The “Lawless” Liberty Reserve Scandal – Big Banking is Organized Crime Sanctioned and Protected by the State

by Scott Creighton

• HSBC failed to monitor $670 billion in wire transfers and $9.4 billion in cash
• (Wachovia) sanctioned for failing to apply the proper anti-laundering strictures to the transfer of $378.4bn
• Historians estimate that in the 1920s, 99 of every 100 Franklin County residents were in some way involved in the illegal liquor trade. The bootleggers became involved with gangsters from Chicago and other major cities, and some local law enforcement officials (and especially federal agents) were part of the criminal activities and killing of competitors

From the New York Times to little Dvorak Blog, the interwebs are all talking about the “largest international money-laundering prosecution in history”: the Liberty Reserve.

The charges are that throughout it’s history (Liberty Reserve was set up in 2006 by Arthur Budovsky in Costa Rica after the feds shut down his other exchange GoldAge) Liberty Reserve did around $6 billion in transactions, all of which they now add together to get the total amount of “laundered money” (read the court documents, here)

“Overall, from 2006 to 2013, Liberty Reserve processed an estimated 55 million separate financial transactions and is believed to have laundered more than 6 billion (U.S.) in criminal proceeds” U.S. V Liberty Reserve et al Indictment, page 4

The indictment states that by the end, Liberty Reserve was doing 1.5 billion in transactions a year. They certainly didn’t start off that way, it took time to build up to that amount of traffic. They were operating for 6 or 7 years, so it’s reasonable to assume the $6 billion number is their total transaction amount over the entire course of their business operation.

Part of the magic trick that Justice uses is the start off with the premise that the business was set up to cater to illegal transactions and those who wish to launder their ill-gotten gains so to speak. Think of it as a poor man’s Swiss bank account.  Therefore they are claiming that all of those 55 million transactions were criminal transactions.

“Because virtually all of Liberty Reserve’s business derived from suspected criminal activity, the scope of the defendant’s unlawful conduct is staggering” U.S. V Liberty Reserve et al Indictment, page 3

This is an obvious fallacy.

So why pump this case up and why prosecute these men when other drug laundering schemes are so much larger? The answer to that lies in the standard operation procedure of the Justice Department these days: protect the big banks at all costs, especially from competition. Especially from homegrown competition.

It’s impossible at this early stage to tell just how many of the transactions were conducted with criminal intent (that is aside from the sting operations where feds made payments supposedly laundering drug money). In fact, it’s very hard to prove any of them were. The way they set up their system, even Liberty Reserve can’t track the source of the payments or to whom they were actually made.

I’m sure a number of them were laundering illegally obtained cash and I’m sure some of them were buying child porn, but how one can say with a straight face that all 55 million transactions since 2006 were drug money or PedoBear funds is beyond me.

Some people simply prefer to do business without every peck of their keyboard being registered, processed and sold to 3rd party interests. So naturally a company offering that service with those safeguards would be popular in the world today. I’m sure that a large percentage of that $6 billion number will eventually prove to be completely innocent simple transactions.

Now on the other hand, that $6 billion number, as massive and headline grabbing as it is, is nothing (and I mean nothing) in comparison to some recent money laundering schemes that have recently come to light.

In the case of HSBC they were found to have been laundering Mexican drug cartel money for over a decade and “failed to monitor” $670 billion in wire transfers (approximately the same charge leveled at Liberty Reserve) and another 9 billion in hard cash. Of course, the Department of Justice, working for the big banks, claims only a billion or so were illegal drug transactions. That investigation was run by Bill Clinton’s old friend, Lanny Breuer who was featured recently in a Frontline story about how the Justice Department didn’t prosecute any of the big banks or Wall Street executives for creating the sub-prime mortgage crisis that destroyed our country.

Curious to see the same guy’s name attached to this big banking scandal and the lack of prosecution here? Shouldn’t be curious at all. In fact, it makes perfect sense as I like to say.

“Between 2006 and 2009, according to DOJ, HSBC failed to monitor $670 billion in wire transfers and $9.4 billion in cash transactions from its Mexico bank operations.

Because of these failures, at least $881 million in drug trafficking money — including those of the Sinaloa Cartel of Mexico and the Norte del Valle Cartel of Colombia — were laundered through HSBC, according to Justice.

The DOJ said HSBC also helped process $660 million in prohibited transactions from Iran, Cuba, Sudan, Libya and Burma by deliberately hiding the identities of these countries.

… Among other things, the report claimed that in 2007 and 2008, HSBC’s Mexico unit shipped $7 billion in cash to the bank’s U.S. affiliate, a volume of shipments that law enforcement officials said could reach that size “only if they included illegal drug proceeds.” CNN Money

“If you’ve ever been arrested on a drug charge, if you’ve ever spent even a day in jail for having a stem of marijuana in your pocket or “drug paraphernalia” in your gym bag, Assistant Attorney General and longtime Bill Clinton pal Lanny Breuer has a message for you: Bite me.

Breuer this week signed off on a settlement deal with the British banking giant HSBC that is the ultimate insult to every ordinary person who’s ever had his life altered by a narcotics charge. Despite the fact that HSBC admitted to laundering billions of dollars for Colombian and Mexican drug cartels (among others) and violating a host of important banking laws (from the Bank Secrecy Act to the Trading With the Enemy Act), Breuer and his Justice Department elected not to pursue criminal prosecutions of the bank, opting instead for a “record” financial settlement of $1.9 billion, which as one analyst noted is about five weeks of income for the bank.” Matt Taibbi, Rolling Stone

The Justice Department was downplaying the scope of the laundering taking place at HSBC whereas they are clearly overplaying the numbers in the Liberty Reserve case. In the case of the latter institution, they claim all $6 billion in unmonitored wire transactions are criminal in nature where they could easily have done the same for the $670 billion HSBC allowed to take place. The claim that only 880 million or so of it was drug money is a joke. They had drug cartel leaders in Mexico coming in on a daily basis with specially made boxes to fit in the teller’s windows stuffed with cash.

While HSBC was a big drug money laundering operation, it had nothing on Wachovia (now Wells Fargo).

When they got busted for laundering as estimated $378 billion in drug cartel money, their stock actually went up the day our “Justice Department” announced their fine. They were to pay less than 2% of their profits from the year before. Investors giggled all the way to the bank on that one.

“More shocking, and more important, the bank was sanctioned for failing to apply the proper anti-laundering strictures to the transfer of $378.4bn – a sum equivalent to one-third of Mexico’s gross national product – into dollar accounts from so-called casas de cambio (CDCs) in Mexico, currency exchange houses with which the bank did business.

“Wachovia’s blatant disregard for our banking laws gave international cocaine cartels a virtual carte blanche to finance their operations,” said Jeffrey Sloman, the federal prosecutor. Yet the total fine was less than 2% of the bank’s $12.3bn profit for 2009. On 24 March 2010, Wells Fargo stock traded at $30.86 – up 1% on the week of the court settlement.” Guardian

Being caught with an ounce of cocaine in Florida where I live would put me in prison for 5 years or so. It would effectively end my life.

But when CEOs and board directors are caught laundering nearly half a trillion dollars worth of drug money, they don’t even see a dip in their stock prices and the fines are probably paid by our never ending bank bailout funds.

As anyone can easily see, it’s always about protecting the big banks no matter what they do. Not just from prosecution when on the off chance someone comes across a major crime they commit (sub-prime crisis they created or drug money laundering or robo-signing or illegal foreclosures) but also against competition. After all, that’s what the Banker Bailout Plan did. It allowed the Fed to say which banks would stay and which would be chewed up and by whom. It was consolidation by design allowing Too Big Too Fail to become bigger.

This case is about taking the owners of Liberty Reserve to task for providing an alternative to the corruption of the big banking cartels. Sure there was criminality involved but there is criminality involved in every bank and mortgage lender and rating agency and LIBOR and pension fund and so on and so on.

What made Liberty Reserve different is they offered a hub for transactions that the big banking cartels didn’t get a piece of.

Think of gangsters wanting their cut of a bootlegger’s money in Virginia and the Feds coming in to help them get it (Lawless. A true story set in the county next to the one I grew up in)

Think of the DEA and the CIA working with the Sinaloa Cartel in Mexico to make them the biggest and most influential drug dealers in the world. Not only helping them kill off the competition south of the border, but actually arranging shipments to get over the border and drug laundering schemes with banks like Wachovia and HSBC.

Think of U.S. troops being forced to guard poppy fields in Afghanistan. The same fields the Taliban destroyed in the 2 years they were in charge before we invaded.

This isn’t about taking criminals to task for basically running a deregulated internet bank. This is about control and power and cornering the market of deregulated internet banks. And it’s also about big headlines that will distract from the many and varied scandals rocking Eric Holder these days.

This is about nothing more than domination of the financial world and keeping every penny they can under their thumb.

The owners of Liberty Reserve were no heroes but then again, neither were the Bondurant boys of Franklin county. But in times of universal deceit and corruption, one might be forgiven the sin of empathizing with the lesser of two evils. Obama voters must know that by now as well as the rest of middle America. After all, how many seasons did the Dukes of Hazard stay on the air?  How many Smoky and the Bandit movies were there?