October 10, 2024

DealBook: Documents Show Obama Officials in Tension Over British Banks

Bart Naylor of Public Citizen was critical of Treasury.Doug Mills/The New York TimesBart Naylor of Public Citizen was critical of Treasury.

Government documents have recently emerged that offer a rare behind-the-scenes glimpse into the Obama administration’s decision-making as it prepared to take actions against two big British banks over money laundering.

In the case of the banks suspected of laundering billions of dollars through the American financial system — HSBC and Standard Chartered — authorities decided last year to level hefty fines rather than seek criminal charges. Those decisions raised concerns in Washington that some banks, having grown so large and interconnected, are too big to indict.

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The internal government documents, which revealed some tension among authorities about how aggressively to pursue the cases, suggest that at least one agency, the Treasury Department, was alert to such concerns. When authorities were being blamed for letting HSBC off the hook, Treasury officials assured top aides to Timothy F. Geithner, then the Treasury secretary, that monetary penalties were coming as “quickly as possible,” according to the documents reviewed by The New York Times.

The agency also contacted and persuaded a news organization to withdraw a report that wrongly blamed Treasury for not indicting HSBC, the documents indicate. (It’s the job of the Justice Department to decide criminal charges, Treasury explained.)

Ultimately, Treasury assessed a record $875 million fine against HSBC. But some critics wanted more, noting that Treasury’s own internal documents cite the bank’s “egregious violations” of money laundering laws as “qualitatively worse” than other banks.

“I would like to see Treasury support zealous prosecution, and instead I see them managing their image,” said Bart Naylor, a policy advocate at Public Citizen, a nonprofit group critical of the government for not taking a harder line with HSBC.

Treasury released the internal documents to Public Citizen through a Freedom of Information Act request. The group then shared the information with The Times. A spokesman for Treasury declined to comment.

Timothy F. Geithner, the former Treasury secretary, had a more staid philosophy in money laundering cases than other regulators.Jim Lo Scalzo/European Pressphoto AgencyTimothy F. Geithner, the former Treasury secretary, had a more staid philosophy in money laundering cases than other regulators.

In a sign that the money laundering cases pitted authorities against one another, the Treasury Department raised concerns last year that New York’s banking regulator acted against Standard Chartered without sufficiently notifying federal authorities, the documents show. Treasury officials explained the concerns in an internal memo to Mr. Geithner.

The memo, internal e-mails show, was prepared for Mr. Geithner as “talking points” ahead of an October meeting with George Osborne, Britain’s chancellor of the Exchequer. In a September letter to Mr. Geithner, Mr. Osborne had expressed significant “concerns” about New York’s action, given that the United States and Britain typically collaborate closely on such cases.

While the talking points highlighted “Treasury’s coordination” with British regulators, it also distanced Mr. Geithner from the New York regulator, Benjamin M. Lawsky.

“Unfortunately,” the memo said, Mr. Lawsky’s office notified federal authorities “only hours before its public announcement.”

But people close to the case argue that federal authorities were aware that Mr. Lawsky was poised to act. Three months before filing the case, Mr. Lawsky’s office informed Treasury and other federal officials that it planned to soon take action against Standard Chartered, the people close to the case said.

The tension reflected a culture clash between Mr. Lawsky’s aggressive approach and the more staid philosophy common at the Treasury Department. A former terrorism prosecutor, Mr. Lawsky adopted a broader view of Standard Chartered’s wrongdoing than federal authorities, and even threatened to revoke its state banking license. At the time, Treasury and the Justice Department were not ready to act.

Matt Anderson, a spokesman for Mr. Lawsky, declined to comment. In a speech this April, however, Mr. Lawsky played down the tensions, saying “a dose of healthy competition among regulators is helpful and necessary to safeguarding the stability of our nation’s financial system.”

But in Washington, some discussions have taken a more hostile tone as the Justice Department faces scrutiny for not indicting HSBC.

The Justice Department has explained that it follows guidelines requiring prosecutors to weigh indictments of businesses with “collateral consequences” like job losses and, in the case of big banks, a threat to the economy. And in a recent letter to Congress, the department explained that it has “contacted relevant government agencies to discuss such issues,” including federal regulators.

But in Congressional testimony in March, David S. Cohen, Treasury’s under secretary for terrorism and financial intelligence, said “The decision whether to bring criminal charges is the exclusive prerogative of criminal prosecutors.” He added that “we were not in a position to offer any meaningful guidance” in the HSBC criminal case.

But inside the Treasury Department in late 2012, shortly after Congress scolded authorities for not yet punishing HSBC, officials appeared to make the civil case a significant priority.

Over several weeks, Treasury officials consulted two of Mr. Geithner’s top lawyers, Christopher Meade and Christian Weideman. The involvement of the lawyers, who were known at Treasury as Mr. Geithner’s top problem solvers, reflected the seriousness of the approach.

Treasury officials sent the lawyers “new developments” in the HSBC case. At one point, an official assured them that Treasury was moving “as quickly as possible to put together administrative penalty actions.”

When Treasury joined the Justice Department in announcing the case in December, a media outlet ran an overnight article in which a professor speculated that Mr. Geithner had not criminally prosecuted HSBC to avoid putting it out of business.

By dawn that day, Treasury officials e-mailed one another about the article. Shortly after, National Public Radio retracted the quote and issued a statement saying that Treasury had not been involved in the decision not to indict HSBC.

Article source: http://dealbook.nytimes.com/2013/05/29/documents-show-obama-officials-in-tension-over-british-banks/?partner=rss&emc=rss

DealBook: Lawmakers Push to Increase White House Oversight of Financial Regulators

Senator Rob Portman of Ohio says the bill would promote a more stable regulatory environment for economic growth and job creation.Charles Dharapak/Associated PressSenator Rob Portman of Ohio says the bill would “promote a more stable regulatory environment for economic growth and job creation.”

Financial regulators may face a new obstacle in their efforts to police Wall Street.

Lawmakers are pushing a bill that could curb the influence of the Securities and Exchange Commission, the Commodity Futures Trading Commission and other regulators, according to Congressional staff members and government watchdog groups.

The measure, which a Senate committee is planning to debate this month, aims to empower the president in the rule-writing process. The proposal would allow the White House to second-guess major rules and mandate that agencies carefully study the economic effects of new regulation. The change could, in effect, delay a number of rules for the financial industry.

Some legal experts say the White House already has ample authority to impose such demands on independent agencies like the S.E.C. But critics say that the bill would stymie financial reform and threaten the autonomy of regulators that operate outside the presidential cabinet.

“Those who support preserving the status quo where Wall Street regulates itself will find much to like in this legislation,” said Amit Narang, a regulatory policy advocate at Public Citizen, a nonprofit government watchdog group.

Senator Susan Collins of Maine backed Dodd-Frank, and the lawmakers point to support among several Democrats.J. Scott Applewhite/Associated PressSenator Susan Collins of Maine backed Dodd-Frank, and the lawmakers point to support among several Democrats.

The bill, introduced in the Senate last month, would offer a path to challenge the Dodd-Frank law, the sprawling regulatory overhaul passed in the wake of the 2008 financial crisis. Regulators have already encountered significant delays as the financial industry mounts legal challenges to the law.

The authors of the Senate bill — Rob Portman, Republican of Ohio, and Susan Collins, Republican of Maine — say they are not out to kill financial reform. Ms. Collins backed Dodd-Frank, and the lawmakers point to support among several Democrats, including their co-author, Mark Warner of Virginia.

“This is a bipartisan, consensus reform with broad support, and it will promote a more stable regulatory environment for economic growth and job creation,” Mr. Portman said in a statement.

The bill’s future is uncertain. Congress has little time to act during the election season, and the legislation is not on the Senate’s official agenda. But some Congressional staff members say it is rapidly gaining steam.

The bill was assigned to the Senate Committee on Homeland Security and Governmental Affairs, overseen by Joseph Lieberman, independent of Connecticut. The committee has discussed putting the proposal on the agenda for a Sept. 20 meeting, according to staff members briefed on the matter. The committee, which will most likely release its schedule on Wednesday, could use that meeting to amend and vote on the bill.

As a last resort, lawmakers may also include the measure in a broader appropriations bill. Such a move would be the latest Congressional jab at financial regulation. The House has passed a series of bills to temper Dodd-Frank. And this spring, President Obama signed the bill known as the JOBS Act, for Jump-Start Our Business Start-Ups, which loosened the rules surrounding initial public offerings as well as parts of a landmark settlement over stock research struck almost a decade ago.

Some regulators, sensing momentum around the new legislation, are resisting. The Federal Deposit Insurance Corporation and other financial regulators have raised concerns with lawmakers in recent days, in a bid to keep the bill off the Congressional docket, people briefed on the matter said. Regulators, whose cause is backed by advocacy groups like Public Citizen and Americans for Financial Reform, say the legislation would upend their way of doing business.

Under the bill, current and future White Houses would receive explicit authority to influence the rule-making process at independent agencies, a collection of several dozen government bodies as varied as the Federal Communications Commission and the F.D.I.C., S.E.C. and C.F.T.C. The Federal Reserve is exempt.

The president, through an executive order, would be allowed to mandate at the minimum a 13-point test for rule-making. That includes finding “available alternatives to direct regulation,” evaluating the “costs and the benefits,” drafting “each rule to be simple and easy to understand” and periodically reviewing existing rules to make agencies “more effective or less burdensome.”

For more “significant” rules — those that have an annual effect of at least $100 million on the economy — independent agencies would have to submit their proposals to the Office of Information and Regulatory Affairs, an arm of the White House that acts as a sort of regulatory referee. A negative review from the office would delay a rule for up to three months and force an agency to explain its approach.

Despite the change, some legal experts say the bill will have no trouble passing Constitutional muster.

“It doesn’t mean he can tell them how to decide, but it does mean they must consult with him — and that is the minimum required for the single executive the Constitution created,” said Peter L. Strauss, the former general counsel of the Nuclear Regulatory Commission who is now a professor of regulatory law at Columbia Law School. He added that he hoped “the bill will be enacted.”

The president currently exercises such power only over cabinet agencies like the Treasury and Commerce departments. That power was gained from executive orders issued by both Ronald Reagan and Bill Clinton.

Proponents of the bill say they are aiming to close what they call a “loophole” for independent agencies, which have struggled at times to fully evaluate the costs of their rules. The bill tracks a recommendation made in a report this year by the president’s jobs council.

But for years, Congress has balked before explicitly granting the White House such authority. Even Ms. Collins has questioned the approach, saying at a 2009 hearing that “the whole reason that Congress creates independent regulatory agencies is to insulate them from administration policies.”

Critics of Wall Street say the bill is an unnecessary check on regulatory power. The S.E.C. and its fellow financial regulators, they say, already draft cost-benefit analyses. The futures trading commission also recently tapped the Office of Information and Regulatory Affairs to advise on some of its rules.

If Congress and the White House ramp up the requirements, that will translate into months of additional delays, advocates say. The bill, they argue, will also spur court battles over financial regulation, potentially handing Wall Street another victory.

“Corporate interests will likely use negative White House reviews as a new weapon for challenging independent agencies in court,” Mr. Narang of Public Citizen said. “The bill could lead to increased litigation and greater regulatory uncertainty.”

Article source: http://dealbook.nytimes.com/2012/09/09/lawmakers-push-to-increase-white-house-oversight-of-financial-regulators/?partner=rss&emc=rss