Neil Barofsky, New Republic - HSBC sent more than $800 million in bulk cash from Mexico to the United States, a good chunk of which apparently represented proceeds from some of the most notorious Colombian drug cartels. As someone who tried the first narcotics money laundering case involving extradition from Colombia, let me assure you that this is a lot of money, the discovery of which usually generates vigorous prosecutions and lengthy prison sentences. And it wasn’t HSBC’s only dirty business: There were also hundreds of millions of more dollars of illegally disguised transactions with rogue nations such as Iran and Sudan.
Why no criminal charges? Why instead only some remedial measures and a “historical” fine that can be measured in weeks — not years — of earnings? It certainly wasn’t for lack of evidence. No, instead the government determined that HSBC is not only too big to fail, but also too big to jail. ....
One of the reasons why we have a criminal justice system, of course, is to deter criminal behavior. If you know that you will be punished for putting your hand in the cash register at your local supermarket (or illegally stripping out information from a monetary transaction that identifies the source nation as Iran), you are less likely to do so. But if the government offered a blanket waiver from criminal accountability for a certain group — let’s say all left-handed people over six feet tall or a handful of banks deemed so large and so significant that their indictment could destroy the global financial system — we would expect that those exempted would no longer be deterred from committing criminal acts. And although lefty giants may otherwise lack a predisposition for boosting cash, in recent years the largest banks have demonstrated an unbridled zeal for pushing the boundaries of the law as part of their relentless pursuit of profits. DOJ’s actions with regards to HSBC are beyond unfair: They are downright terrifying for weakening the general deterrence for megabanks, both foreign and domestic, which could rationally interpret yesterday’s actions as a license to steal.
The enduring presumption of bailouts in our banking system already drives the largest banks to take on too much risk with too little disclosure and too much leverage, a toxic cocktail that will inevitably lead to another financial crisis. Yesterday’s action now spikes the punch with a new toxin, confirmation that criminal penalties are off the table, leaving a worst-case scenario of a fine totaling far less than even a single quarter’s earnings. Given the potential profits of criminal behavior and the unlikelihood of personal consequences for the executives directing it, the message is clear: Crime pays. This will inevitably lead to more reckless risk-taking that will further undermine systemic stability and lead to an even greater financial meltdown down the road.