What Does a Bank Have to Do to Be Shut Down?

What Does a Bank Have to Do to Be Shut Down?

By Mark Nestmann • January 8, 2019

Call me crass, but I wasn’t shocked to learn last week that Wells Fargo & Company (WFC) had agreed to pay a $575 million fine to settle claims by all 50 states related to bogus account openings and forcing unneeded insurance policies on consumers with auto loans. That’s on top of the $1 billion fine the bank paid federal regulators last April for the same conduct.

Paying hefty fines for its outrageous practices is nothing new for WFC. In September 2016, the shelled out $185 million in fines and penalties when regulators discovered it had opened at least 1.5 million sham accounts and applied for 565,000 credit cards without permission of the customers that held them. That same month, the bank paid $24 million to settle claims that it had illegally repossessed the cars of military service members. And in April 2017, WFC disbursed $108 million to settle claims that it had overcharged veterans to refinance loans.

Then last August, the bank was fined $2.1 billion for issuing “liar mortgages” it knew were based on falsified income information in the leadup to the financial crisis of 2007 to 2008.

Oh, and a few weeks ago, we learned that WFC had erroneously denied 870 mortgage modification requests, leading to more than 500 foreclosures. Some of the people affected by the glitch literally became homeless.

Will the bank be punished for its latest mistake? Sure, but it’s likely to be a mere slap on the wrist that will give it no incentive whatsoever to clean up its act. After all, WFC’s net income in 2017 came to $22.18 billion, and the indications are the bank’s income will be even higher for 2018. To WFC, the fines it pays for misconduct are simply a cost of doing business.

The penalties WFC pays might even be tax-deductible. For instance, JPMorgan-Chase was able to deduct $11 billion of the $13 billion it paid in 2013 for its role in the sale of high-risk mortgages prior to the 2007 to 2008 financial crisis.

What must a bank do to have its licenses revoked, its assets sold off to the highest bidder, and its executives shunted off to prison? It’s clear that creating sham accounts, ripping off customers, and writing liar mortgages isn’t enough to warrant serious punishment.

What about evading sanctions against countries the US considers its enemies? No, that will be punished by a slap on the wrist as well. A case in point is the Standard Chartered Bank, which in 2012 acknowledged a deliberate, widespread, and years-long conspiracy "to engage in transactions with entities associated with sanctioned countries, including Iran, Sudan, Libya, and Burma" involving at least $227 million.

But instead of seeking criminal sanctions against the bank and those responsible for these actions, the Department of Justice agreed to impose a fine equal to the amount allegedly laundered: $227 million. That fine represented about two weeks of profit for the bank.

How about laundering money for Mexican drug cartels? That’s illegal, but if a bank gets caught, there are only mild legal consequences. For instance, in 2017, Citigroup paid $97.4 million to settle claims that Banamex USA, a Citigroup subsidiary, laundered billions of dollars for Mexican drug cartels. That payment was chump change for Citigroup – less than three days of profits. Naturally, no criminal charges were brought against Citigroup executives.

The fact is that WFC, Standard Chartered, Citigroup, and other too-big-to-jail banks have suffered only mild rebukes for committing crimes by both Democrat and Republican administrations for decades.

It’s safe to say US banks can do pretty much anything they want without fear of serious penalties. And they do.

Of course, if you’re not a US megabank, the rules are very different. Consider what happened to former speaker of the House Dennis Hastert when he withdrew nearly $1 million in cash from bank accounts he controlled while trying to avoid having the transactions reported to the US Treasury. That’s a money-laundering crime called “structuring.” In Hastert’s case, it led to a $250,000 fine and a 15-month prison term.

The structuring offense stems from the requirement of US financial institutions to file a report with the Treasury when a customer deposits or withdraws more than $10,000 in cash. It’s illegal to convert a single cash transaction into multiple transactions to avoid this requirement. The law also allows prosecutors to seize every dime in your structured bank account under ultra-lax civil forfeiture laws even if they never bother to indict you. Prosecutors can do this if the money represents legally earned, after-tax funds.

It’s true that Hastert wasn’t the most sympathetic defendant. The funds he withdrew were hush money paid to a former student he had molested decades earlier when he was a high school wrestling coach.

But people like Georgia gun shop owner Andrew Clyde have also run afoul of the structuring law. Over a 10-month period in 2012 and 2013, Clyde made 109 deposits totaling $940,313, all under $10,000. In 2013, the IRS accused him of structuring those deposits to avoid the reporting law. While he was never indicted, the IRS confiscated all the funds in his account. After paying nearly $100,000 in legal fees, Clyde settled the case by forfeiting $50,000 to the IRS.

A 2017 investigation by the Treasury Department concluded that more than 90% of structuring-related civil forfeitures involved funds that were acquired legally.

The US legal framework developed to combat money laundering and other serious crimes is used routinely against ordinary citizens – but never against too-big-to-jail banks. And keep in mind that if you hold accounts in one of these banks, and it goes belly-up in the next financial crisis, your deposits could be “bailed in” – confiscated in return for worthless stock in the bank.

Our ongoing recommendation to go offshore isn’t a luxury. It’s a necessity if you want to preserve your assets.

Protecting your assets (and yourself) against any threat - from the government, the IRS or a frivolous lawsuit - is something The Nestmann Group has helped more than 15,000 Americans do over the last 30 years.

Feel free to get in touch at service@nestmann.com or call +1 (602) 688-7552 to learn how we can help you.

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About The Author

Since 1990, Mark Nestmann has helped thousands of clients seeking wealth preservation and international tax planning solutions. He is the author of highly acclaimed Lifeboat Strategy and other books & reports dealing with these subjects.

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