Commerzbank, Eric Holder and Too-Big-to-Jail
Dennis Lerner, a former tax director at Commerzbank AG (CBK) in New York, isn’t too big to jail. But the bank he once worked for may well be, along with the other executives there who made his crimes possible.
Lerner, 60, pleaded guilty this week to public-corruption charges. Commerzbank hired him from the Internal Revenue Service in 2011 while he was an examiner responsible for negotiating a tax-fraud settlement with the bank, according to the criminal complaint that prosecutors filed in September. Commerzbank paid the IRS $210 million one day before offering Lerner the job, which he accepted immediately. The figure was 62 percent of the potential taxes due. Bank employees later told federal investigators it had been willing to pay much more money to settle the audit.
“We will not tolerate corrupt government employees and will prosecute and punish them to the full extent of the law,” Preet Bharara, the U.S. attorney for the Southern District of New York, said in a March 12 news release. Notably, Bharara said nothing about prosecuting the people and companies that participate in corrupting them.
Why hasn’t the Justice Department charged Commerzbank or anyone else who worked there? That is a mystery, but perhaps only partly. U.S. Attorney General Eric Holder last week told the Senate Judiciary Committee, in essence, that some financial institutions are indeed too big to prosecute, because of the damage to the U.S. and world economy that might ensue.
Commerzbank is certainly big. The company had 636 billion euros ($839 billion) of assets on its Dec. 31 balance sheet, making it Germany’s second-largest bank. The German government owns about 25 percent of the company, after bailing it out in 2009. We can imagine how upset some German political leaders would be if the Frankfurt-based lender were ever indicted in the U.S., jeopardizing its ability to survive.
Julie Bolcer, a U.S. Attorney’s Office spokeswoman, declined to say if the Justice Department’s investigation is continuing. Margarita Thiel, a Commerzbank spokeswoman, declined to comment. (The government’s court papers refer to Commerzbank only as “Bank 1.” Bloomberg News and other news organizations previously have identified the bank as Commerzbank.)
There are signs the investigation might be wrapping up. Lerner’s plea deal doesn’t require him to cooperate with government investigators, which suggests the feds aren’t trying to use him to target bigger fish at the bank. Prosecutors said they would recommend only four to 10 months in prison, in line with federal sentencing guidelines. He also isn’t required to admit to breaking the law while he was a Commerzbank official.
Of the original four counts against him, Lerner pleaded guilty to the two charges related to his conduct while he was an IRS employee. One was for violating conflict-of-interest laws, the other for illegally disclosing IRS audit information. Prosecutors said they would drop the two counts stemming from his actions as Commerzbank’s tax director.
If Lerner committed crimes, it stands to reason that others at Commerzbank did, too. Lerner didn’t act alone. The notion that he’s the only one who violated the law in this case seems beyond belief, based on the facts the government alleged. At the very least, someone at Commerzbank should have known Lerner wasn’t allowed to do some of the things he did.
The government’s complaint said Lerner met in New York with unidentified Commerzbank executives in July and August 2011 to discuss the IRS’s audit and his possible employment at the bank. After Lerner told the IRS he was resigning in August 2011, his supervisor there gave him a document describing his lifetime prohibition on attempting to influence IRS employees regarding matters he had worked on at the agency. Lerner’s resignation letter didn’t identify Commerzbank as his new employer. Later that month, Lerner participated in a meeting at the IRS about the bank’s settlement, according to the government’s complaint.
The $210 million tax settlement Lerner negotiated with Commerzbank was still pending final approval when he left the IRS. After Lerner began working at Commerzbank in September 2011, the government said he spoke repeatedly with IRS examiners involved in the audit, asking about the status of the case and arguing on Commerzbank’s behalf to bring it to a close. Some of the discussions took place with another Commerzbank employee present.
The criminal inquiry began after an IRS examiner notified investigators in November 2011 that Lerner refused to recuse himself. The next month, the same examiner sent Commerzbank a new request for additional documents as part of its audit. It’s unclear what became of the bank’s IRS audit after 2011.
If the government’s investigation is over, the public deserves to know why. We learned after the 2008 financial crisis that executives of too-big-to-fail companies are unlikely to be prosecuted, even if it’s obvious that crimes were committed, for fear that charging them might grievously harm the institutions themselves. If we are going to place some banks above the law for the sake of financial stability, we also must recognize the threat this poses to our democracy. For starters, the banks can buy off government officials and get away with it.
Today, the Senate Permanent Subcommittee on Investigations, led by Democrat Carl Levin of Michigan, is scheduled to hold a hearing on JPMorgan Chase & Co.’s London Whale trading debacle from last year. It would be a great service to the country if Levin’s panel probed the tax scandal at Commerzbank next.
(Jonathan Weil is a Bloomberg View columnist. The opinions expressed are his own.)
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