Last month federal regulators did the once-unthinkable and criminally charged Credit Suisse for helping its clients evade taxes.
Now the government is going after France’s biggest bank, BNP Paribas. Reports indicate that over the next few weeks it faces a $US10 billion fine and criminal charges for doing business with in sanctioned countries like Iran.
Wall Street should have seen this coming.
Back in March, Preet Bharara — the U.S. District Attorney for New York known for taking down some big names on Wall Street for insider trading — made a pretty telling speech.
He warned Wall Street that he was sick and tired of seeing big banks admit to civil charges and pay fines for their million dollar malfeasances only to then go on business as usual. For the last decade banks have argued that prosecuting them criminally will result in their collapse. Bharara called this their “Chicken Little routine.”
Here’s the part where Bharara disclosed that he had had enough:
Companies, especially financial institutions, will do almost anything to avoid a tough enforcement action and therefore have a natural and powerful incentive to make prosecutors believe that death or dire consequences await on the other side of such an action — to dissuade the prosecutor from taking the fateful step of filing a criminal charge, even a deferred charge. And in that dynamic also lies a powerful incentive to exaggerate.
In meetings with senior executives and their counsel — and in written submissions also — I have heard assertions made with great force and passion that if we take any criminal action, the skies will darken; the oceans will rise; nuclear winter will be upon us; and the world as we know it will end…
When these arguments are made to me and my staff, we take them seriously — like we take all arguments and submissions. But we also take them, increasingly, with grains of salt, and make our own independent judgment about what actually is likely to happen. What I have found typically is that, in reality, as we had suspected, the sky does not fall…
And so, this repeated Chicken Little routine, I will tell you, begins to wear thin. And the result is that we view with more and more scepticism and with more and more doubt all the breathless claims of catastrophic consequences made by companies both large and small.
Over at Bloomberg, Greg Farrell and Tiffany Karry report that Bharara started to come around to this way of thinking last fall, when he wanted to prosecute JP Morgan for its decades long neglect to report Bernie Madoff’s fraud. JPM was the Ponzi schemers banker, and some inside the company knew that something was afoot — they pulled the bank’s money from Madoff before reporting the issue to the Feds.
That upset Bharara.
But when JPM CEO Jamie Dimon got a 74% raise to $US20 million afterward for guiding the company through the storm, Bharara was livid. Dimon’s pay had been cut in 2012, when traders lost $US6 billion on a single trade. The whole matter said something about the bank’s priorities.
It made Bharara think back to when Dimon had personally told him that criminal charges for Madoff would destroy JPM.
Wall Street as a whole has been telling this story because once upon a time the sky did actually fall. When the Feds prosecuted Arthur Andersen for its role in disguising Enron’s fraud, the company collapsed in 2002.
This time around Credit Suisse, however, did not collapse. And though the French are upset that American regulators are going after BNP, law enforcement officials are betting that it won’t collapse either.
In his speech, Bharara said that the pendulum had swung too far one way — against prosecuting Wall Street criminally — after Arther Andersen. If the pendulum is in fact swinging in the opposite direction — toward handing out criminal charges — the next thing in its way could be prosecuting individuals.
It’s quite likely that Wall Street has always known that.
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