U.S. Finally Ready to Charge Banks for Crimes—As Long as They're Non-U.S. Banks

For Preet Bharara, “before too long” translates to about five weeks.

On Mar. 31, Bharara, the U.S. Attorney for the Southern District of New York, dropped a hint: ”You can expect before too long a significant financial institution will be charged with a felony or made to plead guilty to a felony where the conduct warrants it,” he said at the annual Securities Industry & Financial Markets Association compliance conference in Orlando, Fla. Now the government seems poised deliver on his promise by pursuing criminal charges against Credit Suisse and BNP Paribas, according to the New York Times and Bloomberg News.

As is his style, Bharara telegraphed the government’s intentions in advance, perhaps to blunt criticism over the lack of criminal prosecutions tied to the 2008 financial crisis. He said that prosecutors had been too shy about filing criminal charges against banks for fear of hurting them or causing financial instability, a lesson the government learned the painful way after the 2002 indictment of accounting firm Arthur Andersen, which led to the loss of thousands of jobs.

“I have heard assertions made with great force and passion that if we take any criminal action, the skies will darken; the oceans will rise; nuclear winter will be upon us; and the world as we know it will end,” Bharara added. “As we had suspected, the sky does not fall. In fact, sometimes the sky brightens; stock prices remain steady, or go up, as the company is viewed as putting problems ‘behind it;’ clients and customers and key employees don’t even bat an eye; and sometimes, the CEO even gets a raise. And so, this repeated Chicken Little routine, I will tell you, begins to wear thin.”

He might have been alluding specifically to JPMorgan Chase, the country’s largest bank, which has agreed to fines and settlements of close to $20 billion for a range of alleged violations, including sales of bad mortgage securities leading into the financial crisis and the handling of the accounts of Bernard Madoff, even as its stock price has appreciated significantly. Or Bharara could also have been referring to Bank of America, which, according to Bloomberg News, has agreed to pay upwards of $50 billion in fines to resolve claims over low-quality mortgage securities tied in large part to Countrywide Financial, which it took over in 2008. Neither bank was indicted or required to plead guilty as part of the settlements.

It’s notable that the two that may suffer both of those consequences for the first time are not America’s largest and second-largest deposit-taking institutions but are non-U.S. banks. Credit Suisse has been under investigation since 2011 for alleged assistance to Americans seeking to avoid paying taxes. BNP Paribas, of France, is being looked at for alleged violations of sanctions in its dealings with such countries as Sudan, Iran, and Cuba. According to the Times, prosecutors and regulators have been huddled in Washington and New York, trying to figure out how the companies could be indicted without being forced to stop operating. The Department of Justice in Washington and prosecutors in Alexandria, Va., are leading the Credit Suisse investigation, while Bharara’s office and Manhattan District Attorney Cyrus Vance Jr. are working with the DOJ in Washington on BNP.

Charging individual bank executives who were responsible for the transactions would have lesser repercussions on the financial system than charging the companies as a whole, which penalizes shareholders more than anyone who actually broke the law. Perhaps, during his next speech, Bharara will explain the decision not to do that.

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