Standard Chartered Bank violated money-laundering laws. The fifth-largest British bank, and 41st largest in the world, laundered an awful lot of money (at least $250 billion, to be precise).
On Dec. 10, 2012, the U.S. government penalized it with a $327 million fine -- a paltry amount, considering the societal consequences of the crime and the zeal with which the government pursues financial criminals whose offenses are similar, yet on a far smaller scale.
Why does it matter so very much if banks comply with laws against money laundering? Think about meth-addicted teenagers. Recall the horrors of September 11, 2001. Consider a political dissident rotting in a Burmese jail. Stopping the money flow, the laundering, behind such horrible problems is among the methods that the government deploys to combat them.
If drug sale proceeds from Philadelphia can't be wired back to Mexican drug lords via our banking system, drug sales can be limited at the outset. Similarly, international terrorists depend on money flows. The September 11 terrorists used American ATM machines, with accounts stocked from abroad.
The Bank Secrecy Act requires banks to close their doors to money-launderers. This law provides several mechanisms, such as requiring customers to identify their source of funds, or completing transaction reports for large cash deposits or withdrawals.
On March 5, 2013, Standard Chartered Bank Chair John Peace minimized his firm's violation of criminal money laundering laws on a call with stock investors as "clerical errors." His terse comment spoke volumes. In that same comment, his attitude also spoke volumes about what money laundering compliance means to his bank. He spoke volumes about his appreciation of the reasons for money laundering laws. He spoke volumes about unequal justice. He spoke volumes about the lack of zeal among American bank police. Ironically, where his bank suffered no real penalty, clerks at small institutions found guilty of the same infraction now molder in prison. His comments embodied moral hazard.
In January, the government sentenced a check cashing store manager named Karen Gasparian to five years for her "clerical error" on paperwork on $8 million worth of transactions. Last September, Diana Brigitt also was found guilty, and the government closed the small business, AAA Cash Advance, that she managed.
But at Standard Chartered, represented by the prestigious Sullivan & Cromwell law firm, and with more than $300 billion in assets, the bank may just be "too big for trial," as U.S. Sen. Elizabeth Warren (D-Mass.) noted at a Senate hearing.
In February, Attorney General Eric Holder acknowledged that he couldn't seek penalties beyond the relative library fine at certain large banks. He explained that, well, they are "too large." What this means, of course, is a "prosecution-free zone" for the largest banks, as U.S. Sen. Jeff Merkley (D-Ore.) put it. It's an invitation to violate the law. Standard Chartered officials can dismiss violations as a clerical error because no one is pacing a jail cell examining his conscience. Attorney General Holder's statement opened the window a crack on Justice's policy. Largely, this terrain remains opaque to the public -- a real transparency problem, since penalties are intended in part to serve as a deterrent to would-be miscreants.
U.S. prosecutors do agree that Peace's unpeaceful comments are unacceptable. On March 21, they reportedly forced him to correct his March 5 statement: "To be clear, Standard Chartered Bank unequivocally acknowledges and accepts responsibility, on behalf of the Bank and its employees, for past knowing and willful criminal conduct in violating U.S. economic sanctions laws and regulations, and related New York criminal laws, as set out in the deferred prosecution agreement."
MIT Professor Simon Johnson believes Peace also violated another law that requires bankers to speak truthfully. "In plain English, what Sir John said is called lying. ... If the March 5 remarks were a genuine mistake, Sir John could have retracted them the same day. March 6, 7, and 8 were also pretty much wide open for retractions." Yet, he waited until forced to change his statement.
The Standard Chartered agreement with the Department of Justice actually anticipates such dismissals of its crime. It states that if Standard Chartered denies its crimes, it must issue a new statement within five days after the government orders it. In other words, "OK. I'm sorry. Really, soooorrry. Can I go back outside and play now?"
Whether the March 5 or March 21 statements more accurately reflect Standard Chartered's true attitude is subject to conjecture. We believe prosecutors should seek prison terms for senior bankers at large firms who violate the law, as well as mid-level managers at check cashing stores. There should be no question about whether bankers truly suffer when they aid and abet terrorists and tyrants by choosing to launder money.
Bartlett Naylor is the financial policy reform advocate for Public Citizen's Congress Watch division.