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Op-Ed: How International Banks Enable Drug Trade

Little bad is written about Israeli banks. Not so for stellar world banking institutions.
Published: Friday, August 23, 2013 3:06 PM


A recent news item caught my eye - it seems one of the world’s largest banks, HSBC, announced it is cutting staff in North Africa and Israel. The Manager of the Geneva based Medis private bank unit of HSBC managing $8 billion was allegedly laundering money through Swiss branches for Moroccan drug dealers.

Plagued by drug money laundering scandals around the world, HSBC decided to shutter the entire unit affecting Tel Aviv . No Israeli banks are involved, nor are the New York and Tel Aviv staff of HSBC/Medis. But a spokesman for HSBC stated "We have restructured the business dramatically. That will see the majority of clients leave," so the need to downsize the unit operate in Israel is collateral damage.

This bank's response follows a 2012 U.S. Senate report charging HSBC with laundering 12 million euros in seven months for opium and cannabis smugglers delivering black plastic bags of cash for deposits transported in high speed limousines to HSBC.

The bank faces fines, but why aren’t the Chairman and CEO being fired or criminally charged with conspiracy and bank regulation violations?

Looking into the role of banks in the age of globalization, I found little bad written about Israeli banks and nothing about drug trade involvement. Meanwhile, banks with stellar names pay fines for the avuncular, often furtive role banks play in the international drug trafficking trade.

We know what traction the anti-Israel community would get if Israeli banks participated in this dark underworld. Yet, the EU, Britain and America let their bankers repeatedly offend.

Mark Twain sardonically quipped after the bank foreclosed on his home, “A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain.” An exasperated bank regulator blurted “the sense of unfairness hits you between the eyes” for the soft glove treatment bankers get despite clear evidence of mismanagement, greed, and criminal behavior.

Their seven deadliest sins according to Gary Rivlin on the DailyBeast.com are evicting military families from their homes during wartime; paying off loan officers to steer poor and minority borrowers to subprime loans; duping their own clients with pitches and faulty broker research to invest in high fee securities; collaborating in the cover up of insolvencies of Greece and other governments; ignoring Madoff’s deceptions; rigging municipal-bond markets; and showering themselves with fantastic pay and bonuses.

Rivlin overlooks the nastiest sins elucidated by the former head of the UN Office on Drugs and Crime, Antonio Maria Costa, as the four pillars of international banking: drug-money laundering, sanctions busting, tax evasion, and arms trafficking.

Politicians and academic studies evangelically avoid addressing the single most obvious punishments: seizing bank assets and putting bankers in jail. For instance, a 2012 report from Harvard University Institute of Politics recommends policy changes in fighting "The War on Mexican Cartels". The report steers away from punishments, to which the rest of us are subject, for those who facilitate illegal drug distribution and money laundering.

Swiss banks are charged and penalized for abetting tax evaders. No jail time for the bankers.

A British bank is charged with manipulating interest rate benchmarks. The banker only gets fired.

British bank HSBC pays nearly $2 billion settling with the U. S. for deferred prosecution after violating Bank Secrecy and Trading with the Enemy Acts.


No jail time for facilitating the sale of drugs to children.
Their Mexican branch reportedly washes billions of dollars into cash accounts of cartels. The fine merely totals four week’s worth of pre-tax profits for HSBC’s “blatant failure to implement anti-money laundering controls,” says U. S. Attorney Loretta Lynch. No jail time for facilitating the sale of drugs to children.

Enforcers of the War on Drugs tout arrests of small timers like Edward Dorsey Sr. He got five years for street selling 5.5 gm. of crack cocaine worth about $800. A 22-years old spent 180 days in county jail and ten years on probation for drug possession and related crimes. Two teens might go to jail for possessing Ritalin and marijuana that can be found on school kids anywhere in the world.

In contrast, Wachovia paid $160 million for laundering more than $300 billion in Mexican drug smuggling schemes. Wachovia earned $12 billion in 2009. The Federal prosecutor said, “Wachovia’s blatant disregard for our banking laws gave international cocaine cartels a virtual carte blanche to finance their operations.” Not a single banker went to jail.

The Lebanese Canadian Bank settled charges in June 2013 for $102 million in penalties for a "widespread international scheme" laundering proceeds through the U.S. banking system.  Money from drugs trafficked through West Africa went through U.S. Banks and back to Lebanese financial institutions with ties to terrorist group Hezbollah and its related entities.

Lloyds Banking Group and Barclays received fines for violating anti-drug money laundering laws.

Coutts is a bank for the elite and monarchs of England. Part of the Royal Bank of Scotland which the government bailed out, Coutts allegedly paid millions of pounds for money laundering.

American Express was once fined $65 million for laundering money through known drug dealers’ accounts.

New York State fined Deloitte $10 million on June 18, 2013 for advising one bank how to skirt money-laundering regulations.

The U.S. Asset Forfeiture Program is the potent weapon in the arsenal on the War on Drugs. The government seizes real property, vehicles, businesses, financial instruments, vessels, aircraft and jewelry when a criminal enterprise is successfully prosecuted. Governments can seize bank assets at the expense of shareholders.

So put gleaming, luxury bank skyscrapers and long wooden conference tables up for sale. Prosecute individual executives and seize their personal assets. The overwhelming edacity for big paydays will quell, forcing bankers to play by the rules.

In 2008, Tim Geithner argued “Old Testament Justice” is less important than protecting the banking system. Dr. Seuss might ask him today if years of “proteksia” should not end.

“Say, what a lot of banks there are. Some are sad. And some are glad. And some are very, very bad. Why are they sad, and glad, and bad? I do not know. Go ask your Dad,” Mr. Geithner.