In the years since the 2008 financial crisis, federal prosecutors in the United States have brought dozens of criminal cases against the world’s most powerful banks, charging them with manipulating financial indices, helping their customers evade taxes, evading sanctions, and laundering money. 

To settle these cases, global banks like UBS, Barclays, HSBC and BNP Paribas paid tens of billions of dollars in fines. They also agreed to extensive reforms, hiring hundreds of compliance officers, spending billions on new systems, and installing independent monitors.

In effect, the banks agreed to become worldwide enforcers of U.S. law, including financial sanctions – sometimes despite their own governments’ protests.

That’s the take of University of Virginia Law Professor Pierre-Hugues Verdier, author of the just released book – Global Banks on Trial U.S. Prosecutions and the Remaking of International Finance (Oxford University Press, 2020).

The book examines the U.S. enforcement campaign against global banks across four areas – benchmark manipulation, tax evasion, sanctions violations, and sovereign debt. 

Verdier shows that U.S. prosecutors have unilaterally carved out a new role as global bank regulators, heralding a fundamental shift in how international finance is overseen. 

Their ability to do so stems from U.S. control over access to vital hubs of the international financial system, Verdier says. 

In some areas, unilateral U.S. actions have ushered in important multilateral reforms, such as the rise of automatic tax information exchange and better-regulated financial indices. In other areas, such as financial sanctions, unilateralism has attracted protests from other states and spurred attempts to challenge U.S. dominance of international finance.

Were you initially skeptical of the criminal prosecutions of the big banks?

“I didn’t make up my mind before I had spent quite some time looking at what was going on,” Verdier told Corporate Crime Reporter in an interview last week. “But I was inclined to think that the prosecutions might bring something to the table that had been absent from the traditional model of regulatory enforcement. Perhaps I was inclined to have a view that was somewhat more positive than that of a lot of observers at the time who were critical of bank prosecutions and other corporate prosecutions generally.” 

“There is a bit of a conventional wisdom that has emerged to the effect that these prosecutions are not very significant. Prosecutors are imposing fines on banks that are significant on paper, but that banks can pay fairly easily, we are not sure whether the reforms imposed on banks by these agreements work or not or what exactly they achieve. And the main line of criticism was that there were not enough individual prosecutions, that individual bankers, especially top level officials should be prosecuted and go to jail, but that this was not happening and that this kind of proved that the whole effort was not worthwhile.” 

“I was inclined to see if there was something more going on that made these prosecutions a bit more beneficial than these critics thought, even though I recognized that they had limitations and problems.”

In your book you cite critics who make the case that the banks can write the checks and we should be prosecuting individual executives.

“It’s not entirely untrue what they are saying. It probably would be more deterrent to have more individual prosecutions. I don’t completely disagree. But my counter is that individual prosecutions have proven to be extremely difficult. As this criticism has mounted, prosecutors have brought more individual prosecutions.” 

“And as I relate in the book, many of them have failed. And I don’t think there is any indication that that is because the prosecutors did a bad job or held their fire. But these cases take place in large institutions where it’s very difficult to pin down knowledge and intent on any individual, the evidence is complex, and what is going on within the institution is complicated.”

“One of the top bankers at Credit Suisse was prosecuted and acquitted. The three foreign exchange traders in Britain who were at the center of the foreign exchange scandal eventually agreed to come to the United States for trial. They went on trial in New York and they were eventually acquitted as well.” 

“You go before a jury and the story is – everyone else was doing it, we didn’t think it was dishonest or our bosses approved of it and everyone knew about it. Those are not strictly speaking legal defenses. But they work before juries.” 

“It’s extremely difficult to bring these individual prosecutions. People who bring these critiques are overstating how easy it would be to successfully bring these cases.”

“That is point number one. Point number two – focusing solely on deterrence and focusing solely on what happens to these individuals is missing the bigger picture. And the bigger picture is that these prosecutions have not been just about punishing banks for doing bad things and deterring them from doing them in the future. They are partly about that and that is an important objective.” 

“But they have also been about extending public control over these institutions to turn them towards policy objectives that prosecutors and the U.S. government more generally are pursuing. And you see that, for example, with the settlements with the largest banks like HSBC and BNP, with respect to sanctions. The banks were not just paying large fines. We are not just punishing them for what they were doing in the past. But prosecutors are saying –  you have to take measures to implement U.S. sanctions in the future, beyond the legal obligations that you would have had under U.S. law or beyond the places that are under U.S. jurisdiction in order to get out of these charges. That’s a significant development.” 

“We have gone from a world in which international banks thought they could contain the impact of U.S. policies and sanctions. They would say – we look at the jurisdictional limits of where these sanctions apply. And then we will do what we can to skirt around those.” 

“But now the message has been sent that they will be prosecuted, that they will be threatened with lots of access to U.S. payment systems and markets, which is a significant threat. And if they want to avoid that threat, they have to not only settle with the U.S. government today but they have to significantly improve their compliance with sanctions and become in effect an instrument of U.S. sanctions policy in the future.”

“That bigger picture is completely missing from the critique that is focused solely on whether people are being punished or deterred or not. And that’s what I want to bring attention to in the book. If there is one thing I want people to realize is that there is a bigger picture. And that’s true with taxes, sanctions, benchmark reform. The prosecutions are part of a bigger process by which banks are being brought more under state control.”

[For the complete q/a format Interview with Pierre-Hugues Verdier, see page 34 Corporate Crime Reporter 15(11), Monday May 13, 2020, print edition only.]