More than Sanctions: Criminally Prosecute Big Banks for Money Laundering

International banks have increasingly been in the spotlight for corruption scandals. Large fines are regularly doled out in response to numerous financial violations. Wachovia Bank agreed to pay $160 million in 2010 for allowing drug cartels to use the bank to launder money through Mexican exchange houses. In 2012 ING was fined $619 million for providing banking services to US-sanctioned states such as Cuba, Iran, Sudan, and Myanmar. That same year Standard Chartered was fined $667 million for illegal dealings with Iran and then, in 2014, was fined an additional $300 million for its failure to weed out transactions prone to money laundering. The largest fine to date came in 2012 when HSBC was fined $1.92 billion for knowingly laundering money for Mexican cartels and al-Qaeda affiliated groups and for hiding prohibited transactions with nations like Iran and Cuba. The U.S. Justice Department agreed to defer prosecution in all cases. Without serious repercussions, multinational banks will continue to skirt U.S. and international law and launder money for criminal and terrorist elements.Most settlements struck with U.S. prosecutors impose relatively minor penalties on multinational banks that have engaged in unlawful actions. Although seemingly severe, the fines listed above are seen just as a cost of doing business for multinational banks with assets valued at up to $2.6 trillion dollars. Reforms are often promised in settlements, but prosecutors have no way to ensure enforcement. For example, HSBC had agreed to implement reforms and new controls, enhance monitoring systems, and strengthen and expand their global financial crime and compliance organization. But HSBC returned to the criminal spotlight in February 2015 when the International Consortium of Investigative Journalists published documents from a whistleblower that gave details of more than 100,000 account holders in 200 countries using the Swiss private banking arm of HSBC as a tax safe haven. HSBC faces yet another criminal inquiry for its illicit financial behavior.According to the Treasury Department, the Bank Secrecy Act requires U.S. financial institutions to assist government agencies in detecting and preventing money laundering. Banks that operate in the United States must file a Suspicious Activity Report if a customer’s actions suggest that he or she is laundering money and otherwise violating federal criminal code. Under the law, individuals who engage in money laundering can face up to 20 years in prison. However, in the four most egregious cases outlined above, not one person was criminally prosecuted. The U.S. government and other international organizations have often refused to prosecute large financial institutions complicit in such illicit activity because of their size. The adage “too big to fail” can easily be rewritten as “too big to jail”. U.S. officials have stated that revoking banking charters would negatively affect the national or global economy. Thus, mammoth banking institutions are the perfect place for organized criminal groups to conceal their money.Money is the lifeblood of many criminal and terrorist organizations. Criminal elements rely on financial services to operate. In 2009 the United Nations Office on Drugs and Crime estimated that criminals laundered around $1.6 trillion, or 2.7% of global GDP. The International Monetary Fund previously estimated that money laundering accounted for 2 to 5% of global GDP. The UN has estimated that less than 1% of global illicit financial flows are currently being seized and frozen. The international community is falling severely behind in combating illicit financial flows. Transnational organized criminal groups need to be targeted where it matters: their bank accounts.Large multinational banks have proven time and again that they are driven by profits. With the penalties for unlawful transactions so low, international banks have no incentive to pass up that business. Thus far, the Federal Reserve has refused to rescind bank licenses for institutions that break the law. This negligence has undermined the credibility, legitimacy, and stability of the financial system and allows banks to continue operating with impunity. The Justice Department has also refused to prosecute individuals at large banks for engaging in money laundering. Punishment for evading taxes and laundering money needs to be extended beyond fines to combat money laundering. Money laundering laws will only be effective when bankers are sufficiently prosecuted for violating the law.