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Holder Signals Criminal Charges Coming Against Some Banks

May 6 (Bloomberg) -- So far large banks that break the law have been able to avoid criminal prosecution by agreeing to settlements and paying large fines. However, that approach has been heavily criticized. Now Preet Bharara, the U.S. Attorney for the Southern District of New York, appears ready to change course. Bloomberg's Sam Grobart takes a look at the complicated task of prosecuting a big bank.

U.S. Attorney General Eric Holder said his department is readying criminal cases against banks that show financial institutions aren’t too big to prosecute.

Holder, in a video message posted today on the department’s website, said improved coordination with regulators is creating a relationship that “will prove key in the coming weeks and months” as prosecutors pursue charges. The government is nearing decisions on whether to charge Credit Suisse Group AG and BNP Paribas SA, people familiar with those probes said. Holder didn’t specify any banks.

“I am personally monitoring the status of these ongoing investigations,” he said, speaking generally. “I am resolved to seeing them through, and in doing so, I intend to reaffirm the principle that no individual or entity that does harm to our economy is ever above the law.”

Holder has faced criticism from lawmakers who said the Justice Department failed to hold bank executives criminally responsible for their roles in the worst financial crisis since the Great Depression. His department also was faulted for resolving cases against banks with settlements letting them escape criminal charges by paying fines, improving controls and promising not to break the law. At least 20 such agreements with financial firms have been entered into during Holder’s five-year tenure, according to a compilation published by law firm Gibson, Dunn & Crutcher.

Photographer: Andrew Harrer/Bloomberg

U.S. Attorney General Eric Holder said improved coordination with regulators is creating a relationship that “will prove key in the coming weeks and months” as prosecutors pursue charges. Close

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Photographer: Andrew Harrer/Bloomberg

U.S. Attorney General Eric Holder said improved coordination with regulators is creating a relationship that “will prove key in the coming weeks and months” as prosecutors pursue charges.

Criminal Charges

The three-minute video, which is part of a weekly series, contrasts with Holder’s comments from more than a year ago, when he told Congress that criminal charges against a large, interconnected bank -- something that might threaten its existence -- could also damage national or global economies.

“That the size of some of these institutions becomes so large that it does become difficult for us to prosecute them,” he said in March 2013.

Prosecutors are taking the unusual step of drawing attention to claims before they are filed. Manhattan U.S. Attorney Preet Bharara predicted in a March speech that “before too long” a financial firm would be charged criminally or plead guilty to a felony. He also echoed the message in a post on Twitter Inc.’s messaging service.

The Justice Department is weighing charges against Credit Suisse, the largest of 14 Swiss banks under criminal investigation in a U.S. crackdown on offshore tax evasion, according to people familiar with the matter who requested anonymity because they aren’t authorized to discuss it publicly.

New Unit

The Zurich-based bank last year created a separate legal entity called CS International Advisors AG to house the U.S. cross-border business that has drawn the legal scrutiny. Credit Suisse transferred 242 million francs ($276 million) of assets and 238 million francs of liabilities to the unit including 1,040 active accounts, 43,018 accounts that had already been closed as well as 1,144 dormant accounts, documents show.

The bank has been negotiating a deferred-prosecution agreement similar to one that UBS AG, the largest Swiss bank, reached with the Justice Department in 2009, a person familiar with the probe has said. The resolution could involve criminal charges against Credit Suisse or a unit, the person said.

BNP Paribas has been the subject of a federal probe into possible violations of sanctions barring business with prohibited countries. BNP Paribas said last week that it may need to pay more than the $1.1 billion it had already set aside for the case. The probe focuses on dealings tied to Iran, Sudan and Cuba, a person with knowledge of the matter said earlier this year.

Criminal Charge

The conduct in both cases, including the behavior of the banks during the probes, is what’s driving the push for a criminal charge, a person familiar with the situation said.

Credit Suisse and BNP Paribas have declined to comment on the U.S. probe.

Today’s video begins with Holder saying that no bank is too big to prosecute. Since criminal charges involving a financial institution can sometimes trigger regulatory action, including the potential loss of the bank’s charter, it would be irresponsible for prosecutors not to consider such consequences, he said.

“Rather than wall off banks from prosecution, the potential for such severe consequences simply means that federal prosecutors conducting these investigations must go the extra mile to coordinate closely with the regulators that oversee these institutions’ day-to-day operations,” Holder said. “So long as this coordination occurs, it is fully possible to criminally sanction companies that have broken the law, no matter their size.”

Contain Fallout

To prepare for potential criminal charges, prosecutors met with regulators including the Federal Reserve Bank of New York to discuss how to contain the fallout, said a person familiar with the meeting, asking not to be named because the talks were private.

One purpose of the April 18 meeting was to get regulators on board so that targeted banks couldn’t play authorities off each other, the person said. Prosecutors also came away with the perception that regulators weren’t looking to put these institutions out of business, according to the person.

BNP officials are scheduled to meet with prosecutors at the Justice Department in Washington this week, according to the person.

To contact the reporter on this story: Tom Schoenberg in Washington at tschoenberg@bloomberg.net

To contact the editors responsible for this story: Sara Forden at sforden@bloomberg.net Joshua Gallu

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