William K. Black
Standard Chartered and HSBC’s leaders must be doubly humiliated by the description by Mythili Raman, the acting head of the U.S. Department of Justice’s (DOJ) Criminal Division, of Liberty Reserve’s money laundering operation. UK laws are, of course, very congenial to those suing for libel and I am sure that these banking titans are meeting with their solicitors to demand a retraction and apology from Raman. In the very first clause of her May 28, 2013 statement to the media on the actions against Liberty Reserve’s controlling officers, Raman emphasized how “professional” they were as money launderers: “Today, we strike a severe blow against a professional money laundering enterprise charged with laundering over $6 billion in criminal proceeds.” In four paragraphs, she used the word “professional” three times and “sophisticated” once to describe Liberty Reserve’s money laundering.
In her second sentence she continued her emphasis on how large Liberty Reserve’s money laundering operations were. Raman claimed that DOJ’s action against Liberty Reserve was “the largest international money laundering prosecution in the history of the Department.” She described the scale of Liberty Reserve’s operations as “enormous” and a “massive criminal enterprise.” Paragraph 10 of the indictment labels the scope of operations as “staggering.”
The indignant response of Standard Chartered and HSBC’s leaders to Raman has to be: “and what are we, chopped liver?” The government charged Standard Chartered was a massive money launderer that Iran used to escape sanctions designed to keep them from developing nuclear weapons,
[T]he New York State Department of Financial Services [NYDFS] accused Standard Chartered of laundering $250 billion for the state of Iran and other Iran-based clients over a 10-year period which, the regulator said, “left the US financial system vulnerable to terrorists, weapons dealers, drugs kingpins and corrupt regimes, and deprived law enforcement investigators of crucial information used to track all manner of criminal activity”.
NYDFS found that Standard Chartered laundered funds for Iran for a decade and made elaborate efforts to prevent regulators from learning of their frauds. Like fish, Standard Chartered rotted from the head. When an American officer objected to the bank’s frauds the response was heated.
“Richard Meddings, Standard Chartered’s executive director, was quoted using expletives to disparage America’s insistence on an economic blockade of Iran. He told an official in the bank’s New York branch:. ‘You f***ing Americans. Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians?’”
I described in a prior article how HSBC hit the money launderer’s trifecta.
1. Laundered billions of dollars for some of the most murderous drug gangs in the world. These gangs have murdered many thousands of Mexicans and devastated much of the nation.
2. Aided Iranian entities to evade U.S. financial sanctions on Iran. If Iran is actually developing a nuclear weapon and if it uses such a weapon to attack it could kill tens of thousands of people and HSBC and Standard Chartered will likely have proven useful to Iran in developing the weapon..
3. Aided Hamas, Hezbollah, and al Qaeda to evade U.S. financial sanctions. The U.S. considers them terrorist organizations.
“In total, the bank’s U.S. and Mexican units failed to monitor more than $670 billion in wire transfers and more than $9.4 billion in purchases of U.S. dollars from HSBC Mexico (BIBC), Breuer said.”
To sum it up, just one facet of Standard Chartered’s money laundering and one facet of HSBC’s money laundering operation were, respectively, over 40 and 100 times larger than Liberty Reserve’s “staggering” total money laundering for all purposes. The frauds came from the top and in the case of Standard Chartered the sincerity of the remorse at the top was promptly and publicly demonstrated.
“Peace, who told reporters at a March 5 press conference that the firm had no ‘willful’ intention to dodge U.S. rules, said in a statement today that earlier claim was ‘wrong.’
Standard Chartered Plc Chairman John Peace said his original comment “directly contradicts
Standard Chartered’s acceptance of responsibility in the deferred prosecution agreement.”
Standard Chartered Plc Chairman John Peace said his original comment “directly contradicts
Standard Chartered’s acceptance of responsibility in the deferred prosecution agreement.” Under the settlement it reached with U.S. regulators last year, the bank entered into a deferred prosecution agreement with the Department of Justice. As part of that deal, the U.S. charged the bank with conspiring to violate the International Emergency Economic Powers Act, a charge that will be dismissed after two years as long as the bank abides by the agreement.
‘As part of these agreements, we rigorously monitor the banks for continued compliance, and subsequently addressed this violation by Standard Chartered for not accepting responsibility for its misconduct,’ Joan Vollero, a spokeswoman for the Manhattan District Attorney, said by e-mail. ‘We demanded a public repudiation and they complied.’
Peace, 64, said his original comment ‘directly contradicts Standard Chartered’s acceptance of responsibility in the deferred prosecution agreement.’ The firm ‘unequivocally acknowledges and accepts responsibility, on behalf of the bank and its employees, for past knowing and willful criminal conduct in violating U.S. economic sanctions.’”
What this all means is that two of the largest banks in the world, which reap massive explicit and implicit subsidies from the government, were criminal enterprises for at least a decade. Each engaged in violations that were vastly larger than Liberty Reserve. Liberty Reserve’s violations were huge, severe, and warranted the toughest possible prosecution – complete with freezing and forfeiting all of its accounts. The violations of the banks, by contrast, were massively larger, occurred over a longer period, led to vastly greater profits for the banks and the officers, and did vastly greater harm to the world including the loss of life and the potential mass loss of life in the future. DOJ refused to prosecute any of the officers for “knowing and willful criminal conduct.” Incredibly, it insisted on only a two-year period of DOJ leverage over Standard Chartered’s operations to ensure (short-term) compliance with the law. Standard Chartered promptly violated the agreement – and DOJ insisted they apologize.
The DOJ’s claim that Liberty Reserve’s leadership was “professional” and “sophisticated” is farcical. They were clowns. Their web site is illiterate (once one gets past the initial screen). Their invitations to join the many Ponzi schemes they pushed on their web pages are so unprofessional (though littered with the word “professional”) and unsophisticated that one cannot have any sympathy for anyone victimized by the Ponzis. Here’s an example of one of the pitches that is more literate in English (but financially illiterate):
“By far our most popular investment pays investors a daily return of 900% daily [sic] for a period of 4 days for a total return of 3600% with a minimum investment of only $50,000 USD!”
The word DOJ should have ascribed to the leaders of the Liberty Reserve control fraud was “audacity” – not any variant of “professional” or “sophisticated.” Audacity is the characteristic that separates the most dangerous frauds from their peers.
For their massive and highly profitable crimes, DOJ took no action against any officer of Standard Chartered or HSBC. It announced, instead, the shameful “too big to prosecute” doctrine that announced DOJ’s surrender to crony capitalism. Now, DOJ wishes to tout Liberty Reserve as the great triumph that proves that money laundering will never succeed. But Liberty Reserve’s criminal customers overwhelmingly succeeded. First, they succeeded because the initial sentence of five years imprisonment for the leaders of what would become Liberty Reserve for their crimes at their prior firm that specialized in money laundering was reduced to probation. The leaders immediately began their new fraudulent scheme. Criminal justice penalties for white-collar frauds are often absurdly low. Second, DOJ failed to act for years even though Raman emphasized that the co-founder of the Liberty Reserve control fraud noted that DOJ knew it was a control fraud.
“His co-founder doubled down on that sentiment in an online chat captured by law enforcement, noting that ‘everyone’ in the United States, such as ‘DOJ,’ knows that Liberty Reserve is a ‘money laundering operation that hackers use.’”
The obvious question for reporters to ask is when DOJ first knew that Liberty Reserve was a money laundering operation. Given the criminal records of its controlling officers, the public manner in which Liberty Reserve operated, its structuring of every aspect of the firm’s operations to assist money laundering, and the fact that the DOJ states that the users of Liberty Reserve’s services were “virtually all” criminals (including 200,000 in the U.S.) DOJ should have had ample intelligence on Liberty Reserve’s criminal nature within weeks of when it began operation in 2006. (See Indictment, paragraph 10.) The government eventually had an investigator open Liberty Reserve accounts, which confirmed the anonymity and lack of anti-money laundering systems. The government could have done so at any time.
We know from paragraph 10 of the indictment that once Liberty Reserve ramped up its operations (it began by “growing exponentially,” Indictment, paragraph 13), every year the DOJ delayed closing down Liberty Reserve an average of 12 million unlawful financial transactions occurred totaling $1.2 billion. We also know that during its over six years of operations Liberty Reserve conducted roughly 55 million (“virtually all” criminal) financial transactions totaling over $6 billion and that DOJ has asked the court to issue a forfeiture order for $6 billion.
Paragraph 19 of the Indictment contains this wonderfully revealing insight into DOJ’s willful blindness about Standard Chartered and HSBC’s vastly larger, longer lasting, and more damaging money laundering: “Liberty Reserve users … engaged in criminal transactions with an impunity that would have been impossible in the legitimate financial system.” Right, unless, of course, we consider Standard Chartered and HSBC. The DOJ shares the unintentional irony of the finance professors who recently authored a study that concluded that control fraud was “pervasive” at our “most reputable” banks during the run-up to the ongoing crisis.
Paragraph 26 of the Indictment reveals that FinCEN sent out an alert on November 18, 2011 that Liberty Reserve was being used by criminals to launder funds.
Raman boasted at the press conference that DOJ and its international partners had succeeded in “restraining over $25 million in criminal proceeds.” That represents less than one-half of one percent of the money that was laundered. Raman claims that the greatly delayed prosecution of Liberty Reserve sent the message that law enforcement always triumphs over money laundering. The reality (revealed by DOJ’s own indictment) is that over a million criminals were able to launder over $6 billion in criminal proceeds through Liberty Reserve for over six years. Other criminals were able to launder far greater amounts through Standard Chartered and HSBC for over a decade. DOJ keeps calling massive defeats stirring victories.
The thing that is most troubling about Liberty Reserve is that it had no political power in the U.S. No one in power in the U.S. would have pushed back if DOJ had put Liberty Reserve out of business in 2006 or early 2007. The FBI, DEA, Secret Service, and Treasury would have learned about Liberty Reserve’s illegal operations almost immediately – they were too large, too open, and it was run by felons who were known money launderers. With a million money launderers using the site we must have had scores of informants who knew that Liberty Reserve was being used to launder proceeds and there must have been thousands of criminals arrested who had the incentive and ability to reduce their sentence by informing on Liberty Reserve. The fact that a money laundering operation as blatant and crude as Liberty Reserve’s (the web site screams “fraud”) with no political patrons in the U.S., and no concerns about “too big to prosecute” could stay in operation for over six years despite the government’s knowledge that it was engaged in massive money laundering and be allowed to “grow exponentially” and become “the bank of choice for the criminal underworld” (Indictment, paragraphs 13, 19) demonstrates how badly our criminal justice system has failed against control frauds.
We use the phrase “Pyrrhic victory” because of the candor of King Pyrrhus of Epirus. He won multiple victories over the Romans, already renowned for their military prowess, in southern Italy. When he was offered congratulations on these victories he replied that one more such victory would ruin his army. Pyrrhus’ victories were real. He inflicted greater losses on the Roman troops and he held the field after the battles. Pyrrhus demonstrated competence as a military leader and bravery in the field. Pyrrhus understood, however, that his lines of supply were long and that he could not replenish his lost men and experienced officers while the Romans could do so. The Justice Department has been losing the struggle against control frauds for well over a decade. Pyrrhus was competent and candid enough to proclaim that his tactical victories represented a strategic defeat. DOJ propagandists are now expert at claiming that abject defeats represent triumphs. In honor of the unintentional comic genius dubbed “Baghdad Bob” who announced Iraqi forces’ fictional triumphs over the U.S. army, we should honor the DOJ’s propagandists with the sobriquet: “Beltway Bob.”