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Comment by harryh | Hacker News Reader

What is an actual example where you can make more money committing a crime than you would be forced to pay back if you are caught and convicted?

I don't think your assertion is true.

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> What is an actual example where you can make more money committing a crime than you would be forced to pay back if you are caught and convicted?

> I don't think your assertion is true.

I think you just haven't bothered to look.

First, our prosecutors arn't convicting, they are settling. HSBC paid 5 weeks of yearly profit for cartel money laundering.

https://www.marketwatch.com/story/netflix-documentary-re-exa...

The justice department also called this a fair punishment for an unrelated money laundering crime for Saudi nationals funding of terrorism. They didn't even bother to bring charges. (Which is a perfect answer to your question.)

"of yearly profit" is not the relevant comparison. What is relevant is the amount of money they made from the cartel money laundering. I am preeeeety confident that HSBC didn't make ~10% of it's profits from these transactions.

Please read the second paragraph again. Where they didn't even bring charges for an unrelated crime of financing terrorism that they found out later. That was my answer to your question.

Well that again isn't an example of someone being caught and receiving a penalty lower than the gain from the crime.

I don't know why the justice department didn't pursue charges here. Maybe HSBC wasn't guilty? Maybe there wasn't sufficient evidence to win? Who knows. But this isn't an example of a caught party with a "so low that they don't matter" penalty.

> Well that again isn't an example of someone being caught and receiving a penalty lower than the gain from the crime.

I disagree... and frankly, just saying it isn't is a poor answer.

> Maybe there wasn't sufficient evidence to win?

Once again, your ignorance shows. The Justice Department expressed concern it would threaten the health of the financial system if they were too hard on HSBC at the time so they gave a low fee and ignored another crime.

> But this isn't an example of a caught party with a "so low that they don't matter" penalty.

I didn't say it was. I was answering your above question about a party that was 'caught' and faced a lower... NO penalty, in this case.

Banks are require to abide by a charter that requires good behavior. For evidence of criminal conduct that charter can be revoked and HSBC should have lost their right to operate in the United States. I would certainly call that a fee so low they don't matter penalty.

Especially since HSBC is now being accused of money laundering again... this time by Nigeria.

All you are giving is negative arguments. Saying things are not, and raising speculation without a basis does not add to the discussion. I am done with this.

No penalty is not the same thing as a lower penalty. You don't go around saying people got a lower penalty that were never actually prosecuted for something.

You claim the parent is speculating without basis but the parent is asking for an example where a normal penalty is lower than the profit, because that is an extraordinary claim.

If hsbc was able to profit from money laundering while paying they penalty, they would still be doing it. They obviously had no moral barriers to doing it before so why would they stop?

“Moreover, the dollar transfers earned HSBC hefty fees. The Senate investigation quoted an HSBC email lamenting how the bank would lose $2.6 billion in revenue from U.S. dollar accounts that it was forced to close because of the Mexico fiasco.” *

First, apparently HSBC was making 2.6 billion USD (annual?) revenue from these accounts, and was fined 1.9 billion USD. Second, it is not a certainty that a company engaging in illegal behavior will get caught and fined. The company’s “expected value” function would multiply the expected fines by the chance of being caught. We can only observe the world in which they get caught and perhaps pay a fine larger than what they made. We don’t see the world in which they don’t get fined, which makes the illegal behavior on average profitable.

* https://www.npr.org/sections/parallels/2014/03/20/291934724/...

1) 2.6B in revenue != 2.6B in profit. HSBC earns maybe 20% margins so we're talking about ~500M in revenue or far less than the fine.

2) Your point about expected value is well taken, but here you are saying something far different from what themagician said and I was objecting to.

You can't just apply the margin like that. You have to estimate the marginal cost of the extra business.

For something like banking I'm fairly certain that the marginal cost is tiny. It takes a lot of money to setup all the systems needed for moving money around, but once they are in place the difference between 10b and 11b flowing through them is tiny. As such HSBC probably pocketed most of that revenue.

There was a case only last year involving manipulations of cattle futures. The firm made the decision that the cost of being caught was less than the potential penalty, and they were right.

It's not about criminal convictions. In theory it's just a civil case with a criminal case to follow. Which is why SEC fines are often less than the net befit. But, the actual number of criminal cases is rather low.

EX: "In June 2009, the SEC sued Angelo Mozilo, former CEO of mortgage lender Countrywide Financial, and two other former officers, charging that they misled investors about the quality of Countrywide's loans while knowing the company was fueling its growth by letting its underwriting guidelines deteriorate and originating a growing number of risky subprime loans. In October 2010, the SEC settled the lawsuit and Mozilo was required to pay a fraction of the $521.5 million he had earned, just $67.5 million in penalties" https://en.wikipedia.org/wiki/List_of_major_SEC_enforcement_...

It's not at all clear that all of Mozilo's earnings came from fraudulent activity. In fact, it's almost certainly true that this is not the case.

The issue is that Mozilo's behavior resulted in personal gains against extreme public losses. It's in our best interest as a society to deter such behavior, while enabling whatever legitimate business Countrywide conducted. How do we best do that? The public at large wins — Mozilo should win, the public at large loses — Mozilo should lose.

I think GP's point is that a $60M fine (against $520M in earnings) is not a an effective deterrent against such antisocial behavior.

Maybe the fines are too low. I could be persuaded of that.

I'm just saying that they aren't, as themagician asserted, lower than the actual gains from the frauds in question.

I agree all is a bit much but, it is more than 13% including penalties, especially when you include the effect the 'boosted' earnings had on the stock price.

But the general thesis that people are making so much money from their crimes that they don't fear criminal penalties seems to hold. like the 2.x billion in profits lost from the 1.9 billion fine?

I don’t give a shit where his earnings came from. This is a man who should be utterly bankrupt and forced to pay restitution for the test of his life.

Maybe if you have money you get caught but not convicted? Thinking about banks laundering money for drug cartels

You would be in error. Severe, error.

But I'm not going to list a howto ;)

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