Too Big to Jail

As governmental bodies impose big fines on big institutions for doing big crimes, one has to wonder why big folks aren’t going to prison as well. After all, even after these seemingly massive fines, the financial institutions remain profitable in the year of the payment, have the ability to build expected criminal fines in their service and interest pricing structures (called: passing the cost on to their business clients and individual consumers) and truly have no major disincentive to stop their illegal practices. Remember that the big bonuses for bringing the malignant business have long-since been paid, and the few folks who are resigning or being prosecuted are either sacrificial lambs or were near retirement anyway.

Let’s start with HSBC and their recent brush with U.S. regulators: “Britain’s biggest bank was forced to pay $1.9bn (£1.17bn) fine to settle allegations by US regulators that it allowed itself to be used to launder billions of dollars for drug barons and potential terrorists for nearly a decade until 2010... The US department of justice said HSBC had moved $881m for two drug cartels in Mexico and Colombia and accepted $15bn in unexplained ‘bulk cash,’ across the bank’s counters in Mexico, Russia and other countries. In some branches the boxes of cash being deposited were so big the tellers’ windows had to be enlarged.

“Chief executive Stuart Gulliver insists the bank is now under new management and will not make the same mistakes again – although both he and chairman Douglas Flint were in top roles while the money laundering activities were still going on. Gulliver and Flint are now giving more responsibility to group business heads – ending the policy that country heads of the bank's outposts around the world should be ‘kings’ of their businesses...The US authorities said HSBC did not face criminal charges because the bank was too big to prosecute and no individuals were implicated. So where are the bosses who presided over HSBC’s years as banker to drug lords, terrorists and rogue states ?” Guardian.uk.co, December 14^th.  Hint: they’re not in jail, and they are still rich beyond all reason. They’ve just left HSBC.

And now we begin the spate of governmental sanctions on financial institutions who engaged in interest-rate manipulation –lying about their actual transactional rates to impact the overall London Interbank Offer Rate (Libor) to their financial benefit. Libor rates impact us all in almost everything we do that involves interest calculations. After Barclays was recently fined $450 million for indulging in this scheme and granted limited criminal antitrust immunity by the Department of Justice, mega-Swiss bank UBS figured that it was only about negotiating the level of fine that it would have to pay.

But the DOJ was under scathing criticism for letting big banks just buy their way out of criminal activities. On December 19^th, “UBS announced it would plead guilty to one count of felony wire fraud as part of a broader settlement. With federal prosecutors, British, Swiss and American regulators secured about $1.5 billion in fines, more than triple the only other rate-rigging case, against Barclays. The Justice Department also filed criminal charges against two former UBS traders.” New York Times, December 19^th. Traders? Lower-tiered folks who resigned? Sounds like they’ve upped the penalties but still relegated punishment to sacrificial lambs.

UBS officials argued that the bank “had overhauled its management ranks, bolstered internal controls and generally tried to clean up its act” (NY Times), cooperated with the investigation and that most of the foul play was conducted in a Japanese subsidiary. Nope. Not enough, and the fraud count, fine and prosecution of the traders were implemented. And trust me, there will lots more banks singing this song, since you cannot lie about interbank transactions without the cooperation of all the banks involved.

But my issues with this remain. The global financial sector – even after the 2008 crash that they were the principal fomenters of – remains unrepentant, unwilling (unable?) to stop manipulating their systems for internal gain regardless of the social consequences and seemingly immune from any meaningful criminal prosecution for their illegal acts. The fines are easily absorbed within their corporate balance sheets and upset the apple cart for a very short time period… not to mention that they simply pass the costs on to their customers.

We need tighter and more constant regulations, greater oversight and transparency, consistent global legal restraints among participant nations and real solid criminal penalties for those on top. Put a few chairpersons and presidents in orange jumpsuits for a decade or two each and watch the system reform. It’s time to make penalties on financial institutions more than simply “a cost of doing business.”

I’m Peter Dekom, and this notion of too much regulation as a job-killer is nothing more than condoning illegal and anti-social behavior of immense destructive power.