Opinion

The Great Debate

Are banks too big to indict?

The great 19th century English jurist, Sir James Fitzjames Stephens, once wrote that murderers were hung not for reasons of revenge or deterrence — but to underscore what a serious breach of the social compact had been committed.

Federal District Judge Jed S. Rakoff was making a similar point when he recently called attention to the lack of criminal prosecutions in the wake of the 2008 financial crisis. Consider the 1980s Savings and Loan crisis. The losses were minuscule compared to this recent paroxysm, but they still led to hundreds of criminal convictions.

That looks highly unlikely here. The federal statute of limitations for fraud, generally five years, is rapidly running down. There are reportedly a few cases in process. But the odds are that if there are any indictments, they will be in the pattern of the indictment of Goldman Sachs banker Fabrice Tourre, who has been left holding the bag for a complex scheme to load up clients with worthless securities. Email trails leave little doubt that far more senior figures were aware of the purpose of the deal. The firm also executed other similar deals that haven’t been prosecuted.

The big banks have compiled an amazing record of dishonest, and outright criminal, behavior — suggesting that there is no ethical or legal standard that can stand in the way of a chance to fatten the bottom line. Here are some samples, all drawn from the cases settled in the 2000s:

Chase Bank (now part of JPMorgan Chase), Citibank, Merrill Lynch and a number of other financial institutions actively conspired with Enron executives to falsify company financial records. Chase also paid bribes to county officials, and to other banks, for the right to entangle an Alabama county in a byzantine transaction that led to the county’s bankruptcy. Virtually every major bank in the country sold billions in “auction-rate-securities,” without disclosing they carried the risk of becoming nearly worthless — which quickly came to pass. Bank of America has now disgorged $22 billion in fines on these instruments alone.

Common ground for Obama and Putin is offshore

Low expectations surround the G20 meeting in St. Petersburg on September 5-6.

President Barack Obama’s decision to cancel the pre-G20 summit with Russian President Vladimir Putin means the big photo op will likely be the two leaders awkwardly trying to avoid each other. The other headline-making issues in U.S.-Russian relations — Syria, nuclear weapons reduction, missile defense — also appear off the table now. There is one timely matter, however, that resonates with Washington, Moscow, and the entire G20 — the continuing fight against offshore tax havens.

The Cyprus financial collapse in March focused world attention on the outsized role played by offshore banking zones in international tax avoidance and money laundering. Though Russian depositors were the primary victims here, Moscow appeared indifferent to this unprecedented expropriation by Cyprus of the assets of Russian citizens. Putin proved unwilling to help those he viewed as tax-evading oligarchs and corrupt bureaucrats — as well as a few legitimate businesses.

Putin has made the fight against offshore tax havens a key plank of his foreign policy. Other world leaders — including British Prime Minister David Cameron and French President Francoise Hollande — have also issued strong statements criticizing sophisticated legal strategies that allow companies to skirt the domestic treasury, depriving the state of critical revenues in this time of economic recession.

No safe haven for artful tax dodgers

Alex Smith-GreatDebate– Alexander Smith is a Reuters columnist. The opinions expressed are his own –

Big countries have got the world’s tax havens running scared. They must now press home their advantage to stop such countries providing oases for tax dodgers and money launderers.

Switzerland, Austria, Luxembourg, Liechtenstein and Andorra have all responded to a global crackdown on tax evasion by offering to relax strict bank secrecy laws. This is an important victory for campaigners to put tax havens on the straight and narrow. Until their recent climbdown, Liechtenstein and Andorra were two-thirds of a trio of hardliners that refused to commit to Organization for Economic Co-operation and Development (OECD) standards on transparency and the exchange of information, earning them a place alongside Monaco on the OECD’s blacklist of uncooperative tax havens.

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