Have you ever noticed that large corporations can get away with pretty much anything? Over and over again a major scandal breaks and in the end the fines are pennies on the dollar for the profits gained by these nefarious financial activities.
Banks can launder money with impunity and the consequences are a small fine in comparison to the profits made. No matter how egregious there are no criminal chargers or revoking of the bank's charter.
The British bank Standard Chartered said on Thursday that it expected to pay $330 million to settle claims by United States government agencies that it had moved hundreds of billions of dollars on behalf of Iran.
The HSBC deal, which is expected to be filed on Tuesday in the Eastern District of New York, includes a deferred prosecution agreement with the Manhattan district attorney’s office and the Justice Department. The deferred prosecution agreement, a notch below a criminal indictment, requires the bank to forfeit more than $1.2 billion and pay about $650 million in fines, according to the officials briefed on the matter. The case, officials say, will claim violations of the Bank Secrecy Act and Trading with the Enemy Act.
As part of the deal, one of the officials briefed on the matter said, HSBC must also strengthen its internal controls and stay out of trouble for the next five years. If the bank again runs afoul of the federal rules, the Justice Department can resume its case and file a criminal indictment.
This settlement is pathetic. The $4 billion penalty is equivalent to just a fifth of the company’s 2011 profits. The point of the criminal justice system is twofold: to punish and to deter. This does neither. It is a weak-tea punishment that provides zero deterrence to BP or other companies. Consider that after the 2005 Texas refinery explosion that killed 15 people, BP pleaded guilty to a criminal charge and paid a fine. Now, after a 2010 event that killed 11 people, BP is again pleading guilty and paying a fine. Zero deterrence. Although the government is right to pursue manslaughter charges against two individuals BP employees, the settlement is inadequate to address BP’s repeated criminal conduct. The government must impose more meaningful sanctions.
Over and over we hear threats of civil lawsuits, yet these seem to be tied up in litigation and the courts.
The nation’s largest banks are facing a fresh torrent of lawsuits asserting that they sold shoddy mortgage securities that imploded during the financial crisis, potentially adding significantly to the tens of billions of dollars the banks have already paid to settle other cases.
Regulators, prosecutors, investors and insurers have filed dozens of new claims against Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and others, related to more than $1 trillion worth of securities backed by residential mortgages.
Estimates of potential costs from these cases vary widely, but some in the banking industry fear they could reach $300 billion if the institutions lose all of the litigation.
Most amusing is the claim that if corporate criminals pay up, magically that will slow the economic recovery. Therefore we should just let them get away with it. Clearly that logic is false, considering the state of the economy. Just the other day, Citigroup laid off 11,000, all the while paying their executives outrageous sums.
There has been no real criminal prosecutions for the large banks, none. Too big to fail is much more than systemic risk, it's also reducing the power of these institutions, so maybe, someday, we can have even the smallest amount of actual justice.
Switzerland’s biggest lender, is close to agreements with U.S. and U.K. regulators to pay more than 290 million pounds ($466 million) in fines over allegations traders tried to rig global interest rates.
Last week JPMorgan Chase and Credit Suisse paid fines for subprime backed derivatives.
Under the agreement, J.P. Morgan will pay $296.9 million and Credit Suisse $120 million to the SEC, which will distribute the money to investors who were harmed. In statements, both banks said they were "pleased" to have the settlements complete. Neither company admitted or denied the allegations.
Not only do we have fines that are more pay to play fee for the actual profits made, but we also have news the SEC is ignoring whistleblower tips of further violations:
Two days ago, we said it was time to fire the SEC’s chief of enforcement Robert Khuzami, who has not provided the tough policing warranted by the biggest financial crisis in the agency’s history. Our call was based on compelling evidence of failure. Specifically, a year and a half after Dodd Frank created a $450 million whistleblower fund, which Khuzami confirmed had produced hundreds of high quality leads, the agency had taken only one referral far enough to merit a payout, that of a measley $50,000.
The SEC gives enforcement statistics, but when one tallies them all up in comparison to the profits made, the message is clear, financial crime and fraud pays.
Not to be outdone with puny punishment, the CFTC fined Goldman Sachs a measly $1.5 million for a rogue $8.5 billion hidden trade position.
One CFTC commissioner, Bart Chilton dissented on this fine and called it a slap on the wrist.
The Commodity Exchange Act provides the Agency with authority to prosecute violations “of any provision of this Act or of the rules [. . .],” and to request CMPs “for each such violation.” 7 U.S.C. Section 9(c). These penalties should be calculated so that they are more than a “slap on the wrist” or a "cost of doing business." Given that Goldman failed diligently to supervise the activities of the Trader approximately 60 times, and that, under the maximum penalty levels in effect at the time of these failures ($130,000 per violation), the starting point for assessing the CMP in this matter should be $7.8 million (60 x $130,000). I do not believe the $1.5 million CMP in this settlement is anywhere close to an amount representing a sufficient penalty or deterrent.
The Commission should have clear authority to levy meaningful CMPs. In that vein, I have called on Congress to provide unambiguous statutory authority to permit broad discretion in the interpretation of “each such violation,” and also to significantly increase our maximum penalty levels. Specifically, we need the unequivocal authority to assess penalties appropriate to timing and conduct—for every single statutory or regulatory violation, on a per second, per hour, or per day basis, as may be apposite to each individual prosecution. Additionally, our statute should be amended to increase maximum penalty levels to $250,000 per violation as to individuals and $1 million as to entities. In instances of market manipulation, the maximum penalty levels for individuals should be $1,000,000 per violation and increased to $10,000,000 for entities.
Furthermore, I believe the Commission should amend its current policy statements relating to imposition of CMPs. First, we should specifically include as an assessment factor the risk that the illegal conduct poses to any person, group of persons, or to market integrity generally. Violations that threaten significant risk of harm to customers or markets should be subjected to higher CMPs. Consequently, a failure to supervise diligently should incur much more significant penalties when such failure jeopardizes customer money or the financial health of an important institution. Second, the Commission should modify its policies to clarify what “each such violation” means. In the case of Commission Regulation 166.3, the Commission should clarify that each instance in which prohibited activity took place constitutes a separate violation.
Instead of putting the breaks on high frequency trading, we have a new study which shows the bias against the little guy by HFT.
High-speed traders, “make as much as $5.05 each time they go up against small traders buying and selling one of the most widely used financial contracts” for S&P 500 futures.
The agency has not endorsed Mr. Kirilenko’s findings, which are still being reviewed by peers, and they are already encountering some resistance from academics. But Bart Chilton, one of five C.F.T.C. commissioners, said on Monday that “what the study shows is that high-frequency traders are really the new middleman in exchange trading, and they’re taking some of the cream off the top.”
Mr. Kirilenko’s work stands in contrast to several statements from government officials who have expressed uncertainty about whether high-speed traders are earning profits at the expense of ordinary investors.
In spite of these events there are actually less accounting fraud enforcement by the SEC and they claim it's because there isn't any:
The SEC’s 2012 whistleblower program statistics show that the most common complaints are for corporate disclosures and financial fraud, 18.2% percent, even though we know now that it’s the eleventh straight year of fewer enforcement cases filed for accounting fraud and disclosure violations. Whistleblowers are reporting that accounting and disclosure fraud is still occurring and probably happening more than any other financial crime.
With penalties and fines being almost a kickback for corporate crime, the dismantling of financial reform continues. Now the U.S. Treasury exempted foreign exchange swaps from regulation. Foreign-exchange swaps and forwards are a subset of the $4 trillion derivatives trades in foreign exchanges and now there is no oversight.
The Commodity Markets Council, a lobbying group for energy and agriculture companies and derivatives exchanges, said in a June 2011 letter that the exemption could undermine the regulatory overhaul. The council “believes exempting foreign exchange forwards and swaps at this time from the clearing and trading requirements of Dodd-Frank could increase systemic risk at a time when regulators around the globe are trying to reduce it,” according to the letter, which was submitted in response to Treasury’s proposed exemption.
We're told there is a plan to deal with too big to fail, yet actual implementation of that plan, even capital requirements seemingly never happen and it is also questionable the below tackles contagion and systemic risk. One of the excuses to not criminally prosecute these large corporations is the claim they are too systemically important. Being so large is a major reason these firms can get away with anything.
Shareholders should expect to be wiped out and unsecured bondholders “can expect that their claims would be written down to reflect any losses that shareholders cannot cover”, which did not happen when the US and UK had to prop up their international banks in the 2008 crisis.
Senior management would be removed, but critical business functions would continue and healthy operating subsidiaries, both foreign and domestic, would be allowed to keep operating, limiting the damage to the broader economy, the regulators write.
The intervention would occur at the top-tier holding company level of the international banks. By addressing the problem at the top of international banks, the strategy document says it avoids “separate territorial and entity-focused insolvency proceedings” as happened in the Lehman Brothers bankruptcy.
The document states that since big US and UK banks do not currently hold sufficient debt and equity at the top of their group holding structures, regulators will need to take steps to address that.
Then there is speculation on who will be Obama's pick for new SEC chair. The dream guy for the job is Neil Barofsky. Who wants to bet he hasn't a prayer's chance due to his outspoken watchdog diligence. Here's an interview with Barofsky, where the opening paragraphs make clear what's at stake if we don't get a incorruptible top financial cop.
The stakes are high. In the 1930s, the SEC cleaned up a stock market that had gone out of control, rigged by insiders and ultimately wrecking the economy. During this most recent financial crisis, the SEC operated as Barofsky put it, as a “backwater.” SEC Chairman Chris Cox was known as a passive regulator who did not understand the markets. Whistle-blower Harry Markopoulos later embarrassed the SEC by revealing he had tried to tell them about Bernie Madoff’s $20 billion-plus fraud for eight years, to no avail. Obama appointee Mary Schapiro has done marginally better, but the SEC has still been battered in the courts and in Congress. And Schapiro recently lost a high-profile fight to regulate money market funds, which were a key part of the highly vulnerable shadow banking system.
Most significantly, the SEC has no high-profile court wins against key players in the financial crisis. The SEC charged Goldman Sachs in 2010 with defrauding its customers in the mortgage-backed securities market, the centerpiece of the crisis. But it later settled with the company, not forcing Goldman to admit or deny wrongdoing. In fact, settling with corporations without forcing them to admit wrongdoing is policy at the SEC, under former Deutsche Bank executive turned SEC Chief of Enforcement Robert Khuzami. This policy is so ingrained that when Judge Jed Rakoff invalidated a settlement between the SEC and Citigroup on selling toxic mortgage bonds and ordered a trial, Khuzami fought bitterly to have the judge overruled.
What's astounding is how la de da these latest events are to the press and even the public. People are numb at this point on financial reform. Notice the topic didn't even come up in election 2012.