Stuart Levey

US Government Slaps HSBC’s Wrist for Facilitating Terrorism, Again

As I noted last year, when DOJ trumpeted their settlement with HSBC for a slew of money laundering violations, they didn’t mention that HSBC had provided almost a billion dollars to a Saudi bank that funded terrorists. Effectively, HSBC’s material support for terrorism for 5 years after it first realized it was doing so got completely ignored.

It turns out, between the time in 2010 when HSBC stopped providing cash dollars to a terror-supporting bank and the time of the DOJ settlement, HSBC was still violating counterterrorism sanctions. Treasury’s Office of Foreign Assets Controls just issued another settlement with HSBC’s US branch, detailing how HSBC processed 3 transfers totaling over $40,164 involving Husayn Tajideen after the bank learned he had gotten listed a designated terrorist. Not a huge amount of money, but over 4 times what Basaaly Moalin is going to jail for.

It’s OFAC’s rationale it uses to rationalize giving a recidivist just a $32,400 penalty that I find particularly egregious.

The settlement amount reflects OFAC’s consideration of the following facts and circumstances, pursuant to the General Factors under OFAC’s Economic Sanctions Enforcement Guidelines, 31 C.F.R. part 501, app. A. OFAC considered the following to be mitigating factors: HBUS voluntarily self-disclosed the apparent violations to OFAC; HBUS took appropriate remedial action in response to these apparent violations and now has a more robust compliance program in place; and HBUS has not received a penalty notice or Finding of Violation from OFAC for substantially similar apparent violations in the five years preceding the earliest date of the transactions giving rise to the apparent violations. The settlement amount reflects the following aggravating factors: HBUS managers and employees whose primary responsibility includes OFAC compliance were aware of the first apparent violation and had reason to be aware of the second and third apparent violations; the apparent violations resulted in actual economic benefit to an SDGT; HBUS is a large and commercially sophisticated financial institution; HBUS initially provided an incomplete response to an administrative subpoena; and, at the time of the first apparent violation, HBUS’ compliance program did not screen all MT 199 messages for potential OFAC matches. OFAC further reduced the proposed penalty in light of HBUS’ agreement to settle its potential liability for the apparent violations. [my emphasis]

Some of this is typical mumbo jumbo (though in this case, should be read with the awareness that Stuart Levey, who used to be Under Secretary of Terrorism Finance and Intelligence, got named HSBC’s General Counsel in 2012, so the subsequent actions likely represent his involvement).

But the claim that HBUS hadn’t had any substantially similar violations in the five years previous is just ridiculous. They had been busted for all sorts of very similar money laundering problems involving known drug kingpins and were uniquely important in providing cash that terrorists likely used for significant attacks. It’s only not substantially similar because it is orders of magnitude worse, so much so DOJ got involved and the settlement was with a different agency!

And in response to a recidivist being caught again, OFAC fines a bank with $14 billion in profits $32,400.

Update: In a statement to WSJ, Treasury said this settlement with a recidivist is unrelated to the past settlement with the recidivist.

But a Treasury spokesman said in an email that Tuesday’s settlement is unrelated to the December 2012 agreement with OFAC and other federal and state agencies.

“This action is similar to other settlements OFAC has reached with regard to apparent violations committed by U.S. financial institutions,” he said.

Lanny Breuer Deputizes Banks Rather than Prosecuting Them

Back when DOJ’s head of criminal prosecutions, Lanny Breuer, let HSBC off without indictments, I noted that he didn’t even mention HSBC’s significant ties to funding terrorists.

When it came to one of the world’s biggest banks, the Assistant Attorney General chose to simply ignore the threat DOJ’s been singularly dedicated to defeating since 9/11, terrorism.

But the Statement of Facts on the HSBC settlement wasn’t quite as reticent as Breuer himself. It said this about HSBC’s ties to terrorist financing:

In addition to the cooperative steps listed above, HSBC Bank USA has assisted the Government in investigations of certain individuals suspected of money laundering and terrorist financing.

That is, the court documents on the settlement talk about HSBC helping to investigate terrorist financing, rather than HSBC playing a key role in making up to a billion dollars available for terrorist financing. DOJ turned HSBC’s complicity in the central threat of our time into purported assistance pursuing it.

Poof! DOJ turned a criminal bank into a law enforcement partner, all through the secret exercise of so-called prosecutorial discretion.

Which is important background for the story about DOJ with which NPR’s Carrie Johnson has begun the year, describing how Lanny Breuer is asking banks–the same banks who crashed the economy with a bunch of criminal scams that have gone unpunished–to serve as “quasi cops.”

Every year, banks handle tens of millions of transactions. Some of them involve drug money, or deals with companies doing secret business with countries like Iran and Syria, in defiance of trade sanctions.

But if the Justice Department has its way, banks will be forced to change — to spot illegal transactions and blow the whistle before any money changes hands.

[snip]

But [former OCC head Eugene] Ludwig, who now consults for banks at the Promontory Financial Group [which makes huge money not finding crimes for the banks], says prosecutors and bank regulators can’t catch all the fraud, so they’re depending on the banks themselves to do a better job.

“Banks are not set up historically really to be kind of quasi law enforcement enterprises, which is really what the U.S. government’s asking of them,” he says.

Every time a financial institution makes a fix, criminals try to work around it. Ludwig calls it a cat-and-mouse game. “Fair or not, it’s what the government is demanding of our enterprises, and everybody has to face up to that reality, I think,” he says.

Ludwig may be publicly complaining. But his firm has already gotten consulting fees to hide the scale of Standard Chartered Bank’s fraud, and the government is about to give up on the badly-conflicted foreclosure abuse review for which Promontory consulted with Bank of American and Wells Fargo. It seems clear that Promontory will get rich whitewashing bank crimes so Lanny Breuer can pretend banks are cops, not robbers.

But that’s not the most lucrative scam here. After all, HSBC was able to reap billions because it served a key role in providing cash that went, in part, to terrorists. And yet it, unlike Muslim men, seems guaranteed under Lanny Breuer to wipe that slate clean by flipping on their former clients at a convenient time (and given that DOJ has taken no action against Al Rajhi bank, in only a limited fashion).

All this remains unstated. In fact, I guarantee you if it were ever asked, DOJ would refuse to divulge precisely what kind of quasi cop HSBC is playing, as it could under a law enforcement exception to FOIAs. Even Carl Levin’s otherwise meticulous report on HSBC was silent about what happened when Treasury’s former Under Secretary for Terrorist Finance went to HSBC.

But as part of the scam, it appears both a criminal bank and our buddies the Saudis have avoided any punishment for funding terrorism.

Which is how it works when the crooks get deputized rather than prosecuted.

 

 

US Cheating on European SWIFT Agreement Reveals Safeguards Were Oversold

As I noted last night, the US has been violating the spirit of its agreement with the EU on access to the SWIFT database–the database tracking international financial transfers. Rather than giving Europol specific, written requests for data, it has been giving it generic requests backed by oral requests the Europol staffers are not supposed to record. That arrangement makes it impossible to audit the requests the US is making, as required by the agreement between the US and EU.

But not only does our cheating make us an arrogant data octopus, it may suggest we’re violating our own internal safeguards on the program.

Back when Lichtblau and Risen first exposed the SWIFT program, they described how it initially operated under emergency powers. On such terms, SWIFT turned over its entire database.

Indeed, the cooperative’s executives voiced early concerns about legal and corporate liability, officials said, and the Treasury Department’s Office of Foreign Asset Control began issuing broad subpoenas for the cooperative’s records related to terrorism. One official said the subpoenas were intended to give Swift some legal protection.

Underlying the government’s legal analysis was the International Emergency Economic Powers Act, which Mr. Bush invoked after the 9/11 attacks. The law gives the president what legal experts say is broad authority to “investigate, regulate or prohibit” foreign transactions in responding to “an unusual and extraordinary threat.”

[snip]

Within weeks of 9/11, Swift began turning over records that allowed American analysts to look for evidence of terrorist financing. Initially, there appear to have been few formal limits on the searches.

“At first, they got everything — the entire Swift database,” one person close to the operation said.

But then they put in more safeguards. One of those safeguards was to have an outside auditing firm review the requests to make sure they were based on actual leads about actual suspected terrorists.

Officials realized the potential for abuse, and narrowed the program’s targets and put in more safeguards. Among them were the auditing firm, an electronic record of every search and a requirement that analysts involved in the operation document the intelligence that justified each data search. Mr. Levey said the program was used only to examine records of individuals or entities, not for broader data searches.

[snip]

Swift executives have been uneasy at times about their secret role, the government and industry officials said. By 2003, the executives told American officials they were considering pulling out of the arrangement, which began as an emergency response to the Sept. 11 attacks, the officials said. Worried about potential legal liability, the Swift executives agreed to continue providing the data only after top officials, including Alan Greenspan, then chairman of the Federal Reserve, intervened. At that time, new controls were introduced.

Among the safeguards, government officials said, is an outside auditing firm that verifies that the data searches are based on intelligence leads about suspected terrorists. “We are not on a fishing expedition,” Mr. Levey said. “We’re not just turning on a vacuum cleaner and sucking in all the information that we can.”

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Emptywheel Twitterverse
emptywheel @joshleitzel Not a lot. One of the most interesting details is the way OLC memos point to national emergency rather than AUMF.
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bmaz My question at the outset was why GM concealment was not bankruptcy fraud; now that will be litigated. Good. http://t.co/CCL3wm2HYE
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bmaz @trevortimm Be terrified. Very terrified. Cause what you saw is, I think, all you get.
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bmaz @johnson_carrie According to my wife, "impossible jerk" characterizes lawyers in many locales @npratc
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bmaz @HoltenMark @mucha_carlos @ColMorrisDavis @KenDilanianLAT The constitutional framing is amazingly resilient, but resets are slow.
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bmaz @HoltenMark @mucha_carlos @ColMorrisDavis @KenDilanianLAT I represent far too many of the former and lament the latter. Things change though
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bmaz @HoltenMark @mucha_carlos @ColMorrisDavis @KenDilanianLAT Frankly, US can exert such influence, will not be effective foreign prosec either
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bmaz @HoltenMark @mucha_carlos @ColMorrisDavis @KenDilanianLAT Yes, in these considerations, that is exactly right. Not happening.
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bmaz @HoltenMark @mucha_carlos @ColMorrisDavis @KenDilanianLAT I wasn't being a smart ass, just honest as to situation.
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bmaz @mucha_carlos @ColMorrisDavis @KenDilanianLAT @HoltenMark Safe enough bet; no administration will want to open that can of worms.
10hreplyretweetfavorite
bmaz @mucha_carlos @ColMorrisDavis @KenDilanianLAT @HoltenMark ...ought to give pause in above regards too. If DOJ ever cared about these crimes.
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bmaz @mucha_carlos @ColMorrisDavis @KenDilanianLAT @HoltenMark Well, yes, and the wild expansion of extraterritorial jurisdiction in other cases
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