We can’t bank on them
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We can’t bank on them

The HSBC scandal signals the need to crack down on our financial guardians.

india Updated: Jul 22, 2012 23:31 IST

Recently evidence emerged that HSBC abetted money laundering by Iran, terrorist organisations, drug cartels and organised criminals. By this point, should this surprise us? For many people in banking, it would seem, securities fraud, accounting fraud, perjury and conspiracy are just another day at the office. And yet, when I first encountered the world of money laundering while conducting research for my film Inside Job, I was still surprised.

First, there’s the scale of it. HSBC transferred $19bn for Iran, $7bn in physical cash for Mexico. Second, it was universal — as Barclays is to Libor price fixing, HSBC is to money laundering — meaning that HSBC is just the first to be found out for something that everyone was doing. For at least four years, federal investigations have been examining more than a dozen major global banks. Credit Suisse, Lloyds and Barclays have already settled, paying fines totalling $1.2bn for failures in money laundering controls. In a separate case, Wachovia, a large American bank later acquired by Wells Fargo, paid fines for having transferred, over the course of a decade, $370bn betw-een the US and Latin America, most of it in cash, without flagging a single suspicious transaction to the authorities. Other major cases resulting in settlements and fines involved American Express and Riggs Bank.

Third, no customer was beyond the pale. Several banks aided Iran not just in evading general sanctions, but in concealing payments directly involving its nuclear and ballistic missile programmes. Evidence suggests that HSBC and other banks also performed similar services for various combinations of Hamas, North Korea, Sudan, Gaddafi’s Libya, Hezbollah, African warlords, ex-dictators, drug cartels and banks linked to al-Qaeda.

My fourth surprise was how utterly naked it was. Credit Suisse effectively created a special handbook on money laundering, which it distributed to clients, entitled ‘How to Transfer US Dollar Payments’.

What should be done? First, the obvious: prosecute and imprison those involved, as high up in the organisations as necessary. Second, force chief and other senior executives to resign. Third, impose serious fines, billions or tens of billions of dollars, particularly for the worst violations, such as aiding Iran’s nuclear programme. Finally, tighten oversight. But, above all, we need to recognise that over the past 30 years, banking has become criminalised in a way that threatens global stability. The time has come to use the same law enforcement tools that are used in fighting large-scale, organised crime.

Politically, this will be very difficult. US politics has become a bizarre and, for its participants, undoubtedly tension-filled, balancing act between the money and the voters. On the one hand, both parties court and need the campaign contributions, revolving-door hiring, and lobbying budgets that fuel US politics. On the other hand, America is still a democracy in some important ways, this is a presidential election year, and the public’s tolerance of bankster behaviour seems to be reaching its limits.

So my bet is that a few heads will roll — mid-level people from foreign banks, such as the HSBC compliance manager who has recently ‘resigned’. But a true house-cleaning seems beyond the capacity of America’s politicians just now. In a way, the US political system has become the biggest money laundering operation of all.

First Published: Jul 22, 2012 23:21 IST