When is a Felony Not a Felony? When You’re a Bank!
by Alexis Goldstein / May 27 2015
“Last week, JP Morgan, Citigroup, Barclays, and Royal Bank of Scotland pled guilty to felony charges of conspiring to manipulate currency prices, and UBS pled guilty to manipulating benchmark interest rates. Regulators and prosecutors found the misconduct because the traders left extensive, written tracks — in chatrooms called “The Cartel” and “The Mafia.” James Kwak wrote that Stringer Bell from the popular television series The Wirewould never have tolerated the brazen, “amateurish behavior” these traders exhibited. But why should traders bother to cover their tracks, when they know they have the absolute best clean-up crew in the business — the financial regulators and law enforcement meant to police them? When an individual is convicted of a felony, they face years of disenfranchisement — from being denied the right to vote in many states, to facing barriers to finding work, felony convictions have real-world consequences for people. But when it comes to banks, regulators and law enforcement work together to ensure collateral consequences don’t occur. It’s not supposed to be that way. When a bank is charged with a crime, there are certain penalties that automatically kick in.
Here is what the banks were facing as a result of their felonies:
- Disqualification from managing mutual funds and exchange-traded funds for RBS, JP Morgan, Citigroup and UBS.
- New barriers for issuing securities. All the convicted banks are “well-known seasoned issuers,” which is a special status that lets them quickly raise capital without having to get SEC approval first. A criminal conviction automatically disqualifies a bank from this status.
- No more immunity for earnings projections. Since you can’t verify the accuracy of the future, the law gives companies a “safe harbor” that allows them to make forward-looking statements anyway — without fear of lawsuits. The felony pleas would disqualify UBS, Barclays and JP Morgan from this immunity, thus subjecting all of their statements to the normal liability standards for fraud.
- UBS and Barclays could no longer raise unlimited amounts of money though the sale of private securities.
How many of these consequences do you think the banks actually faced? If you guessed ZERO out of four, you are correct! The Securities and Exchange Commission waived all of the above punishments. And according to Reuters, banks demanded assurance they’d get these waivers before they agreed to plead guilty to the felonies. It’s not enough that the banks are avoiding prison — they needed a guarantee they wouldn’t see the regulatory equivalent of probation, either.
At least one of the SEC’s Commissioners, Kara Stein, voted against granting the final three waivers in the above list — and we know this because of the scathing dissent she released. Commissioner Stein wrote that granting these waivers “has effectively rendered criminal convictions of financial institutions largely symbolic.” How the rest of the Commission voted isn’t available online — and when I called the SEC to ask for the formal vote, I was told that I could see it, but only if I came to the agency’s Public Reference Room between 10am — 3pm. How’s that for transparency in a government agency that prides itself on public disclosure!
This isn’t the first time we’ve seen a financial regulator work to bury Wall Street’s bodies. When Credit Suisse pled guilty last year to helping American clients dodge U.S. taxes, the Department of Labor (DOL) also chose to waive away the automatic penalties. Following the granting of the waiver, Melanie Nussdorf, a lawyer representing Credit Suisse, sent an email to the Department with “thankyou” repeated 600 times. In response, a DOL special assistant named Erin Hesse wrote, “I hope this one ‘you are welcome’ covers all those thank yous.”
Regulators aren’t just busy getting cosy with the lawyers of the banks they regulate — they’re also busy making excuses. At an event at the London School of Economics, Treasury Secretary Jack Lew said that the waivers “make sure that the impact of the penalties doesn’t have unintended consequences.” But Congress created these automatic disqualifications for a reason— it was very much an intended consequence. Unfortunately, it’s an intended consequence regulators continue to ignore, as they posture that they know better than both Congress, and the everyday Americans who don’t have the luxury of a captured cop on the beat.”
Dissenting Statement Regarding Certain Waivers Granted by the Commission for Certain Entities Pleading Guilty to Criminal Charges Involving Manipulation of Foreign Exchange Rates
by SEC Commissioner Kara M. Stein / May 21, 2015
“I dissent from the Commission’s Orders, issued on May 20, 2015, that granted the following waivers from an array of disqualifications required by federal securities regulations:
1) UBS AG, Barclays Plc, Citigroup Inc., JPMorgan Chase & Co. (“JPMC”), and the Royal Bank of Scotland Group Plc (“RBSG”), waivers from the provisions under Commission rules that automatically make them ineligible for well-known seasoned issuer (“WKSI”) status;
2) UBS AG, Barclays, and JPMC waivers from automatic disqualification provisions related to the safe harbor for forward-looking statements under Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934; and
The disqualifications were triggered for generally the same behavior: a criminal conspiracy to manipulate exchange rates in the foreign currency exchange spot market (“FX Spot Market”), a global market for buying and selling currencies. Traders at these firms “entered into and engaged in a combination and conspiracy to fix, stabilize, maintain, increase or decrease the price of, and rig bids and offers for,” the euro-dollar foreign currency exchange (“FX”). To carry out their scheme, the conspirators communicated and coordinated trading almost daily in an exclusive online chat room that the traders referred to as “The Cartel” or “The Mafia.” Additionally, salespeople and traders lied to customers in order to collect undisclosed markups in certain transactions. This criminal behavior went on for years, unchecked and undeterred.
There are compelling reasons to reject these requests to waive the automatic disqualifications required by statute or rule. Chief among them, however, is the recidivism of these institutions. For example, in the face of the FX criminal action, a majority of the Commission has determined to grant Citigroup yet another WKSI waiver, its fourth since 2006. It is worth noting that Citigroup was automatically disqualified from WKSI status between 2010 and 2013 for unrelated misconduct, meaning that it has effectively now triggered WKSI disqualifications five times in roughly nine years. Further, through this latest round of Orders, the Commission has granted:
- Barclays its third WKSI waiver since 2007;
- UBS its seventh WKSI waiver since 2008;
- JPMC its sixth WKSI waiver since 2008; and
- RBSG its third WKSI waiver since 2013.
The Commission has thus granted at least 23 WKSI waivers to these five institutions in the past nine years. The number climbs higher if you include Bad Actor and other waivers. This latest round of criminal charges also comes on the heels of the Department of Justice’s actions against UBS, Barclays, and RBSG for their collusive manipulation of the London Interbank Offered Rate (“LIBOR”), a benchmark used in financial products and transactions around the world. The manipulation of LIBOR was flagrant and “impact[ed] financial products the world over, and erode[d] the integrity of the financial markets.” As part of the settlements in the LIBOR matters, UBS, Barclays, and RBSG each entered into agreements with the Department of Justice in which they undertook not to commit additional crimes during the term of the agreements.
Allowing these institutions to continue business as usual, after multiple and serious regulatory and criminal violations, poses risks to investors and the American public that are being ignored. It is not sufficient to look at each waiver request in a vacuum. And today the Commission heads further down this path. After the LIBOR guilty pleas, UBS was granted a WKSI waiver that was explicitly conditioned on compliance with the judgment in the LIBOR-related matter. That explicit condition has now been violated. Yet, the Commission has just issued UBS a new WKSI waiver.
It is troubling enough to consistently grant waivers for criminal misconduct. It is an order of magnitude more troubling to refuse to enforce our own explicit requirements for such waivers. This type of recidivism and repeated criminal misconduct should lead to revocations of prior waivers, not the granting of a whole new set of waivers. We have the tools, and with the tools the responsibility, to empower those at the top of these institutions to create meaningful cultural shifts, yet we refuse to use them.
In conclusion, I am troubled by repeated instances of noncompliance at these global financial institutions, which may be indicative of a continuing culture that does not adequately support legal and ethical behavior. Further, I am concerned that the latest series of actions has effectively rendered criminal convictions of financial institutions largely symbolic. Firms and institutions increasingly rely on the Commission’s repeated issuance of waivers to remove the consequences of a criminal conviction, consequences that may actually positively contribute to a firm’s compliance and conduct going forward.”
What If Holder and Obama Listened to DOJ’s Cartel Prosecutors?
by William Black / March 11, 2015
“This is how Belinda A Barnett, Senior Counsel to the Deputy Assistant Attorney General for Criminal Enforcement, Antitrust Division, U.S. Department of Justice began her speech entitled “Criminalization of Cartel Conduct” on April 3, 2009. This was, of course, early in President Obama’s first term.
“It is well known that the Antitrust Division has long ranked anti-cartel enforcement as its top priority. It is also well known that the Division has long advocated that the most effective deterrent for hard core cartel activity, such as price fixing, bid rigging, and allocation agreements, is stiff prison sentences. It is obvious why prison sentences are important in anti-cartel enforcement. Companies only commit cartel offenses through individual employees, and prison is a penalty that cannot be reimbursed by the corporate employer. As a corporate executive once told a former Assistant Attorney General of ours: “[A]s long as you are only talking about money, the company can at the end of the day take care of me . . . but once you begin talking about taking away my liberty, there is nothing that the company can do for me.”1 Executives often offer to pay higher fines to get a break on their jail time, but they never offer to spend more time in prison in order to get a discount on their fine.
We know that prison sentences are a deterrent to executives who would otherwise extend their cartel activity to the United States. In many cases, the Division has discovered cartelists who were colluding on products sold in other parts of the world and who sold product in the United States, but who did not extend their cartel activity to U.S. sales. In some of these cases, although the U.S. market was the cartelists’ largest market and potentially the most profitable, the collusion stopped at the border because of the risk of going to prison in the United States.”
1Donald I. Baker, The Use of Criminal Law Remedies to Deter and Punish Cartels and Bid-Rigging, 69 GEO. WASH. L. REV. 693, 705 (Oct./Dec. 2001).
In two paragraphs, Barnett (unintentionally) exposed the disgrace that is President Obama, Attorney General Eric Holder, and Lanny Breuer’s (President Obama’s first head of the Criminal Division) refusal to prosecute the senior bank officers that led the three fraud epidemics that caused the U.S. financial crisis and the Great Depression. But her words are an even greater indictment of Presidents Clinton and Bush who could have prosecuted the elite bank felons’ frauds and prevented the crisis. We know how to deter elite white-collar crimes – the only way to do so. Holder’s bank fines are useless – and DOJ’s real prosecutors told him why they were useless from the beginning. No one, of course, thinks Holder went rogue in refusing to prosecute fraudulent bank officers. President Obama would have requested his resignation five years ago if he were upset at Holder’s grant of de facto immunity to our most destructive elite white-collar criminals.”
Federal Reserve Elitism, Immunity And Outstaying One’s Welcome
by Rob Kirby / May 16, 2011
“…For years I too wondered about the real reason why the Fed waited so long to occupy their allocated seats on the BIS. It finally became clear to me exactly why – only today, May 15, 2011, when Dominique Straus-Kahn [I.M.F. head] was charged in N.Y. with sexual impropriety. In a forum that I frequent, a poster [2 point] raised the question as to whether Strauss-Kahn would have diplomatic immunity from such charges citing the work of renowned BIS researcher Patrick Wood as he reported years ago:
“…The BIS, as we shall see, is not accountable to any public authority and operates with complete autonomy and self-sufficiency…… It is not surprising that the BIS, its offices, employees, directors and members share an incredible immunity from virtually all regulation, scrutiny and accountability. In 1931, central bankers and their constituents were fed up with government meddling in world financial affairs. Politicians were viewed mostly with contempt, unless it was one of their own who was the politician. Thus, the BIS offered them a once-and-for-all opportunity to set up the “apex” the way they really wanted it — private. They demanded these conditions and got what they demanded.
A quick summary of their immunity, explained further below, includes
- diplomatic immunity for persons and what they carry with them (i.e., diplomatic pouches)
- no taxation on any transactions, including salaries paid to employees
- embassy-type immunity for all buildings and/or offices operated by the BIS
- no oversight or knowledge of operations by any government authority
- freedom from immigration restrictions
- freedom to encrypt any and all communications of any sort
- freedom from any legal jurisdiction9
Further, members of the BIS board of directors (for instance, Alan Greenspan) are individually granted special benefits:
- “immunity from arrest or imprisonment and immunity from seizure of their personal baggage, save in flagrant cases of criminal offence;”
- “inviolability of all papers and documents;”
- “immunity from jurisdiction, even after their mission has been accomplished, for acts carried out in the discharge of their duties, including words spoken and writings;”
- “exemption for themselves, their spouses and children from any immigration restrictions, from any formalities concerning the registration of aliens and from any obligations relating to national service in Switzerland ;”
- “the right to use codes in official communications or to receive or send documents or correspondence by means of couriers or diplomatic bags.”10
Lastly, all remaining officials and employees of the BIS have the following immunities:
- “immunity from jurisdiction for acts accomplished in the discharge of their duties, including words spoken and writings, even after such persons have ceased to be Officials of the Bank;”[bold emphasis added]
- “exemption from all Federal, cantonal and communal taxes on salaries, fees and allowances paid to them by the Bank…”
- exempt from Swiss national obligations, freedom for spouses and family members from immigration restrictions, transfer assets and properties – including internationally – with the same degree of benefit as Officials of other international organizations…”11
That’s when everything ‘clicked’. I know Patrick Wood and the caliber of his work. Second, GATA has long maintained that gold price suppression began in the timeframe circa 1994. Coincidentally, or perhaps not, that is also the same timeframe that wholesale interest rate suppression began…”
Prima Donnas of the Banking World
by Beat Balzli and Michaela Schiessl / July 08, 2009
“The BIS is a closed organization owned by the 55 central banks. The heads of these central banks travel to the Basel headquarters once every two months, and the General Meeting, the BIS’s supreme executive body, takes place once a year. The central bankers — from Alan Greenspan and his successor Ben Bernanke, to German Bundesbank President Axel Weber and Jean-Claude Trichet, the head of the European Central Bank (ECB) — are fond of the Basel meetings. When they arrive, the BIS’s dark office building at Centralbahnhof 2 in Basel suddenly comes alive. Secretaries inhabit the otherwise deserted offices of the governors, stenographers and chauffeurs stand at the ready and dark limousines wait outside.
The penthouse at the top of the building, with its magnificent view of Basel, is decorated for the annual dinner, the nuclear shelter in the basement is swept out and the wine cellar is restocked with the best wines. At the BIS’s private country club, gardeners prepare the tennis courts as if a Grand Slam tournament were about to be held there. The losers of matches can find comfort in the clubhouse, where the Indonesian guest chef serves up Asian delicacies à la carte. “Central bankers can sometimes be prima donnas,” says former BIS Secretary General Gunter Baer. He remembers the commotion that erupted at one of the annual events when it became known that a certain vintage of Mouton Rothschild was unavailable.
The corridors of the BIS headquarters buildings are lined with retro white leather chairs and sofas from the 1970s. The round table where the delegates address the problems of the global economy is polished to a high gloss. But the most impressive space of all is the auditorium, with its modern armchairs in white leather and chrome, the thousands of tiny LED lights, the booths in the back where the interpreters sit behind one-way glass, and the console where the financial masters of the world do their work, centrally positioned at the front of the room. The room is evocative of the control room in “Star Trek.” It was supposed to be the hub from which the financial world was to be guided through every possible hazard.
Naturally, the building is largely bugproof, the goal being to prevent anything from leaking to the outside and any unauthorized individuals from penetrating into its interior. There are no public minutes of the meetings. Everything that is discussed there is confidential. The word transparency is unknown at the BIS, where nothing is considered more despicable than an indiscreet central banker. Central bankers, proud of their independence, are intent on holding themselves above all partisan influences while taking all necessary measures to keep the global economy healthy.
These traits make the BIS one of the world’s most exclusive and influential clubs, a sort of Vatican of high finance. Formally registered as a stock corporation, it is recognized as an international organization and, therefore, is not subject to any jurisdiction other than international law. It does not need to pay tax, and its members and employees enjoy extensive immunity. No other institution regulates the BIS, despite the fact that it manages about 4 percent of the world’s total currency reserves, or €217 trillion ($304 trillion), as well as 120 tons of gold. “Our strength is that we have no power,” says BIS Secretary General Peter Dittus. “Our meetings are generally not oriented toward decision-making. Instead, their value consists in the exchange of views.” There are no across-the-board agreements on the order of: “Let’s raise the prime rate by a point.” Opinions take shape in a much more subtle fashion, through something resembling osmosis.
Central bankers are not elected by the people but are appointed by their governments. Nevertheless, they wield power that exceeds that of many political leaders. Their decisions affect entire economies, and a single word from their lips is capable of moving financial markets. They set interest rates, thereby determining the cost of borrowing and the speed of global financial currents. Their greatest responsibility is to prevent a bank or market crash from jeopardizing the viability of the financial system and, with it, the real economy. It is no accident that central bankers are also in charge of bank supervision in most countries…”
DE FACTO IMMUNITY
by Nicholas Migiliaccio / June 15, 2014
“I contend that Big Banks have De Facto Immunity for crimes, foreign and domestic, in exchange assisting the US Treasury enforce US Global Financial policies. The Banks can get away with murder, maybe literally, in a modern example of “Quid pro Quo”(This for That) where upper Bank personnel are safe from fines and jail time. The Bankers know they will not go to jail, or, as a worst case, the Bank will be fined, and it treated as a cost of doing business, ultimately paid for by all of us. My reading tells me that no upper level employees ever missed a bonus let alone a conviction with punishment. I think a clear picture of the problem emerged in the UK Telegraph’s article on April 16th, 2014 “US Financial Showdown with Russia More Dangerous Than It Looks” by Ambrose Evans-Prichard on April 16, quoted in Newsweek: “The Treasury has deputized the entire US financial system to achieve its foreign policy goals”. Based on the recent book “Treasury’s War” by Juan Zarate, former White House and Treasury Official, US Prosecutor, outlines the nature of the global nature of the effects of Sec 311 of the Patriot Act, designating countries, organizations and individuals as money-launders.
Thus the banks are the enforcement muscle (much like the Mob) of Treasury’s overseas activities. Several White House Peer Review papers suggest that these enforcement duties should remain Treasury functions. In Treasury’s desire to protect the US and extend the “Anaconda Strategy” developed by the North, while fighting the South in the Civil war, they can designate a country, bank or individual as a “Money Laundering Center”, with which everyone involved with them, upstream or down, is then declared OUTLAW, ‘persona non gratis’, and more radioactive than Fukishima. No one, for fear of being barred from the lucrative capital markets of New York City, will deal with them. Their lifeblood, cash flow, stops. Without JPM, BOA, CITI, Goldman, and Morgan Stanley, little money can be raised until other capital centers develop.
All of us know the “Systemically Important” Entities, critical to US Global Strategy. Americans and people globally, are aware of the legion of unprosecuted crimes committed by Big Banks. But when Banks break laws with impunity due to their De Facto immunity, a serious moral hazard exists. Other bank executives are emboldened to new heights of criminal activity and this creates more “unindicted co-conspirators”. I believe this is unconstitutional, bad practice, bad policy for the USA, and that it will have terrible long term consequences, already showing in the huge loss of respect for the USA’s integrity and Rule of Law.
Contrast that NY Times notes that there were eight hundred forty-nine (849) convictions after the “Keating” Savings and Loan Scandal in the ’90s, and but only one (1) conviction since this meltdown began in 2006, and that was an Egyptian born Credit Suisse employee. None of the so-called TBTF bank personnel were imprisoned. I don’t think these banks are “Too Big To Fail,” however they are “Systemically Important” Entities. These Banks are not allowed to fail as they are the Muscle for US Global Financial Policies.
US Treasury Anaconda Strategy cutting off cashflow, to entities they designate as “Primary Money Laundering Centers”, is an effective short term tactic, with serious negative long term strategic implications for the USA. De Facto immunity for Big Banks, has the current situation spinning out of control, a loose cannon on a stormy deck, injuring friend and foe. The people of the US deserve a respected Rule of Law, not one for Banks, and one for Others. Injuries by Banker Crimes are legion, from false home repossessions, to usury, to front running trades and rigging markets for their no-brainer profit trades. Do any readers NOT know someone so injured? Does anyone know anyone sent to jail for these crimes ? The very fabric of our society is being rent asunder for Banker profits.
Of course the proof that my contentions here are wrong, would be the vigorous prosecutions of those banks whose crimes have not passed the statute of limitations. The old Populist slogan addressing low corn prices was : “Raise more HELL, and less corn”; which may be metaphorically is the solution here. First it is clear the Big Banks and the Treasury that is supposed to regulate them, must be separated, and the Banks and Bankers prosecuted for their crimes including jail time. Having Treasury depend on the Banks to enforce their rules, looks unconstitutionally incestuous to me, without checks and balances. An oligarchic state is ruled by Banks and other large interests, a Republic or a Representative Democracy is not.”