The U.S. Justice Department may be in danger of pushing banks so hard they become less helpful. Enforcers are considering using UBS’s foreign exchange sins as a reason to undo a 2012 agreement not to prosecute the Swiss lender for interest rate-rigging, according to news reports. But a DoJ about-turn would seem to UBS and other banks like a stab in the back.
UBS was spared immediate prosecution partly on the understanding that it would fess up on forex misdeeds. Technically, the DoJ can probably find a way to pin UBS – or another bank in a parallel situation – for breaching the agreement. After all, the Swiss company has about 60,000 employees, and a few of them may be up to no good at any given time however hard the bank tries to eliminate illegal behaviour.
But applying the letter of the law risks making banks feel they would be better off refusing to play ball at all. Companies under deferred or non-prosecution agreements are generally obliged to share more than the usual amount of information with authorities. That can help watchdogs unearth industry malpractice that would otherwise be obscured.
The agreements also boost regulatory firepower. External monitors and regular reporting give supervisors a fuller picture of what banks get up to and help make it more likely that the companies involved clean up their act in the ways they promise.
The DoJ is surely aware that a change of heart could cost it leverage in dealing with banks. Washington politics may, however, be at work. Senator Elizabeth Warren – for supporters, a potential Democrat presidential rival for Hillary Clinton – is one critic of NPAs and DPAs, calling them “get-out-of-jail-free cards” for corporations.
Prosecutors have shied away from going after individuals over the financial crisis, attracting justifiable popular resentment. And the idea that prosecutions should be avoided for the sake of financial safety – that banks are “too big to jail” – has been largely debunked after guilty pleas by subsidiaries as well as the parent entities of Credit Suisse and BNP Paribas did not automatically lead to the loss of critical banking licences.
Yet while the DoJ arguably should have been tougher, and could still become so, that doesn’t mean it’s worth going back on arrangements already made. Deals to avoid prosecution don’t satisfy bloodlust, but they serve useful functions. It would be a pity to make them unworkable.