DAVID S. COHEN, UNDERSECRETARY FOR TERRORISM AND FINANCIAL CRIMES, DEPARTMENT OF THE TREASURY
THOMAS J. CURRY, COMPTROLLER OF THE CURRENCY, DEPARTMENT OF THE TREASURY
JEROME H. POWELL, FEDERAL RESERVE SYSTEM BOARD OF GOVERNORS MEMBER
POWELL: Thank you, sir.
I’ll start by addressing your first comment question, which was the comments of the Attorney General yesterday. And I just want to say it’s fundamental in this country that everyone is equal before the law. And I think his comments only underscore the need to end Too Big To Fail, and the need for the agencies to forcefully implement Title I and Title II as it relates to Too Big To Fail. And just to address that part of your comment.
SENATOR WARNER: I also have enormous concern that the length of time to prosecution and are we — the amount of potentially illegally and also potentially threatening in terms of terrorist financing?
WARREN: Thank you Mr. Chairman, and thank you all three for being here today. As Senator Reed just pointed out, the United States government takes money laundering very seriously for a very good reason. And it puts very strong penalties in place. In addition to monetary penalties, it’s possible to shut down a bank that’s been involved in money laundering. Individuals can be banned from ever participating in financial services again. And people can be sent to prison.
Now in December, HSBC admitted to money laundering. To laundering $881 million that we know of for Mexican and Colombian drug cartels. And also admitted to violating our sanctions for Iran, Libya, Cuba, Burma, the Sudan. And they didn’t do it just one time. It wasn’t like a mistake. They did it over and over and over again across 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 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?
COHEN: Certainly Senator. No question the activity that was the subject of the enforcement action against HSBC was egregious. Both in the money laundering that was going on at HSBC and the sanctions violations. 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 against the institution.
WARREN: But let me just move you along here on the point Mr. Cohen. My question is, given that this is what you did, what does it take to get you to move towards even a hearing? Even considering shutting down banking operations for money laundering?
COHEN: Senator, we at the Treasury Department under OFAC and (ph) authority, we 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: Well I think the authority to pull a license, pull the charter, is authority that is committed to the supervisors, to the OCC, the (ph) of the supervisor may be. We take these issues extraordinarily seriously. We aggressively prosecute and impose penalties against the institutions to the full extent of our authority. And as I said earlier, one of the issues that we’re looking at –
WARREN: I’m not hearing your, I’m sorry, I don’t mean to interrupt. And I just need to move this along. But I’m not hearing your opinion on this. You’re supposed to be, Treasury is supposed to be, one of the, you are the leaders in how we understand and work together to stop money laundering. And I’m asking, what does it take, even to say, here’s where the line is. We’re going to draw a line here, and if you cross that line, you’re at risk for having your bank closed?
COHEN: So Senator, we’re mindful of what our authorities are, mindful of what the Supervisor’s authorities are. We will, and have, and will continue to exercise our authorities 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 sit in Treasury and you try to enforce these laws, and I’ve read all of your testimony. 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: But 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, and I’m sure the regulators can address this issue. 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?
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 that is not something, we don’t do criminal investigation. We don’t do trials or anything like that. We do civil enforcement. And in the case of HSBC we, we gave essentially the statutory maximum –
WARREN: So –
POWELL: Civil money penalties. And 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: So the way it works is, the Justice Department has total authority.
WARREN: I understand that.
POWELL: This is the heart of what they do. It’s the heart of their jurisdiction to decide who gets prosecuted and for what. It’s not our jurisdiction. They don’t do monetary policy. They don’t give us advice on that. We cooperate with them and we, we discuss with them. We collaborate with them, and we did on HSBC. They ask us specific questions, how does this statute apply? What would happen if we did this? We answer those questions. That’s what we do.
WARREN: So what you’re saying to me is you are responsible for these banks, and again, I read your testimony and you talk about the importance of vigorous enforcement here. But you’re telling me you have no view 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: And so you have no view on it, until after the Justice Department has done it?
POWELL: Again we, the Justice Department makes that decision. We play our role in that. We have a constant dialogue with them around, not just, essentially many, a broad range of violations that take place. We always have the Justice Department involved. But when they, when they make these decisions, they make them themselves.
WARREN: I understand that I’m over my time. And 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. Every single individual associated with this. I just, I think that’s fundamentally wrong.
WARNER: Senator Kirk.
KIRK: Driving it (ph), you would think I agree with most of the direction you’re going in. You would think there would have been one hell of a penalty for money laundering for terrorists who are building nuclear weapons.
MERKLEY: On I believe it was the day after the announcement that HSBC had essentially been caught laundering billions of dollars in funds, there was a woman – there was a story about a woman who her boyfriend had stored I believed a suitcase or a coffee can with his drug money in her upstairs or her attic or something like that, and she was doing something like 10 years in prison for having that tangential connection to the flow of this illegal money.
So if an individual gets 10 years in prison, can you explain – each of you – how you would explain to an ordinary citizen in America that a company which launders billions of dollars tied to criminal syndicates that in northern Mexico 40,000 people have died – I don’t know about the terrorist side of this, but the drug side is pretty well-documented – how do we explain that that is a system of justice in the United States of America? Mr. Cohen?
MERKLEY: No, I understand that, but that wasn’t my question. But you’re welcome to simply say, I don’t feel it’s appropriate for me to answer your question. That would be better than just pretending not to answer it.
MERKLEY: I don’t want you to recite history I’m already familiar with. Let me ask the question differently. Do we have a situation where banks have become so large that, in the words of Attorney General Holder, if you prosecute them “it will have a negative impact on the economy and the financial system at large”? And does that mean essentially we
have a prosecution-free zone for large banks in America?
MERKLEY: Thank you. And Governor Powell, is – does this create a fundamental concern about a fair system of justice across America?
POWELL: Yes, it does. It’s absolutely fundamental that we’re all equal before the law. And that’s why we’re all committed to ending too big to fail.
HEITKAMP: If – if you were a bank executive today faced with the opportunity to make millions and millions of dollars laundering drug money or facing you guys, looking at, you know, what you’re going to suffer in terms of consequences, do you think there is an effective deterrent today to prevent this from happening again?
HEITKAMP: And Mr. Cohen, just – just for – for my edification, you know, I was a attorney general. I was somebody who both did civil and criminal prosecution. And I can assure you criminal prosecution of white collar crime is much more effective than fines and penalties and shame that you might experience when you’re talking into a courtroom.
HEITKAMP: Yeah. But Mr. Cohen, one of the – the disturbing parts of this dialogue that we’re having is there – at every sense, there seems to be it’s not my job. It’s not my problem. That this is some place else. And one of the great tragedies I think for the American people looking at government is too much “it’s not my job.” And so what we’re really asking is that this be everybody’s job.
HEITKAMP: Yeah, I understand that. And – and the problem is that the expertise is with your agencies and you’re asking the Justice Department – or the Justice Department sees a lot of complexities in what you do and there doesn’t seem to be a real opportunity for a comfort level of a prosecution that needs to happen. At least it needs to be tried. It needs to be attempted.
MANCHIN: We all have a hard time understanding why you haven’t cracked down on banks that are using illicit funds, something that’s just wreaking havoc at subendemic proportion and drugs
in American culture — American culture and you have a chance to do it.
MANCHIN: this is one thing you see as probably united from the Democrat and Republican side, and there’s very few things that you’ll find that we have had chances to agree on but this one we do and I think we’re so frustrated.
And if the banks are going to do business in this country, they should do them by our values. And if you don’t enforce those values, you know, we’ve got to find people that will enforce those values, I think is what we’re saying.
MANCHIN: But the — but the HSBC, I mean you — you — they paid the largest fine in the history and nobody was prosecuted. Nothing was done, but you found them guilty.
MANCHIN: Mr. Chairman, I’m running out of time. I would just ask for the consideration of the chair if you would ask the DOJ to — to come and give testimony on why they have not prosecuted? Why they will not enforce the laws of our land? If you would have and — and ask and request them to appear before this committee?
WARNER: At least today, I think — I think we — you’re — what you’re hearing from all of is an enormous concern that coupled with some of the comments the Attorney General made and I appreciate Mr. Powell’s directness that.
You know, we’ve got to make sure there is no institution that is too large to prosecute and there is — there is also concern.
When you look at not just — we’ve talked about HSBC, but there are ten other cases the committee has cited. Each of these are cases that have taken literally years to get to the fine stage, let alone the fact that there’s not been actual prosecution.
WARNER: everybody seems to be passing the hot potato.
WARREN: Thank you, Mr. Chairman. I just want to follow up to make sure that I’m just following what’s going on here. So do you consult with the Department of Justice on each of these major drug- laundering (ph) cases and terrorism cases? Is that right, Mr. Cohen?
COHEN: Certainly. In the course of the investigation, there’s a constant dialogue among the investigators about what’s being found, what the facts are, sharing information.
WARREN: And so when the Justice Department is making the decision about whether or not to make a criminal prosecution, do they ask you about the impact on the economy for one of these large banks?
COHEN: So I can’t speak to every instance whether that occurs, that did occur in the HSBC matter. We told the Justice Department that we weren’t in a position to offer any meaningful assessment of what the impact might be of whatever criminal (ph) disposition they make take.
But I would distinguish between the ongoing communication among investigators…
WARREN: Wait, I…
COHEN: … and the ultimate decision.
WARREN: I want to be sure I understand what you just said. The Justice Department, in making its decision whether or not to pursue a criminal prosecution, checked with the Department of Treasury to determine your views on whether or not there would be a significant economic impact if a large bank were prosecuted. Is that what you just said?
COHEN: What I said was the Justice Department contacted us, asked whether we could provide guidance on what the impact to the financial system may be of a criminal disposition in the HSBC case.
We informed the Justice Department that given the complexity of the potential dispositions, given the fact that we’re not the Prudential regulator, given the fact that we’re not privy to the different charges that the Justice Department may bring and we’re not privy to the responses that the regulators may have to the variety of different ways that the Justice Department may resolve the case, that we were not in a position to offer any meaningful guidance to the Justice Department in that matter.
WARREN: So you just said to the Justice Department, “You’re on your own in figuring this out”?
COHEN: We said that — we said exactly what I just said.
WARREN: I know you said it in a nice, long way. But…
COHEN: That’s what we said to the Justice Department, was exactly what I just told you, Senator.
WARREN: OK. Mr. Powell, did the Justice Department get in touch with the Fed on this question before making a decision whether to prosecute HSBC?
POWELL: Senator, there were conversations between Justice and the Fed, but I don’t believe that question was asked or answered. I will make sure of that and follow up.
But I believe that the questions we were asked were specific questions about the application of this or that statute, for example, can certain kinds of investors not invest in a company that has been indicted — or, sorry, not indicted, but convicted or pled guilty to a felony.
So that’s, I believe, the role we’ve had and I don’t think it went any farther than that.
WARREN: Mr. Curry?
CURRY: The only question that we discussed…
WARREN: I’m sorry, Mr. Curry, could you push your button? There we go.
CURRY: The only question that the Justice Department asked us was with the application of the charter revocation provision of our National Bank Act.
WARREN: And who is responsible for making a determination about whether to revoke the charter?
CURRY: That is a — there’s a statutory process that requires notice and hearing and we went through how that process would work.
WARREN: And who would initiate that?
CURRY: That process would be initiated by the Comptroller’s Office, but only upon a conviction for any money-laundering violations.
WARREN: So whether or not you could revoke the charter depended on what the Justice Department did. Did you have that discussion with the Justice Department to encourage them
to bring up criminal prosecution so that you could have a hearing about whether to revoke the charter?
CURRY: Our position was that that’s a criminal justice determination that is left to the discretion of the Justice Department. We are and were prepared to follow our statutory procedure if and when there was a criminal conviction.
WARREN: So you did not make it clear to the Justice Department that if the Justice Department did not bring a criminal prosecution that you would not be able to use one of the significant tools of enforcement given to you by Congress?
CURRY: We explained to them how…
WARREN: You did explain it.
CURRY: … the statute works and that would be the consequence of not having a conviction, the statute would not be triggered.
WARREN: All right. If I can, can I just ask a little more, overview (ph) question about this?
I’m hearing four major actors, the three of you here and the Justice Department. Why are their four departments trying to figure out money-laundering? I read through your reports. They seem to overlap significantly. We seem to have a lot of people with the same expertise and yet not quite the same expertise. Why is this not consolidated into a single function?
MERKLEY: Thank you. I want to go onto the next piece of this, which is we basically had a fine that was a small amount of the annual profits, I believe about 10 percent of the annual profits. I know it’s been described as a very severe fine.
But we’re talking about action that continued over a 10 year period. In 2003 the bank said it was going to reform its anti-money laundering conduct. There was continuous concerns about it. So I don’t know what the profits were over 10 years, but over one year they were $20 billion (ph). So let me just extrapolate that. Maybe it’s not accurate, but let’s
say the profits over 10 years were $200 billion (ph). So now we’re talking about a fine that was one percent of the profits over the time that this conduct was occurring. Is that, does that really send a message that this type of conduct is unacceptable? Mr. Curry?
MERKLEY: We worked with this bank 10 years, admonished it apparently a number of times. They apparently promised reforms that were never done. And I don’t find that one percent of their profits over the time period of this conduct, really sends a chilling message that this is unacceptable. It sounds more like the price of doing a very profitable business. Thank you.
COHEN: The decision to prosecute in any particular case, is a decision for the Justice Department to make.
WARNER: At what point, do you turn that over to the Justice Department? What is the threshold for turning over information to the Justice Department?
Manal Mehta, SUNESIS CAPITAL
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