Inside Financial Services

In DOJ’s Forex Settlement, Why Not Go After Individuals?

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From Bloomberg, this morning:



The U.S. government’s plan to extract criminal pleas from five global banks related to currency manipulation, along with penalties of billions of dollars, sounds harsh. It may also, say some former regulators and prosecutors, have little bite.

They might call it ‘Guilty Lite.’

The threat of criminal prosecution “may be kind of cheapened,” Harvey Pitt, a former chairman of the Securities and Exchange Commission, said of the settlements, which are expected to be rolled out concurrently. If “everybody is getting indicted or prosecuted, then you really haven’t created more and necessary respect for the law.” [Emph. added]

I’m not sure I see how this improves things. The Justice Department has of course been pilloried for years by bank critics for failing to bring criminal charges against big banks for their role in causing the mortgage meltdown, and so is desperate for a scalp. Except that now that the DOJ apparently has found criminal behavior at the banks (related to forex trading, not mortgage lending), the guilty pleas it’s getting is already being dismissed as a semi-sham. “Guilty Lite.” As I say, how does that make things better? The banks know the pleas won’t send them into an Arthur-Andersen-style death spiral, and the amount of money they’re set to pay out is nothing compared to the size of the mortgage-related settlements they’ve agreed to. All that’s happened, from what I can see, is that one of the DOJ’s most potent enforcement weapons is now seen as considerably less fearsome than it once was.

What’s more—and I know I dwell on this a lot, so humor me—what about the individuals who actually committed the criminal acts the banks are set to plead guilty to? If the Justice Department were really interested in deterring future bad behavior, the best thing it could do would be to go after them, too. I’m not at all familiar with the details of the banks’ forex practices that have come under scrutiny. But if people really did break the law, by all means throw the book at ‘em. But from what I read, that’s not happening any time soon, if ever. It’s hard not to come to the conclusion, then, that these coming forex pleas are less about vigilant law enforcement and more about settling old scores.

What do you think? Let me know!

4 Responses to “In DOJ’s Forex Settlement, Why Not Go After Individuals?”

  1. JimBob

    Seems like just a backdoor way to fund the government given they mainly crow about the $’s they get and not about any actual wrong-doing.

  2. etoleary

    Without individual prosecutions there’s little deterrent effect. You’d think DOJ would understand that.

  3. c smith

    Simple money laundering. Fed prints it, buys bonds from the banks with it, and they funnel it back via institutional penalties in the $ billions.

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