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Friday, 02 May 2014 05:48

Too Big to Jail Continues: DOJ May Charge Two Banks with Criminal Acts, But Not Hold Them Criminally Accountable

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deptofjusticeDepartment of Justice (Photo: Wikipedia)In a recent breathlessly written "we have the inside scoop" article, The New York Times would have you believe that the Department of Justice (DOJ) is finally getting serious about filing criminal charges against a couple of banks.

Technically, the Times may prove to be right, but on a practical level, the actions it is predicting would be more of the same kid-glove treatment of too-big-to-fail banks we’ve seen in the past. As BuzzFlash at Truthout noted in commentaries last year, Attorney General Holder has officially stated his concern that prosecuting the largest banks would have adverse affects on our economy. As The New York Times reports about the possibility of looming criminal charges against two foreign banks (emphasis on foreign - Credit Suisse and BNP Paribas, not US):

Federal prosecutors are nearing criminal charges against some of the world’s biggest banks, according to lawyers briefed on the matter, a development that could produce the first guilty plea from a major bank in more than two decades.

In doing so, prosecutors are confronting the popular belief that Wall Street institutions have grown so important to the economy that they cannot be charged. A lack of criminal prosecutions of banks and their leaders fueled a public outcry over the perception that Wall Street giants are “too big to jail.”

Addressing those concerns, prosecutors in Washington and New York have met with regulators about how to criminally punish banks without putting them out of business and damaging the economy, interviews with lawyers and records reviewed by The New York Times show.

That last paragraph is devastatingly revealing. The Department of Justice might make an agreement with banks in which they would plead guilty to criminal activity without, it appears, holding them criminally responsible beyond fines and perhaps some temporary restrictions.

In short, it appears to be more a public relations stunt from the DOJ than actual criminal prosecution (except for the technical labeling of the offense).

Why would this be an accurate interpretation? There are many reasons, but two main ones will suffice: 1) The DOJ cannot put a bank in jail, so the criminal charges, if agreed upon by the banks, would still mean that the banks are too big to jail; and 2) the banks will only be officially held criminally responsible for certain actions if regulators assure the DOJ that the banks that engaged in illegal activity will not lose their charters (licenses) to do business in the US. The second condition of any criminal charge was confirmed in The New York Times's Dealbook section story:

Federal guidelines require prosecutors to weigh the broader economic consequences of charging corporations

With the investigation into BNP, the lawyers briefed on the matter said, prosecutors met in April with the bank’s American regulators: the Federal Reserve Bank of New York and Benjamin M. Lawsky, New York’s top financial regulator. The prosecutors who attended the meeting and are leading the investigation —Preet Bharara, the United States attorney in Manhattan; David O’Neil, the head of the Justice Department’s criminal division in Washington; and Cyrus Vance Jr., the Manhattan district attorney — left largely reassured.

During the meeting at the New York Fed’s headquarters in Lower Manhattan, the lawyers said, Mr. Lawsky said he planned to impose steep penalties against BNP and its employees but would not revoke the bank’s license. The prosecutors secured similar assurances from the New York Fed, the lawyers said, though the Fed’s board in Washington must still approve the decision about BNP, which has not been accused of any wrongdoing.

Yes, the Times speculates, if criminal charges are agreed upon (it is likely that the DOJ would come to a plea agreement with the banks rather than prosecute), there may be some temporary restrictions based on the US subsidiaries of the foreign banks. However, this would again be an issue of punishing the banks by reducing their profit, not by actually holding them fully accountable for their actions.

Pam Martens, co-editor of WallStreetonParade.com, commented to BuzzFlash at Truthout about the implications of possibly, once again, allowing banks to get away with criminal behavior without jail time or loss of their charters:

As long as prosecutors continue to allow the mega-banks to pay a fraction of the amount they illegally purloin in settlements and avoid indictments, they are incentivizing serial bank corruption and have become part of the problem.

The DOJ knows that the media would herald an agreement on criminal charges against two large banks as a change in policy toward banks "too big to fail." In fact, it would - if the NYT details on DOJ thinking are correct - really only be a public relations move to appear to appease a public thirst for not giving enormous banks a permanent "get out of jail free" card.

The reality is, if the NYT article is accurate in its forecast, no one will go to jail and no bank will lose its ability to continue operating.

Once again, criminal behavior on the part of behemoth banks will end up being little more than the cost of doing business.

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