Not A Few Slipups: Systemic Failure

…Execution of the law was squarely in the crosshairs when Eric Holder testified before the Senate. Specifically at issue was the DOJ’s wholesale failure to prosecute any large banks or any of their executives despite seemingly endless waves of uncontested evidence of criminal behavior (not to mention the disappearance of at least $13 trillion in a financial crisis driven by fraud).

We’re not talking about a few slip-ups here and there by the DOJ, or a couple of favors done with a nudge and a wink.  We’re talking about what looks very much like a green light for big banks to commit crimes with wild abandon while pretending that fines levied in lieu of prosecution (a) are something other than a small tax paid by the banks doing business as criminal enterprises, (b) cannot simply be paid for from the fruit of additional crimes in the future, and thus (c) do not guarantee more crime.

Eric Holder did not materialize before the Senate out of the blue. Rather, his testimony followed an unbroken pattern of prosecutorial inaction and deference by the DOJ towards big bailed out banks, a sample of which includes:

  • In April 2010, Richard Bowen, a former Citigroup risk officer, told the Financial Crisis Inquiry Commission, among other things, that Citi sold MBS products despite knowing—based on information that Bowen provided to the top ranks of the company, including ex-CEO Robert Rubin—that huge swaths of mortgages owned by Citi were defective to the tune of between 60 and 80%. Citi continued its multi-billion-dollar sales of defective MBS products that it knew to be falsely rated. The DOJ filed no criminal referrals and prosecuted no one at Citigroup.
  • In June 2010, it emerged that Wells Fargo (nee: Wachovia) “had made a habit of helping move money for Mexican drug smugglers. Wells Fargo & Co., which bought Wachovia in 2008, has admitted in court that its unit failed to monitor and report suspected money laundering by narcotics traffickers — including the cash used to buy four planes that shipped a total of 22 tons of cocaine.” The DOJ filed no criminal referrals and prosecuted no one at either Wells Fargo or Wachovia.
  • In September 2012, Lanny Breuer, then the head of criminal enforcement at the DOJ, traveled from Washington, D.C. to give a speech to the New York City Bar Association. Breuer’s house call to the corporate defense bar included statements that he would “not always” be convinced not to prosecute large institutions that made “compelling presentations” to Breuer, in “his conference room,” concerning the negative economic ramifications of such prosecutions.
  • In December 2012, Lanny Breuer admitted that HSBC “permit narcotics traffickers and others to launder hundreds of millions of dollars through HSBC subsidiaries and to facilitate hundreds of millions more in transactions with sanctioned countries.” What is more, “senior bank officials were complicit in the illegal activity” and indeed one HSBC executive “argued that the bank should continue working with the Saudi Al Rajhi bank, which has supported Al Qaeda.” The DOJ filed no criminal referrals and prosecuted no one at HSBCdespite the fact that “most of HSBC’s senior management has been replaced since the conduct at issue, which stretched from the mid-1990s to 2010.”
  • On January 22, 2013, Lanny Breuer appeared in PBS Frontline’s “The Untouchables,” which investigated fraudulent mortgages originated and sold by Bank of America (nee: Countrywide). Breuer stated that for large financial institutions, “pursuing justice… in any given case” meant that he “should speak to experts, because if I bring a case against institution A, and as a result of bringing that case, there’s some huge economic effect — if it creates a ripple effect so that suddenly, counterparties and other financial institutions or other companies that had nothing to do with this are affected badly — it’s a factor we need to know and understand.”

As a result of the latter, “[l]ess than 24 hours after ‘The Untouchables’ aired on PBS, its main target, Justice Department criminal-division head Lanny Breuer, abruptly resigned.”…

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