When it comes to big drugs, big crimes, and bigger money, it's tough to look away from the latest, greatest, mind-boggling deal. It's tough, say, to stop listening for any echo ringing off the wrist slap leveled against HSBC Holdings plc, the British multinational banking giant that recently admitted to laundering some $881 million for two of the world's most powerful drug cartels over five-plus years.
But holding a tight shot on the unconscionable transgressions of the world's third largest bank risks blotting out the bigger problem--systemic interbank money laundering has ruthless kingpins, notorious despots, and blind-eye banking executives working in a sort of blooden triangle. Over a dozen big banks have settled with the US Justice Department over various laundering infringements since 2006, according to Robert Mazur, a former US federal agent. Citing court filings in a New York Times op-ed, Mazur's catalogue of criminal misdeeds reads like a Who's Who of too-big-to-fail slimeballery.
There's ING Bank, which forked over a $619 million fine last June for tampering records and quietly moving in excess of $2 billion "for entities trading with Iran and other nations under sanctions." There's American Express Bank International's owning up to the distinct possibility that it laundered over $55 million in drug earnings through some of its offshore shell accounts. There's ABN Amro Holdings (now owned by the Royal Bank of Scotland), Barclay's, Credit Suisse, Lloyds, Standard Chartered, Union Bank of California, and Wachovia--all of which, in the end, reached settlements with the Justice Department that dodged prosecutions on faith that the banks sharpen their internal-oversight spears. Mazur, whose 27-year career involved stretches as an undercover money launderer, dismisses all this as "the equivalent of traffic tickets."
So it's not just HSBC. In a 2010 interview with Profil, United Nation's Office on Drugs and Crime Executive Director Antonio Maria Costa put it bluntly: Money from both the global drugs trade and various other illegal activities have been the sole lifelines keeping many large banks in operation. But we can nevertheless look at how HSBC's Mexican branch pulled off transferring so much money to get an idea as to how the new global interbanking system keeps ticking.
It started where it always does, on American streets. Cartels, specifically Mexico's Sinaloa and Colombia's Norte del Valle, would deal narcotics here, and then slip the money back to Mexico, often via flesh-and-blood couriers criss-crossing the border. From there, the cash would be delivered to HSBC branches--Mazur speaks of cash boxes, some packed with hundreds of thousands of dollars, that were dumped, plain as day, right at teller windows.
Here's where things get kind of cloudy. Launder trails are equally winding and wonky--that's the point. But if we're to believe one Justice Department filing, cited by Reuters, midlevel cartel goons would leverage HSBC Mexico accounts, cracked open by the bank's lax anti-launder monitoring, for depositing the narco cash, and then wire the funds to "businesses located in the United States and elsewhere. The funds were then used to purchase consumer goods, which were exported to South America and resold to generate ‘clean' cash."
As Reuters explains:
In a typical transaction, a middleman in a drug cartel would offer to deliver consumer goods, such as computers or washing machines, to Colombian businesses on favorable terms. Another person in the United States would buy the goods from firms using funds from drug trafficking, and fulfill those orders.
So with that, the circle closed. But it potentially keeps looping--the Mexican Attorney General's office, whose word should be taken with a medium-sized grain of salt, says that some of these traffickers comprise an "elaborate system" that then funnels drug monies back through US banks, then on to European banks, then back to the States and Latin America.
All told, a yearlong investigation by the US Senate's Permanent Subcommittee on Investigations concluded that over a two-year span HSBC Mexico transferred $7 billion in narco funds. The subcommittee's report went on to claim that the bank straight up failed in keeping tabs on wire transfers totalling at least $60 trillion. Not one executive with the bank has been charged with any crimes. HSBC did what any flush entity does in this type of situation--it threw money at the problem. The $1.9 billion in fines it just paid out amounts to a paltry 10 percent of the "pre-tax profits" it netted in 2010 alone.
Meanwhile, the big winners of the so-called Fiscal Cliff Deal? Banks.
Reach Brian at email@example.com. @thebanderson