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Friday, September 30, 2016

April 1 (Bloomberg) — Money laundering by large international banks has reached epidemic proportions, and U.S. authorities are supposedly looking into Citigroup Inc. and JPMorgan Chase & Co.

Governor Jerome Powell, on behalf of the Board of Governors of the Federal Reserve System, recently testified to Congress on the issue, and he sounded serious. But international criminals and terrorists needn’t worry. This is window dressing: Complicit bankers have nothing to fear from the U.S. justice system.

To be on the safe side, though, miscreants should be sure to use a really large global bank for all their money-laundering needs.

There may be fines, but the largest financial companies are unlikely to face criminal actions or meaningful sanctions. The Department of Justice has decided that these banks are too big to prosecute to the full extent of the law, though why this also gets employees and executives off the hook remains a mystery. And the Federal Reserve refuses to rescind bank licenses, undermining the credibility, legitimacy and stability of the financial system.

To see this perverse incentive program in action, consider the recent case of a big money-laundering bank that violated a deferred prosecution agreement with the Justice Department, openly broke U.S. securities law and stuck its finger in the eye of the Fed. This is what John Peace, the chairman of Standard Chartered Plc, and his colleagues managed to get away with on March 5. The meaningful consequences for him or his company are precisely zero.

At one level, this is farce. Standard Chartered has long conceded that it broke U.S. money-laundering laws in spectacular and prolonged fashion. In late 2012, it entered into a deferred prosecution agreement with the Justice Department, agreeing to pay a fine that amounts to little more than a slap on the wrist (in any case, such penalties are paid by shareholders, not management).

Then, on a March 5 conference call with investors, Peace denied that his bank and its employees had willfully broken U.S. law with their money-laundering activities. This statement was a clear breach of the deferred prosecution agreement (see paragraph 12 on page 10, where the bank agreed that none of its officers should make “any public statement contradicting the acceptance of responsibility by SCB set forth above or the facts described in the Factual Statement”). Any such statement constitutes a willful and material breach of the agreement.

This is where the theater of the absurd begins. For some reason, it took the bank 11 business days, not the required five, to issue a retraction. No doubt a number of people, in the private and public sectors, were asleep at the switch. (The Justice Department and Standard Chartered rebuffed my requests for details on the timeline.)

The implications of the affair are twofold. First, with his eventual retraction, Peace admitted that he misled investors. It also was an implicit admission that he had failed to issue a timely correction. Waiting 11 days to correct a material factual error is a serious breach of U.S. securities law for any nonfinancial company. Wake me when the Securities and Exchange Commission brings a case against Standard Chartered.

Of course, it’s possible that Peace didn’t deliberately violate the deferred prosecution agreement because he hadn’t read it, or at least not all the way to page 10. Peace is an accomplished professional with a long and distinguished track record. Everyone can have a forgetful moment. That still doesn’t explain why the bank took so long to correct the facts.

Tone at the top matters, as reporting around JPMorgan Chase and its relationship with regulators makes clear. Will Chief Executive Officer Jamie Dimon be more cooperative than he was, for example, in August 2011 when he refused to provide detailed information on the goings-on in his investment bank?

  • howdidisraelget200nukes

    More hot air. The banks are not touchable. Obama should have used the Sherman Act and broken them up 5 years ago.

    Now he is grooming himself for seats on the board of directors that will pay him 2 million each per year.

    He will be able to deduct the cost of his personal jet because it will be necessary to use that to get to those meetings once or twice a year.

  • howdidisraelget200nukes

    From Bernie, a REAL American-

    Too Big to Jail?
    By Senator Bernie Sanders

    We are supposed to be a country of laws. The laws should apply to Wall Street as well as everybody else. So I was stunned when our country’s top law enforcement official recently suggested it might be difficult to prosecute financial institutions that commit crimes because it may destabilize the financial system of our country and the world.

    “I am concerned,” Attorney General Eric Holder told the Senate Judiciary Committee, “that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if we do prosecute — if we do bring a criminal charge — it will have a negative impact on the national economy, perhaps even the world economy.”

    The attorney general was talking about some of the same financial institutions that received billions, and in some cases trillions, of dollars in taxpayer bailouts after their greed, recklessness and illegal behavior plunged the country into a terrible recession. Over my opposition, Congress approved a $700 billion taxpayer bailout of financial institutions that were on the brink of collapse which some in Congress considered “too big to fail.”

    In addition, the Federal Reserve provided over $16 trillion in total financial assistance to these same institutions during the financial crisis (which only became public after an amendment I inserted into the Dodd-Frank Wall Street Reform and Consumer Protection Act requiring the Fed to disclose this information).

    The attorney general’s view seems to be that if you are just a regular person and you commit a crime, you go to jail. But if you are the head of a Wall Street company, your power is so great that a prosecution could have destabilizing consequences with national or even worldwide implications.

    In other words, we have a situation now where Wall Street banks are not only too big to fail, they are too big to jail. That view is unacceptable.

    The attorney general’s troubling acknowledgement has revived interest in an idea that is drawing more and more support. It is time to break up too big to fail financial institutions.

    The 10 largest banks in the United States are bigger today than they were before a taxpayer bailout following the 2008 financial crisis.

    U.S. banks have become so big that the six largest financial institutions in this country (J.P. Morgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley) today have assets of nearly $9.6 trillion, a figure equal to about two-thirds of the nation’s gross domestic product. These six financial institutions issue more than two-thirds of all credit cards, over half of all mortgages, control 95 percent of all derivatives held in financial institutions and hold more than 40 percent of all bank deposits in the United States.

    I will soon introduce legislation that would give the Treasury secretary 90 days to compile a list of commercial banks, investment banks, hedge funds and insurance companies that the Treasury Department determines are too big to fail. The affected financial institutions would include “any entity that has grown so large that its failure would have a catastrophic effect on the stability of either the financial system or the United States economy without substantial government assistance.” Within one year after the legislation becomes law, the Treasury Department would be required to break up those banks, insurance companies and other financial institutions identified by the secretary.

    Breaking up the too big to fail financial institutions is a notion that has drawn support from some leading figures in the financial community. Richard Fisher, president of the Dallas Federal Reserve Bank, wrote this: “The safer the individual banks, the safer the financial system. The ultimate destination — an economy relatively free from financial crises — won’t be reached until we have the fortitude to break up the giant banks.” James Bullard, the head of the St. Louis Fed, also weighed in. “I do kind of agree that ‘too big to fail’ is ‘too big to exist.'” Thomas Hoenig, the former Kansas City Fed president, was an early supporter of the idea of breaking up big U.S. banks. “I think [too big to fail banks] should be broken up. And in doing so, I think you’ll make the financial system itself more stable. I think you will make it more competitive, and I think you will have long-run benefits over our current system, which leads to bailouts when crises occur.”

    In my view, no single financial institution should be so large that its failure would cause catastrophic risk to millions of American jobs or to our nation’s economic wellbeing. No single financial institution should have holdings so extensive that its failure could send the world economy into crisis. And, perhaps most importantly, no institution in America should be above the law. We need to break up these institutions because of the tremendous damage they have done to our economy.

    If an institution is too big to fail, it is too big to exist.

    • howdidisraelget200nukes

      How did this happen? I thought Obama was looking out for us but it looks like he looks out for himself first.

      Thats why he signed those bush tax cuts instead of breaking up the banks like he should have done.

      Now just what has that useless POS, Holder been doing for the past 5 years?

      Having a circle jerk with his boss?

  • Sand_Cat

    I like how, in an article complaining about how big banks get away with everything, and executives and employees should get it if the company doesn’t, the author pauses to praise the lying sack of shit who runs the worst offender as “an accomplished professional with a long and distinguished track record” and excuses his flagrant lie and violation of the agreement with “Everyone can have a forgetful moment.”

    And the author wonders why these guys laugh in our faces?