A bipartisan pair of lawmakers on Tuesday questioned the Justice Department’s prosecution of large financial institutions, raising concerns that recent settlements have fallen short of holding Wall Street accountable for wrongdoing.
Sens. Sherrod Brown (D-Ohio) and Charles E. Grassley (R-Iowa) sent a letter to Attorney General Eric H. Holder Jr. asking for a detailed explanation of the department’s procedures for going after financial crime. Penalties in settlements have been disproportionately low relative to company profits and the costs imposed on consumers, investors and the market, they said.
“The nature of these settlements has fostered concerns that ‘too big to fail’ Wall Street banks enjoy a favored status, in statute and in enforcement policy,” the senators wrote in the letter. “This perception undermines the public’s confidence in our institutions and in the [principle] that the law is applied equally in all cases.”
The letter is part of a broader public outcry against the government’s treatment of Wall Street firms. Critics say multimillion-dollar fines imposed on megabanks are tantamount to a slap on the wrist as long as no senior executives are behind bars. Prosecutors, however, contend that they must be prudent in doling out justice so as not to cripple institutions whose failure could jeopardize the stability of the financial markets.
Indeed, when Justice announced its $1.5 billion settlement with Swiss banking giant UBS for rigging the global interest rate known as Libor, Holder said the department took into consideration the impact of prosecution on the stability of the bank.
“We reach out to experts outside of the Justice Department to talk about what are the consequences of actions that we might take, what would be the impact of those actions if we want to make particular prosecutive decisions or determinations with regard to a particular institution,” he said at a December news conference announcing the agreement.
Brown and Grassley want to know who the department consults in making prosecutorial decisions, particularly involving institutions with more than $1 billion in assets. They also questioned whether the department has designated some firms as “too big to jail,” and in doing so held back on prosecuting those companies to the fullest extent of the law.
“The best deterrent to crime is to put people in prison,” Grassley said. “That includes those at powerful banks and corporations. Unfortunately, we’ve seen little willingness to charge these individuals criminally.”
The senators have asked for a response to their inquiry by Feb. 8. Justice officials said they are reviewing the letter and will respond accordingly.
As the ranking Republican on the Judiciary Committee, Grassley has long been critical of the department’s handling of white-collar crimes. He denounced its decision to forgo criminal prosecution of HSBC officials involved in laundering money for Mexican drug cartels and countries under U.S. sanctions.
Brown, chairman of the subcommittee on financial institutions and consumer protection, has been a vocal supporter of placing limits on the size of massive banks. This month, he and Sen. David Vitter (R-La.) sent a letter to the Government Accountability Office, urging the agency to conduct a study of the economic benefits that megabanks receive as a result of the market perception that the government will bail them out. The GAO accepted the request.
“The nation’s six largest megabanks enjoy what amounts to taxpayer-funded guarantee by virtue of their size, making it harder for regional and community banks to compete,” Brown said. “Now, these megabanks may also enjoy some impunity when they violate the law.”