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Money-laundering firm should get no welcome in Maryland

Laws and LegislationJustice SystemHSBC Holdings plcFinance

When criminal prosecutors at the U.S. Department of Justice found that giant bank HSBC — whose American operation is chartered in Maryland — had violated money-laundering laws covering $200 trillion in transactions, and with customers including terrorists, sanctioned states and Mexican drug lords, one might reasonably have expected a criminal prosecution.

After all, other, much smaller money launderers are currently serving prison sentences. However, the DOJ chose instead to fine HSBC roughly 12 percent of last year's profits. No one faces jail in this case.

This month, U.S. Attorney General Eric Holder told Congress that the firm's size challenged the government's prosecution. He testified, "I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy. ... Some of these institutions have become too large."

Few are comfortable with Mr. Holder's rationale. Senators on both sides of the partisan aisle decry using an institution's size as a reason for deferring prosecution. Federal Reserve Governor Sarah Bloom Raskin, a former Maryland bank regulator, observed that even bankers and those who follow banking may not support this rationale. She pointed to a poll of American Banker readers that "found that a mere 8 percent of readers who responded thought authorities took the right course in the case of enforcement against HSBC for money laundering violations. As many as 47 percent said the Justice Department should have prosecuted the bank, while another 45 percent said authorities should have gone after the individuals responsible for the violations."

In the case of HSBC, the public need not rely entirely on federal officials to do the right thing. Maryland officials can play an important role. Maryland law equips the state attorney general with a powerful tool to advance justice. According to the Maryland statute on corporations and associations, the attorney general "may institute a civil proceeding in the courts to forfeit the charter of any Maryland corporation and to revoke the authority of any foreign corporation to do business in this State," in cases where the corporation's activities serve to "aid, or abet the violation of criminal laws relating to ... illegal drug distribution."

In a situation where Marylanders and others in the country suffer because we've been held hostage to banks that are "too big to fail" (as President Barack Obama says), the chilling new policy of "too big to jail" adds another nightmarish dimension.

In January, Public Citizen wrote Maryland Attorney General Douglas Gansler and asked him to exercise his prerogatives in this matter. More than 600 Marylanders have joined 38,000 other Americans in a petition to the Maryland attorney general stating: "HSBC is a large corporation, but should enjoy no special privilege because of its size. A Maryland corporate charter should signal integrity, and we ask that you uphold this standard."

In a similar situation last year, New York's Department of Financial Services "determined that grounds existed for revocation of [Standard Chartered Bank's] license to operate in the State of New York and that interim measures must be taken to protect the public interest." Standard Chartered was accused of laundering some $250 billion in transactions involving Iran. The New York agency ultimately elected not to revoke the license, but the bank paid a substantial fine.

Mr. Gansler and Maryland alone can't resolve the problem of "too big to jail." Even if Maryland de-charters HSBC, it could recharter elsewhere. That other state, however, would suffer opprobrium for countenancing admitted money laundering operations.

Granted, pursuing the forfeiture of a charter of the world's fifth-largest company requires courage. That is all the more reason to move forward. My organization believes that that the attorney general should strongly consider forfeiting HSBC's Maryland charter, and we look forward to Mr. Gansler's response.

Bartlett Naylor, a Maryland native, is financial policy advocate for Public Citizen in Washington, D.C. His email is bnaylor@citizen.org.

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