Holder's bank warning sparks caution, criticism

Kevin McCoy and Kevin Johnson

Legal and bank analysts reacted with caution and criticism Monday to Attorney General Eric Holder's signaling of potential criminal charges against global banks Credit Suisse and BNP Paribas.

The response came after Holder, speaking in a video posted on the Department of Justice website, warned, "There is no such thing as too big to jail.

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"Some have used that phrase to describe the theory that certain financial institutions, even if they engage in criminal misconduct, should be considered immune from prosecution due to their sheer size and their influence on the economy," said Holder. "But, when laws appear indeed to have been broken, and the evidence supports the allegations, a company's size will never be a shield from prosecution or penalty."

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Holder identified no targets. But a Department of Justice official confirmed that prosecutors are nearing completion of investigations that would likely produce criminal charges against Swiss banking giant Credit Suisse and BNP Paribas, one of France's largest banks.

U.S. Attorney General Eric Holder delivers the keynote address to the National Association of Attorneys General Traning and Research Arm's symposium on the reduction of crime at the The Westin Georgetown hotel May 5, 2014 in Washington.
Getty Images

The official, who spoke on condition of anonymity, is not authorized to comment on details of pending criminal investigations.

Representatives of the two banks declined to comment Monday.

However, BNP Paribas previously confirmed that it could face criminal charges, fines and other penalties from prosecutors and regulators for doing business with Iran, Sudan, Cuba and other nations hit with U.S. financial sanctions.

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Credit Suisse used a Senate hearing in February to voice regret about evidence that showed its bankers helped as many as 22,000 Americans use secret off-shore accounts to evade millions of dollars in U.S. taxes.

No such thing as 'too big to jail':AG Holder
No such thing as 'too big to jail':AG Holder

Columbia Law School Professor John Coffee said Holder's words marked a potential retreat from March 2013 Senate Judiciary Committee testimony, in which he said "it does become difficult for us to prosecute" major banks because the action could harm the U.S. or global economy.

"If it's a deferred-prosecution agreement, it would be hard to call it a real turnaround," said Coffee. "If it's an indictment only of a (bank) subsidiary, it's a partial turnaround. But if he indicts the parent (company), that's a significant turnaround."

Coffee predicted Holder's comments about criminal charges could trigger broader bank industry reaction. Referring generally to financial wrongdoing, Coffee said "maybe they'll start saying it's not just the cost of doing business any more."

But Shulman Rogers attorney Jacob Frenkel warned that Holder's comments could have "a destructive effect rather than a deterrent effect."

"I have talked to general counsels who have questioned why they want to remain a corporation domiciled in the United States in such a regulatory-unfriendly environment," said Frenkel, a former federal prosecutor and Securities and Exchange Commission lawyer. "There are long-term ramifications to such messages."

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Rather than speaking in broad conceptual terms, Frenkel said Holder should "bring the cases you think are appropriate to bring, and then explain why you have brought them. Regardless of whether they agree, people understand charging violations of law."

Nancy Bush, an independent banking analyst, said Holder's comments heightened focus on a much-discussed financial issue: "Can you criminally indict a bank without disqualifying it as a (trading) counterparty, in which case you may totally screw up liquidity in the banking system?

"My guess is BNP and Credit Suisse are going to be the test cases about how much the Justice Department is going to be able to do," said Bush. "You can bet they've got their lawyers busy."

By Kevin McCoy and Kevin Johnson of USA Today