Warren’s attack comes at a touchy time for the administration. | John Shinkle/POLITICO Warren: Bust cash-laundering banks

Sen. Elizabeth Warren on Thursday demanded answers from top banking regulators over the possibility of shuttering financial firms that flout federal anti-money laundering laws or violate international trade sanctions.

Referencing the penalties leveled against HSBC after the company was caught being used to funnel billions in drug money, the Massachusetts Democrat questioned regulators about why they did not consider forcing the British bank to shut its doors on U.S. soil.


“What does it take?” Warren said. “How many billions of dollars do you have to launder for drug lords?

Regulators fined the company $1.9 billion over the laundering, but Warren questioned why no criminal prosecutions were aimed at the company or its employees, saying they were not being held to the same standard as common Americans.

“If you’re caught with an ounce of cocaine, the chances are good you go to jail. If you’re caught repeatedly, you can go to jail for life,” Warren told regulators during a Senate Banking Committee hearing. “Incidentally, if you launder nearly a billion dollars in drug money, your company pays a fine and you go home and sleep in your own bed at night.”

Officials from the Treasury Department, Federal Reserve and Office of the Comptroller of the Currency hesitated to weigh in on when it was appropriate to shut down financial firms, saying the decision to shutter a bank would follow prosecutions by the Department of Justice.

“I’m not going to get into some hypothetical line-drawing exercise,” David Cohen, treasury’s undersecretary for terrorism and financial intelligence, told Warren.

Fed Reserve Governor Jerome Powell was more direct: “I’ll tell you exactly when it’s appropriate” to consider pulling a bank’s license, he said. “It’s appropriate when there’s a criminal conviction.”

Warren’s attack comes at a touchy time for the Obama administration, following Attorney General Eric Holder’s admission Wednesday that the size of the biggest banks complicates efforts to hit them with criminal prosecutions.

“I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if we do prosecute — if we do bring a criminal charge — it will have a negative impact on the national economy, perhaps even the world economy,” Holder told the Senate Judiciary panel Wednesday.

That line of thinking poses a direct challenge to Democrats’ Dodd-Frank Wall Street reform law, which is intended to ensure that the collapse of a single firm does not threaten the economy.

And the tensions over “too big to jail” were further inflamed Thursday when Cohen conceded that federal prosecutors had consulted with treasury over the potential economic consequences of going after HSBC.

Cohen told the panel that his department declined to provide a summary of the economic impacts because they were impossible to forecast with any certainty.

But the fact that the Justice Department even asked the question left lawmakers fuming, as they wondered whether Justice’s question revealed that major banks are too big to jail.

Warren’s line of inquiry became a bipartisan chorus, as several other members on her panel took up the grilling when her time ran out.

Sen. Jeff Merkley (D-Ore.) asked regulators how they would explain to the American people why no HSBC officials faced criminal charges and whether they had played any role in Justice’s decision not to prosecute the bank or its officials.

And Sen. Mark Kirk (R-Ill.) was scathing in his critique of the regulators, sarcastically suggesting to Warren that they collaborate on a bank that dealt solely with money from drug cartels and terrorists.

“We’d have nothing to fear from the U.S. government,” he said.

This article first appeared on POLITICO Pro at 11:54 a.m. on March 7, 2013.