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Are Some Banks 'Too Big To Jail'?

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"The Banking Committee will continue its oversight of the financial services industry to help ensure there is a level playing field and all financial services institutions are held accountable for their actions," said a Democratic Senate Banking Committee aide, speaking on condition of anonymity. "Throughout the last Congress, the committee conducted careful oversight on a wide range of anti-money-laundering and Bank Secrecy Act issues that have arisen in recent years. The committee plans to build on those efforts early this Congress by holding a full committee hearing on these important issues."

Some in the media also voiced strong outrage and concern over the Justice Department's handling of the case, warning that it undermined the government's strong stance on the "drug war."

"If you've ever been arrested on a drug charge, if you've ever spent even a day in jail for having a stem of marijuana in your pocket or 'drug paraphernalia' in your gym bag, Assistant Attorney General and longtime Bill Clinton pal Lanny Breuer has a message for you: Bite me," Rolling Stone's Matt Taibbi wrote in a Dec. 13 blog post. He called the HSBC settlement "the ultimate insult to every ordinary person who's ever had his life altered by a narcotics charge."

Neil Barofsky, the former inspector general for the Troubled Asset Relief Program, wrote that the Justice deal with HSBC was "beyond unfair" in a Dec. 12 column on The New Republic's website.

"They are downright terrifying for weakening the general deterrence for megabanks, both foreign and domestic, which could rationally interpret yesterday's actions as a license to steal," Barofsky added.

Some have even argued that the anti-laundering lapses are grounds for the regulators to revoke the bank's license to operate in the United States or break up the company into small businesses.

Comptroller of the Currency Thomas Curry fielded several questions about the bank's license at the press conference announcing the settlement, arguing that provisions to rescind it were not triggered because the bank was not formally prosecuted, even though it had admitted guilt to the charges as part of the deferred prosecution agreement.

In an interview last week, Curry said bank regulators were more focused on getting problems corrected rather than criminal penalties. "From our standpoint, as a bank regulatory agency, our job is to, one, identify the problems and then mandate that they get fixed," he said. "I don't think it's our role to avenge or to punish per se."

Still, he acknowledged that if "someone violates a criminal law in banking, they ought to be prosecuted."

William Black, a professor at University of Missouri-Kansas City's law school, has argued that the Dodd-Frank reform law contains language that would allow regulators to wind down the bank and break it up into smaller entities now.

"They're telling us they now have a system in place for resolution. If they're not going to use it to resolve fraudulent places, what's the point?" said Black, a former Office of Thrift Supervision official and author of "The Best Way to Rob a Bank Is to Own One." "That's precisely the type of place you'd want to fix before there's a catastrophic collapse," Black said.

Guilty Parties

Moreover, others watching the case argued that the debate over whether or not to indict corporations is misplaced, because the emphasis should be on the guilty employees individually.

"To me, prosecutors considering nonlegal reasons not to indict a TBTF bank is a straw man argument," said Jeff Connaughton, a former White House attorney, lobbyist and author of the recently published "The Payoff: Why Wall Street Always Wins." "Why not target individuals, in fact, the highest people in the organization who had actual knowledge the violations were occurring? No individual is too big to prosecute or too big to jail."

The DOJ said investigating wrongdoing by employees at a firm remains a top priority.

"Regardless of the size of a company or the role of an employee, the Justice Department must have evidence that a person knowingly broke the law in order to bring a criminal charge — which is the department's legal obligation. The department does not shy away from prosecuting individuals when the evidence is there to prove a crime, and diligently seeks that evidence," Carmichael said.

But it turns out that is also a tricky proposition. The bar to convict individuals of a crime is high, and criminal activity can be difficult to detect, especially when workers and executives are part of a large, publicly held firm.

"Most corporate crimes are very complicated and involve behaviors — for example, the release of financial statements — that look a lot like normal business practices," Arlen said. "They do not announce themselves. There is no dead body on the street. There is no drug transaction."

That's part of why prosecutors have moved to using deferred prosecution agreements to encourage cooperation with companies as a way at getting at the guilty individuals. But there are still concerns about whether those individuals are ever actually held accountable.

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Comments (2)
Although it's almost unimaginable, even worse than Too Big To Jail, is Too Big To Prosecute -- which is what the OCC termed HSBC after it was caught red-handed laundering money for drug cartels and financing terrorist organizations. When federal bank regulators REFUSE to do their jobs, there can be little hope that the mega-banks will stop pursing illicit businesses and the outsized returns they generate for the banks. The essence of big-bank thinking has become, if we can steal $1,000 and, if caught, be forced to pay a $100 fine, should we continue? The answer is obviously YES.
Posted by jim_wells | Tuesday, January 22 2013 at 4:45PM ET
Key phrase in the article - "disparate treatment of certain institutions". Oh the irony!
Posted by PRLynn | Wednesday, January 23 2013 at 3:02PM ET
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