Who will watch the watchers?

On December 11th, the U.S. Department of Justice announced what amounted to a $1.9 billion dollar plea bargain settlement with HSBC, the world’s third largest bank. The media largely covered the story as it has most recent banking scandals, focusing on the size of the fine and noting a few colorful details of the story, but what has been lost in all of this is the larger, dispiriting pattern that has emerged over the past four years.

Since at least the days of the Romans, societies have asked the age old question: “Who will watch the watchmen?” Unfortunately, the trail of deferred prosecution agreements for many of the largest and best known banks in the world suggest that despite the intense post-September 11 efforts of the U.S. government to combat money laundering and reduce the risks of terror financing, the financial institutions tasked as primary gatekeepers in that effort posed the greatest risk of all.

Read together, the deferred prosecutions of Lloyds TSB, ABN Amro (now Royal Bank of Scotland), Credit Suisse, Barclays, ING, Standard Chartered and HSBC constitute a requiem for America’s post-September 11 efforts to prevent terror financing and money laundering.

More than a decade ago, at an American Bar Association Anti-Money Laundering Conference in 2001, held only weeks after the 9-11 attacks, the then Assistant U.S. Attorney General Michael Chertoff told the gathering: “Like it or not you are all on the front lines of the war on terrorism.”

Fast forward, eight years later, at a press conference addressing the government’s $536 million settlement with Credit Suisse, then Treasury Under-Secretary for Terrorism and Financial Intelligence Stuart Levey (now HSBC’s Chief Legal Officer) echoed Chertoff’s words: “It is the private sector and particularly financial institutions that are on the front lines. The business decisions they make not only affect their reputations, but also the integrity of the financial system as a whole.”

The accumulated evidence now leads to the inescapable conclusion that the system not only lacks integrity, but has been a primary conduit for both rogue states like Iran and the Mexican drug cartels. Lloyds TSB has admitted that from 2002-2004 alone, it secretly moved approximately 300 million dollars for Iranian banks. The money was moved in a process commonly referred to by its employees as “stripping,” and directed its employees to teach various Iranian banks in London how to format wire transfer messages so as to evade detection without Lloyds own employees having to do the work for them. These Iranian banks included Bank Melli, Bank Sepah, Bank Saderat and Bank Mellat – all of whom have been instrumental in financing Iran’s nuclear and ballistic missile programs as well as the Iranian Revolutionary Guard Corpse. Credit Suisse has admitted that it took over Lloyd’s entire portfolio of Iranian banking clients in August of 2003 and that between that time and November 1, 2006, it illegally moved 480 million dollars for the benefit of the Iranian government and other Iranian entities.

Similarly, ABN Amro and Barclays have admitted that they moved “hundreds of millions of U.S. dollars” for Iran and other sanctioned countries and entities with the intent to evade US laws. In 2012,Holland’s ING also admitted laundering funds for the Iranian Central Bank, but much of its illegal activity seems to have focused on helping Cuba evade U.S.sanctions.

As pernicious as their conduct was, Lloyds, Credit Suisse, ABN Amro, Barclays and ING appear to have laundered “only” hundreds of millions of dollars for Iran and other rogue states. While their admitted conduct was intentional and pervasive, if money laundering was ever recognized as an Olympic sport, these banks could only have battled to be bronze or silver medalists.

Britain’s Standard Chartered Bank, who recently agreed to pay $327 Million in penalties for violations of U.S. sanctions against Iran and other rogue states, looks like a favorite contender for the gold medal in the money laundering Olympiad. The Bank was already the subject to a 2004 enforcement action by the New York Banking Department and the Federal Reserve Bank of New York due to admitted flaws in anti-money laundering risk controls, when it was hit with the latest investigation. Like other banks that willfully concealed the money they were moving through the U.S. banking system for Iran, Standard Chartered also deliberately removed or omitted information from wire transfers, or structured them in ways that would conceal their illegal conduct. Standard Chartered admitted to doing so with respect to approximately 59,000 transactions totaling approximately $250 billion – essentially serving as Iran’s external central bank.

It is hard to escape the conclusion that Iran’s path towards a nuclear future which threatens the stability of its neighbors and the promised annihilation of the state of Israel has been paved by many of the most prestigious and powerful financial institutions in the Western world, most notably Britain’s leading banks.

This brings us to HSBC – an institution which appears to have combined its competitors’ acumen for money laundering for Iran and rogue states, while blazing a new trail in opportunities to service the major drug cartels. Like Standard Chartered, HSBC was already operating in the U.S. under a cease and desist order from U.S. regulators issued in 2010 and like Standard Chartered, it was simultaneously engaged in wide-scale money laundering on an almost unfathomable scale.

HSBC admits that from the mid-1990s through at least September 2006, it knowingly and willfully moved hundreds of millions of dollars through the U.S. financial system on behalf of rogue states like Iran, Libya and Sudan, but it also admits that it laundered at least $800 million for the Sinaloa and Norte del Valle drug cartels. However, because more than 300,000 transactions worth over $670 billion processed by HSBC Mexico were never monitored at all, the precise amounts laundered through HSBC by the Mexican and Colombian cartels will never be fully known, though it almost certainly exceeds a billion dollars.

As the death toll from the Mexican drug war mounts and U.N. inspectors confirm that Iran is close to achieving a sufficient amount of weapons-grade uranium to build a nuclear weapon, the last word belongs to the senior unnamed compliance officer at HSBC Group quoted in the court papers filed last week. In July 2007, that HSBC employee wrote that the bank’s anti-money laundering committee “can’t keep rubber-stamping unacceptable risks merely because someone on the business side writes a nice letter. It needs to take a firmer stand. It needs some cojones. We have seen this movie before, and it ends badly.”


About the Author
Gary M Osen is the managing partner of Osen LLC, a boutique litigation firm specializing in terror financing, money-laundering and looted art cases. Mr. Osen has what the Washington Times described as “a penchant for tackling larger-than-life cases” and developing new and creative legal theories that challenge some of the world's largest companies and most powerful governments. The New York Times has recognized him as “an internationally consulted legal authority on terror financing.” He has been quoted and featured in most of the leading newspapers and magazines in the United States and around the world, including Time Magazine, The New York Times, The Wall Street Journal, the Times of London, the Economist, Der Spiegel and Haaretz.