Four Banks, Including JPMorgan, Fined in Europe Over ‘Cartel’ Behavior
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To impose punitive fines or jail time, you need to bring criminal actions where you need to prove beyond reasonable doubt cases where the proof is in peoples' heads. Civil fines, on the other hand, have a much lower burden of proof: more likely than not.[1] That's why civil penalties and deferred prosecution agreements,[2] have become the tool of choice for regulators.
Frankly, you don't really want to live in a world where the government can impose criminal penalties on businesses for such loose facts as these. Understandably, banks aren't the most sympathetic defendants, but extrapolate this reasoning to the tech industry. Should Bill Gates be in jail for his role in the Microsoft antitrust activity? Should Eric Schmidt be in jail for his role in the employee wage suppression collusion?
[1] This description is America centric but the operative law is roughly similar in Europe.
[2] A deferred prosecution agreement is a settlement where a company pays a fine, agrees not to do whatever bad thing it did, usually agrees to some number of years of monitoring, in return for which the government defers charges and eventually drops them if the monitoring period ends without incident.
We're already there. https://news.ycombinator.com/item?id=8519060 It might help if we spread the cheer to more high-end criminals.
It's not that the proof isn't there, it's that the SEC itself has become corrupted by the people it's supposed to enforce laws against.
On a side note, I am still livid about the Libor scandal. Why the hell is a rate set in London allowed to influence the American dollar so greatly?!
Because banks are not independent from each other, and they frequently borrow from each other if they lack a certain quantity of a certain currency.
The problem with the Libor scandal is that the bankers conspired to set interest rates by gaming the blind process they have for coming up with those rates in a fair way (all vote, top 4 and bottom 4 bids are removed, rest is averaged).
This is true, undeniable banking conspiracy at work. And governments still trust them with our money.
London is also a bit more reluctant to clamp down on finance--they are the only region doing well in a struggling England, and unlike, say, the NYC finance industry, much of the money in London is free to go somewhere else.
Er, why shouldn't he be? I can think of three main likely arguments why he shouldn't:
i) what he did breached civil but not criminal law: if so then obviously he shouldn't be in jail. I don't know whether that's the case though. I also don't know if he is personally liable for civil damages, and if so why he hasn't been chased for those. (And that's not going into the question of whether his actions should have been made criminal offences by law, and why they haven't been.)
ii) the higher standard of evidence in criminal prosecutions, the first issue you raised. This is of course a real issue in criminal cases, but—speaking as a non-lawyer, non-expert who hasn't been following the story very closely—the evidence on this matter doesn't look at all lacking to me. AFAICS, if Eric Schmidt had been discussing a murder rather than salary collusion in the communications discussed by http://www.businessinsider.com/apple-google-recruitment-emai... no-one would be likely to suggest that the evidence was too weak for a criminal prosecution.
iii) Eric Schmidt is a nice person like us, and jail isn't really for nice people like us. I hope the egregiousness and total unacceptability of this argument is clear to everyone without any need for explanation.
So, yes, why shouldn't Eric Schmidt be in jail?
As to the financial sector, while it is obviously difficult to prosecute many financial crimes, I am not convinced that this is the primary explanation for the shortage of convictions lately. I am reasonably convinced by the argument http://neweconomicperspectives.org/2014/10/liars-loans-aint-... that similarly complex cases were successfully prosecuted in the S&L scandal in the '80s, and that the primary difference between then and now is lack of resources and political will.
One of the primary explanations is that banks have become "too big to fail", and if you criminally charge a bank, you effectively make it fail. Basically, banks are powerful enough to get away with murder.
http://www.theguardian.com/business/2012/dec/11/hsbc-fine-pr...
"Had the US authorities decided to press criminal charges, HSBC would almost certainly have lost its banking licence in the US [...] The bank processed cash for Mexico's Sinaloa cartel, regarded as the most powerful and deadly drug gang in the world, among others."
So give the FDIC more power and a larger fund to draw on for bank failures. They already handle bank failures very very well, they'd be fantastic at spinning down banks accused and convicted of criminal activities.
We dismantled Arthur Anderson for their complacency in the Enron criminial enterprise. Why not banks?
And that was a terrible outcome. A huge, $10 billion a year corporation came crashing down, with tons of people losing their jobs, all because of the conduct of one team within the company that the rest of the enterprise had no knowledge of or control over. For a conviction that was overturned on appeal!
Well, in theory, your sarcasm is correct: this is a ridiculous statement. In practice our jail system is fucked as is evidenced by the rate at which going to jail turns you into more of a criminal, and so yes, jail is not for "nice people like us". Of course, it's also "not for not nice people not like us", and Martha Stewart didn't seem to be turned into more of a criminal, so at his level of wealth maybe he would go a jail "for nice people like us."
Annnd maybe I'm also totally wrong on this too; call me on it how you see fit.
My experience in the US (having worked directly with regulators) is that they are afraid to regulate. The literal tail is waggging the dog. As to the root cause of this (many blame the public/private revolving door), I am not entirely certain. I just wish in the US, at least, the regulators would not be such wussies and stand up for the consumer/voter and stop worrying about push back.
Yes, and yes. They committed crimes, didn't they?
I also find statements like the following in papers that touch on the matter: "Unlike Common Law, Continental European Civil Law does not generally distinguish between standards of proof for civil and criminal matters. (15)" (http://www.coll.mpg.de/pdf_dat/2013_12online.pdf)
Anyone in the know care to comment?
Our culture values money - a lot.
End of story.
Look at this way: A bank is fined $x for doing an action which generated $y. If x < y, there is no incentive to stop any behavior. Further, it seems to be the trend that y is far larger than x and this case proves it out.
The libor scandal cost the U.S. at least $6 billion in interest charges (y) and another $4 billion just to unwind their positions. Whereas the banks have only been fined $2.1 billion to date (x). When you take inflation into account and the fact that this is a world wide financial scandal (libor influences a $350 trillion derivatives market), the math is skewed even heavier in the direction of banks having had a sizable revenue stream after the fines.
Got a reference for that? Not being a dick just interested to read more. For that amount of damage to have occured in < 10 years it would require borrowingin the hundreds of billions wouldn't it?
Libor is an interesting and important concept. An open way to show its calculation should exist.
Finding actual damages proved really difficult on this subject.
Definitely worth more investigation. Definitely a part of our world that needs more light shed on it. Got to be some interesting angles there too ;)
Fines are paid by share holders if any, hence is the bank punished? Not unless depositors leave in droves. You cannot fine a bank for its holdings as those are the funds and properties of other people, the bank is merely managing money for others.
if you attempt to dissolve a bank, who takes over the loans, how do you get the depositor funds back. You cannot confiscate them in the names of the state, the distress to the economy would be drastic.
In the end its back to the people running the show, put them in jail, or force them out, or fine them, or all of the above. However like politicians there are so many levels here than they are nearly immune to their actions
TL;DR
Monetary fines are irrelevant, punishing the people who run it is the only means to correct future behavior
If government took actions to pull all revenue (plus some) generated by these schemes it could go a long way in changing the culture. It appears to me, and probably many others, that the punishment imposed (fines) are simply a cost doing business as the banks appear to still be making profits, or at the very least keeping large portions of revenue, off of illegal activity.
There is no simple solution, and this might be the wrong one, but the current solution doesn't appear to be working.
How do you know, perhaps jail time for executives would work. The problem is there is no simple implementation and to expect a corrupt government to police a corrupt bank is laughable, these people are often colleagues, co-workers, even friends who take turns writing laws and giving each other pay checks.
Not only is there no incentive to stop, that's actually incentive to keep doing it, faster and on a bigger scale!
If you told me I'd get fined $10k for doing something that resulted in $15k of "earnings" (and no other penalty), I'd start a business and start hiring as many people as possible to do exactly that activity, profiting $5k every time.
Sums that are pocket change to JPMorgan are still usefully spent in the public interest. I don't know if 60 million Euros are, in fact, pocket change for JPMorgan. I cynically assume that they budgeted in an accurate amount for fines and other regulatory hiccups when they start on these endeavours.
Assuming you mean the offender is a group of executives that aren't personally liable for these sorts of fines, well, yeah, that's par for the course. IANAL.
Having a bank go belly up because of these fines seems exceedingly unlikely. Regulatory oversight is (on the face of it and among other things) intended to ensure that the system is less likely to fail catastrophically, and fining banks for failing to observe regulation seems like a necessary part of this.
Whether or not the regulatory oversight has the means or even the willingness to implement the mission they present to the public is another debate. I agree that scepticism is warranted.
From that point of view, these kinds of fine may be characterised as something that doesn't materially affect the bank's profits and hence doesn't deter repeat misbehaviour but serves to establish a facade of regulatory action to appease the public.
More likely his driver. The billionaire can just hire another one.
The people who organised the cartel have likely already got their bonuses and couldn't care less if the bank is fined
Not only is it only fines but now we are discounting the fines for cooperating.
He goes into great deal regarding why the most egregious white collar crimes such as HSBC laundering money for the Mexican cartels / terrorist organizations ended with a simple 1.9 billion dollar fine (http://www.reuters.com/article/2012/12/11/us-hsbc-probe-idUS...), no one going to jail, and the bank not even having to admit they did anything wrong.
There are many reasons why (after all, he wrote a whole book about it) but to list a few
1. The Justice Department does not want to risk losing a case (for political reasons)
2.The unit in charge of investigating this type of crime within the justice department is staffed with defense lawyers who dont think out of the box (thanks to obama)
3.the banks committing these crimes are large, multinational institutions so there are complexities around the fact of who committed the crimes, what jurisdiction they were committed in, etc. the most disturbing chapter in the book was a about a hedge funds harassing (literally harassing) a Canadian insurance firm Fairfax financial. The judge ended up throwing out that case because it took place in NJ but the crimes took place in NYC: http://www.swtriallaw.com/press-releases/new-jersey-court-cl...
4.the banks have a lot of money to spend on lawyers
5.the same lawyers that are defending the banks create the laws and regulations they live by (Eric Holder and a few others)
6.this memo: http://www.huffingtonpost.com/2013/06/04/eric-holder-1999-me... - that is, anything that might hurt innocent bystanders—when deciding whether to bring a case against a corporation. "Prosecutors may take into account the possibly substantial consequences to a corporation's officers, directors, employees, and shareholders,"
7. That banks argue that a prosecution could be economically disruptive because they are "too big to fail" so basically if you hurt them, you are hurting everyone else also.
It is really a fascinating, and in some ways depressing, read. Honestly, this is nothing compared to the banks getting caught fixing the LIBOR rate a few years back, and no one went to jail for that anyways.
It's really nothing compared to the fact that banks can print trillions of dollars of credit out of thin air - and not go to jail for counterfeiting. Heck, counterfeiting used to be a capital offense in this country.
So the lesson is always: rules don't apply to rich people.
Sure they will spin some line like 'profits' from the fed go to the government (profits above which are distributed to the private bank shareholders, of course!) but that's like saying I get reward points for every dollar I charge on a credit card. If you really think banks are "giving up" a lot of profits, you might want to check the total % of profits that go to the financial sector in the US economy. What are "profits" anyway when you can just print money - what is profit measured by?
Furthermore, even your 'small banks' that "loan" money under fractional reserve rules are, if you squint, awfully close to counterfeiting as that can raise the money supply 9 fold.
So I recommend you keep digging and follow the money.
Re: BIS, I haven't looked into that much; I'm afraid I'm depressed enough already :-)
he is "right" about the important parts of this story anyways
Here's a pretty neutral take on the facts: http://www.reuters.com/article/2012/12/11/us-hsbc-probe-idUS....
This stuff makes for good reading, but let's break it down through a legal lens. There is nothing illegal about your banking services being used to deposit the proceeds of illegal activity. It almost certainly happens all the time to every bank. In fact, no bank executive could say with a straight face that they don't have a generalized knowledge that their services are used for money laundering. What differentiates legal from illegal conduct, on the part of the bank, is nothing more than what the bank knew about the nature of the money deposited in specific transactions: http://www.swlaw.com/assets/pdf/news/2011/09/26/MoneyLaunder.... The crime requires the government to prove that the defendant had knowledge that the deposits were proceeds of illegal activity.
Viewed through this lens, the facts are much less compelling:
> Despite the known risks of doing business in Mexico, the bank put the country in its lowest risk category
The mens rea is knowledge, not negligence. To be relevant here, the "known risks" would have to be so blatant that ignoring them would amount to willful ignorance of specific illegal deposits.
> which excluded $670 billion in transactions from the monitoring systems, according to the documents.
This might provide a motive for the alleged crime, but it's much stronger in a case for negligence than in a case for money laundering. Moreover, HSBC's selection of controls probably excludes trillions of dollars of transactions in places like the U.S. or Canada. This fact by itself doesn't tell you anything other than that the bank has an incentive to implement as few expensive controls as it can get away with.
> Bank officials repeatedly ignored internal warnings that HSBC's monitoring systems were inadequate, the Justice Department said.
First, "repeatedly ignored" is a characterization, not a fact. Second, HSBC was not legally required to implement this particular controls. Third, for this fact to be relevant, the warnings would have to make the problem so apparent that ignoring them amounted to willful blindness to specific illegal activity.
> In 2008, for example, the CEO of HSBC Mexico was told that Mexican law enforcement had a recording of a Mexican drug lord saying that HSBC Mexico was the place to launder money.
This sounds really compelling, but it's really not very strong legally. First, you have evidentiary issues. An anecdote about a recording of a comment by a Mexican drug lord isn't going to get admitted as evidence that drug traffickers actually used HSBC to launder money. It's hearsay. Second, it doesn't refer to specific deposits of illegal proceeds, nor is it so compelling as to prove that failure to act on this knowledge amounts to willful ignorance as to specific illegal deposits. Third, you have to prove that the parent company knew anything about all of this.
> Mexican traffickers used boxes specifically designed to the dimensions of an HSBC Mexico teller's window to deposit cash on a daily basis.
This is legally irrelevant unless you can prove that: 1) anyone who mattered at HSBC actually knew what shape these boxes were and why; 2) that failure to act in light of this knowledge amounted to willful blindness as to specific illegal deposits.
> At times, only one to four employees were responsible for reviewing alerts identifying suspicious wire transactions. When HSBC processed bulk cash, a business it calls Banknotes, only one or two compliance officials oversaw transactions for 500 to 600 customers, the Justice Department said.
This is again more relevant to a negligence claim than a money laundering charge. Does this evidence go to prove that HSBC had knowledge of specific illegal transactions?
The "drug trafficker's boxes" fact is a great example of the difference between a narrative in a book and an actual prosecution. Taibbi can state it as a fact and let the reader draw all sorts of conclusions. But as a prosecutor, you must: 1) Find someone with personal knowledge of the shape of the boxes; this guy is likely a drug trafficker and thus not a very sympathetic witness;
2) Find someone with personal knowledge who can testify that HSBC had actual knowledge of the boxes and appreciated the significance of the shape;
3) Justify taking HSBC's knowledge of the shape of the boxes + HSBC's knowledge of the widespread nature of their use, and from that inferring that HSBC knew specific deposits were the proceeds of illegal activity.
Look - Im not a lawyer - nor would I ever want to be - but what I do know is we saw the greatest transfer of wealth in the history of the world take place between 2007-2010 and no one has gone to jail for it.
You can say that "A prosecutor, however, is restricted by an evidentiary framework" but that doesnt change the fact that we live in a world where rich powerful people and corporations commit serious crimes and dont go to jail for them.
We did? That might be something you believe, but I don't think it's something proven by evidence.
Legal Tender Act, 1862 [1]:
"Thaddeus Stevens, the Chairman of the House of Representatives Committee of Ways and Means, ... denounced the exceptions, calling the new bill "mischievous" because it made United States Notes an intentionally depreciated currency for the masses, while the banks who loaned to the government got "sound money" in gold."
Banks always get the first class life boats, and set their own rules (think about it, they buy influence, it's not that hard when you're a bank). I think Europe just missed some kickbacks the old fashioned way.