As criminal misconduct in the financial sector continues (e.g., manipulation of benchmark interest rates and money-laundering), the US public still cannot get a straight answer out of the Justice Department about the lack of pros
Image via flickr user Andrés Nieto Porrasecutions. At GAP, we suspect that there is a straight line between the impunity enjoyed by Wall St. in the wake of the systemic fraud that caused the financial crisis of 2008 and the hands-off position of the Justice Department in these latest banking transgressions. Congress is starting to ask questions, though, and it may be unearthing the real answer.
The Justice Department remains evasive. First, Attorney General Eric Holder told Congress that Justice hesitated to prosecute banks deemed Too-Big-to-Fail (TBTF) because of the potential impact on the US economy. When that admissioncaused an uproar, he said Justice would prosecute, but the Department had to consider the economic fallout of a prosecution in making the decision to proceed – or not. Given that Justice Department attorneys are, after all, lawyers, and not social scientists, Holder explained that his staff consulted outside economic experts. On December 20, 2012, when announcing the settlement with UBS over rigging the LIBOR (London Inter-bank Overnight Rate), he said:
We reach out to experts outside of the Justice Department to talk about what are the consequences of actions that we might take, what would be the impact of those actions if we want to make particular prosecutive decisions or determinations with regard to a particular institution.
The Oversight Subcommittee of the House Financial Services Committee then asked for documents relating to these talks, and Peter Kadzik, Principal Deputy Assistant Attorney General, wrote in response. According to Kadzik, the Department was not “currently aware” of such consultations. Kadzik wrote that Justice consulted foreign and domestic regulators. When asked by Congress about those consultations, a spokesperson for the Treasury Department, home of most domestic regulators, essentially said that there were no such discussions.
All of this back and forth is set out in a memo from the Oversight Subcommittee to the House Financial Services Committee.
That’s when the Oversight Subcommittee held a hearing. The potential outcome of the event was important. Two questions were on the table:
- Why were there no prosecutions of the big banks involved in manipulating the LIBOR and other obvious criminal acts?
- Is the Justice Department misleading Congress about its decision-making?
James Cole, the Deputy Attorney General, was to testify as the sole witness. Before he could, though, the scandal involving surveillance of the Associated Press reporters broke, and Holder revealed that Cole was the responsible party at Justice. On the Friday before the Wednesday hearing, Justice pulled Cole as a witness and substituted Mythili Raman, the Assistant Attorney General, who was as yet untainted.
Raman did a credible job last Wednesday under difficult circumstances. The Republicans on the Committee focused their questions on the purported consultations about TBTF banks and the economic consequences of prosecuting them. During the questioning, Raman danced as fast as she could. The Democrats tried to give her a break so she could get her breath, pitching her softball questions about her impressive credentials and experience, but they couldn’t really help her much.
Maxine Waters did a star turn, though, asking why those arrested for possession of 50 grams of crack cocaine could get 10 year sentences, while banks that laundered billions in drug profits paid only fines. She was obviously referencing the HSBC case that the Justice Department settled without prosecuting either bank officials or the bank itself.
In the end, Raman couldn’t save the Justice Department. After ducking and weaving with all the agility she could muster, she, like Holder, contradicted herself. Numerous times she claimed that the Justice Department weighed the evidence and prosecuted based on facts – no matter who or what was on the other end of the indictment. However, she said, decisions about prosecution of systemically important financial institutions did take economic impact into account. But, she admitted, Justice cannot demonstrate the way in which the economic impact of a prosecution is considered.
Now, here at GAP, we know more or less how the federal bureaucracy works. If an agency seeks guidance from external experts on decisions of such import, someone selects the people to be consulted based on specific criteria, writes terms of reference, issues a contract, receives a report and integrates the report’s conclusions into the Department’s deliberations. If the consultations are confidential, specific officials meet, ask questions and document the answers. Notes are taken – and filed.
Around this question, though, there’s nothing. The Justice Department is not withholding documents, files or parts of them, the Assistant Attorney General claims. Rather, there are no documents. So either there were no consultations, or they were so ad hoc and off-the-record that they were little more than winks and nods among insiders.
This is important. Prosecutors in the US justice system enjoy a great deal of discretion. If we extrapolate from what we now know, we would have to conclude that when it came to seeking accountability for the criminal fraud that brought on the Great Recession of 2008 and 2009, our top prosecutors merely asked their friends in banking how disruptive a court case would be. At best, this is what they did. At worst, they did nothing. They simply declined to prosecute based on their own assumptions about the economic fallout, regardless of the evidence in specific cases.
More troubling is the knowledge that the assumptions of the top prosecutors at today’s Justice Department are probably not the same ones that an objective observer of the ongoing financial frauds in banking would have. In Washington, where you stand depends on where you sit, and the three top officials at the Justice Department have very comfortable positions in all the wrong places. Eric Holder, James Cole and Lanny Breuer are conflicted – in the legal sense of the term. The three of them come from (and have returned to) white-shoe, corporate defense law firms. Holder is a product of Covington and Burling; so is Lanny Breuer. Cole comes from Bryan Cave, a law firm paid approximately $20 million for the work Cole did as the Justice Department’s Independent Monitor at AIG from 2005 through 2009. It’s worth noting that while serving as the public’s eyes and ears on AIG’s Audit Committee and Board meetings in the years before and during the financial crisis of 2008, Cole apparently noticed nothing wrong.
This is how a justice system loses legitimacy. When the system demonstrates a pattern in its prosecutions that harms the powerless and protects the powerful – no matter what they do or how much they steal – something is terribly wrong. And Maxine Waters had that right.
Bea Edwards is Executive and International Director for the Government Accountability Project, the nation’s leading whistleblower protection and advocacy organization.