March 08, 2013

Elizabeth Warren, the newest member of the Senate Banking Committee, was at it again this week. This time the freshman Senator, who seemingly has more experience dealing with financial services matters than her more "senior" colleagues, interrogated banking regulators on HSBC's money laundering settlement.

Remember that settlement from last December? HSBC was fined for failing to monitor over $670 billion in wire transfers and over $9.4 billion in purchases of physical U.S. dollars from HSBC Mexico from 2006 to 2010. At least $881 million of those funds were tied directly to drug trafficking proceeds, according to the Department of Justice.

Once again, Warren relied on a simple and direct approach to her questioning. In fact, she used the same method to grill regulators a few weeks ago about how no bank has been taken to trial for the financial crisis. The method: ask a simple question, and press for a direct answer.

Drug Money
Yesterday, Warren made her case during her brief opening comments. "In December HSBC admitted to money laundering … to laundering $881 million that we know of, for Mexican and Colombian drug cartels … and also admitted to violating our sanctions for Iran, Libya, Cuba, Burma, the Sudan," Warren began. "And [HSBC] didn't just do it one time. It wasn't a mistake. They did it over, and over, and over again across a period of years. And they were caught doing it, warned not to do it, and kept right on doing it, and evidently making profits doing it."

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"HSBC paid a fine, but no one individual went to trial, no individual was banned from banking, and there was no hearing to consider shutting down HSBC's activities here in the United States," Warren continued.

Then she then asked her question and waited for an answer. "What does it take?" Warren asked. "How many billions of dollars do you have to launder for drug lords and how many economic sanctions to you have to violate before someone will consider shutting down a financial institution?"

Fair enough. Once again, Warren had to press regulators. Once again, she never received a direct answer.

[To see more of Elizabeth Warren's simple and direct interrogation method in action, visit: Regrets? Some Senators Have a Few.]

David S. Cohen, the Under Secretary for Terrorism and Financial Intelligence U.S. Department of the Treasury, was the first to attempt to answer the question and he was pressed the most by Warren. Not surprising, Cohen answered with typical Washingtion-speak, saying the Treasury takes money laundering "seriously," HSBC's actions were "egregious," and that the penalties "were significant."

Warren cut him off. "Let's move this along, Mr. Cohen," she interrupted. "My question is, what does it take to get you to move toward even a hearing, even considering, shutting down banking operations for money laundering?"

Cohen said the Treasury doesn't have the power to shut down a bank. "I understand that," Warren countered. "But you are supposed to be the experts on money laundering. In your opinion, how many billions of dollars do you have to launder for drug lords before somebody says we are shutting you down?"

Cohen dodged, saying it was the OCC's responsibility to pull a charter. "I'm sorry to interrupt, but I'm not hearing your opinion on this," Warren pressed. "You are supposed to be … the leaders in how we understand and work together to stop money laundering. I'm asking, what does it take?

Cohen dodged again. "So you have no opinion on it?" Warren counters, knowing full well that Cohen would never answer that question directly.

Cohen goes on to say he doesn't want to get into a "hypothetical line drawing exercise" about what threshold, or dollar amount, a bank has to cross, though apparently, $881 million isn't enough.

Passing the Buck
Jerome H Powell, governor at the Federal Reserve, was the next regulator to attempt to answer the question. Powell said the Fed can't take any action to pull a bank charter until there is a criminal conviction, and, you guessed it, the Fed doesn't do criminal prosecutions, since that is the Justice Department's job. Powell, like Cohen, either didn't have an opinion about how much money laundering it would take to pull a bank charter, or didn't want to share his opinion.

Powell got off easy, since Warren ran out of her allotted time (although looking at the room, there were only two or three other Senators there at the time). Apparently there were other important matters to attend to.

"If you're caught with an ounce of cocaine, the chances are good you're going to jail," Warren concluded. "If it happens repeatedly, you may go to jail for the rest of your life. … But evidently, if you launder nearly a billion dollars for drug cartels and violate our international sanctions, your company pays a fine and you go home and sleep in your own bed at night... I think that's fundamentally wrong."

ABOUT THE AUTHOR
Greg MacSweeney is editorial director of InformationWeek Financial Services, whose brands include Wall Street & Technology, Bank Systems & Technology, Advanced Trading, and Insurance & Technology.