Financial Institutions To Face Criminal Charges [REPORT]

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According to an April 29th article in The New York Times, federal prosecutors are preparing to file charges against two major global financial institutions. The sources for the story say that prosecutors and regulators in Washington D.C. and New York have crafted a strategy seeking to criminally punish banks without revoking their operating license and potentially damaging the economy. Prosecutors expect that most of the criminal cases brought will result in guilty pleas.

Two major global financial institutions first to face criminal charges

The Times articles reports that global financial institutions Credit Suisse Group AG (ADR) (NYSE:CS) and BNP Paribas SA (ADR) (OTCMKTS:BNPQY) (EPA:BNP) are likely to be the first big banks to face charges, as investigations into these cases are the most advanced. Credit Suisse is expected to be hit with charges relating to offering illegal tax shelters to Americans, and BNP Paribas will likely face charges relating to alleged business dealings with countries on U.S. trade sanction blacklists (such as South Sudan).

Too big to fail, but not too big for criminal charges

In taking the decision to press criminal charges against big banks, authorities are chipping away at the public belief that Wall Street banks have become so important that they cannot be charged. The fact that there has been almost no criminal prosecutions of banks and bank execs has led to public indignation over the idea that Wall Street firms are “too big to fail/jail.”

Regulators and prosecutors working together against financial institution

Filing criminal charges against major financial institutions requires walking a tightrope in representing the public interest. If you prosecute all charges and win convictions, that is likely to lead to the revocation of the licenses of these big banks, which could have a serious impact on the economy. Successfully crossing this tightrope requires prosecutors  and regulators at both the state and federal level to work closely together in developing an appropriate strategy to balance the various public interests involved.

It should be noted that regulation of American and European banks is divided among a patchwork of agencies in New York and Washington, which means there is no guarantee the charges will ultimately be filed. Most regulators agree with prosecutors that criminal charges are appropriate prosecutors, but many also feel constrained by regulations that define their response to criminal charges.

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