Let me see if I fully understand this.  Last week the New York State Department of Financial Services (DFS) accused the US unit of Standard Chartered Bank of laundering as much as $250 Billion in illegal transactions from Iran, breaking US sanctions, and hiding or altering 60,000 wire transactions over a 10-year period.  And in return for a decade of illegal activity totalling billions, the bank negotiated a settlement with the DFS and agreed to pay a “civil penalty” of $340 million.

This was a large-scale and long-term investigation (probably costing millions in taxpayer money for the investigation and research, etc.) and the DFS agreed to settle rather than prosecute this case fully? One of the penalties in this type of case is having the institution’s US banking licence revoked.   According to BBC New York business correspondent Mark Gregory, this amount was a “hefty penalty, but nothing like as hefty as it could have been under full prosecution”.

I don’t understand this type of “negotiated justice”.  And what do they pay the fine with?  Profits made from deposits and fees of commercial and investment banking transactions.  In other words, money made from customers banking with what they thought was a reputable financial institution.  A settlement and a fine is akin to a slap on the wrist.  And to prove how terrible the bank feels about altering wire documents and illegal money laundering for 10 years, the CEO,  Peter Sands issued a statement: “This was clearly wrong and we are sorry that it happened”.

So, let’s follow this new type of “negotiated justice” a little further.  Are we now going to agree to a negotiated settlement with the drug cartels.  ”You have been shipping billions of dollars worth of illegal drugs into our country, but we will stop investigating and prosecuting if you agree to a fine.”  And what about Al Queda?  ”You have been creating terror and killing innocent civilians, but we will stop hunting you down if you agree to a fine.”

I know this sounds ridiculous and far-fetched.  But so does letting another global bank get away with breaking the law for a decade and then negotiate a cash settlement. And this seems to be a growing trend. Recent negotiated settlements by the US Justice Department and the Manhattan district attorney reached with other global banks in recent years over money laundering charges are a $619 million fine for ING bank in June and a $298 million fine for Barclays in 2010. Seems money laundering by big banks is not an isolated mistake!

It seems pretty clear to me that the US Justice Department has two sets of books in the legal justice system today, one for the global banks, and one for the rest of us.  What happens when an individual writes a bad check or tries to launder money?  These both civil and criminal offences in most US states and punishable by  a fine and jail time, up to 10 years in some cases.

With this new brand of “negotiated justice” can you guess how the LIBOR rate fixing scandal is going to turn out?

Give a man a gun and he can rob a bank. Give a man a bank and he can rob the world.

Tight Lines . . .

John R Childress

john@johnrchildress.com