If You Are a Big Bank … Crime Pays!

Patrick Radden Keefe in an article of “The New Yorker” (dated July 24, 2017) described the above situation after a U.S. Senate subcommittee released a report on the workings of HSBC and others. The Senate investigation was over a year but in the 334-page report, HSBC was implicated for laundering billions of U.S Dollars (over USD 7 billion) for Mexican drug cartels, violated sanctions (over USD 19 billion) and dealt with rogue states. HSBC has helped a Saudi bank with links to Al Qaeda to transfer money to the U.S.

With over 4,000 offices in 70 countries and over 40 million customers, HSBC is a huge organization. All its wrongdoings were systemic than negligence, according to the Senate Committee. The C.E.O. (Stuart Gulliver) was “profoundly sorry” for the misdemeanours. No employees were charged and HSBC pledged to clean up its act. HSBC and its U.S. subsidiary agreed to pay US 1.9 billion as settlement – that’s just perhaps one month’s profit!

Why was HSBC not prosecuted? The concerns were that this could trigger a global financial disaster. Banks, large enough, are rarely held to account. They are “too big to jail”. Then there is of course intervention by political “heavy weights” like the Chancellor of the Exchequer and the Financial Services Authority (of the U.K.) on the U.S. Justice Department. That sounds startling when the U.S. is beholden to the U.K. To be fair, in more recent years, the U.S. Department of Justice, did indict a string of banks including Credit Suisse, BNP Paribas, J.P. Morgan and Barclays. The banks pleaded guilty and stayed in business. And there were no major shocks to the global economy.

The failure to prosecute white collar executives is justifiable if there are any indication that fines and deferred prosecution agreements in which a person or company acknowledges wrongdoing pays a fine and pledges to improve corporate culture to deter future wrongdoings. The evidence, however, is not promising. Pfizer was hit with three deferred-prosecution agreements over illegal marketing, bribing doctors and other crimes but returned to the same type of behaviour. Why do they do it? Harvard professor Eugene Soltes suggests that corporate deviance has become so routine that pleading guilty to a felony is no big deal. What was once described as a badge of shame and put a company out of business is now just unpleasantness or a passing hassle like a parking ticket. Then again, you have to be “too big to jail”!

Reference:

1. Patrick Radden Keefe, ‘Why Corrupt Bankers Avoid Jail’, The New Yorker, July 2017.

2. Gretchen Morgenson, ‘A Bank Too Big to Jail’, The New York Times, July 2016.