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Credit Suisse: Crime without Punishment

If punishment is meant to deter crime, then perhaps the reason Wall Street seems undeterred from committing crimes is the fact that it doesn’t face punishment.

Earlier this year, Credit Suisse pleaded guilty to a decades-long scheme to help Americans escape income taxes; but it has been a pain-free guilty plea. In fact, the government fine was borne by shareholders innocent of the conspiracy. When Attorney General Eric Holder announced the guilty plea, he stated that the business of the bank itself wouldn’t be interrupted and it could “move forward.” And the Department of Labor (DOL) recently proposed to exempt Credit Suisse from an otherwise mandatory penalty involving the firm’s pension fund management business.

The DOL oversees pension fund managers through a law approved in 1974 as a result of notorious swindles. Generally, the law requires fund managers to avoid complex, risky investments, and it provides that such investments only be offered if the manager is sophisticated and squeaky clean. A criminal record anywhere at the fund manager’s firm means those risky investment strategies must be examined with greater care. That requires more effort by Credit Suisse — a little pain. And that’s appropriate. Crimes are supposed to be punished. Yet the DOL proposes to let Credit Suisse retain its status as trustworthy for complex, high risk investments.

Before the DOL excuses Credit Suisse from this mandatory penalty, it asks for public comment. Public Citizen has written the DOL outlining our objections, and we call for a hearing. “Pension fund beneficiaries are especially vulnerable to Wall Street abuse because their savings may be managed by firms they do not even choose, let alone control.” Three members of Congress also call for a hearing: California’s Rep. Maxine Waters, the ranking Democrat on the House financial services committee, California’s George Miller, ranking Democrat on the House education and workforce committee, and Rep. Stephen Lynch (D-Mass). “The American public has grown increasingly frustrated about the lack of accountability in our financial system.” They pointed out that “regulators are not using the full arsenal of tools available to them to protect the public.” In fact, every commenter urged the DOL to enforce the law, and not grant Credit Suisse an exemption, with one exception: Credit Suisse. The Credit Suisse letter actually asks for even greater latitude in pension management. In the face of this comment record, bolstered by letters from senior members of Congress from committees responsible for banking and pension fund oversight, it will be a miscarriage of the regulatory process if the DOL grants Credit Suisse a pass from this penalty without a hearing. Unfortunately, the DOL habitually grants such exemptions – 23 straight times in previous cases. We hope the comment record changes this streak.

The Department of Labor isn’t the only agency that sometimes discards its enforcement tools. The Securities and Exchange Commission (SEC) must exercise greater oversight when firms sell securities to the public after the firm has been convicted of a felony. However, like the DOL, it too routinely grants exemptions. SEC Commissioners Kara Stein and Louis Aguilar have rightly criticized this routine, dubbing the banks “too big to bar.” Stein noted the obvious impact on deterrence. She pointed out that one large firm received 22 separate waivers from the SEC rules over 10 years, brazenly contending that it has a “strong record of compliance with federal securities laws.”

Exactly why financial law enforcers believe they should pull punches is unclear. A hearing before the DOL on the Credit Suisse application might shed some light on this mystery. We need the DOL to give this issue air time, for if it doesn’t even grant a hearing, the public is likely to grow still more cynical that financial firms remain above the law, and in turn that we can expect more financial crime.

Bartlett Naylor is the financial policy advocate for Public Citizen’s Congress Watch division.