Five of the biggest banks in the world pleaded guilty Wednesday to criminal charges and essentially admitted they defrauded their customers. What’s significant about this settlement – beyond the $5.6 billion in fines the banks must pay – is that it marks the end of the practice of allowing banks to neither admit nor deny wrongdoing.
The Justice Department insisted not only on criminal pleas but also that they come from the parent companies and not obscure overseas units, as some banks previously had been allowed to do. The $2.5 billion criminal antitrust penalty that Citicorp, JPMorgan Chase, Barclays and Royal Bank of Scotland collectively must pay is the largest of its kind in U.S. history. Justice also ripped up a 2012 nonprosecution agreement with Switzerland’s UBS and forced the bank, a repeat offender, to plead guilty to felony wire fraud stemming from an older violation.
All of this is a shift from the U.S.’s more genteel approach over the last decade to white-collar crime. Admissions of guilt were avoided, because they could result in banks losing the right to manage money and raise capital. The U.S. shied away from pursuing top executives whose banks originated, packaged or sold the flawed mortgages that led to the financial crisis.
These guilty pleas may make it easier for other financial institutions, investors and pension funds to seek redress in civil court.
So will Wednesday’s deal change the way banks do business? The case of UBS gives one pause. Despite vowing to root out corrupt actors and beef up compliance as part of its 2012 agreement, the bank was found to be engaging in thesame misconduct it had sworn off.