Is Justice Department On Verge of Criminally Prosecuting Big Banks?


McClatchy Washington Bureau

Declaring that “there is no such thing as ‘too big to jail,’” Attorney General Eric Holder hinted on May 5th that the Justice Department is ready and willing to impose criminal sanctions on major banks or other financial institutions.

“While I will not specify any particular targets, I will say this: I am personally monitoring the status of these ongoing investigations,” Holder said in a video posted by the Justice Department.

Holder’s comments, and a recent New York Times report that Credit Suisse and France’s BNP Paribas may soon face criminal charges, could signal a sea change in the way the department is approaching these potential cases now that the U.S. economy is being taken off life support by the Federal Reserve.

The Justice Department has been ostracized in recent years over its failure to hold a single major Wall Street figure criminally accountable for his or her dealings in peddling subprime mortgage securities blamed for the 2007 financial crisis that crippled the global economy. Nor has a big bank faced criminal charges.

While the Justice Department always has insisted that it follows the evidence wherever it leads, some former law enforcement officials have indicated that financial regulators put up a stop sign after the financial crisis hit, for fear prosecutions would sink major banks.

In 2012, an insider who’s worked for the government and the defense in post-financial crisis cases told McClatchy’s Kevin Hall that the first priority was ensuring the banks’ survival and dealing with hundreds of billions of dollars in toxic assets threatening the health of the financial system.

“I think there was an attitude that they’re going to go slow, because if they’re going to rescue them, why are they going to prosecute them, too? I think that sort of leaked down from the top,” said the insider, who spoke only on the condition of anonymity because his position prohibits open discussion of the subject. “I think that it’s changed recently. … It’s late in coming.”

The Justice Department did conduct a criminal investigation into several execs at Wall Street giant Goldman Sachs, including Chief Executive Officer Lloyd Blankfein, involved in the firm’s dealings as it exited the residential mortgage securities business just before the housing market collapsed. Goldman peddled tens of billions of dollars in risky instruments to pension funds, insurance companies, foreign banks and other institutions, many of which took a pounding on those trades. Indeed, taxpayers wound up losing billions of dollars on some of the trades with the American International Group, the mega insurer that required a mega federal bailout in the fall of 2008.

However, the department concluded in August 2012 that there was insufficient evidence to bring criminal charges against the Goldman brass.

In his video, Holder seemed to confirm that things have changed, though it’s not clear that new prosecutions will relate directly to the financial crisis, given that the five-year statute of limitations has lapsed for most of those activities.

The recent Times story quoted unnamed sources as saying that federal prosecutors are trying to negotiate guilty pleas with Credit Suisse over the bank’s alleged sheltering of Americans from tax liabilities and BNP Paribas, France’s biggest bank, over its business activities with Sudan and other countries blacklisted by the U.S. government. The Times said that investigations of unnamed American banks are earlier stages.

“It is true that criminal charges involving a financial institution can sometimes trigger serious follow-on action by that company’s financial regulators,” Holder said. “In some cases, it may even trigger the loss of the institution’s charter. In preparing a case, it would be irresponsible not to consider that fact.

“But 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. So long as this coordination occurs, it is fully possible to criminally sanction companies that have broken the law, no matter their size.”

Holder said that the department has made “great strides” in improving coordination between prosecutors and financial regulators, presumably including the Office of the Comptroller of the Currency, the Federal Reserve and the Federal Deposit Insurance Corp., so that such considerations don’t interfere with cases.

“This cooperation will prove key in the coming weeks and months as the Justice Department continues to pursue several important investigations,” he said.

Holder, who has signaled that he may leave office by year’s end, said that he is determined to see the investigations to completion.

“In doing so,” he said, “I intend to reaffirm the principle that no individual or entity that does harm to our economy is ever above the law.”

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