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Jan 23 (Reuters) – U.S. treasury and law enforcement agencies will soon issue regulations opening banking services to state-sanctioned marijuana businesses even though cannabis remains classified an illegal narcotic under federal law, Attorney General Eric Holder said on Thursday.
Holder said the new rules would address problems faced by newly licensed recreational pot retailers in Colorado, and medical marijuana dispensaries in other states, in operating on a cash-only basis, without access to banking services or credit.
Proprietors of state-licensed marijuana distributors in Colorado and elsewhere have complained of having to purchase inventory, pay employees and conduct sales entirely in cash, requiring elaborate and expensive security measures and putting them at a high risk of robbery.
It also makes accounting for state sales tax-collection purposes difficult.
“You don’t want just huge amounts of cash in these places,” Holder told the audience at the University of Virginia. “They want to be able to use the banking system. And so we will be issuing some regulations I think very soon to deal with that issue.”
Holder’s comments echoed remarks by his deputy, James Cole, in September during a Senate Judiciary Committee hearing on Capitol Hill.
Colorado this month became the first state to open retail outlets legally permitted to sell marijuana to adults for recreational purposes, in a system similar to what many states have long had in place for alcohol sales.
Washington state is slated to launch its own marijuana retail network later this year, and several other states, including California, Oregon and Alaska, are expected to consider legalizing recreational weed in 2014.
The number of states approving marijuana for medical purposes has also been growing. California was the first in 1996, and has since been followed by about 20 other states and the District of Columbia.
But the fledgling recreational pot markets in Colorado and Washington state have sent a new wave of cannabis proprietors clamoring to obtain loans and make deposits in banks and credit unions.
The Justice Department announced in August that the administration would give new latitude to states experimenting with taxation and regulation of marijuana.
But with the drug still outlawed at the federal level, banks are barred under money-laundering rules from handling proceeds from marijuana sales even in states where pot sales have been made legal.
The lack of credit for marijuana businesses, however, poses its own criminal justice concerns, Holder said.
“There’s a public safety component to this,” he said. “Huge amounts of cash – substantial amounts of cash just kind of lying around with no place for it to be appropriately deposited – is something that would worry me just from a law enforcement perspective.”
Holder did not offer any specifics on a timeline for action on banking services for marijuana. Cole in September said the Justice Department was working on the issue with the Treasury Department’s financial crimes enforcement network.
Critics of liberalized marijuana laws have said the lack of credit faced by pot retailers was beside the point.
“We are in the midst of creating a corporate, for-profit marijuana industry that has to rely on addiction for profit, and that’s a much bigger issue than whether these stores take American Express,” said Kevin Sabet, co-founder of the anti-legalization group Smart Approaches to Marijuana. (Reporting by David Ingram in Charlottesville, Virginia; Writing by Alex Dobuzinskis; Editing by Steve Gorman and Lisa Shumaker)
Banks bound by cooperation agreements in an interest-rate rigging probe are providing a windfall of information to U.S. prosecutors investigating possible currency manipulation, according to a Justice Department official and a person familiar with the matter.
“We’ve seen tangible, real results,” Mythili Raman, the acting head of the Justice Department’s criminal division, said in an interview. The cooperation “expanded our investigations into the possible manipulation of foreign exchange and other benchmark rates,” said Raman, who declined to name the banks or comment further on the probe.
The accords have compelled some lenders to conduct internal examinations of their foreign-exchange businesses and share findings with the Justice Department, speeding the government’s criminal probe into the $5.3 trillion-a-day market, according to a person with knowledge of the investigation.
Some banks are handing over lists of potential witnesses, making employees available for interviews and giving up documents without subpoenas, said the person, who asked not to be identified because the inquiry is confidential. Investigators are holding weekly and sometimes daily phone calls with the banks, the person said.
UBS AG (UBSN), Barclays Plc (BARC) and Royal Bank of Scotland Group Plc resolved a Justice Department investigation into how the London interbank offered rate, or Libor, was set, paying more than $800 million in criminal fines and penalties and agreeing to cooperate in other inquiries. The three lenders are among the largest currency traders in the world.
Dominik von Arx, a spokesman for UBS, Nichola Sharpe at Barclays and Sarah Small at RBS, declined to comment.
Rabobank Groep, which also paid the U.S. a $325 million criminal penalty to settle Libor-rigging allegations in a deferred-prosecution agreement, doesn’t rank among the top 20 currency traders in the world, according to Euromoney Institutional Investor Plc. (ERM)
“Rabobank fully cooperates with regulators pursuant to the deferred-prosecution agreement,” Roelina Bolding, a spokeswoman for the Utrecht, Netherlands-based firm, said in an e-mail. “Rabobank does not otherwise comment on pending investigations of Rabobank or of any other person or entity.”
In addition to the settlements with the four banks, the U.S. Libor probe, which is continuing, has led to criminal charges against eight individuals.
Without the cooperation agreements, the banks would have been less motivated to come forward about currency trading, said Laurie Levenson, a professor at Loyola Law School in Los Angeles.
“I don’t think they would have as much incentive and you’d have pushback from individuals at the bank who are saying ‘Why are we doing this?’” Levenson said in an interview. “‘This is our own business and we’re being overly cautious.’”
The cooperation agreements also allow the government to advance the probe without overtaxing law enforcement resources, which have been stretched by budget cuts, hiring freezes and furloughs in recent years. In addition to the Justice Department’s criminal and antitrust divisions, European Union antitrust regulators, the U.K. Financial Conduct Authority and the Swiss Competition Commission are probing rigging of currency benchmarks. The Federal Reserve also is examining the matter, Bloomberg reported earlier this month.
“You could be talking about potentially millions of e-mails and thousands of hours of tape,” said Douglas Tween, a former Justice Department lawyer, now at law firm Baker & McKenzie LLP in New York.
The Justice Department “doesn’t have the resources to cull through all of that times 10 banks or 20 banks. They really to a large extent rely on the banks to cooperate and essentially give them all this evidence on a silver platter.”
Authorities around the world are investigating alleged abuse of financial benchmarks by companies that play a central role in setting them. Other rates under investigation include the ISDAfix, used to determine the value of interest-rate derivatives. European and U.S. regulators also are reviewing allegations of collusion in crude oil and biofuels markets in scrutinizing how the Platts oil benchmark is set.
Financial institutions have paid about $6 billion so far to resolve criminal and civil claims in the U.S. and Europe that they manipulated benchmark interest rates.
To resolve the Justice Department’s charges, UBS, RBS and Barclays signed deferred-prosecution or non-prosecution agreements within the past two years that effectively put the banks on probation and obliged them to report possible misconduct and cooperate in benchmark-rigging investigations. The banks risk indictment if the government decides they aren’t being cooperative, Tween said.
“Once they’ve got you on one thing, they’ve really got you,” said Tween. “They’ll say ‘You haven’t been cooperative and haven’t lived up to the terms of your deferred-prosecution agreement, and we’re going to pull the plug on that and indict you.’”
Barclays, based in London, agreed to notify the Justice Department of “all potentially criminal conduct by Barclays or any of its employees that relates to fraud or violations of the laws governing securities and commodities markets.” Zurich-based UBS agreed to similar terms.
Edinburgh-based RBS promised to cooperate in “any and all matters” related to “manipulation, attempted manipulation, or interbank coordination of benchmark rate submissions.”
Bloomberg News reported in June that currency dealers said they had been front-running client orders and attempting to rig foreign-exchange rates for at least a decade by colluding with counterparts and pushing through trades before and during the 60-second windows when the benchmarks are set.
The world’s seven biggest foreign-exchange dealers have now all taken action against their employees: at least 17 traders have been suspended, put on leave or fired.
The Justice Department’s use of deferred- and non-prosecution agreements has been rising over the past decade from an average of four per year between 2000 and 2004 to 27 in 2013, according to data compiled by the law firm Gibson, Dunn & Crutcher LLP. Last year was the fifth consecutive year with at least 20 such settlements, the firm said.
“These agreements are now a fixture in the federal corporate law enforcement regime, and all indications point to their use holding steady for the foreseeable future,” the firm said.
The agreements help the government conduct broader investigations faster, said Robertson Park, a former federal prosecutor who worked on the Libor investigation.
“If suddenly you have an institution that is effectively giving you the information and documents and data you need, if they’re motivated to provide it in formats that are immediately available and useful to you and if they’re making witnesses available, that can be a significant time savings,” said Park, a lawyer at Murphy & McGonigle in Washington.
To contact the editor responsible for this story: Sara Forden at firstname.lastname@example.org
The main reason Turkey’s government has been roiled with resignations, the Turkish Lira and domestic assets are plunging, the central bank is paralyzed, and pundits are ever more concerned about what the potential contagion effect is should the worst happen to the country, has been an ongoing scandal involving corruption at the very highest echelons of power as we reported late last year. So, what is a perturbed government, on the verge of losing legitimacy and credibility, to do? Well, following Stalin’s advice always works: “no man, no problem“… if perhaps not quite as “terminally” then just as decisively. According to Reuters the corruption investigation has been brought to a screeching halt, after Turkey’s government ‘purged’ both the judiciary and police systems, firing and transferring dozens of judges and officers and making it impossible for any ongoing investigative efforts to continue.
However, this may just be the beginning of Turkey PM Erdogan’s problem: “Turkey’s purge of the judiciary and police has brought a corruption investigation shaking the government to a grinding halt and could undermine confidence in state institutions, senior legal figures and the opposition said on Wednesday.”
Reuters has the details on Turkey’s decisive (if not yet final) “solution” to its problems:
Ninety-six judges and prosecutors were reassigned overnight, the biggest purge of the judiciary since a graft scandal erupted on December 17 with the arrest of businessmen close to Prime Minister Tayyip Erdogan and three ministers’ sons.
Erdogan has portrayed the corruption inquiry as an attempted “judicial coup” orchestrated by U.S.-based cleric Fethullah Gulen, whose network of sympathizers, known locally as “Cemaat” (religious community), hold considerable sway in many parts of the state including the police and legal system.
The government’s response, transferring thousands of police officers and seeking to tighten its grip on the courts, has brought sharp criticism from the European Union, which Turkey has been seeking to join for decades, and rattled investors, helping send the lira to record lows.
“Turkey is ablaze with the justice agenda,” said Metin Feyzioglu, chairman of the Turkish bar association.
“Everyone in the country has started to ask when there is an investigation or trial what side the judge, prosecutor or police officer is on,” he said. “The foundation of the state and the country’s legal order has been shaken.”
The roughly 120 judges and prosecutors reassigned since the graft scandal broke make up a fraction of the 13,000 working in Turkey as a whole, but the move has put sensitive cases on hold and shaken confidence within the profession.
The government’s party line so far has been simple: as explained before, “Erdogan has portrayed the corruption inquiry as an attempted “judicial coup” orchestrated by U.S.-based cleric Fethullah Gulen, whose network of sympathizers, known locally as “Cemaat” (religious community), hold considerable sway in many parts of the state including the police and legal system.”
As a result, Erdogan decided to simply reassign the entire judicial branch!
Judges and prosecutors across the country – from Istanbul in the west to the southeastern city of Diyarbakir, and from the southern border region with Syria to the northern Black Sea coast – were reassigned in the move announced late on Tuesday.
The High Council of Judges and Prosecutors (HSYK), already headed by the justice minister and set to fall further under government control under a ruling party bill before parliament, said the 96 were being transferred to new locations. The government denied involvement.
“These appointments have absolutely nothing to do with our ministry. This is completely at the discretion of the relevant (HSYK) chamber,” a senior justice ministry official said.
The police fared similarly:
Nearly 500 police, mostly in Ankara, were also removed from their posts and reassigned on Wednesday, media reports said, bringing the total since December 17 to several thousand. Erdogan’s supporters say the police and judiciary are dominated by Cemaat sympathizers and that the government’s actions strengthen not weaken their independence. Erdogan himself refers to a “parallel state” within the judiciary.
But Aykut Erdogdu, the chief corruption investigator for the main opposition CHP, said the purge had become so broad that many of those removed were not even linked to Cemaat.
“We’ve reached the point where members of these institutions are unable to do their job,” Erdogdu told Reuters. “More important is the damage done to these institutions. It can take decades to build up competent staff to run the institutions of state. Moreover, it will take years to undo the memory of this among prospective candidates in the future.”
It seems that the people, at least some of then, aren’t buying it:
“While the government claims that it is fighting against a parallel structure, it is actually closing off the corruption investigations … It is taking away those who know their cases best. It causes a great deal of harm,” said Murat Arslan, chairman of the YARSAV association of judges and prosecutors.
“It is quite clear there is political intervention here … they are quite clearly intimidating the whole of the judiciary. It is sending the message that ‘you cannot conduct an investigation which touches me’,” he told Reuters.
Welcome to Banana republic status gents… incidentally Turkey is way behind of the US, where no investigation that touches the people in charge is allowed, while any prosecution of corporate CEO that are deemed Too Big To Prosecute is promptly killed by none other than the Justice Department. The corrupt Justice Department.
But importantly, unlike the US where the myth that one party is different than another is just that, in Turkey the people do have the power to replace those in charge:
Erdogan has essentially banished the army from politics in 11 years in power. His popularity seems as yet largely unaffected by the current turmoil and there is no sign of the summer demonstrations that shook his government reigniting on a similar scale. He will, in short, be trusting voters will flee towards the elected power.
And if voters support him, well, they too deserve the government they “pick.”
MLK ASSASSINATED BY US GOVT: King Family civil trial verdict
Coretta Scott King: “We have done what we can to reveal the truth, and we now urge you as members of the media, and we call upon elected officials, and other persons of influence to do what they can to share the revelation of this case to the widest possible audience.” – King Family Press Conference, Dec. 9, 1999.
The assassination of Dr. King is just one OBVIOUS crime from among ~100 of the US “1% oligarchy” of crucial importance. The crimes center in wars, money, and media; and call for arrests of obvious “leaders” orchestrating these crimes, or a Truth & Reconciliation process.
Dr. Martin Luther King’s family and personal friend/attorney, William F. Pepper, won a civil trial that found US government agencies guilty in the wrongful death of Martin Luther King. The 1999 trial, King Family versus Jowers and Other Unknown Co-Conspirators, is the only trial ever conducted on the assassination of Dr. King. The King Center fully documents the case, with full trial transcript.
The King family’s attempts for a criminal trial were denied, as suspect James Ray’s recant of a guilty plea were denied. Mr. Ray said that his government-appointed attorney told him to sign a guilty plea to prevent the death penalty for his part in delivering the murder weapon for Dr. King’s assassination, and to prevent arrests of his father and brother as probable co-conspirators. Mr. Ray produced a letterfrom his attorney stating the promise that Mr. Ray would receive a trial. When Mr. Ray discovered that he was solely blamed for Dr. King’s assassination and would never receive a trial, the King family’s and Mr. Ray’s subsequent requests for a trial were denied.
The US government also denied the King family’s requests for independent investigation of the assassination.
Therefore, and importantly, the US government has never presented any evidence subject to challenge that substantiates their claim that Mr. Ray assassinated Dr. King.
US corporate media did not cover the trial, interview the King family, and textbooks omit this information. Journalist and author, James Douglass:
“I can hardly believe the fact that, apart from the courtroom participants, only Memphis TV reporter Wendell Stacy and I attended from beginning to end this historic three-and-one-half week trial. Because of journalistic neglect scarcely anyone else in this land of ours even knows what went on in it. After critical testimony was given in the trial’s second week before an almost empty gallery, Barbara Reis, U.S. correspondent for the Lisbon daily Publico who was there several days, turned to me and said, “Everything in the U.S. is the trial of the century. O.J. Simpson’s trial was the trial of the century. Clinton’s trial was the trial of the century. But this is the trial of the century, and who’s here?” ”
For comparison, please consider the media coverage of O.J. Simpson’s trials:
“Media coverage of the Simpson trial, which began in January 1995, was unlike any other. Over two thousand reporters covered the trial, and 80 miles of cable was required to allow nineteen television stations to cover the trial live to 91 percent of the American viewing audience. When the verdict was finally read on October 3, 1995, some 142 million people listened or watched. It seemed the nation stood still, divided along racial lines as to the defendant’s guilt or innocence. During and after the trial, over eighty books were published about the event by most everyone involved in the Simpson case.”
The overwhelming evidence of government complicity introduced and agreed as comprehensively valid by the jury includes:
- US 111th Military Intelligence Group were at Dr. King’s location during the assassination.
- 20th Special Forces Group had an 8-man sniper team at the assassination location on that day.
- Usual Memphis Police special body guards were advised they “weren’t needed” on the day of the assassination.
- Regular and constant police protection for Dr. King was removed from protecting Dr. King an hour before the assassination.
- Military Intelligence set-up photographers on a roof of a fire station with a clear view to Dr. King’s balcony.
- Dr. King’s room was changed from a secure 1st-floor room to an exposed balcony room.
- Memphis police ordered the scene where multiple witnesses reported as the source of shooting cut down of their bushes that would have hid a sniper.
- Along with sanitizing a crime scene, police abandoned investigative procedure to interview witnesses who lived by the scene of the shooting.
- The rifle Mr. Ray delivered was not matched to the bullet that killed Dr. King, and was not sighted to accurately shoot
The King family believes the government’s motivation to murder Dr. King was to prevent his imminent camp-in/Occupy at Washington, D.C. until the Vietnam War was ended and those resources directed to end poverty and invest in US hard and soft infrastructure.
Please watch this six-minute video of the evidence from the trial, and this eight-minute video on the FBI’s disclosures of covert operations against Dr. King, including confirmation from his closest friends and advisors.
Coretta Scott King, Dr. King’s wife, is certain of the evidence after 30 years of consideration from the 1968 assassination to the 1999 trial:
“For a quarter of a century, Bill Pepper conducted an independent investigation of the assassination of Martin Luther King, Jr. He opened his files to our family, encouraged us to speak with the witnesses, and represented our family in the civil trial against the conspirators. The jury affirmed his findings, providing our family with a long-sought sense of closure and peace, which had been denied by official disinformation and cover-ups. Now the findings of his exhaustive investigation and additional revelations from the trial are presented in the pages of this important book. We recommend it highly to everyone who seeks the truth about Dr. King’s assassination.” — Coretta Scott King.
The US Department of Justice issued a report in 2000 that explains their investigation into their own possible guilt in the assassination found no evidence to warrant further investigation. Dr. King’s son issued the following statement rebuking a “self-study” rather than the independent investigation the King family assert the evidence demands:
“We learned only hours before the Justice Department press conference that they were releasing the report of their results of their “limited investigation,” which covered only two areas of new evidence concerning the assassination of Dr. King. We had requested that we be given a copy of the report a few days in advance so that we might have had the opportunity to review it in detail. Since that courtesy was not extended to us, we are only able at this time to state the following:
1. We initially requested that a comprehensive investigation be conducted by a Truth and Reconciliation Commission, independent of the government, because we do not believe that, in such a politically-sensitive matter, the government is capable of investigating itself.
2. The type of independent investigation we sought was denied by the federal government. But in our view, it was carried out, in a Memphis courtroom, during a month-long trial by a jury of 12 American citizens who had no interest other than ascertaining the truth. (Kings v. Jowers)
3. After hearing and reviewing the extensive testimony and evidence, which had never before been tested under oath in a court of law, it took the Memphis jury only one (1) hour to find that a conspiracy to kill Dr. King did exist. Most significantly, this conspiracy involved agents of the governments of the City of Memphis, the state of Tennessee and the United States of America. The overwhelming weight of the evidence also indicated that James Earl Ray was not the triggerman and, in fact, was an unknowing patsy.
4. We stand by that verdict and have no doubt that the truth about this terrible event has finally been revealed.
5. We urge all interested Americans to read the transcript of the trial on the King Center website and consider the evidence, so they can form their own unbiased conclusions.
Although we cooperated fully with this limited investigation, we never really expected that the government report would be any more objective than that which has resulted from any previous official investigation.”
Let’s summarize: Under US Civil Law, covert US government agencies were found guilty of the assassination of Dr. Martin Luther King, Jr. Dr. King was the leading figure of the Civil Rights Movement, a Nobel Peace Prize winner, and widely recognized as one of the world’s greatest speakers for what it means to be human. The family’s conclusion as to motive was to prevent Dr. King from ending the Vietnam War because the government wanted to continue its ongoing covert and overt military operations to control foreign governments and their resources.
It is therefore a factual statement that under US Civil Law, the US government assassinated Dr. King.
People of sufficient intellectual integrity and moral courage to apply critical thinking skills will embrace the trial evidence and testimony, jury conclusion, and King family analysis as appropriate and helpful information in seeking the facts.
People who at least temporarily reject challenging information out of fear might say something like, “The government killed Dr. King? That’s a crazy conspiracy theory!”
Let’s consider that statement.
When someone says that a body of evidence is “crazy,” or a “conspiracy theory” (meaning an irrational claim easily refuted by the evidence) that’s a claim. With a claim comes a burden of proof. In this case, the person would have to demonstrate command of the facts to explain and prove why the evidence from the civil trial is somehow “crazy” and refute the evidence.
If the person can do this, it would be tremendously helpful in understanding the facts. However, we know from our experience that such statements almost always have zero factual support, and that the person making such a claim literally doesn’t know what they’re talking about.
We also know from our experience, a person making such a statement is really voicing an emotional reaction something closer to the spirit of, “The government killed Dr. King? Ok, I read and understood the paragraphs about the trial and evidence. I read Mrs. King’s and her son’s statement. I haven’t invested the time to verify how valid that information is. I’m not stupid, but because the implications of what that means is so disturbing, I’m going to deny anything about it could possibly be true as my first response. If I’m going to continue being in denial and refuse to discuss the evidence, I’ll attack the messenger.”
We also need to consider the lack of coverage by US corporate media of this compelling evidence, trial verdict, and King family testimony from over 30 years’ analysis of the facts. Recall the evidence of US corporate media reporting being infiltrated by CIA agents to propagandize Americans’ access to information. This included the Director of the CIA’s admission to Congress that they have over 400 agents working in corporate media to make the US public believe what the CIA wants them to believe.
In 2006, George Washington University used a Freedom of Information Act request to obtain the US military’s “Information Operations Roadmap.” This formerly secret and approved document details present US government strategies to generate propaganda, and then attack Internet alternative media that provides dangerous facts and discussion. The military promoted the term, “Fight the net.”
Although I won’t enter the burden of proof here, you may know that there are similar and related bodies of evidence that the US government assassinated other American leaders. The 1975 Senate Church Committee disclosed that the US government initiated and helped assassination attempts on multiple foreign heads of state.
If we were discussing how the population of some other nation could employ critical thinking skills to understand current events from anytime in history, we would certainly understand the importance to anticipate disinformation from government, danger of controlled media, and assassination as a political weapon.
Failure to do so would appropriately elicit the label attributed to the first dictator of the Soviet Union, Vladimir Lenin. Such people who believe what their government tells them when the history and present have overwhelming objective evidence to explain, document, and prove that the government is typical of so many other historical self-serving oligarchies are:
To the extent the United States today is any different from all other nations and all other times is up to your exercise of critical thinking skills.
And that said, think and choose carefully: choices have consequences, especially our most important ones.
Further Proof the Justice Department is Protecting JP Morgan from Criminal Prosecution | A Lightning War for Liberty
In what may be the least surprising article of 2013, we find out from Newsweek that the Department of Justice is going out of its way to protect the poor little babies at JP Morgan from criminal prosecution in the Bernie Madoff case. While we know all too well about the institutionalized practice of “Too Big to Jail” that dominates the current fraud system of so called “justice” in America, it is still of the utmost importance that we spread these stories far and wide. Amazingly, in this instance the DOJ is actively blocking the Treasury Inspector General from doing his job in order to protect the mega-bank.
Bernard Madoff’s principal bank, JPMorgan Chase, has for years obstructed federal bank examiners trying to ascertain what it knew about his gigantic Ponzi scheme, an official document obtained by Newsweek shows.
The Justice Department refused in September to back up Treasury inspector general staff who wanted a court order to enforce a subpoena, in effect shielding JPMorgan from law enforcement, the October 8 document shows.
The Justice Department told the Treasury Inspector General “that they were denying the request for enforcement of the subpoena,” which means officials “could not undertake further actions regarding this matter,” wrote Jason J. Metrick, the inspector general special-agent-in-charge.
The memo revealing that Justice protected JPMorgan from an obstruction complaint raises anew questions about how much the Obama administration has done to protect the big banks, whose lies about mortgage securities and other investments they sold sank the economy in 2008.
Only minor players have been prosecuted, in contrast with the more than 3,000 felony convictions the FBI says it obtained in the much smaller savings and loan scandals two decades ago.
The JPMorgan memos Justice declined to pursue are almost certain to show that years earlier the bank had grounds to suspect Madoff was running a fraud. A separate inquiry by the U.S. Attorney in Manhattan is looking into JPMorgan, which may include what the 90 bank employees knew and when they knew it.
Banana Republic Justice.
Full article here.
Why Has Nobody Gone To Jail For The Financial Crisis? Judge Rakoff Says: “Blame The Government” | Zero Hedge
By US District Judge Jed S. Rakoff (pdf)
Why Have No High Level Executives Been Prosecuted In Connection With The Financial Crisis?
Five years have passed since the onset of what is sometimes called the Great Recession. While the economy has slowly improved, there are still millions of Americans leading lives of quiet desperation: without jobs, without resources, without hope. Who was to blame? Was it simply a result of negligence, of the kind of inordinate risk-taking commonly called a “bubble,” of an imprudent but innocent failure to maintain adequate reserves for a rainy day? Or was it the result, at least in part, of fraudulent practices, of dubious mortgages portrayed as sound risks and packaged into ever-more-esoteric financial instruments, the fundamental weaknesses of which were intentionally obscured?
If it was the former – if the recession was due, at worst, to a lack of caution – then the criminal law has no role to play in the aftermath. For, in all but a few circumstances (not here relevant), the fierce and fiery weapon called criminal prosecution is directed at intentional misconduct, and nothing less. If the Great Recession was in no part the handiwork of intentionally fraudulent practices by high-level executives, then to prosecute such executives criminally would be “scapegoating” of the most shallow and despicable kind.
But if, by contrast, the Great Recession was in material part the product of intentional fraud, the failure to prosecute those responsible must be judged one of the more egregious failures of the criminal justice system in many years. Indeed, it would stand in striking contrast to the increased success that federal prosecutors have had over the past 50 years or so in bringing to justice even the highest level figures who orchestrated mammoth frauds. Thus, in the 1970’s, in the aftermath of the “junk bond” bubble that, in many ways, was a precursor of the more recent bubble in mortgage-backed securities, the progenitors of the fraud were all successfully prosecuted, right up to Michael Milken. Again, in the 1980’s, the so-called savings-and-loan crisis, which again had some eerie parallels to more recent events, resulted in the successful criminal prosecution of more than 800 individuals, right up to Charles Keating. And, again, the widespread accounting frauds of the 1990’s, most vividly represented by Enron and WorldCom, led directly to the successful prosecution of such previously respected C.E.O.’s as Jeffrey Skilling and Bernie Ebbers.
In striking contrast with these past prosecutions, not a single high level executive has been successfully prosecuted in connection with the recent financial crisis, and given the fact that most of the relevant criminal provisions are governed by a five-year statute of limitations, it appears very likely that none will be. It may not be too soon, therefore, to ask why.
One possibility, already mentioned, is that no fraud was committed. This possibility should not be discounted. Every case is different, and I, for one, have no opinion as to whether criminal fraud was committed in any given instance.
But the stated opinion of those government entities asked to examine the financial crisis overall is not that no fraud was committed. Quite the contrary. For example, the Financial Crisis Inquiry Commission, in its final report, uses variants of the word “fraud” no fewer than 157 times in describing what led to the crisis, concluding that there was a “systemic breakdown,” not just in accountability, but also in ethical behavior. As the Commission found, the signs of fraud were everywhere to be seen, with the number of reports of suspected mortgage fraud rising 20-fold between 1998 and 2005 and then doubling again in the next four years. As early as 2004, FBI Assistant Director Chris Swecker, was publicly warning of the “pervasive problem” of mortgage fraud, driven by the voracious demand for mortgagebacked securities. Similar warnings, many from within the financial community, were disregarded, not because they were viewed as inaccurate, but because, as one high level banker put it, “A decision was made that ‘We’re going to have to hold our nose and start buying the product if we want to stay in business.’”
Without multiplying examples, the point is that, in the aftermath of the financial crisis, the prevailing view of many government officials (as well as others) was that the crisis was in material respects the product of intentional fraud. In a nutshell, the fraud, they argued, was a simple one. Subprime mortgages, i.e., mortgages of dubious creditworthiness, increasingly provided the sole collateral for highly-leveraged securities that were marketed as triple-A, i.e., of very low risk. How could this transformation of a sow’s ear into a silk purse be accomplished unless someone dissembled along the way?
While officials of the Department of Justice have been more circumspect in describing the roots of the financial crisis than have the various commissions of inquiry and other government agencies, I have seen nothing to indicate their disagreement with the widespread conclusion that fraud at every level permeated the bubble in mortgage-backed securities. Rather, their position has been to excuse their failure to prosecute high level individuals for fraud in connection with the financial crisis on one or more of three grounds:
First, they have argued that proving fraudulent intent on the part of the high level management of the banks and companies involved has proved difficult. It is undoubtedly true that the ranks of top management were several levels removed from those who were putting together the collateralized debt obligations and other securities offerings that were based on dubious mortgages; and the people generating the mortgages themselves were often at other companies and thus even further removed. And I want to stress again that I have no opinion as to whether any given top executive had knowledge of the dubious nature of the underlying mortgages, let alone fraudulent intent. But what I do find surprising is that the Department of Justice should view the proving of intent as so difficult in this context. Who, for example, were generating the so-called “suspicious activity” reports of mortgage fraud that, as mentioned, increased so hugely in the years leading up to the crisis? Why, the banks themselves. A top level banker, one might argue, confronted with increasing evidence from his own and other banks that mortgage fraud was increasing, might have inquired as to why his bank’s mortgage-based securities continued to receive triple-A ratings? And if, despite these and other reports of suspicious activity, the executive failed to make such inquiries, might it be because he did not want to know what such inquiries would reveal?
This, of course, is what is known in the law as “willful blindness” or “conscious disregard.” It is a well-established basis on which federal prosecutors have asked juries to infer intent, in cases involving complexities, such as accounting treatments, at least as esoteric as those involved in the events leading up to the financial crisis. And while some federal courts have occasionally expressed qualifications about the use of the willful blindness approach to prove intent, the Supreme Court has consistently approved it. As that Court stated most recently in Global-Tech Appliances, Inc. v. SEB S.A., 131 S.Ct. 2060, 2068 (2011), “The doctrine of willful blindness is well established in criminal law. Many criminal statutes require proof that a defendant acted knowingly or willfully, and courts applying the doctrine of willful blindness hold that defendants cannot escape the reach of these statutes by deliberately shielding themselves from clear evidence of critical facts that are strongly suggested by the circumstances.” Thus, the Department’s claim that proving intent in the financial crisis context is particularly difficult may strike some as doubtful.
Second, and even weaker, the Department of Justice has sometimes argued that, because the institutions to whom mortgage-backed securities were sold were themselves sophisticated investors, it might be difficult to prove reliance. Thus, in defending the failure to prosecute high level executives for frauds arising from the sale of mortgage-backed securities, the then head of the Department of Justice’s Criminal Division, told PBS that “in a criminal case … I have to prove not only that you made a false statement but that you intended to commit a crime, and also that the other side of the transaction relied on what you were saying. And frankly, in many of the securitizations and the kinds of transactions we’re talking about, in reality you had very sophisticated counterparties on both sides. And so even though one side may have said something was dark blue when really we can say it was sky blue, the other side of the transaction, the other sophisticated party, wasn’t relying at all on the description of the color.”
Actually, given the fact that these securities were bought and sold at lightning speed, it is by no means obvious that even a sophisticated counterparty would have detected the problems with the arcane, convoluted mortgage-backed derivatives they were being asked to purchase. But there is a more fundamental problem with the above-quoted statement from the former head of the Criminal Division,which is that it totally misstates the law. In actuality, in a criminal fraud case the Government is never required to prove reliance, ever. The reason, of course, is that would give a crooked seller a license to lie whenever he was dealing with a sophisticated counterparty. The law, however, says that society is harmed when a seller purposely lies about a material fact, even if the immediate purchaser does not rely on that particular fact, because such misrepresentations create problems for the market as a whole. And surely there never was a situation in which the sale of dubious mortgage-backed securities created more of a huge problem for the marketplace, and society as a whole, than in the recent financial crisis.
The third reason the Department has sometimes given for not bringing these prosecutions is that to do so would itself harm the economy. Thus, Attorney General Holder himself told Congress that “it does become difficult for us to prosecute them when we are hit with indications that if we do prosecute – if we do bring a criminal charge – it will have a negative impact on the national economy, perhaps even the world economy.” To a federal judge, who takes an oath to apply the law equally to rich and to poor, this excuse — sometimes labeled the “too big to jail” excuse – is disturbing, frankly, in what it says about the Department’s apparent disregard for equality under the law.
In fairness, however, Mr. Holder was referring to the prosecution of financial institutions, rather than their C.E.O.’s. But if we are talking about prosecuting individuals, the excuse becomes entirely irrelevant; for no one that I know of has ever contended that a big financial institution would collapse if one or more of its high level executives were prosecuted, as opposed to the institution itself.
Without multiplying examples further, my point is that the Department of Justice has never taken the position that all the top executives involved in the events leading up to the financial crisis were innocent, but rather has offered one or another excuse for not criminally prosecuting them – excuses that, on inspection, appear unconvincing. So, you might ask, what’s really going on here? I don’t claim to have any inside information about the real reasons why no such prosecutions have been brought, but I take the liberty of offering some speculations, for your consideration or amusement as the case may be.
At the outset, however, let me say that I totally discount the argument sometimes made that no such prosecutions have been brought because the top prosecutors were often people who previously represented the financial institutions in question and/or were people who expected to be representing such institutions in the future: the so-called “revolving door.” In my experience, every federal prosecutor, at every level, is seeking to make a name for him-or-herself, and the best way to do that is by prosecuting some high level person. While companies that are indicted almost always settle, individual defendants whose careers are at stake will often go to trial. And if the Government wins such a trial, as it usually does, the prosecutor’s reputation is made. My point is that whatever small influence the “revolving door” may have in discouraging certain white-collar prosecutions is more than offset, at least in the case of prosecuting high-level individuals, by the career-making benefits such prosecutions confer on the successful prosecutor.
So, one asks again, why haven’t we seen such prosecutions growing out of the financial crisis? I offer, by way of speculation, three influences that I think, along with others, have had the effect of limiting such prosecutions.
First, the prosecutors had other priorities. Some of these were completely understandable. For example, prior to 2001, the FBI had more than 1,000 agents assigned to investigating financial frauds, but after 9/11 many of these agents were shifted to anti-terrorism work. Who can argue with that? Eventually, it is true, new agents were hired for some of the vacated spots in fraud detection; but this is not a form of detection easily learned and recent budget limitations have only exacerbated the problem.
Of course, the FBI is not the primary investigator of fraud in the sale of mortgage-backed securities; that responsibility lies mostly with the S.E.C. But at the very time the financial crisis was breaking, the S.E.C. was trying to deflect criticism from its failure to detect the Madoff fraud, and this led it to concentrate on other Ponzi-like schemes, which for awhile were, along with accounting frauds, its chief focus. More recently, the S.E.C. has been hard hit by budget limitations, and this has not only made it more difficult to assign the kind of manpower the kinds of frauds we are talking about require, but also has led S.E.C. enforcement to focus on the smaller, easily resolved cases that will beef up their statistics when they go to Congress begging for money.
As for the Department of Justice proper, a decision was made around 2009 to spread the investigation of these financial fraud cases among numerous U.S. Attorney’s Offices, many of which had little or no prior experience in investigating and prosecuting sophisticated financial frauds. At the same time, the U.S. Attorney’s Office with the greatest expertise in these kinds of cases, the Southern District of New York, was just embarking on its prosecution of insider trading cases arising from the Rajaratnam tapes, which soon proved a gold mine of good cases that absorbed a huge amount of the attention of the securities fraud unit of that office. While I want to stress again that I have no inside information, as a former chief of that unit I would venture to guess that the cases involving the financial crisis were parceled out to Assistants who also had insider trading cases. Which do you think an Assistant would devote most of her attention to: an insider trading case that was already nearly ready to go to indictment and that might lead to a high-visibility trial, or a financial crisis case that was just getting started, would take years to complete, and had no guarantee of even leading to an indictment? Of course, she would put her energy into the insider trading case, and if she was lucky, it would go to trial, she would win, and she would then take a job with a large law firm. And in the process, the financial fraud case would get lost in the shuffle.
Alternative priorities, in short, is, I submit, one of the reasons the financial fraud cases were not brought, especially cases against high level individuals that would take many years, many investigators, and a great deal of expertise to investigate. But a second, and less salutary, reason for not bringing such cases is the Government’s own involvement in the underlying circumstances that led to the financial crisis.
On the one hand, the government, writ large, had a hand in creating the conditions that encouraged the approval of dubious mortgages. It was the government, in the form of Congress, that repealed Glass-Steagall, thus allowing certain banks that had previously viewed mortgages as a source of interest income to become instead deeply involved in securitizing pools of mortgages in order to obtain the much greater profits available from trading. It was the government, in the form of both the executive and the legislature, that encouraged deregulation, thus weakening the power and oversight not only of the S.E.C. but also of such diverse banking overseers as the O.T.S. and the O.C.C. It was the government, in the form of the Fed, that kept interest rates low in part to encourage mortgages. It was the government, in the form of the executive, that strongly encouraged banks to make loans to low-income persons who might have previously been regarded as too risky to warrant a mortgage. It was the government, in the form of the government-sponsored entities known as Fannie Mae and Freddie Mac, that helped create the for-a-time insatiable market for mortgage-backed securities. And it was the government, pretty much across the board, that acquiesced in the ever greater tendency not to require meaningful documentation as a condition of obtaining a mortgage, often preempting in this regard state regulations designed to assure greater mortgage quality and a borrower’s ability to repay.
The result of all this was the mortgages that later became known as “liars’ loans.” They were increasingly risky; but what did the banks care, since they were making their money from the securitizations; and what did the government care, since they were helping to boom the economy and helping voters to realize their dream of owning a home.
Moreover, the government was also deeply enmeshed in the aftermath of the financial crisis. It was the government that proposed the shotgun marriages of Bank of America with Merrill Lynch, of J.P. Morgan with Bear Stearns, etc. If, in the process, mistakes were made and liabilities not disclosed, was it not partly the government’s fault?
Please do not misunderstand me. I am not alleging that the Government knowingly participated in any of the fraudulent practices alleged by the Financial Inquiry Crisis Commission and others. But what I am suggesting is that the Government was deeply involved, from beginning to end, in helping create the conditions that could lead to such fraud, and that this would give a prudent prosecutor pause in deciding whether to indict a C.E.O. who might, with some justice, claim that he was only doing what he fairly believed the Government wanted him to do.
The final factor I would mention is both the most subtle and the most systemic of the three, and arguably the most important, and it is the shift that has occurred over the past 30 years or more from focusing on prosecuting high-level individuals to focusing on prosecuting companies and other institutions. It is true that prosecutors have brought criminal charges against companies for well over a hundred years, but, until relatively recently, such prosecutions were the exception, and prosecutions of companies without simultaneous prosecutions of their managerial agents were even rarer. The reasons were obvious. Companies do not commit crimes; only their agents do. And while a company might get the benefit of some such crimes, prosecuting the company would inevitably punish, directly or indirectly, the many employees and shareholders who were totally innocent. Moreover, under the law of most U.S. jurisdictions, a company cannot be criminally liable unless at least one managerial agent has committed the crime in question; so why not prosecute the agent who actually committed the crime?
In recent decades, however, prosecutors have been increasingly attracted to prosecuting companies, often even without indicting a single individual. This shift has often been rationalized as part of an attempt to transform “corporate cultures,” so as to prevent future such crimes; and, as a result, it has taken the form of “deferred prosecution agreements” or even “non-prosecution agreements,” in which the company, under threat of criminal prosecution, agrees to take various prophylactic measures to prevent future wrongdoing. But in practice, I suggest, it has led to some lax and dubious behavior on the part of prosecutors, with deleterious results.
If you are a prosecutor attempting to discover the individuals responsible for an apparent financial fraud, you go about your business in much the same way you go after mobsters or drug kingpins: you start at the bottom and, over many months or years, slowly work your way up. Specifically, you start by “flipping” some lower level participant in the fraud whom you can show was directly responsible for making one or more false material misrepresentations but who is willing to cooperate in order to reduce his sentence, and – aided by the substantial prison penalties now available in white collar cases – you go up the ladder. For a detailed example of how this works, I recommend Kurt Eichenwald’s well-known book The Informant, which describes how FBI agents, over a period of three years, uncovered the huge price-fixing conspiracy involving high-level executives at Archer Daniels, all of whom were successfully prosecuted.
But if your priority is prosecuting the company, a different scenario takes place. Early in the investigation, you invite in counsel to the company and explain to him or her why you suspect fraud. He or she responds by assuring you that the company wants to cooperate and do the right thing, and to that end the company has hired a former Assistant U.S. Attorney, now a partner at a respected law firm, to do an internal investigation. The company’s counsel asks you to defer your investigation until the company’s own internal investigation is completed, on the condition that the company will share its results with you. In order to save time and resources, you agree. Six months later the company’s counsel returns, with a detailed report showing that mistakes were made but that the company is now intent on correcting them. You and the company then agree that the company will enter into a deferred prosecution agreement that couples some immediate fines with the imposition of expensive but internal prophylactic measures. For all practical purposes the case is now over. You are happy because you believe that you have helped prevent future crimes; the company is happy because it has avoided a devastating indictment; and perhaps the happiest of all are the executives, or former executives, who actually committed the underlying misconduct, for they are left untouched.
I suggest that this is not the best way to proceed. Although it is supposedly justified in terms of preventing future crimes, I suggest that the future deterrent value of successfully prosecuting individuals far outweighs the prophylactic benefits of imposing internal compliance measures that are often little more than window-dressing. Just going after the company is also both technically and morally suspect. It is technically suspect because, under the law, you should not indict or threaten to indict a company unless you can prove beyond a reasonable doubt that some managerial agent of the company committed the alleged crime; and if you can prove that, why not indict the manager? And from a moral standpoint, punishing a company and its many innocent employees and shareholders for the crimes committed by some unprosecuted individuals seems contrary to elementary notions of moral responsibility.
These criticisms take on special relevance, however, in the instance of investigations growing out of the financial crisis, because, as noted, the Department of Justice’s position, until at least very, very recently, is that going after the suspect institutions poses too great a risk to the nation’s economic recovery. So you don’t go after the companies, at least not criminally, because they are too big to jail; and you don’t go after the individuals, because that would involve the kind of years-long investigations that you no longer have the experience or the resources to pursue.
In conclusion, I want to stress again that I have no idea whether the financial crisis that is still causing so many of us so much pain and despondency was the product, in whole or in part, of fraudulent misconduct. But if it was — as various governmental authorities have asserted it was –- then, the failure of the government to bring to justice those responsible for such colossal fraud bespeaks weaknesses in our prosecutorial system that need to be addressed.