Round Two: Prosecutors Reopen Bank Settlements
With our political system suffering from a growing chasm down party lines, our public servants seem to be increasingly vulnerable to public pressure. Politicians scramble to fight for whatever cause du jour will garner them the most support. And lately, no political act is guaranteed to please Main Street quite so much as blaming the U.S. banking system for the country’s woes. (It is not just the government attacking the banks; as we reported here, Arab Bank of Jordan is currently facing penalties after a jury of its peers decided the bank was liable for seemingly attenuated violations of the Anti-Terrorism Act.)
In the face of mounting political pressure, it is perhaps not surprising that prosecutors are reopening and re-prosecuting previously settled cases against banks. When it comes to the U.S. financial system, it seems that prosecutors just can’t get enough.
In several more notable cases, prosecutors are re-opening settlements involving alleged violations of U.S. sanctions and interest rate manipulation. As an added bonus, in one case, a prosecutor has decided to open a new case against a previously punished bank for alleged failures of its computer system to catch suspicious transactions.
Prosecutors are also investigating a consulting firm that advised one bank with regard to alleged violations of U.S. sanctions against Iran. In that case, the prosecutor reportedly relied upon the consulting firm’s report to determine the scope of the bank’s wrongdoing. Now, the prosecutor is claiming that the firm may have diluted that report.
A lot of the public’s clamoring to get tough on banks seems to be a response to the general perception that, until now, the U.S. government has gone easy on financial institutions that are seen as “too big to fail.” But, as evidenced from the BNP Paribas case earlier this year, the U.S. government is perfectly happy (when it thinks it has sufficient evidence) to demand a guilty plea and impose a substantial penalty against large financial players.
The moral of the story is this: in the face of mounting political pressure, the U.S. government is hungry to punish (and punish again) any financial institution suspected of wrongdoing. In this hostile environment, banks need to be even more vigilant in developing, implementing, and following robust compliance processes.
And should it become necessary to enter into a settlement with the U.S. government, it is critical to ensure that the language of the proposed settlement agreement is as accurate as possible (i.e., as accurate as the government will allow). If the agreement applies only to conduct that has already been disclosed, it is important to confirm that a thorough investigation has been conducted, and all potentially relevant violations – and maybe even near-violations – have been reported. Do not tell the U.S. government half the story, or they will be back.
Put another way, in the eyes of the U.S. government, a company cannot partially disclose: you either cooperate and submit a robust disclosure, including the good, bad, and ugly facts, or you will not be treated as a cooperator (and will not get mitigation credit in settlement negotiations).
If there is a settlement, take steps to ensure that your personnel understand and comply with the terms of any deferred or non-prosecution agreement once in effect. Personnel need to understand that these agreements are akin to the Sword of Damocles hanging over the company’s head. The best way to prevent the sword from falling is to promote compliance aggressively, including making sure personnel are encouraged to report suspected violations internally.
Ultimately, banks are in a pretty unenviable position: they are expected to be the eyes and ears of the U.S. sanctions regulators, but if they misstep, they are hit with enormous penalties. At least to date, it has not been realistic to fight those penalties, because of the amount of discretion that U.S. government agencies have to interpret and enforce their own regulations. Likewise, banks are – understandably – loathe to take the chance of an indictment and the corresponding possibility that they could lose their license to operate in the United States. If U.S. prosecutors continue their aggressive approach to pursuing banks and other financial services companies, however, that calculation could change.