“A bad quarter” versus “I could go to jail” – Is it time to indict a few bankers for money laundering?

Reuters reports “Exclusive: HSBC might pay $1.8 billion money laundering fine – sources”.  That’s up from the $1.5B they previously announced as a reserve.

The article reports of leaks that a settlement could include a deferred prosecution agreement with the huge fine.  It then discusses the difficulty prosecutors are having in deciding whether to pursue the fine, which may or may not change behavior, or to actually prosecute a few individual bankers.

Update WSJ reports 12-10-12 an imminent settlement could be for $1.95B, including a deferred prosecution agreement and admission of violating the bank secrecy act.

The pattern in recent years has been to negotiate a fine and impose a deferred prosecution agreement. Yet there seems to be repeat behavior. 

As an aside, DealBook has sources that say Standard Chartered to Pay $330 Million to Settle Iran Money Transfer Claims.  That would be to the feds and is in addition to the $340M they already agreed to pay New York State. If correct, that would be $670M for laundering $250B of Iranian money.

Is there an option other than indicting the bank, which would likely be a death sentence?

Is it time for individual prosecutions?

After the explosions of big financial scandals at the turn-of-the-century, I very clearly noticed the change in how such cases are prosecuted.

Previously, the low-level people in a criminal scheme or financial scandal could trade testimony against their bosses in return for walking away without prosecution. Those have been the rules for decades.

Not anymore.

The rules changed so that the price of admission to “turning state’s evidence“ was that even at the bottom of the pile you took one or two felony charges, pleaded guilty, and did a little jail time. In return you testified and didn’t get hit with the really severe felony charges.

One example is the story of WorldCom told by Cynthia Cooper in Extraordinary Circumstances recounting her experiences as a whistleblower. The book describes how the lowest level accountant involved, who merely posted the journal entries provided by her boss, had to take two felony pleas with jail time in order to testify against her bosses. The alternatives for jail time were either a few months or very many years.

I, for one, heard that message very loud and clear. Not that I needed it, but I heard the message.

I’m confident that large numbers of CPAs, attorneys, lower level managers, and staff people heard the message too.

Perhaps, just perhaps, the banking world needs to hear a similar message so everyone in that community knows there’s a personal risk from blowing off US law.

The risk of being prosecuted personally for money laundering changes the equation from a nonchalant, shoulder-shrugging “the corporate finance office will have to report a really bad quarter if we get caught” to a much more sobering “I could go to jail if we get caught”.

I really don’t like the concept of picking one poor slob to make an example of.  Seems unfair to me that everyone before got away with it but that guy over there got nailed. 

On the other hand, that might be what it takes to increase compliance with our money-laundering rules. 

We as a country really, really don’t want druggies and terrorists using the U.S. banking system as their piggy bank.  Moving $7B in currency across our southern border or moving $250B of Iranian governmental & business wires through New York in return for some nice fees does not amuse us.  From what I’ve read, it seems a number of banks haven’t quite caught on to the concept they ought not do that.

My previous posts:

What you think? Would a few individual prosecutions increase compliance? Or will more deferred prosecution agreements do the job?  Or am I missing something?

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