WASHINGTON (AP) – Admonishing the nation's bankers, the Justice Department's No. 2 official says too many financial institutions have failed in their duty to ensure that their businesses are run cleanly.
"Despite years of admonitions by government officials that compliance must be an important part of a corporation's culture, we continue to see significant violations of law at banks, inadequate compliance programs, and missed opportunities to prevent and detect crimes," said Deputy Attorney General James Cole.
Cole said that "too many bank employees and supervisors value coming as close to the line as possible, or even crossing the line" as signs of being competitive or aggressive. "And we are troubled that many employees believe that their supervisors, including in some cases corporate management, actually want them to behave this way."
Cole's remarks come amid an international probe by the Justice Department and other law enforcement agencies here and abroad into possible manipulation of foreign exchange rates at a number of financial institutions.
"You will be hearing more about these investigations in the future," Cole promised in regard to the investigation of banks both in the U.S. and abroad.
Citigroup, JPMorgan Chase & Co., Barclays PLC, UBS AG and Deutsche Bank AG have revealed they are the subjects of an investigation into possible manipulation of currency trades. In the same probe, HSBC PLC, Europe's biggest bank by market value, disclosed that the Financial Conduct Authority, the British regulator, is investigating its trading on the foreign exchange market.
Cole received a polite reception from members of the American Bankers Association and the American Bar Association at the conference, which dealt with enforcement of laws against money laundering.
Now in his fifth year in the job, Cole's boss, Attorney General Eric Holder, has come in for strong criticism because the government has failed to bring criminal cases against major Wall Street bankers in the wake of the financial crisis. In a tentative civil settlement with the government, JPMorgan has agreed to pay $13 billion – $6 billion to compensate investors, $4 billion to help struggling homeowners and the remainder as a fine. A criminal probe of JPMorgan is pending.
In a blunt reference to conduct by some of the nation's biggest banks, Cole said "too many supervisors seem to incentivize excessive risk-taking – knowing that risky products can be unloaded down the road, or anticipating that they will have left for another bank by the time such risks are played out, leaving someone else to deal with the consequences." In the run-up to the financial crisis of 2008, Goldman Sachs, Citigroup, JPMorgan and others were all involved in sales of low-quality, high-risk securities linked to mortgages that later collapsed in value.
The currency-trading probe echoes in complexity the ongoing investigation into manipulation of the London interbank offered rate, or LIBOR. LIBOR underpins trillions of dollars in transactions around the world. The financial world was shaken when it emerged that banks – including Royal Bank of Scotland, Barclays and UBS – were submitting false data to gain market advantages.
Over $3.7 billion in penalties have been paid in LIBOR settlements with Rabobank, Barclays, UBS, RBS, and the brokerage firm ICAP. So far, the Justice Department has filed criminal charges against five people – two former senior traders at UBS, and three former brokers at ICAP.
"Our investigation of LIBOR is far from over," Cole said.
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