Attestation Update – A&A for CPAs

Technical stuff for CPAs providing attestation services

Criminal guilty pleas for big banks are no longer a death sentence; more like a messy traffic incident that hit the papers. What that approach might look like in your life.

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The banks that settled up for a massive coordinated effort to manipulate foreign exchange rates each agreed to plead guilty to one criminal count of violating anti-trust rules. That makes each of them a felon.

Will describe why that is no longer a big deal and then offer an analogy of what this approach might look like in the life of an individual.

Francine McKenna at Market Watch explains Why the ghost of Arthur Andersen no longer haunts corporate criminals.

The uncertainty hanging over each criminal investigation of the TBTF banks is whether a single felony plea could lead to consequences which in turn cause the bank to fail. Shutting down all the commercial, real estate & consumer lending along with retail banking would be a mess.

This is a serious risk. If a guilty plea caused the OCC to revoke licenses or ban access to the wire transfer system or DoL did not allow a bank to administer pension funds or SEC did not allow access to the stock markets, it would be devastating. Might even be fatal to a large bank.

Ms. McKenna points out that risk has now been essentially eliminated by the involved regulators given waivers before the banks sign the guilty plea. She mentions the SEC has already granted waivers.

I have read elsewhere that DoL has also done so, which allows the banks to continue managing pension funds. I’ll make an educated guess that OCC, FDIC, FRB, NYDFS, NYSE (I forget the name of their new parent) and a few other major players have also given assurances that the guilty plea from each of the banks will not be held against them.

Article points out the guilty pleas were at the level of the corporate parent, not some operating subsidiary.

In contrast, I’m still chuckling about one of the previous settlements with a guilty plea because it came from a Japanese subsidiary that didn’t do business in the US. That’s obviously a guilty plea with zero consequences.

So these guilty pleas to one criminal violation of the antitrust laws will have no effect other than a few days worth of headlines.

A subtle change, pointed out by Ms. McKenna, is a tiny yet visible risk that future violations could expose senior level officials in the parent company to individual enforcement action.

An analogy of the bank’s guilty plea to something in your life

So the TBTF banks entered a guilty plea to one felony charge each after negotiating the amount of the fine and getting commitments from key regulators that there will be no consequences from the guilty plea.

Here’s my comparison to what that arrangement might look like in your life.

Let’s say you got arrested for DUI. You were really snockered and it showed on the video. I mean, you blew a 0.20. Wasted.

Usually a conviction on such a charge would have massive consequences.

However, you agree to plead guilty only after:

  • You negotiate a fine with the DA that is equal to your take-home pay for a week.
  • The DA agrees to no jail time.
  • DMV agrees not to revoke your license or give you any restrictions on driving privileges.
  • Your insurance company agrees not to consider this incident in pricing on your policy and agrees it will not cancel your policy.
  • Your social media coach guides you on how to prepare a couple of blog posts explaining that getting drunk wasn’t your fault. It is really the fault of a rogue bartender who gave you three double Tequila Sunrises instead of a Shirley Temple as you clearly requested. Everyone knows how irresponsible those rogue bartenders are, amIright? And even though you weren’t drunk, you promise never to get drunk again.
  • Oh yeah, and the agreement says you don’t admit you were actually drunk.

And then you enter your guilty plea.

Basically that DUI conviction is no big deal.

After you see the judge and he signs off on the deal, you really ought to stop by the bar on the way home to celebrate.

Written by Jim Ulvog

May 21, 2015, 10:44 am at 10:44 am

Posted in Other stuff

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