Reserve accounts, which confirmed the anonymity and lack of anti-money laundering systems. The government could have done so at any time.

We know from paragraph 10 of the indictment that once Liberty Reserve ramped up its operations (it began by “growing exponentially,” Indictment, paragraph 13), every year the DOJ delayed closing down Liberty Reserve an average of 12 million unlawful financial transactions occurred totaling $1.2 billion. We also know that during its over six years of operations Liberty Reserve conducted roughly 55 million (“virtually all” criminal) financial transactions totaling over $6 billion and that DOJ has asked the court to issue a forfeiture order for $6 billion.

Paragraph 19 of the Indictment contains this wonderfully revealing insight into DOJ’s willful blindness about Standard Chartered and HSBC’s vastly larger, longer lasting, and more damaging money laundering: “Liberty Reserve users … engaged in criminal transactions with an impunity that would have been impossible in the legitimate financial system.” Right, unless, of course, we consider Standard Chartered and HSBC. The DOJ shares the unintentional irony of the finance professors who recently authored a study that concluded that control fraud was “pervasive” at our “most reputable” banks during the run-up to the ongoing crisis.

Paragraph 26 of the Indictment reveals that FinCEN sent out an alert on November 18, 2011 that Liberty Reserve was being used by criminals to launder funds.

Raman boasted at the press conference that DOJ and its international partners had succeeded in “restraining over $25 million in criminal proceeds.” That represents less than one-half of one percent of the money that was laundered. Raman claims that the greatly delayed prosecution of Liberty Reserve sent the message that law enforcement always triumphs over money laundering. The reality (revealed by DOJ’s own indictment) is that over a million criminals were able to launder over $6 billion in criminal proceeds through Liberty Reserve for over six years. Other criminals were able to launder far greater amounts through Standard Chartered and HSBC for over a decade. DOJ keeps calling massive defeats stirring victories.

The thing that is most troubling about Liberty Reserve is that it had no political power in the U.S. No one in power in the U.S. would have pushed back if DOJ had put Liberty Reserve out of business in 2006 or early 2007. The FBI, DEA, Secret Service, and Treasury would have learned about Liberty Reserve’s illegal operations almost immediately – they were too large, too open, and it was run by felons who were known money launderers. With a million money launderers using the site we must have had scores of informants who knew that Liberty Reserve was being used to launder proceeds and there must have been thousands of criminals arrested who had the incentive and ability to reduce their sentence by informing on Liberty Reserve. The fact that a money laundering operation as blatant and crude as Liberty Reserve’s (the web site screams “fraud”) with no political patrons in the U.S., and no concerns about “too big to prosecute” could stay in operation for over six years despite the government’s knowledge that it was engaged in massive money laundering and be allowed to “grow exponentially” and become “the bank of choice for the criminal underworld” (Indictment, paragraphs 13, 19) demonstrates how badly our criminal justice system has failed against control frauds.

We use the phrase “Pyrrhic victory” because of the candor of King Pyrrhus of Epirus. He won multiple victories over the Romans, already renowned for their military prowess, in southern Italy. When he was offered congratulations on these victories he replied that one more such victory would ruin his army. Pyrrhus’ victories were real. He inflicted greater losses on the Roman troops and he held the field after the battles. Pyrrhus demonstrated competence as a military leader and bravery in the field. Pyrrhus understood, however, that his lines of supply were long and that he could not replenish his lost men and experienced officers while the Romans could do so. The Justice Department has been losing the struggle against control frauds for well over a decade. Pyrrhus was competent and candid enough to proclaim that his tactical victories represented a strategic defeat. DOJ propagandists are now expert at claiming that abject defeats represent triumphs. In honor of the unintentional comic genius dubbed “Baghdad Bob” who announced Iraqi forces’ fictional triumphs over the U.S. army, we should honor the DOJ’s propagandists with the sobriquet: “Beltway Bob.”

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  1. jake chase

    On the other hand, it took twenty minutes to deposit a $20,000 check at a WFC branch where I had maintained an account for the previous fifteen years. Don’t tell me banks aren’t on their toes about money laundering. They did everything but stripsearch and fingerprint me before accepting the money.

    Of course, I wasn’t bringing in the odd million, hundred million or billion to a private office occupied by a sophisticated executive wearing a $10,000 suit and a $900 yellow tie, so I can understand why the teller who had never seen a deposit larger than $1407.35 (and the manager whose personal limit was $2419.16, and the manager who was authorized to accept $5617.83 no questions asked) became concerned.

    1. jfleni

      Even the NYPD “billy-club brigade” of slow cops and retard federal agents would have figured out the Liberty Reserve scam in record time, and they probably did, but the station-house fix was in there Bubba; so dozens or hundreds of police types and medium level bureaucrats now have their retirement accounts well and truly padded, and the politicians got next to nothing! If Holder knew (he should have!), then he just didn’t care about regular everyday crooks, as long as his jumped-up bank bufoons were protected.

      There’s a striking parallel with the Madoff affair: The little guy steals like mad (he never would have been caught if he hadn’t tearfully confessed his crimes to his son), and the protectors of the big thieves really do not want to know, in case some out of control prosecutor might get ideas about jailing them all!

      All the more reason that Barry should be impeached: He selected his corrupt stumble-bum AG and he is responsible!

    2. JamesW

      Don’t tell me banks aren’t on their toes about money laundering.

      Sorry, JC, but you are mired in the Fantasy Island status quo. The Edgemont Group is a conglomeration of Financial Intelligence Units at various Offshore Financial Centers (popularly known as tax havens), many of which they helped establish, while ostensibly combatting money laundering actually helps the banksters to control it.

      The Edgemont Group works or worked for the IMF. Do you really thing the offshore finance centers, primarily set up to profit from tax evasion, tax avoidance, money laundering and various dubious practices (and off-balance-sheet scams) would be concerned with stopping money laundering?

      Of course, one must take exception with the HSBC, after all, Obama’s latest choice for FBI director, James Comey, used to be a director there (during their trillions of dollars worth of money laundering for the drug cartels).

      Comey was also that guy who went after Martha Stewart and Barry Bonds — I kid you not!

      He’s another hedge fund guy – – Obama sure loves those hedge fund guys (Jack Lew and company).

      1. jake chase

        Well, I guess irony isn’t as effective as I’d hoped.

        Sorry to confuse you about my take on this. Long experience has taught me that our Gomint rules and regulations are designed and executed so as to hamstring ordinary people, make certain they are taxed and bludgeoned to the very limit of possibility, while simultaneously exempting the inheritor and executive and political classes from anything but trivial exactions and opening the door to all possibilities of profit and gain for them, consequences to the public be damned.

        Clear enough?

  2. Gold Coins

    Isn’t it funny that the smaller the scope of the crime, the bigger the punishment? If you’re an individual its the worst, then a decent sized organization like Liberty Reserves is in the middle, and at the top you have banks like HSBC which commit crimes of epic proportions but face the least consequences. What is the opposite of utilitarianism anyways?

    1. steelhead23

      Funny? No. Truly sad? Yes. What exactly does the term “equal protection under the law” mean?

    2. JamesW

      …but has employed such sterling characters – – President Obama’s latest choice for FBI director used to be a director there, after all!

      Yes, a man with such a sterling character, James Comey, who first worked at Gibson, Dunn & Crutcher (you may remember their litigation on behalf of George W. Bush in Bush v. Gore, the stealing of the 2000 presidential election, and later represented Citizens United in Citizens United v. the Federal Elections Commissions), and was with the largest hedge fund on the planet in 2011, and was the guy in Bush’s DOJ who went after Martha Stewart (wheeee… was I glad when she was off the street – – just joshing) and Barry Bonds!

  3. YankeeFrank

    The DOJ: striking terror into the hearts of small-time money launderers everywhere.

  4. Michael J.

    While agreeing wholeheartedly with the comparison to Standard and HSBC, I’m wondering if this was a honeypot for building network data on the participants.

  5. Larry Barber

    Why would somebody set up an on-line operation like this where US regulators could get to you? Isn’t this what the Caimans or Isle of Man are for? In addition to all the faults listed in the article, I’ve got to conclude that the perpetrators just aren’t very bright.

    1. JamesW

      Naaah, Larry, you must have missed that IRS announcement (May 9th, on their web site) explaining they were opening the largest tax investigation in history, jointly with Australia and the UK, looking into offshore tax havens (offshore finance centers). Which explains why a few days later they fired the head of the IRS, Miller, on an old dredged up IG report, on several IRS agents in Ohio, doing what they were supposed to be doing, investigating the Koch brothers’ political influence front outfits posing as non-profits.

  6. Rodger Malcolm Mitchell

    As usual, Bill is right. The big banks are criminal enterprises, and the DOJ does nothing to prosecute.

    But also, as usual, he omits the “Why?”

    Why does the federal government, with unlimited resources available, whine that prosecution is too difficult and too many innocent people would be hurt?

    The reason: Barack Obama has been bribed by the 1% to look the other way.

    I’m as puzzled about why Bill doesn’t come right out and ssy it as he is about why the DOJ doesn’t prosecute.

    C’mon Bill. It’s a simple word. BRIBED. Say it.

    1. jake chase

      I believe the last US President to oppose the banks was Garfield. Anybody remember what happened to him?

      1. steelhead23

        We can – and should – blame the banks for many ills, but assassinating Garfield is not one of them. He was murdered by a madman with no connection to banks.

        1. JamesW

          Negative, on that point JC was correct and you are mistaken. Just as few people understand why England’s Spencer Percival was really assassinated, or that the Warburg brothers, leading up to World War I, were the economic advisors to President Wilson (I believe that was Paul W.) and his older brother the head of the German central bank and advisor to Kaiser Wilhelm (I believe that was Max Warburg).

        2. F. Beard

          Well, the conspiracy need not be an Earthy one; if the Devil did not invent central banking then he is surely envious of whoever did.

      2. JamesW

        Sorry, but JC is wrong. Read Battling Wall Street: The Kennedy Presidency, by Donald Gibson for a more thorough and non-revisionistic take on President Kennedy and the legislation he both supported and passed.

  7. rotter

    so the “money laundering” actually , mianly, occurred in the US offices and the “drug money” was mexica. Ok..Other wise I find myself in the unusual position of agreeing with a banker when

    “You fucking Americans. Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians?”


  8. charles sereno

    Bill, thanks for a public service. Here’s a suggestion for a financial movie script. The Mastermind, in a sting operation, sets up small-time Liberty Reserve as an on-the-shelf operation that could be exposed at any time to create a distraction, namely, as advance warning to Standard Chartered and HSBC to rein in their big-time operations. However greed runs amok and the big players get caught partying before Liberty Reserve’s smokescreen prosecution is initiated. Mastermind brushes it off — just the cost of doing business. Sometimes one buys insurance when it’s unnecessary. Who would’ve thought too-big-to-prosecute (TBTP) was already on the DOJ’s on-the-shelf gift rack? Come to think of it, that wouldn’t make a feel-good movie.

    1. charles sereno

      Re Pyrrhus:

      charles sereno says:
      November 14, 2012 at 9:36 am
      “That is part of why banks gravitate towards tactical solutions, not strategic ones.” (ex Goldman informant)

      Pyrrhus of Epirus (sans hair) looked amazingly like Lloyd Blankfein.

      Pyrrhus’ often denigrated “Pyrrhic victories” have gotten a bum rap. He was safely successful on balance, cutting losses, not taking needless risks. His strategy consisted in the pursuit of wise tactics — “not all eggs in one basket,” “win more than you lose.”
      This is also an old Goldman tradition. They survived the 1929 crash even though neck deep!

      charles sereno says:
      November 14, 2012 at 11:34 am
      Folks: Go to portraits (photos, sculptures) of Lloyd and Pyrrhus and tell me I’m wrong.

    2. steelhead23

      Oh sure it would be a feel-good movie – you simply haven’t completed the plot-line. You see, there happens to be a dogged professor, a past federal investigator, (played by Travolta of course), carefully stitching together bits and pieces tying the whole thing to the criminal mastermind (Hopkins of course), leading to a three-ringed circus. Clever criminals, bamboozling hapless, lazy and corrupt government officials, while our professor puts all the pieces together for a friendly prosecutor (I’d pick Elizabeth Warren for that role) who has to fight the system to get the case before a judge.

      Frankly, given the broad anger at banksters and hapless government agents, I suspect that if well done, this one would be a huge hit. Of course, the banksters have to go to jail along with the corrupt agents. Hello, Oliver?

      1. JamesW

        Best movie on all this is still that classic, How I Spent My Summer Vacation with Robert Wagner, Jill St. John and Peter Lawford.

  9. b2020

    Beautiful. When I saw first the mouth-breathing announcements, I immediately thought of HSBC. But Black’s deep dig is giving “indictment” a new meaning.

    One suggestion – instead of something generic like “Beltway Bob”, may I suggest that the DOJ has no introduced us to the spectacle of “roach wanking”?

    Because, quite honestly, it looks like an entirely new generation of wankers has been bred in that ol’ roach motel. Basket cases check in, basket cases check out, the revolving door is spinning, and nothing changes except the level of hilarity. Talk about destroying confidence in the very institutions of the open society.

  10. Mary Jack

    There was another civil attempt at Occupying the Justice Department last week, widely ignored. Tasers put to use, and so on. We need many, many more displays of civility.

  11. allcoppedout

    I’ve had Jake’s experience here in the UK, one bank actually preventing me opening an account. I’m not sure I swallow TBTF, wondering if the banks have dirt on government agency involvement as a bargaining chip and the systemic damage stuff may be a public blind to the real negotiation.

    Banks seem to be claiming to make more profit than ever and one wonders how if they have lost the long-term money laundering. Some of this seems to be an accounting dodge – they are making much less provision for bad loans. The situation reminds me of test purchase drug stings – we send out police buyers to identify the pushers. I know how to do this, but have no idea how to approach a bank to handle big bags of cash. We use sophisticated communications technology against the druggies we would not want to disclose for fear of counter-measures and I suspect such covert involvement in the banks and a desire not to reveal surveillance secrets in court evidence, including any cooperation by the banks with our security services. It looks as though those we do target on money laundering are politically cleared for the action – so out of favour Nigerians get done, but the current regime is left alone. I’m guessing and don’t offer this as an excuse.
    In principle banking isn’t very clever and should suffer the same cost pressures as any other part of the business process. The criminality is an essential component of its competitive advantage and margins.

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