Newspaper article International Herald Tribune

Prosecutors Now Want Big Banks to Say 'Guilty' ; Recent U.S. Settlements with International Giants Reveal New Legal Strategy

Newspaper article International Herald Tribune

Prosecutors Now Want Big Banks to Say 'Guilty' ; Recent U.S. Settlements with International Giants Reveal New Legal Strategy

Article excerpt

In a recent round of actions that shook the global financial industry, prosecutors have pushed for guilty pleas, rather than just the usual fines and reforms.

Accused of letting big international investment banks off the hook for actions that led to the financial crisis, the U.S. Justice Department is building a new model for prosecuting financial institutions.

In a recent round of actions that shook the financial industry, the government pushed for guilty pleas, rather than just the usual fines and overhauls. The new strategy first materialized in recent settlements with the Swiss bank UBS and Royal Bank of Scotland, which were accused of manipulating interest rates to bolster profit.

Prosecutors now aim to apply the approach broadly to financial fraud cases, according to officials involved in the investigations. Lawyers for several big banks, who spoke on the condition of anonymity, said they were already adjusting their defenses and urging banks to fire employees suspected of wrongdoing in the hope of appeasing the authorities.

But critics question whether the new strategy amounts to a symbolic reprimand rather than a sweeping rebuke. So far, the Justice Department has gotten guilty pleas only from remote subsidiaries of big foreign banks, a move that has largely inflicted reputational damage.

As part of broader settlements with UBS and Royal Bank of Scotland, the banks' Japanese subsidiaries pleaded guilty to felony wire fraud. That marks a significant shift, as the authorities have long avoided guilty pleas over fears they would destroy the banks and imperil the broader economy. By going after a subsidiary, prosecutors shield the parent company from losing its ability to operate, but still send a warning to banks.

The Justice Department is pursuing guilty pleas from other banks' subsidiaries suspected of reporting false rates, according to the prosecutors and the lawyers who requested anonymity to discuss continuing cases. The authorities are scrutinizing Citigroup, whose Japanese unit is suspected of rate manipulation, and charged one former trader, alleging that he colluded with other banks in an extensive rate-rigging conspiracy.

Prosecutors also want the rate-rigging investigation to serve as a template for other financial fraud cases. Two officials described a plan to eventually wring an admission of guilt from an entire bank.

"This Department of Justice will continue to hold financial institutions that break the law criminally responsible," Lanny A. Breuer, the departing head of the agency's criminal division, said in an interview.

The strategy, though, could face significant roadblocks.

For one, banking regulators are likely to sound alarms about the economy. Last year, HSBC, based in London, avoided charges in a money laundering case, after concerns arose that an indictment could put the bank out of business. In the first rate-rigging case, prosecutors briefly considered criminal charges against an arm of the British bank Barclays, but they hesitated given the bank's cooperation and its importance to the financial system, two people close to the case said.

The Justice Department will also face resistance from Wall Street. In meetings with the authorities, banks are trying to distinguish their activities from the bad behavior at UBS and Barclays, according to the industry lawyers. One senior lawyer who represents the German giant, Deutsche Bank, acknowledged that Wall Street is bracing for the Justice Department to demand guilty pleas.

Some lawyers posit that the new approach amounts to a government shakedown, since institutions may plead guilty to dodge an indictment. "I think it's a step in the wrong direction," said James Copland, the head of the Center for Legal Policy at the Manhattan Institute.

Complicating matters, lawmakers and consumer advocates will continue saying that banks get off too easy. In the rate manipulation cases, critics have clamored for more potent penalties, seeking convictions against parent companies. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.