Four Banks, Including JPMorgan, Fined in Europe Over ‘Cartel’ Behavior

http://dealbook.nytimes.com/2014/10/21/4-banks-including-jpmorgan-fined-in-europe-over-cartel-behavior/?_php=true&_type=blogs&_r=0

by xlr8r • 12 years ago

104 66 12 years ago

dealbook.nytimes.com

kevinbluer• 12 years ago

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

sailingparrot• 12 years ago

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• 12 years ago

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.

atlantic• 12 years ago

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• 12 years ago

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

atirip• 12 years ago

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.

JoiDegn• 12 years ago

Why does the money not come from the pocket of the offender? If banks don't control what their employees do and are forced to pay a hefty fine as the result of that employee doing something wrong, dont you think they will try to control what their employees are doing in the future?

morsch• 12 years ago

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• 12 years ago

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.

sleeping_pills• 12 years ago

I agree with this. Fining a big organization effectively means fining their clients. They'll just pass on the costs.

icebraining• 12 years ago

If they can raise their prices to pass on the costs, why haven't they done so before, increasing their profits? If they can't, how is that passing on the costs?

bobcostas552• 12 years ago

I think there's a very simple and elegant solution for this: fines have to be paid in the form of equity. The government can sell its share on the open market to convert equity to cash, and it's impossible for the shareholders to pass on the cost to anyone else.

nsajko• 12 years ago

That sounds quite interesting. Searching for it I only found some Scots parliamentary proposals. Is this a new idea?

pipboy3• 12 years ago

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.

shawabawa3• 12 years ago

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• 12 years ago

"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.

salesforce_wha4• 12 years ago

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.

quotient• 12 years ago

I think you mean "that y is far larger than x"

salesforce_wha4• 12 years ago

Yes, thank you. I corrected it.

easytiger2• 12 years ago

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_wha4• 12 years ago

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

Finding actual damages proved really difficult on this subject.

Shivetya• 12 years ago

but in the end you are not punishing the bank, it merely is an entity with no physical means of being punished. To punish it you need to throw their boards into jail.

Fines are paid by share holders if any, hence is the bank punished? Not unless depositors leave in droves. You cannot fine a bank for its holdings as those are the funds and properties of other people, the bank is merely managing money for others.

if you attempt to dissolve a bank, who takes over the loans, how do you get the depositor funds back. You cannot confiscate them in the names of the state, the distress to the economy would be drastic.

In the end its back to the people running the show, put them in jail, or force them out, or fine them, or all of the above. However like politicians there are so many levels here than they are nearly immune to their actions

TL;DR

Monetary fines are irrelevant, punishing the people who run it is the only means to correct future behavior

salesforce_wha4• 12 years ago

Working under the assumption that: 1. The banks only care about one thing -- profits. 2. Individuals at the bank primarily only care about their pay (talking about the ones responsible for massive fraud and have bonus structures that encourage it, not the tellers at your local branch).

If government took actions to pull all revenue (plus some) generated by these schemes it could go a long way in changing the culture. It appears to me, and probably many others, that the punishment imposed (fines) are simply a cost doing business as the banks appear to still be making profits, or at the very least keeping large portions of revenue, off of illegal activity.

There is no simple solution, and this might be the wrong one, but the current solution doesn't appear to be working.

grecy• 12 years ago

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.

Not only is there no incentive to stop, that's actually incentive to keep doing it, faster and on a bigger scale!

If you told me I'd get fined $10k for doing something that resulted in $15k of "earnings" (and no other penalty), I'd start a business and start hiring as many people as possible to do exactly that activity, profiting $5k every time.

rayiner4• 12 years ago

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.

Zigurd• 12 years ago

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.

We're already there. https://news.ycombinator.com/item?id=8519060 It might help if we spread the cheer to more high-end criminals.

rayiner4• 12 years ago

To the contrary, the facts in that case are a slam dunk. You have a box full of hard evidence, and the crime of selling counterfeit goods has no particularly onerous intent requirement. The crime is predicated on an objectively verifiable fact: are the goods licensed or not? Meanwhile, what's the difference between a legitimate financial transaction and a fraudulent one? You can't tell just by reading the deal documents. Ideally someone slips up in an email that reveals their knowledge and intent, but usually you're stuck building a case on circumstantial evidence.

arca_vorago• 12 years ago

My criticism of this view is that the proof is probably there, but the agencies responsible for obtaining it are likely corrupted as well. I'm not well versed in the intricacies of EU banking, besides the IMF/World Bank, but at least in the States, a good example of regulatory capture and corruption is the SEC.

It's not that the proof isn't there, it's that the SEC itself has become corrupted by the people it's supposed to enforce laws against.

On a side note, I am still livid about the Libor scandal. Why the hell is a rate set in London allowed to influence the American dollar so greatly?!

innguest• 12 years ago

Why the hell is a rate set in London allowed to influence the American dollar so greatly?!

Because banks are not independent from each other, and they frequently borrow from each other if they lack a certain quantity of a certain currency.

The problem with the Libor scandal is that the bankers conspired to set interest rates by gaming the blind process they have for coming up with those rates in a fair way (all vote, top 4 and bottom 4 bids are removed, rest is averaged).

This is true, undeniable banking conspiracy at work. And governments still trust them with our money.

cynicalkane• 12 years ago

My understanding is that the purpose of LIBOR is to be free of US regulations on interest-rate setting and be closer to a 'free market' rate on the USD. The irony of the situation is left as an exercise to the reader.

London is also a bit more reluctant to clamp down on finance--they are the only region doing well in a struggling England, and unlike, say, the NYC finance industry, much of the money in London is free to go somewhere else.

leoc2• 12 years ago

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... 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-... 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• 12 years ago

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...

"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."

RangerScience• 12 years ago

Eric Schmidt is a nice person like us, and jail isn't really for nice people like us.

Well, in theory, your sarcasm is correct: this is a ridiculous statement. In practice our jail system is fucked as is evidenced by the rate at which going to jail turns you into more of a criminal, and so yes, jail is not for "nice people like us". Of course, it's also "not for not nice people not like us", and Martha Stewart didn't seem to be turned into more of a criminal, so at his level of wealth maybe he would go a jail "for nice people like us."

Annnd maybe I'm also totally wrong on this too; call me on it how you see fit.

phkahler• 12 years ago

Stronger proof? One of the banks turned in the others in exchange for immunity. You don't think there was any documentation? Perhaps email or witnesses? Your points about burden of proof may be valid, but your case for a lack of evidence is itself lacking evidence.

jgalt212• 12 years ago

There's plenty of proof (maybe not in this particular) case, but in a lot of these cases to put people in jail, extract fines that are punitive (and not merely rounding errors), and at the very least pin the wrong doings on people (and not faceless companies).

My experience in the US (having worked directly with regulators) is that they are afraid to regulate. The literal tail is waggging the dog. As to the root cause of this (many blame the public/private revolving door), I am not entirely certain. I just wish in the US, at least, the regulators would not be such wussies and stand up for the consumer/voter and stop worrying about push back.

enraged_camel• 12 years ago

>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?

Yes, and yes. They committed crimes, didn't they?

dragonwriter• 12 years ago

Neither has been charged (much less convicted by evidence showing guilt beyond a reasonable doubt) with any crime, and most crimes don't require incarceration on conviction (and even when they do, there are pardon/clemency provisions in the law specifically because of a societal decision that even guilt of a crime that, on the books, requires a certain punishment does not always meet the needs of society), though most crimes include incarceration as a potential punishment. So, it is neither is it well established that either committed any crime, nor is it the case that "X committed a crime" (without additional information about the particular crime and circumstances) is sufficient to establish "X should be in jail".

gohrt2• 12 years ago

The government has no problem with civil forfeiture -- seizing (with no refund) $10K from an individual on mere suspicion. Why should bank managers and shareholders be immune from this?

fulafel• 12 years ago

Your [1] sounds odd to me, I haven't heard of this "more likely than not" type of standard in civil fines.

I also find statements like the following in papers that touch on the matter: "Unlike Common Law, Continental European Civil Law does not generally distinguish between standards of proof for civil and criminal matters. (15)" (http://www.coll.mpg.de/pdf_dat/2013_12online.pdf)

Anyone in the know care to comment?

Florin_Andrei• 12 years ago

Whatever a culture values most, the people who control that most valued thing end up being most powerful.

Our culture values money - a lot.

End of story.

misiti37805• 12 years ago

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...), 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...

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... - 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.

penguindev4• 12 years ago

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.

misiti37805• 12 years ago

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.

harryh3• 12 years ago

Be very careful when reading Matt Taibbi. He's not a journalist trying to illuminate a reality about the world. He's a storyteller tying to marshall anecdote in support of a good read. A lot of what he says isn't exactly wrong...but it's really true either.

misiti37805• 12 years ago

i know he is trying to sell books - but look it up, HSBC laundered money for the cartels, they got caught, paid a 1.9 billion dollar fine, and no one went to jail - and the bank didnt even have to admit what they did was wrong.

he is "right" about the important parts of this story anyways

penguindev4• 12 years ago

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

acd• 12 years ago

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.

_random_• 12 years ago

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

Four Banks, Including JPMorgan, Fined in Europe Over ‘Cartel’ Behavior

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