Last week provided another striking example of the political risk and double standards that exist within US jurisdiction. HSBC was fined nearly $2 billion for the victimless crimes of “money laundering” and performing financial services for countries the US government doesn’t like. A philosophical examination of the morality and application of such US laws is a discussion for another day.
Regardless of whether those laws are moral or not, HSBC should have understood the reality of the political risk surrounding them. It is the risk that the US government may exploit ambiguities in regulations concerning sanctioned countries in order to grab as much money as possible.
Under the pretexts of the various never-ending “wars” (drugs, terrorism, organized crime, tax evasion, etc.), this unrestrained power to essentially seize (steal) any assets for any reason comes from OFAC, the Office of Foreign Assets Control, which is a part of the Treasury.
Here are just a few examples of their thievery from the past couple of years:
$1.9 billion – HSBC, Dec 2012 – Accused of money laundering activities related to drug cartels in Mexico, and for transacting with Iran, Cuba, Sudan, Libya and Myanmar.
$667 million – Standard Chartered, Dec 2012 – Violating U.S. sanctions on transactions with Iran, Myanmar, Libya and Sudan.
$619 million – ING Bank, Jun 2012 – Accused of hiding money transfers related to Cuba and Iran, was forced to close its representative office in Cuba.
$536 million – Credit Suisse, Dec 2009 – Conducted transactions for clients related to Iran, Libya, Sudan, Myanmar and Cuba.
$350 million – Lloyds, Jan 2009 – Conducted transactions for Iranian and Sudanese clients and was forced to open its books to the CIA and FBI.
$298 million – Barclays, Aug 2010 – Processed payments from Cuba and Sudan.
Where does all of this money in fines go?
I struggle to think of another country besides the US that could successfully impose such obscene fines for similar reasons – that is because there are no meaningful comparisons.
It may be easier to see the political risk in this if it is put in another perspective. Imagine if China imposed a 13 billion yuan (~$2 billion) fine on JPMorgan for doing business that somehow involved Taiwan, a country Beijing considers a “rogue state.” Or if India demanded no country perform financial services on behalf of Pakistan. (On a side note, I dislike using the term “rogue state,” since it is a propaganda term devoid of meaning.)
How does the US government get away with this when others obviously cannot?
Simple. They issue and control the world's reserve currency, which gives them the role of gatekeeper for international trade (for the time being anyways). It is leverage that few can resist.
Despite HSBC’s $2 billion dollar settlement with the US government, nobody will be going to prison or suffering criminal penalties. If you or I committed exactly the same crime, we would probably suffer draconian consequences – being taken for every penny we are worth and sentenced to 10-30 years in prison.
So why do HSBC executives get off the hook for these “crimes” without suffering any of the extreme criminal penalties that anyone else would?
They are too big to jail and you are not. A clear double standard.
A money-laundering conviction for HSBC would effectively end Europe’s largest bank’s ability to do business in the US and, according to US federal officials, destabilize the global financial system – hence no criminal charges. Translation: HSBC is “too big to jail.”
Heaven forbid that any non-politically-connected American commit the same crimes on an individual level by transacting with someone who is in a country on the US’ naughty list. If you do a wire transfer to buy a box of Cuban cigars or use Bitcoin to download a song by an Iranian artist and get caught, you will probably have the book thrown at you. And good luck trying the HSBC defense of “Sorry, judge, I just can’t do any time. It would be a risk to the global financial system.”
The HSBC debacle is yet another example of the arbitrary power that governments wield over their subjects, and the need to diversify your political risk. This can be accomplished with internationalization – your savings with offshore financial accounts, your income by establishing IBCs (international business companies) and foreign LLCs, and yourself by obtaining a second passport. You do not need to necessarily become an expat, but to have that option if the need arises is a prudent goal for anyone anywhere, especially in these uncertain times.
The International Man site and community will give the specific information you need for those options. Sign-up here to join the International Man community for free and get the IM Communiqué delivered to your inbox.
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