Readings — From the May 2013 issue
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From the transcript of a March 7 Senate Banking Committee hearing on enforcement of the Bank Secrecy Act of 1970, which requires U.S. financial institutions to help the federal government prevent money laundering. Elizabeth Warren is a Democratic senator from Massachusetts; David Cohen is the Treasury’s undersecretary for terrorism and financial intelligence; Jerome Powell is a governor of the Federal Reserve.
elizabeth warren: In December, HSBC admitted to laundering $881 million for Mexican and Colombian drug cartels, and also admitted to violating our sanctions against Iran, Libya, Cuba, Burma, the Sudan. They didn’t do it just one time. It wasn’t like a mistake. They did it over and over and over again over 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. Now, HSBC paid a fine, but no one individual went to trial. No one individual was banned from banking. And there was no hearing to consider shutting down HSBC’s activities here in the United States. So what I’d like is — you’re the experts on money laundering. I’d like your opinion. What does it take? How many billions of dollars do you have to launder for drug lords and how many economic sanctions do you have to violate before someone will consider shutting down a financial institution like this? Mr. Cohen, can we start with you?
david cohen: Certainly, Senator. No question, the activity that was the subject of the enforcement action against HSBC was egregious. For our part, we imposed on HSBC the largest penalties that we had ever imposed on any financial institution. We looked at the facts and determined that the appropriate response there was a very, very significant penalty.
warren: But let me just move you along here, Mr. Cohen. What does it take to get you to move toward even a hearing? Even considering shutting down banking operations for money laundering?
cohen: Senator, we at the Treasury Department don’t have the authority to shut down a financial institution.
warren: I understand that. I’m asking, in your opinion, you are the ones who are supposed to be the experts on money laundering. You work with everyone else, including the Department of Justice. In your opinion, how many billions of dollars do you have to launder for drug lords before somebody says, “We’re shutting you down”?
cohen: We take these issues extraordinarily seriously. We aggressively prosecute and impose penalties against the institutions to the full extent of our authority. And one of the issues that we’re looking at —
warren: I’m sorry, I don’t mean to interrupt. I just need to move this along. I’m not hearing your opinion on this. Treasury is supposed to be one of the leaders in how we understand and work together to stop money laundering. I’m asking, what does it take, even to say, “We’re going to draw a line here, and if you cross that line, you’re at risk for having your bank closed”?
cohen: We will, and have, and will continue to exercise our authority to the full extent of the law. The question of pulling a bank’s license is a question for the regulators.
warren: So you have no opinion on that? You tell me how vigorously you want to enforce these laws, but you have no opinion on when it is that a bank should be shut down for money laundering? Not even an opinion?
cohen: Of course we have views on —
warren: That’s what I asked you for. Your views.
cohen: I’m not going to get into some hypothetical line-drawing exercise.
warren: Well, it’s somewhere beyond $881 million of drug money.
cohen: Well, Senator, the actions that we took in the HSBC case we thought were appropriate in that instance.
warren: Governor Powell, perhaps you can help me out here?
jerome powell: Sure. So the authority to shut down an institution or hold a hearing about it, I believe, is triggered by a criminal conviction. And we don’t do criminal investigation. In the case of HSBC, we gave essentially the statutory maximum civil money penalties. We gave very stringent cease-and-desist orders. And we did what we have the legal authority to do.
warren: I appreciate that, Mr. Powell. So you’re saying you have no advice to the Justice Department on whether or not this was an appropriate case for a criminal action?
powell: It’s not our jurisdiction. They don’t do monetary policy. We collaborate with them, and we did on HSBC. They ask us specific questions. We answer those questions. That’s what we do.
warren: So you are responsible for these banks, but you have no view on when it’s appropriate to consider even a hearing to raise the question of whether or not these banks should have to close their operations when they engage in money laundering for drug cartels?
powell: I’ll tell you exactly when it’s appropriate. It’s appropriate where there’s a criminal conviction.
warren: I’ll just say here, if you’re caught with an ounce of cocaine, the chances are good you’re going to go to jail. 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.