“The Justice Department has a suggestion for banks hoping to avoid criminal charges: Rat out your employees.” By agreeing to throw individuals under the bus, the company as a whole will qualify for valuable cooperation credits. [Ben Protess, New York Times "DealBook"] On a similar culture-of-informants theme, Eric Holder is proposing to further boost bounties for Wall Street informants into more massive contingency-fee territory: “Mr. Holder will urge Congress to allow bigger whistleblower rewards under the 1989 Financial Institutions Reform, Recovery and Enforcement Act…. Current law caps any Firrea whistleblower payment at $1.6 million.” [Wall Street Journal, earlier coverage and specifically]
“…is bad for the rule of law and for capitalism,” opines The Economist, saying regulation-through prosecution has become “an extortion racket,” from hundreds of millions in Google drug-ad settlement money spread among Rhode Island police departments, to New York Gov. Andrew Cuomo’s muscling in to extract money from BNP Paribas in a settlement of legal offenses against U.S. foreign policy as distinct from New York consumers:
Who runs the world’s most lucrative shakedown operation? The Sicilian mafia? The People’s Liberation Army in China? The kleptocracy in the Kremlin? If you are a big business, all these are less grasping than America’s regulatory system. The formula is simple: find a large company that may (or may not) have done something wrong; threaten its managers with commercial ruin, preferably with criminal charges; force them to use their shareholders’ money to pay an enormous fine to drop the charges in a secret settlement (so nobody can check the details). Then repeat with another large company. …
Perhaps the most destructive part of it all is the secrecy and opacity. The public never finds out the full facts of the case, nor discovers which specific people—with souls and bodies—were to blame. Since the cases never go to court, precedent is not established, so it is unclear what exactly is illegal. That enables future shakedowns, but hurts the rule of law and imposes enormous costs.
Via Politico, a WSJ news item from last month that should not pass unremarked:
New York’s banking regulator is pushing to install government monitors inside the U.S. offices of Deutsche Bank and Barclays … as part of an intensifying investigation into possible manipulation in the foreign-exchange market … The state’s Department of Financial Services notified lawyers for the two European banks earlier this month that it wanted to install a monitor inside each firm, based on preliminary findings in the agency’s six-month currencies-market probe … Negotiations are continuing over the details of the monitors’ appointments, but New York investigators expect to reach an agreement soon.
The regulatory agency has selected Deutsche Bank and Barclays for extra scrutiny partly because the records it has collected so far from more than a dozen banks under its supervision point to the greatest potential problems at those two banks, the people said. Plus, Deutsche Bank and Barclays are among the dominant players in the vast foreign-exchange market, so investigators hope a close-up view into their businesses will help them observe other players and trading patterns [emphasis added -- W.O.].
We’ve covered the expanding role of settlement and litigation monitors in past posts, and noted the seemingly arbitrary and unaccountable powers these monitors may exercise during their stay within the enterprises to which they are embedded. But there’s something novel (isn’t there?) about the installation of monitors loyal to state overseers whose mission includes watching other firms and market players besides the one that has admitted misbehavior (or has been found by a court to have misbehaved). When you have dealings with a company, and perhaps decide to entrust your sensitive personal or business data to it, should you be worried that it wind up crossing the screen or desk of a quietly emplaced monitor reporting back to Albany, or perhaps Washington?
Cato event held earlier this month with Rep. Darrell Issa (R-Calif.) and Cato senior fellow Mark Calabria. Here’s the description:
Launched in early 2013, “Operation Choke Point” is a joint effort by the Department of Justice (DOJ) and the bank regulators to limit access to the bank payments system by various businesses. Initially targeted at small-dollar nonbank lenders, Choke Point has grown to cover a variety of legitimate, legal businesses that just happen to be unpopular with DOJ, such as gun dealers and porn stars. Initial responses from DOJ claimed such efforts were limited to illegal businesses committing fraud. A recent report by the U.S. House Committee on Oversight and Government Reform reveals DOJ’s claims to be false. In today’s economy, almost any economic activity depends on access to the payments system; allowing DOJ, without trial or a right to appeal, to arbitrarily limit access represents an almost unprecedented abuse of power.
Earlier here. More: House hearing; Funnell.
WSJ editorial this morning: “We hold no brief for Citi, which has been rescued three times by the feds…. [But] good luck finding a justification for [the $7 billion figure] in the settlement agreement. The number seems to have been pulled out of thin air since it’s unrelated to Citi’s mortgage-securities market share or any other metric we can see beyond having media impact.
“This week’s settlement includes $4 billion for the Treasury, roughly $500 million for the states and FDIC, and $2.5 billion for mortgage borrowers. That last category has become a fixture of recent government mortgage settlements, even though the premise of this case involves harm done to bond investors, not mortgage borrowers.” More: Bloomberg. And the settlement directs Citigroup to hire former Eric Holder associate Thomas Perrilli, now at Jenner & Block, for a monitorship that is likely to prove an extremely lucrative plum [Reynolds Holding, Alison Frankel] Also: Ira Stoll.
The vote, which has occasioned little notice thus far in the press, took place on a proposed amendment brought to the House floor by Rep. Blane Luetkemeyer (R-Missouri) and co-sponsored by three Democratic members (Cardenas, Hastings, Perlmutter) as well as two other Republicans (Mulvaney, Yoder) [Kelly Riddell, Washington Times] The investigation by Rep. Issa’s committee released last week capped a steadily mounting furor, starting among groups like payday lenders experiencing reduced access to the banking system but spreading to various “vice” businesses and the firearms community — assuming the administration is still distinguishing the latter from the former. Earlier here, here, here, etc.
Report from Rep. Darrell Issa’s oversight committee blasts Operation Choke Point [The Hill, earlier here, here]
P.S.: More from Todd Zywicki at Volokh and Glenn Reynolds at USA Today; and earlier from American Banker and from the Washington Times (gun dealers say Operation Choke Point, FDIC guidelines squeezing their access to banks)]
The things you find on Craigslist (via Gregory Angelo):
Join us in a civil litigation against a well-known Bank on behalf of o (Midtown)
Join us in a civil litigation against a well-known Bank on behalf of over a dozen Clients!
Bringing suit against a well-known bank who constantly fails to provide fair and timely services to their customers not only brings excitement and glory to your litigation career, but also benefits both parties.
Extraordinarily experienced litigators familiar with banking laws and settlement negotiations are greatly welcomed to join us to fight for dozens of clients on contingency basis.
If interested, please send your resume and cover letter to : [redacted]
Principals only. Recruiters, please don’t contact this job poster.
do NOT contact us with unsolicited services or offers
On the other hand, this one (“a lawyer is needed to take a case to the united states supreme court. … appeal was declined on 3/27/14″) is kind of sad. It seems unlikely that many Supreme Court advocates sift through Craigslist to find cases, but I guess it only takes one.
I’m a little late in getting to this, but last month Radley Balko wrote the definitive blog post on the appalling state of federal bank structuring law, which makes it a felony to arrange bank transactions in quantities of less than $10,000 so as to avoid reporting requirements that kick in at that threshold. He hits virtually every point we’ve made in this space over the past couple of years, including the trend toward “freestanding” structuring prosecutions not arising from any underlying criminal activity, the close connection to forfeiture law, the enlistment of banks as a covert surveillance/informant network not disclosed as such to customers, Congress’s removal of willfulness as a condition of the offense, the unusual concentration of cases coming out of the state of Maryland, the white-knight role played of late by the public-interest law firm Institute for Justice, and of course the jarringly atypical leniency extended to the most famous structurer of all, New York’s Eliot Spitzer.
The immediate news event that prompted the coverage, summarized by Eugene Volokh: a Seventh Circuit decision, in U.S. v. Abair, reversing and remanding for retrial the conviction of an Indiana woman convicted for withdrawing her own money from her bank in violation of the statute so as to finance her purchase of a house; the government took the house from her in forfeiture.