Wednesday, June 29, 2022

Too Big For Jail: The Story of HSBC and the Mexican Drug Cartel

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IIn 2012, HSBC was fined $1.9 billion and entered into a deferred prosecution agreement for aiding money laundering by the Mexican drug cartel led by Joaquín “El Chapo” Guzmán. The US Department of Justice had been prepared to file criminal charges against HSBC executives and seek prison terms, but was persuaded to reach a settlement instead.

One of those who had been at the Justice Department and closely followed what was happening was Richard Elias.

The “rich” Elias went under Missouri Law and won a number of honors. He started out defending corporations, but “after seeing firsthand how corporations often use their money, power, and influence to intimidate and thwart smaller plaintiffs,” he transitioned to prosecuting corporate wrongdoing.

Said Elias: “I was at the Justice Department when the HSBC DPA was entered. It was a very unpopular agreement within the department. I didn’t work on it, but I was aware of it. I was outraged by HSBC’s behavior and how symptomatic it was of major problems with the banks. It always stuck with me.”

Elias entered private practice “with a mission to bring cases of important public interest.” HSBC fit the bill.

What he saw was the drug dealers committing “very gruesome acts of violence” and HSBC, the bank that laundered their money, received only “a relatively light sentence — that’s what made them so unpopular in the Justice Department.” Elias said: “There was no question that HSBC was constantly allowing billions of dollars to be laundered through their branches. It was outrageous what they had done – taking large amounts of US dollars in cash, $200,000 each, specially wrapped boxes with cash as big as the till windows. There was no mistaking what was happening.”

The U.S. counter-terrorism law “holds liable those who commit a terrorist act and those who knowingly or recklessly assist those who perpetrate the terrorist act.” The more Elias watched, the more he believed that “HSBC, by laundering their money has materially supported the cartel and the atrocious acts of terrorism”. However, a bank and a drug cartel were largely unexamined laws. Still, Elias decided to give it a try. He would sue HSBC under the Anti-Terrorism Act.

Elias and his colleagues went back to the notes. They were looking for US victims of Sinaloan violence (they had to be US citizens for the law to apply).

One that Elias stepped out on was Rafael Morales Jr. In 2010, Morales Jr. and his family celebrated his wedding ceremony at El Señor de la Misericordia Catholic Church in Ciudad Juárez, the city where his new bride grew up. As the congregation left the church, Sinaloan assassins, all armed with assault rifles, were waiting for them in the church courtyard. In the distance, Mexican federal policemen, corrupt and working for the cartel, barricaded the road to the church.

Chapo’s assassins there had orders to kidnap Guadalupe Morales. People at the wedding tried to dissuade organizer of the attack, Irvin Enriquez, by saying they were innocent people. Enriquez ignored her pleas.

They ordered everyone, including small children, to lie face down in the dirt. In a panic, a man tried to flee but was shot in the back and killed. They started beating Guadalupe in front of the congregation. Rafael Jr.’s brother and best man, Jaime, shouted at the men to stop, after which they grabbed him, his brother and his uncle, forced them into two separate vehicles, and drove away. The corrupt Mexican police then closed and bolted the courtyard gate, trapping the horrified wedding guests inside. The Morales men were then taken to two separate “safe houses” where they were tortured.

Later that evening, Enriquez was in a meeting in Sunland Park, New Mexico when he received a radio call from one of the Sinaloa Cartel killers. Enriquez was excited and bragged about the wedding kidnappings. The assassin radioed the three Morales men to identify themselves. People at the meeting again encouraged Enriquez to release the men, declaring that they were innocent. Enriquez nevertheless ordered her to be killed.

They were murdered by wrapping tape around their heads. Her cause of death was asphyxiation. The bodies were found dumped in the back of a truck in a residential area in Juárez – they had been tortured and bound, and their heads were still bound with duct tape.

Several Sinaloa members have been charged with the murder of Morales Jr. in the U.S. District Court for the Western District of Texas, including Enriquez, José Antonio Torres Marrufo, a senior cartel enforcer, and Chapo himself.

Enriquez and an associate subsequently pleaded guilty to conspiring in the United States — in Texas and New Mexico — to assassinate Morales Jr., Jaime Morales and Guadalupe Morales in a foreign country.

At the time of his death, Morales Jr. was a US citizen living with his parents, sister, and nephews in La Mesa, New Mexico. Elias persuaded his parents, who loved their son very much, to join an action.

The Morales family was just a grief group. In all, Elias had five lots from plaintiffs for five murdered US citizens. “We sat down with them and talked to them – it wasn’t easy because they had been through so much,” he said.

“We proposed to hold HSBC accountable in a way they had never been held accountable before. It was easy for the unengaged to tell that this was a hefty fine. But they still had reported profits of $17 billion and $22 billion the year before. The fines were not deterrent behavior. There were ways for us to do our part – the Anti-Terrorism Act opened the doors of US courts to victims of international terrorism and those who provided material support to terrorists. It also included a punitive element of treble damages.” After 9/11, the 1996 Counter-Terrorism Act was amended to allow victims to receive compensation from organizations that provide material support to groups who commit terrorist attacks.

Elias added: “The evidence is very compelling that there were individuals at the bank who were more than negligent. There were members of the bank who knew exactly the amounts of illegally laundered dollars, and in several cases there were bank employees who were complicit and who worked on the money laundering schemes, none of whom were arrested responsible.”

After the fine and the DPA, he said: “The only remedy left to us is to compensate the victims. I would like to see prosecution; Individuals must be held accountable – there is a culture within the Department of Justice of not holding accountable individuals in financial institutions who commit significant crimes.”

He said: “If you sell a gram of cocaine on the street, you go to jail. If you are complicit in laundering billions of dollars, your organization will pay a fine and you, the executive who oversaw this and may have been complicit, will not be individually investigated and will not even have to return the bonuses received over the years in who went on.”

In 2016, Elias filed the civil suit in Southern Texas Federal District Court in Brownsville, near the border. “It’s a frontier town, and that’s where they have a better understanding of what the cartels are, rather in a more remote place like New York.”

Although other violent drug trafficking organizations, such as the Revolutionary Armed Forces of Colombia (FARC), have been classified as terrorists by the State Department, this has not been a drug cartel so far. “It was unprecedented,” said Elias. “But the definition is ‘anyone who commits life-threatening acts aimed at coercing intimidate the civilian population and the government.'”

The lawsuit, Zapata v. HSBC Holdings Inc, alleged that as a result of the bank’s “material assistance” to the drug traffickers, “numerous lives, including those of the plaintiffs, were destroyed … Without the ability to place, stratify and integrate the illicit proceeds.” into global financial markets, the cartel’s ability to corrupt law enforcement officials and acquire personnel, weapons and ammunition, vehicles, aircraft, communications equipment, raw materials for drug production and any other tools essential to their operations would be significantly hampered. By facilitating the laundering of billions of dollars in drug cartel proceeds through its banks, HSBC materially supported … terrorist attacks.”

HSBC promised to fight the action at every turn. Elias lost for the first time in New York and went on appeal in 2020.

Before the Second Circuit Appeal Court in the Foley Square Courthouse in Lower Manhattan, Elias and his colleagues argued that the lower court wrongly dismissed the case because they failed to establish “terrorist intent” and “direct causation.” They claimed that the fact that HSBC “provided billions of dollars in money laundering services provided “a plausible inference” that the bank acted intentionally. Money laundering helped the Sinaloa carry out their terrorist activities, and that showed sufficient support for what they were doing, enough for an obvious reason.

They claimed that Congress intended the Anti-Terrorism Act to not only catch the actual killers and perpetrators of violence, but also those in the “random chain of terrorism” in order “to disrupt or at least jeopardize the flow of money.” Recovering damages from a terrorist organization has been recognized as “almost impossible,” but successful lawsuits “against terrorism financiers can cut the terrorists’ lifeline,” they said.

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