Q&A: Lawsky on Financial Crime, Punishment and His Payday Loan Crackdown

I found this part of Q & A interesting from American Banker to New York banking regulator Benjamin Lawsky:

Do you think anyone can or will go to jail for the financial crisis?
We don’t have criminal jurisdiction — I don’t have grand jury power at DFS, so we don’t work on the criminal side. We can investigate, but then we hand it off to prosecutors. Will people go to jail? Obviously we’re running into time-bar issues. I don’t know anything about the [JPMorgan Chase (JPM)] London Whale case other than what I read in the papers, but that’s post-financial crisis by far.

I think the real question is why haven’t there been more criminal prosecutions? I think that’s a very, very difficult question. … There’s probably six or seven smart theories, all of which are partially correct, for why you haven’t seen any large-scale criminal prosecutions of senior individuals at the firms that were involved in the financial crisis. I wasn’t at the Department of Justice when they were making decisions on things like AIG, Lehman, etc., and those are very difficult cases to make. Having been a former prosecutor, it’s a very high bar to reach, to decide that you’ve got probable cause, that an intentional crime was committed. And you’re talking about incredibly complex products that were being produced at the time in enormously diffuse organizations, and to be able to point the finger at the tops of those organizations and be able to prove a criminal case for the leaders of those organizations, based on incredibly complex financial dealings that were going on deep in the bowels of those organizations, is very, very difficult.

It doesn’t mean it couldn’t have been done. And that comes back to a different question, which is a question of, as a policy matter, how many resources does one devote to building these cases? I know there’s a whole debate over, “Well, they devoted this amount to Enron, they devoted this amount to the financial crisis.” And that’s a fair debate to have … I think there are many, many reasons why building those criminal cases was really incredibly difficult. It doesn’t mean it shouldn’t have been done, but it is what it is.

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