Archive for the ‘Banking’ Category

Dealing with Corporate Culprits

Thursday, February 11th, 2016

The Big Short movie and the Bernie Sanders presidential campaign are not the only things reminding us about the role of bank misconduct in the financial meltdown. Federal and state prosecutors are continuing to wrap up cases brought against the main culprits.

The Justice Department just announced that Morgan Stanley will pay $2.6 billion to settle allegations relating to the sale of toxic residential mortgage-backed securities, with another $550 million going to New York State and $22.5 million to Illinois. This comes a few weeks after Goldman Sachs disclosed that it expects to pay up to $5 billion to resolve similar allegations, while Wells Fargo is paying $1.2 billion to settle allegations that it engaged in reckless underwriting and fraudulent loan certification for thousands of loans insured by the Federal Housing Administration that ultimately defaulted.

These are the latest in a string of settlements that included a $16.7 billion payout by Bank of America in 2014 and $13 billion by JPMorgan Chase the year before.

Donald Trump harps on the notion that the government makes lousy deals. Can that be said of these bank settlements?

In one respect, they are a big improvement in the terms on which the feds resolved cases of corporate malfeasance in the past. Compelling companies to cough up billions of dollars begins to bring enforcement into the 21st Century. By comparison, regulatory agencies such as OSHA, bound by outdated legislation, are still fining companies only a few thousand dollars for serious violations.

The magnitude of the bank settlements is lessened by the fact, as U.S. PIRG tirelessly points out, that some portions of the payouts are tax deductible. Even so, the after-tax costs can have an impact. For example, Deutsche Bank, which last year had to pay out some $2.5 billion to settle charges relating to manipulation of the LIBOR interest rate index (and earlier settled a toxic securities case for $1.9 billion), recently cited legal costs as a key factor in announcing an annual loss of more than $7 billion.

The big U.S. banks, however, remain quite profitable and have had little difficulty handling their settlement costs, parts of which are stretched out over years. Their punishment has entailed limited pain.

By all rights, the discussion of this issue should not be framed simply in terms of dollars. We should also be talking about the appropriate length of the prison sentences for the banking executives who should have been personally prosecuted for the abuses.

Unfortunately, the type of criminal justice reform now being discussed for street offenses has already been in effect for many years with regard to white collar crime. Corporate crooks do not have to worry about mandatory minimums, given that they are rarely prosecuted at all. The decriminalization being discussed for the drug trade has long been the norm for the more respectable branches of commerce.

Even if the political will were present, it is too late to begin prosecuting those responsible for the financial meltdown. Yet there is little doubt that new frauds are in the works and will eventually break out into the open. Unless things change, the culprits will once again beat the rap. And that’s a bad deal for the rest of us.

Too Big to Be Honest

Thursday, January 14th, 2016

breakingupFor a long time the big financial institutions of the United States had an unrelenting urge to grow bigger. Acting on the principle that only the big would survive, banks and related entities spent the 1990s and the early 2000s gobbling up one another at a furious pace. The result was a small group of mega-institutions such as Citigroup and Bank of America that nearly brought down the whole financial system in 2008.

Federal regulators declined to break up the giants, which in recent years have grown only larger. But now some of the rules put in place in the wake of the meltdown are having the desired effect. Some major financial players are deciding to split themselves up in the hope of evading the more stringent capital requirements imposed on companies designated as systemically important (SiFi) institutions.

The latest firm to bow to this pressure is insurance behemoth MetLife, which just announced it is exploring a spinoff of its retail life and annuity business in the U.S. into a new presumably non-SiFi company. The move comes in the wake of moves by General Electric to dismantle large parts of its huge GE Capital business. Among the businesses that contributed to GE Capital’s heft was the banking operation it purchased from MetLife in 2011 as part of a previous move by the insurer to reduce its regulatory oversight.

Now other large insurers such as Prudential Financial and American International Group, the latter the recipient of a $180 billion federal bailout, may take similar steps. Apart from the regulatory pressures, AIG has been dealing with breakup calls from investors such as John Paulson and Carl Icahn, who dubbed it “too big to succeed.”

It remains to be seen whether the big banks will succumb to the breakup. For the moment they are resisting, but that’s the stance MetLife had long maintained. Their sagging stock prices make them susceptible to a move by someone like Icahn.

It’s gratifying to see regulation working as designed to make the country less vulnerable to large reckless institutions and a bit less enthralled with financialization. GE’s announcement that it is moving its headquarters to Boston is part of its retreat from finance.

Yet more still needs to be done to get the banks to clean up their act. Stricter capital rules are fine, but the likes of B of A and JPMorgan Chase need to feel more pressure to obey the law. They’ve had to cough up larger and larger financial settlements and in a few cases have even had to plead guilty to criminal charges. Yet they haven’t gotten the message.

Perhaps what’s needed are “honesty requirements” to go along with the more stringent capital requirements. In other words, banks that break the law would have to sell off the businesses involved in the misconduct. This would accelerate the move away from overly large financial institutions and hopefully put more operations in the hands of firms that are willing to play by the rules.

———-

Note: the Dirt Diggers Digest Enforcement page, which provides links to the compliance data posted by more than 50 federal regulatory agencies, has just been updated and expanded.

The 2015 Corporate Rap Sheet

Thursday, December 17th, 2015

gotojailThe ongoing corporate crime wave showed no signs of abating in 2015. BP paid a record $20 billion to settle the remaining civil charges relating to the Deepwater Horizon disaster (on top of the $4 billion in previous criminal penalties), and Volkswagen is facing perhaps even greater liability in connection with its scheme to evade emission standards.

Other automakers and suppliers were hit with large penalties for safety violations, including a $900 million fine (and deferred criminal prosecution) for General Motors, a record civil penalty of $200 million for Japanese airbag maker Takata, penalties of $105 million and $70 million for Fiat Chrysler, and $70 million for Honda.

Major banks continued to pay large penalties to resolve a variety of legal entanglements. Five banks (Citigroup, JPMorgan Chase, Barclays, Royal Bank of Scotland and UBS) had to pay a total of $2.5 billion to the Justice Department and $1.8 billion to the Federal Reserve in connection with charges that they conspired to manipulate foreign exchange markets. The DOJ case was unusual in that the banks had to enter guilty pleas, but it is unclear that this hampered their ability to conduct business as usual.

Anadarko Petroleum agreed to pay more than $5 billion to resolve charges relating to toxic dumping by Kerr-McGee, which was acquired by Anadarko in 2006. In another major environmental case, fertilizer company Mosaic agreed to resolve hazardous waste allegations at eight facilities by creating a $630 million trust fund and spending $170 million on mitigation projects.

These examples and the additional ones below were assembled with the help of Violation Tracker, the new database of corporate misconduct my colleagues and I at the Corporate Research Project of Good Jobs First introduced this year. The database currently covers environmental, health and safety cases from 13 federal agencies, but we will be adding other violation categories in 2016.

Deceptive financial practices. The Consumer Financial Protection Bureau fined Citibank $700 million for the deceptive marketing of credit card add-on products.

Cheating depositors. Citizens Bank was fined $18.5 million by the CFPB for pocketing the difference when customers mistakenly filled out deposit slips for amounts lower than the sums actually transferred.

Overcharging customers. An investigation by officials in New York City found that pre-packaged products at Whole Foods had mislabeled weights, resulting in grossly inflated unit prices.

Food contamination. In a rare financial penalty in a food safety case, a subsidiary of ConAgra was fined $11.2 million for distributing salmonella-tainted peanut butter.

Adulterated medication. Johnson & Johnson subsidiary McNeill-PPC entered a guilty plea and paid $25 million in fines and forfeiture in connection with charges that it sold adulterated children’s over-the-counter medications.

Illegal marketing. Sanofi subsidiary Genzyme Corporation entered into a deferred prosecution agreement and paid a penalty of $32.6 million in connection with charges that it promoted its Seprafilm devices for uses not approved as safe by the Food and Drug Administration.

Failure to report safety defects. Among the companies hit this year with civil penalties by the Consumer Product Safety Commission for failing to promptly report safety hazards were: General Electric ($3.5 million fine), Office Depot ($3.4 million) and LG Electronics ($1.8 million).

Workplace hazards. Tuna producer Bumble Bee agreed to pay $6 million to settle state charges that it willfully violated worker safety rules in connection with the death of an employee who was trapped in an industrial oven at the company’s plant in Southern California.

Sanctions violations. Deutsche Bank was fined $258 million for violations in connection with transactions on behalf of countries (such as Iran and Syria) and entities subject to U.S. economic sanctions.

Air pollution. Glass manufacturer Guardian Industries settled Clean Air Act violations brought by the EPA by agreeing to spend $70 million on new emission controls.

Ocean dumping. An Italian company called Carbofin was hit with a $2.75 million criminal fine for falsifying its records to hide the fact that it was using a device known as a “magic hose” to dispose of sludge, waste oil and oil-contaminated bilge water directly into the sea rather than using required pollution prevention equipment.

Climate denial. The New York Attorney General is investigating whether Exxon Mobil deliberately deceived shareholders and the public about the risks of climate change.

False claims. Millennium Health agreed to pay $256 million to resolve allegations that it billed Medicare, Medicaid and other federal health programs for unnecessary tests.

Illegal lobbying. Lockheed Martin paid $4.7 million to settle charges that it illegally used government money to lobby federal officials for an extension of its contract to run the Sandia nuclear weapons lab.

Price-fixing. German auto parts maker Robert Bosch was fined $57.8 million after pleading guilty to Justice Department charges of conspiring to fix prices and rig bids for spark plugs, oxygen sensors and starter motors sold to automakers in the United States and elsewhere.

Foreign bribery. Goodyear Tire & Rubber paid $16 million to resolve Securities and Exchange Commission allegations that company subsidiaries paid bribes to obtain sales in Kenya and Angola.

Wage theft. Oilfield services company Halliburton paid $18 million to resolve Labor Department allegations that it improperly categorized more than 1,000 workers to deny them overtime pay.

Replacing Pinstripes with Prison Jumpsuits

Thursday, August 20th, 2015

Goodwin-1-e1440025102463-225x300We’ve just been treated to the rare sight of a corporate executive pleading guilty to criminal charges stemming from actions that harmed the public. This outcome was particularly satisfying given that the case was one that symbolized much of what is wrong with U.S. business and regulatory practices.

The culprit is Gary Southern, who was at the center of an incident last year in West Virginia whose details, I wrote at the time, sounded a parody: the company responsible for a toxic chemical leak into the Elk River that contaminated the water supply of hundreds of thousands of people and sickened many turned out to be named Freedom Industries and had been cofounded by a two-time convicted felon.

That felon was Carl Lemley Kennedy II, who was apparently no longer active in the company by the time the spill occurred. The man who had taken over was Southern, who is now a felon as well thanks to his plea on charges of violating the federal Clean Water Act. Five other Freedom executives had earlier admitted guilt and negligence in connection with an accident that U.S. Attorney Booth Goodwin (photo) called “completely preventable.” Southern faces up to three years in prison.

Goodwin had rejected calls to focus on restitution to the community and insisted on seeking prison time for Southern et al. “Executives are used to writing checks,” he said. “It sends a stronger message if they have to trade their three-piece suits for a prison jumpsuit.”

A similar get-tough-on-business-crime attitude was recently displayed by Manhattan District Attorney Cyrus Vance, who brought manslaughter charges against two construction managers (and the companies they worked for) in connection with the death of a worker earlier this year in an accident that occurred after the managers had, Vance alleged, ignored repeated warnings from inspectors about unsafe conditions on the site.

Let’s hope Goodwin’s message also gets through to prosecutors bringing cases against companies with a much bigger footprint than that of Freedom Industries and the New York construction firms. For a long time, large corporations and their top executives seemed to be immune from criminal prosecutions, no matter how serious the offense.

The Justice Department has started to give in to the pressure and get some big companies to plead guilty to criminal offenses, as occurred in May in a case involving allegations against Citicorp, JPMorgan Chase and other large banks in connection with the manipulation of foreign exchange markets.

Now it’s time for prosecutors to take the next step and bring individual criminal charges against Fortune 500 top executives involved in serious misconduct.

There’s no guarantee that a criminal conviction will completely reform a wayward businessperson. The Wall Street Journal has a piece about an accounting executive who, after being convicted of embezzlement and banned for life from the accounting profession, altered his name slightly (changing Stephen to Steven and adopting a different middle name) and went on providing accounting services with bogus credentials. The SEC eventually caught on and is going after him in court.

Yet we need to see whether individual prosecutions of top executives works. One way or another, we’ve got a find a way to bring an end to the corporate crime wave.

Business Crime Simple and Complex

Thursday, August 13th, 2015

thumbonscaleMuch of the corporate misconduct of the past decade has involved complicated schemes involving the likes of mortgage-backed securities and credit default swaps. A recent announcement by the Consumer Financial Protection Bureau is a reminder that old-fashioned business thievery is still very much with us.

Citizens Bank will pay $18.5 million to settle CFPB allegations that it routinely pocketed the difference when customers mistakenly filled out deposit slips for amounts lower than the sums actually transferred. Taking advantage of the carelessness of others added up for the bank: $11 million of the payment by Citizens will consist of refunds, with the rest representing penalties imposed by the CFPB under its powers granted by the industry-vilified Dodd-Frank Act.

The under-crediting attributed to Citizens is the flip side of the overcharging that is surprisingly common among large retailers. Whole Foods is facing a shareholder lawsuit and sinking sales in the wake of allegations by the New York City Department of Consumer Affairs that its local stores were systematically and egregiously overcharging customers for pre-packaged foods. The agency found that: “89 percent of the packages tested did not meet the federal standard for the maximum amount that an individual package can deviate from the actual weight, which is set by the U.S. Department of Commerce. The overcharges ranged from $0.80 for a package of pecan panko to $14.84 for a package of coconut shrimp.” The company admitted it had made “mistakes.”

In February, Target paid $3.9 million to settle allegations by half a dozen district attorneys in California that prices charged at the register were higher than those posted in the aisles.

In April, Wal-Mart was hit with a proposed class action lawsuit alleging that the company overcharged customers at its vision centers by inflating insurance co-pay amounts.

Earlier this month, Genuine Parts agreed to pay $338,000 to settle allegations by the San Diego District Attorney that its several of its NAPA Auto Parts stores were overcharging customers.

Cases such as these belie the notion that “thumb on the scale” types of simple cheating are mainly to be found among small businesses. Large companies are apparently inclined to engage in both simple and complex misdeeds.

Citizens Bank symbolizes the link between the different types of misconduct. The company is a subsidiary of the Royal Bank of Scotland, which has been deeply involved in a variety of complex financial scandals.

Earlier this year, it pleaded guilty to criminal charges of conspiring to fix foreign currency rates, along with three other major banks. RBS was fined $395 million (and another $274 million by the Federal Reserve) and put on probation for three years. The SEC gave it a waiver from a rule that would have barred it from remaining in the securities business.

In 2013 RBS had to pay $153 million to settle charges that it misled investors in a 2007 offering of subprime residential mortgage-back securities. That same year, it paid $612 million to settle civil and criminal charges that it was involved in the manipulation of the LIBOR interest rate index.

Whether simple or complex, corporate wrongdoing needs to be prosecuted aggressively.

Convictions Without Consequences

Thursday, May 21st, 2015

get_out_of_jail_freeIn the years following the financial meltdown, corporate critics complained that the big banks were not facing serious legal consequences for their misconduct. They were being allowed to essentially buy their way out of jeopardy through financial settlements under which they admitted no wrongdoing.

In 2012 the Justice Department gave in to the pressure and extracted a guilty plea, but it was made by an obscure subsidiary of a foreign bank, Switzerland’s UBS, to resolve a charge of felony wire fraud in connection with the long-running manipulation of LIBOR benchmark interest rates. The plea seemed to do little to impede UBS’s operations. The bank dodged one serious consequence when it received an exemption from the Labor Department from a rule that should have disqualified it from continuing to serve as an investment advisor for pension funds.

Things would be different, critics said, when a criminal conviction involved a parent company. Last year, that happened when another Swiss bank, Credit Suisse, pleaded guilty to conspiracy charges of assisting U.S. taxpayers in dodging taxes by filing false returns with the Internal Revenue Service. Subsequently, Credit Suisse applied for its own exemption from the Labor Department; a decision is pending but is likely to go in the bank’s favor.

Now, at last, the Justice Department has gotten major two major U.S. banks — Citicorp and JPMorgan Chase — to plead guilty to something, which turned out to be felony charges of conspiring to manipulate foreign exchange markets. Two foreign banks — Barclays and Royal Bank of Scotland — also agreed to guilty pleas in the case.

The four financial institutions will together pay criminal fines of just over $2.5 billion. Additional fines were assessed by their regulator, the Federal Reserve.

It’s not clear they will suffer much more than those easily affordable financial penalties. Along with likely exemptions from the Labor Department, the banks have already been granted waivers from SEC rules barring criminals from engaging in the securities business. The banks will be on probation for three years, but keep in mind that BP was on probation at the time of the Gulf of Mexico disaster.

A somewhat higher hurdle may be faced by UBS, which the Justice Department announced has entered a new guilty plea (this time by the parent company) after being found to be in breach of the 2012 non-prosecution agreement it signed when the Japanese subsidiary pleaded guilty.

While newly designated criminals such as Citibank and JPMorgan can claim they will never break the law again, UBS is already found to have violated its commitment to be law-abiding by participating in the foreign exchange conspiracy and engaging in other forms of misconduct.

Taken together, all these developments illustrate the farce that is law enforcement when large corporations are involved. For years they were freed from serious consequences through the use of deferred- and non-prosecution agreements. The size of the financial settlements they had to pay rose into the billions, but these were still affordable costs of doing business.

Now corporations are starting to plead guilty to felony charges, but the practical implications of those convictions are being undermined by regulatory agencies. Having a criminal record is not pleasing to corporations, but if they can continue to do business as usual, they will learn to live with that stigma.

When street crime was on the rise a few decades ago, public officials fell over themselves to enact harsh punishments. Now is the time for a serious discussion of how to get tough on crime in the suites.

—————

New in Corporate Rap Sheets: Peabody Energy. The “Exxon of Coal” fights CO2 regulation and pushes climate denial.

Bailouts and Bad Actors

Thursday, March 5th, 2015

moneybagsontherunNewly released transcripts of the 2009 meetings of the Federal Reserve’s open market committee show that monetary policymakers were still agonizing over whether they were doing enough to stabilize the teetering global financial system.

These documents have a special interest for me because, as I discussed in last week’s Digest, my colleagues and I at Good Jobs First recently collected a great deal of data about the Fed’s special bailout programs in 2008 and 2009 as part of the extension of our Subsidy Tracker database into the federal realm. The Fed’s info is part of the more than 160,000 entries we have amassed from 137 federal programs of various kinds. Subsidy Tracker 3.0 will go public on March 17.

In last week’s post I mentioned that the Fed programs involved the outlay of some $29 trillion (yes, trillion) and that the totals for several large banks (Bank of America, Citigroup, Morgan Stanley and JPMorgan Chase ) each exceeded $1 trillion. I pointed out that these totals referred to loan principal and did not reflect repayments (information on which is not readily available).

What I also should have pointed out is that some of the Fed lending consisted of relatively short-term loans that were often rolled over. In other words, the actual amount outstanding at any given time was considerably lower than the eye-popping trillion dollar figures. That’s not to say that the amounts were chicken feed. It’s safe to say that the loan totals were in the hundreds of billions of dollars, and here again company-specific amounts are not available.

This is still high enough to justify the point I was making about the bailout amounts far outstripping the sums these banks have been paying out in settlements with the Justice Department to resolve allegations about investor deception in the sale of what turned out to be toxic securities in the run-up to the financial meltdown. And the amounts still justify anger at the current crusade by the big banks to weaken the Dodd-Frank regulatory safeguards adopted by the same government that bailed them out.

What is also worth pointing out is that the bad actor-bailout recipients are not limited to the big U.S. banks. Large totals also turn up for major European banks that have been involved in their own legal scandals in recent years. The biggest foreign recipient of Fed support turns out to be Barclays, which has an aggregate loan amount (including rollover loans and excluding repayments) of more than $900 billion. Next is Royal Bank of Scotland with more than $600 billion and Credit Suisse with more than $500 billion.

In 2012 Barclays had to pay $450 million to U.S. and European regulators to settle allegations that it manipulated the LIBOR interest rate index. The following year Royal Bank of Scotland had to pay $612 million to settle similar allegations. In 2014 Credit Suisse had to pay $2.6 billion in penalties to settle Justice Department charges that it conspired to help U.S. taxpayers dodge federal taxes. This was a rare instance in which a large company actually had to plead guilty to a criminal charge.

The frustrating truth is that the global financial system is dominated by big banks that seem to have little respect for the law and for financial regulation, but they do not hesitate to turn to government when they need to be rescued from their own excesses.

Banks Bite the Hand that Rescued Them

Thursday, February 26th, 2015

moneybags_handoutInvestment bank Morgan Stanley has disclosed that it will pay only $2.6 billion to settle U.S. Justice Department allegations that it deceived investors in the sale of toxic securities in the run-up to the financial meltdown.

I say “only” because the amount is substantially lower than the figures paid by Bank of America ($16.7 billion), JPMorgan Chase ($13 billion) and Citigroup ($7 billion) in similar cases. Thanks to the efforts of groups such as U.S. PIRG, we know that these amounts are less onerous than they appear because the companies are often allowed to deduct the payouts from their corporate income tax obligations.

My colleagues and I at Good Jobs First have been assembling data that does more to put the payouts in perspective. As part of an expansion of our Subsidy Tracker database to the federal level, we obtained information on the massive bailout programs implemented by the Federal Reserve in 2008 to stabilize the teetering financial system by purchasing toxic assets on the books of financial institutions and by serving as a lender of last resort.

These programs, with esoteric names such as the Term Auction Facility, the Term Asset-Backed Securities Loan Facility and the Term Securities Lending Facility, are not as well known as the Treasury Department’s Troubled Asset Relief Program, but the amounts involved are eye-popping. A 2011 paper by James Fulkerson of the University of Missouri-Kansas City estimates that the Fed made bailout commitments worth a total of more than $29 trillion. Yes, that’s trillion with a t.

We’ve been going through the recipient lists the Fed (reluctantly) made public for 11 bailout programs to match the entities to their parent companies. We’re not quite done with that process, but it appears that the totals for a few large banks, including Bank of America, Citigroup and JPMorgan Chase as well as Morgan Stanley, will end up being in excess of $1 trillion each (excluding repayment amounts). Our final figures will be released March 17, both in what we are calling Subsidy Tracker 3.0 and in an accompanying report.

It’s already clear that the settlement amounts paid by the banks (especially in after-tax terms) have been easily absorbed as costs of doing business. The Fed bailout data shows that another reason the banks have been little fazed by their legal expenses is that they received government assistance worth a thousand times more during their time of grave vulnerability in 2008 and 2009 — vulnerability that was largely of their own making due to reckless securitization of subprime mortgages and consumer loans.

After Lehman Brothers collapsed in 2008, the Fed was apparently willing to spare no expense in rescuing the other big financial players. Its efforts ensured the survival of the big banks that are riding high today. Perhaps the top executives of these banks should keep this fact in mind before criticizing the modest regulations put in place to save them (and us) from their excesses.

—————-

New in Corporate Rap Sheets: Entergy, the utility that has bet heavily on nukes and engages in creative billing.

Another Chance to Punish HSBC

Thursday, February 12th, 2015

swissleaksIt’s reassuring that the Justice Department is reportedly pushing a group of big banks, including Citigroup and JPMorgan Chase, to plead guilty to felony counts in connection with their brazen manipulation of the foreign currency market.

Yet Justice also needs to undo the damage done by its ill-advised 2012 decision to enter into a deferred prosecution agreement with HSBC, which was allowed to pay $1.9 billion in settlements  rather than having to plead guilty to charges that it helped drug traffickers and terrorist groups evade money-laundering restrictions. Those practices had been detailed in a 300-page report by the U.S. Senate’s Permanent Subcommittee on Investigations, whose chair at the time, Sen. Carl Levin, called HSBC’s compliance culture “pervasively polluted for a long time.” A subsequent Matt Tiabbi Rolling Stone article about HSBC’s misdeeds quoted former Senate investigator Jack Blum as saying: “They violated every goddamn law in the book.”

The key prosecutor in the 2012 case was Loretta Lynch, the U.S. Attorney for the Eastern District of New York and now President Obama’s choice to succeed Eric Holder as Attorney General. The deal is back in the news in connection with extraordinary revelations about the role of HSBC’s Swiss private banking unit in abetting widespread tax evasion by thousands of wealthy individuals from around the world.

The International Consortium of Investigative Journalists (ICIJ), working in concert with news organizations around the world, adds another major dimension to the misconduct at HSBC. What ICIJ calls its Swiss Leaks project is based on a vast amount of internal bank data that former HSBC technology employee Hervé Falciani provided to tax authorities in various countries in 2010. A French official later re-leaked the data to Le Monde, whose staffers realized they had more information that they could possibility research on their own and so enlisted ICIJ and others, including 60 Minutes in the U.S., to join in the fun.

All this amounts to one of the most remarkable examples ever of collaborative investigative journalism on a global scale. The ICIJ site has links to investigations published not only in Western Europe but also in countries ranging from Ecuador and Argentina to Egypt and India. The geographic diversity stems from the fact that the leaked data relates to more than 100,000 HSBC clients in some 200 countries.

ICIJ takes pains to point out that there may be legitimate reasons for these people to have accounts in Switzerland, but it is clear that a substantial number of the clients were using them to conceal income from tax collectors. They also included individuals involved in unsavory pursuits such as arms trafficking, blood diamonds and bribery.

Some of the governments that received the data from Falciani have already begun bringing cases against individuals, but the revelations are also causing crises for some governments themselves. This is especially so in Britain, where Prime Minister David Cameron is under fire for having chosen a former HSBC executive to serve as a minister.

Even more precarious is the position of HSBC itself, which stands accused of not just allowing rich people to open the secret accounts but also of actively assisting their tax dodging. The Guardian, for instance, is reporting that HSBC contacted clients to market techniques that would allow them to evade a system under which the bank was supposed to collect a sort of withholding tax on the secret accounts on behalf of European Union revenue authorities.

This brings things back to Loretta Lynch, who is not yet confirmed by the Senate but who is already facing pressure from the likes of Elizabeth Warren to come down harder on HSBC this time around. She should give in to those pressures.

Holder’s departure from the Justice Department creates an opportunity to end the shameful practice of letting unscrupulous large companies buy their way out of serious legal jeopardy with payments, which despite growing in size still do little to deter ongoing corporate crime.

Also see my updated Corporate Rap Sheet on HSBC.

The 2014 Corporate Rap Sheet

Wednesday, December 31st, 2014

gotojailThe bull market in corporate crime surged in 2014 as large corporations continued to pay hefty fines and settlements that seem to do little to deter misbehavior in the suites. Payouts in excess of $1 billion have become commonplace and some even reach into eleven figures, as seen in the $16.65 billion settlement Bank of America reached with the Justice Department to resolve federal and state claims relating to the practices of its Merrill Lynch and Countrywide units in the run-up to the financial meltdown.

This came in the same year in which BofA reached a $9.3 billion settlement with the Federal Housing Finance Agency concerning the sale of deficient mortgage-backed securities to Fannie Mae and Freddie Mac and in which the Consumer Financial Protection Bureau ordered the bank to pay $727 million to compensate consumers harmed by deceptive marketing of credit card add-on products.

The BofA cases helped boost the total penalties paid by U.S. and European banks during the year to nearly $65 billion, a 40 percent increase over the previous year, according to a tally by the Boston Consulting Group reported by the Wall Street Journal.

Among the other big banking cases were the following:

  • France’s BNP Paribas pleaded guilty to criminal charges and paid an $8.9 billion penalty to U.S. authorities in connection with charges that it violated financial sanctions against countries such as Sudan and Iran.
  • Citigroup paid $7 billion to settle federal charges relating to the packaging and sale of toxic mortgage-backed securities.
  • U.S. and European regulators fined five banks — JP Morgan Chase, Citigroup, HSBC, Royal Bank of Scotland and UBS — a total of more than $4 billion after accusing them of conspiring to manipulate the foreign currency market.
  • Credit Suisse pleaded guilty to one criminal count of conspiring to aid tax evasion by U.S. customers and paid a penalty of $2.6 billion.
  • JPMorgan Chase paid $1.7 billion to victims of the Ponzi scheme perpetuated by Bernard Madoff to settle civil and criminal charges that it failed to alert authorities about large numbers of suspicious transactions made by Madoff while it was his banker.

Banks were not the only large corporations that found themselves in legal trouble during the year. The auto industry faced a never-ending storm of controversy over its safety practices. Toyota was hit with a $1.2 billion criminal penalty by U.S. authorities for concealing defects from customers and regulators. The National Highway Traffic Safety Administration fined General Motors $35 million (the maximum allowable) for failing to promptly report an ignition switch defect that has been linked to numerous deaths. Hyundai and its subsidiary Kia paid $300 million to settle allegations that they misstated the greenhouse gas emissions of their vehicles.

Toxic dumping. Anadarko Petroleum paid $5.1 billion to resolve federal charges that had been brought in connection with the clean-up of thousands of toxic waste sites around the country resulting from decades of questionable practices by Kerr-McGee, now a subsidiary of Anadarko.

Pipeline safety. The California Public Utilities Commission proposed that $1.4 billion in penalties and fined be imposed on Pacific Gas & Electric in connection with allegations that the company violated federal and state pipeline safety rules before a 2010 natural gas explosion that killed eight people.

Contractor fraud. Supreme Group BV had to pay $288 million in criminal fines and a $146 million civil settlement in connection with allegations that it grossly overcharged the federal government while supplying food and bottled water to U.S. personnel in Afghanistan.

Bribery. The French industrial group Alstom consented to pay $772 million to settle U.S. government charges that it bribed officials in Indonesia and other countries to win power contracts. Earlier in the year, Alcoa paid $384 million to resolve federal charges that it used a middleman to bribe members of Bahrain’s royal family and other officials to win lucrative contracts from the Bahraini government.

Price-fixing. Japan’s Bridgestone Corporation pleaded guilty to charges that it conspired to fix prices of anti-vibration rubber auto parts and had to pay a criminal fine of $425 million.

Defrauding consumers. AT&T Mobility had to pay $105 million to settle allegations by the Federal Trade Commission and the Federal Communications Commission that it unlawfully billed customers for services without their prior knowledge or consent.

The list goes on. Whether the economy is strong or weak, many corporative executives cannot resist the temptation to break the law in the pursuit of profit.

Note: For fuller dossiers on some of the companies listed here, see my Corporate Rap Sheets.