News / USA

Bank Settlements Create Windfall for US

FILE - A BNP Paribas sign is pictured on a building of the bank in Geneva, July 1, 2014.
FILE - A BNP Paribas sign is pictured on a building of the bank in Geneva, July 1, 2014.
Reuters

U.S. authorities' $8.9 billion settlement last month with French bank BNP Paribas for sanctions busting will pay for New York cops to get live computer feeds of street crime and for new carpets in the offices of prosecutors, among many other things.

In the past few months, American regulators and prosecutors have forced some of the world's largest banks to pay massive fines for everything from breaching U.S. sanctions to alleged mortgage abuse and illegal tax schemes.

Now the question is what the U.S. is going to do with all the cash. In some places - particularly New York state - that is leading to ugly wrangling over how to spend it.

Some of the $18.5 billion in penalties U.S. authorities have levied on banks since May was already earmarked in settlement papers for specific purposes, such as principal forgiveness on struggling homeowners' mortgages.

Raises questions

But a lot is not allocated for anything in particular, raising many questions. One is whether there should be clearer standards for how such money is used by a maze of state and federal authorities. Another is whether the money has distorted incentives for officials.

One former prosecutor, who did not want to be identified, said the ability to use the money for broad purposes could motivate officials to demand higher settlements.

The authorities dismiss that notion.

“That's nonsense,” said Matthew Anderson, a spokesman for New York banking regulator Benjamin Lawsky, whose office has been a major player in recent settlements. “If they don't want to face penalties, they shouldn't break the law by financially supporting regimes involved in terrorism and genocide.”

Since May, Credit Suisse has coughed up $2.6 billion for helping Americans evade taxes, BNP agreed to pay $8.9 billion for violating U.S. sanctions laws, and Citigroup last week agreed to pay $7 billion to resolve claims it misled investors about shoddy mortgage-backed securities.

The majority of the money will go straight to the Treasury Department's general fund, where it will help the U.S. pay its bills. The specifics of that spending are virtually impossible to track.

But other federal authorities still have some of the cash to play with.

For example, the Justice Department will get a 3 percent management fee - about $6 million - from the Citigroup deal for collecting the settlement money on behalf of another agency, the Federal Deposit Insurance Corp.

The department didn't return a request for comment on how it would spend the money. It has used similar fees from a settlement with JPMorgan to pay for more lawyers to work on other mortgage securities cases.

Forfeiture funds

Also, most of the federal portion of the BNP deal - about $3.8 billion - will be swept into the Treasury and Justice Departments' asset forfeiture funds, where the cash will join seized proceeds from other criminal ventures.

By statute, such money is used to support asset forfeiture operations around the country, and state and local law enforcement bodies can apply for funds. The requests can include everything from money for expert witness fees to the costs of drug evidence storage.

New York authorities are getting some $5 billion from the settlements, far more money than other states, thanks to the roles its officials have played in the investigations and negotiations.

New York prosecutors started the investigation that led to BNP and other foreign banks, and the state banking regulator has leverage from its authority to revoke the banks' licenses to operate in the state.

The office of Manhattan District Attorney Cyrus Vance plans to use part of the $448 million it will keep from the BNP settlement on technology investments for the city's police, including feeds from camera networks around the city. 

Once the fiber is laid, police will have the potential to retrieve video of, say, a  suspect after an emergency call comes in.

Vance is also considering using the money for an illegal-gun market study, to improve safety in public housing in the city, and for upgrades to the law enforcement agency's decrepit office space, where carpeting in some areas dates to the 1980s.

Chief Assistant District Attorney Karen Friedman Agnifilo said some of the projects have the ability to “transform” the criminal justice system.

Bound for general fund

About $4 billion from the recent settlements is destined for the New York state general fund and has already set off  politicians, community activists and government officials who have all been lining up competing proposals for next year's budget negotiations.

“There are huge question marks here and no transparency,” said Bennett Gershman, an expert on prosecutorial ethics who is a professor at New York's Pace Law School.

He said the discretion given to authorities on how to use the cash creates opportunities for abuse.

There have already been some unseemly struggles in New York in recent years.

In 2009, then New York City Mayor Michael Bloomberg accused then Manhattan District Attorney Robert Morgenthau of maintaining secret bank accounts amid a fight over whether the city was getting its fair share of big settlements.

A similar feud developed between New York Attorney General Eric Schneiderman and the state's Governor Andrew Cuomo over last year's $13 billion mortgage-related settlement against JPMorgan.

Cuomo accused Schneiderman of having too much power over how to spend the $613 million obtained by the attorney general. Cuomo himself previously had used such power over settlement monies when he held the attorney general's job from 2007-2010.

Cuomo managed to get legislation passed in the state capital Albany earlier this year requiring certain settlement cash to be deposited into the state's general fund, which the governor and legislators control.

Some budget watchers are already cautioning politicians against making frivolous election-year promises that commit the latest windfall to paying for operating costs, funding pet projects, or for tax giveaways that could be hard to reverse.

Cuomo' is committed to a tax cutting agenda. His office declined to comment on uses of the money.

Republicans in the state Senate want to use some of the money for tax rebates for homeowners. They would also use it to scrap a $500 million tax on utilities and phase out a $1.3 billion payroll tax that funds the Metropolitan Transportation Authority.

Bridge span replacement

Robert Astorino, the Republican challenger to Cuomo, a Democrat, in November's election, wants funds to help replace the aging Tappan Zee Bridge that spans the Hudson River north of New York City.

Budget expert Elizabeth Lynham, of New York's Citizens Budget Commission, would like the state to use the money to retire debt or reduce state liabilities, such as pension or retiree health costs.

“The reason Albany's finances are at best stretched thin or completely out of whack is because of the feeding frenzy that occurs when money appears like manna from heaven,” said Blair Horner, legislative director at the New York Public Interest Resource Group.

Often money from settlements has been used for general budget purposes even though it may have been targeted more specifically. For years, U.S. states have found ways to divert some of the $200 billion tobacco companies agreed in 1998 to pay over 25 years away from smoking and other health programs. Similarly, some of the money from a national foreclosure settlement stemming from the 2008 financial crisis was used by the states to balance budgets and other projects rather than to help people hit by foreclosures.

This can store up financial trouble if authorities and others get too reliant on the  money and then the spigot stops flowing as fast, leaving a budget hole or program that must be maintained.

Robert Hockett, professor of financial law at Cornell Law School in Ithaca, New York, said it was important for the money to go first to victims of any fraud that led to the settlements rather than to those who have influence over politicians. “We don't want it to be treated as a bonanza,” Hockett said.

You May Like

Photogallery Americans Celebrate Thanksgiving With Feasts, Festivities

Holiday traditions include turkey dinners, 'turkey trots,' American-style football and New York parade with giant balloons More

Video For Obama, Ferguson Violence is a Personal Issue

With two years left in term, analysts say, president has less to lose by taking conversation on race further More

Video Italian Espresso Expands Into Space

When Italian astronaut Samantha Cristoforetti headed for the ISS, her countrymen worried how she would survive six months drinking only instant coffee More

This forum has been closed.
Comments
     
There are no comments in this forum. Be first and add one

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
South Africa Sees Male Circumcision as Way to Reduce HIV Infectionsi
X
November 28, 2014 3:31 PM
South Africa remains plagued by AIDS despite massive government and NGO efforts on prevention and life-sustaining Anti-Retro-Viral programs. But the country has opened up another front to reduce new HIV infections: promoting circumcision. Emilie Iob reports for VOA News from a pioneering circumcision center in Orange Farm, Johannesburg.
Video

Video South Africa Sees Male Circumcision as Way to Reduce HIV Infections

South Africa remains plagued by AIDS despite massive government and NGO efforts on prevention and life-sustaining Anti-Retro-Viral programs. But the country has opened up another front to reduce new HIV infections: promoting circumcision. Emilie Iob reports for VOA News from a pioneering circumcision center in Orange Farm, Johannesburg.
Video

Video To Make A Living, Nairobi Street Vendors Face Legal Hurdles, Physical Violence

The Nairobi City Council has been accused of brutality in dealing with hawkers in the Central Business District - in order to stop them from illegally selling their wares on the streets. Lenny Ruvaga has more for VOA News from the Kenyan capital.
Video

Video For Obama, Ferguson Violence is a Personal Issue

Throughout the crisis in Ferguson, Missouri, President Barack Obama has urged calm, restraint and respect for the rule of law. But the events in Ferguson have prompted him to call — more openly than he has before — for profound changes to end the racism and distrust that he believes still exists between whites and blacks in the United States. VOA White House correspondent Luis Ramirez reports.
Video

Video Online Magazine Gets Kids Discussing Big Questions

Teen culture in America is often criticized for being superficial. But an online magazine has been encouraging some teenagers to explore deeper issues, and rewarding their efforts. VOA religion reporter Jerome Socolovsky went to this year’s Kidspirit awards ceremony in New York.
Video

Video US Community Kicks Off Thanksgiving With Parade

Thursday is Thanksgiving in the United States, a holiday whose roots go back to the country's earliest days as a British colony. One way Americans celebrate the occasion is with parades. Anush Avetisyan takes us to one such event on the day before Thanksgiving near Washington, where a community's diversity is on display. Joy Wagner narrates
Video

Video Aung San Suu Kyi: Myanmar Opposition to Keep Pushing for Constitutional Change

Myanmar opposition leader Aung San Suu Kyi says she and her supporters will continue pushing to amend a constitutional clause that bars her from running for president next year. VOA's Than Lwin Htun reports from the capital Naypyitaw in this report narrated by Colin Lovett.
Video

Video Mali Attempts to Shut Down Ebola Transmission Chain

Senegal and Nigeria were able to stop small Ebola outbreaks by closely monitoring those who had contact with the sick person and quickly isolating anyone with symptoms. Mali is now scrambling to do the same. VOA’s Anne Look reports from Mali on what the country is doing to shut down the chain of transmission.
Video

Video Ukraine Marks Anniversary of Deadly 1930s Famine

During a commemoration for millions who died of starvation in Ukraine in the early 1930s, President Petro Poroshenko lashed out at Soviet-era totalitarianism for causing the deaths and accused today’s Russian-backed rebels in the east of using similar tactics. VOA’s Daniel Shearf reports from Kyiv.
Video

Video Hong Kong Protests at a Crossroads

New public opinion polls in Hong Kong indicate declining support for pro-democracy demonstrations after weeks of street protests. VOA’s Bill Ide in Guangzhou and Pros Laput in Hong Kong spoke with protesters and observers about whether demonstrators have been too aggressive in pushing for change.
Video

Video US Immigration Relief Imminent for Mixed-Status Families

Tens of thousands of undocumented immigrants in the Washington, D.C., area may benefit from a controversial presidential order announced this week. It's not a path to citizenship, as some activists hoped. But it will allow more immigrants who arrived as children or who have citizen children, to avoid deportation and work legally. VOA's Victoria Macchi talks with one young man who benefited from an earlier presidential order, and whose parents may now benefit after years of living in fear.
Video

Video New Skateboard Defies Gravity

A futuristic dream only a couple of decades ago, the hoverboard – a skateboard that floats above the ground - has finally been made possible. While still not ready for mass production, it promises to become a cool mode of transport... at least over some surfaces. VOA’s George Putic reports.
Video

Video Falling Gas Prices Impact US Oil Extraction

With the price of oil now less than $80 a barrel, motorists throughout the United States are benefiting from gas prices below $3 a gallon. But as VOA’s Kane Farabaugh reports, the decreasing price of petroleum has a downside for the hydraulic fracturing industry in the United States.

All About America

AppleAndroid