Photographer: Christopher Dilts/Bloomberg

U.S. Bancorp Judge Slams Deals to Sidestep Criminal Prosecution

  • Bank agreed to pay $600 million fine, improve safeguards
  • Judge says he’s ‘obliged to swallow the pill,’ like it or not

A federal judge overseeing U.S. Bancorp’s deal to avoid prosecution for money-laundering lapses criticized those types of agreements while lamenting that he has no power to do anything about them.

Under the accord announced last week, the Minneapolis-based bank agreed to pay $600 million, acknowledge wrongdoing and beef up its internal controls. In exchange, the U.S. agreed to drop two felony charges in two years if the bank complies with the agreement.

U.S. District Judge Lewis Kaplan said in a hearing in New York Thursday that these deferred-prosecution agreements "have troubled me for a long time." Kaplan said prosecutors should charge individuals responsible for companies’ criminal acts rather than letting them avoid prosecution by paying a fine.

"Both the interest of deterrence and the interest of just punishment are better served, in all or most cases, by prosecution of the individuals responsible," Kaplan said.

‘Better Served’

Ann Claire Phillips, a U.S. Bancorp vice president, pleaded not guilty on behalf of the bank.

The federal appeals court in New York ruled in July in a case involving HSBC Holdings Plc that the decision whether to charge a defendant is within prosecutors’ discretion and that judges have limited authority to supervise deferred-prosecution agreements.

"I am obliged to swallow the pill, whether I like it or not," Kaplan said.

Prosecutors cited the lender’s lapses in handling the accounts of a longtime customer, Scott Tucker, who used the bank to launder $2 billion in proceeds from a fraudulent payday lending scam. Tucker was sentenced in January to almost 17 years in prison.

Tucker was convicted of using Indian tribes as fronts for his payday lending business to circumvent usury laws through their legal sovereignty, charging interest rates of as much as 700 percent. Internal U.S. Bancorp documents cited in court filings showed he was one of its most profitable customers in the Kansas-area market and that executives hesitated to act even as suspicions about him grew.

The case is U.S. v. U.S. Bancorp, 18-cr-00150, U.S. District Court, Southern District of New York (Manhattan).

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