How Wall Street Controls the Justice Department – Part 1

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“The real truth is, as you and I know, that a financial element in the great centers has held the government in its grip since the days of Andrew Jackson.”

-FDR

In the 1980s, after the S&L crisis, more than 1,100 bankers were prosecuted. After the worst financial meltdown in decades in 2008, only one banker went to prison: an Egyptian citizen for hiding losses from investors.

This new banker immunity did not come about by chance.

Bankers understood where the real power in government lies and went to work to get it. It is not in the hands of politicians or Congress. It is in the hands of the civil servants who interpret and implement the laws.

Because of the division of powers in government, the Attorney General has the sole power to decide whether or not to prosecute, and can act independently of the wishes of Congress or the President. In this chapter and the next, we will see how the Justice Department defied even the wishes of Congress to give bankers their perpetual get-out-of-jail-free card.

Related: Predatory Hedge Funds: The Plundering of the Firm, Part 2

In 2008, the public was powerless, the politicians were powerless, and the bankers had planned long in advance.

The beginning of the new immunity

In March 2010, Wachovia admitted to laundering $373 billion for the Sinaloa Drug Cartel, known for Shorty Guzman. Lanny Breuer, assistant attorney general for the Criminal Division of the U.S. Department of Justice, had sued Wachovia in a civil lawsuit.

He then negotiated a settlement under which Wachovia paid a $160 million fine and received an agreement that no criminal charges would be filed if Wachovia did not commit any crime for another year.

Not a single banker was charged or fined. The bankers involved in laundering billions kept every penny. A precedent was set.

The drug lords have found a new banker

After the drug lords lost Wachovia, they found a new friend in HSBC (The Hong Kong and Shanghai Banking Corporation).

When allegations of money laundering by HSBC surfaced in 2011, the U.S. Senate Permanent Committee on Investigations into Homeland Security and Governmental Affairs investigated the potential money laundering for about a year. The committee found so many criminal violations, in addition to money laundering for Mexican drug cartels, that the table of contents listing the issues and evidence was three pages long.

How extensive was HSBC in facilitating crime? Jack Blum, a former Senate investigator, commented on the report’s findings:

“They (HSBC) have every damn law in the book. They took every conceivable form of illegal and illicit business.”

The Senate report was intended as a bolt of lightning hurled by angry senators at complicit U.S. regulators and lawless banks. The committee ruled against HSBC:

• Money laundering for drug barons

• Money laundering for terrorist financiers, including al-Qaeda

• Money laundering for organised crime, in particular Russian

• Data stripping to help avoid economic sanctions on countries like Iran

• Providing banking services, including the provision of U.S. dollars, to banks in Saudi Arabia and Pakistan known to have ties to terrorist organizations

The evidence was so complete that a defense attorney could have convicted several executives in his first year.

Ultimately, the drug lords’ new bank admitted that they turned a blind eye to the laundering of drug money worth $60 trillion (yes, we’re not talking billions anymore) in transfers over a three-year period. That’s a global figure; that is to say, it had to look the other way for any drug lord who wanted to use its system – only $670 billion came from Mexico. That $60 trillion is about 85% of the entire global GDP in 2012. Think of the bankers’ bonuses that were earned and kept.

Note that the banks carried out their clean-up actions in the period coinciding with the 2008 crisis.

What happened to HSBC is discussed in the next chapter.