[ by Melanie Gretchen and Howard Haykin ]

It's prime time for the Senate Banking Committee and Elizabeth Warren, the committee's freshnan Senator from Massachusetts is grabbing all the attention.  Thanks to You Tube and a remodeled wardrobe and hair style, Ms. Warren cuts quite a figure in the Congressional Hearing Room, while she's cutting government officials down to size. 

Last Thursday, the Committee investigated money laundering investigations.  She knew what questions to ask the government officials from the Office of the Comptroller of Currency and the Treasury Department - and she knew what answers she wanted to hear.  Ms. Warren didn't let regulatory doublespeak get her down.  She pressed for answers with relentless pursuit on why HSBC, which has repeatedly violated U.S. money laundering rules, should be permitted to continue operating a bank in the United States.  She pressed for a viable answer as to why no individuals were sanctioned, when the bank agreed to pay enormous sums to settle government charges. 

At issue was ramping up anti-money laundering laws meant to combat illicit money flows.  Specifically, senators took issue with authorities' settlement with top banks, like HSBC, which in December agreed to pay a record $1.9 billion to resolve charges it laundered a river of drug money from Mexico.  By the deferred prosecution agreement, no bank employees were charged in connection with the case, in what senators called lax enforcement.

"If you're caught with an ounce of cocaine, the chances are good you're going to jail. ... But evidently, if you launder nearly a billion dollars for drug cartels and violate international sanctions, your company pays a fine and you go home and sleep in your own bed at night... I think that's fundamentally wrong." -- Senator Warren.

In their defense, the OCC and the Treasury Department's illicit finance unit said it is considering new rules to hold individuals specifically liable and will review older rules, which are rarely used to prosecute executives.

Performance Report. Regulatory shortcomings include:

• FinCEN, a unit within the Treasury Department that focuses on money-laundering issues, has rarely obtained injunctions and civil penalties against individuals, and then usually against individuals affiliated with smaller money transmitters.
• The OCC's failure to prosecute individuals "who are responsible for the conduct that has resulted in fines and penalties against the institution itself," according to David Cohen, the Treasury Department's undersecretary for terrorism and financial intelligence.

For its part, FinCEN will look to impose more injunctions and civil penalties, while the OCC is looking to "improve its ability to bar bank officers, directors, and employees that violate the Bank Secrecy Act, or BSA, Mr. Cohen said.

However, Senator Warren has reason to doubt regulatory power, based on history, and its will.  Just a day earlier, Attorney General Eric Holder told another Senate panel that prosecuting some large institutions would "have a negative impact on the national economy, perhaps even the world economy."  By Thursday, regulators had shifted the blame of HSBC on the Justice Department, which has also faced criticism over bank misconduct.

"We do civil enforcement, and in the case of HSBC, we gave the statutory maximum in terms of money penalties. We did what we had the legal authority to do.  The Justice Department has total authority ... to decide who gets prosecuted for what." -- Jerome Powell, Federal Reserve Board Governor.

Senator Joe Manchin of West Virginia said the Department of Justice should testify about why they haven't prosecuted individuals.  However, the Senate committee did not invite a DOJ representative to testify at the Thursday hearing, begging the question:

Is that because the Senate wanted to put regulators in the hot seat, or because the Senate itself could or would not hold the DOJ accountable?

In its defense, the DOJ said it is "committed to aggressively investigating allegations of wrongdoing at financial institutions and, along with our law enforcement partners, holding individuals and corporations responsible for their conduct."

For further details, go to [Reuters, 3/7/13].