Banking on leniency

Is it fair to call them gangster bankers?

Sometimes, yes, although a gangster by definition runs the risk of prison. These days, in the eyes of the U.S. government, criminal bankers are rarely more than rule-breakers. Meanwhile, the public is left to wonder what kind of corruption lies ahead and how far-reaching the fallout will be. Financial crime creates harm – let’s remember that.

The policing of Wall Street inspires two schools of thought.

One camp says that tough prosecution – no matter how grievous the offense – leads to undesirable consequences. For instance, innocent employees lose their jobs and markets are unsettled. A lighter touch, the argument goes, enables the government to collect settlements, rein in violators without the hassle of a trial and, crucially, keep underlying businesses afloat.

To which the dissenting camp asks:


Sen. Charles Grassley, R-Iowa, joined the ranks of the incredulous in December when the Justice Department announced a money-laundering settlement with international banking giant HSBC.

The bankers stood accused of heavy wrongdoing: transferring money from Mexican drug cartels through the U.S.; skirting bans on financial transactions with Iran and other countries that are under sanctions; providing money and services to banks in Saudi Arabia and Bangladesh thought to have aided terrorist groups. Billions and billions of dollars in dirty transactions took place.

Despite repeated warnings over the course of a decade, HSBC’s compliance practices were deemed a sham. The bank’s willingness to accept drug money in Mexico was laughable. Investigators learned that deposits were delivered in boxes specially made to fit through the tellers’ windows.

And no one was prosecuted.

As Sen. Grassley emphasized in a letter to Attorney General Eric Holder: “No executives, no directors, no AML (Anti-Money Laundering) compliance staff members, no one.” (In fairness, if its cooperation wanes, HSBC faces the prospect of “deferred prosecution.” However, no officials have been charged to date.)

What the Justice Department did glean was a record fine of $1.9 billion and yet another promise from HSBC to clean up its act.

Agreed, $1.9 billion is a massive sum. But it represents five to six weeks of profits at HSBC. By comparison, try bouncing a few mortgage checks and see how you fare.

The HSBC whitewash (“A dark day for the rule of law” opined the New York Times) should have been easy pickings for GOP ridicule. But apart from Grassley’s protest, and another from Democrat Jeff Merkley of Oregon, there was no parade of senators before the cameras.

The Justice Department, in explaining the settlement, cited the need to avoid “a systemic effect on the economy.” In part, criminal prosecution was set aside to save jobs and keep the banking system stable.

Hmm. Let’s imagine that a local bank conceals years of massive cash deposits from violent drug gangs (never mind terrorist sympathizers). When a bust finally occurs, the prosecutor defers arrests because the bank is “vital to our town.”

That’s gonna fly? While you’re at it, put some wings on the Cornish Pump.

It’s a different song for the bigger players. At a time when Washington fights over most everything, a steady unifier is preservation of the elite. When’s the last time you heard a corporate CEO or political mega-donor begging the president to rain fire on financial mischief?

Sen. Grassley, in an encouraging development, has a friend across the aisle – Sen. Sherrod Brown, D-Ohio. They’ve teamed up on a new letter to Holder, questioning a recent admission from former Assistant Attorney General Lanny Breuer that the “ripple effect” is a deciding factor in shelving Wall Street criminal cases.

Fear of the ripple effect – or the impact on the larger economy – must be long enduring. Despite the fraud, deception and predatory practices that helped precipitate the 2008 financial crisis, the Justice Department has yet to criminally prosecute a single Wall Street bank or senior executive in connection with that meltdown.

Not a one.

There have been civil proceedings, yes. But Sens. Grassley and Brown point out that many government settlements (for offenses both old and fresh) “involve penalties that are disproportionately low, both in relation to the profits which resulted from those wrongful actions as well as in relation to the costs imposed upon consumers, investors, and the market.”

The senators state the obvious. There should not be one set of rules for Wall Street and another for the rest of us. Public confidence can only be restored through strict accountability and deterrence.

There are many dilemmas in Washington. This shouldn’t be one of them.

Should we have more government or less? Depends on who you ask. Should we have more Wall Street crime or less? Are you kidding?

“By allowing these individuals to walk away without any real punishment, the Department is declaring that crime actually does pay,” Grassley wrote in his condemnation of the HSBC settlement.

Bipartisan protests from senators such as Grassley, Merkley and Brown – joined by the newly elected Elizabeth Warren, D-Mass. – have yet to overthrow the Washington culture of leniency towards Wall Street. But it’s a start in getting tougher against corruption and maybe preventing collapses yet to come.


Jim Anderson’s email address is