The Bad News Is There Is No Rock Bottom

When things are going bad, people often set out in the wrong direction. It happens all the time and it only makes things worse. The Justice Department’s decision to fine HSBC, a British bank that is Europe’s largest, $1.92 billion was enough to show how wrongheaded American policy is putting belief before truth.

If we believe as hard as we can, and say something over and over while we hide the process from the public, we can rob the country blind, dominate the Congress, and even bring shame to a wounded veteran and former Presidential candidate and Senate leader who, in a wheel chair at age 89, asked the Senate to vote to approve a UN treaty establishing a pledge to full rights for the disabled. This no-brainer only requested the US approve something it had already done; in fact, the US Disabilities Act was the model for the UN treaty. But instead of watching the Senate endorse a treaty that reflects established success in global leadership for the disabled, Bob Dole, former senator from Kansas, watched from the Senate floor as the members of his own party voted the treaty down.

The reason? The fear that the UN treaty with no enforcement or monitoring power, which calls each nation to review its progress for an annual report, would impose yet-to-be-expressed and completely unrelated standards for home schooling on American families. The treaty’s opponents claimed that US honor would obligate the country—each state, city, hamlet and home–to voluntarily submit to the treaty’s principles (whose goals have nothing to do with home schooling!) even if we disagreed. Except that we had agreed to the goals and signed the treaty, but it had not been approved by the Senate.

So an imaginary commitment was used to bring shame to a man who had served his party and his country with real commitment and honor. The imagined idea trumped the real ideals and practices firmly in place, without threat to hamlet or home. Bob Dole, a disabled veteran, watched the Senate vote use the idea of honor to bring shame to the US, before the world.

But things got worse quickly, in the name of justice. The British chartered Hong Kong bank, HSBC, agreed to the US Justice Department’s imposition of $1.92 billion in fines and penalties for the bank’s actions in financing terrorism and crime. HSBC had thousands of violations of the US’ Trading With The Enemy Act. HSBC moved trillions by wire transfers and other means for groups including al-Qaeda and Colombian and Mexican drug cartels for over a decade. The bank’s actions were so far out of control that the Justice Department claimed that no pattern of individual behavior could be established, so egregiously was the total institutional default on every standard and regulation aimed at denying legitimate banking services to global terrorism and crime. Shades of Catch-22! The Justice Department is claiming so many people were engaged in providing traditional banking to criminals and terrorists that it is impossible to tell who was at fault because the entire sphere of activity became routine practice,with its own procedures and rules! In other words, the bank was too big and too greedy to be bad! Continue reading The Bad News Is There Is No Rock Bottom

Digging Deeper: Are Government Fines a Firewall?

Who thinks fines work? Large fines, in the millions and billions of dollars, do they really change the corporate culture of open corruption, criminal behavior, the rule-breaking practices, the willingness to cheat that they are supposed to punish and deter?  Or are they  the cost of doing business for many businesses, especially large, multi-national corporations, whose continued violations damage US security and policy and are a major theft of taxpayers’ money?

In May 2011, the Department of State levied its largest civil penalty ever, $79 million, against a subsidiary of a British firm, BAE Systems, for illegal arms trafficking, after the firm was convicted of conspiracy to violate two international laws an estimated 2,591 times. 2,600 arms deals with Saudi Arabia, Hungry, Tanzania and Sweden, among other countries, were a part of the violations. The State Department settlement was the civil case. BAE Systems paid a $400 million criminal fine.

The Department of State’s Office of Defense Trade Controls addresses civil violations of the Arms Export Control Act (AECA) and the International Traffic in Arms Regulations (ITAR), the two acts most frequently violated.

After it was all over, BAE Systems issued a statement thanking the State Department for its help in bringing the company’s inventory, record keeping, and sales program into international compliance. Of course, it has “initiated the appropriate steps.” BAE System is one of the Defense Department’s Top 10 contractors.

Penalties and fines–paid to the Department of State? By military procurers? Yes, State’s Directorate of Defense Trade Controls (DDTC), in the Bureau of Political Military Affairs investigates, charges and negotiates civil settlements of US and international violations of arms trade agreements and regulations. This March (2012) it settled nine violations by New Jersey’s Alpine Aerospace Corporation acts for $30,000.

In late June (2012), DDTC landed a bigger fish, a major Connecticut defense contractor, the bellwether United Technologies (UTC). According to a State Department announcement, UTC was fined $75 million “global settlement” for violations of ITAR with China, dating back to 2002, some involving military software. Its stock price rose 3.5% last Friday on the news. State said, “UTC’s numerous violations demonstrated a systemic, corporate-wide failure to maintain effective ITAR controls.” The investigation and fine addressed “arms export violations to China, false and belated disclosures to the U.S. Government about these illegal exports, and many other compliance failures.” But $20 million of the fine was suspended and returned to UTC to be used for remedial compliance!

What court or legal authority gives you money back? Especially after you have potentially damaged foreign policy and arms trade agreements involving software with a major power with whom we have major differences? This is not an intervention with a certificate of completion. These fines were not for acts that were inadvertent, causal or occasional. They were multiple, sustained, and intentional.

In many cases, they were corruption in plain sight, a complete failure of oversight.

Since 2007, the Justice Department has a 44 page list that summarizes its major indictments and arrests for defense exports. These include:

  1. ~A January 2011 arrest for possession of 300 automatic assault rifles, 150 grenades and other remote detonated explosive devices.
  2. ~A January 2011 $15.5 million fine and prison terms for providing China with restricted electronics including military phased array radar, guidance systems and satellite communication systems.
  3. ~A January 2011 attempted sale of an F-5 fighter plane to Iran.
  4. ~October 2010, 58 tons of weapons and ammunition to Sri Lanka.
  5. ~A $4 million arms ship to the Ivory Coast.

Are fines closing the gates on the commerce that daily seems to compromise US security? Are the variety of violators operating without fear, taking advantage of lax regulation and oversight to direct arms and technology worldwide while reaping spectacular profits? Media covers the financial markets and their stumbles are front page news. Defense is an ongoing market that represents a bigger and more deadly threat that accumulates daily violations as a matter of course, but is ignored and off the radar of public consciousness. Why? Continue reading Digging Deeper: Are Government Fines a Firewall?