
Four Banks, Including JPMorgan, Fined in Europe Over ‘Cartel’ Behavior - xlr8r
http://dealbook.nytimes.com/2014/10/21/4-banks-including-jpmorgan-fined-in-europe-over-cartel-behavior/?_php=true&_type=blogs&_r=0
======
rayiner
There are a lot of comments along the lines of "why are the fines so low" or
"why is nobody doing jail time?" And the answer to both those questions is:
stiffer punishment would require stronger proof. Cartel activity, like much
white collar crime in general, is extremely difficult to prosecute, because
the difference between totally legal conduct and illegal conduct comes down to
what people are thinking. Instead of being able to point to a huge stash of
drugs, cases come down to the fine points of "who knew what when" and "who
talked to who and about what."

To impose punitive fines or jail time, you need to bring criminal actions
where you need to prove beyond reasonable doubt cases where the proof is in
peoples' heads. Civil fines, on the other hand, have a much lower burden of
proof: more likely than not.[1] That's why civil penalties and deferred
prosecution agreements,[2] have become the tool of choice for regulators.

Frankly, you don't really want to live in a world where the government can
impose criminal penalties on businesses for such loose facts as these.
Understandably, banks aren't the most sympathetic defendants, but extrapolate
this reasoning to the tech industry. Should Bill Gates be in jail for his role
in the Microsoft antitrust activity? Should Eric Schmidt be in jail for his
role in the employee wage suppression collusion?

[1] This description is America centric but the operative law is roughly
similar in Europe.

[2] A deferred prosecution agreement is a settlement where a company pays a
fine, agrees not to do whatever bad thing it did, usually agrees to some
number of years of monitoring, in return for which the government defers
charges and eventually drops them if the monitoring period ends without
incident.

~~~
leoc
> Should Eric Schmidt be in jail for his role in the employee wage suppression
> collusion?

Er, why shouldn't he be? I can think of three main likely arguments why he
shouldn't:

i) what he did breached civil but not criminal law: if so then obviously he
shouldn't be in jail. I don't know whether that's the case though. I also
don't know if he is personally liable for civil damages, and if so why he
hasn't been chased for those. (And that's not going into the question of
whether his actions _should_ have been made criminal offences by law, and why
they haven't been.)

ii) the higher standard of evidence in criminal prosecutions, the first issue
you raised. This is of course a real issue in criminal cases, but—speaking as
a non-lawyer, non-expert who hasn't been following the story very closely—the
evidence on this matter doesn't look at all lacking to me. AFAICS, if Eric
Schmidt had been discussing a murder rather than salary collusion in the
communications discussed by [http://www.businessinsider.com/apple-google-
recruitment-emai...](http://www.businessinsider.com/apple-google-recruitment-
emails-lawsuit-2014-1) no-one would be likely to suggest that the evidence was
too weak for a criminal prosecution.

iii) Eric Schmidt is a nice person like us, and jail isn't _really_ for nice
people like us. I hope the egregiousness and total unacceptability of this
argument is clear to everyone without any need for explanation.

So, yes, why shouldn't Eric Schmidt be in jail?

As to the financial sector, while it is obviously difficult to prosecute many
financial crimes, I am not convinced that this is the primary explanation for
the shortage of convictions lately. I am reasonably convinced by the argument
[http://neweconomicperspectives.org/2014/10/liars-loans-
aint-...](http://neweconomicperspectives.org/2014/10/liars-loans-aint-rocket-
science.html) that similarly complex cases were successfully prosecuted in the
S&L scandal in the '80s, and that the primary difference between then and now
is lack of resources and political will.

~~~
tomp
> As to the financial sector, while it is obviously difficult to prosecute
> many financial crimes, I am not convinced that this is the primary
> explanation for the shortage of convictions lately.

One of the primary explanations is that banks have become "too big to fail",
and if you criminally charge a bank, you effectively make it fail. Basically,
banks are powerful enough to get away with murder.

[http://www.theguardian.com/business/2012/dec/11/hsbc-fine-
pr...](http://www.theguardian.com/business/2012/dec/11/hsbc-fine-prosecution-
money-laundering)

"Had the US authorities decided to press criminal charges, HSBC would almost
certainly have lost its banking licence in the US [...] The bank processed
cash for Mexico's Sinaloa cartel, regarded as the most powerful and deadly
drug gang in the world, among others."

~~~
toomuchtodo
> One of the primary explanations is that banks have become "too big to fail",
> and if you criminally charge a bank, you effectively make it fail.
> Basically, banks are powerful enough to get away with murder.

So give the FDIC more power and a larger fund to draw on for bank failures.
They already handle bank failures very very well, they'd be fantastic at
spinning down banks accused and convicted of criminal activities.

We dismantled Arthur Anderson for their complacency in the Enron criminial
enterprise. Why not banks?

~~~
rayiner
> We dismantled Arthur Anderson for their complacency in the Enron criminial
> enterprise. Why not banks?

And that was a terrible outcome. A huge, $10 billion a year corporation came
crashing down, with tons of people losing their jobs, all because of the
conduct of one team within the company that the rest of the enterprise had no
knowledge of or control over. For a conviction that was overturned on appeal!

~~~
toomuchtodo
If dismantling the organization isn't an option, and punishing individuals
isn't an option due to corporate liability limitations, where does that leave
us?

------
salesforce_wha
I wish -- just once -- there would be a story where a bank is actually
punished in a meaningful way.

Look at this way: A bank is fined $x for doing an action which generated $y.
If x < y, there is no incentive to stop any behavior. Further, it seems to be
the trend that y is far larger than x and this case proves it out.

The libor scandal cost the U.S. at least $6 billion in interest charges (y)
and another $4 billion just to unwind their positions. Whereas the banks have
only been fined $2.1 billion to date (x). When you take inflation into account
and the fact that this is a world wide financial scandal (libor influences a
$350 trillion derivatives market), the math is skewed even heavier in the
direction of banks having had a sizable revenue stream after the fines.

~~~
easytiger
> The libor scandal cost the U.S. at least $6 billion in interest charges (y)
> and another $4 billion just to unwind their positions.

Got a reference for that? Not being a dick just interested to read more. For
that amount of damage to have occured in < 10 years it would require
borrowingin the hundreds of billions wouldn't it?

Libor is an interesting and important concept. An open way to show its
calculation should exist.

~~~
salesforce_wha
No problem, I got it from Wikipedia which in return cites a bloomberg article.
[http://en.wikipedia.org/wiki/Libor#Aftermath](http://en.wikipedia.org/wiki/Libor#Aftermath)

Finding actual damages proved really difficult on this subject.

~~~
easytiger
Yea their citations are to paywalls RE the costs to US. But well written
wikipedia page nonetheless. Prob the most accessible journalism I've read on
the matter.

Definitely worth more investigation. Definitely a part of our world that needs
more light shed on it. Got to be some interesting angles there too ;)

------
atirip
There's no point whatsoever to fine banks, its stupid beyond belief. First,
its like issuing a speeding ticket to a billionaire, second, the money does
not come from the pocket of the offender, and third, if the unimaginable
happens and some bank goes belly up because of this, then we, the taxpayers
will bail it out. Again.

~~~
morsch
Having a record of past misbehaviour may be useful in a future fight. Even a
billionaire has his driving license revoked if he's repeatedly caught
speeding.

Sums that are pocket change to JPMorgan are still usefully spent in the public
interest. I don't know if 60 million Euros are, in fact, pocket change for
JPMorgan. I cynically assume that they budgeted in an accurate amount for
fines and other regulatory hiccups when they start on these endeavours.

Assuming you mean the offender is a group of executives that aren't personally
liable for these sorts of fines, well, yeah, that's par for the course. IANAL.

Having a bank go belly up because of these fines seems exceedingly unlikely.
Regulatory oversight is (on the face of it and among other things) intended to
ensure that the system is less likely to fail catastrophically, and fining
banks for failing to observe regulation seems like a necessary part of this.

Whether or not the regulatory oversight has the means or even the willingness
to implement the mission they present to the public is another debate. I agree
that scepticism is warranted.

From that point of view, these kinds of fine may be characterised as something
that doesn't materially affect the bank's profits and hence doesn't deter
repeat misbehaviour but serves to establish a facade of regulatory action to
appease the public.

~~~
patrickk
> Even a billionaire has his driving license revoked if he's repeatedly caught
> speeding.

More likely his driver. The billionaire can just hire another one.

------
atlantic
One point the article does not touch upon is how much the banks profited from
this cartel, and by extension, whether or not the fines were large enough to
deter this kind of behaviour in the future.

~~~
hkmurakami
Honestly, is the answer to this question ever not "no, not even close to big
enough"?

------
shawabawa3
Why is it always fines? Shouldn't this type of stuff result in jail time?

The people who organised the cartel have likely already got their bonuses and
couldn't care less if the bank is fined

~~~
us0r
"JPMorgan received a 40 percent reduction in its fine for cooperating with the
investigation, as well as a 10 percent reduction for agreeing to settle the
case."

Not only is it only fines but now we are discounting the fines for
cooperating.

------
pipboy3
The fact that LIBOR is used in other countries as input for interest rates of
existing credits is completely ignored, ripple effect of this wrongdoing
caused significant drop of life standard and some serious problems to "small"
people.

------
misiti3780
If anyone is interested in learning more about why no one goes to jail, and
banks dont even have to admit they did anything wrong, etc., I recommend you
go pick up a copy of Matt Taibbi's new book "The Divide"

He goes into great deal regarding why the most egregious white collar crimes
such as HSBC laundering money for the Mexican cartels / terrorist
organizations ended with a simple 1.9 billion dollar fine
([http://www.reuters.com/article/2012/12/11/us-hsbc-probe-
idUS...](http://www.reuters.com/article/2012/12/11/us-hsbc-probe-
idUSBRE8BA05M20121211)), no one going to jail, and the bank not even having to
admit they did anything wrong.

There are many reasons why (after all, he wrote a whole book about it) but to
list a few

1\. The Justice Department does not want to risk losing a case (for political
reasons)

2.The unit in charge of investigating this type of crime within the justice
department is staffed with defense lawyers who dont think out of the box
(thanks to obama)

3.the banks committing these crimes are large, multinational institutions so
there are complexities around the fact of who committed the crimes, what
jurisdiction they were committed in, etc. the most disturbing chapter in the
book was a about a hedge funds harassing (literally harassing) a Canadian
insurance firm Fairfax financial. The judge ended up throwing out that case
because it took place in NJ but the crimes took place in NYC:
[http://www.swtriallaw.com/press-releases/new-jersey-court-
cl...](http://www.swtriallaw.com/press-releases/new-jersey-court-clears-exis-
capital-in-fairfax-financial-hedge-fund-lawsuit/)

4.the banks have a lot of money to spend on lawyers

5.the same lawyers that are defending the banks create the laws and
regulations they live by (Eric Holder and a few others)

6.this memo: [http://www.huffingtonpost.com/2013/06/04/eric-
holder-1999-me...](http://www.huffingtonpost.com/2013/06/04/eric-
holder-1999-memo_n_3384980.html) \- that is, anything that might hurt innocent
bystanders—when deciding whether to bring a case against a corporation.
"Prosecutors may take into account the possibly substantial consequences to a
corporation's officers, directors, employees, and shareholders,"

7\. That banks argue that a prosecution could be economically disruptive
because they are "too big to fail" so basically if you hurt them, you are
hurting everyone else also.

It is really a fascinating, and in some ways depressing, read. Honestly, this
is nothing compared to the banks getting caught fixing the LIBOR rate a few
years back, and no one went to jail for that anyways.

~~~
penguindev
> this is nothing compared to the banks getting caught fixing the LIBOR rate a
> few years back

It's really nothing compared to the fact that banks can print trillions of
dollars of credit out of thin air - and not go to jail for counterfeiting.
Heck, counterfeiting used to be a capital offense in this country.

So the lesson is always: rules don't apply to rich people.

~~~
misiti3780
agreed - but a small point - the banks printing money are really basically
government entities (the federal reserve, ECB, etc). the banks the article +
book are talking about are private entities committing serious fraud and not
getting being prosecuted for it.

~~~
penguindev
I disagree about the federal reserve being a government entity. It's owned by
banks - a "self regulating" private cartel by charter. Even congress can't
"audit" the fed. The fed controls the government much more than vice versa.

Sure they will spin some line like 'profits' from the fed go to the government
(profits above which are distributed to the private bank shareholders, of
course!) but that's like saying I get reward points for every dollar I charge
on a credit card. If you really think banks are "giving up" a lot of profits,
you might want to check the total % of profits that go to the financial sector
in the US economy. What are "profits" anyway when you can just print money -
what is profit measured by?

Furthermore, even your 'small banks' that "loan" money under fractional
reserve rules are, if you squint, awfully close to counterfeiting as that can
raise the money supply 9 fold.

So I recommend you keep digging and follow the money.

~~~
shit_parade
Banks are complicated shell structures for sure, just look into BIS, a
'central bank' for central banks. However the federal chair is appointed by
the white house.

~~~
penguindev
One puppet (WH) appointing another puppet (fed chair) IMHO. We all know it.

Re: BIS, I haven't looked into that much; I'm afraid I'm depressed enough
already :-)

------
acd
The reason we have low interest rates are that these banks who commit crime
after crime own the Federal reserve. The same banks has also put ex Goldman
sachs president as head of the european central bank. People have to
understand how the monetary system works or we will all end up as debt slaves
to unafforadable housing that banks with zero interest create from thin air.

------
penguindev
I would like to offer a small historical perspective on the power of banks:

Legal Tender Act, 1862 [1]:

"Thaddeus Stevens, the Chairman of the House of Representatives Committee of
Ways and Means, ... denounced the exceptions, calling the new bill
"mischievous" because it made United States Notes an intentionally depreciated
currency for the masses, while the banks who loaned to the government got
"sound money" in gold."

Banks _always_ get the first class life boats, and set their own rules (think
about it, they buy influence, it's not that hard when you're a bank). I think
Europe just missed some kickbacks the old fashioned way.

1\.
[http://en.wikipedia.org/wiki/United_States_Note](http://en.wikipedia.org/wiki/United_States_Note)

------
kevinbluer
Does anyone have any idea what happens to the money gathered from these fines?

~~~
Voloskaya
Gets reinjected in a special fund that the EU can then use where they want.
It's usually just injected in the central budget, to reduce the contribution
each member country has to pay.

~~~
tormeh
And contrary to popular opinion this fund is on the order of 0.1 percent of
the EU budget. I've heard the "omg, the EU runs on American corporations'
money" thing a little too often.

~~~
tankenmate
And indeed the converse happens often enough; Credit Suisse, RBS, Barclays and
UBS have paid large fines (multi billion) to the US over the last few years.

------
_random_
Still, they are a few who can pay competitive money to developers in UK.

