The U.S. Justice Department is getting the kind of glowing publicity it craves out of its $1.5 billion criminal settlement with the Swiss bank UBS AG. (UBSN) "Leniency Denied, UBS Unit Admits Guilt in Rate Case," the New York Times said in a headline.
The reality is UBS's punishment was anything but strict.
In February 2009, UBS -- the parent company, not a mere subsidiary -- entered into a deferred-prosecution agreement with the Justice Department in which the company admitted to helping U.S. taxpayers hide overseas bank accounts from the Internal Revenue Service.
UBS promised to "comply with United States federal criminal laws" as part of that agreement. The government, in exchange, promised to dismiss all charges against UBS after 18 months, as long as UBS fulfilled its obligations under the deal. In October 2010, the complaint against UBS was dismissed with prejudice, meaning it couldn't be refiled later.
Now consider this: UBS was committing federal crimes during the 18-month period when that deferred-prosecution agreement was in effect, according to documents released by the Justice Department this week. Two former UBS traders were charged with conspiracy to commit wire fraud in a criminal complaint unsealed this week. The government accused the pair of boosting profits by manipulating interest rates in a scheme that ran from September 2006 through June 2010.
UBS's Japanese affiliate was required to plead guilty to wire fraud as part of the deal with the government. That's not anywhere near as damaging as a criminal charge against the UBS parent company, which entered into a nonprosecution agreement with the Justice Department. That agreement, too, said the scheme continued well into 2009 and 2010.
It's unclear when the government became aware of UBS's Libor manipulations. UBS first disclosed in March 2011 that it had received subpoenas from U.S. authorities investigating Libor-rigging; the disclosure was contained in UBS's 2010 annual report and didn't say when the company had received the subpoenas.
UBS's new nonprosecution agreement has a two-year term and says UBS shall "commit no United States crime whatsoever" during that time. Yet there is every reason to believe the government would refrain from indicting the parent company even if UBS got caught committing more felonies next week.
Lanny Breuer, the head of the Justice Department's criminal division, told reporters that prosecutors weighed the consequences to market confidence in deciding not to bring charges. "Our goal here is not to destroy a major financial institution," Breuer said at a news conference.
There once was a time when prosecutors used to say, "Let justice be done, though the heavens fall." Not anymore.
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