Stateless States and Other Multinational Miscreants

When al Qaeda attacked the United States on 9/11/01, we faced a quandary. They weren’t a “place” where our missiles and bombs could reach. They were an amorphous assemblage of anti-U.S. (and others) Sunni Muslim extremist groups with a nascent move to centralize and coordinate activities through the bin Laden core of militant leadership, operating training facilities in unstable but willing nations with strong anti-Western leanings and mounting attacks in their own name around the world. So we attacked one of those “unstable but willing nations” – Afghanistan – and took out (it seems on only a temporary basis) the Taliban government that had permitted al Qaeda to train and plot there.

We just were not and perhaps may still not be prepared for groups that are not linked to any particular geographical situs who can pick up and move across international boundaries to host nations (willing and unwilling) or simply hide in plain sight surrounded by locals that support them as bin Laden clearly did. Modern telecommunications make these groups increasingly powerful and agile, even as we mount “appropriate” countermeasures against them. But this stateless state might just be the defining political change for the 21^st century.

But this notion of political and economic structures without geographic loyalty, literally states without land unto themselves but with agendas that could threaten real countries with real populations, is not just found in the well-armed world of terrorists. What about huge corporations, straddling many countries and continents, who move resources and capital across boundaries seeking maximum freedom to operate beyond the rules of any one nation and to avoid paying taxes in any particular jurisdiction? And what about banks that defy restrictions aimed at depriving rogue states, drug cartels and terrorist groups from accessing the global banking networks that keep these hellish structures alive?

In late July, after a year-long probe, a U.S. Senate subcommittee released a report on HBSC Bank USA (HBUS), a subsidiary of the larger global HBSC Global Holdings plc. with 6,900 offices worldwide, entitled: “U.S. Vulnerabilities to Money Laundering, Drugs, and Terrorist Financing: HSBC Case History.” The committee issued a press release stating: “Foreign HSBC banks actively circumvented U.S. safeguards at HBUS designed to block transactions involving terrorists, drug lords, and rogue regimes. In one case examined by the Subcommittee, two HSBC affiliates sent nearly 25,000 transactions involving $19.4 billion through their HBUS accounts over seven years without disclosing the transactions’ links to Iran.” The July 24^th WeeklyStandard.com noted: “The subcommittee investigated [several] ‘areas of abuse.’ These included… ‘service to high-risk affiliates,’ notably HSBC Bank Mexico (HBMX), which was maintained as a ‘low-risk client.’ HBMX transferred $7 billion in U.S. paper money to HBUS in 2007-08, income that Mexican and U.S. authorities surmised came from illicit drug sales.”

Or how about this little piece in the August 6^th Washington Post: “Standard Chartered Plc conducted $250 billion worth of transactions with Iranian entities over more than seven years in violation of federal money laundering laws, a New York regulator said in an order warning that its U.S. unit may be suspended from doing business in the state… Standard Chartered earned hundreds of millions of dollars in fees for handling transactions on behalf of Iranian institutions that are subject to U.S. economic sanctions, the Department of Financial Services, run by Benjamin Lawsky, said [August 6^th]. The London-based bank, which generates almost 90 percent of its profit and revenue in Asia, Africa and the Middle East, was ordered by the agency to hire an independent, on-site monitor to oversee its operations in the state.

“According to the order, when the head of the bank’s U.S. operations warned his superiors in London in 2006 that Standard Chartered’s actions could expose it to ‘catastrophic reputational damage,’ he received a reply referring to the U.S. unit’s employees with an obscenity. ‘Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians?’ a bank superior in London said, according to the New York regulator’s order.” Makes you feel all warm and fuzzy inside, doesn’t it?

Problem is we’ve allowed corporations, and particularly financial institutions, to grow beyond any realistic ability to control them. Even those who implemented some of the most significant sets of mergers and acquisitions in response to the 1999 repeal of the Glass-Steagall Act, which had separated of commercial banking from trading activity, are acknowledging that the too-big-too-fail conglomerates are out of control.

From DailyFinance.com (August 6^th):

Former Citigroup CEO Sandy Weill: “They [should] be broken up so that the taxpayer will never be at risk, the depositors won't be at risk.”…

Richard Kovacevich, former CEO of Wells Fargo (WFC): “Investment banks ... and commercial banks ... become risky when there is a large proprietary trading. ... This is the activity in which danger lurks, and it should be strictly limited and regulated. We should not put our economy at risk again.”

Thomas Michaud, current CEO of Keefe Bruyette & Woods: Citi, Bank of America (BAC), JPMorgan (JPM), and Wells “are the biggest banks in the nation and I think that's unsustainable. Either the banks' performance has to get better or ... they're going to have to” break up the banks.

Mike Mayo, analyst at CLSA: “This is not a tough call. If you break up the big banks ... I think investors would be huge winners.”

Philip Purcell: former Morgan Stanley (MS) CEO: “From a shareholder point of view, it's crystal-clear these enterprises are worth more broken up than they are together.”

Sheila Bair, former FDIC chairwoman: “At the beginning of the year ... [Citigroup] was trading at 58% of tangible book value, while BofA was trading at 48%. If Citi and BofA were broken up into smaller institutions ... their shareholders would see $270 billion in appreciation.”

I’m Peter Dekom, and I am still amazed when idiots tell me that an unregulated banking system will let the market “fix the problems;” I wonder exactly what drug has penetrated the brains of so many Americans that they actually believe this tripe!