A day after Attorney General Eric Holder asserted that prosecutions of Wall Street’s largest financial institutions have lagged because they are, in fact, “too large” to prosecute, a pair of Democratic senators again challenged regulators over the lack of legal oversight into the banks’ activities before and after the financial crisis.
Large banks have reached a slew of settlements with federal authorities over mortgage and foreclosure fraud, rate-rigging scandals, and money laundering schemes, but they have largely avoided prosecution, a fact Massachusetts Sen. Elizabeth Warren (D) pointed out to regulators from multiple agencies during a Senate Banking Commiteee hearing this afternoon. Prosecution, Warren noted, is less likely for banks that jeopardize the integrity of the American economy than it is for common criminals, The Hill reports:
“If you’re caught with an ounce of cocaine, the chances are good you’re going to jail,” said Sen. Elizabeth Warren (D-Mass.) at the Banking Committee hearing. “Evidently, if you launder nearly $1 billion for drug cartels and violate our international sanctions, your company pays a fine and you go home and sleep in your own bed at night.”
Oregon Sen. Jeff Merkley (D), a strong supporter of financial regulation and author of many of the new rules in the Dodd-Frank Wall Street Reform Act, joined in the criticism by questioning Holder’s assertion that large banks were “too big” to prosecute and wondered if Wall Street had become a “prosecution-free zone”:
Holder told the Senate Judiciary Committee he was concerned that the size of some banks had made prosecuting them difficult because their downfall could damage the financial system and economy.
Sen. Jeff Merkley (D-Ore.) contended that this claim suggested that “we have a prosecution-free zone for large banks in America.”
Despite the well-documented financial abuses that occurred during and after the financial crisis, Wall Street prosecutions fell to a 20-year low in 2011. Sens. Sherrod Brown (D-OH) and Chuck Grassley (R-IA) have previously challenged the Justice Dept. over its lax approach to prosecutions, and Brown and another Republican senator, Louisiana’s David Vitter, called for legislation to break up the largest banks last week.
Instead of prosecutions, regulators have resorted to settlements that often appear as slaps on the wrist compared to the banks’ abuses. Banks have already figured out multiple ways to game foreclosure and mortgage abuse settlements, which haven’t extended the help to homeowners that was promised (in part because states weren’t required to pass money on to homeowners). And even when regulators levy large financial penalties on law-breaking banks, those penalties are tax deductible, allowing Wall Street to claim a tax break on the cost of its wrongdoing.
ZeroHedge has the transcript of Warren’s questioning. An excerpt:
WARREN: … As Senator Reed just pointed out, the United States government takes money laundering very seriously for a very good reason. …
Now in December, HSBC admitted to money laundering. To laundering $881 million that we know of for Mexican and Colombian drug cartels. And also admitted to violating our sanctions for Iran, Libya, Cuba, Burma, the Sudan. And they didn’t do it just one time. It wasn’t like a mistake. They did it over and over and over again across a period of years. And they were caught doing it. Warned not to do it. And kept right on doing it. And evidently making profits doing it.
Now HSBC paid a fine, but no one individual went to trial. No individual was banned from banking. And there was no hearing to consider shutting down HSBC’s activities here in the United States. So what I’d like is, you’re the experts on money laundering. I’d like your opinion. What does it take? How many billions of dollars do you have to launder for drug lords and how many economic sanctions do you have to violate before someone will consider shutting down a financial institution like this? Mr. Cohen, can we start with you?