Pierre-Hugues Verdier is the John A. Ewald Jr. Research Professor of Law, and author of “Global Banks on Trial: U.S. Prosecutions and the Remaking of International Finance” (Oxford University Press). The book explains the dramatic increase in U.S. criminal enforcement actions against global banks. I interviewed him by email.

Q. Why have U.S. prosecutors come to play such an important role in regulating global banks?

A. For decades, specialized regulatory agencies like the Federal Reserve and the U.K. Financial Services Authority were the key players in regulating large banks. When they detected compliance problems, they instructed banks to remedy them; sometimes they imposed civil fines and individual sanctions. When there was serious misconduct, regulators would sometimes refer cases to prosecutors, but there was little sense that they were central players in policing misconduct in global banks, let alone regulating them.

Since the financial crisis, things look very different. The crisis generated massive public demand for bank accountability. But it also revealed severe failures in the traditional regulatory system. Bank regulators have always focused heavily on safety and soundness — making sure banks do not fail — rather than on policing misconduct that harms third parties. The system also requires that they maintain a cooperative relationship with banks and with their foreign counterparts, which pushes against strong enforcement. Prosecutors have very different incentives. They filled in the enforcement gap, investigating and prosecuting practices that had been neglected by regulators.

Q. Why do foreign banks have an incentive to comply with their demands?

A. Most global banks have a substantial presence in the United States, including billions of dollars in assets, that could be seized. But the U.S. government’s leverage against them goes much further. The country controls vital hubs of the international financial infrastructure without which global banks could not do business at all. Large U.S. dollar payments from around the world transit through correspondent accounts in New York banks and through clearing systems like CHIPS and Fedwire; wire transfer instructions are handled by global messaging systems like SWIFT; securities transactions and payments are processed by U.S.-based clearing and settlement systems. Since the financial crisis, prosecutors have realized they can threaten to take away access to that infrastructure, an existential threat for global banks. To take an extreme example, in 2012 the DOJ indicted Wegelin, a Swiss bank with no U.S. presence, for assisting tax evasion, and froze its U.S. correspondent account. The bank, founded in 1741, went out of business less than a year later.

Q. How has this played out, for example, in U.S. efforts to stop Swiss banks harboring the funds of U.S. tax evaders?

A. The U.S. government long suspected Swiss banks of aiding tax evasion, but there seemed to be little it could do about it. The country staunchly defended bank secrecy and fought international proposals for tax information exchange. A major breakthrough came when a UBS whistleblower told DOJ prosecutors about the bank’s extensive business with tens of thousands of U.S. taxpayers. In 2009, UBS settled a criminal case for $780 million — then the largest criminal fine ever levied on a global bank. It also was required to disclose more than 4,000 U.S. customer names to the IRS. Years of legal wrangling followed; many other Swiss banks were drawn in (Credit Suisse paid $2.6 billion in 2014); Switzerland agreed to amend its tax treaty with the United States; and Congress adopted FATCA, the controversial statute that compels foreign banks to disclose U.S. accounts. Eventually, the OECD adopted a multilateral automatic tax information exchange system that has become operational and expanded quickly — something almost no one thought possible a decade before. (Incidentally, the UBS whistleblower went to prison but eventually got a $100 million payout from the IRS.)

Q. How have other countries responded when U.S. judges have, for example, acted to change the politics of sovereign debt?

A. When a U.S. court enjoined Argentina from paying its new bondholders — those who had agreed to its debt restructuring — unless it also paid the holdout creditors in full, the government reacted angrily. In the end, though, there was very little it could do. The injunction bound not only Argentina, but many of the links in the chain of payments that moved the money from the country’s coffers to the bondholders. These institutions — operators of payment systems, securities clearing systems, and global banks — all had extensive U.S. connections and could not risk noncompliance with a U.S. court order. Argentina tried hard to find a way to bypass these systems, but failed and eventually defaulted on its new bonds. In the end, it settled with the holdouts.

Q. How has this changed under the Trump administration, and how might it plausibly change if Biden were elected president?

A. As my colleague Brandon Garrett has documented, U.S. corporate prosecutions have plummeted since 2016. This is not surprising given the administration’s pro-business stance and the high-profile matters that have monopolized the DOJ’s attention. But the impact of the post-crisis prosecutions continues to be felt. For example, the Trump administration has relied heavily on financial sanctions to advance its foreign policy goals, a strategy facilitated by the new compliance obligations imposed on global banks. When the Chinese government castigated HSBC for turning over information about Huawei to the United States, the bank responded that it had a U.S. monitor with hundreds of agents in its offices; “stonewalling the DOJ was not an option.”

If Biden were elected president, it seems likely that we would see more corporate prosecutions by the DOJ, although there would likely be less focus on banks than in the post-crisis era. The bigger question would be whether to continue using U.S. structural power over international finance to advance foreign policy objectives. Some prominent Democrats argue that this strategy has gone too far and threatens to undermine the U.S. dollar’s role as a global currency. But it would be very tempting to turn these tools against the new administration’s targets. If it is done in the service of reforms that have broad international support — such as fighting tax evasion or market manipulation — it could make the dollar-centered international financial system more, rather than less, appealing.