Some banks ‘too big to prosecute'

  • Photo

By Simon Johnson


Money laundering by large international banks has reached epidemic proportions, and U.S. authorities are supposedly looking into Citigroup and JPMorgan Chase & Co. Gov. Jerome Powell, on behalf of the Board of Governors of the Federal Reserve System, recently testified to Congress on the issue. International criminals needn’t worry. Complicit bankers have nothing to fear from the U.S. justice system.

There may be fines, but the largest financial companies are unlikely to face criminal actions or meaningful sanctions. The Department of Justice has decided that these banks are too big to prosecute to the full extent of the law, though why this also gets employees and executives off the hook remains a mystery. And the Federal Reserve refuses to rescind bank licenses, undermining the credibility and stability of the financial system.

To see this perverse incentive program in action, consider the recent case of a big money-laundering bank that violated a deferred prosecution agreement with the Justice Department, openly broke U.S. securities law and stuck its finger in the eye of the Fed. This is what John Peace, the chairman of Standard Chartered Plc, and his colleagues got away with March 5. The meaningful consequences for him or his company are zero.

Standard Chartered has long conceded that it broke U.S. money-laundering laws in spectacular and prolonged fashion. In late 2012, it entered into a deferred prosecution agreement with the Justice Department, agreeing to pay an essentially painless fine.

Then, on a March 5 conference call with investors, Peace denied that his bank and its employees had willfully broken U.S. law. This statement was a clear breach of the deferred prosecution agreement. It took the bank 11 business days, not the required five, to issue a retraction. The Justice Department and Standard Chartered rebuffed my requests for why.

Why hasn’t Standard Chartered’s board forced out Peace as a result of this bungling? The only possible explanation is that the board thinks Peace did nothing wrong.

At a recent congressional hearing, Sen. Elizabeth Warren, D-Mass., asked what it would take for a company to lose its U.S. banking license. Powell replied that pulling a bank’s license may be “appropriate when there’s a criminal conviction.”

I have not found any cases of the Fed ordering the termination of banking activities in the U.S. for a foreign bank after a criminal conviction for money laundering. Nor has the Fed taken action to shut down a bank that signed a deferred prosecution agreement.

If you or I tried to launder money, we would probably go to jail. But when the employees of a very big bank do so, there are no meaningful consequences.

Simon Johnson, a professor at the MIT Sloan School of Management. Comments:

Like what you're reading?

We make it easy to stay connected:

to our email newsletters
Download our free apps

Give us feedback

Have you found an error or omission in our reporting? Tell us here.
Do you have a story idea we should look into? Tell us here.