Federal prosecutors are moving closer to getting criminal charges brought against some of the world’s biggest banks, The New York Times reported Wednesday.
If the move leads to a guilty plea, it would represent the first such criminal admission of guilt from a major bank in more than two decades.
Washington and New York prosecutors have held meetings with regulators aimed at figuring out a way to bring criminal charges against so-called too-big-to-fail banks without damaging the economy or putting the banks out of business, lawyers briefed on the matter reportedly told the Times.
Two of the most advanced investigations are focused on Swiss bank Credit Suisse, for offering tax shelters to Americans, and France’s biggest bank, BNP Paribas, for doing business with countries the U.S. has blacklisted, according to the Times.
Representatives for BNP and Credit Suisse declined to comment for the Times report.
But on Wednesday, BNP warned investors that it may be hit with a fine in excess of the $1.1 billion it has set aside to cover litigation costs resulting from alleged sanction busting.
Prosecutors in Manhattan and Washington hope to obtain a criminal guilty plea from the parent company of BNP, which has a sizable investment bank in New York.
Lawyers briefed on the matter said prosecutors met in April with the bank’s American regulators, the Federal Reserve Bank of New York and Benjamin M. Lawsky, New York’s top financial regulator. Prosecutors involved in the investigation — Preet Bharara, the U.S. attorney in Manhattan; David O’Neil, the head of the Justice Department’s criminal division in Washington; and Cyrus Vance Jr., Manhattan district attorney — left the meeting feeling “reassured,” the Times reported.
Their plan was to impose harsh penalties against BNP, which has not yet been accused of any wrongdoing, and some of its employees — but to do so without revoking the bank’s license. The Fed’s board in Washington must approve the final decision.
Such investigations into American banks are “expected” but are currently “at an earlier stage,” according to the Times.
The cases will hinge on the cooperation of regulators charged with maintaining federal guidelines, which require prosecutors to weigh the broader economic consequences of bringing such charges against large banks.
American and European banks are divided among a patchwork of agencies in New York and Washington, so “while regulators might be philosophically aligned with prosecutors, some feel bound by rules that govern their response to criminal charges,” the Times said.
This dynamic has created a “gaping liability loophole that blameworthy companies are only too willing to exploit,” Bharara said in a recent speech to Wall Street lawyers.
Warnings of economic fallout and lost jobs have largely prevented the prosecution of big banks.
Ted Kaufman, a former U.S. senator from Delaware who worked on legislation to restore the credibility of financial markets in the aftermath of the last recession, wrote in Forbes last year that, historically at least, the punishment of executives themselves has not result in lasting damage to the economy. He cited the scores of executives who were jailed after the 2002 Enron collapse and the 1980s savings and loan scandal.
He said the behavior of some on Wall Street did lead directly to millions of Americans losing jobs or homes — and "we must do all we can to make sure this doesn't happen again.
"Criminal prosecutions are not just about punishing the guilty. They also send a message that we as a society will not allow similar misconduct in the future," Kaufman said.