The DOJ's Double Standard

The public at large rails on those in Washington for going easy on our ‘too big to fail' banks for a host of clearly criminal practices.

Uncle Sam — that is the SEC, other regulators, and ultimately the Department of Justice — try to talk tough and hit an array of institutions with sizable fines but little really changes.

The public continues to see through the facade and lets Uncle Sam know it.

The ‘old man' decides he needs to really get tough and begins to mandate that institutions admit guilt as part of the settlement process. The first guilty party is Credit Suisse, then next up is BNP Paribas. Now we awake this morning to see that Germany's second largest lender, Commerzbank, is likely next in the crosshairs. Do you detect a pattern here? Bloomberg provides further transparency in reporting:

Commerzbank AG (CBK), Germany's second-largest lender, will probably be the next bank to resolve alleged U.S. sanctions violations, a person with knowledge of the matter said.

The Frankfurt-based firm may incur penalties of at least $500 million as part of a deferred-prosecution agreement with authorities as soon as summer in the U.S., the person said, asking not to be identified because the talks are confidential. Such agreements spare companies a felony conviction.

The probe is part of a U.S. crackdown on financial institutions for handling funds linked to blacklisted nations that led to a record $8.97 billion fine against BNP Paribas SA. (BNP) France's Credit Agricole SA (ACA) and Societe Generale SA (GLE), Germany's Deutsche Bank AG (DBK)and Italy's UniCredit SpA (UCG) are among other lenders being investigated by U.S. authorities.

The U.S. has brought at least 22 cases against financial firms since 2009 for doing business or handling funds linked to sanctioned countries, according to announcements on government websites.

Last week's $8.97 billion fine against BNP dwarfs the combined $4.9 billion levied against 21 other banks since U.S. President Barack Obama took office. Most of those cases targeted overseas banks, with less than $90 million in fines imposed on U.S. firms. In 2011, New York-based JPMorgan Chase & Co. paid $88.3 million to settle allegations over transactions involving Cuba, Iran and Sudan.

What is going on here?

Now certainly many US institutions have been fined for violations primarily within the securitization and distribution of shady mortgage transactions. But are we to think that our large domestic banks have not also been engaged in what ultimately appears to be money laundering practices to facilitate trade with rogue nations?

Really? Then explain this from a few years back.

How a Big US Bank Laundered Billions from Mexico's Murderous Drug Gangs

The bank in question? Wachovia which is now part of Wells Fargo. The story?

Criminal proceedings were brought against Wachovia, though not against any individual, but the case never came to court. In March 2010, Wachovia settled the biggest action brought under the US bank secrecy act, through the US district court in Miami. Now that the year's “deferred prosecution” has expired, the bank is in effect in the clear. It paid federal authorities $110m in forfeiture, for allowing transactions later proved to be connected to drug smuggling, and incurred a $50m fine for failing to monitor cash used to ship 22 tons of cocaine.

More shocking, and more important, the bank was sanctioned for failing to apply the proper anti-laundering strictures to the transfer of $378.4bn – a sum equivalent to one-third of Mexico's gross national product – into dollar accounts from so-called casas de cambio (CDCs) in Mexico, currency exchange houses with which the bank did business.

“Wachovia's blatant disregard for our banking laws gave international cocaine cartels a virtual carte blanche to finance their operations,” said Jeffrey Sloman, the federal prosecutor. Yet the total fine was less than 2% of the bank's $12.3bn profit for 2009. On 24 March 2010, Wells Fargo stock traded at $30.86 – up 1% on the week of the court settlement.

The conclusion to the case was only the tip of an iceberg, demonstrating the role of the “legal” banking sector in swilling hundreds of billions of dollars – the blood money from the murderous drug trade in Mexico and other places in the world – around their global operations, now bailed out by the taxpayer.

At the height of the 2008 banking crisis, Antonio Maria Costa, then head of the United Nations office on drugs and crime, said he had evidence to suggest the proceeds from drugs and crime were “the only liquid investment capital” available to banks on the brink of collapse.

Looks like Uncle Sam had little to no interest in getting truly tough with the domestic banks that he had bailed out but is now willing to play hardball with foreign institutions.

Can you say double standard? Is this any way to run a justice system let alone a country?

Navigate accordingly.

Larry Doyle

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