Where are the “Progressive” Democrats on Loretta Lynch’s HSBC Money Laundering Wrist Slap?

Some Republican Senators are having a field day, and rightly so, over the fact that Obama’s attorney general nominee, Loretta Lynch, looks to have allowed bank giant HSBC, and more important, its executives and officers, off vastly too easy in a massive money-laundering and tax evasion scheme.

The background is that Lynch, as attorney for the Eastern District of New York, led the investigation of HSBC’s money laundering for drug dealers and other unsavory types that led to a $1.9 billion settlement in 2012. That deal was pilloried by both the right and left as being too lenient given the scale of HSBC’s misdeeds.

And now it turns out the great unwashed public was kept in the dark about another set of misdeeds, that of large-scale tax evasion for the wealthy, which Lynch was aware of when she was negotiating the money-laundering deal. From the Guardian:

Lynch negotiated a controversial settlement with HSBC in 2012, after the bank admitted to facilitating money-laundering by Mexican drug cartels and helping clients evade US sanctions.

Now there are questions over why she did not also pursue HSBC over evidence that its Swiss arm helped US taxpayers hide their assets.

The secret bank files – obtained and examined in detail this week in a series of reports by the Guardian, CBS 60 Minutes and other media outlets – reveal that HSBC’s Swiss arm colluded with some high net-worth individuals to hide their assets from tax authorities across the world.

The new data, leaked by a whistleblower, was obtained by French tax authorities and shared with the US government in 2010, raising questions over why the Department of Justice has yet to take action against HSBC in the US.

US government officials have told the Guardian that investigations by the DoJ’s tax division have been continuing for five years and criminal charges against HSBC or its bankers remain a possibility..

British, French and Spanish tax authorities have publicly disclosed the number of HSBC Swiss clients investigated as a result of the leak and the total sums recovered. In total, the three countries have recovered more than $825m from taxpayers who had not declared their assets in Geneva. However, in Washington, the IRS is refusing to disclose any information about investigations or recovered assets stemming from the leak.

If you think the DoJ was entertaining filing criminal charges, I have a bridge I’d like to sell you. The only reason there actually might be some prosecutions is solely as a result of the leak and the resultant media firestorm.

Keep in mind that the Republican opponents, Judiciary Committee chairman Chuck Grassley and David Vitter, both have a history of being tough on banking issues, so they have legitimate grounds for consternation. Grassley has put a hold on Loretta Lynch’s nomination. He and Vitter, who is in contact with the whistleblower, are planning to grill Lynch over what she knew about the tax evasion charges and when she became aware of it. Democratic senator and ranking Judiciary committee member Sherrod Brown has also said he is going to push the DoJ and the IRS for answers.

But what about Democratic Senators who were so upset about the wrist slap settlement in 2012? What of this supposed bold progressive wing that we are led to believe will rescue the Democratic party from its corporate sellout ways? Even with a safe target like HSBC, party tribalism apparently takes precedence over principle when a major Presidential nomination is in play. But mind you, no one expects this contretemps to derail Lynch getting voted in, since most Republicans deem her to be acceptable. But given a chance to move the Overton window in the direction of demanding something the American public overwhelmingly wants, prosecutions of bankers, key Democrats are trying to finesse being tough on HSBC without being tough on Lynch. Again from the Guardian:

Until now, Senate Democrats have been most outspoken over the revelations. The Republican chair of the Senate banking committee, Richard Shelby, from Alabama, declined to comment when pressed by the Guardian this week….

Elizabeth Warren, the Democratic senator who was most vocal in her opposition to the 2012 settlement with HSBC, also called on prosecutors to “come down hard” on the bank if the leaked data shows it colluded with US tax evaders. However, neither senator mentioned Lynch, amid concern on the Democratic side that the HSBC revelations could derail Lynch’s confirmation.

Jeff Merkley, a Democratic senator from Oregon, also called for tough action against HSBC over tax evasion, while steering clear of any reference to Lynch. “It is time to hold HSBC fully accountable under the law for its disturbing conduct,” Merkley said. “While criminal charges are obviously a matter to be settled in the judicial system, I strongly encourage prosecutors to mount the strongest possible charges rather than going for another slap on the wrist.”

What gives? The same logic of targeting bank executives, not banks, applies with administrative action in government agencies. It was on Lynch’s watch that the critical decision of how far to take the HSBC decision was made. Once she had made the deal, it was almost certain that staff were pulled off the case and tasked to other matters. It’s not realistic to hold the current DoJ accountable for a decision made by Lynch years ago.

If the Democrats want to regain the trust and ground they lost in the 2014 midterm debacle, they need to recognize the problem is how Obama has governed and start demanding higher standards from the party. That means going into opposition when the situation warrants it. Elizabeth Warren gained stature by fighting the Administration on the so-called Cromnibus bill and on Antonio Weiss. The way to move the party is to be willing to stand against it when its position is demonstrably wrong, which sadly is way too often, and inflict costs. The objective is not to win in every case but to exert influence and make the leadership think twice before taking expedient actions.

But so far, the much-touted progressive wing seems willing to buck the Administration only on comparatively narrow issues and mid-level appointments. Most important, both parties are still in the dark as to where the facts lie with Lynch and HSBC. Perhaps she has a cogent defense, but a head in the sand approach is no way to deal with a position this important. The Democratic bank critics should grill Lynch and be prepared to withhold support if her answers are evasive or confirm the worst suspicions about her being willing to go easy on powerful corporate miscreants.

Print Friendly, PDF & Email


  1. The Bulb

    If you will recall, the NYT article in 2012 quoted a source as saying “the government had the evidence to criminally indict HSBC, but decided against doing so for fear of triggering another financial crisis”. What a disgrace.

    1. steelhead23

      Bingo! I am reminded of that old Monty Python one-liner “no one expected the Spanish Inquisition”. Among the U.S. political class, no one wishes to be the “one” who unwittingly causes the next financial crisis. This fear is debilitating and is a huge disservice to “truth, justice, and the American Way.” This fear is encouraging more, not less, criminal behavior by global financial giants. Personally, I view justice as much more important than economic stasis. I suppose I will never win this argument, but I am firmly of the belief that profit seeking and sound banking do not mix well and its high time we woke up to that fact. We either have to regulate (and prosecute) banks and banksters like wayward children, or force commercial banking into a not for profit system.

  2. Clive

    Slightly off topic compared with the actual article above, but I’ll mention it here as it is illustrative of what a cess pool the whole “private banking” / “wealth management” units of the TBTFs are. My mother in law (yes, really, my actual mother in law for cryin’ out loud) was sold a retail investment product which remitted income gross (in other words, tax wasn’t deducted). The idea was that the product holder would notify HMRC (in the UK jurisdiction) of the tax liability when completing their return. But of course, it was an open invitation to evade tax — the product provider didn’t advise the tax authorities who they’d sold the product to. And selling a product with this feature places the onus on the tax collection authorities to be aware of the need to collect the tax (and of course the product holder too, they should be honest enough to pay their taxes).

    But there is no legitimate reason whatsoever to design a retail product like that. If a potential purchaser’s tax arrangements are so convoluted that deducting tax at source isn’t appropriate then the product isn’t suitable for them or they should be in a position to have their tax advisor sort out their tax reimbursement.

    Of course, the whole thing is designed to enable a “don’t ask (by the product providers) don’t tell (by the product holder)” tax dodge.

  3. Brooklin Bridge

    This is particularly disappointing regarding Warren. It has been mentioned by Yves and others that Warren is likely to hew closely to the party line, no matter how patently wrong, in areas other than finance and banking regulation, but here, her failure to go after Lynch specifically suggests that she will tow the party line even in those areas when pressed.

    Bernie Sanders has already proven that in spades, for instance, by caving in on all the particularly ugly aspects of Obama Care (removal of a strong public option, abortion concessions, personal mandate on behalf of private enterprise…), and perhaps most ridiculously, Sander’s pathetic theatrical response to a fully Democratically controlled house and Senate (never mind the Vichy executive branch) extending Bush’s tax breaks for the wealthy. Specifically, that response was to stage a sham filibuster which consisted of Bernie, a camera man, and an otherwise empty Senate chamber for Bernie to puff up his bellows and rant for several useless hours on a Friday. Oh brave warrior.

    1. DanB

      This response is prompted by your comment but directed at those who see Warren as this cycle’s edition of hope and change. As I have written here before, when I met her in August of 2011, as she “canvassed” Massachusetts citizens about whether to run for the senate, I asked her if she was aware that being elected to the senate was like booking passage on a sinking ship. I told her she’d have to knuckle under to Obama and his version of the Dem. Party. She vowed this was not the case, so i asked her, “Do you think you are going to change DC more than it will change you?” I got s shrug and a “next question” look in reply.

      1. wbgonne

        Dan, IMO opinion the ONLY way Warren could take on the party was to challenge Clinton for the presidential nomination. That Warren hasn’t done so suggests she has no intention to challenge the party. She is a Democrat. She will shoot occasional spitballs from the sidelines and be trotted out for fundraising and brand-differentiation and that’s about it. Does Warren not recognize this? Beats me.

        1. Brooklin Bridge

          Warren probably does recognize this but a lot of people don’t. They need a “real deal” and will settle for what ever the display room offers in that category for that cycle as long as it’s fairly new. Warren has glommed on to the fact that truth by the milligram sells at a high price.

    2. wbgonne

      Warren seems to have assumed her place as Progressive Hood Ornament atop the neoliberal Democratic tank. Reports are that Warren has had “secret” meetings with Hillary to give Hillary economic advice. Good luck with that, Elizabeth. I’m quite sure Larry Summers and Robert Rubin will have the last word.

      1. OpenThePodBayDoorsHAL

        The article keeps referring to something called a “Democrat” but I’m not familiar with that term. Long ago there used to be a political party by that name that championed people versus corporations, labor versus capital, opposed war, worked for human rights and worker’s benefits. Surely…they’re not referring to that?

  4. Integer Owl

    I really enjoyed reading Jonathon Turley’s statement to the senate on the Lynch nomination. I think he was basically pre-empting a reluctance to prosecute powerful people/groups, as well as using the oportunity to give the Obama administration a bit of a serving for their extensive use of executive discretion. I’m not sure if I got the link from this site or not, so please forgive me if I’m linking to something that was previously linked from this site.
    Turley Testimony In Senate Confirmation Hearing Of Loretta Lynch

  5. diptherio

    But so far, the much-touted progressive wing seems willing to buck the Administration only on comparatively narrow issues and mid-level appointments

    That’s called the Iron Law of Institutions–even the boat-rockers know not to get too pushy, lest they lose their place in the system. Ask Cynthia McKinney what happens if you actually tell the truth, the whole truth, and nothing but the truth while you’re seated in office…no professional liar politician would make that mistake.

    1. Ned Ludd

      In terms of evolution, some people succeed in the Democratic Party because they are able to appeal to liberal voters while not threatening the system in any meaningful way. This produces policy agendas that feign liberal values, but they are primarily adapted to survive in the current system.

      Effective action is maladaptive for a politician, when that action threatens the elite power structure.

      1. NotTimothyGeithner

        The problem is candidate recruitment. Most Democrats were recruited as inoffensive self funders with little to no record. They bought titles, but now there are so many they make all the decisions. The rest are celebrity candidates who came up because of the right last name (ex. Gore, Bayh, Hillary. NY needed Hillary because the Democratic Party is clearly non existent in New York). Part of the appeal of Obama was he didn’t talk about his business experience or go on forever repeating the same line about the national debt.

        Of the 200+ elected Democrats, most have been their for decades or are so bland they have virtually no characteristics. AL Franken is a smart guy, but he went to the Senate and was immediately deemed a policy “wonk.” A comedy writer with no other job was considered as a freshman Senator who didn’t go to orientation because of the recount was a policy expert. This isn’t a knock against Franken, but consider how sad Congress must be for Stuart Smiley to be an expert. Yeah, he had a radio show, but still, it speaks to what Team Blue really is.

      2. Ulysses

        “Effective action is maladaptive for a politician, when that action threatens the elite power structure.”

        X1000!! That one sentence pretty much explains a whole lot of U.S. political history.

        The corollary is that wasting too much time– on national two-party politics– is maladaptive for people who want to be effective agents of change in this country. No one would even remember MLK Jr.’s name if he had wasted time trying to elect people!

    1. cnchal

      Obama’s first act in office was to bring back Bill Clinton’s Wall Street wrecking crew. So, in a sense, Obama is actually a protégé of Bill Clinton, and will likely be succeeded in office by Hillary Clinton.

      At least Hillary knows how to deal with a narcissist.

    1. Blurtman

      I already did. Only Maria Cantwell replied with the typical form letter response. Neither responded to an earlier e-mail asking if they voted to confirm Hank Paulson. In that e-mail, I forwarded a link to a story describing Goldman Sachs fraud that occurred on Hank’s watch. I have pretty much ruled out voting for a major party candidate. Fear of the other party candidate being elected is how the game is propagated and I am not going to play anymore.

  6. drb48

    Where are the “Progressive” Democrats…?

    There Yves, I fixed the question for you. Maybe the better question is is “progressive Democrat” an oxymoron?

    If the Democrats want to regain the trust and ground they lost in the 2014 midterm debacle they need to recognize the problem is how Obama has governed…

    They don’t. The “trust and ground they lost” was lost years before the 2014 midterm debacle. And Obama has governed as Bill did and Hillary would so there’s no indication of recognition that that’s a problem. Nor any indication that there’s any stomach among the so-called “progressive wing” for mounting a Tea Party-like insurgency from the left that would inflict a price for the party’s plutocrat-friendly policies. To this observer it seems clear that with the near-collapse of organized labor as a political force in the US, there is simply not the numbers, organizational strength, money or will on whatever remains of the “left” in the US to counter the takeover of the political system by “the malefactors of great wealth” and their troglodyte Tea-bagging hordes. If the “Great Recession” failed to trigger a revolt against the neo-libs then I’m at a loss to fathom what would.

    1. NotTimothyGeithner

      Dean’s election as chairman was a rebellion. Obama and the Team Blue elite did everything to crush that movement, and Team Blue lost those people in the mean time. They aren’t coming back.

      Working within Team Blue is not viable. National Democratic support for Lieberman, Bloomberg, Charlie Crist, and the “independent” in Maine speaks volumes about Team Blue. Pelosi and Reid despite every election advantage lost both chambers and aren’t being deposed. It doesn’t matter if there is a successor. Their track record alone should demand that they be removed from leadership. The Team Blue elite and tribalists don’t care, and as long as the tribalists are their to shower these people with adulation, they don’t care.

  7. beaglebyl

    I am actually very disappointed in Yves and the rest of the commenters who have not tried to put this in the larger context of our Orwellian government. This is an article that I read via a link from the “some assembly required” blog yesterday – http://www.zerohedge.com/news/2015-02-16/hsbc-bank-secret-origins-laundering-worlds-drug-money
    While I have no doubt that the relationship between HBSC and the drug trade is overblown, it is clear that HBSC has a long standing relationship with both the British and US governments/power establishments, and that the “drug” trade has had an important role in funding/enabling the foreign policies of both governments. Given that it is highly likely that both the US and UK are currently using HBSC to “launder” money in an official capacity, it would be impossible to prosecute anyone at HBSC without the individual wanting to enter into evidence how their criminal behavior was “officially” sanctioned. Since this would expose activities by both governments that most of the citizens would consider criminal — there is no chance of these organizations being prosecuted. I am not at all sure how this is framed to our “progressive” reps but security law does allow for some draconian results for the “UN-authorized” leak of classified information.

    1. Yves Smith Post author

      I don’t mean to seem to be hard on you, since you appear to be new to this site, and we do like readers to bring their ideas and observations. However, your argument about the drug trade and the perceived importance of HSBC does not hold up and by the standards we have here, is not just unfounded speculation but conspiracy theory. We do take some very non-mainstream positions, but we strive to be rigorous about facts and reasoning and ask the same of the commentariat.

      First, if you have read Nicholas Shaxon’s Treasure Islands or know anything about secrecy destinations, there is no need to get involved with druglords. There are plenty of nice upmarket jurisdictions like the Caymans, the Isle of Man, Luxembourg, and even Wyoming LLCs that allow money to be moved to unsavory types with no ability to identify them. All electronic, no seepage as with drug types. And if we really need to move actual physical cash, the Fed has been known to airfreight billions to Iraq. I suspect smaller bulk drops could be arranged if needed.

      Second, the US government would never rely on a foreign bank for dirty business. We’d use our own. Citi has a huge international cash management system and has operations all around the globe.

  8. Oregoncharles

    Thanks, Yves. Great report. I especially appreciate the info on Merkley. Turns out, he and Warren are really just Democrats when it counts.

    A bit of background on Merkley: he’d been leader of the Oregon Senate when he was nominated; we thought of him as a very ordinary Democrat, and considered running a Green against him (which would have defeated him as it turns out – VERY close race.) Once in the Senate, he proved surprisingly liberal, much more reliable than Wyden (who’s a bit of a snake). This issue is very revealing, and a good example how parties matter: they consistently abandon supposed principle when the party really needs them to. Warren showed surprising spine in opposing Weiss, but that was a less important nomination. This one is a perfect example of who Obama really is: perfect “optics,” hidden corruption.

    1. steelhead23

      Yes Charles, politics is maddening. Even Oregon, the most left-leaning place (at least west of the Cascades) I’ve lived, had a governor who just resigned over funneling contracts to his mistress, only to be replaced by our Sec. State who gratuitously sent a letter to the FCC favoring the Comcast, Times Warner merger. I suppose progressive now means not denying climate change – and perhaps smoking joints.

  9. ennui.bz

    No Democratic Senator is going to come out against an AG nominee before the hearings. Do you think Obama consulted Warren on the nominee? LOL, no. Does this sort of framing actually make it easier or harder for “progressive”* Democrats like Warren to ask difficult questions during the hearings (much less derail the nomination) or not?

    *Also, both Warren and Clinton’s core political beliefs are small-town (“Eisenhower”) Republican. The difference between the two is cynicism, but Clinton has been a lot closer to power than Warren.

    1. Yves Smith Post author

      False dichotomy. They can ask for explanations without going into full bore opposition. But I also dispute your premise. Warren has an independent funding base and does not need the party. And Obama is a lame duck who has only hurt the Democrats in Congress. I’m also told by insiders that she does not do much in the way of coalition-building, so she does not use her party member status much to move her initiatives forward.

  10. Ed Walker

    It’s worth noting that Lynch was subordinate to the odious Lanny Breuer who actually did the settlement. At the time there was a question about exactly what that creep promised the criminals at HSBC. Here’s Matt Taibbi in Rolling Stone (I think it’s Taibbi, there isn’t a byline right now).

    Despite the fact that HSBC admitted to laundering billions of dollars for Colombian and Mexican drug cartels (among others) and violating a host of important banking laws (from the Bank Secrecy Act to the Trading With the Enemy Act), Breuer and his Justice Department elected not to pursue criminal prosecutions of the bank, opting instead for a “record” financial settlement of $1.9 billion, which as one analyst noted is about five weeks of income for the bank.

    Personally, I’d settle for Lynch calling out Breuer and Holder on this.

Comments are closed.