The recent fines of HSBC for money laundering follow a government pattern of merely slapping the major financial institutions on the wrist for corrupt behavior, actions which encourage further corruption. HSBC forfeited $1.25 billion as part of the agreement and paid an extra $665 million in fines. This penalty was given for the bank’s laundering of billions of dollars of drug money from the Mexican drug cartels and for working with Saudi Arabian banks connected to terrorist groups in violation of sanctions and Trading With the Enemy Act. (http://goo.gl/UMxfN)
However, the bank was not shut down in the United States, there was no criminal prosecution of the bank or any of its officers, and no one will be going to prison because of their criminal activities. The reason for government leniency in this case is supposedly because HSBC is a financial institution deemed too big to fail. It was decided by the Justice Department, Treasury, and bank regulators that going after HSBC too aggressively would negatively impact the international financial system, causing major repercussions, and it was best to punish HSBC with fines.
A Japanese subsidiary of UBS, however, is apparently close to pleading guilty to criminal charges for reporting false rates. (http://goo.gl/zANlC) Though there will likely be heavy fines, again no one is going to jail and the bank itself will not be indicted for corruption. This is because the government is afraid the bank would fail if it were to plead guilty and the entire financial system would be undermined.
These government actions follow a similar pattern in penalizing the different banks who fixed LIBOR and interest rates to benefit themselves financially. Again, corrupt behavior led to no prosecution and no prison time for any of the participants because of fear of roiling the financial system.
Going back further to the banks and institutions that wrote mortgages for individuals while disregarding their finances, or bundled bad mortgages together and sold them as highly rated debt obligations, no criminal prosecutions occurred, though some civil fines were levied. Similarly, executives who lied to shareholders or investors about the status of their institutions never went to prison, but instead walked away with tens to hundreds of millions of dollars. This is in spite of the fact that the conduct of these institutions and their executives were responsible for the financial meltdown and the recession that followed, affecting the United States and virtually every other nation.
While federal prosecutors have been successful in prosecuting and convicting a number of individuals for insider trading, they continue to let the big banks and financial institutions, and their executives, off the hook for corrupt activities. These institutions, knowing they are considered too big to fail, are willing to brook criminal conduct by their employees, expecting that no one will be prosecuted or serve time in prison, and the profits generated will enhance salaries and bonuses. They see any fines they may have to pay as merely the cost of doing business. Why not cheat if the risk-reward ratio favors it?
While the government’s reluctance to bring down any of the major financial institutions may be understandable, there is no reason why the individuals who engage in corrupt actions and the supervising executives all the way to the top can not be prosecuted and sent to prison, along with paying steep fines and being barred from the banking industry. Financial penalties are not enough to stop criminal behavior if the potential financial benefits outweigh the penalties. Government agencies need to be more aggressive to protect the public and instill more confidence in the financial system.
Resurrecting Democracy
em>A VietNam vet and a Columbia history major who became a medical doctor, Bob Levine has watched the evolution of American politics over the past 40 years with increasing alarm. He knows he’s not alone. Partisan grid-lock, massive cash contributions and even more massive expenditures on lobbyists have undermined real democracy, and there is more than just a whiff of corruption emanating from Washington. If the nation is to overcome lockstep partisanship, restore growth to the economy and bring its debt under control, Levine argues that it will require a strong centrist third party to bring about the necessary reforms. Levine’s previous book, Shock Therapy For the American Health Care System took a realist approach to health care from a physician’s informed point of view; Resurrecting Democracy takes a similar pragmatic approach, putting aside ideology and taking a hard look at facts on the ground. In his latest book, Levine shines a light that cuts through the miasma of party propaganda and reactionary thinking, and reveals a new path for American politics. This post is cross posted from his blog.
Political junkie, Vietnam vet, neurologist- three books on aging and dementia. Book on health care reform in 2009- Shock Therapy for the American Health Care System. Book on the need for a centrist third party- Resurrecting Democracy- A Citizen’s Call for a Centrist Third Party published in 2011. Aging Wisely, published in August 2014 by Rowman and Littlefield. Latest book- The Uninformed Voter published May 2020