An aggressive bank regulator turns up the heat on individual crooks


New York’s banking regulator, Benjamin Lawsky, has ticked off the financial sector and even his fellow regulators by being, well, zealous in his job. Now he’s taking aim at one of the most cherished practices in the regulatory biz: disciplining institutions while letting their individual wrongdoers skate.

In an interview published Monday in the Financial Times, Lawsky said this about that:

“Corporations are a legal fiction. You have to deter bad individual conduct within corporations. ... People who did the conduct are going to be held accountable.”


To get a sense of what a radical departure from today’s norm that is, consider the list of CEOs of major financial institutions who have been prosecuted for their role in the 2008 crash:


That’s right. It’s a short list.

We’ve reported before on the how fining an institution for the behavior of its executives or officials has a deterrent effect of exactly zero. In fact, it’s worse than useless, because the people who get penalized when a public corporation has to fork over tens or hundreds of millions of dollars to make a government case go away are the shareholders, who arguably are among the victims in the first place.

U.S. District Judge Jed S. Rakoff of New York leveled a blast at prosecutors over this sort of dodge, as we related back in December. The outstanding example of a bank that’s paid off regulators to keep them off the backs of its executives is JPMorgan Chase, which has one of the longest lists of regulatory settlements and the shortest list of disciplined executives.

It’s unsurprising that Lawsky, superintendent of New York’s Department of Financial Services, would be outspoken on the “legal fiction” of corporate misconduct, though to the extent he’s started a campaign along those lines, it’s a work in progress. He made his biggest splash in 2012 by haring after London-based Standard Chartered Bank, charging that it had laundering $250 billion for Iranian interests through its New York affiliate.

The bank at first ridiculed the allegation, saying it was guilty only of misinterpreting a U.S. Treasury Department rule and that the amount in question was only $14 million. However, after Lawsky threatened to revoke its charter and scheduled hearings on the revocation, the bank capitulated. It accepted the $250-billion figure and paid $340 million in penalties to the state. Federal regulators groused that Lawsky had cut in line ahead of them, but he did get the job done.

Late last year, in concert with federal authorities, he moved after Royal Bank of Scotland, in that case on charges of money laundering for Iran, Sudan and other countries. The bank paid $100 million in penalties to New York and the federal government. Presumably under pressure from Lawsky, RBS also fired several employees, including its former chief of banking services in Asia, the Middle East and Africa and the former head of its money-laundering compliance department. Several others had to give back their bonuses.


How well Lawsky will follow through and how high up the corporate ladder he’ll go remains unknown. But among the investigations he’s opened recently is one into the possible manipulation of currency exchange rates, and he’s requested information from Goldman Sachs, Deutsche Bank and other big firms. As he told the Financial Times, he understands that where there’s wrongdoing, there always some human action behind it. “People do cheat,” he said.