Are some banks too big to jail?

HSBC Mexico HSBC in Mexico City - launderers deposited money using boxes designed to fit the bank's counter windows

How could and should the justice system deal with miscreant banks when there are likely to be "collateral consequences" for the innocent - including you and me - from the more severe punishments?

Tomorrow there should be another chance to assess the practice of punishing banks that do wrong, while trying to spare innocent customers and bystanders, when the fines and sanctions against the enormous Swiss bank UBS for its role in the Libor-rigging scandal may well be confirmed and explained.

That issue of the "collateral consequences" from bank spanking was cited by US Assistant Attorney General Lanny Breuer when explaining why the Department of Justice had chosen not to "fully prosecute" HSBC for its money laundering and sanctions breaching offences - and had instead put the bank on probation with a deferred prosecution agreement.

On the one hand, Mr Breuer said this, about HSBC's past conduct:

"From 2006 to 2010, the Sinaloa Cartel in Mexico, the Norte del Valle Cartel in Colombia, and other drug traffickers laundered at least $881m 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 designed to fit the precise dimensions of the teller windows in HSBC Mexico's branches."

So, for some - such as the journalist Matt Taibbi in Rolling Stone - it is scandalous that criminal charges should not be brought against HSBC, given that many thousands of US citizens are jailed every year for possessing relatively small quantities of drugs (see Outrageous HSBC Settlement Proves the Drug War is a Joke, Rolling Stone).

Book throwing

Also, over at BP a contrast has been noted between what it sees as the book being thrown at it by the Department of Justice for the oil disaster in the Gulf of Mexico - a guilty plea for serious crimes and the prosecution of three executives - and perhaps not such a weighty tome being lobbed at HSBC.

Mr Breuer denies that HSBC got off lightly. HSBC has had to mend its ways, avoid committing any kind of offence while on probation and pay penalties and forfeits of $1.9bn (it is worth pointing out, however, that $1.9bn is just 38% of what HSBC calls its "underlying" pre-tax profit for the three months to September 30, so the penalties and forfeits are affordable and absorbable).

What apparently weighed on Mr Breuer was that a criminal indictment of HSBC could have led it to lose its banking licence in New York.

This could have destroyed HSBC's relatively small US retail banking business and - more importantly - severely impaired its ability to conduct business anywhere in the world: the reputational damage of being blacklisted in America would have been terrible and, without access to dollars from the New York Fed, HSBC's vast international wholesale operations would have been in trouble.

As Mr Breuer put it: "The goal is not to bring HSBC down."

Too much?

So does this mean, to use a resonant phrase gaining a good deal of global traction thanks to the power of social media, that banks such as HSBC are not only "too big to fail" but also "too big to jail"?

When a bank becomes a lynchpin of the global economy, in the way that HSBC has done, are the hands of justice shackled in relation to it - because a proper spanking would be too much for a fragile global economic recovery to bear?

It is an important question. And one that the parliamentary committee on banking standards here in the UK, chaired by Andrew Tyrie, will probably be examining.

To be clear, however, even 30 years ago, before banks became quite as big and global as HSBC, it was never easy for the authorities to strip a bank of its licence. The disruptive impact on savers, businesses and the wider economy was always a significant deterrent to imposing the ultimate sanction on a misbehaving bank.

And for what it's worth - and you can judge whether it's worth a lot or a little - bankers themselves do not believe they're being given an easy ride by the authorities.


The boss of one of the world's biggest banks told me over the weekend that the greatest threat to the recovery of his bank and of the British economy - in his view - is the ever rising burden of fines and compensation faced by all banks for their sloppy, reckless and rule-breaking ways in the boom years.

Even for HSBC, there may be painful ramifications for many years yet of the money-laundering settlement.

First, because HSBC's former chairman, Lord Green, is a minister in David Cameron's government, the opposition Labour party has a powerful interest in shouting loudly and often about what Mr Breuer called the laundering by HSBC of billions of dollars accrued by narcotics' traffickers and others.

Second, for HSBC the most important region in the world for it in a commercial sense is Asia, and that happens to be where governments take a particularly dim view of any kind of trade in illegal drugs.

Or to put it another way, it will be months before it is clear whether HSBC will lose important custom because of the taint that it did huge business with Mexican drugs bosses.

Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 216.

    #215 totally agreee and that what ROWN should have done in 2007/08
    when this started, closed them down , protected deposits. they should have forgone htere pensions etc and many slung into jail for a long long time. BUT none of it happended wonder why , RBS,BOS and NR all in labour heartlands

  • rate this

    Comment number 215.

    It seems that banks have reached a position in society where they are essential, more important than a medical system, minimal welfare or defence. Beyond that, many are costing taxpayers a fortune, while failing shareholders and depositors. Now, they are not even performing honestly.

    In any other sector, there'd be only one response: take them all into state ownership & fire most of the managers.

  • rate this

    Comment number 214.

    @194.Ed Martin
    the activities to which mr peston refers are not banking
    Banks have two main functions.

    1. Money transfer
    2. Risk intermediation.

    HSBC's activities certainly fall under category 1.

  • rate this

    Comment number 213.

    What an interesting name Bullingdon perhaps our PM and Chancellor would feel at home there.
    In the meantime much seems to stem from this idea from the USA that corporations are entities as people. What nonsense, it's the people that commit the crimes a corporation is merely a gathering of individuals with a common cause. Charge the directing individuals that should ensure compliance

  • rate this

    Comment number 212.


    I'm sure the fine was paid. That would fit the corporate state (aka fascist) model I.e. business exploits consumer, govt fines business, business pays govt, consumer gets nix.

    I'm actually more interested in the morality of the whole scenario. Should the regulator join the (un)regulated only months later? Someone more cynical than me might suggest a whiff of corruption.

  • rate this

    Comment number 211.

    #209. redrobb

    There is a newish facility waiting for them.
    Needs to be bigger however.
    Certainly handy. With a ring to the name.

  • rate this

    Comment number 210.

    #205 One More Chance - its seems increasingly evident that is the case. From Hollywood to Wall Street (in more ways than one) to the CIA.

  • rate this

    Comment number 209.

    Remind me, in days gone by and you'd apply for a passport one used to need a signature from trustworthy noted folk e.g. Bankers, Lawyers, Politicians, Clergy, Doctors.....Well, just who can you trust? I'm quite sure quite a few wayward folks of these ilks serving HM another way!

  • rate this

    Comment number 208.

    #204. John M

    I would be interested to know if the fine had been paid. Not just levied.

    Big companies can simply write big figures off anyway. They make so much they can just allocate a fine or two to cost of sales.
    Except they don't sell anything.
    They just collect interest.
    On others' debt.

    Some of those charges may get to the treasury sometime. Perhaps.
    --Only to be offset against interest..

  • rate this

    Comment number 207.

    Wachovia was not first; HSBC will not be last. 6 years ago, a subsidiary of Barclays – Barclays Private Bank – laundered drug money from Colombia through 5 accts linked to Medellín cartel. No one was sanctioned when ING was fined $619M having moved billions into the US banking system.
    Politicians = cower. Why?
    Banks, not elected officials, run the country!

  • rate this

    Comment number 206.

    What precisely would I suffer in the way of collateral damage from seeing the chief executive banged up for a nice stretch of porridge, except perhaps for minor injuries caused by rolling on the floor laughing?

  • Comment number 205.

    All this user's posts have been removed.Why?

  • rate this

    Comment number 204.

    In December 2012 it was announced that Hector Sants would take up the position of Head of Compliance and Government and Regulatory Relations with Barclays Bank from January 2013.

    Sants was appointed FSA Chief Executive in July 2007. He stepped down from the FSA in June, the same month the FSA fined Barclays £59.5m for manipulating the interbank borrowing rate Libor.

    Just the facts...

  • rate this

    Comment number 203.

    Are some banks too big to jail?. On the evidence so far it would appear they are a protected species.

  • rate this

    Comment number 202.

    You cannot jail the banks but you could single out the culprits, confiscate their ill-gotten gains, criminalise and incarcerate them and/or educate them, by forcing them to do voluntary work in the community after they have spent at least a month in the stocks.....that should give them a social conscience!

  • rate this

    Comment number 201.

    Surely the solution is obvious. Do not go for the institution, go for the officers of that institution. If you fine a bank all it will do is treat the fine as a cost of business and having passed that cost on to it's customers carry on as before.
    A few hundred senior banksters being given 10 year plus custodial sentences would concentrate the minds of the rest. 'Pour encourager les autres'

  • rate this

    Comment number 200.

    All of these banks have departments specifically tasked with ensuring compliance with regulations. Amazingly, they are called Compliance, so it is clear what they do. They should have legal powers to enforce compliance and the individuals in these departments should have legal responsibility. If they fail then the responsible compliance officers should be charged, followed by the perpetrators

  • rate this

    Comment number 199.

    I'm happy for the Americans to keep going after these banks even if they are simply targeting easier non-US targets initially.

    At some point the precedent will mean they target their own. Its worth remembering Wachovia, now part of Wells Fargo laundered 380 billion dollars, and were fined something like 300 million with no arrests.

    The DEA themselves admitted their powerlessness to do more.

  • rate this

    Comment number 198.

    How to deal properly with fraudulent banksters:

    Jail them.
    Take all their money from them.
    Take all their families money from them.
    When released on licence, make them live a "normal" life. I.e. make sure they didn't squirrel any away and don't let their cronies help them out.

    Can't see it happening - can you?

    PS free Jon Corzine!

  • rate this

    Comment number 197.


    I just don't think it'll be like that - manning the barricades and that sort of thing.

    Hackers will take control of many military and civil installations from power supply to road and air traffic control, through communications and broadcasting, to banking and economic systems, etc., etc.

    It'll be a 'tech' uprising /revolution with ordinary folk as mere disempowered onlookers.


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