Prosecutors Rarely Charge Banks Since Result Can Be Fatal

If the Justice Department follows through on a threat to bring criminal charges against Credit Suisse Group AG and BNP Paribas SA, it would go against years of standard prosecutorial practice.

The government rarely charges large banks -- or any other corporation -- because it usually proves fatal for the company. The 2002 indictment of accounting firm Arthur Andersen put some 85,000 people out of work and created a public relations debacle for the Justice Department that still influences its decision-making, former officials and defense lawyers said.

“If you indict a major financial institution, absent orchestrated board-level crimes, it will have ramifications for years,” said Jamie Wareham, a partner at DLA Piper law firm in Washington who stressed he was not commenting on specific firms. “Who pays for that? Customers, shareholders, the community.”

Six years past the financial crisis, U.S. prosecutors and Wall Street regulators have continued to probe the industry as lawmakers and advocacy groups argue that no bank executive has paid the price for helping drive the country into recession. Attorney General Eric Holder added to the furor last year when he told a congressional panel that some banks may have become too large to prosecute.

Still, history shows, that has long been the case. In the few instances where banks have pleaded guilty to U.S. criminal charges -- the Bank of Credit and Commerce International in 1992 and Washington’s Riggs Bank in 2005 -- the firms were already finished.

Secrecy Act

Riggs, which had advertised itself as the “most important bank in the most important city in the world,” paid a $16 million fine and pleaded guilty to criminally violating the Bank Secrecy Act for failing to report suspicious transactions linked to accounts controlled by Chilean dictator Augusto Pinochet and the government of Equatorial Guinea. By the time it entered the plea, Riggs had already agreed to be bought by PNC Financial Services Group Inc.

BCCI, charged by federal and New York City prosecutors with racketeering and other crimes in an international fraud, was in liquidation when it pleaded guilty and agreed to forfeit some $550 million.

Drexel Burnham Lambert Inc., the once powerful Wall Street investment firm that pioneered the use of “junk bonds,” was accused of manipulating the markets and defrauding shareholders. It pleaded to six counts of fraud in 1989 and agreed to pay $650 million in fines. While Drexel tried to keep its doors open, the firm was forced to file for bankruptcy several months later.

Cases Reviewed

Most corporate cases are now settled by large fines and deferred prosecution agreements, in which the government allows a company to escape charges if it stays out of trouble for a specified time. Decisions on charging a major company are usually reviewed personally by the attorney general and deputy.

Financial companies that are criminally charged or convicted can face automatic consequences from their regulatory supervisors, such as the Securities and Exchange Commission and the Federal Reserve, which could make it impossible for them to continue to do business.

Still, as public concern about “too big to jail,” has grown, the Justice Department has sought to show it isn’t backing off. Holder announced a record $13 billion mortgage securities settlement with JPMorgan Chase & Co. in November and the agency is still pursuing cases against other banks.

Libor Probes

Prosecutors in the investigation of Libor rigging have extracted guilty pleas out of smaller Japanese units of Royal Bank of Scotland Group Plc and UBS AG as part of settlements. Those agreements, however, don’t affect the main bank holding companies. In the investigations into Credit Suisse and BNP Paribas, prosecutors appear to be targeting the bank’s main unit, a person familiar with the matter said.

The Credit Suisse probe is looking at whether the Zurich-based bank helped Americans evade taxes. The investigation into Paris-based BNP Paribas involves potential violations of laws that bar doing business with countries that are subject to U.S. sanctions.

Preet Bharara, the U.S. attorney for the Southern District of New York, said in March that “a significant financial institution” will soon be charged criminally.

Some former U.S. officials see the comments and press leaks about Credit Suisse and BNP Paribas as a negotiating tactic by prosecutors.

“Whenever an institution like Credit Suisse is being evaluated, it is being evaluated at the highest levels of the Justice Department,” said Bill Mateja, a former senior counsel to the deputy attorney general in the George W. Bush administration, where he was a point person on corporate fraud. “I definitely think this is significant saber-rattling.”

Arthur Andersen

Now a partner at the Fish & Richardson law firm in Dallas, Mateja said that after the Arthur Andersen case the department takes a much closer look at the potential for collateral damage when weighing whether to charge a company.

“If they decided to go after something like a Credit Suisse, it would be tantamount to Arthur Andersen,” he said. “Not to say there is not going to be a settlement here. I just can’t imagine that we are going to see an indictment.”

Jeff Connaughton, who as a senior aide to Senator Ted Kaufman in 2009 and 2010 helped the Delaware Democrat press the Justice Department to make financial crisis cases a high priority, said that the lawmaker urged the agency not to let the Andersen case cloud its legal reasoning.

“We certainly were not pushing for corporate indictments, it was all about culpable executives going to jail,” he said. “I think they are barking up the wrong tree here.”

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