Calls For Executives To Be Held Accountable For Bank Failings
17 Sep 2015

After it was announced that five major banks had agreed to plead guilty to felony charges in the US, commentators have once again called for top executives to be held personally accountable.

On 20 May 2015 the Department of Justice announced that Citicorp, JPMorgan Chase & Co., Barclays PLC, and The Royal Bank of Scotland plc had agreed to plead guilty to conspiring to manipulate the price of US dollars and euros exchanged in the foreign currency exchange (‘FX’) spot market. The four banks had agreed to pay criminal fines totaling more than $2.5 billion. In addition, it was also announced that UBS AG had agreed to plead guilty to manipulating the London Interbank Offered Rate (‘LIBOR’) and other benchmark interest rates. UBS had entered into a non-prosecution agreement in December 2012 and they have now agreed to pay a $203 million criminal penalty for breaching that agreement.

Attorney General Lynch made the announcement along with Assistant Attorney General Bill Baer of the Justice Department’s Antitrust Division, Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, Assistant Director in Charge Andrew G. McCabe of the FBI’s Washington Field Office, and Director Aitan Goelman of the Commodity Futures Trading Commission’s Division. Attorney General Lynch stated that:

“Today’s historic resolutions are the latest in our ongoing efforts to investigate and prosecute financial crimes, and they serve as a stark reminder that this Department of Justice intends to vigorously prosecute all those who tilt the economic system in their favor; who subvert our marketplaces; and who enrich themselves at the expense of American consumers. The penalty these banks will now pay is fitting considering the long-running and egregious nature of their anticompetitive conduct.  It is commensurate with the pervasive harm done.  And it should deter competitors in the future from chasing profits without regard to fairness, to the law, or to the public welfare.”

Similarly, Assistant Attorney General Caldwell stated:

“The five parent-level guilty pleas that the department is announcing today communicate loud and clear that we will hold financial institutions accountable for criminal misconduct. And we will enforce the agreements that we enter into with corporations.  If appropriate and proportional to the misconduct and the company’s track record, we will tear up an NPA or a DPA and prosecute the offending company.”

Further details of the bank’s misconduct can be found in the DOJ’s press-release, which also includes links to copies of the five plea agreements. The press-release also gave details of the consequences for the the guilty pleas from the five financial institutions:

Citicorp, Barclays, JPMorgan, RBS and UBS have each agreed to a three-year period of corporate probation, which, if approved by the court, will be overseen by the court and require regular reporting to authorities as well as cessation of all criminal activity.  All five banks will continue cooperating with the government’s ongoing criminal investigations, and no plea agreement prevents the department from prosecuting culpable individuals for related misconduct.  Citicorp, Barclays, JPMorgan and RBS have agreed to send disclosure notices to all of their customers and counter-parties that may have been affected by the sales and trading practices described in the plea agreements.

Today, in connection with its FX investigation, the Federal Reserve also announced that it was imposing on the five banks fines of over $1.6 billion; and Barclays settled related claims with the New York State Department of Financial Services (DFS), the Commodity Futures Trading Commission (CFTC) and the United Kingdom’s Financial Conduct Authority (FCA) for an additional combined penalty of approximately $1.3 billion.  In conjunction with previously announced settlements with regulatory agencies in the United States and abroad, including the Office of the Comptroller of the Currency (OCC) and the Swiss Financial Market Supervisory Authority (FINMA), today’s resolutions bring the total fines and penalties paid by these five banks for their conduct in the FX spot market to nearly $9 billion.

What was missing from this announcement is of course any concrete consequences for any individuals at the top of the five banks in question. And this has not gone unnoticed, in two articles published on 27 May 2015 in theHuffington Post, ‘The Brazenly Illegal Behavior of Big Banks‘ and ‘If Corporations Are People, Some Crimes Deserve Capital Punishment’, commentators Frank Vogl and Nell Minnow argue that executives at such financial institutions should be held personally responsible.

In his article, Frank Vogl notes that:

The men that run the banks that are pleading guilty to crimes are not being personally prosecuted. They are not being fired. They continue to take home multi-million dollar pay checks. Their institutions are repeat offenders, yet they face no danger of losing their banking licenses — “Three Strikes and You’re Out” does not apply in the world of finance.

Mr Vogl goes on to argue that the culture of financial institutions where wrongdoing occurs will never be reformed “so long as they are run by people who turn a blind eye to crime and who ensure that their own positions and high incomes are safe”. He questions whether such individuals will ever realistically be put on trial and instead proposes that:

The executives who held high managerial positions at the times when the crimes were committed should be fired. Those members of the boards of directors who were also in their positions when the crimes were perpetrated should be ousted.

Nell Minnow, in her article ‘If Corporations Are People, Some Crimes Deserve Capital Punishment’, notes that after the announcement of the five plea agreements the US Securities and Exchange Commission granted “waivers to the financial institutions to enable them to continue to do business as usual, and the Labor Department has been asked to do the same”. Nell Minnow argues that if corporations are treated “as people when it comes to participation in the political process, then we have to treat them as people when they commit crimes”. Her proposals for holding top officers and executives to account go even further than Mr Vogl’s, she contends that:

The government should never settle a criminal case against a corporation unless:

  • The CEO, top executives, and, when appropriate, the members of the board make substantial personal contributions — not reimbursed by the company — to the fines that are imposed.
  • The government debars executives involved from serving on the boards of publicly traded companies. They have that authority but almost never use it, so board members who oversaw massive frauds and failures like Enron and the financial meltdown companies were allowed to continue to serve as directors.
  • In the case of the most severe violations, the government should impose capital punishment: forced dissolution or break-up.

What is clear is that if we are to prevent scandal after scandal in the world of banking then eventually something more that the imposition of corporate fines will be needed: soon the fines will simply come to be seen as another cost of doing business. If a changed banking culture is really our goal then real consequences need to be faced by individuals at the top.

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