US Bank Fraud: A New Chapter?

Denis LyonsUS Bank Fraud: A New Chapter? by Denis Lyons 

What do the following figures have in common: $16bn, $13bn, $1.9bn and $8.9bn? No idea. Well, they are the amount in fines paid recently to the US Government by Bank of America, JPMorgan, HSBC and BNPPARIBAS respectively. The first two are for abusive mortgage lending, HSBC’s fine is for laundering money on behalf of drug cartels and BNPPARIBAS’ is for sanction-busting. Mind-boggling though these amounts are to most of us, the question lingers whether they are enough to meet the demands of retributive justice. Equally importantly, are they enough to forestall future bad behaviour and prevent unlawful actions?

For Loretta Lynch, the new US Attorney General, the answer is no. A Directive issued by the Justice Department in September of this year encourages prosecutors to indict individual bankers and captains of industry suspected of fraud ”where possible” According to spokeswoman Sally Yates “ A crime is a crime whether committed on a street corner or in a company”. Their mission, she states, is not just to rake in the maximum amount in fines for Uncle Sam, but “to find and punish wrongdoers”. In any given case, prosecutors will have to explain why certain individuals have not been prosecuted and justify any such decision to their superiors in the Department. Prosecutors will also be under an obligation to share information with fellow prosecutors and promote “prosecutorial collegiality”.

If the Directive is pursued with the same zeal that Ms Lynch and her team have shown in pursuit of FIFA’s band of malefactors, the consequences in the long term could be immense. Whether the Justice Department succeeds in “cleaning up Wall Street” remains to be seen: this has, after all, been tried before. Nevertheless, the directive is something of a watershed

In the short term, the prospects for those caught up in the LIBOR scandal do not look good. Six Banks have already paid $6bn in fines, but will matters rest there? Given the ambit and tenor of the new Directive, that seems highly unlikely.

There is also public opinion to be considered with widespread public anger at VW’s recently revealed dissimulations, disregard for the law and consequential damage to the environment. Prosecutors in Germany are already looking at pursuing former VW Chairman, Martin Winterkorn, for fraud. So, it may be that the tide is finally turning against corporate fraud and white-collar crime on both sides of the Atlantic ushering in a new era of personal culpability.

The Justice Department Directive could be a game-changer and the days of banks buying their way out of trouble may be coming to an end. For millions whose lives have been blighted by financial fraud and lengthy recession, any such change would be welcome and not before time.