Federal Prosecutors About To Force Guilty Pleas From Two Major Banks

Photo Credit: The Huffington Post
Photo Credit: The Huffington Post

This morning’s edition of The New York Times leads with a report that federal prosecutors are on the verge of bringing criminal charges against two of the largest banks in the world, with a view toward forcing them to plead guilty in open court. Specifically, France’s BNP Paribas is under fire for doing business with Iran, Sudan and other countries blacklisted by the United States, while Switzerland’s Credit Suisse is accused of offering impermissible tax shelters to American citizens. According to sources close to both investigations, prosecutors have met with financial regulators to hammer out a way to force banks to plead guilty without putting those banks at risk for having to shutter their American operations. Similar discussions are underway regarding unidentified American banks as well, though those investigations are not nearly as advanced.

This marks a considerable sea change from earlier this year, when JPMorgan Chase finally had the bill come due for turning a blind eye to Bernie Madoff’s Ponzi scheme. Madoff, for those who don’t know, operated his scheme by depositing his customers’ checks in his business account at Chase and its predecessors. Manhattan U. S. Attorney Preet Bhahara had been investigating Chase for almost five years, and obtained evidence that Chase and its predecessors had failed to exercise the most basic oversight over Madoff’s banking activity. He was giving serious thought to forcing Chase to plead guilty to violating the Bank Secrecy Act, which requires financial institutions to report suspicious activity to authorities.

However, according to CNN, Bhahara was forced to drop those plans after officials at the Office of the Comptroller of the Currency, which regulates national banks, told him that a guilty plea would likely require them to begin proceedings that could have resulted in Chase being stripped of its banking charter–which would have effectively put the nation’s largest bank and third-largest public company out of business. Federal prosecutors are required to consider potential collateral damage to the economy when bringing charges against corporations, and Bhahara felt making Chase formally plead guilty wasn’t worth the risk to the overall economy. Ultimately, Chase was still forced to take some pretty severe medicine–a deferred-prosecution agreement in which it essentially admitted to ignoring questionable and outright illegal Madoff transactions as early as 1994, and also forfeited $1.7 billion. Chase also must introduce stronger safeguards against money laundering during the two-year duration of the agreement. Still, Chase CEO Jamie Dimon really doesn’t know how lucky he got.

Apparently Bhahara has no such concerns regarding the BNP Paribas investigation. Earlier this month, according to prosecutors close to that case, New York state regulators and the Federal Reserve Bank of New York assured Bhahara, acting Justice Department criminal division chief David O’Neil and Manhattan district attorney Cyrus Vance that they would not have BNP kicked out of the United States if the bank is forced to plead guilty. Significantly, the prosecutors want BNP’s parent company, rather than a BNP subsidiary, to plead guilty. BNP has enlisted some high-ranking French officials to negotiate lesser sanctions. If those efforts are unsuccessful, BNP will be the largest financial institution to have a criminal conviction on its record since Drexel Burnham Lambert pleaded guilty to six counts related to unlawful actions by Michael Milken in 1989.

O’Neil and the criminal division are at a similar stage in the Credit Suisse case. It recently met with the New York Fed to discuss the ramifications of forcing Credit Suisse to plead guilty to creating impermissible tax shelters. The criminal division hasn’t ruled out wrangling a guilty plea out of Credit Suisse’s parent company, though it’s possible it may settle for a guilty plea from the main banking arm.

As encouraging as this is, it merely puts a magnifying glass on a larger problem. Bhahara and O’Neil’s boss, Attorney General Eric Holder, seems to understand this. Last March, he told the Senate Judiciary Committee that he isn’t at all pleased that banks have grown to the point that “it does become difficult for us to prosecute them” without opening an economic can of worms. While this is a an encouraging move, it does raise an important question–if the largest financial institutions are so big that prosecutors have to walk on eggshells to hold them accountable, are they too big to exist as presently constituted? It’s a question that we may have to answer sooner than later.

Edited/Published by: SB


Darrell Lucus.jpg Darrell Lucus is a radical lefty Jesus-lover who has been blogging for change for a decade. Follow him on Twitter @DarrellLucus or connect with him on Facebook.

Darrell is a 30-something graduate of the University of North Carolina who considers himself a journalist of the old school. An attempt to turn him into a member of the religious right in college only succeeded in turning him into the religious right's worst nightmare--a charismatic Christian who is an unapologetic liberal. His desire to stand up for those who have been scared into silence only increased when he survived an abusive three-year marriage. You may know him on Daily Kos as Christian Dem in NC. Follow him on Twitter @DarrellLucus or connect with him on Facebook. Click here to buy Darrell a Mello Yello.