HARPER: A BANKER FROM HSBC GOING TO JAIL

During the late 1980s savings and loan collapse, more than 1,000 bankers went to jail for various kinds of financial fraud.  Famous names like Michael Milken, the Keating Five and Ivan Boesky were tried and convicted of manipulation and theft--and did their time behind bars.  Not so following the 2008 financial crash, a collapse far bigger and more devastating for investors, great and small.  But following the 2008 debacle, under what came to be known as the "Holder Rule," not a single individual banker from the "too big to fail" financial institutions of Wall Street and the City of London suffered personal prosecution.

President Barack Obama, who came into office with the financial backing of Wall Street banks and Connecticut hedge funds, and his Attorney General Eric Holder both made the specious argument that the threat of "collateral damage" to the global financial system was such that all top bankers had to be given a permanent "stay out of jail for free" card.  It came to be known as "too big to jail."

On October 23, 2017, a Federal Grand Jury in Brooklyn, New York ripped up the "Holder Rule" and convicted a top banker from the big London bank HSBC on nine counts of conspiracy and wire fraud.  A second HSBC banker is now awaiting extradition from the UK to stand trial on similar charges.

Mark Johnson was the head of HSBC's global foreign exchange cash trading desk and Stuart Scott was a subordinate of Johnson at the London trading desk.  Both men conspired to rip off Cairn Energy by "front running" a Cairn transaction commissioned to HSBC.  Cairn had $3.5 billion in US dollars from the sale of an India subsidiary and they commissioned HSBC to convert the dollars into UK pound sterling.  Just prior to the sale, Johnson and Scott made major purchases of the British currency with bank funds, thus costing client Cairn $8 million in added costs and making themselves and the bank a $500,000 profit on the transaction.

Compared to other bad acts by HSBC, the "front running" scheme was small potatoes. But it was a serious crime and this time, the Department of Justice had the green light to make the case--not against the bank but against the individuals who carried out the crime.  It helped that there were taped conversations between Johnson and Scott in which they gloated over the fact that they "got away with it."

Johnson faces up to 30 years in US Federal prison for each of the nine counts.

HSBC is notorious for its role as a laundromat for Mexican and Colombian drug cartels and Middle Eastern terrorist groups.  In 2012, the Senate Permanent Investigations Subcommittee (SPIS) published a 300-page report thoroughly documenting HSBC's collusion with the drug cartels and Middle Eastern banks financing Al Qaeda.  That report was referred to the Obama Justice Department, and the DOJ quickly reached a "deferred prosecution" deal with the bank.  Not one HSBC banker faced individual prosecution.  Under the deferred prosecution deal, the bank promised "never to do it again" and in return, they got to pay a fine and walk away scott free.  Even after they broke the terms of the deferred prosecution deal, the bank and Federal prosecutors begged the Judge overseeing the compliance phase of the case to keep the findings under seal.

In a novel civil case in Federal court in Texas, HSBC has been sued by the families of American government officials brutally killed by the Mexican drug cartels, charging that the bank was complicit in the murders under US anti-terrorism laws, because they laundered the money used to pay the assassins.  Evidence presented in Court in that case shows a depth of collusion between the bank and the cartels that is mind blowing. The attorney for the plaintiffs in that case is a former Federal Prosecutor, Richard Elias, who quit the DOJ after he found evidence of massive and willful fraud by Citibank mortgage bankers only to see his higher-ups in Washington cut a deferred prosecution and civil fine deal under the Holder Rule.

Not surprisingly, the US mainstream media (MSM) has barely covered the Johnson case.  Not one major newspaper gave it frontpage coverage.  Bloomberg New's legal team did report on the court ruling--and on the panic is has caused in board rooms and trading desks at the big Wall Street and London banks.

While it is too soon to say that the Johnson conviction opens a new era in which bankers at big TBTF institutions are going to be held accountable for their criminal actions--usually targeted against their own customers--the case is a hopeful sign that the playing field is getting a little more level.

https://www.hsgac.senate.gov/subcommittees/investigations/media/hsbc-exposed-us-finacial-system-to-money-laundering-drug-terrorist-financing-risks 

https://www.reuters.com/article/us-hsbc-usa-crime/u-s-jury-finds-ex-hsbc-executive-guilty-of-fraud-in-3-5-billion-currency-trade-idUSKBN1CS295 

http://fortune.com/2017/08/22/hsbc-currency-scheme-may-have-involved-11-other-bank-employees/ 

Comments

[Adrestia]

It is a start, but both are non-US citizens. Now the US bankers should also go to jail. And a lot of them. Very long and very punative, but IMO this is unlikely.

IMO the financialization of the economy and the infiltration of bankers (and their way of thinking) in politics and business are the largest threat to democracy in the OECD countries. I've worked in the sector for a couple of years and have witnessed fraud in one of the largest banks of the world with the purpose of creating an illusion to the regulators that problems were being solved. Once the OK was given, the projects were terminated. I've also worked with investment banks and the morality is very, very bad. They cannot be trusted and their only goal is becoming rich at the expense of 'muppets' as Goldman-Sachs calls them. And Goldman-Sachs rules in the US and in Europe.
tps://www.theguardian.com/business/2012/oct/22/goldman-sachs-muppets-greg-smith-clients
https://en.wikipedia.org/wiki/List_of_former_employees_of_Goldman_Sachs

What is happening now is mindboggling. It is a repeat of 2007/2008. The US and EU central banks have created the largest ponzi-scheme the world has ever known.

* the central banks are printing money as if there is no tomorrow with the Quantative Easing programmes in Europe and the US. They are the only providers of liquidity as (financial) corporations don't trust each other anymore
* the quantative easing programmes are buying so many (government) bonds that there are no bonds available to buy. They also buy debt from banks
* financial institutions can borrow from the central banks at negligable intrest rates and buying so many bonds (at higher intrest rates) that there are no safe (read government) bonds left to buy. So they search for alternatives and are creating bubbles in other places. They are convinced that they will be saved by the central banks when TSHTF again.
* the rescue of the financial system (including the QE-programs etc) is more than all wars of the past century (including ww 1) combined.
* the volatility (of the stock market) is at an all time low! Incredibly when we look at the state the world is in with regard to risks and global warming. This implies that the financial sector believes they will be rescued again.
* the danger of our (financialized) capitalist system is upwards. The trees grow into the heaven and everything looks bright (the volatility implies this is the general consensus) but once this changes the hit will be very hard (as happened in 2008)
* the rescue has been paid by the ordinary citizens in the US and Europe. What will they do when the financial sector will be saved again at their expense?

The Euro is the breaking point of the EU. This is already visible in the EU with Brexit, Catalonia, etc. This is caused by the maximum of 60% government debt (to ensure that governments can buy back their bonds mentioned above) and 3% maximum deficit (which ensures that they can pay the interest)

In several posts the petrodollar is mentioned. When (not if) the petrodollar appears (and the Chinese will start within 2 months) the USD will devalue (and the US deficit will become much more expensive to finance)
https://www.huffingtonpost.com/alastair-crooke/petrodollar-us-saudi-policy_b_6245914.html

Interesting times, but the future doesn't look very bright.

[Account Deleted]

Interesting that Reuters cite the crime of "fraud" in the Johnson case. Front-running is jargon for the serious financial crime of insider dealing, which I believe can only apply to securities - i.e. not currency transactions. As it is a fraud case I assume that the prosecution were able to prove that the $3.5 bln deal did alter the FX rate as anticipated by the conspirators. This is surprising to me, given the huge volume of the forex market and the fact that the bank would doubtless have split the transaction into smaller trades to try it's best not to move the market adversely, in the interests of it's client.

Note fraud was proven despite the individuals not profiting directly (indirectly no doubt via bonuses) as bank funds were used in the front-running trades. Best efforts rules for traders used to specifically exclude any commissions the bank would earn on a transaction, so unless they win on appeal this does seem like a landmark case which goes beyond strict interpretations of financial crime legislation.

[LondonBob]

We will see what comes of it. A trader did go to prison here in London for rigging LIBOR, although the rigging of LIBOR has been going on awhile and you wonder how much the regulators and the Bank of England knew that it was. There has certainly been a lot of very substantial fines that have been levied against financial institutions, from PPI mis-selling domestically but especially by the US against European institutions to do with subprime mortgages and ignoring US sanctions. This has not gone unnoticed and that we should pay for US subprime malfeasance as well as be dragooned into implementing America's unique foreign policy concerns regarding Iran, Russia etc. is resented.

So I would say people have lost jobs, lost bonuses and also lost those holdings tied up in their own institution's shares but it is true to say that there have been no real high profile convictions as such. A big part of the issue is that the subprime mortgage bubble was entirely driven by US government policy; namely the repeal of Glass-Steagal, Fannie Mae and Freddie Mac, the Community Reinvestment Act as well as too low interest rates. From my experience compliance has mushroomed across the financial sector now and there is very much an emphasis on good practice with calls monitored, cell phone signals blocked on the trading floor, internet use monitored etc. I was told the bosses are very worried about malpractice leading them open to being chased after by a publicity seeking prosecutor. Then again rather like the JFK discussion these are very large organisations with plenty of opportunity for different people to continue sharp practices, with other people looking the other way or simply unaware. The right mix of good governance, regulatory oversight and deterrence remains to be found.

[raven]

How's that deflection coming?

[Laura]

All---This is a development we should all applaud!

Don't see any down-side.

[turcopolier]

Dr. Puck

The "new regime" being the congress? pl

[turcopolier]

raven

harper picked his own topic. As for Manifort and the other guy, they are typical business hustlers. No defection is needed. They either know something about Trump that you want to hear or they don't. If they do know, they will hand it over to Mueller. They don't want to go to jail for decades. pl

[MRW]

Hollywood’s getting it. The bankers are getting it.* DC lobbyists seem to be getting it, or about to. Next up, Congress? There’s no tea & sympathy from the hoi polloi on all this. Long overdue.

* About effing time. This is what Obama failed to do in Jan/Feb 2009 and imo set the stage for Trump’s rout. O. bowed to everyone he thought was in power including that odious Geithner. The best news I've read is that the Federal Grand Jury (in Brooklyn no less) ripped up the “Holder Rule!” Again, imo, this is huge. Thanks, Harper.

[different clue]

One of the ways that the Holderbama Department of Justice Prevention sought to make sure that the most major Black Hat Perpetrators from throughout the FIRE sector would be functionally immunised and practicably impunified was to keep refusing to prosecute them or charge them or investigate them or anything . . . long enough to make sure that the Statute of Limitations would run out on everything they could be plausibly prosecuted for having done. That is part of what Obama did for the banksters and part of what he expects them to pay him so richly for over the decades to come.

Are any of those people still exposable to legal consequence for what they have done? Are any of them still not quite out of the woods in terms of Statute of Limitations?

If any of them are still exposable to legal jeopardy for their financial crime actions, perhaps Trump will cancel the Too Big To Jail doctrine as part of his general rejection of whatever parts of the Obama legacy he can effectively reject. If he even still can, I hope that he does. If so, he could perhaps request Attorney General Sessions to cancel and revoke every one of the Silk Collar Criminal-Sheltering "non-prosecution agreements" that Holder protected them with.

[Richardstevenhack]

Since the Colonel has brought up the subject, here is some of Alexander Mercouris' analysis of the Mueller indictments...

Manafort indictment: Mueller’s best (and last?) shot
http://theduran.com/manafort-indictment-muellers-first-last-shot/

Papadopoulos indictment: another ‘bombshell’ that is actually a damp squib
http://theduran.com/papadopoulos-indictment-bombshell-actually-damp-squib/

tl:dr... Basically, what Mercouris shows is that neither indictment has anything to do with the basic point of the Mueller probe, to wit, anything to do with Trump and his campaign doing any "collusion" with Russia.

And by indicting these two individuals, Mueller won't get any more information from them because their lawyers will be telling them that there's a possibility of a Trump Presidential pardon in the future as long as they shut up.

[Richardstevenhack]

Oh and then there's this incompetence from the Mueller team...

Robert Mueller’s indictment charging Paul Manafort contains this HUGE factual error
http://theduran.com/robert-muellers-indictment-charging-paul-manafort-contains-this-huge-factual-error/

They don't even know who ran Ukraine...

[TimmyB]

The front running case discussed in this article is just another type of insider trading where someone uses inside knowledge they have a responsibility not to use to trade and profit. Note the victim was a billion dollar company, not average investors. So while I hope this is case indicates the US government cracking down on all of Wall Street's crimes, I doubt it.

[Castellio]

Harper's post is timely. Any light allowing us to see that a blind person may, in fact, have hold of the scales, however briefly, is timely and welcome.

In any case, I am of the opinion that the big news today is not Mueller. It is Tulsi Gabbard. She is trying to drain a most fetid swamp, and doing it calmly and clearly:
http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=20340

[Castellio]

And if you want proof of just how fetid the DNC is currently, you might want to read this article by Richard Silverstein. It joins some of the dots between the Neocon Zionists, the DNC, and this on-going shameful framing of Trump.

"Washington Free Beacon (WFB) is in the news today after a Congressional leak revealed the online far-right media outlet had been the client who first hired Fusion GPS to develop opposition research on then-presidential candidate, Donald Trump. There are many oddities about this entire episode. First is that the Free Beacon, funded by pro-Israel hedge fund billionaire, Paul Singer, lied in its own reporting about who first hired Fusion."

And then the DNC takes over.

https://www.richardsilverstein.com/2017/10/28/washington-free-beacon-lies-role-trump-dossier/

[Account Deleted]

Actually the crime in this instance was fraud, not insider dealing. Insider dealing does not apply to currency trading (currencies are not securities). I commented yesterday in more detail on the Johnson case and it's possible implications.

[Bandit]

If I may be so bold, I would propose another name for the fetid environment of the US government: SEWER which "stinks to high heaven". It would be much more accurate and descriptive of the corruption and decomposition of the ruling elite's rotten politicians.

"Rotten to the core" is also descriptive by not as catchy or "deep" as a sewer full of shit politicians. The hastag or reference to swamps gives swamps an unwarranted and nasty association with the dead and decaying cargo of the US political SEWER. Swamps are very vibrant ecosystems and provide much needed overflow capacity that mitigates flooding. And when the swamp is connected to the ocean, it provides an even more life sustaining and protective environment for breeding fish and their young.

All in favor of SEWER over swamp, raise your hands and put your fingers to the keyboard when referring to the US political class.

[ToivoS]

When Obama ran in 2008 it was generally recognized inside the Democratic Party that Obama had succeeded in raising more funds from Wall Street than any other Democrat had ever achieved. Insider Democrats were using this as an argument that Obama "is the one". It was considered a big plus.

In 2009, when I was still active in the Democratic Party at a county committee level, the Holder rule came down, I tried to point out that those big donations were influencing this decision. I was making this argument with long time Dem Party "progressives". Those people came down on me like a ton of bricks -- how could I be so disloyal to insinuate that Obama would let campaign donations influence important decisions involving saving the US finance industry. I persisted in my arguments but soon found myself sidelined inside the California Democratic Party.

Eighteen months ago I quit the Dem organization because of their treatment of Sanders and finally in the general election ended up throwing my vote, as a protest, to Trump.

The corruption runs so deep inside both parties it is very difficult to see how we will ever escape its grip.

[blue peacock]

Harper

The financial system today is essentially fraudulent and has been for some decades. As you point out at least in the aftermath of the S&L debacle the government not only prosecuted executives, they created the RTC to liquidate assets to prevent enriching managements, shareholders and creditors.

The difference between the GFC & the S&L crisis, is the role of the government. In the GFC, the government played a central role in fomenting the credit bubble in the first place, through the Fed, the mortgage finance agencies (Fannie, Freddie, FHA, etc), the NSROs. They enabled through legislation during the Clinton administration, highly leveraged & opaque derivative trades with no oversight much to the chagrin of Brooksley Born who was the head of the CFTC then and warned strenuously about the risks. And then there was regulatory capture. The revolving door where the fox was guarding the chicken coop. Alan Greenspan, Ben Bernanke, Bob Rubin, Larry Summers, Hank Paulson, TurboTax Timmy, et al. The arsonists became the firemen.

In this context the lack of a serious DoJ investigation or a SEC investigation makes perfect sense. Holder & Mary Jo White, it could be argued were nominated precisely due to their long standing ties to Wall St. The GFC, was the perfectly executed heist, wherein profits during the boom were privatized while the losses were socialized, all through the central role of government. We have continued this heist as financial assets have been reflated and now we have the greatest wealth inequality that is even greater than the 1920s. This reflation of financial assets is of course global with central banks creating money ex nihilo bloating their balance sheets to acquire government debt & private sector equity. What happens if & when this debt cycle exhausts itself? Will anyone be prosecuted in the aftermath of the carnage which will inevitably include the most inflated financial asset - sovereign debt? Will there be a "truth & reconciliation commission" that will peel the facade of the devastation through financialization of our economies? Or will they be able to execute the next Great Con?

[Dr.Puck]

Congress and President Trump.

On Oct. 24, President Donald Trump, in a White House statement, applauded the passage of House Joint Resolution 111, which will eliminate a proposed rule that would have stopped financial institutions from forcing legal complaints to be settled out of court. Every indication points to Trump signing the bill into law when it reaches his desk. If and when that happens, customers will be barred from joining class-action lawsuits against big banks and the ilk, and instead will be forced to negotiate with financial institutions, and their powerful legal teams, one on one in arbitration.

source:https://www.pghcitypaper.com/PolitiCrap/archives/2017/10/27/us-rep-keith-rothfus-is-the-reason-it-will-be-harder-to-take-on-big-banks

[blue peacock]

Adrestia

You make many good points in particular around central bank money printing aka QE and financial market volatility at the bottom of the barrel.

Jack in a discussion with David Habakkuk linked to a chart which showed that Euro-area junk bonds are trading at a yield below US Treasury bonds. This is how skewed bond markets have become. The ECB purchases have the sovereign debt of even Spain and Italy trading below US Treasuries and German government debt trading at negative to miniscule yields. It can't be clearer that many debt markets have become completely distorted due to central bank asset purchases. Jack also noted how distorted Japanese markets have become with the BoJ now a Top 10 holder of equity of all the companies in the Nikkei 100.

The Euro area financial environment has never been so distorted. TARGET2 balances are so lopsided that it can never be reconciled. With social fissures becoming more readily apparent in recent elections & referenda - Germany, Austria, Czech Republic, Catalonia, Lombardy & Veneto are all facing social pressures.

Where I disagree with you is on petrodollars. Both oil and major currencies are fungible. It makes no difference what currency oil futures and spot contracts are traded in. Every currency region wants their currency devalued relative to others. Everyone wants to inflate away their debt. Central bank monetization is one way this is being accomplished.

Reserve currency is more a curse than it is a benefit. The benefit of course is trading real goods for paper. The reserve currency by definition needs to run a deficit and must have deep & liquid debt markets. China can't do that. They neither have a fully convertible currency nor do they have a gigantic & liquid bond market. And their mercantilist policy runs counter to trade deficits.

In the current environment policy makers will point to Japan, noting that their financial markets have not blown up even though the BoJ has essentially become the buyer of first resort of all Japanese government debt and is now the most important player in their equity markets. No one knows when this debt cycle ends. And even if there is a dislocation in financial markets the low volatility is signaling that financial market participants believe that central banks can monetize with no limits. Only if that belief is shattered will the real SHTF. We'll be discussing new monetary arrangements then. The next Bretton-Woods.

[Account Deleted]

Thanks for the link to Alastair Crooke's potted history & outlook for the pertrodollar in HuffPost, missed that. Be great to see Alastair do an update on this fascinating subject for SST at some point.

I'd also add the growth in private money into the mix re the reaction to the financial crisis, QE and all that. Bitcoin has just gone through the $100Bln level (from $0 in 2009). This despite China closing all 'crypto' exchanges a few weeks ago, before which it was trading around 50% lower than it is now. Hardly a challenge to the greenback just yet, but noteworthy that 'money' not under the control of any state or corporation has now reached this level.

[different clue]

ToivoS,

Just yesterday I read that Sanders refuses to endorse Northam in the Virginia gubernatorial election.

So perhaps the New Deal reactionaries who have been dis-empowered within the Democratic Party really can use Sanders and sanderism as the hammer to beat the DemParty into shape upon the anvil of President Trump. Defeating the Northam ( if there are enough New Deal Reactionaries and Bitter Berners within the Virginia DemParty to make a difference) can be a step toward declintifying and debamafying the DemParty.

[iowa steve]

There is some historical precedent though that the apparent strength or stasis layered over a rotten status-quo can result in a surprising and swift collapse of a system--e.g., the fall of the Soviet Union--with things falling apart rapidly. Whether that happens in the US I have no idea, but I think the current political/economic/social status quo here is unsustainable. People can only take so much and imho we are reaching a breaking point.

You can see the elite response: more surveillance, more suppression of dissent and of contrary points of view, and so on.

[Fred]

Ricacardstevenhack,

Manafort was working for the Podesta group which was run by the brother of Hilary's man John. Ukraine is also the country where Joe Biden'so son got his executive director gig.
http://www.bbc.com/news/blogs-echochambers-27403003

[Fred]

ToivoS,

You too?