The Toughest Cop on Wall Street You've Never Heard Of
In early April, when The New York Times reported that the Justice Department would grant Credit Suisse a deferred prosecution agreement for actively aiding tax evasion, it seemed yet another bank would pay a paltry penalty for major misconduct. Credit Suisse would owe only a fine for helping rich Americans hide their wealth from taxes in Switzerland. And those wealthy clients would get off scot-free, with their Swiss bank accounts still secret.
But a funny thing happened on Credit Suisse’s way to legal impunity: a new inquiry from the relatively obscure New York Department of Financial Services (DFS). Under the direction of former federal prosecutor Benjamin Lawsky, DFS has reportedly requested documents from Credit Suisse and a Senate subcommittee investigation, seeking to learn whether Credit Suisse executives based in New York lied to state regulators about their role in creating offshore tax havens. In the current climate of financial regulation, where investigations rarely impact the individual employees who design and perpetrate misdeeds, this was a bold step—one that could force the Justice Department to toughen up. Imposing a less stringent penalty than a state regulator would humiliate the feds.
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Standard Chartered, which previously wanted to fight the allegations, backed down and settled for $350 million, the largest fine ever for a state regulator in a money laundering case, and a bigger payday than federal regulators secured. Along the way, Lawsky sanctioned the consulting firm Deloitte, which whitewashed reports about Standard Chartered’s money laundering activities. In addition to a fine, Lawsky banned Deloitte from consulting for any business regulated by DFS for one year. Lawsky is considering this type of ban as a model for sanctioning other middlemen who facilitate illegality.
Lawsky’s ongoing probe into mortgage servicing company Ocwen showed even more mettle. Lawsky initiated a surprise examination of Ocwen in June 2012, a highly unusual event. “Rather than the usual bank exam, where you call three months in advance and get a bunch of files that have been scrubbed, we thought it would be interesting to go back in unannounced and see how they were doing,” Lawsky said. “It wasn't a raid, we just didn't plan it ahead of time. And we saw they were not doing what they said would do.” DFS found Ocwen was violating a prior agreement regarding its purchase of Litton Loan Services, with evidence of mishandling of loan modifications and unnecessary foreclosures.
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