Sunday’s ‘Biggest Banking Leak in History’ Details the Names and Dealings of Mega-Rich Tax Dodgers
February 9, 2015
by Jon Queally
A global investigation based on leaked banking documents has opened a crack of sunlight into the exclusive and highly-secretive world of Swiss banking and the manner in which the world’s criminal elite hide their vast wealth, launder their profits, and avoid tax payments from governments around the globe.
Published by a consortium of international media outlets on Sunday, the trove of leaked banking documents — considered to be the largest of its kind in history — reveals how a Swiss division of the UK-based HSBC bank colluded with clients from around the globe to shield billions of dollars in assets as a way to maintain secrecy and avoid taxes in the clients’ home countries.
As the Guardian reports:
The HSBC files, which cover the period 2005-2007, amount to the biggest banking leak in history, shedding light on some 30,000 accounts holding almost $120bn (£78bn) of assets.
The revelations will amplify calls for crackdowns on offshore tax havens and stoke political arguments in the US, Britain and elsewhere in Europe where exchequers are seen to be fighting a losing battle against fleet-footed and wealthy individuals in the globalised world.
The files themselves were first obtained by a former IT expert turned whistleblower, named Hervé Falciani, who worked for HSBC. Falciani fled from the UK to France where he gave over the files to French regulators who then shared them with authorities in other countries for the purpose of investigations into the bank’s activities. Only recently, however, were the files made available to an international collaboration of news outlets, including the Guardian, the French daily Le Monde, BBC Panorama and the Washington-based International Consortium of Investigative Journalists. After reviewing their contents, the outlets are making their own examination of the documents public for the first time.
As Agence France-Presse notes, the revelations contained in the files “are likely to stoke calls for a crackdown on sophisticated tax avoidance by the wealthy and by multinational companies.”
According to the Guardian, the key documents reveal how the division of HSBC:
• Routinely allowed clients to withdraw bricks of cash, often in foreign currencies of little use in Switzerland.
• Aggressively marketed schemes likely to enable wealthy clients to avoid European taxes.
• Colluded with some clients to conceal undeclared “black” accounts from their domestic tax authorities.
• Provided accounts to international criminals, corrupt businessmen and other high-risk individuals.
The Guardian also produced this narrative video to explain the story:
For its part, the ICIJ created an online, searchable archive of the documents, broken down by country and the individuals involved in the tax avoidance schemes.
The BBC reports:
Offshore accounts are not illegal, but many people use them to hide cash from the tax authorities. And while tax avoidance is perfectly legal, deliberately hiding money to evade tax is not.
The revelations have sparked formal investigations in several countries, with the bank facing criminal investigations in the US, France, Belgium and Argentina.
India’s finance minister Arun Jaitley has said that all names on the list will be investigated, although he cautioned that some accounts might be legitimate. A current inquiry looking into more than 600 people who hold accounts overseas, will now be widened to look into the the current list of names.
The French authorities concluded in 2013 that 99.8 percent of their citizens on the list were probably evading tax.
Falciani, the whistleblower, remains in France under protection and was featured on Sunday evening’s 60 Minutes news program on CBS.
According to 60 Minutes, the fallout over the leaked data “is shaking the Swiss banking world to its core. It contains names, nationalities, account information, deposit amounts – but most remarkable are these detailed notes revealing the private dealings between HSBC and its clients.”
Quoted during the segment, former tax investigator at the US Senate Jack Blum said, “For the average American taxpayer it’s beyond shocking. But, perhaps, not that surprising. Swiss banks have been caught protecting tax dodgers before, but never has this much detail been revealed.”
In addition, Blum continued, “Under US law, any bank that does that, that assists a US person in evading US tax is guilty of a felony. And it doesn’t matter where the bank is located or where the bankers are located.”
According to a separate Guardian report on the leaks, the United States government will likely “come under intense pressure this week to explain what action it took after receiving” access to the documents.
“The disclosure amounts to one of the biggest banking leaks in history shedding light on some 30,000 accounts holding almost $120bn (£78bn) of assets,” the newspaper reports. “Of those, around 2,900 clients were connected to the US, providing the IRS with a trail of evidence of potential American taxpayers who may have been hiding assets in Geneva.”
Following a Senate investigation into the matter which resulted in a hefty report published 2013 and fines against HSBC — but crucially no criminal charges or prosecutions of top bank officials — the outcome so far has appeared to continue the pattern that while petty thieves in the US can end up in jail for their crimes, bankers and their clients who swindle millions (or billions) from taxpayers will never face such treatment.
As Sen. Elizabeth Warren (D-MA) said at the time, “HSBC paid a fine, but no individual went to trial, no individual was banned from banking and there was no hearing to consider shutting down HSBC’s actives in the US… How many billions of dollars do you have to launder for drug lords and how many sanctions do you have to violate before someone will consider shutting down a financial institution like this?”
In response to Sunday’s reporting from the various news outlets, including the 60 Minutes report, Sen. Sherrod Brown (D-OH) indicated new hearings should now be scheduled and declared, “I will be very interested to hear the government’s full explanation of its actions – or lack thereof – upon learning of these allegations in 2010.”
The Story Behind the Story of Those Huge Corporate Tax Cuts
December 3, 2014
Last week, Igor Volsky reported for Think Progress that Senate Majority Leader Harry Reid (D-Nevada) had struck a deal with House Republicans to give corporate America a massive tax giveaway just weeks after the midterm elections. The agreement, wrote Volsky, “would permanently extend relief for big multinational corporations without providing breaks for middle or lower-income families.” Writing in The Washington Post, Jared Bernstein, a former economic advisor to Vice President Joe Biden, called the package “a dog’s breakfast of permanent tax breaks mostly for businesses that would add over $400 billion to the 10-year budget deficit without doing anything for low-income, working families.”
He wasn’t alone in panning the deal. Treasury Secretary Jack Lew told Volsky that the cuts would be “fiscally irresponsible.” The 10-year, $444 billion package includes a few provisions that were popular with Democrats, but would phase out existing tax credits for clean energy development. Mostly, it’s a boon for some of the top corporate tax-avoiders in America. Some 90 percent of the cuts would benefit their bottom lines. One of the biggest beneficiaries would be GE, which, according to Citizens for Tax Justice, claimed tax refunds of $3.1 billion on $27.5 billion in profits between 2008 and 2012. That means the company had a negative tax rate of 11 percent. Other big winners would include Wall Street financial firms, pharmaceutical companies and computer and Internet businesses.
And while Republicans insist that things like disaster relief and unemployment benefits be “offset” with cuts to other programs, these breaks would not be. The resulting deficits would then be used to justify deeper cuts to programs that have already been starved by “sequestration” — health care, education and assistance for the poor. Jared Bernstein called that “a particularly nefarious twist.” And, as if to add insult to injury, The New York Times reported that Republican negotiators announced that they were stripping away an expanded earned-income credit and a child tax credit, two measures that help keep poor working families above the poverty line. The proposed cuts were in retaliation for Obama’s executive action on immigration.
Once the story broke, Harry Reid’s office denied that a deal had been struck. The White House quickly issued a veto threat. And one Democratic strategist who asked not to be identified told BillMoyers.com that shortly after Volsky’s story was published, administration staffers were sending out emails to allies excoriating the deal. He noted that it was an unusual response for an administration that values message discipline and is typically deliberative in crafting responses to these kinds of legislative proposals.
It’s quite possible that the Democrats floated the story of this corporate giveaway in order to knock it down. Perhaps they were trying to draw heat away from Obama’s controversial immigration order, or establishing a narrative for the next two years — that the new Congress would exhibit the same “culture of corruption” that Democrats used to their advantage during the 2006 elections. That’s speculative, but there’s another angle to this story which isn’t: a major reason this package of “tax extenders” has political salience is that earlier this year, several progressive groups that advocate for a fairer tax system decided to make them an issue.
They’re called “tax extenders” because these corporate handouts require congressional renewal every year or two. In the past, they’ve been quietly approved again and again with large bipartisan majorities and virtually no public attention. One of them, the research and experimentation tax credit, has been extended by Congress 15 times since it was first enacted in 1981. As the Congressional Research Service noted last year, the purpose of making tax provisions temporary is to evaluate their effectiveness, but that goal “is undermined if expiring provisions are regularly extended without systematic review, as is the case in practice.”
It’s an example of the kind of quiet corruption that frequently passes without notice in Washington, DC — largely because it lacks the drama of a partisan fight. Last year, Harry Reid and Senate Minority Leader Mitch McConnell both came out in favor of extending the cuts without paying for them.
The late Supreme Court Justice Louis Brandeis famously wrote of government transparency that “sunlight is said to be the best of disinfectants,” and in March, as the Senate Finance Committee prepared to vote on extending the tax cuts, Public Campaign and Americans for Tax Fairness (ATF) launched an effort to bring some much-needed exposure to this legislation. “This year, we made a concerted effort to raise awareness, to raise discomfort and to carry on a good fight against these tax breaks that were usually rubber-stamped every year,” says Frank Clemente, executive director of Americans for Tax Fairness. Clemente added that in the past, he’d “been shocked by how comfortable and desirable these tax break were for both Republican and Democratic members of Congress.”
The two groups issued a blistering report detailing not only what the tax extenders would do, but also exposing the massive lobbying campaign that was pushing them through Congress. Using data from OpenSecrets, the report’s authors noted that “1,359 individual lobbyists swarmed Capitol Hill to press members of Congress on the issue between January 2011 and September 2013.” That means that about 10 percent of all registered federal lobbyists worked on advancing this one piece of legislation. The report also pointed out that “58 percent of the lobbyists who worked on tax extenders have passed through the revolving door – they have worked for Congress or the executive branch.” These included some heavy hitters on Capitol Hill — people like former Sen. John Breaux (D-LA), who sat on the Senate Finance Committee for over a decade, and former Senate Majority Leader Trent Lott (R-MS).
Public Campaign and Americans for Tax Fairness worked hard to get the public’s attention. “We did as much retail work as possible,” Frank Clemente told BillMoyers.com. “We held press briefings and did one-on-ones with reporters to make sure that they understood the story. It’s like grassroots organizing — you have to do a lot of organizing to get the media engaged on issues like this.” (We first wrote about the extenders after one of their media calls in early April.) The progressive Center for Budget and Policy Priorities followed up with a damning analysis a few weeks later. And while these efforts didn’t make the extension of a bunch of corporate tax cuts a big issue for average Americans, it certainly put them on the radars of many political reporters, who were well equipped to write about them when Volsky’s story broke last week.
It’s possible — or even likely — that, absent this effort, Congress would have extended these cuts yet again, perhaps permanently, with little notice and no public outrage. And these cuts may pass yet — attached to some veto-proof legislation, or as part of a broader “tax reform” between the White House and the new Republican congressional majority. But we saw last week that a group of organized advocates can turn a non-issue into a matter of public controversy, and, at a minimum, make things a bit more difficult for what journalist David Sirota called “the money party” that dominates Washington, DC.
Corporate Tax Break Scheme Is Straight from “Voodoo Economics Toolbox”
January 27, 2015
by Isaiah J. Poole
There is no real argument over whether the nation needs to do more to improve its infrastructure – its transportation, water, power and information networks. But there is an argument over how best to pay for it all – and that argument is increasingly turning in a dangerous direction.
Financially stressed working-class households who are at best treading water, if not actually sinking, in today’s economy aren’t eager to dig deeper into their own pockets to foot the bill. That’s even more true of the plutocrat class, which has an army of lobbyists at the ready to shut down any suggestion that those who arguably would benefit the most from such things as better roads and public transportation should shoulder the larger share of the load.
Politicians of both parties in Washington are therefore increasingly relying on one of the schemes in the voodoo economics toolbox: give corporations hoarding money overseas to avoid taxation a form of tax holiday in exchange for increased corporate funding for infrastructure.
The Bond Buyer financial news site reports that Sen. Rand Paul (R-TX) and Sen. Barbara Boxer (D-CA) are close to agreeing on a plan that would give multinationals a deep tax reduction on money they currently have stashed overseas if they bring the money back into the United States, also known as repatriation. Money collected would be deposited into the Highway Trust Fund, which is dedicated to paying for federal transportation projects.
Paul’s promoting of this idea is not new; he had a bill last year that would have permanently cut the tax rate on profits corporations hold overseas, with the funds going into an emergency fund for what it considered high-priority highway projects. But his collaboration with Boxer is likely to give the idea more political momentum.
Meanwhile, the chairman of the House Transportation and Infrastructure Committee, Rep. Bill Shuster (R-PA), told the U.S. Conference of Mayors last week that raising the gasoline tax to pay for transportation improvements – the most logical near-term solution since that tax hasn’t been raised in almost 22 years – is off the table in his committee. Instead, “the number one source that’s being talked about is this repatriation of funds,” he said, according to The Hill newspaper.
Rep. John Delaney (D-MD) is a leading proponent of a repatriation-for-transportation-funding scheme. In December he filed a bill expected to be reintroduced this year that would allow multinational corporations to bring back overseas profits at a tax rate of 8.75 percent instead of the current statutory tax rate of 35 percent. The revenue collected would be placed in the Highway Trust Fund and in a $50 billion America Infrastructure Fund, which would be used to leverage up to $750 billion worth of state, local and private funding for infrastructure projects around the country.
With the White House giving its tacit blessing to such schemes while refusing to support proposals to raise funding in other ways, tapping profits now held overseas at a deeply discounted tax rate is becoming the default position for how to begin covering a more-than-$1 trillion infrastructure investment deficit.
But is rewarding tax avoidance really the way to fund our public infrastructure needs?
The biggest problem with the Delaney proposal, and the similar proposal from Paul, is that “it would allow companies such as Apple and Microsoft, which have parked hundreds of billions of dollars of US profits in offshore tax havens, to pay a US tax rate of no more than of 8.75 percent, instead of the more than 30 percent tax they should pay on these profits,” says an analysis by Citizens for Tax Justice.
These profits – more than $2 trillion – are usually laundered through foreign subsidiaries in low-tax or no-tax countries in ways designed to avoid US taxes. That can be done as simply as having that online purchase you think you are making through an American-based company actually handled by a Swiss or Irish subsidiary, or by transferring a patent to an overseas subsidiary so that revenues on licensing that patent flow through the subsidiary. Sometimes, the money isn’t even actually overseas, but is deposited in US banks and is being used for domestic purposes. In any event, regardless of where the money ends up being deposited, it is not “trapped overseas,” as corporate lobbyists and their supporters in Congress often say; it’s just that they don’t want to pay a higher tax on that money.
The last time corporations got a repatriation tax holiday in exchange for the promise to use the profits in job-creating investments, in 2004, corporations instead ended up using the money brought back into the country to boost shareholder dividends and buy back stock (which drives up stock prices and, often, the compensation of CEOs). There is little reason to believe that the same thing wouldn’t happen again in 2015.
Setting a bargain-basement tax rate for profits booked through foreign subsidiaries serves as nothing more than an incentive for corporations to escalate the schemes – or a wedge to convince lawmakers that if an ultra-low corporate tax rate is good for profits repatriated from overseas, perhaps all corporate profits should be taxed at that rate.
In any event, it is the rest of us who end up being the losers. When multinational corporations don’t pay their fair share in taxes, the rest of us have to make up the difference – or suffer the inability to pay for the things that we need, like good roads and public transportation. That includes businesses who don’t have the capacity to set up the fancy tax dodges that their competitors use.
What we need is honest tax reform that makes corporations and the wealthy pay their fair share, closing the door for good on the loopholes and schemes they use to avoid paying taxes. We also need an honest and equitable way to pay for the infrastructure improvements we need. Both are possible, but not without considerable heat from an aroused public. Congress will have to decide this year how it will pay for a multiyear transportation bill. We can’t let the default option be coins from the table of corporate tax avoidance.
The views expressed in this post are the author’s alone, and presented here to offer a variety of perspectives to our readers.
A Simplified Way to Tax Multinational Corporations
July 15, 2014
by Dave Johnson
You’ve been hearing a lot about corporations “renouncing their US citizenship” through “tax inversions.” This is when a company buys or merges with a non-US company and claims to no longer be based in the US to get out of paying certain taxes. The company does, however, keep the same employees, executives, buildings, sales channels and customers it had inside the US before the switch.
The epidemic of tax inversions represents just one of many ways corporations are dodging their taxes by taking advantage of our outdated and rigged corporate tax system. It is time for a serious debate about corporate taxes, and on Monday a new report by District Economics Group economist Michael Udell offered a bold new alternative that is so radically simple that even the most clever corporate tax accountant would have a hard time finding a way around its fair and universal proposition: If a company sells products or services in the US, it must pay taxes on the US proportion of its worldwide sales.
But first, let’s explore how today’s complexity enables corporate tax avoidance.
Are We “Broke” or Just Not Collecting the Taxes We Are Owed?
“America is broke,” declared House Speaker John Boehner a few years ago. But clearly the country is not broke; we are just being robbed, as many corporations create ways of avoiding, dodging, shirking and generally not paying their taxes. The share of federal revenue coming from corporate taxes has dropped from around 32 percent in 1952 to 8.9 percent now. As a share of gross domestic product, it has fallen from about 6 percent of GDP then to less than 2 percent now. Meanwhile the rest of us — including small domestic companies that don’t have armies of tax consultants — have to make up that shortfall, either through increases in things like payroll taxes, or through cuts in the things government does to make our lives better.
Our big problem is that the big, multinational corporations use so many tax avoidance techniques that it is difficult to keep up. One of the larger dodges is that we allow corporations to “defer” (i.e. never pay) taxes on profits made outside the US. So they engage in all kinds of schemes to make it look like their profits are not made here. As a result many companies owe very little tax on the proceeds from their US operations, and then defer their non-US profits from being “brought home” to avoid paying the taxes on non-US sales.
It is estimated that as much as or even more than $2 trillion of taxable profits are being hoarded outside of the US because of deferral. Meanwhile, the corporations lobby for a “repatriation tax holiday” to let them bring these profits back with little or even no tax.
For example, currently Pfizer sells a whole lot of its medicines inside the US, but claims to lose money here, resulting in little-or-no inside-US tax to pay. A Bloomberg story on Pfizer’s tax schemes reports, “earnings before taxes outside the US were $15 billion in 2011 while losses within the country were $2.2 billion. … These operating results appear to be inconsistent with [Pfizer’s] domestic and international revenues, which in 2011 were $26.9 billion and $40.5 billion, respectively.”
So Pfizer piles up the cash — as much as $73 billion of taxable profits were held outside the US in 2012.
Even if these corporations do bring the money back, it is very difficult to pin down which countries may have already taxed them and by how much, so it is very difficult to compute their US tax liability. It is very difficult to sort through the complex maze of corporate ownership and the use of schemes like “transfer pricing, advance pricing agreements, cost sharing agreements, interest allocation arrangements, and check-the-box regulations,” along with many other ways corporations game the tax system.
So along with this maze of complexity in figuring out how much corporations owe, in most cases the tax system depends on the corporations themselves to accurately report and pay the correct amounts. Needless to say, the incentives can end up working against the revenue needs of the government. The end result is that, one way or another, the multinational corporations get away with paying a lower effective tax rate than they should.
The Current System Hurts Purely Domestic Companies and Jobs
Another result of the confusing state of loopholism is that corporations that use offshore breaks and subsidiaries gain a big advantage over purely-US companies. The worst consequence of this is that the current tax system encourages these corporations to locate jobs, manufacturing operations and profit centers in lower-tax countries instead of here so they can take advantage of the same loopholes.
More and more companies are moving more and more of their jobs, production, profit centers and profits out of the country. That is our future if we continue to accept the current system and the endless job of trying to make it more fair and consistent.
A New Study Shows a Solution
Udell’s report, Single Sales Factor Apportionment of Global Profits to Broaden the Tax Base, shows that an alternative to the US corporate tax system — called a single sales factor apportioned corporate tax — would not only simplify the tax code and reduce the burden of corporate tax compliance, but also promote the principle that all businesses pay their fair share.
The idea of “single sales factor apportionment” is to tax corporations based on where sales are made, not where profits are reported. So the share of a corporation’s total profit that the US would tax would be based solely on the share of the corporation’s worldwide sales that occur in the US. If a company shows 10 percent of its sales occur in the US, then the US taxes the company on 10 percent of its worldwide profits.
This new system treats foreign multinationals just the same way it treats American multinational corporations — and the same way it treats smaller US domestic companies.
As this new study calculates, “using 2010 data… an alternative definition of a corporate tax base using a sales factor apportionment of global profits could be as much as 159 percent larger than the current tax base. This tax base can be more transparent by design and less costly to comply with, both for taxpayers and the tax authority.”
Once again, the country could collect as much as 159 percent more corporate taxes using this method. This is as much as $200 billion more in corporate income taxes these companies should be paying now but have found various ways to dodge. This could be additional revenue for the government to pay for the courts, roads, schools, military and the rest that these corporations benefit from, or could be used to reduce corporate taxes to a rate of 29 percent, rather than the current 35 percent.
Simple and Enforceable
Corporate profits and the resulting tax liability are very hard to verify and enforce. The study looks at current tax laws and the ways corporations currently are able to make it look as if profits are made in various countries, or just underreport their profits. It addresses “asymmetric information” — meaning they can report one thing in one place and something different in another.
One example the study looks at is the different between “two-party” and “three-party” reporting. Currently corporate taxes are “two-party” while individual taxes are “three-party.” The two parties for corporate taxes are the corporation and the government. The government has to rely on the corporation accurately reporting its tax liability and/or use audits to verify its reporting. With individual taxes, a third party — employers — reports the wages to the Internal Revenue Service, and the employee also does. This works because the employer wants to report paying the highest income because they get a deduction, while the employee wants to report low income. This conflicting interest helps guarantee there is honest reporting. Without this third party the only way to verify is an audit.
The study explains that using “single sales factor apportionment” introduces a third party into the calculation of multinational corporate profits. Corporations want to report high worldwide sales and profits to shareholders because that boosts stock prices and increases executive bonuses. This adds to the simplicity of taxing these corporations based on the share of sales that occur in a given country.
Companies “Leaving” the US Still Would Pay the Same Taxes
Implementing the single-sales factor tax system would mean that companies gain no advantage from renouncing their US corporate citizenship through an inversion, as described above. They would still pay taxes to the US government based on the percentage of sales they make inside of the US. If half the company’s (and subsidiaries’) sales are inside the US then the company is taxed on half of their total worldwide profits, including subsidiaries.
The details of the study are laid out with discussions of various “in the weeds” points that the tax policy geek community understands.
… economic activity is captured and because cross-border income stripping is netted out. Global profits are defined as revenues less the sum of cost of goods sold, selling, general, and administrative expenses, and depreciation and amortization. (Research and development costs are included in administrative expense). This pre-tax, pre-interest expense, pre-other income definition of a tax base is shown in table 3 below. …
[. . .] estimated amounts of apportioned global profits are shown in the second row of table 5, and increase the financial statement sample’s US apportioned global profits from $643 billion (table 3 above) to $1,196. Finally, these 14 industries accounted for 58 percent of business receipts for all corporate income tax returns (excluding financial services). Grossing up the US apportioned global profits for the 14 industries to all corporations by (1/0.58) yields an estimate of apportioned global profits as $1,196 billion X (1/0.58) = $2,074 billion. This sales factor apportioned global profits tax base is 159 percent larger than the $801 billion of net income subject to tax reported for all corporations on 2010 returns.
You get the picture. Yikes! But it’s all there. Especially that last sentence, by the way: “This sales factor apportioned global profits tax base is 159 percent larger than the $801 billion of net income subject to tax reported for all corporations on 2010 returns (other than financial services).” That is a lot of opportunity to get the needed revenue to fund our roads, bridges, courts, schools and the rest of the things government does to make our lives — and the lives of our corporations — better.
The study shows that adopting sales factor apportionment could:
- Redefine the corporate tax base, permitting lower rates, increased revenue or some combination of both.
- Remove the incentives for US multinational corporations to leave the US through corporate inversions, and to leave their profits in offshore tax havens.
- Level the playing field between purely domestic businesses and multinational corporations.
- Reduce tax incentives to locate jobs and manufacturing operations in lower tax foreign nations, bringing opportunities for economic activity to the United States.
- Maintain Congress’ ability to lower rates or increase revenue to execute policy.
- Simplify accounting and reduce the burden of compliance on corporate taxpayers as well as administrators.
Report: HSBC Help Clients Hide over $100 Billion in Accounts
New details have emerged on the global bank giant HSBC’s tax-sheltering and money-laundering services for wealthy and sometimes criminal clients. According to the International Consortium of Investigative Journalists, HSBC used its private Swiss arm to hide more than $100 billion in accounts used by weapons dealers, tax dodgers, dictators and celebrities. Leaked files reportedly include evidence that HSBC helped its clients avoid taxes in their home countries. The documents have sparked criminal probes in several countries, including the United States. In 2012, HSBC reached a $1.9 billion settlement in the United States for a massive money-laundering scheme used by drug cartels and other illegal groups. Among other allegations, the bank reportedly supplied a billion dollars to a firm whose founder had ties to al-Qaeda and shipped billions in cash from Mexico to the United States despite warnings the money was coming from drug cartels.
HSBC’S ADVENTURES IN
UNDERHANDED BANKING AREN’T NEW
– December 13, 2012
Thursday, December 13, 2012
Matt Taibbi: After Laundering $800 Million in Drug Money, How Did HSBC Executives Avoid Jail?
The banking giant HSBC has escaped indictment for laundering billions of dollars for Mexican drug cartels and groups linked to al-Qaeda. Despite evidence of wrongdoing, the U.S. Department of Justice has allowed the bank to avoid prosecution and pay a $1.9 billion fine. No top HSBC officials will face charges, either. We’re joined by Rolling Stone contributing editor Matt Taibbi, author of “Griftopia: A Story of Bankers, Politicians, and the Most Audacious Power Grab in American History.” “You can do real time in jail in America for all kinds of ridiculous offenses,” Taibbi says. “Here we have a bank that laundered $800 million of drug money, and they can’t find a way to put anybody in jail for that. That sends an incredible message, not just to the financial sector but to everybody. It’s an obvious, clear double standard, where one set of people gets to break the rules as much as they want and another set of people can’t break any rules at all without going to jail.” [includes rush transcript]
This is a rush transcript. Copy may not be in its final form.
JUAN GONZÁLEZ: Well, let’s go on to HSBC. The banking giant has escaped indictment for laundering billions of dollars for Mexican drug cartels and groups linked to al-Qaeda. The bank reportedly supplied a billion dollars to a firm whose founder had ties to al-Qaeda and shipped billions in cash from Mexico to the United States despite warnings the money was coming from drug cartels. Earlier this year, a Senate investigation concluded that HSBC provided a, quote, “gateway for terrorists to gain access to U.S. dollars and the U.S. financial system.”
Despite evidence of wrongdoing, the Justice Department has allowed the bank to avoid prosecution and pay a $1.9 billion fine. No top HSBC officials will face charges. While it’s reportedly the largest penalty ever paid by a bank, the deal has come under wide criticism. Officials reportedly agreed to seek the fine over concerns that criminal charges would have hurt the global financial system.
Loretta Lynch is U.S. attorney for the Eastern District of New York.
LORETTA LYNCH: We are here today to announce the filing of criminal charges against HSBC Bank, both its U.S. entity, HSBC U.S., and the parent HSBC group, for its sustained and systemic failure to guard against the corruption of our financial system by drug traffickers and other criminals and for evading U.S. sanctions law. HSBC, as you know, is one of the largest financial institutions in the world, with affiliates and personnel spanning the globe. Yet during the relevant time periods, they failed to comply with the legal requirements incumbent on all U.S. financial institutions to have in place compliance mechanisms and safeguards to guard against being used for money laundering.
HSBC has admitted its guilt to the four-count information filed today, which sets forth two violations of the Bank Secrecy Act, a violation of the International Emergency Economic Powers Act, or IEEPA, and violation of the Trading with the Enemy Act. As part of its resolution of these charges, HSBC has agreed to forfeit $1.256 billion, the largest forfeiture amount ever by a financial institution for a compliance failure.
AMY GOODMAN: That was U.S. Attorney Loretta Lynch.
Meanwhile, HSBC Group Chief Executive Stuart Gulliver said in a statement, quote, “We accept responsibility for our past mistakes. We have said we are profoundly sorry for them.” He added the bank had, quote, “taken extensive and concerted steps to put in place the highest standards for the future.”
News of HSBC’s fine comes as three low-level traders were arrested in London as part of an international investigation into 16 international banks accused of rigging a key global interest rate used in contracts worth trillions of dollars. The London Interbank Offered Rate, known as Libor, is the average interest rate at which banks can borrow from each other. Some analysts say it defines the cost of money. The benchmark rate sets the borrowing costs of everything from mortgages to student loans to credit card accounts.
Well, for more on the latest bank scandals, we’re joined by Matt Taibbi, contributing editor for Rolling Stone magazine. His latest book is Griftopia: A Story of Bankers, Politicians, and the Most Audacious Power Grab in American History.
Now, how did Forbes put it, Matt? “What’s a bank got to do to get into some real trouble around here?”
MATT TAIBBI: Exactly, exactly. And what’s amazing about that is that’s Forbes saying that. I mean, universally, the reaction, even in—among the financial press, which is normally very bank-friendly and gives all these guys the benefit of the doubt, the reaction is, is “What do you have to do to get a criminal indictment?” What HSBC has now admitted to is, more or less, the worst behavior that a bank can possibly be guilty of. You know, they violated the Trading with the Enemy Act, the Bank Secrecy Act. And we’re talking about massive amounts of money. It was $9 billion that they failed to supervise properly. These crimes were so obvious that apparently the cartels in Mexico specifically designed boxes to put cash in so that they would fit through the windows of HSBC teller windows. So, it was so out in the open, these crimes, and there’s going to be no criminal prosecution whatsoever, which is incredible.
JUAN GONZÁLEZ: And emails found where bank officials were instructing officials in Iran and in some other countries at how best to hide their efforts to move money into their system?
MATT TAIBBI: Exactly, yeah, and that’s true at HSBC, and apparently we have a very similar scandal involving another British bank, Standard Chartered, which also paid an enormous fine recently for laundering money for—through Iran. This, again, comes on the heels of the Libor scandal, which has already caught up two major British banks—the Royal Bank of Scotland and Barclays. So, you have essentially all of the major British banks now are inveigled in these enormous scandals. We have a couple of arrests, you know, today involving low-level people in the Libor thing, but it doesn’t look like any major players are going to be indicted criminally for any of this.
JUAN GONZÁLEZ: And this whole argument that the bank is too big to indict because of the threat to the world financial system, most people don’t know that HSBC stands for Hong Kong and Shanghai Banking Corporation. It’s a British bank that goes back to the early days of British colonialism in Asia.
MATT TAIBBI: Sure.
JUAN GONZÁLEZ: And is it too big to be indicted?
MATT TAIBBI: The amazing thing about that rationale is that it’s exactly the opposite of the truth. The message that this sends to everybody, when banks commit crimes and nobody is punished for it, is that you can do it again. You know, if there’s no criminal penalty for committing even the most obvious kinds of crimes, that tells everybody, investors all over the world, that the banking system is inherently unsafe. And so, the message is, this is not a move to preserve the banking system at all. In fact, it’s incredibly destructive. It undermines the entire world confidence in the banking system. It’s an incredible decision that, again, is met with surprise even with—by people in the financial community.
AMY GOODMAN: On Tuesday, Thomas Curry, head of the Office of the Comptroller of the Currency, the lead regulator for HSBC in the U.S., defended the settlement.
THOMAS CURRY: These actions send a strong message to the bank and to the financial services industry to make compliance with the law a priority to safeguard their institutions from being misused in ways that threaten American lives.
AMY GOODMAN: That’s Thomas Curry, head of the Office of the Comptroller of the Currency. It seems like a lot of people who are in prison right now—low-level thieves, criminals, drug launderers, people who have been accused of working with al-Qaeda—perhaps could appeal their convictions now and get out of jail.
MATT TAIBBI: Right. Right, yeah, exactly. I was in court yesterday, in criminal court in Brooklyn. I saw somebody come out of—come into court who had just been overnight in jail for walking from one subway car to another in front of a policeman. You can do real time in jail in America for all kinds of ridiculous offenses, for taking up two subway seats in New York City, if you fall asleep in the subway. People go to jail for that all the time in this country, for having a marijuana stem in your pocket. There are 50,000 marijuana possession cases in New York City alone every year. And here we have a bank that laundered $800 million of drug money, and they can’t find a way to put anybody in jail for that. That sends an incredible message not just to the financial sector but to everybody. It’s an obvious, clear double standard, where one set of people gets to break the rules as much as they want and another set of people can’t break any rules at all without going to jail. And I just don’t see how they don’t see this problem.
JUAN GONZÁLEZ: Well, Matt, Assistant Attorney General Lanny Breuer outlined some of HSBC’s alleged drug cartel ties.
ASSISTANT ATTORNEY GENERAL LANNY BREUER: From 2006 to 2010, the Sinaloa cartel in Mexico, the Norte del Valle cartel in Colombia and other drug traffickers laundered at least $881 million in illegal narcotics trafficking proceeds through HSBC Bank USA. These traffickers didn’t have to try very hard. They would sometimes deposit hundreds of thousands of dollars in cash in a single day into a single account, using boxes, as Loretta said, designed to fit the precise dimensions of the tellers’ windows in HSBC’s Mexico branches.
JUAN GONZÁLEZ: Matt, this is like Monopoly, the board game, all over again, you know? Get out of jail free, you know.
MATT TAIBBI: Yeah.
JUAN GONZÁLEZ: Instead of $50, you pay $1.9 billion, but you’re still getting out of jail free.
MATT TAIBBI: And this fits in the—in with the pattern of the entire financial crisis. $1.9 billion sounds like a lot of money, and it definitely is. It’s a record settlement. No bank has ever paid this much money before. But it’s about two months’ worth of profits for HSBC. It’s not going to cripple this bank. It’s not even going to hurt them that badly for this year. It fits in line with the Goldman Sachs settlement in the Abacas case, which was hailed at the time as a record settlement. It was $575 million. But that was about 1/20th of what they got just through the AIG bailout. So, this is not a lot of money for these people. It sounds like a lot of money to the layperson, but for the crimes they committed, getting away with just money—and it’s not even their own money, it’s not their personal money, it’s the shareholders’ money—it’s incredible. It really—it literally is a get-out-of-jail-free card.
JUAN GONZÁLEZ: And, of course, the way that big banks these days can borrow money from the U.S. Fed for no interest—
MATT TAIBBI: For free.
JUAN GONZÁLEZ: For free.
MATT TAIBBI: Free.
JUAN GONZÁLEZ: Basically, they can just take money from the government and pay the government back.
AMY GOODMAN: What does the Justice Department, what does the Obama administration, gain by not actually holding HSBC accountable?
MATT TAIBBI: You know, I think—I’ve asked myself that question numerous times. I really believe—and I think a lot of people believe this—that the Obama administration sincerely accepts the rationale that to aggressively prosecute crimes committed by this small group of too-big-to-fail banks would undermine confidence in the global financial system and that they therefore have to give them a pass on all sorts of things, because we are teetering on the edge of a problem, and if any one of them were to fall out, it would cause a domino effect of losses and catastrophes like the Lehman Brothers business. And I think they’re genuinely afraid of that. And so, that’s the only legitimate explanation that you can possibly assign to this situation, because, as we know, Wall Street abandoned the Obama administration this year when it came to funding in the election. They heavily supported Mitt Romney and didn’t give Obama much money at all.
AMY GOODMAN: We have to break, and when we come back, we’re going to ask you more about Libor and also your piece, “Jim DeMint,” who’s stepping down in the Senate, “The Fireman Ed of Politics,” you write. We’re talking to Matt Taibbi, contributing editor for Rolling Stone magazine. Then Peter Coyote joins us in studio to talk about the case of Leonard Peltier, in prison for 37 years. Stay with us.
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