Unchecked Power: How Major Banks Dodge Jail and Dominate

May 4, 2024 | Financial Literacy

Financial regulators encourage criminal behavior if you are too large to fail or prosecute. Not the digital asset firms; these have been held up as examples.

The unsettling disparity in how financial misconduct and criminality are addressed within the banking sector starkly highlights the influence of power and size. The preferential treatment afforded to globally systemically important banks (GSIBs) by federal regulators, contrasted with the severe consequences faced by smaller, non-regulated institutions, paints a grim picture of the current financial justice system.

At the heart of the issue is money laundering, a crime as ancient as taxation itself. This practice, which involves concealing the origins of money obtained illegally by passing it through a complex sequence of banking transfers or commercial transactions, has been tacitly tolerated, if not outright overlooked, when it comes to major banks. This tolerance can be traced back to an alarming statement made by then-Attorney General Eric H. Holder Jr. in 2013, asserting that some financial institutions are “too big to jail,” implying that their immense size and economic influence render them immune to the full force of the law.

Holder’s testimony to the Senate Judiciary Committee revealed a truth many have long suspected: certain financial behemoths wield enough power to skirt the legal boundaries that constrain smaller entities. This revelation not only undermines public trust in regulatory bodies but also illuminates the skewed enforcement of The Bank Secrecy Act (BSA). Enacted in 1970, the BSA was supposed to mandate U.S. financial institutions to assist in the detection and prevention of money laundering. However, its application appears bifurcated by a blatant double standard: regulated institutions often settle violations with fines and admissions of guilt without significant legal consequences, whereas their smaller, unregulated counterparts face stringent penalties, public vilification, and criminal prosecution.

Consider the contrasting fates of entities involved in recent scandals. On one side, we have high-profile cases like that of JPMorgan Chase, which in 2023 was fined $290 million for issues including its role in facilitating Jeffrey Epstein’s heinous activities. Yet, beyond financial penalties, no significant criminal actions were taken against the bank’s CEO Jamie Dimon or other executives. This is despite the bank’s own admission of its role in these activities—a stark illustration of how penalties can be absorbed as mere costs of doing business.

On the other side, smaller institutions and newcomers like Liberty Reserve and Bitzlato face harsh repercussions. Liberty Reserve was shut down, and its founder sentenced to prison for laundering $8 billion. Bitzlato was similarly dismantled for facilitating money laundering, with its operators facing severe legal consequences. Most recently, Binance, the world’s largest cryptocurrency exchange, was charged by U.S. federal prosecutors for violating anti-money laundering laws and sanctions. The charges allege that Binance intentionally facilitated over 1.1 million transactions between Americans and Iranians, totaling nearly $900 million, in violation of U.S. sanctions. The founder of Binance and former CEO, Changpeng Zhao, plead guilty to the charges and was sentenced to 4 months in prison. This was the largest non-systemically important financial institution yet there was an admission of guilt which results in a prison sentence. Such drastic measures are seldom levied against their larger counterparts, who often continue operations unimpeded.

This dichotomy not only fosters an environment where financial giants operate with relative impunity but also sets a dangerous precedent that financial stability trumps legal accountability. As institutions deemed “too big to fail” continue to benefit from this implicit immunity, the question remains: how can a system claim fairness when it enforces the law so unevenly?

What we see here is a two-tiered legal system within the financial industry, where the scale of operation and systemic importance of a bank may indeed place it above the law. This selective enforcement erodes trust in both the financial and justice systems, suggesting a form of legal relativism that is contingent not on the nature of the crime, but on the financial clout of the criminal. It’s a chilling reminder that in the eyes of federal regulators, not all banks are created equal.


Will the too big to fail or prosecute banks ever be brought to justice? Leave a comment…


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