Prosecuting the Bankers - Key Moves in US Politics

Banks Should No Longer be "Too Big To Jail"

A version of this article was first published at www.theglobalist.com on July 29, 2016.

Some of the world’s biggest banks have overplayed their hand. They have strived at every turn to exert extraordinary political influence in order to get away with criminal violations of the law. To date, not a single top banking executive has faced a single day in criminal court.

The staggering wrongdoing committed by leading banks includes massive fraud in mortgage lending in the United States, manipulating international interest rates and currency markets, as well as laundering billions of dollars for drug cartels and corrupt politicians.

Rare case of bipartisan agreement

Now, despite the general atmosphere of extreme partisanship, both of America’s major political parties are declaring that the good times are over for the crooked bankers.

The Democratic Party’s “platform,” approved at its convention in Philadelphia, includes the phrase: “Democrats believe that no bank can be too big to fail and no executive too powerful to jail.”

Meanwhile, the Republican Party’s leadership of the U.S. House of Representative’s Committee on Financial Services published a report titled: “Too Big To Jail: Inside the Obama Justice Department’s decision not to hold Wall Street accountable.”

Showing more teeth against banks

In recent years, the major banks have agreed to settle a wide array of charges brought against them by U.S. banking authorities, the Department of Justice and the Securities and Exchange Commission.

For example, Bank of America has paid over $75 billion in fines, while J.P. Morgan Chase has settled a host of cases for around $40 billion.

A look at the 10 banks hit hardest by settlements as of October 2015. Source: Keffe, Bruyette & Woods Since this tabled was compiled there have been additional actions, notably a $5.1 billion settlement agreed by Goldman Sachs with the U.S. Justice Department in April, 2016.

In recent days, new actions by the U.S. Department of Justice have underlined the concerns that Democrats and Republicans are now expressing.

One action highlights alleged massive fraud by government leaders in Malaysia. This case involves possibly more than $3.5 billion.

The lead bank, according to the complaint, to assist in facilitating transfers of funds across the world, was Goldman Sachs.

Under the complaint, the funds in question were to be used for economic development in Malaysia, but in fact hundreds of millions of dollars have been traced to the acquisition of posh apartments in the United States, impressionist paintings, Las Vegas gambling and the financing of a film that is all about banking corruption –The Wolf of Wall Street.

Then, very recently, two senior executives at HSBC, Europe’s largest bank, were arrested at JFK airport in New York on charges related to currency trading. Indeed, HSBC has repeatedly been at the center of concerns in the United States when it comes to banking malfeasance.

In December 2012, the bank acknowledged allegations of money laundering for Mexican drug cartels among others and paid a $1.92 billion fine.

At a U.S. Senate Banking Committee hearing a few months later, Senator Chuck Grassley of Iowa chastised then U.S. Attorney General Eric Holder for being too soft and argued that the Obama Administration clearly viewed major banks as “too big to jail.”

The suggestion that top bankers enjoy impunity has rankled with politicians in the United States. Public concerns, promoted by Senator Grassley on the right and by Senator Bernie Sanders on the left, have created an unprecedented bipartisan political call now for tough action against banks.

Supporting the Republican concerns has been an investigation into the “too big to jail” issue that goes back to 2013. The report from the Financial Services Committee alleges that the U.S. Treasury repeatedly sought to delay the investigation.

Nevertheless, the report includes details about efforts by the U.S. banking authorities to convince the Justice Department not to bring criminal charges against HSBC.

No more special deals?

In September 2011, the Justice Department had decided it would press criminal charges against HSBC for assorted counts of money laundering involving hundreds of millions of dollars through its U.S. affiliated bank between 2006 and 2010.

However, those charges were dropped, a fine was agreed, a deferred prosecution agreement was signed. The arrangement included language which, according to the new report, “appears to insulate HSBC and its employees, officers, and directors from prosecution for illegally processing certain transactions.”

The decision to go this route, rather than go for a full criminal indictment, was influenced, stated the report, both by protests from the British Financial Services Authority and by a letter from George Osborne, the U.K.’s Chancellor of the Exchequer, to Federal Reserve Chairman Ben Bernanke (with a copy transmitted to then-Treasury Secretary Timothy Geithner.) I assume it is a coincidence that at that time Osborne’s UK cabinet colleague as Minister of Trade and Investment was Stephen Green, who had been HSBC’s Group Chairman between 2006 and 2010.

The continuing flow of investigations and cases being brought by the U.S. Justice Department against major global banks may end the impunity that top bankers have so long enjoyed.

If the Democrats and Republicans actually press ahead with their reform calls, then there is just a possibility that the formidable lobbying power of Wall Street financial firms in U.S. politics will decline.

This certainly was an important theme on the first night of the Democratic Party convention as both Senator Sanders and Senator Elizabeth Warren vowed to restructure the big banks.