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Scandal or business as usual?

By Joy Macready

25 March 2015

Whose customers include drug barons, arms dealers, dictators, terrorists and blood diamond dealers? Why, a bank of course.

Leaked documents from an ex-employee show that HSBC made huge profits for years through handling secret accounts for criminal, even murderous (but always wealthy) customers.

HSBC may be the one in the dock at the moment, but make no mistake; all banks have remarkably similar client lists, in spite of reams of international anti-money laundering and “Know Your Customer” regulations.

The irony is that HSBC certainly does know these customers, as its Swiss private banking arm bent over backwards helping them dodge taxes and launder cash.

An employee of HSBC’s private bank in Switzerland, Hervé Falciani, realised the bank he was working for was operating a massive and illegal tax evasion and money laundering service for the super-rich. He started collecting the data in 2009 and handed it over to the Swiss authorities, who did nothing, then the French.

Recently The Guardian and Le Monde journalists analysed a portion of the data. The 30,000 accounts they looked at contained over $130 billion. Correspondence details how officials not only advised and assisted clients in evading taxes, but even handed over “bricks of cash” so that they could spend their ill-gotten gains without leaving a paper or electronic trail.

British tax officials identified 1,100 UK-based tax evaders from the HSBC files they received in 2010. While they have recovered £135 million owed taxes, however, only one person has been prosecuted to date.

Yet the chair of HSBC from 2006 to 2010, Lord Green, was marked out by the Tory government – for promotion to trade minister. Green only resigned – without showing the slightest glimmer of remorse or self-awareness, – when he was forced to.

Similarly, Douglas Flint, current HSBC boss, was adamant in front of the House of Commons committee that while he believed “in personal accountability” and that “people should be held responsible for what they have direct oversight over”, he didn’t “feel that proximate to what was happening in the private bank”.

Amazingly such weasel words can keep the cream of capitalist talent out of the dock. As Labour MP Margaret Hodge, chair of the Public Accounts Committee, quipped, “If it had been a benefit cheat it would have been up for court years ago.”

Market manipulation

Although it appeared as if HSBC had made it through the banking crisis in 2007-08 relatively intact, it certainly hasn’t escaped the numerous market misconduct scandals that followed.

In November, five global banks – HSBC, along with Citi, JP Morgan, Royal Bank of Scotland and UBS – were fined a total of $3 billion by UK and US financial watchdogs for manipulating the $5 trillion a day foreign exchange market. (Barclays is also incriminated but has yet to agree a settlement).

The FX probe revealed that a number of traders from different banks colluded together in online chat rooms, which they named “the Cartel”, “the Bandits” and “the Mafia”. They passed on confidential information to move the FX market in their bank’s favour, an activity called “front running” a trade.

Even the Bank of England has been pulled into the fray, as files show its former chief FX dealer had been aware that front running was a common (not to mention illegal) practice as early as 2006.

The FX scandal kicked off just as the furore over manipulation of the London interbank offered rate (Libor) had begun to die down. Libor, which is the benchmark rate at which banks lend to each other in the short-term, underpins approximately $350 trillion in financial derivative products.

Again bank collusion came to light. As a result, Barclays had to pay out more than $500 million, Swiss bank UBS paid $1.5 billion and Lloyds $370 million in fines, while Citi, RBS, JP Morgan and Deutsche Bank paid lesser amounts. (Some paid much less because they had grassed the others up). All have set aside millions for future manipulation settlements.

Many senior banking executives have used this opportunity to settle old scores and toss a few scapegoats to the regulatory wolves; however, it is clear to see that this behaviour was sanctioned – even promoted – by senior management. It was not just a case of a few “bad apples” but the whole banking system that is rotten to the core.

The role of banks

Under capitalism, banks play a specific role in the circulation of money, injecting “liquidity” into the markets. Finance capital is held by the banks and lent out to individual capitalists to invest in expanding their business’ productive capacity – but this comes at a price (i.e. interest). In this way, money appears to generate more money on its own, particularly when the banks engage in speculative activities.

Taking a “real economy” example, in order to lend out money – and get more in return – a banker must be certain that the loan can be paid back. To decide which companies to invest in, they scrutinise companies’ accounts and business plans and sit on company boards. Consequently, they have intimate knowledge of the inner workings of any industry and take decisions as to what areas of industry “deserve” investment based on an expected rate of return.

By extending credit, financial institutions also increase the speed at which money is invested in production and then re-circulated into other areas of the economy.
But they also engage in highly speculative activities, such as the FX market that runs the gamut from corporate payments for supplies or wages in other currencies to high frequency traders trying to extract revenue from the smallest pip in currency movements.

It is this quest for ever-greater rates of return – turning money into more money – that also drives banks to bend their own rules and manipulate the “free” market. What is most telling about these investigations is that it wasn’t just one investment bank that allowed its traders free rein, but all the top global institutions. Even though they compete against one another, they colluded to cheat their clients and boost their profits.

Individual prosecution

The regulators are only now beginning to pursue individuals for their role in market manipulation. There have been a few arrests and even fewer trials to date, but there are also many traders that are still sitting at their desks and making money for their bank.

These traders may not have benefitted directly from market manipulation, but as the investment banks’ profits soared so did their bonuses. Many received more than three times their salary in bonuses.

However, the real winners were the upper echelons of the banks, with their golden handshakes, platinum goodbyes and diamond retention packages.

Barclays’ ex-CEO Bob Diamond walked away with £120 million during the five years following the credit crunch. He resigned “in disgrace” (but not in poverty) after it emerged that under his supervision Barclays had manipulated Libor.

The government allows crooks like Diamond and RBS’ Fred “the Shred” Goodwin to walk away scot-free and take their money with them. This is where the real fraud lies in society, not in working class neighbourhoods.

Compare their treatment with a benefit claimant trying to survive on £53-£79.15 per week, who can have their meagre dole stopped if they miss an interview or refuse to take a zero-hours contract job. If prosecuted for benefit fraud, for example because they took on a little extra work to try to make ends meet, they either have to pay it all back, see their homes and possessions confiscated or spend up to 10 years in prison.

Diamond, Goodwin and their cronies haven’t paid back a penny of their ill-gotten gains and continue living quite comfortably in their mansions, with their Jags and yachts.

The answer

The capitalists’ answer to the banking scandals is to increase regulations governing the banks, effectively forcing them to reduce their leverage ratio, “even the playing field” by curbing the excesses and making bankers adhere to codes of conduct.

The UK government, for example, has implemented powers to claw back bonuses and make misconduct a prison term offence of up to seven years.

Effectively what they are trying to do is give banking a makeover, making it appear well regulated and innocuous, so it can play its part in a “budding economic recovery”.

But finance capital has no morality. Its only aim is to increase its profits, and it will do that by any means necessary. Even if it can’t openly manipulate the market as it has done recently – remember, front running has always been illegal – it will find other ways of increasing the rate of return on money, such as returning to the collateralised debt obligations (CDOs) they sold in the run up to the crisis.

But we have a very different answer. We don’t believe that the banking system can be reformed.

Instead we call for the nationalisation of all the banks and for them to be merged together under one roof and under working class control.

This is very different from the “nationalisation” of RBS, which effectively nationalised the debt for the taxpayers to bear, while allowing the bank’s top executives to walk away with ever increasing remuneration packets. It is sickening that a bank, which is 80 per cent owned by UK taxpayers, paid out £421 million in bonuses last year at the same time reporting a £3 billion loss and 14,000 job cuts.

Since 2009 RBS has lost the taxpayer £49.4 billion and shed 48,000 jobs.

We demand that all bankers’ bonuses should be immediately revoked. In addition, all the money that the banks owe in fines should be redistributed to provide decent homes, healthcare and social services to hard-hit working class communities across the country.

But we must combine the fight to take over the banks with the fight to open the books of the crisis-ridden corporations, and to reveal the networks and deals that finance capital keeps hidden and to force the rich to pay back their evaded and avoided taxes in full.

We must go further and fight for the overthrow of capitalism, which is an anarchic system of exploitation and crisis, and replace it with a democratically planned economy – one that will expropriate the ruling class and take state power. To do this, we need to build a revolutionary party of the working class.

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