As US President Obama emerges from a potentially awkward dinner with French President Hollande, the din of diplomatic conversation could have been pierced by a familiar bank refrain: potential bank failure and systematic damage to the economy could result from a criminal investigation. The (Department of Justice) DoJ is about to twist the arm of French mega bank BNP Paribas SA (EPA:BNP) (OTCMKTS:BNPQY) to admit criminal wrongdoing and pay a record $8 billion fine.
The bank appears ready to admit to criminal charges involving suspect money transfers to Iran and Sudan. After fighting with the DoJ on its own, the bank is stunned by the size of the fine and is questioning the relative fairness of the move. This disagreement between the French bank and the DoJ now has an alley: The French government. This is an odd position for French President Hollande, who campaigned against monolithic financial control in the hands of a few large financial interests. But he’s involved nonetheless because the size of the proposed DoJ fin is stunning; so large French officials said it could literally jeopardize the stability of the bank and the French economy with it.
DoJ: Bank fines punish all, individual prosecution punishes only those responsible
In other worlds, the entirety of French economic existence could be at risk with the DoJ’s shotgun approach to bank justice that is worse than a drive by attack that shoots villains and bystanders indiscriminately.
All this controversy due to a fine that punishes all: the good, the bad and the ugly. Why not individual prosecutions, as the Chicago Tribune recently endorsed, as opposed to a financial penalty?
For its part the appearances provided by the US DoJ indicate they are on a path to individual prosecutions, but does this apply to everyone including the elites?
“Our record demonstrates that when the evidence and the law support it, we have not and will not hesitate to bring cases against anyone, regardless of his or her position, and if the evidence and the law do not support it, we will not bring charges, regardless of the popularity of such restraint,” said Peter Carr, a DoJ spokesperson in the criminal division, in a statement to ValueWalk.
When a corporation admits guilt, there is individual guilt by definition
Let’s parse this. By definition when the DoJ can get an entire corporation to admit criminal guilt there is individual guilt. The entire company did not commit the crime, it is typically isolated individuals. If the DoJ can get a company to admit guilt, why can’t the get individuals? Individuals are easier to target – they don’t have the deep legal pockets of a corporation (and many corporations don’t cover legal costs when illegal activity is involved).
Not only is it easier to get individuals, it leads to better deterrence
But here is the big point: prosecuting the individuals is a better deterrent. The goal is not to be a lynch mob in search of “Old Testament Justice,” and former US Treasury Secretary Timothy Geithner recently misidentified the issue much like he missed former Treasury Secretary Hank Paulson’s warning on derivatives that imploded in 2008.
DoJ: Not about vengeance
The goal is preventing future problems, from another 2008 derivatives implosion to avoiding the next MF Global or some other criminal event yet unknown. Vengeance is not the goal. When an elite class believes they can commit crimes and won’t be investigated, crime follows.
It doesn’t matter if the crime is located in Harlem or Tribeca, when anyone thinks they can commit a crime and not be investigated, an MF Global type crisis is sure to ensue.
“Our responsibility is to bring cases when the evidence and the law support it, and we have done that in record numbers in the white collar area over the last five years. From FY 2009 through FY 2013, the department charged over 46,000 white collar defendants,” DoJ spokesperson Carr said. “During that same period, the department filed mortgage-fraud related charges against over 4,000 defendants.”
DoJ: The numbers that matter are about blocked investigations of financial elites
It’s not about the numbers. It’s about the big bank elites. If they believe they can operate with impunity they will take advantage. It a capitalistic imperative to push as much profit out of a situation as possible, regardless of the impact on world, think many on Wall Street. As long as the elites believe they are untouchable, the problem persists.
“From LIBOR investigations to mortgage-backed securities cases to insider trading, the department has confronted all kinds of wrongdoing that harmed the integrity of our financial markets,” Carr said. “ These include charges against executives, officers and traders at JPMorgan Chase & Co. (NYSE:JPM), Goldman Sachs Group Inc (NYSE:GS), SAC Capital, Morgan Stanley (NYSE:MS), UBS AG (NYSE:UBS), Rabobank, Stanford Financial Group, Community Bankers Trust Corp. (NASDAQ:ESXB), Bear Stearns, and other institutions. “
Notably absent from that list is Credit Suisse Group AG (ADR) (NYSE:CS), the subject of the aforementioned Chicago Tribune article wondering why no individual prosecutions were made? If the company admits guilt, doesn’t that mean individuals are guilty?
“Moreover, we are still investigating various matters in this area,” Carr promised. In terms of promises, it helps to understand a little of the behind the scenes back story. Because, believe it or not, there just might be a larger plan to reign in Wall Street that is being executed in small steps so as to not negatively impact the market.
Individual speculation: the back story
During the MF Global Holdings Ltd (OTCMKTS:MFGLQ) cleansing operation word filtered back to certain financial reformers that essentially said: We’re going to get tougher on the banks, but we are concerned about systematic risk to the stock market should these banks be held to a common legal standard. We need to take it slow, gradual steps. There is a plan to end the “lawlessness” and absurd level of complete control one force utilizes to control an entire industry.
This was the talk some people heard. Nothing documented, all speculation. It was taken with a grain of salt.
The same administration sent the back channel word to certain financial reformers in 2008 that “hope and change” would happen in financial services – and the same crew that ousted Brooksley Born would not be rewarded with economic control. That was Obama’s message received by reformers as they entered Chicago’s Grant Park on an oddly warm November night in 2008. Many liberals had politically fallen in love with the image of real change in financial services. For financial reformers, that meant the economic controllers – recently called in a Vice article “the con artist wing of the Democratic party” – is held to the same legal standard as us common folk — just like everyone in the financial services. Equal justice for all.
In the independent brokerage world, registered individuals are scared to death of regulators. Among banks, regulators were something to laugh at, ignore. Don’t believe it? Look at the real story behind MF Global Holdings Ltd (OTCMKTS:MFGLQ) and the defiance of regulators and brazen disrespect for the rule of law. Once the truth behind this story is told, then can you understand why deterrence at the highest levels is needed to properly address what hedge fund magnate Paul