CREDIT SUISSE PLEADS GUILTY TO A FELONY, BUT GETS OFF EASY

By Ronald Fox

 

In four previous postings about wrongdoing by JP Morgan Chase, for which it received substantial fines but did not have to plead guilty to any criminal offenses, I expressed skepticism that big banks would ever pay a criminal price for their numerous misdeeds. My skepticism was based on recognition of the political and economic clout of large Wall Street banks, which makes federal regulators and prosecutors, not to mention the Congress, extremely hesitant to criminally prosecute a big bank, regardless of its transgressions.

 

Prosecutors in Manhattan and Washington worry that a guilty verdict, or even a plea to a lesser criminal offense, could prompt revocation of a bank’s charter—the equivalent of the death penalty. The cautiousness of their approach to prosecute big banks attests to their reluctance to take actions that might jeopardize a company’s license to conduct business in the U.S. They have thus relied on stiff fines and “deferred prosecution agreements,” which suspend charges in exchange for specified concessions, as the punishment of choice. Such actions, as I argued, amount to little more than face-saving gestures that will have little effect on deterring corporate crime.

 

To the surprise of many, last week Credit Suisse, which has a giant investment bank in New York and an American chief executive, pleaded guilty to the crime of conspiring to help several of its American account holders evade taxes, a felony under American law. This represents the first time in over 20 years a bank as large as Credit Suisse has pleaded guilty to a criminal wrongdoing. The bank were also required to pay $2.6 billion in penalties and employ an independent prosecutor for up to two years. The agreement further mandated that eight bank employees indicted in the tax evasion scheme had to be terminated.  I find both good and bad news in the plea agreement.

 

First the good news. The action against Credit Suisse represents a big change for the U.S. Department of Justice, which previously has not required big banks to plead guilty to criminal offenses. This deserves a small round of applause. The fact that Credit Suisse got in trouble for helping wealthy people dodge taxes is doubly pleasing: it punishes a criminal wrongdoing while letting it be known that the evasion of taxes by rich people will come under increased scrutiny.

 

As for the bad news; let me count the ways. First, federal prosecutors indicted eight junior managers, but no criminal charges were brought against top executives nor has anyone been banned by the Federal Reserve. And, while the junior managers will be fired, none will go to jail. Second, the $2.6 billion fine is pretty puny for a company as large as Credit Suisse. Third, the plea agreement does not require Credit Suisse to turn over the names of some 22,000 U.S. customers who engaged in the  schemes, thus short-circuiting criminal prosecution of the tax evaders, surely the biggest culprits in the sordid affair. This raises several questions. Why is Credit Suisse protecting the cheaters? Are they being pressured by the Swiss government, which is determined to protect the secrecy of wealthy bank customers? And why isn’t the U.S. government pushing harder to get the names? Could it be some important Americans might be involved? Fourth, and worst of all, Credit Suisse will face no sanctions on its ability to do business in the U.S. Despite the guilty plea, Credit Suisse will emerge from the criminal prosecution relatively unscathed (its share price actually increased after the judgment was announced). Such extensive concessions to Credit Suisse are mystifying, to say the least.

 

I can’t help but wonder what a corporation would have to do to lose its charter, or at least have severe restrictions placed on its capacity to conduct business. Federal regulators have the authority to revoke a company’s charter if it has been engaged in criminal activity. In the case of a financial institution, federal law allows the SEC to prohibit a bank from providing investment advice if it has committed a felony. It appears this regulatory authority has been waived in the case of Credit Suisse. As big banks have proven “too big to jail,” it now appears they are also “too big to curtail.”  If such crimes were committed by a community bank or a credit union, they would have been closed down and their executives would have been prosecuted, convicted and sent to jail. 

 

As a citizen fed up with corporate crime, especially the many crimes committed by Wall Street banks, I’m disappointed the DOJ didn’t deal out a harsher punishment, especially when one considers Credit Suisse’s long history of being investigated, agreeing to several out-of-court settlements, and having a number of its junior executives prosecuted. The pleas bargain blunted a full force criminal investigation, for which it appears prosecutors had a great deal of evidence of wrongdoing, including possibly obstruction of justice. Don’t get me wrong, I have no problem with criminal cases getting settled in plea bargaining deals, as most criminal cases are settled this way, but in my view prosecutors in this case conceded too much, especially in comparison to what an individual or small business facing a criminal prosecution usually gets.

 

Nevertheless, the criminal guilty plea by a bank as large as Credit Suisse represents a ratcheting up of where we were just a few months ago. A die has been cast. It appears the giant French bank, BNP Paribas, which has a huge investment bank in New York, will soon also plead guilty to a criminal act of doing business with companies the U.S. has blacklisted. Such a plea, coming in the wake of a decision two years ago not to prosecute the British bank HSBC for similar charges, would represent a small step forward in getting tougher on corporate criminal wrongdoing.

 

There’s no way to know for sure where the collateral damage of the Credit Suisse and BNP cases might lead, but let us hope they lay a foundation for prosecuting other big banks for criminal misdeeds. Rumor has it that JP Morgan Chase, Citigroup, and other Wall Street behemoths may be next in line for criminal prosecution. With JPMC’s criminal misdeeds over the last decade including mortgage, investor, credit card and consumer fraud, forgery, perjury, bribery, and, like BNP, sanction violations, isn’t it about time its senior executives face criminal prosecution? What about a revocation of its banking license? Sure there would be collateral damage, as there was when Arthur Andersen went out business in 2002 after a criminal conviction, but would such damage be greater than the accumulated impact of JPMC and other Wall Street bank wrongdoing on the lives of millions of Americans who lost savings, homes, jobs, and their piece of the American dream?

 

Despite the determination of regulators and prosecutors to limit collateral damage that might result from full force criminal prosecutions of Wall Street lawbreakers, which could include the revocation of a bank’s business license, the tide may be turning. Up to now, Wall Street banks have proven too big to fail, jail and curtail, but, as Bob Dylan sang, maybe “the times they are a’changin.’