A Bank Too Big to Jail

By GRETCHEN MORGENSON

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    Lanny Breuer, at lectern, head of the Justice Department’s criminal division, announced the HSBC penalty and settlement in 2012. Credit Richard Drew/Associated Press       

 
 
Have you ever wondered why the crippling 2008 financial crisis generated almost no criminal prosecutions of large banks and their top executives?

Then take a moment to read the congressional report issued on July 11 titled “Too Big to Jail.”
 
Citing internal documents that the United States Treasury took three years to produce, the report shows how regulators and prosecutors turned a potential criminal prosecution of a large global bank — HSBC — into a watered-down settlement that insulated its executives and failed to take into account the full scope of the bank’s violations.

The report, prepared by the Republican staff of the House Financial Services Committee, does not examine a matter related to the mortgage crisis. Rather, it looks at the Department of Justice’s 2012 settlement with HSBC, the British banking behemoth, after accusations that it laundered nearly $900 million for drug traffickers and processed transactions on behalf of Cuba, Iran, Libya, Sudan and Myanmar, or Burma, when those countries were subject to United States sanctions.

HSBC and its American subsidiary, HSBC Bank USA, agreed to pay almost $2 billion under the settlement, striking a deferred prosecution arrangement that remains in place. Under such deals, the government agrees to delay or forgo prosecution of a company if it promises to change its behavior.

In spite of the settlement’s size, it did not represent a body blow to the bank. Announced in late 2012, the HSBC agreement was almost a footnote to the earlier fallout from the mortgage crisis.
 
Still, the facts outlined by prosecutors were damning enough to raise questions about why the bank had not been subject to harsher treatment, fueling the view that large financial institutions are not only too big to be allowed to fail but also are too significant to be prosecuted criminally.

There doesn’t seem to be much doubt about that. Indeed, the report concluded that the Justice Department’s leadership overruled an internal recommendation to prosecute HSBC, citing concerns “that prosecuting the bank ‘could result in a global financial disaster.’”










This will surprise few Americans who learned during the financial crisis that banks and their officials are rarely held to account.

Peter Carr, a spokesman for the Justice Department, said it was “committed to aggressively investigating allegations of wrongdoing at financial institutions, and, along with our law enforcement partners, holding individuals and corporations responsible for their conduct.”
 
Since 2014, he said, It has prosecuted numerous individuals for corporate misconduct, including top executives.

Eric H. Holder Jr., the former attorney general, did not return a phone call seeking comment about the report.

Quoting from internal Treasury records, the report said that once the Justice Department decided not to prosecute HSBC, its officials began softening the deal offered to the bank. One change involved releasing the bank’s employees, officers and directors from potential prosecution.

The original agreement provided no protection from prosecution for employees who “knowingly and willfully” processed financial transactions with countries under American sanctions, the report said.

But the final deferred prosecution agreement gave a conditional release from liability for transactions disclosed to investigators during the period covered by the settlement.

Document

‘Too Big to Jail’ Congressional Report

Citing internal documents that the United States Treasury took three years to produce, the report looks at the Department of Justice’s 2012 settlement with HSBC.
OPEN Document

David A. Skeel, a professor of corporate law at the University of Pennsylvania Law School, said he was struck by this change. “This is one case where it looks like the government might have been able to prosecute misbehaving executives during the crisis period, yet it waived its right to do so,” he said in an email.

While initial terms called for voiding the entire year’s bonus compensation at the bank if it did not meet compliance hurdles, the final deferred prosecution agreement said only that a failure could potentially void the bonuses. This revision, the report said, “apparently leaves open the possibility for executives to get their bonuses, despite failing to meet compliance standards.”

Another disturbing element turned up by the House committee: The settlement terms were given to HSBC before officials in the Treasury’s Office of Foreign Assets Control, or O.F.A.C., had assessed the full extent of the bank’s sanctions violations.

The Justice Department called for HSBC to pay $375 million to settle the sanctions violations. But officials in charge of analyzing those violations were still awaiting additional information from the bank when this figure was submitted. Therefore, they could not be sure the amount was adequate.

“No matter that our sanctions numbers might come in higher than that,” an official at the Treasury office wrote in an email to colleagues. “We weren’t consulted. We were told.”

As a result, the report said, officials of the Office of Foreign Assets Control “decided to hastily resolve internal concerns about the extent of HSBC’s sanctions violations and ‘frame’ O.F.A.C.’s final settlement number to mirror the $375 million ‘deemed settled’ value proposed” by the Justice Department.

Mary Kreiner Ramirez, a professor at Washburn University School of Law in Topeka, Kan., and a former assistant United States attorney, said she was startled by how much influence officials at the Financial Services Authority — Britain’s top financial regulator at the time — had on the Justice Department’s process in the HSBC matter, according to the report.
 
“It would seem that in making the decision with respect to HSBC, Holder gave more attention to the concerns expressed by the F.S.A. than he did with respect to our own agencies,” Ms. Ramirez said in an interview. “And think about it: Congress spent three years trying to uncover this information that F.S.A. was getting at the time the events were unfolding.”

That it took the House committee so long to receive the information from the Treasury Department once again raises questions about transparency in government, something the Obama administration has called a top priority.

“Treasury improperly impeded the committee’s investigation” for nearly three years before producing certain subpoenaed records, the report said. The department’s production of records “is missing dozens, if not hundreds, of pages,” the report said.

Joshua Drobnyk, a Treasury spokesman, disputed this characterization, saying the department had cooperated extensively with Congress. “Treasury made hundreds of pages of documents available to the committee more than two years ago, in April 2014, and committee staff reviewed the materials five separate times,” Mr. Drobnyk said in a statement.

But Jeb Hensarling, the Texas Republican who heads the House Financial Services Committee, doesn’t buy it. “If an incomplete response to the committee after three years and the threat of deposition subpoenas isn’t stonewalling, I don’t know what is,” he said in a statement. “After these revelations, if the Obama administration refuses to be transparent, produce the documents that it is withholding and address the urgent questions that this report has raised, the American people need to ask why.”
 
By shedding light on the HSBC matter, the report is “the best kind of anticorruption action,” said Edward J. Kane, a professor of finance at Boston College and an authority on regulatory failures. “The fact that so many of these cases are settled rather than going to court means we don’t get an airing of facts and challenges of facts.”

The report should be viewed as “evidence of an abuse of the regulatory system,” Mr. Kane added. “And unless proven otherwise, this is just the tip of the iceberg.”

Further repression will worsen Turkey’s situation

Coup attempt underlines the dangers posed by the deepening divisions in Turkish society
 
 
 
After a night of unprecedented violence, the one indisputable fact known about the failed coup against Turkey’s government is the heavy death toll it exacted.
 
More than 160 people were killed and some 1,500 injured in the air strikes, explosions, gun battles and street fighting that broke out between loyal and rebel factions in the police and security forces, and in confrontations between soldiers and civilians who came out to oppose the uprising.

The shape of the plot — in which soldiers took over bridges, airports and broadcasters; parked tanks around government buildings; and put out a statement promising to restore constitutional order — would have been familiar to Turks with memories of the last “hard” military coup in 1980.

Yet while that coup was largely unopposed, few in Turkey now want the armed forces to interfere with elected governments. Leaders of all political parties were swift to condemn the attempt.

Recep Tayyip Erdogan, the country’s autocratic president, is a deeply polarising figure, but it was not only supporters of his AK Party who answered his call (delivered, somewhat ignominiously, by a FaceTime video and text message) to defy the curfew and come on to the streets.

The government has now declared victory, but this is very far from being a victory for Turkish democracy.

The uprising underlines the dangers posed by the deepening divisions in Turkish society. Mr Erdogan retains the passionate support of around half the country’s electorate, but he has made no concessions to the concerns of other groups.

In the absence of effective parliamentary opposition, he has stifled the media, stamped on street protests and purged rivals from state institutions and his own party. He has proved willing to play the nationalist card for electoral gain — reigniting the smouldering conflict in the Kurdish south east.

And he is now intent on constitutional changes that would further cement his grip on power.

This is an environment in which many people fear the erosion of democratic institutions, and in which frustrations can easily spill over into violence. There is no denying the courage of the people who tackled tanks and armed soldiers in Istanbul and Ankara on Friday night; but there have also been some reports of ugly reprisals against young soldiers who had surrendered.

US-based preacher denies masterminding attempted coup against the Turkish president
It remains unclear who masterminded the coup attempt. Mr Erdogan accuses followers of the influential cleric Fethullah Gulen, who previously made common cause with the AK Party but have more recently become its bitter rivals.

What is clear is that further repression will worsen the situation. Mr Erdogan is already threatening reprisals, calling the coup a “gift from God” since it presents an opportunity to clean up the army.

Yet factional infighting has already weakened Turkey’s police and security forces, which have struggled to counter terrorist attacks by Syrian jihadis and Kurdish rebels. A fresh purge could be a damaging distraction. This has implications beyond Turkey’s borders. One of the few functioning democracies in a volatile region, the country is an indispensable ally for the US in Syria and for the EU in handling the migration crisis. Its stability matters, and it is under threat.

The risk now is that Mr Erdogan — ever ready to see conspirators against him — will feel vindicated; and will win support for the drive to enhance his powers. He would do better to recognise that winning elections is not enough to preserve democracy; and show restraint.


Decline of Empire: Parallels Between the U.S. and Rome,

Part I

by Doug Casey



As some of you know, I’m an aficionado of ancient history. I thought it might be worthwhile to discuss what happened to Rome and based on that, what’s likely to happen to the U.S. Spoiler alert: There are some similarities between the U.S. and Rome.

But before continuing, please seat yourself comfortably. This article will necessarily cover exactly those things you’re never supposed to talk about—religion and politics—and do what you’re never supposed to do, namely, bad-mouth the military.

There are good reasons for looking to Rome rather than any other civilization when trying to see where the U.S. is headed. Everyone knows Rome declined, but few people understand why. And, I think, even fewer realize that the U.S. is now well along the same path for pretty much the same reasons, which I’ll explore shortly.

Rome reached its peak of military power around the year 107, when Trajan completed the conquest of Dacia (the territory of modern Romania). With Dacia, the empire peaked in size, but I’d argue it was already past its peak by almost every other measure.

The U.S. reached its peak relative to the world, and in some ways its absolute peak, as early as the 1950s. In 1950 this country produced 50% of the world’s GNP and 80% of its vehicles. Now it’s about 21% of world GNP and 5% of its vehicles. It owned two-thirds of the world’s gold reserves; now it holds one-fourth. It was, by a huge margin, the world’s biggest creditor, whereas now it’s the biggest debtor by a huge margin. The income of the average American was by far the highest in the world; today it ranks about eighth, and it’s slipping.

But it’s not just the U.S.—it’s Western civilization that’s in decline. In 1910 Europe controlled almost the whole world—politically, financially, and militarily. Now it’s becoming a Disneyland with real buildings and a petting zoo for the Chinese. It’s even further down the slippery slope than the U.S.

Like America, Rome was founded by refugees—from Troy, at least in myth. Like America, it was ruled by kings in its early history. Later, Romans became self-governing, with several Assemblies and a Senate. Later still, power devolved to the executive, which was likely not an accident.

U.S. founders modeled the country on Rome, all the way down to the architecture of government buildings, the use of the eagle as the national bird, the use of Latin mottos, and the unfortunate use of the fasces—the axe surrounded by rods—as a symbol of state power. Publius, the pseudonymous author of The Federalist Papers, took his name from one of Rome’s first consuls. As it was in Rome, military prowess is at the center of the national identity of the U.S. When you adopt a model in earnest, you grow to resemble it.

A considerable cottage industry has developed comparing ancient and modern times since Edward Gibbon published The Decline and Fall of the Roman Empire in 1776—the same year as Adam Smith’s Wealth of Nations and the U.S. Declaration of Independence were written. I’m a big fan of all three, but D&F is not only a great history, it’s very elegant and readable literature. And it’s actually a laugh riot; Gibbon had a subtle wit.

There have been huge advances in our understanding of Rome since Gibbon’s time, driven by archeological discoveries. There were many things he just didn’t know, because he was as much a philologist as an historian, and he based his writing on what the ancients said about themselves.

There was no real science of archeology when Gibbon wrote; little had been done even to correlate the surviving ancient texts with what was on the surviving monuments—even the well-known monuments—and on the coins. Not to mention scientists digging around in the provinces for what was left of Roman villas, battle sites, and that sort of thing. So Gibbon, like most historians, was to a degree a collector of hearsay.

And how could he know whom to believe among the ancient sources? It’s as though William F. Buckley, Gore Vidal, H. L. Mencken, Norman Mailer, and George Carlin all wrote about the same event, and you were left to figure out whose story was true. That would make it tough to tell what really happened just a few years ago… forget about ancient history. That’s why the study of history is so tendentious; so much of it is “he said/she said.”

In any event, perhaps you don’t want a lecture on ancient history. You’d probably be more entertained by some guesses about what’s likely to happen to the U.S. I’ve got some.

Let me start by saying that I’m not sure the collapse of Rome wasn’t a good thing. There were many positive aspects to Rome—as there are to most civilizations. But there was much else to Rome of which I disapprove, such as its anti-commercialism, its militarism and, post-Caesar, its centralized and increasingly totalitarian government. In that light, it’s worth considering whether the collapse of the U.S. might not be a good thing.

So why did Rome fall? In 1985, a German named Demandt assembled 210 reasons. I find some of them silly—like racial degeneration, homosexuality, and excessive freedom. Most are redundant. Some are just common sense—like bankruptcy, loss of moral fiber, and corruption.

Gibbon’s list is much shorter. Although it’s pretty hard to summarize his six fat volumes in a single sentence, he attributed the fall of Rome to just two causes, one internal and one external: Christianity and barbarian invasions, respectively. I think Gibbon was essentially right about both. Because of the sensibilities of his era, however, he probed at early Christianity (i.e., from its founding to the mid-4th century) very gently; I’ve decided to deal with it less delicately. Hopefully neither my analysis of religion nor of barbarian invasions (then and now) will disturb too many readers.

In any event, while accepting Gibbon’s basic ideas on Christians and barbarians, I decided to break down the reasons for Rome’s decline further, into 10 categories: political, legal, social, demographic, ecological, military, psychological, intellectual, religious, and economic—all of which I’ll touch on. And, as a bonus, toward the end of this article, I’ll give you another, completely unrelated, and extremely important reason for the collapse of both Rome and the U.S.

You don’t have to agree with my interpretation, but let’s see what lessons are on offer from the history of Rome, from its semi-mythical founding by Romulus and Remus in 753 BCE (a story that conflicts with Virgil’s tale of Aeneas and the refugee Trojans) to what’s conventionally designated as the end of the Western empire in 476 AD, when the child-emperor Romulus Augustulus was deposed by Odoacer (a Germanic general who was in charge of what passed for the Roman army—which by then was staffed almost entirely with Germanic mercenaries who had no loyalty to the idea of Rome).

It looks a lot like the American experience over the last couple of hundred years. First conquest and expansion, then global dominance, and then slippage into decline.

Political

It’s somewhat misleading, however, to talk about a simple fall of Rome, and much more accurate to talk about its gradual transformation, with episodes of what paleontologists describe as “punctuated disequilibrium.” There were many falls.

Republican Rome fell in 31 BCE with the accession of Augustus and the start of what’s called the Principate. It almost disintegrated in the 50 years of the mid-3rd century, a time of constant civil war, the start of serious barbarian incursions, and the destruction of Rome’s silver currency, the denarius.

Rome as anything resembling a free society fell in the 290s and then changed radically again, with Diocletian and the Dominate period (more on this shortly). Maybe the end came in 378, when the Goths destroyed a Roman army at Adrianople and wholesale invasions began. Maybe we should call 410 the end, when Alaric—a Goth who was actually a Roman general—conducted the first sacking of Rome.

It might be said the civilization didn’t really collapse until the late 600s, when Islam conquered the Middle East and North Africa and cut off Mediterranean commerce. Maybe we should use 1453, when Constantinople and the Eastern Empire fell. Maybe the Empire is still alive today in the form of the Catholic Church—the Pope is the Pontifex Maximus wearing red slippers, as did Julius Caesar when he held that position.

One certain reflection in the distant mirror is that beginning with the Principate period, Rome underwent an accelerating trend toward absolutism, centralization, totalitarianism, and bureaucracy. I think we can argue America entered its Principate with the accession of Roosevelt in 1933; since then, the president has reigned supreme over the Congress, as Augustus did over the Senate. Pretenses fell off increasingly over time in Rome, just as they have in the U.S.

After the third century, with constant civil war and the destruction of the currency, the Principate (when the emperor, at least in theory, was just the first among equals) gave way to the Dominate period (from the word “dominus,” or lord, referring to a master of slaves), when the emperor became an absolute monarch. This happened with the ascension of Diocletian in 284 and then, after another civil war, Constantine in 306. From that point forward, the emperor no longer even pretended to be the first among equals and was treated as an oriental potentate. The same trend is in motion in the U.S, but we’re still a ways from reaching its endpoint—although it has to be noted that the president is now protected by hundreds, even thousands, of bodyguards. Harry Truman was the last president who actually dared to go out and informally stroll about DC, like a common citizen, while in office.

In any event, just as the Senate, the consuls, and the tribunes with their vetoes became impotent anachronisms, so have U.S. institutions. Early on, starting with the fourth emperor, Claudius, in 41 AD, the Praetorians (who had been set up by Augustus) showed they could designate the emperor.

And today in the U.S., that’s probably true of its praetorians—the NSA, CIA, and FBI, among others—and of course the military. We’ll see how the next hanging-chad presidential election dispute gets settled.

My guess is that the booboisie (the Romans called them the capite censi, or head count) will demand a strong leader as the Greater Depression evolves, the dollar is destroyed, and a serious war gets underway. You have to remember that war has always been the health of the state. The Roman emperors were expected, not least by their soldiers, to always be engaged in war. And it’s no accident that the so-called greatest U.S. presidents were war presidents—Lincoln, Wilson, and FDR. We can humorously add the self-proclaimed war president Baby Bush. Military heroes—like Washington, Andrew Jackson, Ulysses Grant, Teddy Roosevelt, and Eisenhower—are always easy to elect. My guess is that a general will run for office in the next election, when we’ll be in a genuine crisis. The public will want a general partly because the military is now by far the most trusted institution of U.S. society. His likely election will be a mistake for numerous reasons, not least that the military is really just a heavily armed variant of the postal service.

It’s wise to keep Gibbon’s words about the military in mind: “Any order of men accustomed to violence and slavery make for very poor guardians of a civil constitution.”

One additional political parallel with the U.S.: up to Trajan in 100 AD, all the emperors were culturally Roman from old, noble families. After that, few were. The U.S. now has its first Kenyan president—just kidding, of course.

Mission: Save the Environment

Sean B. Carroll
. Newsart for Mission: Save the Environment



CHEVY CHASE, MARYLAND – Picture this. It is 1966. You are standing in a government office in Washington, DC, watching a uniformed official tell a man in business attire, “Your mission is to eradicate an enemy that has killed more people than both world wars combined. You will have a paltry budget, a small team, and should you fail, the Secretary will disavow any knowledge of your actions.”
 
It sounds like a scene from a Hollywood movie. And, indeed, it mirrors the opening scenes of the Mission: Impossible television series that premiered that year. But it really happened, if not in precisely those words. The official was Assistant Surgeon General James Watt; the man with the mission was Communicable Disease Center (CDC) scientist Donald Henderson; and the enemy was smallpox.
 
The mission certainly seemed impossible. At the time, smallpox was killing as many as two million people, and infecting another 15 million, each year. Yet, like in the series, Henderson and his team at the World Health Organization defied expectations. In just over a decade, smallpox became the first – and, so far, the only – infectious human disease ever to be fully eradicated.
 
The key to this tremendous medical achievement was not, as one might expect, some major health breakthrough (the smallpox vaccine had been around since the eighteenth century). It was diplomacy, flexibility, and cooperation.
 
From the beginning, the WHO lacked faith in a vaccination campaign. Many, including the WHO director-general, believed that, to stop smallpox, all 1.1 billion people in the 31 affected countries, including those in remote villages, would have to be inoculated – a logistical nightmare.
 
That is why WHO delegates debated for days before agreeing, by the slimmest margin ever, to provide a measly $2.4 million per year for the effort – too little to cover the costs of whatever vaccine was not donated, let alone fund the necessary logistical support. Many donors shared this pessimism, believing that their money would be better spent on, say, health-care infrastructure. Even UNICEF decided against contributing to the campaign.
 
In fact, the decision to assign Henderson to the unenviable job of spearheading the campaign stemmed from the WHO director-general’s decision to put an American in charge, so that the United States, not the WHO, would take the blame for the program’s failure. (Henderson tried to refuse the role, but there was no “should you choose to accept it” in this episode.) Yet Henderson managed to turn a bad hand into a winning one, with a key insight.
 
Henderson recognized that the Soviet Union – which had been pressing for an eradication campaign for several years, and had already pledged to donate 25 million doses of vaccine annually – would not be enthusiastic about an American leading the charge. So he reached out to the Soviet deputy health minister, Dimitri Venediktov, with whom he established a rapport that enabled the two sides to work together on strategy and logistics, in addition to their vaccine donations (the US had agreed to provide 50 million doses each year). The two most unlikely allies ended up leading the fight together.
 
Henderson’s knack for diplomacy was matched by an eye for talent and leadership. He insisted that all of his staff spend at least a third of their time in the field, working with local officials and visiting villages, so that they could see firsthand the challenges of mass vaccination.
 
Among those personnel was William Foege, a Lutheran missionary doctor working as a consultant for the CDC in Nigeria. One day in December 1966, Foege got word of a smallpox case in another village and immediately traveled there to vaccinate the victim’s family and other villagers.
 
But Foege was worried that a wider outbreak might be unfolding, and he did not have enough doses to vaccinate everyone in the area. So he adopted a different tactic: he sent runners into all villages within 30 miles to check for more cases, and then vaccinated people only in the four places where cases turned up. This created a “ring” of vaccination around infected people that broke the chain of infection.
 
Foege’s strategy was extended to eastern Nigeria, then introduced to other parts of West Africa, and ultimately applied to the most challenging environment of all: India, with its half-billion people. It took 130,000 trained health workers 20 exhausting months, but they eliminated the scourge of smallpox that had tormented India for millennia. Then, in spite of natural disasters, the kidnapping of WHO personnel, and civil war, health workers repeated that success in Bangladesh, Ethiopia, and Somalia. Finally, in 1980, the world was officially free of smallpox.
 
Fifty years after the launch of this daring mission, the tremendous achievement that emerged from it is fading from memory. But the lessons it carries for galvanizing a fractious international community to tackle a shared challenge could not be more important, especially at a time when urgent problems like environmental degradation demand global solutions.
 
As Foege has pointed out, the eradication of smallpox proves that “global efforts are possible.”
 
We do not “have to live in a world of plagues, disastrous governments, conflict, and uncontrolled health risks.” Instead, “the coordinated action of a group of dedicated people” can “bring about a better future.”
 
Humanity cannot live in a world of polluted air and water, empty seas, vanishing wildlife, and denuded lands. The ecological challenges we now face are matters of public health and welfare, just as smallpox was. Our mission, whether we want to accept it or not, is to summon the collective will to halt our self-destruction.