http://www.guardian.co.uk/commentisfree/2013/jan/23/untouchables-wall-street-prosecutions-obama
The Untouchables: How the Obama administration protected Wall Street from prosecutions
A new PBS Frontline report examines a profound failure of justice that should be causing serious social unrest
Glenn Greenwald
Wednesday 23 January 2013
PBS' Frontline program on Tuesday night broadcast a new one-hour report on one of the greatest and most shameful failings of the Obama administration:
the lack of even a single arrest or prosecution of any senior Wall
Street banker for the systemic fraud that precipitated the 2008 financial crisis:
a crisis from which millions of people around the world are still
suffering. What this program particularly demonstrated was that the
Obama justice department, in particular the Chief of its Criminal
Division, Lanny Breuer, never even tried to hold the high-level
criminals accountable.
What Obama justice officials did instead
is exactly what they did in the face of high-level Bush era crimes of
torture and warrantless eavesdropping: namely, acted to protect the most
powerful factions in the society in the face of overwhelming evidence
of serious criminality. Indeed, financial elites were not only vested
with immunity for their fraud, but thrived as a result of it, even as ordinary Americans continue to suffer the effects of that crisis.
Worst of all, Obama justice officials both shielded and feted these Wall Street oligarchs (who, just by the way, overwhelmingly supported Obama's 2008 presidential campaign)
as they simultaneously prosecuted and imprisoned powerless Americans
for far more trivial transgressions. As Harvard law professor Larry
Lessig put it
two weeks ago when expressing anger over the DOJ's persecution of Aaron
Swartz: "we live in a world where the architects of the financial
crisis regularly dine at the White House." (Indeed, as "The
Untouchables" put it: while no senior Wall Street executives have been
prosecuted, "many small mortgage brokers, loan appraisers and even home
buyers" have been).
As I documented at length in my 2011 book on
America's two-tiered justice system, With Liberty and Justice for Some,
the evidence that felonies were committed by Wall Street is
overwhelming. That evidence directly negates the primary excuse by
Breuer (previously offered by Obama himself) that the bad acts of Wall Street were not criminal.
Numerous documents prove that executives at leading banks, credit
agencies, and mortgage brokers were falsely touting assets as sound that
knew were junk: the very definition of fraud. As former Wall Street
analyst Yves Smith wrote in her book ECONned: "What went on at Lehman
and AIG, as well as the chicanery in the CDO [collateralized debt
obligation] business, by any sensible standard is criminal." Even
lifelong Wall Street defender Alan Greenspan, the former Federal Reserve
Chair, said in Congressional testimony that "a lot of that stuff was just plain fraud."
A New York Times editorial in August
explained that the DOJ's excuse for failing to prosecute Wall Street
executives - that it was too hard to obtain convictions - "has always
defied common sense - and all the more so now that a fuller picture is
emerging of the range of banks' reckless and lawless activities,
including interest-rate rigging, money laundering, securities fraud and
excessive speculation." The Frontline program interviewed former
prosecutors, Senate staffers and regulators who unequivocally said the
same: it is inconceivable that the DOJ could not have successfully
prosecuted at least some high-level Wall Street executives - had they
tried.
What's most remarkable about all of this is not even Wall
Street had the audacity to expect the generosity of largesse they ended
up receiving. "The Untouchables" begins by recounting the massive
financial devastation the 2008 crisis wrought - "the economy was in
ruins and bankers were being blamed" - and recounts:
"In 2009, Wall Street bankers were on the defensive, worried they could be held criminally liable for fraud. With a new administration, bankers and their attorneys expected investigations and at least some prosecutions."
Indeed,
the show recalls that both in Washington and the country generally,
"there was broad support for prosecuting Wall Street." Nonetheless:
"four years later, there have been no arrests of any senior Wall Street
executives."
In response to the DOJ's excuse-making that these
criminal cases are too hard to win, numerous experts - Senators, top
Hill staffers, former DOJ prosecutors - emphasized the key point: Obama
officials never even tried. One of the heroes of "The Untouchables",
former Democratic Sen. Ted Kaufman, worked tirelessly to provide the DOJ
with all the funds it needed to ensure probing criminal investigations
and even to pressure and compel them to do so. Yet when he and his staff
would meet with Breuer and other top DOJ officials, they would proudly
tout the small mortgage brokers they were pursuing, in response to which
Kafuman and his staff said: "No. Don't show me small-time mortgage guys
in California. This is totally about what went on in Wall Street. . . .
We are talking about investigating senior level Wall Street executives,
even at the Board level". (The same Lanny Breuer was recently seen announcing
that the banking giant HSBC would face no criminal prosecution for its
money laundering of funds for designated terrorist groups and drug
networks on the ground that the bank was too big to risk prosecuting).
As
Kaufman and his staffers make clear, Obama officials were plainly
uninterested in pursuing criminal accountability for Wall Street. One
former staffer to both Biden and Kaufman, Jeff Connaughton, wrote a book
in 2011 - "The Payoff: Why Wall Street Always Wins" - devoted to
alerting the nation that the Obama DOJ refused even to try to find
criminal culprits on Wall Street. In the book, this
career-Democratic-aide-turned-whistleblower details how the levers of
Washington power are used to shield and protect high-level Wall Street
executives, many of whom have close ties to the leaders of both parties
and themselves are former high-level government officials.
This is a system, he makes clear, that is constituted to ensure that
those executives never face real accountability even for their most
egregious and destructive crimes.
The reason there have been no
efforts made to criminally investigate is obvious. Former banking
regulator and current securities Professor Bill Black told Bill Moyers in 2009
that "Timothy Geithner, the Secretary of the Treasury, and others in
the administration, with the banks, are engaged in a cover up to keep us
from knowing what went wrong." In the documentary "Inside Job", the
economist Nouriel Roubini, when asked why there have been no such
investigations, replied: "Because then you'd find the culprits."
Underlying all of that is what the Senate's second-highest ranking
Democrat, Dick Durbin, admitted in 2009: the banks "frankly own the place".
The
harms from this refusal to hold Wall Street accountable are the same
generated by the general legal immunity the US political culture has
vested in its elites. Just as was true for the protection of torturers
and illegal eavesdroppers, it ensures that there are no incentives to
avoid similar crimes in the future. It is an injustice in its own right
to allow those with power and wealth to commit destructive crimes with
impunity. It subverts democracy and warps the justice system when a
person's treatment under the law is determined not by their acts but by
their power, position, and prestige. And it exposes just how shameful is
the American penal state by contrasting the immunity given to the
nation's most powerful with the merciless and brutal punishment meted
out to its most marginalized.
The real mystery from all of this is
that it has not led to greater social unrest. To some extent, both the
early version of the Tea Party and the Occupy movements were spurred by
the government's protection of Wall Street at the expense of everyone
else. Still, Americans continue to be plagued by massive unemployment,
foreclosures, the threat of austerity and economic insecurity while
those who caused those problems have more power and profit than ever.
And they watch millions of their fellow citizens be put in cages for
relatively minor offenses while the most powerful are free to commit far
more serious crimes with complete impunity. Far less injustice than
this has spurred serious unrest in other societies.
[The one-hour Frontline program can be viewed in its entirety here.]
UPDATE
The Washington Post is reporting this afternoon
that Breuer is planning to leave the DOJ. Don't worry: he'll be fine.
Given how valiantly he protected Wall Street and HSBC, one need not be
Nate Silver to predict with a fair degree of confidence that he'll land
on his feet. When public officials use their government power to serve
the interests of private sector elites, they are often lavishly rewarded by the faction they served upon leaving government.
That's one of the key dynamics greasing the sleazy revolving door of
Washington. Beyond that, Breuer's contacts in and influence with the DOJ
will be in high demand by corporations, banks and other assorted
oligarchs seeking to exercise the legal immunity which US political
culture has bestowed on them.
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http://www.rollingstone.com/politics/blogs/taibblog/outrageous-hsbc-settlement-proves-the-drug-war-is-a-joke-20121213
Outrageous HSBC Settlement Proves the Drug War is a Joke
Matt Taibi
December 13 2012
If you've ever been arrested on a drug charge, if you've ever spent
even a day in jail for having a stem of marijuana in your pocket or
"drug paraphernalia" in your gym bag, Assistant Attorney General and
longtime Bill Clinton pal Lanny Breuer has a message for you: Bite me.
Breuer this week signed off on a settlement deal with
the British banking giant HSBC that is the ultimate insult to every
ordinary person who's ever had his life altered by a narcotics charge.
Despite the fact that HSBC admitted to laundering billions of dollars
for Colombian and Mexican drug cartels (among others) and violating a
host of important banking laws (from the Bank Secrecy Act to the Trading
With the Enemy Act), Breuer and his Justice Department elected not to
pursue criminal prosecutions of the bank, opting instead for a "record" financial settlement of $1.9 billion, which as one analyst noted is about five weeks of income for the bank.
The banks' laundering transactions were so brazen that the NSA
probably could have spotted them from space. Breuer admitted that drug
dealers would sometimes come to HSBC's Mexican branches and "deposit
hundreds of thousands of dollars in cash, in a single day, into a single
account, using boxes designed to fit the precise dimensions of the
teller windows."
This bears repeating: in order to more efficiently move as much
illegal money as possible into the "legitimate" banking institution
HSBC, drug dealers specifically designed boxes to fit through the bank's
teller windows. Tony Montana's henchmen marching dufflebags of cash
into the fictional "American City Bank" in Miami was actually more subtle
than what the cartels were doing when they washed their cash through
one of Britain's most storied financial institutions.
Though this was not stated explicitly, the government's rationale in
not pursuing criminal prosecutions against the bank was apparently
rooted in concerns that putting executives from a "systemically
important institution" in jail for drug laundering would threaten the
stability of the financial system. The New York Times put it this way:
Federal and state authorities have chosen not to indict HSBC, the London-based bank, on charges of vast and prolonged money laundering, for fear that criminal prosecution would topple the bank and, in the process, endanger the financial system.
It doesn't take a genius to see that the reasoning here is beyond
flawed. When you decide not to prosecute bankers for billion-dollar
crimes connected to drug-dealing and terrorism (some of HSBC's Saudi and
Bangladeshi clients had terrorist ties,
according to a Senate investigation), it doesn't protect the banking
system, it does exactly the opposite. It terrifies investors and
depositors everywhere, leaving them with the clear impression that even
the most "reputable" banks may in fact be captured institutions whose
senior executives are in the employ of (this can't be repeated often
enough) murderers and terrorists. Even more shocking, the
Justice Department's response to learning about all of this was to do
exactly the same thing that the HSBC executives did in the first place
to get themselves in trouble – they took money to look the other way.
And not only did they sell out to drug dealers, they sold out cheap.
You'll hear bragging this week by the Obama administration that they
wrested a record penalty from HSBC, but it's a joke. Some of the
penalties involved will literally make you laugh out loud. This is from
Breuer's announcement:
As a result of the government's investigation, HSBC has . . . "clawed back" deferred compensation bonuses given to some of its most senior U.S. anti-money laundering and compliance officers, and agreed to partially defer bonus compensation for its most senior officials during the five-year period of the deferred prosecution agreement.
Wow. So the executives who spent a decade laundering billions of dollars will have to partially defer
their bonuses during the five-year deferred prosecution agreement? Are
you fucking kidding me? That's the punishment? The government's
negotiators couldn't hold firm on forcing HSBC officials to completely wait
to receive their ill-gotten bonuses? They had to settle on making them
"partially" wait? Every honest prosecutor in America has to be puking
his guts out at such bargaining tactics. What was the Justice
Department's opening offer – asking executives to restrict their
Caribbean vacation time to nine weeks a year?
So you might ask, what's the appropriate financial penalty for a bank
in HSBC's position? Exactly how much money should one extract from a
firm that has been shamelessly profiting from business with criminals
for years and years? Remember, we're talking about a company that has
admitted to a smorgasbord of serious banking crimes. If you're the
prosecutor, you've got this bank by the balls. So how much money should
you take?
How about all of it? How about every last dollar
the bank has made since it started its illegal activity? How about you
dive into every bank account of every single executive involved in this
mess and take every last bonus dollar they've ever earned? Then take
their houses, their cars, the paintings they bought at Sotheby's
auctions, the clothes in their closets, the loose change in the jars on
their kitchen counters, every last freaking thing. Take it all and don't
think twice. And then throw them in jail.
Sound harsh? It does, doesn't it? The only problem is, that's exactly
what the government does just about every day to ordinary people
involved in ordinary drug cases.
It'd be interesting, for instance, to ask the residents of Tenaha,
Texas what they think about the HSBC settlement. That's the town where
local police routinely pulled over (mostly black) motorists
and, whenever they found cash, offered motorists a choice: They could
either allow police to seize the money, or face drug and money
laundering charges.
Or we could ask Anthony Smelley,
the Indiana resident who won $50,000 in a car accident settlement and
was carrying about $17K of that in cash in his car when he got pulled
over. Cops searched his car and had drug dogs sniff around: The dogs
alerted twice. No drugs were found, but police took the money anyway.
Even after Smelley produced documentation proving where he got the money
from, Putnam County officials tried to keep the money on the grounds
that he could have used the cash to buy drugs in the future.
Seriously, that happened. It happens all the time, and even Lanny
Breuer's own Justice Deparment gets into the act. In 2010 alone, U.S.
Attorneys' offices deposited nearly $1.8 billion into government
accounts as a result of forfeiture cases, most of them drug cases. You
can see the Justice Department's own statistics right here:
Justice Department
If you get pulled over in America with cash and the government even
thinks it's drug money, that cash is going to be buying your local
sheriff or police chief a new Ford Expedition tomorrow afternoon.
And that's just the icing on the cake. The real prize you get for
interacting with a law enforcement officer, if you happen to be
connected in any way with drugs, is a preposterous, outsized criminal
penalty. Right here in New York, one out of every seven cases that ends
up in court is a marijuana case.
Just the other day, while Breuer was announcing his slap on the wrist
for the world's most prolific drug-launderers, I was in arraignment
court in Brooklyn watching how they deal with actual people. A public
defender explained the absurdity of drug arrests in this city. New York
actually has fairly liberal laws about pot – police aren't supposed to bust you
if you possess the drug in private. So how do police work around that
to make 50,377 pot-related arrests in a single year, just in this city?
Tthat was 2010; the 2009 number was 46,492.)
"What they do is, they stop you on the street and tell you to empty
your pockets," the public defender explained. "Then the instant a pipe
or a seed is out of the pocket – boom, it's 'public use.' And you get
arrested."
People spend nights in jail, or worse. In New York, even if they let
you off with a misdemeanor and time served, you have to pay $200 and
have your DNA extracted – a process that you have to pay for (it costs
50 bucks). But even beyond that, you won't have search very far for
stories of draconian, idiotic sentences for nonviolent drug crimes.
Just ask Cameron Douglas, the son of Michael Douglas, who got five years in jail
for simple possession. His jailers kept him in solitary for 23 hours a
day for 11 months and denied him visits with family and friends.
Although your typical non-violent drug inmate isn't the white child of a
celebrity, he's usually a minority user who gets far stiffer sentences
than rich white kids would for committing the same crimes – we all
remember the crack-versus-coke controversy in which federal and state
sentencing guidelines left (predominantly minority) crack users serving
sentences up to 100 times harsher than those meted out to the
predominantly white users of powdered coke.
The institutional bias in the crack sentencing guidelines was a
racist outrage, but this HSBC settlement blows even that away. By
eschewing criminal prosecutions of major drug launderers on the grounds
(the patently absurd grounds, incidentally) that their prosecution might
imperil the world financial system, the government has now formalized
the double standard.
They're now saying that if you're not an important cog in the global
financial system, you can't get away with anything, not even simple
possession. You will be jailed and whatever cash they find on you
they'll seize on the spot, and convert into new cruisers or toys for
your local SWAT team, which will be deployed to kick in the doors of
houses where more such inessential economic cogs as you live. If you
don't have a systemically important job, in other words, the
government's position is that your assets may be used to finance your
own political disenfranchisement.
On the other hand, if you are an important person, and you work for a
big international bank, you won't be prosecuted even if you launder
nine billion dollars. Even if you actively collude with the people at
the very top of the international narcotics trade, your punishment will
be far smaller than that of the person at the very bottom of the world
drug pyramid. You will be treated with more deference and sympathy than a
junkie passing out on a subway car in Manhattan (using two seats of a
subway car is a common prosecutable offense
in this city). An international drug trafficker is a criminal and
usually a murderer; the drug addict walking the street is one of his
victims. But thanks to Breuer, we're now in the business, officially, of
jailing the victims and enabling the criminals.
This is the disgrace to end all disgraces. It doesn't even make any
sense. There is no reason why the Justice Department couldn't have
snatched up everybody at HSBC involved with the trafficking, prosecuted
them criminally, and worked with banking regulators to make sure that
the bank survived the transition to new management. As it is, HSBC has
had to replace virtually all of its senior management. The guilty
parties were apparently not so important to the stability of the world
economy that they all had to be left at their desks.
So there is absolutely no reason they couldn't all face criminal
penalties. That they are not being prosecuted is cowardice and pure
corruption, nothing else. And by approving this settlement, Breuer
removed the government's moral authority to prosecute anyone for any
other drug offense. Not that most people didn't already know that the
drug war is a joke, but this makes it official.
Editorial
Too Big to Indict
December 11, 2012
Andrew Rosenthal,
It is a dark day for the rule of law. Federal and state authorities have chosen not to indict HSBC, the London-based bank, on charges of vast and prolonged money laundering, for fear that criminal prosecution would topple the bank and, in the process, endanger the financial system. They also have not charged any top HSBC banker in the case, though it boggles the mind that a bank could launder money as HSBC did without anyone in a position of authority making culpable decisions.
Clearly, the government has bought into the notion that too big to fail
is too big to jail. When prosecutors choose not to prosecute to the full
extent of the law in a case as egregious as this, the law itself is
diminished. The deterrence that comes from the threat of criminal
prosecution is weakened, if not lost.
In the HSBC case, prosecutors may want the public to focus on the $1.92 billion settlement,
which includes forfeiture of $1.26 billion and other penalties, as well
as requirements to improve its internal controls and submit to the
oversight of an outside monitor for the next five years. But even large
financial settlements are small compared with the size of international
major banks. More important, once criminal sanctions are considered off
limits, penalties and forfeitures become just another cost of doing
business, a risk factor to consider on the road to profits.
There is no doubt that the wrongdoing at HSBC was serious and pervasive.
Several foreign banks have been fined in recent years for flouting
United States sanctions against transferring money through American
subsidiaries on behalf of clients in countries like Iran, Sudan and
Cuba. HSBC’s actions were even more egregious. According to several law
enforcement officials with knowledge of the inquiry, prosecutors found
that, for years, HSBC had also moved tainted money from Mexican drug
cartels and Saudi banks with ties to terrorist groups.
Those findings echo those of a Congressional report, issued in July,
which said that between 2001 and 2010, HSBC exposed the American
“financial system to money laundering and terrorist financing risks.”
Prosecutors and Congressional investigators were also alarmed by
indications that senior HSBC officials might have been complicit in the
illegal activity and that the bank did not tighten its lax controls
against money laundering even after repeated urgings from federal
officials.
Yet government officials will argue that it is counterproductive to levy
punishment so severe that a bank could be destroyed in the process.
That may be true as far as it goes. But if banks operating at the center
of the global economy cannot be held fully accountable, the solution is
to reduce their size by breaking them up and restricting their
activities — not shield them and their leaders from prosecution for
illegal activities.
A version of this editorial appeared in print on December 12, 2012, on page A38 of the New York edition with the headline: Too Big to Indict.
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