There seems to be no end to the chutzpah of the big banks. They brazenly break the law and then pay growing but still quite affordable penalties to get out of their legal jeopardy.
The latest examples have just been reported by theĀ New York Times. The front page of the newspaper has a blood-boilingĀ storyĀ on how the likes of JPMorgan Chase, Bank of America and Citigroup intimidate people who have gone through personal bankruptcy into paying back debts that have been discharged in court. Although the debts are not legally collectable, the banks keep the obligations alive on credit reports, meaning that borrowers are faced with a choice between paying and having their credit rating ruined. Such a tactic makes loan sharks look good by comparison.
According to theĀ Times, the practice is being investigated by the Justice Department. Before long we will read of a settlement, and the banks will move on to a new way of cheating their customers.
JPMorgan and Citi are also involved in a settlement just announced by U.S. and European regulators involving another sleazy banking practice: the manipulation of foreign currency markets. The U.S. Commodity Futures Trading CommissionĀ orderedĀ five banks to pay more than $1.4 billion in penalties, including $310 million each from JPMorgan and Citi. Britainās Financial Conduct AuthorityĀ finedĀ the five banks (which also include HSBC, Royal Bank of Scotland and UBS) another $1.7 billion, including around $350 million each for JPMorgan and Citi. Swiss regulators hit UBS with an additional $138 million penalty.
In foreign exchange markets, the daily setting of rates is known as the fix. Evidence released by regulators made it abundantly clear that traders at the five banks saw to it that the fix was fixed (i.e. manipulated) by colluding rather than competing.
These settlements involved civil charges. The Justice Department is reportedly investigating criminal misconduct by the banks. Thatās good news, but there is a strong possibility that these probes will result in something disappointing.
The Justice Department has a long track record of allowing large corporations to evade serious criminal charges by offering miscreants the option to enter into deferred prosecution or non-prosecution agreements that amount to get-out-of-jail-free cards. And even when token criminal charges are enforced, asĀ happenedĀ in the Credit Suisse tax case last May and the UBS interest-rate-manipulationĀ caseĀ before that, the consequences are hardly devastating.
This failure of corporate prosecution is the subject of a new book calledĀ Too Big to JailĀ by Brandon Garrett, a professor of the University of Virginia School of Law. In anĀ interviewĀ with theĀ Corporate Crime Reporter, Garrett says: āThere are a number of ways to punish a company. The concern is that none of those ways are being taken seriously enough.ā Garrett proposes a system in which corporations plead guilty and are put on probation ā hopefully a more rigorous form than the probation BP was on (because of its 2007 case involving an explosion at its Texas City refinery) at the time of the Deepwater Horizon disaster.
Garrettās notion that having a judge (rather than just a monitor) involved in these cases is laudable, but it is not clear that would be enough to rein in corporate lawlessness.
Note: Garrett has posted a handy list of more than 300 deferred and non-prosecution agreements on hisĀ website.
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