Thursday, May 30, 2013 - The Money Laundering Criminals at HSBC and Standard Chartered Continue to Skate

05302013 Script

The Money Laundering Criminals at HSBC and Standard Chartered Continue to Skate

by Sinclair Noe

DOW + 21 = 15,324
SPX + 6 = 1654
NAS + 23 = 3491
10 YR YLD un = 2.12%
OIL + .45 = 93.58
GOLD + 21.00 = 1414.70
SILV + .32 = 22.88
PLAT + 31.00 = 1487.00
PAL + 8.00 = 761.00

So, apparently Wall Street moved higher today because the economy looks weaker and that means the Fed won't taper or quit QE. It's twisted logic, but we figured it out a while back.

The weak economic news started with this week's initial claims for jobless benefits; applications increased by 10,000 to 354,000. One week does not make a trend. Next week we'll get the jobs report for the month of May. Today's figures were just a reminder that the Fed won't have an easy path to end QE without crushing the labor market.

In a separate report, the Commerce Department said first-quarter gross domestic product was revised down to 2.4%, down from an initial estimate of 2.5%.  The gain in first-quarter growth follows a sluggish increase of 0.4% in the fourth quarter. Consumer spending increased, but that was likely due to higher prices for gasoline and electricity. Government expenditures fell by 4.9%, up from initial estimates of a 4.1% drop. The bulk of the decline was in military spending. Inflation as measured by the PCE index was muted, rising just 1.0% overall or by 1.3% excluding food and energy.

So, the economy is slowing, the sequester cuts are just starting to kick in and act as a drag on the economy, and inflation is running at half the Fed's target, and the jobs market is weak. And don't forget the Fed is finding no help in the form of fiscal policy. Against this backdrop, it will be hard to make a case for ending QE.

There is a market “disconnect” between the world’s gloomy outlook and talk of tapering by the US Federal Reserve, the supposed moment when it starts to wind down its $85bn of monthly bond purchases. Yet the markets seem to be betting that the central banks will come to the rescue yet again if needed.

Maybe, but there is that slight risk the central bankers might feel the compulsion to strike a blow against moral hazard and display their displeasure for asset bubbles. In other words, we could see a nasty sell-off at some point. We have been through these episodes of putative Fed tightening twice since the Lehman crisis. Markets tanked in 2010 and again in 2012 after the Fed turned off the spigot.

Yet QE critics clearly have a point. As Pimco’s Bill Gross points it, there are “bubbles everywhere”. The Credit Suisse index of Global Risk Appetite has been flirting with the “euphoria” line, not far short of levels seen in 1987, 2000 and 2007. There is a big market disconnect. The Gini co-efficient of wealth inequality is soaring, which means that all the money that's been pouring into the markets isn't trickling down.

American households have rebuilt less than half of the wealth lost in the financial crisis, leaving them without the spending power to fuel a robust economic recovery. From the peak of the boom to the bottom of the bust, households watched nearly 40% of their net worth disappear amid sinking stock prices and the rubble of the real estate market. Since then, Americans have only been able to recapture 45 percent of that amount on average, after adjusting for inflation and population growth.

The report from the St. Louis Federal Reserve showed most of the improvement was due to gains in the stock market, which primarily benefit wealthy families. That means the recovery for other households has been even weaker. The report states: “A conclusion that the financial damage of the crisis and recession largely has been repaired is not justified.”

The economy is twice as large as it was three decades ago, and yet the typical American is earning about the same, adjusted for inflation. The notion that we can’t afford to invest in the education of our young, or rebuild our crumbling infrastructure, or continue to provide Social Security and Medicare and Medicaid, or expand health insurance is absurd. Maybe the Fed should look at tapering off QE. It doesn't really work. That doesn't mean they should eliminate stimulus; it just means they need to inject the stimulus directly into the veins of the middle class.

Remember last September when US authorities decided to fine HSBC for money laundering? It seemed a mere slap on the wrist. A new batch of emails and letters were released to a Washington-based advocacy group, Public Citizen, and they paint a picture of the Treasury Department making hasty decisions following more than a 10 year investigation. The pressure started to build when a New York state regulator threatened to revoke the banking license of another British bank, Standard Chartered.

Public Citizen is hoping to obtain even more documents under the Freedom of Information Act. The New york Department of Financial Services determined that Standard Chartered had laundered $250 billion in illegal transactions over nearly a decade of business with US-sanctioned countries including Libya, Burma and Sudan. The bank was fined $327 million.

HSBC took money laundering to the next level. In total, the bank's US and Mexican units failed to monitor more than $670 billion in wire transfers and more than $9.4 billion in purchases of US dollars from HSBC Mexico. - Bloomberg

HSBC laundered billions for murderous drug gangs around the world; in Mexico, they changed their teller's cages to accommodate the boxes of drug cash. HSBC aided Iranian entities to evade US financial sanctions on Iran. If Iran ever develops nuclear weapons, we can thank HSBC and Standard Chartered. HSBC aided terrorist organizations including Hamas, Hezbollah, and al Qaeda.

HSBC was fined $1.9 billion.

Now, Judge John Gleeson is considering cancelling December’s so-called deferred prosecution agreement that gave HSBC immunity from money laundering claims. This could leave the bank open to criminal prosecution and a ban from operating in America. However, HSBC disputes this.

The US Department of Justice (DoJ) is reportedly challenging Mr Gleeson’s need to sign off on the deal. The judge last mentioned the case in February, stating that he had not yet approved nor disapproved of the settlement.

In a statement, HSBC said: “For more than two years, our new leadership team in both New York and London has been implementing reforms and new controls, investing in compliance systems and staff, and putting in place the most effective global standards across our network to combat financial crime on a global basis.

“We are focused on taking all necessary steps to fulfill our obligation under the agreements with the US and UK governments, and on implementing effective global standards across HSBC.”

That would sound more credible if only they had stopped laundering money. In March, fresh money laundering and tax evasion allegations surfaced in Argentina.

Standard Chartered was forced to admit it had violated the International Emergency Economic Powers Act, and if they didn't misbehave, then the charge would be dismissed in two years. It only took a couple of months for Standard Chartered's Chairman John Peace to lie to reporters, and investors by claiming there was no “willful intention” to violate financial rules. US regulators then forced Chairman Peace to write an apology for lying about money laundering.

Nobody went to jail.

Nobody.

On Wednesday, the Department of Justice announced arrests for money laundering. The DOJ statement says: "Today, we strike a severe blow against a professional money laundering enterprise charged with laundering over $6 billion in criminal proceeds."

Nope, not Standard Chartered, not HSBC; they arrested some guy running an online mish-mash out of Costa Rica called Liberty Reserve, or as the Department of Justice described it: “a massive criminal enterprise”, and “the largest international money laundering prosecution in the history of the Department."

It sounds like puffery, but it's true, I guess. The Department of Justice did not prosecute HSBC or Standard Chartered for a combined $929 billion in money laundering. Now, that would have been something to brag about, but they handed out deferred prosecution agreements, which have been violated. Of course, the judge hasn't signed off on the deferred prosecution agreement; apparently feeling a twinge of remorse in letting these criminals off the hook in light of the fact that 35,000 people were brutally murdered at the hands of drug traffickers in Mexico, who then laundered money through HSBC. Or maybe the judge can't reconcile how HSBC faces no jail time, while the FBI reports that in 2011 there were 663,032 arrests in this country for marijuana possession.

Meanwhile, the Washington Post reports the Office of the Comptroller of the Currency is expanding a probe that began in 2011 with allegations that JPMorgan Chase was using error-filled documents in lawsuits against debtors. The regulatory agency is examining the process several banks use to verify consumers’ outstanding debt before taking legal action.

If it sounds familiar it is. Remember the housing crisis, and how mortgage servicers were accused of falsifying records and robo-signing thousands of documents without review? The banks did pretty much the same thing, filing thousands of lawsuits against delinquent credit card holders. Consumer lawyers began noting a number of collection cases built on shoddy records. 

Authorities in California, for example, say JPMorgan flooded the courts with lawsuits against credit card holders based on flimsy evidence that cardholders were in default. California Attorney general Kamal Harris filed a case against JPMorgan. Iowa attorney general Tom Miller is organizing a 50 state effort, a replay of the 50 state attorney general effort on mortgages. So, the OCC is now getting involved because it looks bad when the state AG's take the reins and the federal regulators act like they're in a coma.

A former JPMorgan employee claims nearly 23,000 delinquent accounts were riddled with inaccuracies. The bank fired her; she sued; the case was settled out of court.

And still, none of the banksters has been jailed.