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Crime Pays, When You’re a Bank

Occasionally people inquire as to the different treatment of different kinds of persons in our legal system.  As the U.S.  Supreme Court has explained, corporations are persons just like my readers.  The only difference between a corporate person and a human person is that when a human person breaks the law, the human person depending on the offense, may go to jail.  When a corporate person breaks the law, the corporate person may be punished, but is never sent to jail.

The question that arises out of this disparate treatment is how do “three strike laws” work when a corporate person is a repeat offender. Three strike laws provide that if a human person has three offenses  (misdemeanors or felonies, depending on how a state statute is drafted) the human person is sentenced to life in prison. The question is relevant these days because in the past years there have been many occasions on which large banks have been assessed fines in the millions, and frequently, billions of dollars for corporate misconduct.  Almost all the large banks that have been fined are repeat offenders. There are two reasons they are never sentenced under “Three Strike Laws.” The first is big banks are corporate persons and corporate persons cannot be sent to jail.  The second is, when big banks misbehave, their misconduct, no matter how egregious, is almost always dealt with as a civil matter.  Events of May 20, 2015 were the exception.  On that date the Department of Justice, the Federal Reserve and other enforcement agencies announced that 5 big banks had agreed to pay more than $5 billion in fines to settle criminal charges that they had worked together to manipulate international interest and foreign currency exchange rates. Among the banks that acknowledged criminal conduct and agreed to pay large fines was JPMorgan Chase.  It agreed to pay $550 million for its criminal conduct.  being charged with criminal conduct was an almost unheard of event for the bank although its conduct before then was anything but exemplary.

In November 2013 JPMorgan Chase paid $13 billion in fines and penalties for its non-criminal misdeeds.  The Wall Street Journal described those fines as “the biggest combination of fines and damages extracted by the U.S. government in a civil settlement with any single company.” That fine was in addition to  $7 billion the bank had paid in the preceding months as punishment for other misdeeds. Those combined fines were for a variety of acts of misconduct that, had they been criminally charged and engaged in by a human person, would very likely have earned them a life sentence under “Three Strike Laws.”

JPMorgan’s next demonstration of how it could skirt the law to its own advantage occurred as a result of its dealing with debtors who had taken bankruptcy.  Those people thought they could not be dunned for debts that were discharged in bankruptcy.   They were wrong.  JPMorgan Chase  (and Bank of America) figured out how to profit from those discharged debts even though they could not collect them from the former debtors.  The banks bundled debts that had been discharged in bankruptcy and sold them to unscrupulous debt collectors who led the discharged debtors to believe they owed the money and were required to pay the debts that had been discharged.  When this practice was first reported in late 2014 it was disclosed that the justice department was investigating the practice to see if the banks had violated the law.  In one of the cases brought by individual plaintiffs against the banks, Judge Robert Drain, who was hearing the civil cases, stated that if the facts alleged by the debtors were proved at trial, he would consider referring the matter to the U.S. attorney for criminal prosecution of the banks. Sale of discharged debts we have now learned was not the only way unscrupulous banks made money from debts that had been discharged in bankruptcy.

In 2014 Bank of America paid $16.7 billion in a settlement with the Justice Department arising out of questionable mortgage practices.  Pursuant to the terms of the settlement Bank of America agreed, among other things, to provide $7 billion in mortgage relief in the form of loan modifications or forgiveness to some of its customers who owed it money.  In May 2015 it was disclosed that it attempted to fulfill part of its obligations by providing debt relief to debtors whose debts had been discharged in bankruptcy and, as a result, were no longer owed by the debtor.  It got caught and will no longer use that ruse to fulfill its obligation.

The May 20, 2015 settlement is unusual in that the banks admitted criminal conduct, admissions that did not accompany payment of the earlier billions in fines paid by JPMorgan Chase and other banks.  Alan Goelman, the trading commission’s head of enforcement, said of the May 20 settlement:  “There is very little that is more damaging to the public’s faith in the integrity of our markets than a cabal of international banks working together to manipulate a widely used bench mark in furtherance of their own interests.”  An observer might conclude that equally disturbing are the practices of the large banks in furtherance of their own interests that have resulted in payment of billions in fines but no criminal convictions of the corporate person or the human persons running the banks. Lesser criminal types should be so lucky.

Christopher Brauchli is a lawyer in Boulder, Colorado. He can be emailed at brauchli.56@post.harvard.edu

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