by Gaius Publius
A follow-up to this recent piece — “A Clinton Speech to Millennials That Will Work” — in which my hoped-for Hillary Clinton says, among other things, that she will start a criminal investigation of Well Fargo executives for criminal fraud. In that (sadly, fictional) speech she cites several recent Justice Department investigations of banking heavyweights that found criminal behavior, yet produced no indictments.
That information came from this piece by Jesse Singal in New York Magazine, and in particular an interview with Notre Dame law professor Jimmy Gurulé.
The relevant section (my emphasis):
If you took a cursory glance at the agreement that has been struck between the CFPB and Wells Fargo, you might find reason to be optimistic about the possibility of a full-blown criminal investigation by the feds. While the document does grant immunity to the bank itself for any of the crimes that have been uncovered up to this point, it specifically mentions that other than that, nothing in the agreement prevents other government agencies from continuing the investigation — meaning the DoJ is still free to go after individuals. (A CPFB spokesperson said the agency doesn’t comment on possible referrals to the DoJ, and the DoJ declined to comment.
I have an email out to the DoJ itself, and will update this post if the agency responds.)
But Jimmy Gurulé, a law professor at Notre Dame who specializes in money laundering and terrorist financing, and who has closely followed federal responses to malfeasance on the part of big banks, said he’s quite skeptical. In a phone call, he rattled off many recent instances of banks engaging in massive criminal activity, and coming away only with monetary punishments.
To take just a handful of them: In 2012, Standard Chartered was found to have violated the U.S.’s economics sanctions by moving hundreds of billions of dollars for Iran, and settled for $330 million. In 2012, federal investigators found that HSBC had, as the Times put it, “transferred billions of dollars for nations under United States sanctions, enabled Mexican drug cartels to launder tainted money through the American financial system, and worked closely with Saudi Arabian banks linked to terrorist organizations.” HSBC paid $1.92 billion. Then there was Barclays in 2010 — a fine of $298 million for illegal dealings with Cuba, Iran, Libya, Sudan, and Myanmar (before reluctantly approving the settlement, the judge in that case called it a “sweetheart deal”). Also, Credit Suisse in 2009: it settled for $536 million in connection with similar charges.
In many of these cases, the banks entered into what are called deferred prosecution agreements, with the DoJ effectively saying, “We have what we need to issue indictments right now, but if you make certain reforms, and pay a fine, we’ll table and eventually drop the charges.” Each scandal is different, but they share one commonality, other than the massive sums of money involved: “In all those cases I’ve listed, not one single individual spent a single day in jail for the criminal activity that justified those monetary penalties,” said Gurulé. And as he pointed out, full-blown investigations have benefits beyond simple punishment and deterrence: Authorities with subpoena powers can uncover important details about exactly who played the biggest roles in orchestrating and perpetuating a pattern of illegal activity, helping regulators and others prevent repeat acts in the future.
This explains in detail that bankers are never held accountable. As to why they're not held accountable:
The question of why the feds basically never target individuals in these cases is complicated. It would seem like an easy political, moral, and social-norm win: Punish the individuals who committed huge financial crimes, making it clear that such conduct is unacceptable and can’t be paid for with cash alone. But as one former government official who had been involved in money-laundering cases told me in 2012, sometimes building a strong case against individuals can be difficult given how big and complicated banks are, and sometimes, even when there is evidence, that evidence points not to the C-suite suits, but middle-manager types. It may be, he explained, that at the start of an investigation, there’s an appetite among investigators for convictions, but that a few months or a year in, the government realizes that its most favorable bang-for-the-buck outcome is the announcement of a rich-seeming deferred prosecution deal.
The explanation above is certainly reasonable-sounding, but it misses two points.
First, putting even middle managers in jail (or at least, before the court) sends a message that “next time, you may be next.” The threat of actual jail, even in Club Fed facilities, is greater by several orders of magnitude than the threat of an executive having to pay a fine in the institution's name, not his own, with stockholder money. At this point, any banker in jail is a major step up from no banker in jail. You have to start somewhere, assuming you intend to start at all.
Second, it misses the cultural corruption of the Department of Justice, in which its top people often came from “white shoes law firms” that regularly represent clients the Justice Department may contemplate jailing. Then, when those top officials are finished working for the DOJ, they often return to those firms. Why would they want to jail their past and future clients?
Eric Holder's Revolving Door
A prime example is Eric Holder, our most recent ex-Attorney General. Lee Fang at The Intercept:
Eric Holder Returns as Hero to Law Firm That Lobbies for Big Banks
After failing to criminally prosecute any of the financial firms responsible for the market collapse in 2008, former Attorney General Eric Holder is returning to Covington & Burling, a corporate law firm known for serving Wall Street clients.
The move completes one of the more troubling trips through the revolving door for a cabinet secretary. Holder worked at Covington from 2001 right up to being sworn in as attorney general in Feburary 2009. And Covington literally kept an office empty for him, awaiting his return.
The Covington & Burling client list has included four of the largest banks, including Bank of America, Citigroup, JPMorgan Chase and Wells Fargo. Lobbying records show that Wells Fargo is still a client of Covington. Covington recently represented Citigroup over a civil lawsuit relating to the bank’s role in Libor manipulation.
Covington was also deeply involved with a company known as MERS, which was later responsible for falsifying mortgage documents on an industrial scale. “Court records show that Covington, in the late 1990s, provided legal opinion letters needed to create MERS on behalf of Fannie Mae, Freddie Mac, Bank of America, JPMorgan Chase and several other large banks,” according to an investigation by Reuters.
The Department of Justice under Holder not only failed to pursue criminal prosecutions of the banks responsible for the mortage meltdown, but in fact de-prioritized investigations of mortgage fraud, making it the “lowest-ranked criminal threat,” according to an inspector general report.
It has to be asked at this point — who was Eric Holder's client while he was at the Justice Department? Perhaps the Occam's Razor answer is … Eric Holder.
Could Lack of Wall Street Prosecutions Put Trump in the White House?
This leads both me and Professor Gurulé to be both certain there will be no Wells Fargo criminal prosecutions, and certain that this is a dangerous pattern for the country to be following.
“It’s very troubling for me,” said Gurulé. “I’ve been harping on this issue for at least the last four or five years — that at the end of the day, no one individual is held accountable.” At this point, he said, the country seems to be mired in a “double standard of justice” when it comes to crimes committed by banks. … “That strikes me as wrong, and it really undermines the public’s confidence in the criminal justice system.”
Which takes us back to my earlier piece on Clinton and the way to win the support of millennials. This is the danger — that this kind of insider self-dealing might well help cost Clinton the presidency, might well help put Donald Trump, a man being used, among many things, as a “human Molotov cocktail” thrown at the entire corrupt system, into the White House.
At that point, the country could really come apart, and not just electorally. How might the country come apart under a President Trump? I'll leave you to think that through, but once down that speculative road, you may find the ways become pretty clear.
“When fascism comes to America, it will be wrapped in the flag and carrying the cross.” — Sinclair Lewis