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July 23, 2014

Errata – On July 22, 2014, I published a Part I of this essay in which I wrote that the British Barclays Bank was found to be laundering money for Mexican drug gangs. It should have read the British bank HSBC.
New York City is the capital of the financial world and I am not displeased to see foreign investment banks doing business in this country. Our banks certainly spread enough capital around the world from Beijing to Cape Town to London; it’s good to see some pounds and euros and rands in the mix here.
The presence of such investment banks is not the problem; it’s the regulation of their conduct that is the problem, hence this essay’s title of patchwork, fear of consequence and impasse. We have several agencies charged in one way or another with the regulation of banking practices and they don’t always get their act together what with varying goals set forth in their particular sets of rules and regulations (and settled intra-agency practices). One of the results is that the regulators may be working at cross-purposes and out of sync with, for instance, the AG. Questions of whether their responses to criminal banking conduct calls for prosecution or only fines agreed to administratively and whether the prosecuting agency and/or AG is demanding a guilty plea are among some of the issues that have to be hashed out, not only among the regulated, but also among the regulators. In other words, we may have too many chefs in the kitchen, each dedicated to preparation of his/her own menu.
The obvious result of such attempts to regulate banks from different perspectives is impasse. Hearings, meetings, negotiations and other such get-togethers can be significant conclaves, especially when pleading guilty to a felony, which could cause a bank to go out of business. The descriptive phrase used among regulators for such a situation is “death sentence.” Thus while regulators might philosophically agree with prosecutors on the path to filing charges against a bank, some one or more of them may well feel bound by their particular agency’s rules that govern their response to criminal charges.
There are occasional agreements between regulators and Preet Bharara, the United States attorney in Manhattan, though it took a Freedom of Information petition for my research base to unearth it. (These meetings are not public hearings, since if they were and we knew what was going on, at least civil commotion if not revolution would be a possibility.) Bharara and some of his associates visited Thomas Curry, the Comptroller of the Currency (a top regulator in charge of banking licenses, among other things). They were there to seek out the repercussions of forcing JP Morgan Chase Bank to accept a guilty plea on their financing of the Bernie Madoff adventure that wiped out billions in investor value. Mr. Curry did not promise Bharara and his troupe that JP Morgan’s charter would be safe if such were to transpire, pointing out that federal law requires the Comptroller to hold a hearing which could terminate “all rights, privileges and franchises of the bank.” Potent words indeed! So what happened? Bharara and Curry caved; they collected some two billion (a mere rounding error for the biggest bank on Wall Street) and did not require JP Morgan Chase Bank to plead guilty.
As a lawyer, most nearly all the criminal cases I have ever had whether as prosecutor or defense counsel involved the single issue of establishing guilt and, if established, to determine the suitable punishment under statutory guidelines. That is not the issue with these banks and their Madoff-assisting financing, financings of chaos, rape and murder in Sudan, laundering Mexican drug gang money to finance marketing of their foul product to and in this country etc. Guilt is established; the only issue is whether to charge such criminal banks with the commission of the crime chargeable though not yet charged. So what is the regulatory and criminal procedure employed today with errant banking corporations? We give them a “deferred prosecution agreement” and a sheaf of corporate resolutions for their boards to pass, collect (what to them is) a token fine and tell them to be good from now on and sin no more.
I will discuss how bankers, dope, rape and terrorism are intertwined in Part III. Stay tuned. GERALD E


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