Financial Transparency Coalition

In December of last year the U.S. Department of Justice discovered that HSBC, a large British bank, “willfully failed” to apply money laundering controls to at least $881 million in drug trafficking proceeds from Mexico and covered up illegal transactions for Burma, Iran, Sudan, Cuba, and Libya. To escape criminal charges, HSBC admitted to wrongdoing and paid a record $1.92 billion settlement. Yet despite this massive offense, not a single person went behind bars as a result.

This wasn’t just a failure of the system or the anonymous bureaucracy of a massive corporation. The investigation revealed that senior HSBC officials were complicit in the illegal activity. They did not go to jail. According to court documents, individuals at HSBC went out of their way to allow the bank to act as a financial clearing house for these criminals. They will did go to jail. Other bank officials at HSBC made a “knowing calculation” that they would rather do business with criminals and “make a profit from those illegal transactions” than fulfill their obligations under U.S. law. They did not go to jail.

While critics pointed out the hypocrisy and inconsistency of this message, U.S. government officials called the fine a success. For example, U.S. Attorney Lynch, one of the architects of the settlement, said: “That’s a very short-sighted view, I think, because in this case they’re obviously paying a great deal of money, but they also have to literally had to turn their company inside out.”

So how has that “great deal of money” affected business at HSBC? Has the bank turned itself inside out? And, more importantly, have things changed in Mexico?

The answers to all of these questions is, basically, no.

Let’s start with some facts. It’s true that profits and reputation have taken a hit at HSBC. Net profits dropped nearly 17 percent in 2012, in part the result of the fine. Also, according to CEO Stuart Gulliver, as a result of the fine, HSBC’s reputation was “crushed.” Gulliver says he’s since “improved” the bank’s management structure that’s been in place since 1865.

But let’s put this in context: first with larger market forces and second with the reality of money laundering in Mexico (which, ultimately, is what we care about).

First, before we get too excited about a 17 percent drop in profits over last year, let’s remember that HSBC’s net profits were still a “modest” $14.03 billion and its underlying profit before tax rose 18 percent to $16.4 billion. Moreover, HSBC decided to increase the dividends it pays shareholders by 10 percent and paid Mr. Gulliver a hefty $3 million bonus. As other critics have already pointed out, this doesn’t sound like much of a culture change for the bank. Moreover, the fine, in the context of other financial woes of the bank, is hardly earth-shattering. For example, HSBC had to pay $5.2 billion to buy back its own debts and $1.4 billion for payment protection insurance compensation and mis-selling of interest rate hedging products. Unless we see evidence to the contrary, this context shows that the record fine, far from a U-Turn, represents a minor speed bump as HSBC steamrolls its current course.

Meanwhile, not much has changed for the corrupt and criminals seeking to funnel money out of Mexico. Take Elba Esther Gordillo, known as The Teacher for her position as the leader of Mexico’s national teachers union. For years Gordillo has been the subject of both ridicule and intrigue as a result of her extravagant designer outfits—supposedly earned on the salary of a public servant—and repeated plastic surgeries. Unsurprisingly, this money was not legitimate. Between 2008 and 2012, Gordillo allegedly embezzled $154 million of the union funds. She transferred $2 million of her stolen cash to bank accounts in Switzerland and Liechtenstein, using it to buy two properties in California.

We can’t go back in time and undo the settlement, nor can we throw anyone in jail at this point. But what we can do is get a better understanding of where the failures are occurring with respect to anti-money laundering compliance, particularly with respect to large banks in the U.S. banking system. And we have such an opportunity—today in fact.

Today the U.S. Senate Committee on Banking, Housing, and Urban Affairs will hold a hearing entitled “Patterns of Abuse: Assessing Bank Secrecy Act Compliance and Enforcement.” As Heather Lowe, Legal Counsel and Director of Government Affairs at Global Financial Integrity, puts it: the hearing will give us a sense of “whether this is a systemic problem and whether we have the resources and political will necessary to make that determination and root out the bad actors.  Otherwise, it would appear that the U.S. banking system is open to business for criminals looking to launder their money.”

Let’s hope, this time around, we do have that political will. Rather than another missed opportunity.