What Consequences?

We were told that Federal Felony Guilty Pleas represented some kind of penalties for JPMorgan and CitiBank engaging in conspiring to illegally manipulate the London Inter Bank Exchange Rate (LIBOR), a benchmark “which underpins over $300 Trillion worth of loans worldwide.” (by comparison Worldwide Annual GDP, every country all put together, is a mere $77 to $106 Trillion).

Well, that was a lie told by the Obama Administration and their Wall St. captive Justice Department.

Obama Administration Finds New Way to Let Criminal Banks Avoid Consequences

David Dayen, The Intercept

Jul. 15 2015, 12:35pm

Three top Democrats are accusing the Department of Housing and Urban Development of quietly removing a key clause in its requirements for taxpayer-guaranteed mortgage insurance in order to spare two banks recently convicted of federal crimes from being frozen out of the lucrative market.

HUD’s action is the latest in a series of steps by federal agencies to eliminate real-world consequences for serial financial felons, even as the Obama administration has touted its efforts to hold banks accountable.

In this sense, the guilty plea has become as meaningless to banks as their other ways of resolving criminal charges: out-of-court settlements, or deferred prosecution agreements.

On May 20 of this year, JPMorgan Chase and Citigroup both entered a guilty plea on one felony count of conspiring to rig foreign currency exchange trades, the largest market on the globe.

Five days earlier, on May 15, HUD slipped a notice into the Federal Register, seeking to alter its standard loan-level certification form, known as HUD-92900-A. This form must be filled out for lenders to receive FHA insurance, which reimburses them if the homeowner falls into foreclosure.

On the current HUD-92900-A form, lenders must certify that their firm and its principals “have not, within a three-year period … been convicted of or had a civil judgment rendered against them” for a variety of crimes, including “commission of fraud … violation of Federal or State antitrust statutes or commission of embezzlement, theft, forgery, bribery, falsification or destruction of records, making false statements or receiving stolen property.”

JPMorgan and Citi’s guilty plea would fall under the antitrust statute, and according to Brown, Warren and Waters’ reading of the certification, that would make them ineligible to obtain FHA insurance on their loans.

On the updated form, this language has been excised. The notice in the Federal Register did not even mention the removal, making it impossible to discover without comparing the old form and the proposed form side by side.

While many industry observers believe banks should not be punished in one area of their business for the sins in another area, the threat of such consequences could act as an effective deterrent for the parent company to follow the law across its business lines. But if these consequences are habitually waived, the deterrent value becomes irrelevant. The industry has also warned of reduced access to credit if large FHA lenders like JPMorgan Chase and Citi were barred, a perennial objection any time profits are threatened.

“HUD may have good reasons for proposing these changes at this time,” write Brown, Warren and Waters, but “but its Federal Register notice fails to even describe the changes to the certifications on illegal conduct – let alone offer a rationale for them.”


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