The U.S. Justice Department is shocked, simply shocked by recent press reports that the megabank HSBC aided Americans in evading taxes.
But, here is what really is shocking: DOJ has known about the tax-evasion allegations for nearly five years.
And DOJ took no action against HSBC even as it prosecuted bank customers for their part in the same schemes.
This rank unfairness by the folks at the place called Justice was compounded three years ago after the feds caught HSBC laundering $881 million in drug cartel money and actively concealing illegal dealings with Iran and North Korea.
A money-laundering investigation as big as the bank itself ended with a deferred prosecution agreement that allowed HSBC to escape criminal charges and suffer only a fine.
This while the DOJ was jailing non-bankers by the dozen for laundering drug money, including cash from the Sinaloa cartel, which had been a prime HSBC co-conspirator.
Two men at a car dealership who took cartel cash for automobiles got serious prison time.
HSBC got a pass on helping the Sinaloa bunch acquire an airplane that was used to smuggle drugs by the ton.
In the meantime, the same shameful principle of letting the big bank skate and going after the little guy was at work in the tax-evasion cases.
DOJ aggressively prosecuted private citizens such as a New Jersey businessman who was lured into a tax scheme by HSBC and a Virginia doctor who sought to avoid paying taxes on money his deceased mother had stashed in a secret HSBC account in Switzerland.
But neither the bank nor the particular bankers were ever charged.
And, as dictated by DOJ policy on uncharged parties, HSBC and its executives were never so much as named in court papers and proceedings.
Even as the doctor, Andrew Silva, pleaded guilty to tax evasion in in June 2010, the government termed HSBC only as “the International Bank.”
“The reason that the government did not disclose the name of the banker, the bank… in our proceedings is because I don’t think we, as the government, are supposed to do that,” the prosecutor told the judge during the sentencing in Alexandria federal court. “We have no objection, and there is no reason why the defendant cannot say who it is, it is not a secret, but I think we are just not, we, the government, are not supposed to put it in pleadings.”
The doctor got probation, in part because he had agreed to cooperate with the government, though nearly five years later no charges have been brought against anyone else in the case.
A New Jersey businessman named Sanjay Sethi also received probation after pleading guilty in June 2012 to a tax-evasion scheme that court papers say was conceived and proposed by HSBC—which again was named only as “the International Bank.”
The criminal complaint charges that the bank “marketed offshore banking services for U.S. citizens of Indian descent,” encouraging them “to open undeclared bank accounts in India.”
Sethi opened such an account in India in 2001. He received a call the following year from someone identified in the complaint as U.S. Banker A, a senior vice president at the New York office of the International Bank.
U.S. Banker A allegedly set up a meeting between Sethi and someone identified as U.K. Banker A, a London-based “high-ranking executive of the International Bank” who headed a division “focused on developing and serving clients worldwide with ties to countries in south Asia.”
Not long afterward, Sethi met with U.K. Banker A in the International Bank’s New York offices and discussed opening another undeclared account, this one in Switzerland.
“U.K. Banker A told Sethi that the undeclared account would allow Sethi’s assets to grow tax-free and that the bank secrecy laws in Switzerland would allow Sethi to conceal the existence of the account,” the complaint says.
Sethi proceeded to stash $3.4 million in an HSBC account in Switzerland. Neither he nor the bank could have foreseen that an HSBC computer analyst turned whistleblower in Switzerland would hack into the bank’s computers in 2008.
This self-styled “Edward Snowden of bankers” subsequently furnished French authorities with the details of thousands of secret accounts.
In 2010, then French Finance Minister Christine Lagarde passed the pertinent information on to the United States and other countries. The Americans on the “Lagarde list” apparently included Sethi and Silva.
All this was known to the U.S. Justice Department as it completed an unrelated money-laundering investigation targeting HSBC.
The probe resulted in a 13-page “criminal information” that actually named HSBC, charging it with dodging sanctions against such countries as Iran and North Korea, as well as laundering at least $881 million in drug proceeds.
Much of the narcotics money originated with the Sinaloa cartel, and the total may be much higher. More than $1 billion in cash was moved by HSBC from the cartel’s Mexican hometown of Culiacán to New York between 2006 and 2008.
But while the complaint named the bank, it made no reference at all to particular bankers.
And before the charges were even filed the feds worked out a deferred prosecution agreement with HSBC.
The bank got off with paying a $1.26 billon fine and agreeing to anti-money laundering precautions overseen by a federal monitor.
Among the smaller narco money transfers the bank facilitated was from a pair of HSBC accounts maintained in 2007 by Sinaloa front companies in the Cayman Islands. The money went to an Oklahoma aircraft company for the purchase of a Super King 200 plane that was later impounded by Mexican cops while being used fly in two tons of cocaine from Venezuela.
The idea that HSBC and its officers escaped any criminal liability for helping the cartel acquire an airplane becomes all the more galling when you consider what happened to the top executives of JM2 Auto Sales of Orlando, Florida, after they took cartel money for automobiles.
In December 2012, the same month the government granted the deferred prosecution agreement to HSBC, the president of JM2, Joel Torres, and the vice president, Eladio Marroquin-Medina, were found guilty of money laundering. Torres got 40 months in prison. Marroquin-Medina got 72 months.
In 2013, a Mississippi woman named Bridget Michelle Bland was sentenced to 60 months in prison for laundering drug proceeds by setting up a trucking company.
In 2014, a California truck driver named Adolfo Pulido was sentenced to 50 months in prison for transporting $1.5 million in cash the old-fashioned way across the border from Mexico.
That is 50 months more than anybody at HSBC received after the bank moved hundreds of millions, perhaps billions of cartel cash into the United States.
And a non-banker does not have to launder drug money to be prosecuted. A Syrian rabbi in Brooklyn was arrested for washing non-narco cash through religious charities in 2009.
The ordained Protestant priest who headed HSBC from 2006 to 2010, Stephen Green, was never charged despite the mountains of drug money. He proceeded on as Lord Green to become Britain’s trade minister and has written a book called Good Value: Reflections on Money, Morality and an Uncertain World.
“The truth is that the value of our business is dependent on the values with which we do our business,” he actually opined. “Values go beyond ‘what you can get away with.’”
The criminal information against HSBC was signed by the U.S. attorney for the Eastern District, Loretta Lynch, who is now the nominee to become the next attorney general.
But the deferred prosecution agreement was marshaled by then-Assistant Attorney General Lanny Breuer in Washington. Breuer subsequently acknowledged that in his view, HSBC was essentially too big to jail.
“Had the U.S. authorities decided to press criminal charges, HSBC would almost certainly have lost its banking license in the U.S., the future of the institution would have been under threat, and the entire banking system would have been destabilized,” Breuer told a press conference.
His boss and the person ultimately behind the settlement, Attorney General Eric Holder, said much the same to a Senate panel three months later. He presented too big to jail as a corollary of too big to fail.
“I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy,” Holder said.
The continuing outrage about the HSBC deal must have caused Holder to fret that if he was once known as a champion of civil rights, he might go down in history as an abettor of criminal wrongs by big banks.
He made a pronouncement in a DOJ video.
“There’s no such thing as ‘too big to jail,’” Holder declared.
As Holder prepares to depart, DOJ is pressuring four megabanks—but not HSBC—to plead guilty to felony charges of manipulating foreign currency rates. There is talk of actual people being indicted, but only relatively low-level traders. Holder will almost certainly leave with a perfect record of not having busted a single senior banker.
That is not a record that Loretta Lynch would likely hope to match as she awaits her all but assured confirmation.
Lynch has already indicated the deferred prosecution agreement on the money laundering does not preclude HSBC from being prosecuted for other crimes, tax evasion among them.
“I want to reiterate, particularly in the context of recent media reports regarding the release of HSBC files pertaining to its tax clients, that the Deferred Prosecution Agreement reached with HSBC addresses only the charges filed in the criminal information, which are limited to violations of the Bank Secrecy Act for failures to maintain an adequate anti-money laundering program and for sanctions violations,” Lynch said in a letter submitted Monday in response to a series of written questions from the Senate Judiciary Committee.
She went on, “The DPA explicitly does not provide any protections against prosecution for conduct beyond what was described.”
She added, “Furthermore, I should note the DPA explicitly mentions that the agreement does not bind the Department’s Tax Division, nor the Fraud Section of the Criminal Division.”
Lynch seemed unaware that only the news reports about the DOJ tax files are new and that the DOJ has had the details since 2010.
Equally not in the know was Sen. Elizabeth Warren (D-MA), who had been very vocal in her disapproval when HSBC got off with only a fine for the massive money laundering.
On Tuesday, Warren spoke with renewed outrage in a statement to The Guardian, one of the news organizations at the forefront in reporting the tax-evasion charges.
“The new allegations that HSBC colluded to help wealthy people and rich corporations hide money and avoid taxes are very serious, and, if true, the Department of Justice should reconsider the earlier deferred prosecution agreement it entered into with HSBC and prosecute the new violations to the full extent of the law,” Warren told the newspaper.
Wait until she and everyone else find out that the DOJ has already prosecuted Dr. Silva and the New Jersey businessman Sethi for tax evasion without moving on HSBC.