HSBC still operates with full UK-government-sanctioned impunity.

By Don Quijones, Spain & Mexico, editor at WOLF STREET. His blog: Raging Bull-Shit

I’d like to begin with one of the most ignominious – and hence most forgotten – episodes of British colonial history: the Opium Wars against China.

In the mid 19th century the British economy was close to bankruptcy, thanks mainly to its massive trade deficit with China. Put simply, the British couldn’t stop drinking Chinese-produced tea while the Chinese government had no interest in importing anything from Britain. The Manchu emperors believed that the Middle Kingdom already possessed everything worth having, and hence needed no barbarian manufactures. All they wanted was silver, of which the British were fast running out.

What the British did, through its East India Company, one of the world’s largest-ever monopolies, was to flood the Chinese market with the one product the Chinese couldn’t resist and which just happened to be cultivated across vast swaths of British-ruled India: opium. So doing, the British East India Company became the largest-ever drug trafficker in recorded history.

When opium addiction became a national pastime in China, the government tried to ban consumption of the drug, but to no avail. Demand just kept growing, and with it supply. Eventually the Chinese began targeting the trade at its source, seizing shipments from British ships as they docked in ports such as Canton. The British response was to hit back with the full force of its world-leading navy. So began the Opium Wars and China’s Century of Humiliation.

A Bank is Born

Each of the two wars was followed by an “unequal treaty” in which China was forced to concede many of its territorial and sovereignty rights to Britain, including its possession of Hong Kong. In 1865, five years after the end of the second Opium War, the Hong Kong and Shanghai Banking Corporation (HSBC) was founded. Its board members included hugely successful British entrepreneurs such as Thomas Dent, who owned many of the opium dens that China had unsuccessfully tried to ban.

The bank grew fat and fast off the proceeds of opium and huge fortunes were made (including that of Warren Delano, the grandfather of Franklin D. Roosevelt). As Le Monde diplomatique notes, the Chinese characters in the transliteration of the bank’s name are auspicious indeed, and can be understood to mean “gathering wealth.”

Exactly 150 years later, that bank – now the world’s second largest by assets – has been caught doing precisely that: gathering the world’s wealth. According to official estimates, it has amassed and stealthily stored the wealth of over 100,000 global high-net worth individuals and organizations in the relative safety and anonymity (emphasis on the “relative”) offered by the Swiss banking system.

HSBC’s latest scandal broke after the release of files containing lists of clients of its Swiss private bank. The files, originally leaked in 2010 by Hervé Falciani, a former IT technician at HSBC’s Geneva office who is now under the protection of French police and wanted by Swiss authorities for breaking the country’s bank secrecy laws, reveal that the London-based bank routinely allowed clients to withdraw “bricks of cash,” often in foreign currencies of little use in Switzerland. It also colluded with clients to conceal undeclared “black” accounts from their domestic tax authorities and provided services to international criminals, corrupt businessmen, shady dictators and murky arms dealers.

Turning A Blind Eye to Banker Crimes

France, Belgium, Spain, the US, and Argentina have already launched legal proceedings against HSBC and its high net worth clients. But not so the UK, whose tax authority has used the data to bring only one measly prosecution in the last five years. Worse still, according to The Guardian, the UK authorities were allegedly already in possession of detailed evidence about wrongdoing at HSBC’s Swiss bank when the country’s premier David Cameron appointed Stephen Green, the executive chairman of HSBC from 2006-10, as the country’s Minister of Trade.

Upon Green’s appointment, the government’s business secretary, Vince Cable, had the following to say:

In Stephen we will be appointing a minister with a long career as a leading international banker. [He is] one of the few to emerge with credit from the recent financial crisis, and somebody who has set out a powerful philosophy for ethical business.

For the moment Lord Green (yes, he was also given a knighthood) refuses to comment on the case, for “reasons of principle” – one assumes an oblique reference to legal as opposed to moral principle. As for the institution he once headed, it is unlikely to face much in the way of legal fallout, at least at home, thanks to recent changes in UK tax law aimed at protecting “professional advisers, Swiss paying agents and their employees” from criminal investigation by Her Majesty’s Revenue and Customs. The fact that one of the men responsible for introducing the new law – a senior tax inspector by the name of Dave Harnett – is now a lavishly paid consultant for HSBC is mere happenstance.

No Pain, No Consequences

Given the UK economy’s disproportionate dependence on the City of London, it’s hardly surprising that’s its government – whether under the control of Labour or the Conservative party – is completely in thrall to the country’s big 4 banks (HSBC, Barclays, Lloyds and RBS). But it’s not just the UK authorities that are effectively hostage to big banks like HSBC. Just about every nation on the planet is, including the most powerful. In the U.S. the big banks, with a little help from government, have created a legal system that authorizes their plunderous way of life, as Attorney General Eric Holder openly admitted in 2013:

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.

The message is unequivocal: there will be no prosecutions of systemically important banks – or for that matter the bankers who run them. Like Al Capone’s merry band of trigger-happy bootleggers before their fateful brush with the legendary Chicago lawman Elliot Ness, today’s too-big-to-fail banks can flout pretty much every law of every land without the slightest fear of sanction – except, that is, for the daintiest of financial slaps on the wrist. Such fines, whether counted in the millions or billions, have become mere costs of doing business.

When it comes to financial rap sheets, no bank – perhaps not even Goldman Sachs – can hold a candle to HSBC. In the last six years alone it has been accused of and/or has admitted to:

• Rigging just about every financial market imaginable (from LIBOR and foreign exchange markets to gold, silver and oil).
• “Misselling” wholly inappropriate products such as interest rate swaps to “unsophisticated” customers.
• Laundering money for Mexican drug cartels. This included transporting billions of dollars in armored vehicles, clearing suspicious checks, and helping traffickers buy planes through Cayman Island.
• Helping rogue states such as Iran and North Korea avoid international sanctions.
• Working closely with Saudi Arabian banks linked to terrorist organizations.

This is just a sample of the crimes and misdemeanors that HSBC is known to have committed in the last six years; yet not a single senior executive has faced a single night in jail for a single one of them. So it is that a bank born 150 years ago from the proceeds of a deadly trade – a trade it still dabbles in to this day – continues to operate with the utmost impunity and government-sanctioned immunity from the law. What’s worse, should it – or any bank of a similar size – ever face serious financial difficulties as a result of their criminally reckless activity (and they almost certainly will), they are guaranteed to be bailed out with taxpayer funds and/or bailed in with depositors’ savings.By Don Quijones.

Also by Don Quijones… Global Drug Trade Gets More Efficient, Defies US War on Drugs, Revolt Builds in Latin America

Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.