26 March 2013

Who Is Above the Law? There Is At Least a Partial Official List

"We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed."

Unanimous Declaration of the Thirteen United States of America, 4 July 1776

As you may have noticed, Google is trying to sort out its software that allows me to post links under Matières à Réflexion.

Sorry if this inconveniences you, but these things happen, particularly when programmers improve something, and in the process break something else.  Google are generally quite good about fixing this if one can catch their attention.  Normally I work around it, put in some temporary fix, but this week I am caught up in other matters pertaining to the holiest week in the Christian and Jewish tradition.

In the meanwhile, Golem XIV has a post that reminds us that there are some entities, and people, who are literally above the law. And he even provides a partial list, not including well connected individuals not otherwise associated with or operating under the cover of a systemically important bank.

The problem with selective justice, even if it is for what might otherwise be considered good intentions, is that it presents an enormous moral hazard, and tempts those who might otherwise be restrained by the law to excess. And by their example they teach the rest of the people lawlessness.

And this is the danger of the credibility trap in which we find ourselves today. Quis custodiet ipsos custodes?

Twilight of Justice
By Golem XIV
March 26, 2013

Back in December of 2012, when it was proved in U.S. court that billions of dollars of drug money had been laundered through HSBC and yet somehow it was also found that HSBC was NOT guilty of laundering and neither was anyone in the bank, there was an outcry.

In America Massachusetts Senator Elizabeth Warren, when she was grilling federal bank regulators at a Senate Banking Committee hearing, said
“No one individual went to trial, no individual was banned from banking and there was no hearing to consider shutting down HSBC’s activities here in the United States.
Which did seem outrageous at the time given that, for example, according to Senate and Justice department reports, HSBC had,
…failed to monitor over $670 billion in wire transfers and over $9.4 billion in purchases of physical US dollars from HSBC Mexico from at least 2006 to 2009.
And that,
HSBC’s Mexico bank had a branch in the Cayman Islands that had no offices or staff, but held 50,000 client accounts and $2.1 billion in 2008.
Who in the bank knew about this? Evidence uncovered by investigations into HSBC’s activities revealed,
senior bank officials were complicit in the illegal activity.”
The Question
No wonder then, that Senator Warren was driven to ask,
So … what does it take? How many billions of dollars do you have to launder for drug lords and how many economic sanctions do you have to violate before someone will consider shutting down a financial institution like this?”
What indeed.

In the UK it was noted that during the time the laundering was going on, the chief executive of HSBC in 2003 who then became its chairman in 2006, was Lord Green, who is now the UK trade minister. So obviously no great concern to get to any truth about HSBC, in the hierarchy of the UK establishment.

Warren’s question, ‘What does it take?’ was finally answered by U.S. Attorney General Eric Holder in March 2013, when he told the U.S. Judiciary Committee that the Justice department had decided not to pursue any criminal prosecution of HSBC because ,
“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,”
The U.S. Justice Department felt it could not criminally prosecute the bank because a criminal conviction would mean the bank would lose its license to bank in the US which would kill it  and a whole range of other institutions, which the bank relies on to buy its debts and its investment products would be prohibited from doing so as soon as the bank was deemed to be criminal.

So the official answer to Senator Warren’s question, according to the mighty U.S. Justice Department, is that ,yes, HSBC had laundered, but it was simply too big to prosecute. The bank and its senior staff were and are untouchable. They could be fined but not criminally prosecuted. The real answer to Senator Warren’s question, “What does it take…?” is … that she asked the wrong question.
This isn’t about lack of proof or the complexities of financial crimes or showing who knew or proving actual intent. It is not about proof or criminality at all. It is about there being a new category of  financial entity which our law makers and prosecutors have decided for us, is above the law. They are called  G-SIFIs, Globally, Systemically Important Financial Institutions or G-SIBs, Globally Systemically Important Banks.

I think  we have not yet thought through the immense consequences of the decision that has been made for us, that G-SIFIs are above the law.  But I think we need to make a start.

The List

We all know the HSBC isn’t the only bank too large to prosecute. There is in fact a list.

The list is decided upon by the FSB. It is updated every year.

The FBS (Financial Stability Board) is a new international body. It is made of representatives from the central bank, financial regulator and Treasury from each of the 25 member nations plus representatives from:

The Bank for International Settlements (BIS), the ECB, the European Commission, the IMF, OECD and World Bank, plus representatives from the Basel Committee on Banking Supervision (part of the BIS), the Committee on the Global Financial System (another part of the BIS), the Committee on Payment and Settlement Systems (another part of the BIS), the International Association of Insurance Supervisors, the International Accounting Standards Board, and the International Organization of Securities Commissions.

Guess which institutions provide the membership for ALL of the above international bodies? Yes, you got it – the big banks. And how many Central banks can you think of that are staffed or even headed by people formerly from one of the Big Banks?
You tell me who is really staffs the FSB and whose world view and interests the FSB actually represents?

Then consider, they are the ones who decided who is above the law.

28 banks are officially above the law and WILL NOT be criminally prosecuted no matter what they do. Remember that’s not me saying this. It is the U.S. Department of Justice saying it.

Not only 28 banks but all their senior executives, chairman/woman and board members. It would be very difficult to find a senior person in a bank to be criminally guilty but yet not find the institution guilty. So we could compile a list of people who are now, at least as concerns any financial and professional actions, also above the law. They can do things you would go to goal for. How does that feel?

Oh, by the way, this year, in April, we will see the announcement of another list, this time of Globally Systemically Important Insurers (G-SIIs). They too will be above the Law.

Assets Above the Law

When we say a bank is above the law, not only should we remember that this means specific people are above the law (at least in how they make money) but we should also remember that this also means the assets in those banks are above the law. This means if a banks does things which are illegal but lucrative – such as laundering money in order to get the use of those laundered billions to then use them as, lets say, capital to underpin loans or for speculating, for example, and by doing those illegal things it makes out sized profits for its shareholders and staff, that money, those profits are also above the law.

Since the bank and its senior staff are above the law and breaking the law is profitable, a) no one has an interest to say no, b) shareholders and staff will directly benefit from breaking the law. They will make more money by participating in law breaking or by investing in a bank which is law breaking. They will, in fact have an interest making sure it continues.

Two questions. Whose wealth are we talking about and how much?

Second question first. Is this a big problem?

Read the rest here.